CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Media China Corporation Limited (the “ Company ”), you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) 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 securities of the Company.

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MEDIA CHINA CORPORATION LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 419)

VERY SUBSTANTIAL ACQUISITION

AND

PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE NEW SHARES

Financial adviser to the Company

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A letter from the Board of Directors of the Company is set out on pages 6 to 60 of this circular.

Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the offi ce of the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the 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 EGM or any adjournment thereof should you so wish and in such event, the proxy form shall be deemed to be revoked.

17 June 2011

	Page
Def nitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
The Sale and Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Information on the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Financial Results of the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Overall Discussion and Analysis of the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Feasibility study performed by the Company in respect of the prospects of
the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Industry Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Law & Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
Reasons for the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Financial and trading prospects of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
Financial effect of the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
Specif c Mandate for the issue of the consideration shares. . . . . . . . . . . . . . . . . . . . . . . . . .	59
Implications of the Listing Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
Principal business of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
Recommendation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61
Appendix II — Financial Information of the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . .	154
Appendix III — Unaudited Pro Forma Financial Information of the Enlarged Group. . . .	200
Appendix IV — Business Valuation of Bayhood No. 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	214
Appendix V — Letters in relation to discounted future estimated cash f ows. . . . . . . . . . .	228
Appendix VI — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	231
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243

DEFINITIONS

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

“Acquisition”

the acquisition of the Target Share and the Shareholder’s Loan by Unique Talent from the Vendor subject to and upon the terms and conditions of the Sale and Purchase Agreement

“associates” has the meaning ascribed to it under the Listing Rules

“Bayhood No. 9” Beijing Bayhood No. 9 Business Hotel Limited* (北京北湖九號商務酒店有限公司), a company incorporated in PRC with limited liability, and is owned as to 100% by Happy Era

“Beihu” Beihu International Golf Club Limited* (北湖國際高爾夫俱樂部有限公司), a company incorporated in PRC with limited liability
“Board” the board of Directors of the Company
“Business Day(s)” a day on which licensed banks are generally open for business in Hong Kong (excluding Saturday, Sunday and a day on which a tropical cyclone warning signal number 8 or above or a black rainstorm warning is hoisted in Hong Kong between 9:00 a.m. to 5:00 p.m.)
“CAGR” compound annual growth rate “Company” Media China Corporation Limited (華億傳媒有限公司), a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the main board of the Stock Exchange
“Completion” completion of the Acquisition in accordance with the Sale and Purchase Agreement
“connected person(s)” has the same meaning ascribed thereto under the Listing Rules
“Consideration” HK$500 million which was determined in the manner as described in the sub-paragraph headed “Consideration” of this circular and shall be payable by Unique Talent and the Company to the Vendor pursuant to the payment terms as set out in the Sale and Purchase Agreement
“Consolidated Share(s)” or “Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company after the Share Consolidation became effective on 16 May 2011

DEFINITIONS

“Cooperation Construction and Operating Agreement”

the Cooperation Construction and Operating Agreement dated 20 December 2005 entered into by Bayhood No. 9 and Beihu, whereby Bayhood No. 9 has been granted the right to manage and operate the club facilities on the Subject Land up to 31 December 2051

“Director(s)” the director(s) of the Company
“EGM”

an extraordinary general meeting of the Company to be held and convened for the Shareholders to consider and, if thought fi t, approve the Acquisition, the issue of the First Consideration Shares and the Second Consideration Shares, and the proposal for the grant of specifi c mandate to satisfy the allotment and issue of the First Consideration Shares and the Second Consideration Shares

“Enlarged Group” the Group and the Target Group
“Excluded Shareholder(s)” Overseas Shareholder(s) to whom the Board, after making enquires, considers it necessary or expedient on account either of legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place not to offer the Rights Shares to them
“First Consideration Shares” 200,000,000 Consolidated Shares to be issued at the Issue Price (worth HK$70,000,000 in total) by the Company to the Vendor on Completion pursuant to the terms of the Sale and Purchase Agreement
“Group” the Company and its subsidiaries from time to time
“Happy Era”
Happy Era Culture Development (Beijing) Limited* (歡樂時代文化發展（北京）有限公司), a company incorporated in PRC with limited liability, which is owned as to 100% by Nengrong Culture and is the owner of 100% equity interest in Bayhood No. 9
“Hong Kong” the Hong Kong Special Administrative Region of PRC
“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong
“HKFRS” Hong Kong Financial Reporting Standards

“Hong Kong Company” Power Progress Limited, a company incorporated in Hong Kong with limited liability, which is owned as to 100% by the Target Company and is the owner of 100% equity interest in Nengrong Culture

DEFINITIONS

“Independent Third Party”

person who is third party not being connected person (as defi ned in the Listing Rules) and is independent of and not connected with the Company, any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (as defi ned in the Listing Rules) and “Independent Third Parties” shall be construed accordingly

“Issue Price”

the issue price of HK$0.35 per Consolidated Share

“Latest Practicable Date”
13 June 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein
“Listing Rules”

Rules Governing the Listing of Securities on the Stock Exchange

“Long Stop Date” means 30 September 2011 or such other date as the parties may mutually agree in writing
“Nengrong Culture”
Nengrong Culture (Beijing) Limited* (能榮文化(北京)有限公司), a company incorporated in PRC with limited liability, which is owned as to 100% by the Hong Kong Company and is the owner of 100% equity interest in Happy Era
“Overseas Shareholder(s)”
Shareholder(s) with registered addresses on the register of members of the Company which are outside Hong Kong on 23 May 2011, being the date by reference to which entitlements to the Rights Issue will be determined
“PRC”
The People’s Republic of China, excluding, for the purpose of this circular, Hong Kong, Macau and Taiwan
“PRC Companies”
Nengrong Culture, Happy Era and Bayhood No. 9
“Preference Shares”
non-voting convertible preference shares of par value HK$0.01 each in the capital of the Company with the rights set out in the articles of association of the Company
“Qualifying Shareholder(s)” Shareholder(s), other than the Excluded Shareholder(s), whose names appear on the register of members of the Company as at the close of business on 23 May 2011, being the date by reference to which entitlements to the Rights Issue will be determined
“Rights Issue”
the proposed issue of 1,439,726,484 new Consolidated Shares by way of a rights issue proposed to be offered to the Qualifying Shareholders for subscription on the basis of one Rights Share for every two Consolidated Shares held on 23 May 2011 on the terms set out in the prospectus issued by the Company dated 24 May 2011

DEFINITIONS

“Rights Share(s)”
1,439,726,484 new Consolidated Shares proposed to be offered to the Qualifying Shareholders for subscription pursuant to the Rights Issue
“RMB” Renminbi, the lawful currency of the PRC
“Sale and Purchase Agreement”
the conditional sale and purchase agreement dated 26 January 2011 entered into between the Vendor as vendor, Unique Talent as purchaser and the Company as the purchaser’s guarantor for the sale and purchase of the Target Share and the assignment of the Shareholder’s Loan as amended by the Supplemental Agreement
“Second Consideration Shares”
100,000,000 Consolidated Shares to be issued at the Issue Price (worth HK$35,000,000 in total) by the Company to the Vendor upon fulfi llment of the Vendor’s Indemnity pursuant to the terms of the Sale and Purchase Agreement, which 100,000,000 Consolidated Shares will be adjusted downwards in accordance with the provisions thereof if the Vendor’s Indemnity cannot be fulfi lled
“SFO”
The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share Consolidation”
the consolidation of every ten (10) issued and unissued shares of HK$0.01 each in the share capital of the Company into one (1) consolidated share of HK$0.10 each as approved at the extraordinary general meeting of the Company held on 13 May 2011. The Share Consolidation became effective on 16 May 2011
“Shareholder(s)” holder(s) of the Share(s) or Consolidated Share(s), as the context requires
“Shareholder’s Loan”
the loan owed by the Target Company to the Vendor as at Completion
“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Subject Land”
the 1150 acres of land within Beihuqu Village, Lai Guang Ying Xiang, Chaoyang District, Beijing (北京市朝陽區來廣營鄉北湖渠村)
“Supplemental Agreement”
the supplemental agreement entered into between Unique Talent, the Vendor and the Company on 16 May 2011 to vary certain terms of the Sale and Purchase Agreement, particulars of which were disclosed in the Company’s announcement dated 16 May 2011

DEFINITIONS

“Target Company”

Smart Title Limited, a company established in the British Virgin Islands with limited liability

“Target Group”

Target Company, Hong Kong Company, Nengrong Culture, Happy Era and Bayhood No. 9

“Target Share”
the one (1) ordinary share of US$1.00 in the issued share capital of the Target Company, being the entire issued share capital of the Target Company
“trading day”

a day on which the Stock Exchange is open throughout its usual trading hours for the business of dealing in securities that are listed thereon and “trading days” shall be construed accordingly

“Unique Talent”

Unique Talent Group Limited, a company incorporated in the British Virgin Islands and a wholly owned subsidiary of the Company

“Vendor” Mr. HE Peng, a Hong Kong permanent resident
“Vendor’s Indemnity”

the unconditional and irrevocable indemnity by the Vendor that the audited net profi t/loss after tax of the Target Group in accordance with HKFRS shall not be less than RMB80,000,000 in aggregate for the years 2011 and 2012. If the audited net profi t after tax of the Target Group for the years 2011 and 2012 shall be less than RMB80,000,000 in aggregate, the number of Second Consideration Shares issued to the Vendor will be adjusted downwards on a dollar to dollar basis. Following the deduction of the value of the Second Consideration Shares, if there shall be in existence a shortfall of the Vendor’s Indemnity, the Company is not required to issue the Second Consideration Shares and the Vendor shall compensate such shortfall in cash on a dollar to dollar basis. In case the Target Group suffers an aggregated net loss after tax for the years 2011 and 2012, in addition to the compensation above, the Vendor shall compensate Unique Talent for the aggregated loss on a dollar to dollar basis and the Company is not required to issue the Second Consideration Shares

“%”

per cent.

Translation of RMB into HK$ is based on the approximate exchange rate of RMB1.00 to HK$1.1593 for information purpose only. Such translation should not be construed as a representation that the relevant amounts have been, could have been, or could be converted at that or any other rate or at all.

The English translation of the names of companies established in PRC referred to in this circular is for reference only. The offi cial names of those companies are in Chinese.

LETTER FROM THE BOARD

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MEDIA CHINA CORPORATION LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 419)

Directors: Executive Directors: Mr. YUEN Hoi Po (Chairman) Mr. ZHANG Changsheng Mr. WANG Hong

Registered Offi ce:

Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Non-executive Directors:

Mr. Hugo SHONG (Vice-Chairman) Mr. Edward TIAN Suning

Independent non-executive Directors: Professor WEI Xin Dr. WONG Yau Kar David JP Mr. YUEN Kin

Head offi ce and principal place of business in Hong Kong Suite 3503, 35/F Tower Two, Lippo Centre 89 Queensway Hong Kong

17 June 2011

To the Shareholders and potential investors,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION

AND

PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE NEW SHARES

INTRODUCTION

Reference is made to the announcement of the Company dated 22 February 2011, in which the Board announced that on 26 January 2011, the Company, Unique Talent, a wholly owned subsidiary of the Company and the Vendor entered into the Sale and Purchase Agreement, pursuant to which Unique Talent has conditionally agreed to acquire and the Vendor has conditionally agreed to dispose of the Target Share and the Shareholder’s Loan free from encumbrances for the consideration of HK$500 million.

LETTER FROM THE BOARD

The Target Share represents the entire issued share capital in the Target Company. The consideration of HK$500 million shall be settled in the following manner:

(i) HK$395 million of the Consideration shall be paid in cash by Unique Talent on Completion;
(ii) HK$70 million of the Consideration shall be settled by issue to the Vendor of the First Consideration Shares on Completion; and
(iii) the remaining HK$35 million of the Consideration shall be settled by issue to the Vendor of the Second Consideration Shares upon fulfi llment of the Vendor’s Indemnity in accordance with the Sale and Purchase Agreement.

The above Acquisition constitutes a very substantial acquisition on the part of the Company under Rule 14.06 of the Listing Rules and is therefore subject to the approval of Shareholders at the EGM pursuant to Rule 14.49 of the Listing Rules.

Under the Sale and Purchase Agreement, the Company will issue to the Vendor the First Consideration Shares on Completion and the Second Consideration Shares upon fulfi llment of the Vendor’s Indemnity. The First Consideration Shares and the Second Consideration Shares shall rank pari passu in all respects with the Shares then in issue on the date of allotment and issue thereof. The Company will seek the grant of specifi c mandate from the Shareholders at the EGM to satisfy the allotment and issue of the First Consideration Shares and the Second Consideration Shares.

The EGM will be held to consider and, if thought fi t, approve the Sale and Purchase Agreement, the issue of the First Consideration Shares and the Second Consideration Shares, the proposal for the grant of specifi c mandate to satisfy the allotment and issue of the First Consideration Shares and the Second Consideration Shares and other transactions contemplated in the Sale and Purchase Agreement.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, no Shareholder has a material interest in the Acquisition and the transactions contemplated thereunder and therefore no Shareholder is required to abstain from voting at the EGM.

As Completion is conditional and may or may not proceed, Shareholders and potential investors should exercise caution when dealing in the Shares.

THE SALE AND PURCHASE AGREEMENT

Date:

26 January 2011 (16 May 2011 for the Supplemental Agreement)

LETTER FROM THE BOARD

Parties:

Vendor : Mr. HE Peng Purchaser : Unique Talent, a company incorporated in the British Virgin Islands with limited liability and a wholly owned subsidiary of the Company Purchaser’s guarantor : The Company

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendor and its respective associates are Independent Third Parties of the Company and are not connected persons of the Company.

Assets and Shareholder’s Loan to be acquired

The Target Share represents the entire issued share capital in the Target Company, which as represented by the Vendor has been fully paid up. The Shareholder’s Loan represents all the outstanding loans made by the Vendor to the Target Company. As at the Latest Practicable Date, the Shareholder’s Loan is in the amount of approximately HK$49,089,000. The Target Share and the Shareholder’s Loan will be transferred to Unique Talent on Completion free from encumbrances.

Consideration

The Consideration of HK$500 million, which will be funded by the Group’s internal resources and/ or external borrowings, will be settled in the following manner:

HK$395 million of the Consideration shall be paid in cash by Unique Talent on Completion;
HK$70 million of the Consideration shall be settled by issue to the Vendor of the First Consideration Shares on Completion;
the remaining HK$35 million of the Consideration shall be settled by issue to the Vendor of the Second Consideration Shares upon fulfi llment of the Vendor’s Indemnity in accordance with the Sale and Purchase Agreement, provided that:
(a) the number of Second Consideration Shares issued to the Vendor will be adjusted downwards on a dollar to dollar basis in accordance with the provisions thereof if the audited net profi t after tax of the Target Group for the years 2011 and 2012 shall be less than RMB80 million in aggregate;
(b) following the deduction of the value of the Second Consideration Shares, if there shall still be in existence a shortfall of the Vendor’s Indemnity, the Company is not required to issue the Second Consideration Shares and the Vendor shall compensate such shortfall in cash on a dollar to dollar basis; and

LETTER FROM THE BOARD

(c) in case the Target Group suffers an aggregated net loss after tax for the years 2011 and 2012, in addition to the compensation under the preceding sub-paragraph (b), the Vendor shall compensate Unique Talent for the aggregated loss on a dollar to dollar basis and the Company is not required to issue the Second Consideration Shares.

The Directors are of view that the dollar-to-dollar compensation regarding non fulfi llment of the Vendor’s Indemnity is a normal commercial term, and is fair and reasonable having regards to (i) the historical performance of the Target Group as represented by the Vendor, (ii) the valuation report for the purpose of purchase price allocation with the valuation made as of 28 February 2011. The Company has obtained a confi rmation letter dated 7 June 2011, issued by the valuer that nothing has come to the valuer’s attention that the fair value of the business enterprise in relation to Bayhood No. 9 as stated and defi ned in the valuer’s valuation report would have material adverse changes during the period from 28 February 2011 to the date of the confi rmation letter. In this respect, the Company opines that no update on the valuation report is necessary; and (iii) the fact that the Cooperation Construction and Operating Agreement still has 41 years to run and the historical upward net profi t trend of Bayhood No. 9.

The Company has proposed to raise approximately HK$259.2 million before expenses by way of Rights Issue. The prospectus in relation to the Rights Issue has been issued by the Company on 24 May 2011. As stated in the prospectus, the latest time to terminate the underwriting agreement in relation to the Rights Issue by the underwriter is by 4:00 p.m. on 13 June 2011 (the “Latest Time for Termination”). As the Company has not received any notice of termination of the underwriting agreement from the underwriter before the Latest Time for Termination, the Board is of the opinion that the Company has secured the net proceeds from the Rights Issue of approximately HK$251 million (net of estimated expenses) which will be used to fi nance the Acquisition.

Taking into account the expected completion of the Acquisition and the fi nancial resources available to the Enlarged Group, including the internally generated funds, cash and cash equivalents on hands and the net proceeds from the Rights Issue of approximately HK$251 million, the Board is of the opinion that the Enlarged Group has suffi cient working capital for its present requirement and forthcoming 12 months from the date of this circular.

Basis of the Consideration

The Consideration was arrived at after arm’s length negotiations between the parties to the Sale and Purchase Agreement having regards, among other things, to the following:

(a) the historical fi nancial information of the Target Company; Hong Kong Company; Nengrong Culture; Happy Era and Bayhood No. 9 represented by the Vendor;
(b) the Vendor’s Indemnity;
(c) change in consumer pattern and the increasing inclination towards leisure and recreational travelling in PRC;
(d) the upward profi t trend of the Target Group in the past years;

LETTER FROM THE BOARD

(e) the management right pursuant to the Cooperation Construction and Operating Agreement of “Bayhood No. 9 Club” which will last until 31 December 2051 and the right to sell club memberships throughout the term of the Cooperation Construction and Operating Agreement;
(f) the prevailing selling price of RMB1.08 million each of the club membership of “Bayhood No. 9 Club”; and
(g) “Bayhood No. 9 Club’s” valuable high net-worth membership and customer bases.

As the Target Group is not a property company and the Group is acquiring the business operations of the Target Group in essence, the net asset value of Bayhood No. 9 is not one of the determining factors in arriving at the Consideration.

Unique Talent has appointed American Appraisal China Limited, an independent valuer to prepare a valuation report in relation to the business of Bayhood No. 9 (as set out in Appendix IV of this circular). The valuation of the business of Bayhood No. 9 is prepared on the basis of fair value which is comparable to the Consideration. The valuation of the business of Bayhood No. 9 is prepared under discounted cash fl ows which has been reviewed by the Company’s reporting accountants and fi nancial adviser in accordance with Rule 14.62 of the Listing Rules.

Taking into account the matters disclosed above and the benefi t as stated in the paragraph headed “Reasons for the Acquisition” below, the Directors (including the independent non-executive Directors) consider that the terms of the Sale and Purchase Agreement to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Conditions Precedent

The Sale and Purchase Agreement shall become effective upon the following conditions precedent being satisfi ed (or waived by Unique Talent) on or before the Long Stop Date:

(a) Unique Talent having completed and being satisfi ed in all respects, at its absolute discretion, with the results of the due diligence review (including but not limited to the fi nancial, legal and business reviews) to be conducted by Unique Talent in accordance with the Sale and Purchase Agreement;
(b) a legal opinion having been issued by qualifi ed lawyers in PRC appointed by Unique Talent in form and substance to the satisfaction of Unique Talent in its absolute discretion in relation to all matters concerning the Sale and Purchase Agreement;
(c) a valuation report having been obtained in relation to the business of the Target Group prepared by an independent valuer appointed by Unique Talent and Unique Talent having been satisfi ed at its absolute discretion with the valuation report in all respects;

LETTER FROM THE BOARD

(d) the Vendor having produced documents to the satisfaction of Unique Talent indicating that all the buildings on the Subject Land comply with the planning and building regulations and requirements, and approvals thereof having been obtained from all the relevant authorities and departments;
(e) Unique Talent, having been satisfi ed that, all encumbrances, if any, over the Target Share, the Shareholder’s Loan, other shares and assets of all members of the Target Group shall have been discharged at the own costs and expenses of the Vendor;
(f) the warranties given by the Vendor in the Sale and Purchase Agreement remaining true and accurate in all respects;
(g) the corporate structure of the Target Group as described in the Sale and Purchase Agreement remaining accurate;
(h) passing of the resolutions of the Shareholders in the EGM approving the Sale and Purchase Agreement and the transactions contemplated thereunder (including but without limitation to the grant of specifi c mandate for the issue of the First Consideration Shares and the Second Consideration Shares), all necessary authorisation and approvals in respect of the Sale and Purchase Agreement and transactions contemplated thereunder having been obtained by Unique Talent and the Company; and
(i) the Listing Committee of the Stock Exchange granting or agreeing to grant listing of and permission to deal in the First Consideration Shares and the Second Consideration Shares.

Unique Talent may waive the conditions precedent above at its absolute discretion (except conditions (h) and (i)) and require the Vendor to complete the Acquisition. The waiver is to provide fl exibility in situations where only a small part of a particular condition may not have been fulfi lled or the benefi t which the Company may derive from the Acquisition greatly outweighs the loss which the Company may suffer as a result of the waiver of a particular condition. Without the right on the part of Unique Talent to waive the conditions, the Vendor may terminate the Sale and Purchase Agreement on the ground that the conditions have not been fulfi lled in situations which the Vendor sees benefi t in termination (e.g sudden rise in price or in face of a higher offer). Such rights to waive fulfi llment of the conditions are common in agreements of similar natures. The Directors will exercise due care in discharge of their fi duciary duties in deciding whether to waive a particular condition and the Company has no present intention to waive any condition.

If any of the conditions precedent above has not been satisfi ed on or before the Long Stop Date, and Unique Talent has not waived that condition precedent (except conditions (h) and (i), which cannot be waived by Unique Talent), the Sale and Purchase Agreement shall be terminated without prejudice to the rights and the obligations of the parties before the termination.

LETTER FROM THE BOARD

The Vendor’s warranties and undertakings

Under the Sale and Purchase Agreement, the Vendor is required before Completion to procure at his own costs and expenses and without recourse against the Group and the Target Group:

(a) discharge of any encumbrance, if any, over the Target Share, the Shareholder’s Loan, other shares and assets of all members of the Target Group;
(b) discharge of all outstanding borrowings of the Target Group owing to banks, fi nancial institutions and other third parties (except the Shareholder’s Loan and inter-company borrowings within the Target Group); and
(c) set-off of amounts payable and receivable between members of the Target Group and their respective related parties outside the Target Group with an intent to reduce such amounts on accounting entries.

If the Vendor shall fail to fulfi ll his obligations under paragraphs (a) to (c) above, the Consideration shall be reduced by reference to the amounts involved. Further, if after the set-off made pursuant to paragraph (c) above, there shall remain outstanding amounts receivable from related parties outside the Target Group, Unique Talent shall have the right to reduce the Consideration by such outstanding amounts, and thereafter such outstanding amounts shall be deemed to have been received.

If reductions pursuant to the above shall exceed the Consideration, Unique Talent shall have the option either to terminate the Sale and Purchase Agreement or proceed with Completion and claim for the excess.

Protections afforded to Unique Talent regarding existing charges over the equities of the Target Group

For the protection of Unique Talent, it is, inter alia, a condition precedent for the sale and purchase of the Target Share and the Shareholder’s Loan that Unique Talent shall have been satisfi ed in its absolute discretion that all encumbrances over the Target Share, the Shareholder’s Loan, other shares and assets of all members of the Target Group shall be discharged before Completion.

Further, Unique Talent shall have the right to make direct payment to the chargee of the Target Share and the Shareholder’s Loan to discharge the existing charges over the same and proceed with Completion and the payment so made shall be deemed to be part of the Consideration paid to the Vendor.

Completion

Subject to the conditions precedent having been satisfi ed (or waived by Unique Talent), Completion shall take place within 5 Business Days following the day on which the conditions precedent are satisfi ed (or waived by Unique Talent) or such later date as agreed by parties to the Sale and Purchase Agreement in writing.

LETTER FROM THE BOARD

The First Consideration Shares and the Second Consideration Shares

The First Consideration Shares and the Second Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the Shares then in issue on the date of allotment and issue thereof. The First Consideration Shares and the Second Consideration Shares will be issued at the Issue Price, representing (i) a premium of approximately 2.94% over the closing price of HK$0.34 per Share (being the adjusted price after taking into account the Share Consolidation) as quoted on the Stock Exchange on 26 January 2011, being the date of the Sale and Purchase Agreement; (ii) a premium of approximately 2.34% over the average of the closing prices of approximately HK$0.342 per Share (being the adjusted price after taking into account the Share Consolidation) for the last fi ve consecutive trading days up to and including the date of the Sale and Purchase Agreement; and (iii) a premium of approximately 13% over the net asset value per Share of approximately HK$0.31 (being the adjusted price after taking into account the Share Consolidation) based on the audited consolidated fi nancial statements of the Group as at 31 December 2010.

The Issue Price was arrived at after arm’s length negotiations between Unique Talent, the Company and the Vendor with reference to various factors including the average closing price and net asset value per Share as set out above. The Directors (including the independent non-executive Directors) consider that the Issue Price is fair and reasonable, and the issue of the First Consideration Shares and the Second Consideration Shares are in the interests of the Company and the Shareholders as a whole.

The First Consideration Shares represent 6.95% of the existing issued share capital of the Company and approximately 6.49% of the issued share capital of the Company as enlarged by the issue of the First Consideration Shares and approximately 6.29% of the issue share capital of the Company as enlarged by the issue of the First Consideration Shares and the Second Consideration Shares (if fully issued).

The Second Consideration Shares, if fully issued, represent 3.47% of the existing issued share capital of the Company and approximately 3.25% of the issued share capital of the Company as enlarged by the issue of the First Consideration Shares and approximately 3.15% of the issued share capital of the Company as enlarged by the issue of the First Consideration Shares and the Second Consideration Shares (if fully issued).

The aggregate of the First Consideration Shares and the Second Consideration Shares represents 10.42% of the existing issued share capital of the Company and approximately 9.74% of the issued share capital of the Company as enlarged by the issue of the First Consideration Shares and approximately 9.44% of the issued share capital of the Company as enlarged by the issue of the First Consideration Shares and the Second Consideration Shares (if fully issued).

Upon completion of the Rights Issue on 20 June 2011, the aggregate of the First Consideration Shares and the Second Consideration Shares represents 6.95% of the then issued share capital of the Company, and approximately 6.64% of the then issued share capital of the Company as enlarged by the issue of the First Consideration Shares and approximately 6.49% of the then issued share capital of the Company as enlarged by the issue of the First Consideration Shares and the Second Consideration Shares (if fully issued).

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the First Consideration Shares and the Second Consideration Shares.

LETTER FROM THE BOARD

Impact on the shareholding structure of the Company

The effect on the shareholding structure of the Company upon completion of the Rights Issue and upon completion of the Acquisition is set out below:

Scenario 1:

Assuming no Qualifying Shareholders take up his/her/its entitlements under the Rights Issue, except that Rich Public Limited takes up all its entitlement being 173,075,000 Rights Shares and there is no other change in the shareholding structure of the Company from the Latest Practicable Date:

Mr. YUEN Hoi Po_(Note 1) CBC China Media Limited(Note 2) Sub-total The Vendor The Underwriter(Note 3)_ Other Shareholders Total	As at the Latest Practicable Date Immediately after completion of Rights Issue (assuming no Qualifying Shareholders take up his/her/its entitlements under the Rights Issue, except that Rich Public Limited takes up all its entitlement being 173,075,000 Rights Shares) Immediately after the issue of the First Consideration Shares at Completion but before the issue of the Second Consideration Shares Shares % Shares % Shares % 625,075,000 21.71 798,150,000 18.48 798,150,000 17.66 245,155,489 8.51 245,155,489 5.68 245,155,489 5.42 870,230,489 30.22 1,043,305,489 24.16 1,043,305,489 23.09 — — — — 200,000,000 4.43 — — 1,266,651,484 29.33 1,266,651,484 28.03 2,009,222,480 69.78 2,009,222,480 46.52 2,009,222,480 44.46 2,879,452,969 100 4,319,179,453 100 4,519,179,453 100	Immediately after the issue of the Second Consideration Shares Shares % 798,150,000 17.28 245,155,489 5.31 1,043,305,489 22.59 300,000,000 6.49 1,266,651,484 27.42 2,009,222,480 43.50 4,619,179,453 100	Immediately after the issue of the Second Consideration Shares Shares % 798,150,000 17.28 245,155,489 5.31 1,043,305,489 22.59 300,000,000 6.49 1,266,651,484 27.42 2,009,222,480 43.50 4,619,179,453 100
			22.59 6.49 27.42 43.50
			100

Scenario 2:

Assuming all Qualifying Shareholders take up their respective entitlements under the Rights Issue and there is no other change in the shareholding structure of the Company from the Latest Practicable Date:

Mr. YUEN Hoi Po_(Note 1) CBC China Media Limited(Note 2) Sub-total The Vendor The Underwriter(Note 3)_ Other Shareholders Total	As at the Latest Practicable Date Immediately after completion of Rights Issue (assuming all Qualifying Shareholders take up their respective entitlements under the Rights Issue) Immediately after the issue of the First Consideration Shares at Completion but before the issue of the Second Consideration Shares Shares % Shares % Shares % 625,075,000 21.71 798,150,000 18.48 798,150,000 17.66 245,155,489 8.51 367,733,233 8.51 367,733,233 8.14 870,230,489 30.22 1,165,883,233 26.99 1,165,883,233 25.80 — — — — 200,000,000 4.43 — — — — — — 2,009,222,480 69.78 3,153,296,220 73.01 3,153,296,220 69.78 2,879,452,969 100 4,319,179,453 100 4,519,179,453 100	Immediately after the issue of the Second Consideration Shares Shares % 798,150,000 17.28 367,733,233 7.96 1,165,883,233 25.24 300,000,000 6.49 — — 3,153,296,220 68.27 4,619,179,453 100	Immediately after the issue of the Second Consideration Shares Shares % 798,150,000 17.28 367,733,233 7.96 1,165,883,233 25.24 300,000,000 6.49 — — 3,153,296,220 68.27 4,619,179,453 100
			25.24 6.49 — 68.27
			100

LETTER FROM THE BOARD

Note 1

Excluding his interests in 173,075,000 Rights Shares, Mr. YUEN Hoi Po is deemed to be interested in 625,075,000 Shares held by his wholly owned corporations namely, Ming Bang Limited and Rich Public Limited, by virtue of Part XV of the SFO. Mr. YUEN Hoi Po is the Chairman and an Executive Director of the Company.

Note 2

Mr. Edward TIAN Suning is deemed to be interested in 245,155,489 Shares held by CBC China Media Limited by virtue of Part XV of the SFO. Mr. Edward TIAN Suning is a non-executive director of the Company and an executive director of CBC China Media Limited.

Note 3

Sun Hung Kai International Limited acted as the underwriter for the Rights Issue.

In view of the above, the Acquisition would not result in a change of control of the Company upon Completion.

Treatment of the Target Company in the accounts of the Group

Upon completion of the Acquisition, the Target Company will become a wholly owned subsidiary of the Company.

Shareholding Structure

Immediately before Completion

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Vendor
100%
Target Company
100%
Hong Kong Company
100%
Nengrong Culture
100%
Happy Era
100%
Bayhood No. 9
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LETTER FROM THE BOARD

Immediately upon Completion

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

Company
100%
Unique Talent
100%
Target Company
100%
Hong Kong Company
100%
Nengrong Culture
100%
Happy Era
100%
Bayhood No. 9
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Management control

There is no agreement or understanding between the Vendor and the Company that the Vendor is entitled to nominate or appoint any person to the Board and the Company has no present intention to introduce or appoint the Vendor to the Board.

Mr. HE Peng is the sole director of the Target Company. He will continue to serve the Target Company to promote stability of the development of the business of the Target Company. The Group will also appoint Mr. WANG Hong, its Executive Director and Chief Executive Offi cer, and Mr. HAU Wai Man, Raymond, its Chief Financial Offi cer to act as directors of the Target Company.

Mr. WANG Hong was the President of the Travel Channel from 2003 to 2008, during which he redeveloped a new Travel Channel, which later became a professional satellite channel. Mr. WANG Hong has worked in the United States for 12 years and has vast experience in U.S. corporate operation. He demonstrates ample knowledge of legal, tax and human resources issues in respect of the U.S. corporate governance and possesses solid international and national work experience.

LETTER FROM THE BOARD

Mr. HAU Wai Man, Raymond, is a fellow member of the Association of Chartered Certifi ed Accountants and a member of Hong Kong Institute of Certifi ed Public Accountants. Mr. HAU has over 10 years of experience working in international accounting fi rms and corporation in Hong Kong and PRC before joining the Company in 2006.

INFORMATION ON THE TARGET GROUP

The Target Company is an investment holding company. The Target Group comprises the Target Company, the Hong Kong Company and the PRC Companies. The Target Company was established on 9 August 2009 in the British Virgin Islands with the Vendor being its ultimate benefi cial owner. The Target Group underwent a restructuring which was completed on 1 September 2010, pursuant to which certain entities under the common control of the Vendor, including Bayhood No. 9 (which was the sole operating company), were transferred to the Target Company.

To the best of the Directors’ knowledge, information and belief, the Vendor is the founder of the

Target Group.

The Target Group is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, a membership-based luxury club which comprises of business hotel facilities, theme dining rooms serving Chinese and Western cuisine, spa facilities, retail shops, 7260 yard, 18-hole championship golf course, an unique, double-storied practice bays which has 46 driving bays on the ground fl oor and 22 private vip rooms (with 2 individual driving bays each) on the second fl oor with 1 grand delux room, and the fi rst PGA branded and managed golf academy in Asia. “Bayhood No. 9 Club” is located near the city centre of Beijing, PRC. All income accrued from the management of “Bayhood No. 9 Club” is accounted as the income of the Target Group.

As at the Latest Practicable Date, the Target Company has no assets and liabilities, profi t and loss and does not carry on any business save for its shareholding in and amount due from the Hong Kong Company and the Shareholder’s Loan. The Hong Kong Company does not carry on any business save for its shareholding in and amount due from Nengrong Culture and amount due to the Target Company. Nengrong Culture does not carry on any business save for its shareholding in and amount due from Happy Era. Other assets and liabilities of Nengrong Culture include cash and bank balance, other payables and amount due to the Hong Kong Company. Happy Era does not carry on any business save its shareholding in Bayhood No. 9. Other assets and liabilities of Happy Era include cash and bank balance, other payables and amount due to Nengrong Culture.

Bayhood No. 9 is a limited liability company established in PRC which has the right to manage and operate the club facilities established on the Subject Land up to 31 December 2051 through the Cooperation Construction and Operating Agreement, whereby Bayhood No. 9 has been granted the right to manage and operate the club and facilities on the Subject Land up to 31 December 2051, when Bayhood No. 9 shall transfer the ownership of the club facilities to the counterparty. Bayhood No. 9 has to pay an annual fee of RMB 15 million to Beihu as rent for the land use right of the Subject Land. The annual fee is subject to an increase of 5% every 5 years. The fi rst fee increase is due in 2011. Other assets of Bayhood No. 9 include properties, plant and equipment and current assets comprising cash and bank balance, prepayments and other receivables, inventories and amounts due from related companies.

LETTER FROM THE BOARD

Upon Completion, the business scope of the Company will extend into the recreational and tourism sectors in PRC. Although the Company’s existing management does not have the relevant experience, the members of the Board has extensive management experiences in different business sectors in PRC. The business presently engaged by the Target Group does not require highly specialised knowledge and expertise. With the assistance of the existing management of the Target Group, the Board does not foresee any diffi culties in managing the Target Group in the future. The Company will also engage offi cer(s) with competent experiences if future needs arise.

Notwithstanding the Acquisition, the Company intends to continue with its existing business and there is at present no agreement, arrangement, understanding, intention or negotiation about any disposal/ termination/scaling down of the Company’s existing business.

Business of Bayhood No. 9

Current business model

The business of Bayhood No. 9 is modeled on income derived from the following income streams:

(a) Membership

In the form of revenue receipt from membership sales and monthly dues from members

(b) Income from food and beverage operations and retails shops

Revenue from the food and beverage operations and retail shops open for both members and non-members with no price discount to members

Green fees received from both members and non-members with 50% discount offered to members, and caddy and buggy fees from member and non-members for using the golf facilities with no preferential offer to members

(d) Golf academy

Tuition fees charged to both members and non-members with no discount to the members

(e) Spa, hotel and other facilities

Fees received from provision of spa facilities, hotel and other recreational facilities to both members and non-members at such rate as shall be decided by “Bayhood No. 9 Club” from time to time with no preferential treatments to members

LETTER FROM THE BOARD

Cooperation Construction and Operating Agreement

The Cooperation Construction and Operating Agreement can be terminated upon occurrence of any of the following events:

(a) the Cooperation Construction and Operating Agreement cannot be performed practically due to force majeure;
(b) both parties agree to the termination;
(c) any party has lost the capacity to practically perform the Cooperation Construction and Operating Agreement; or
(d) a party has committed a material breach of the Cooperation Construction and Operating Agreement rendering performance of it unnecessary.

The termination provisions above are common in agreements of similar natures. As at the Latest Practicable Date, none of above events have occurred, the Board does not foresee that the terminating events are likely to occur and none of the events above have occurred in the past. The Company would not allow Bayhood No. 9 to consent to termination of the Cooperation Construction and Operating Agreement.

To the best of the Director’s knowledge, information and belief, Beihu was incorporated in PRC in 2000 and had gradually acquired the land use right of the Subject Land from an Independent Third Party of the Enlarged Group during the years 2000 to 2002. The Vendor acquired up to approximately 70% equity interests in Beihu by 2005. In December 2005, the Cooperation Construction and Operating Agreement was entered into between Bayhood No. 9 and Beihu.

Beihu has accumulated over 10 years of experience in establishing golf course in PRC. Currently, the major business of Beihu is to operate “Bayhood No. 9 Club” together with Bayhood No. 9 through the Cooperation Construction and Operating Agreement.

Prior to Completion, Beihu is controlled by the Vendor who holds approximately 70% equity interests in Beihu. Upon Completion, Beihu will become an Independent Third Party of the Enlarged Group as defi ned in the Listing Rules.

The roles and responsibilities of Beihu under the Cooperation Construction and Operating Agreement are:

to obtain or to facilitate the Target Group in obtaining all relevant government approvals for the construction and operation of “Bayhood No. 9 Club”;
to supervise and provide advice or recommendations to Bayhood No. 9 regarding the construction and operation of “Bayhood No. 9 Club”;
to receive annual operation lease fees from Bayhood No. 9 on a regular basis; and

LETTER FROM THE BOARD

to participate in day to day operations in the fi nal year of the Cooperation Construction and Operating Agreement so as to ensure the smooth transition of assets and operations back to Beihu upon the expiry of the Cooperation Construction and Operating Agreement.

Revenue model

In accordance with the Group’s accounting policies, revenue will be recognised upon the delivery of the services to the clients. Service charges for the services are determined based on the market price and therefore the revenue of the Target Group will depend on the provision of the services.

It is expected that revenue will be on a cash-on-delivery basis of the Target Group’s operations following the existing practice of the Target Group. Nevertheless, it is expected that when the demand of the service increases and the client base grows along with the increase in the provision of services of the Target Group, it will grant credit terms of up to 30 days to customers who have established long term business relationships with the Target Group or PRC government bodies.

Save for the membership fees required for individual members and corporate members, there is no other fee chargeable from them. In the event that members use the facilities of “Bayhood No. 9 Club”, including but not limited to the theme restaurant and café, the members will be charged in accordance with the pricing set by “Bayhood No. 9 Club”.

As the sole source of revenue of the Target Group is from the provision of services, it is not expected that the revenue model of the Target Group will change before and after Completion.

Target customers and sales channel

“Bayhood No. 9 Club’s” marketing activities are customer-focused, continuously deployed, original and are organised and coordinated assortment of activities. The sale and marketing team is in charge of training customer relationship managers and organising special events, and taking care of different aspects of the business of “Bayhood No. 9 Club”. “Bayhood No. 9 Club” comprises the individual memebrship and corporate membership. The target customers are those of high net worth individuals and corporations. Admission to membership is at the discretion of the management of the Target Group. Members are not limited to those people living in Beijing. The target customers include those living in different places in PRC but will pay frequent travels to Beijing and nearby area.

No alliance has been made with travel agencies, international hotel network and distribution work by Bayhood No. 9.

LETTER FROM THE BOARD

(i) Marketing strategies for high net worth individuals and corporations

Marketing strategies for the local visitors tend to focus on the promotion of the luxury aspects of “Bayhood No. 9 Club”. “Bayhood No. 9 Club” will only offer its services to high net worth individuals, senior management of multi-national corporations and reputable and sizable PRC companies. A sales team is also designated to provide tailor-made premium related services to the above clients. A relationship manager, who would be assigned to individual members upon their admission, would understand the needs and preferences of the members. Tailor-made services would be provided by the relationship manager every time upon the arrival of the members.

(ii) Membership program

The aim of the membership program is to encourage repeated visits and maximise the spending by the visitors during their stay at the club, including but not limited to hotel, theme restaurants and spa, and to build upon a database of a targeted group of visitors. To assist in attaining this aim and to encourage membership applications, the membership program relies on the introduction of new members from the existing client base instead of attracting new members from the public in order to ensure only high net worth individuals and corporations would be admitted as members of “Bayhood No. 9 Club”. For the three years ended 31 December 2010, the increase of the members is approximately 50 persons per year.

The two types of membership offered by “Bayhood No. 9 Club” are corporate membership and individual membership. A corporate membership is sold to corporations only with the right to nominate one or two nominees to enjoy the club facilities. The entrance fee for individual membership and corporate membership with one nomination right and two nomination rights are approximately RMB1,080,000, RMB1,200,000 and RMB2,280,000, respectively. Annual membership fees for an individual membership and each named member of a corporate membership is approximately RMB11,000. The entrance fee and annual membership fees for all members will be not refunded or transferred to others in any circumstances in accordance with the regulations of “Bayhood No. 9 Club”. Both types of membership enjoy the same rights and privileges in using the club facilities.

Using the platform of the membership program, “Bayhood No. 9 Club” has built its own network of visitors. As at the Latest Practicable Date, there are more than 400 members who are part of the targeted mass customer group in PRC. The membership program is an effective mean of creating its own database of targeted visitors where the marketing strategies are to be directed.

Facilities utilisation

The utilisation rate of golf course and driving range facilities during the golf season in 2010 is approximately 25%; the utilisation rate of the theme restaurant calculated by the occupancy rates of tables in 2010 is approximately 39%; the business hotel is reserved for members who play golf in Bayhood No. 9 and there is no formal statistics for the occupancy rate of the business hotel facilities.

LETTER FROM THE BOARD

Cost Structure

The major costs of the Target Group comprises of staff costs, PRC business tax, depreciation expenses of the golf course, buildings, machinery and equipment, furniture and motor vehicles of the Target Group and operating right lease expense of RMB15 million, which represented an annual fee paid to Beihu as rent for the land use right of the Subject Land, subject to an increase of 5% every 5 years.

Although Bayhood No. 9 is subject to vigorous maintenance standards, the maintenance fee is not a major cost of the Target Group as all the maintenance is performed by the staff of Bayhood No. 9. For the three years ended 31 December 2010, the maintenance fee was approximately HK$1,338,000, HK$678,000 and HK$754,000, representing approximately 5.9%, 3.2% and 3.7% of administrative expenses respectively.

IT system

Bayhood No. 9 is using three IT systems with respect to its business operations, including (a) an independent IT system namely “天子星餐飲管理系統” (TzxStar) which is developed and maintained by a Beijing technology company for operating the theme restaurant. Reports covering various aspects, including but not limited to turnover, cost, variance, accounting records are generated each day and sent to the fi nance department, food and beverage department and management of “Bayhood No. 9 Club” for recording and analyses. The reports generated can be used for (i) identifying the sale of banquet and utilisation of different cuisine of customers for resources allocation on sale and promotion; (ii) identifying the components of cost for cost control purpose; and (iii) verifying the accounting records to ensure the correctness. Monthly inventory reports will also be generated for inventory control purpose. The system can also generate customer related reports such as customer spending, account of customers which can be used for enhancing the management of customer and sale promotion; (b) 遠古高爾夫俱樂部管理系統 (Clubank Golf Club Management System) and Inforemer system, which are developed by a Shenzhen technology company and a Canadian company respectively for managing and operating the golf course and retail store. Reports covering various aspects of golf course operation (e.g. records and management of members, utilisation and reservation of golf course and facilities, stock management and caddies attendance) are generated and sent to the fi nance department and member service department and management of “Bayhood No. 9 Club”. The reports can be used by the management for (i) identifying and analysing the spending and preference of each member for better management of customer relationship; (ii) identifying and analysing the turnover and utilisation rate of golf course and facilities in order to better arrange its internal resources; and (iii) identifying the inventory turnover of golf equipment for allocation of sale and promotion activities; and (c) 用友財務管理系統 (Ufi da ERP-U8) which is developed by Ufi da as fi nancial and resources planning system. Management account with the details of the breakdown of the major cost of Bayhood No. 9 and analysis of the turnover contributed from the theme restaurant and other facilities will be provided to the management of Bayhood No. 9. Review of the above fi nancial information is performed by the management of Bayhood No. 9 on a monthly basis in order to adjust the business strategy of Bayhood No. 9.

LETTER FROM THE BOARD

Policies on insurance and customer service assurance

As at the Latest Practicable Date, “Bayhood No. 9 Club” maintains property, fi re and lightning insurance which cover property within “Bayhood No. 9 Club” against fi re and lightning. A commercial vehicle policy rendering insurance for vehicles and a comprehensive general liability insurance covering bodily injury and property damage belonging to a third party are also maintained. It covers the employee liabilities arising out of the performance of the business of “Bayhood No. 9 Club”. However, certain events such as nuclear events, acts of war or terrorism, and epidemic outbreaks are excluded from coverage by the third party liability insurance policy.

Quality control

“Bayhood No. 9 Club” has implemented policies in relation to (i) the provision of food and beverage services to the customers, e.g. greeting manner and use of wine glass; (ii) the training program of the staff; and (iii) the service quality audit of the quality of the provision of food and beverage services to the customers.

A comprehensive internal policy has been implemented in respect of (i) the maintenance of the golf course including but not limited to (i) the grass fi eld; (ii) equipment and machineries; and (iii) pumping station. Respective codes have been assigned for the equipment and machineries with the specifi c maintenance fi le including date and cost of purchase, defaults and repair records. The above policy is to ensure that the golf course would be maintained to provide a premium golf course to the high net worth individuals and corporations.

The Target Group has offered various training courses to the staff for improving the qualities of service of the “Bayhood No. 9 Club”.

A three-month training program will be provided to the new joiners according to their roles and positions. The training program mainly involves three sectors, covering orientation to other requirements of the specifi c department and position of the particular staff. The training is led and tutored by a trainer and the completion of each task and responsibility in the training program should be dated and mutually signed by both the employee and the trainer. There will also be an assessment section for assessing the performance of each employee on each task and responsibility.

The “Bayhood No. 9 Club” also issues and circulates detailed policies and procedures which specify the required standards of service from how to reserve wine for customers, to how to establish database for VIP customers, to how to self-assess the dress code and appearance periodically.

Human resources and policy

The “Bayhood No. 9 Club” has entered into co-operation arrangements with various higher education institutions located in Beijing, Shanxi Province, Gansu Province, Henan Province, Jilin Province and Hebei Province to establish staff training centres. The training centres have offered supply of new joiners to the “Bayhood No. 9 Club” and provided basic trainings to the graduates before joining the Club.

LETTER FROM THE BOARD

The “Bayhood No. 9 Club” has also entered into co-operation arrangements with various recruitment agencies and/or websites, namely “智聯招聘網” (www.zhaopin.com), “最佳東方” (www.veryeast.cn), and “北京朝陽區職業介紹中心”* (Beijing Chaoyang City Job Centre) to employ experienced staff.

The retention policy of the “Bayhood No. 9 Club” mainly involves three elements, namely clear career path and suffi cient trainings, harmonic corporate culture and suffi cient staff welfare.

The “Bayhood No. 9 Club” has established a clear career path and hierarchy for the promotion of staff. The company also provides trainings to new joiners as well as management level in order to enhance their experience and skills. It has also established several interest groups among the company to diversify the skills and personal development of staff.

“Bayhood No. 9 club” has established an interactive communication channel between the staff and the company and birthday parties for staff will be held each month. “Bayhood No. 9 club” also organises travelling tours for all staff each year and arranges various social events throughout the year.

“Bayhood No. 9 club” has offered meals and hostel to the staff in order to minimise their costs and establish their loyalties to the company. It has also offered subsidies to the staff in various festivals, subject to its operating results. “Bayhood No. 9 club” has established various personal awards among the company for encouragement of staff.

Competitive advantages of the Target Group

The largest integrated leisure and recreational travelling complex in Beijing

“Bayhood No. 9 Club” is one of the largest leisure and recreational travelling complex in terms of size in Beijing with large-scale integrated amenities services. “Bayhood No. 9 Club” covers approximately 1150 acres of land. The product offerings range from an 18-hole golf course, driving range facilities to professional golf academy. These product offerings are supplemented by “Bayhood No. 9 Club”, which includes premium theme restaurants, sauna, spa, fi tness facilities and shopping areas.

The above wide ranging portfolio of product offerings enables “Bayhood No. 9 Club” to offer a multi-faceted travel and leisure experience to the clients. Not only does it give rise to cross-selling opportunities through the provision of various services and products, the Directors also believe that “Bayhood No. 9 Club” is well positioned to attract high net worth clients of various market segments from individuals to families, golfers to spa visitors.

Easily accessible by the premium visitors

“Bayhood No. 9 Club” is strategically situated in an easily accessible location to cater for the premium group of customers markets. Geographically, “Bayhood No. 9 Club” is just 3.5 km from Beijing International Airport. Further, “Bayhood No. 9 Club” is only about 25 km from the metropolitan region encompassing the city of Beijing, which is its political, economic, social, cultural and educational centre.

LETTER FROM THE BOARD

Established reputation with nation-wide brand recognition

“Bayhood No. 9 Club”, which has been accredited with (i) the 2006 best design clubhouse golf course in 2006 by the magazine of “China Golf”; (ii) the 2006 best service golf course in 2006 by the magazine of “China Golf”; (iii) the 2008 best caddie service golf course by the magazine of “China Golf”; (iv) the 2008 most favourite golf academy by the magazine of “China Golf”; and (v) as the 2008 top 10 golf course in China by the magazine of “Golf”, has established a reputation as a provider of large-scale resort and entertainment destination within Beijing. “Bayhood No. 9 Club” is the only Professional Golfers Association of UK academy in Beijing since March 2007. “Bayhood No. 9 Club” has emerged to become an all-embracing travel destination because “Bayhood No. 9 Club” positions itself as an integrated resort with one of the most wide-ranging portfolio of attractions. The management of “Bayhood No. 9 Club” is of the view that “Bayhood No. 9 Club” is able to market its products and various services more effectively through the brand of Bayhood No. 9. They believe that the brand of Bayhood No. 9 has enabled them to capture a signifi cant amount of market share among competitors in PRC and to bring in new and repeated premium visitors to “Bayhood No. 9 Club”.

Seasoned management team and staff with a proven track record and industry expertise

“Bayhood No. 9 Club” is managed by an experienced and qualifi ed team with a proven track record in the past. Some of the long-servicing members of the senior management team and staff members have contributed to the development of the brand of Bayhood No. 9. The team has successfully grown the business through brand building initiatives. The management team possesses the appropriate mix of multidisciplinary skills and experience, particularly in area of golf management and provision of high-end services.

Future Plan and Development

Promotion of the membership program and the use of the food and beverage facilities

The Target Group has only accumulated 400 members since its commencement in year 2006 without devoting any resources to the promotion of the membership program in the past. The Group intends to attract more high net worth individuals and corporations by (i) encouraging the existing members to invite their associates who may be interested in becoming members of “Bayhood No. 9 Club” while enjoying the facilities of “Bayhood No. 9 Club”; (ii) welcoming the introduction of new members from the existing members. The management of “Bayhood No. 9 Club” also encourages the staff to conduct comprehensive promotions for attracting more customers to enjoy the dining services in the restaurant. The extent of promotion of the restaurant via various promotion media within “Bayhood No. 9 Club” for gaining customers’ attention will also be increased. The management of “Bayhood No. 9 Club” will also establish specifi c selling and public relationship units for promoting the restaurant and other facilities. Subject to the above strategy, the number of members should increase, which will also improve the occupancy rate and utilisation rate of the facilities of “Bayhood No. 9 Club”. Instead of increasing 50 members per year, the Group plans to gradually increase the growth rate of membership in the subsequent years; and (iii) “Bayhood No. 9 Club” will sponsor the chamber and/or commercial association in Beijing or other provinces to play in its golf course in order to attract high net worth individual and/or corporations to become members of “Bayhood No. 9 Club”. Subject to the increased number of members, the utilisation rate of food and beverage facilities should also increase and revenue contribution from the food and beverage should be substantial as a result of the cross selling opportunities.

LETTER FROM THE BOARD

Save for the above, there is no other signifi cant expansion plan to be identifi ed as at the Latest Practicable Date. As such, no signifi cant capital expenditure for expansion is required as at the Latest Practicable Date.

Reinforce the brand name recognition through market initiatives

The brand name of Bayhood No. 9 has been paramount in building the business of “Bayhood No. 9 Club” and will underpin the development of “Bayhood No. 9 Club” in future. The management of “Bayhood No. 9 Club” will continue to focus on increasing the appeal of its product offerings and services, and distinguishing itself from competitors by raising its service standards and dedicating its marketing efforts in the attainment of its targets through innovative marketing initiatives in future.

Leverage on the sale of membership to stimulate an increase in traffi c and people fl ow in “Bayhood No. 9 Club”

The management of “Bayhood No. 9 Club” intends to continue the marketing of the sale of membership. As the members could bring along their friends and families to visit “Bayhood No. 9 Club”, traffi c and people fl ow of “Bayhood No. 9 Club” as a whole will accumulate and increase. This will act as a catalyst for the cross-selling opportunities across its various product offerings and thereby achieving a sustainable revenue growth.

Management expertise

The management of “Bayhood No. 9 Club” has contributed a lot to the growth of Bayhood No. 9. Two of the fi ve senior management have been with “Bayhood No. 9 Club” since its commencement of operations. The profi le of the senior management team of Bayhood No. 9 is as follows:

1. CHEN Guang Tian

Mr. CHEN, the general manager of “Bayhood No. 9 Club”, has accumulated over 15 years of management experience. He has worked up to fi nancial controller in state owned enterprises and property company in PRC. His job responsibility included the installation of fi nancial management system and accounting system. Starting from 1990’s, Mr. CHEN has involved in service industry and participated in marketing strategy of the catering company. In 1997, Mr. CHEN has highly participated in the general management of the hotel in Beijing, including but not limited to the business development, image design, and overall management of the hotel. He is currently responsible for (i) setting the business strategy of “Bayhood No. 9 Club” each year; (ii) business development of “Bayhood No. 9 Club” including but not limited to the development of the relationship with the clients; and (iii) the overall management of “Bayhood No. 9 Club”.

LETTER FROM THE BOARD

2. ZHU Ya Ping

Mr. ZHU has accumulated almost 18 years of experience in golf course grass management. From 1993 to 1996, he worked with a Taiwanese golf project company and was in charge of the construction of the golf course, Starting from 1997, Mr ZHU worked with other golf club in Beijing and was responsible for the turfgrass management, garden design, landscape design, and irrigation design. Mr. ZHU was appointed as the deputy general manager of “Bayhood No. 9 Club” since its commencement and is responsible for landscape transformation, turfgrass management, overall construction and merchandising of “Bayhood No. 9”. He has continuously improved the golf course by (i) restructuring the landscape design of the golf course of “Bayhood No. 9 Club” in order to attract the clients to use the golf course of Bayhood No. 9; and (ii) maintaining turgrass and/or replacing it with the one with better quality.

3. WANG Li Jun

Ms. WANG has been participated in human resources management during her 30 years career, including but not limited to the recruitment of, management of, and providing direction for the people who work in the organisation. Ms. WANG was appointed as the deputy general manager of “Bayhood No. 9” since 2009 and concentrates on the establishment of the workplace culture of “Bayhood No. 9” by enabling employees to contribute effectively and productively to the overall company direction and the accomplishment of the organisation’s goals and objectives. She has been developing the corporate culture and training, including but not limited to continuously assisting the “Bayhood No. 9 Club” in employing new staff and providing trainings as well as organising corporate activities to new joiners and existing staff for their development of all-around skills and improving the standard of services.

4. TIAN Ying

Ms. TIAN has accumulated almost ten years of experience in relation to marketing activities and customer services. Ms. TIAN was appointed as the supervisor of reception services of “Bayhood No. 9 Club” and eventually has now been promoted as the controller of the member service department. Ms. TIAN has developed and demonstrated suffi cient understandings in relation to the business of golf course operation and caring of the customers.

She is mainly responsible for the sale and promotion of memberships of “Bayhood No. 9 Club” and her duties include but are not limited to (i) assisting the general manager to promote the brand name and plan for marketing activities; (ii) conducting research and development on new products and services for “Bayhood No. 9 Club” and preparing proposals for new business developments; (iii) establishing human resources planning for “Bayhood No. 9 Club”; and (iv) planning and executing various selling activities and functions.

LETTER FROM THE BOARD

5. JIANG Yan Li

Ms. JIANG has accumulated almost fi fteen years of catering experience. She had worked with a well-known restaurant in Beijing and was in charge of the dining and catering units. Ms. JIANG is now currently in charge of the food and beverage operation of “Bayhood No. 9 Club” and her main duties include but are not limited to (i) overseeing and managing the operation of food and beverage including the theme restaurants; (ii) assisting the general manager to establish the business workfl ows, service standards and corporate policies; (iii) preparing feasibility reports in relation to new products for business development; and (iv) coordinating with human resources department for human resources planning and allocation.

FINANCIAL RESULTS OF THE TARGET GROUP

No audited fi nancial statements of the Target Company and the Hong Kong Company have been prepared since their incorporation on 9 August 2009 and 3 September 2009 in the British Virgin Islands and Hong Kong respectively. No audited fi nancial statements of Nengrong Culture and Happy Era have been prepared since their incorporation on 7 June 2010 and 26 February 2010 respectively in PRC.

OVERALL DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Revenue

Revenue Food and beverage income Club activities income Membership annual fees Membership entrance fees Total Revenue	Year ended 31 December 2008 HK$’000 28,360 38,033 4,234 43,417 114,044	Year ended 31 December 2009 HK$’000 36,745 48,083 4,289 47,493 136,610	Year ended 31 December 2010 HK$’000 54,060 48,280 4,353 52,823
			159,516

The increase in total revenue was mainly driven by the increase in members. The total number of individual and corporate membership sold as at 31 December 2008, 31 December 2009 and 31 December 2010 were 289, 339 and 394 respectively. In line with the increase in the accumulated number of members, the food and beverage income, club activities income and members’ annual fees also increased each year.

LETTER FROM THE BOARD

Cost of Sale

Cost of Sale Food and beverage costs Operating right lease Depreciation Salary Material consumption Business tax Total	Year ended 31 December 2008 HK$’000 11,906 20,331 18,108 8,784 2,226 19,342 80,697	Year ended 31 December 2009 HK$’000 12,333 20,977 18,419 10,907 2,500 22,079 87,215	Year ended 31 December 2010 HK$’000 22,056 21,351 17,284 13,405 3,425 5,499
			83,020

Food and beverage costs increased over the past three years in line with the increase in food and beverage income. However, the other key components of cost of sales, such as operating right lease fee payable under the Cooperation Construction and Operating Agreement and depreciation of fi xed assets, are relatively fi xed cost in nature and do not fl uctuate with the change in revenue.

Gross margin

		Year ended	Year ended	Year ended
		31 December	31 December	31 December
		2008	2009	2010
Gross Prof	t_(HK$’000)_	33,347	49,395	76,496
Gross Prof	t Margin	29.2%	36.2%	48.0%

The improvement of gross profi t and gross profi t margin for the three years ended 31 December 2010 was mainly attributable to (i) the increase in revenue as explained in the preceding paragraph; and (ii) the less proportional increase in cost of sale in which the cost for the operating right lease and depreciation was fairly stable over the years as explained in the preceding paragraph.

LETTER FROM THE BOARD

Administrative expenses

Administrative expenses mainly comprised of fi xed assets depreciation, staff costs, electricity and fuel, small tools and consumables, travelling expenses, and repair and maintenance expenses for the operations of the club facilities. These costs were relatively stable over the years and would not fl uctuate directly with the change in revenue. The historical analysis in regards to the Target Group’s administrative expense (by % of sale) for the three years ended 31 December 2010 is set out below:

Administrative Expense Year Ended 31 December 2008 HK$’000 Electricity 1,827 Consumables and tools 1,558 Fuel 1,564 Staff costs 7,048 Depreciation 1,570 Travelling 851 Repairs and maintenance 1,338 Others 7,081 Total 22,837	% of Sale Year Ended 31 December 2009 HK$’000 1.6 1,440 1.4 1,519 1.4 857 6.2 7,245 1.4 2,113 0.7 878 1.1 678 6.2 6,187 20.0 20,917	% of Sale Year Ended 31 December 2010 HK$’000 1.1 1,956 1.1 478 0.6 1,950 5.3 7,845 1.6 2,252 0.6 948 0.5 754 4.5 4,090 15.3 20,273	% of Sale 1.2 0.3 1.2 4.9 1.4 0.6 0.5 2.6
			12.7

The relatively higher administrative expense in 2008 was mainly due to (i) the incurrence of nonrecurring legal and professional fees in relation to consulting services for the operation of PGA branded and managed golf academy and spa facilities; and (ii) write off of bad debts in relation to membership subscription receivables of one member during early year of operations in prior years. In early years of the operation of “Bayhood No. 9 Club”, the management agreed to transfer the membership to a limited number of customers without receiving the total of the membership subscription fees. The bad debt incurred in year 2008 arose from the admission of one new member without receiving full membership subscription fees in year 2006. As such, in order to avoid further bad debt to be incurred from member subscription, the management of “Bayhood No. 9 Club” has revised its internal policy with respect to the sale of membership at the end of year 2007 to take effect from 1 January 2008. Pursuant to the revised policy, memberships could only be transferred to the members upon the receipt of full membership subscription fees. Upon execution of the revised policy, no bad debt for the membership subscription fee has been incurred since then.

LETTER FROM THE BOARD

Reasons for the fl uctuation in net margin

		Year ended	Year ended	Year ended
		31 December	31 December	31 December
		2008	2009	2010
Net Prof	t (HK$’000)	6,244	17,236	38,134
Net Prof	t Margin	5.5%	12.6%	23.9%

The improvement of net profi t and net profi t margin for the three years ended 31 December 2010 was mainly attributable to (i) the increase in revenue and gross profi t as explained in the preceding paragraph; (ii) the less proportional increase in cost of sale in which the cost for the operating right lease and depreciation were fairly stable over the years as explained in the preceding paragraph; and (iii) the less proportional increase in administrative expenses in which the depreciation of fi xed assets and staff costs, electricity and fuel, consumables and tools, travelling and repair and maintenance expenses for the operations of the club facilities were fairly stable over the years.

Balance Sheet

Property, plant and equipment

Golf courses Buildings Machinery and equipment Furniture, computer and equipment Leasehold improvement Motor vehicles Construction in progress Net book amount	As at 31 December 2008 HK$’000 96,267 183,498 6,005 5,703 702 9,516 — 301,691	As at 31 December 2009 HK$’000 89,934 177,195 4,949 3,934 570 6,466 — 283,048	As at 31 December 2010 HK$’000 87,933 176,522 4,398 2,412 1,131 6,132 6,931
			285,459

The major components of property, plant and equipment are the golf courses and buildings for the club facilities, which had been incurred at the early stage of “Bayhood No. 9 Club”’s operations. No signifi cant capital expenditure was incurred during the two years ended 31 December 2009 and there was incurrence of construction in progress of approximately HK$6.9 million during the year ended 31 December 2010. The decrease in the net book amount of property, plant and equipment during the years was mainly due to the depreciation expense and exchange differences during the respective year.

LETTER FROM THE BOARD

Receipt in advance, other payables and accrued liabilities

Receipt in advance Accrued operating lease payment Other payables and accrual liabilities Total Less: non-current portion Total current portion	As at 31 December 2008 HK$’000 8,136 11,852 72,075 92,063 (11,852) 80,211	As at 31 December 2009 HK$’000 12,350 15,828 79,379 107,557 (15,828) 91,729	As at 31 December 2010 HK$’000 12,782 20,471 81,916 115,169 (20,471) 94,698

Receipt in advance represents cash deposited by the members for their future spending in the club. Accrued operating lease payment represents the accumulated differences between the average annual operating lease obligations and the actual amounts paid. Other payables and accrued liabilities mainly represent amounts due to construction contractors and machinery and equipment providers, provisions for business taxes and real estate taxes, and provisions for social insurances. The amounts due to construction contractors and machinery and equipment providers decreased over the years as the club facilities construction has been completed, while the provisions for business taxes, real estate taxes and social insurance increased over the years in line with the increased scale of operations. Offsetting each other, the total other payables and accrued liabilities just increased slightly over the years.

Borrowings

Non-current: Bank borrowings Total non-current borrowings Current: Bank borrowings Other borrowings Total current borrowings Total borrowings	As at 31 December 2008 HK$’000 — — 17,916 22,679 40,595 40,595	As at 31 December 2009 HK$’000 22,715 22,715 5,792 22,715 28,507 51,222	As at 31 December 2010 HK$’000 —
			—
			27,793 23,504
			51,297
			51,297

LETTER FROM THE BOARD

Borrowings comprised of bank borrowings and other borrowings. All borrowings of the Target Group during the years were borrowed on behalf of related companies. Accordingly, the net amounts due from related companies increased when such borrowings incurred. Both Bayhood No. 9 and those related companies were controlled by the Vendor. Thus, under the instruction of the Vendor, Bayhood No. 9 has borrowed bank loan and other borrowings and has advanced the loan proceeds to related companies. The relevant fi nance costs in relation to the bank loan and other borrowings were borne by the related companies. Pursuant to the Supplemental Agreement, the relevant bank loan and other borrowings will be settled before Completion.

Amounts with related parties

Amounts due from related parties Amounts due to related parties Net amounts due from/(to) related parties Total borrowings on behalf of related companies Net balances	As at 31 December 2008 HK$’000 112,575 (170,739) (58,164) (40,595) (98,759)	As at 31 December 2009 HK$’000 159,599 (132,350) 27,249 (51,222) (23,973)	As at 31 December 2010 HK$’000 235,115 (118,548) 116,567 (51,297) 65,270

The operations of Bayhood No. 9 was funded by its share capital of RMB50 million and net amounts due to related parties. In addition, as mentioned in the preceding paragraph, all borrowings of the Target Group during the years were borrowed on behalf of related companies and thus the net amounts due from related companies increased when such borrowings incurred. The counterparties of the amounts due from related companies and the amounts due to related companies are not the same. However, all those related companies are controlled by the Vendor and/or key management personnel of the Target Group. Pursuant to the Supplemental Agreement, the amounts due from related companies and amounts due to related companies will be offset before Completion. Accordingly, the net amount of due from/(to) related companies is shown in the analysis. Both Bayhood No. 9 and those related companies were controlled by the Vendor. Thus, under the instruction of the Vendor, Bayhood No. 9 has borrowed bank loan and other loans and has advanced the loan proceed to related companies. The relevant bank loan and other loans will be settled using funds from the related companies before Completion, accordingly, the loan borrowed on behalf of related companies is netted with the net amount due from/(to) related companies in the analysis. Since the year ended 31 December 2008, Bayhood No. 9 has incurred net profi ts and operating cash infl ow. Over the years, the net amounts due to related parties have been repaid and Bayhood No. 9 has subsequently made net advances to related parties.

LETTER FROM THE BOARD

On 16 May 2011, the Company, Unique Talent and the Vendor entered into the Supplemental Agreement, pursuant to which the Vendor agrees to discharge all of the outstanding borrowings of the Target Group owing to banks, fi nancial institutions and other third parties and set off of amount payable and receivable between members of the Target Group and their respective related parties outside the Target Group with an intent to reduce such amounts on accounting entries. In order to ensure that the Target Group’s amount due from/to related parties will be settled before Completion, the Consideration shall be reduced by reference to the amount involved if the Vendor fails to fulfi ll its obligations under the Supplemental Agreement. In the event that the reductions above shall exceed the Consideration, the Company shall have the option either to terminate the Sale and Purchase Agreement or proceed with Completion and claim for the excess.

Deferred revenue

Included in current liabilities Included in non-current liabilities Total deferred revenue	As at 31 December 2008 HK$’000 41,193 94,899 136,092	As at 31 December 2009 HK$’000 46,608 104,329 150,937	As at 31 December 2010 HK$’000 53,842 116,337
			170,179

Membership entrance fees are recognised at rate that refl ect the estimated timing, nature and value of the benefi ts provided on a reducing balance basis for which the membership is granted in accordance with HKFRS. Based on the historical usage pattern of existing members, the estimated useful life of membership is approximately 11 years. The portion of membership entrance fees which relates to the remaining useful life of membership granted as at the year end is included in deferred revenue. The increase in the deferred revenue for the three years ended 31 December 2010 was due to the receipt of membership entrance fees from new members each year, offset by the recognition of membership entrance fees revenue over the estimated useful life in accordance with HKFRS.

Key performance indicators

	For the	For the	For the
	year ended	year ended	year ended
	31 December	31 December	31 December
	2008	2009	2010
Current ratio	34.7%	52.6%	66.4%
Debt to equity ratio	(147.2%)	(494.2%)	170.4%
Return on equity	(22.6%)	(166.3%)	126.7%
Net prof t margin	5.5%	12.6%	23.9%
Gross prof t margin	29.2%	36.2%	48.0%

LETTER FROM THE BOARD

Current Ratio

The current ratio has improved for the three years ended 31 December 2010. The improvement was due to the continuous improvement in the net profi t of the Target Group, leading to the increase of total current assets during the years.

Debt to Equity Ratio

Debt to equity ratio as at 31 December 2008 and 2009 is negative as there was a net defi cit of approximately HK$27.6 million and HK$10.4 million as at 31 December 2008 and 2009, respectively. The debt to equity ratio as at 31 December 2009 is extremely high because of (i) the amount of borrowings increased from approximately HK$40.6 million to HK$51.2 million, and (ii) the net defi cit as at 31 December 2009 was decreased from approximately HK$27.6 million to HK$10.4 million. The debt to equity ratio as at 31 December 2010 signifi cantly improved comparing to that of 2009 as the Target Group turned from net defi cit of HK$10.4 million to net equity of HK$30.1 million, which is in line with the net profi t for the year ended 31 December 2010 of HK$38.1 million.

Return on Equity

Return on equity for the years ended 31 December 2008 and 2009, respectively is negative as there was a net defi cit of approximately HK$27.6 million and HK$10.4 million, respectively. The return on equity for the year ended 31 December 2009 is extremely high due to the improvement of net profi t from approximately HK$6.2 million for year 2008 to HK$17.2 million for year 2009. The return on equity for the year ended 31 December 2010 turned positive to 126.7% because i) the net profi t for the year ended 31 December 2010 increased to approximately HK$38.1 million; and ii) the net equity as at 31 December 2010 increased signifi cantly to HK$30.1 million from the net defi cit of HK$10.4 million as at 31 December 2009.

Funding requirement of the Target Group and its potential impact on the Group’s liquidity and cash fl ow

As the future plan of the Target Group relies on the introduction of new clients from the existing client base and positive cash fl ow is expected to be generated from operations, the funding requirement of the Target Group is insignifi cant. However, the Group’s liquidity and cash fl ow will be improved in view of the contribution from the turnover and profi t of the Target Group.

The Group’s working capital management policy

The Group will retain its generated funds as working capital for its own development as the Target Group does not require any fi nancial support as at the Latest Practicable Date.

LETTER FROM THE BOARD

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE TARGET GROUP FOR THE YEAR ENDED 31 DECEMBER 2008

Revenue

The Target Group is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, a membership-based club located in Beijing, PRC. For the year ended 31 December 2008, the Target Group recorded a turnover of approximately HK$114,044,000, representing an increase by approximately 58.3% in comparison with the last year. The signifi cant increase was mainly attributed to (i) increase in food and beverage income and club activities income by approximately 66.1% and 46.8% respectively; and (ii) increase in membership entrance fees by 70.0%, from approximately HK$25,546,000 for the year ended 31 December 2007 to approximately HK$43,417,000 during the year ended 31 December 2008.

Gross profi t

The gross profi t of the Target Group increased signifi cantly from approximately HK$568,000 for the year ended 31 December 2007 to approximately HK$33,347,000 for the year ended 31 December 2008. The increase was attributable to (i) the increase in food and beverage income which with a higher gross profi t margin; (ii) the increase in membership entrance fees and (iii) the less proportional increase in cost of sales in which the cost for operating right lease and depreciation were fairly stable for the year ended 31 December 2008.

Liquidity and Financial Resources

As at 31 December 2008, the Target Group held cash and cash equivalents of approximately HK$3,284,000, being a decrease by 27.4% comparing to the balance as at 31 December 2007. The Target Group was at net current liabilities position of approximately HK$225,475,000 as at 31 December 2008, representing a slight decrease by 6.1% comparing with the balance as at 31 December 2007. The Target Group’s non-current borrowings decreased from approximately HK$10,742,000 as at 31 December 2007 to nil as at 31 December 2008. The total borrowings of the Target Group were increased from approximately HK$21,484,000 as at 31 December 2007 to approximately HK$40,595,000 as at 31 December 2008.

The Target Group’s debt to equity ratio, which represents the borrowings to the total equity, increased from (0.67) as at 31 December 2007 to (1.47) as at 31 December 2008.

Contingent liabilities

The Target Group did not have any contingent liabilities as at 31 December 2008.

LETTER FROM THE BOARD

Charges on group assets

None of the Target Group’s assets has been pledged as security as at 31 December 2008.

Foreign exchange risk

The Target Group mainly operates in PRC and is only exposed to foreign exchange risk arising from Chinese Renminbi currency exposures, primarily with respect to the Hong Kong dollars. As such, the exchange rate risk of the Target Group is considered to be relatively low.

Capital Structure

As at 31 December 2008, the Target Group had total borrowings of approximately HK$40,595,000. The share capital of the Target Group only comprised 1 issued ordinary share of the Target Company of par value of US$1 as at 31 December 2008.

Material investments

As at 31 December 2008, the Target Group had amounts due from related parties in the aggregate amount of approximately HK$112,575,000.

Material acquisitions and disposals of subsidiaries and associated companies

During the year ended 31 December 2008, the Target Group did not have any material acquisitions and disposals of subsidiaries and associated companies.

Number and policy of remuneration

As at 31 December 2008, the Target Group had 470 employees in total. The total staff costs of the Target Group amounted to approximately HK$15,832,000 for the year ended 31 December 2008. The Target Group offers a comprehensive and competitive remuneration, retirement scheme and benefi t package to its employees. The Target Group is required to make contribution to a social insurance contribution scheme in PRC of which the Target Group and its employees are each required to make contribution to fund the endowment insurance and unemployment insurance at the rates promulgated by the relevant PRC laws and regulations.

Gearing ratio

The Target Group’s gearing ratio, which represents the long-term liabilities to net assets, increased from (2.83) as at 31 December 2007 to (3.87) as at 31 December 2008.

LETTER FROM THE BOARD

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE TARGET GROUP FOR THE YEAR ENDED 31 DECEMBER 2009

Revenue

The Target Group is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, a membership-based club located in Beijing, PRC. For the year ended 31 December 2009, the Target Group recorded a turnover of approximately HK$136,610,000, representing an increase by approximately 19.8% in comparison with the last year. The signifi cant increase was mainly attributed to (i) increase in food and beverage income and club activities income by approximately 29.6% and 26.4% respectively; and (ii) increase in membership entrance fees by 9.4%, from approximately HK$43,417,000 for the year ended 31 December 2008 to approximately HK$47,493,000 for the year ended 31 December 2009.

Gross profi t

The gross profi t of the Target Group increased from approximately HK$33,347,000 for the year ended 31 December 2008 to approximately HK$49,395,000 for the year ended 31 December 2009. The increase was attributable to (i) the increase in food and beverage income which with a higher gross profi t margin; (ii) the increase in membership entrance fees and (iii) the less proportional increase in cost of sales in which the cost of operating right lease and depreciation were fairly stable during the year ended 31 December 2009.

Liquidity and Financial Resources

As at 31 December 2009, the Target Group held cash and cash equivalents of approximately HK$5,860,000, being an increase by 78.4% comparing to the balance as at 31 December 2008. The Target Group was at net current liabilities position of approximately HK$154,498,000 as at 31 December 2009, representing a decrease by 31.5% comparing with the balance as at 31 December 2008. The Target Group’s non-current borrowings increased from nil as at 31 December 2008 to approximately HK$22,715,000 as at 31 December 2009. The total borrowings of the Target Group were increased from approximately HK$40,595,000 as at 31 December 2008 to approximately HK$51,222,000 as at 31 December 2009.

The Target Group’s debt to equity ratio, which represents the borrowings to the total equity, increased from (1.47) as at 31 December 2008 to (4.94) as at 31 December 2009. The signifi cant increase of debt to equity ratio was due to the decrease of total defi cit of approximately HK$27,572,000 as at 31 December 2008 to total defi cit of approximately HK$10,365,000 as at 31 December 2009.

Contingent liabilities

The Target Group did not have any contingent liabilities as at 31 December 2009.

Charges on group assets

None of the Target Group’s assets has been pledged as security as at 31 December 2009.

LETTER FROM THE BOARD

Foreign exchange risk

Capital Structure

As at 31 December 2009, the Target Group had total borrowings of approximately HK$51,222,000. The share capital of the Target Group only comprised 1 issued ordinary share of the Target Company of par value of US$1 as at 31 December 2009.

Material investments

As at 31 December 2009, the Target Group had amounts due from related parties in the aggregate amount of approximately HK$159,599,000.

Material acquisitions and disposals of subsidiaries and associated companies

During the year ended 31 December 2009, the Target Group did not have any material acquisitions and disposals of subsidiaries and associated companies.

Number and policy of remuneration

As at 31 December 2009, the Target Group had 470 employees in total. The total staff costs of the Target Group amounted to approximately HK$18,152,000 for the year ended 31 December 2009. The Target Group offers a comprehensive and competitive remuneration, retirement scheme and benefi t package to its employees. The Target Group is required to make contribution to a social insurance contribution scheme in PRC of which the Target Group and its employees are each required to make contribution to fund the endowment insurance and unemployment insurance at the rates promulgated by the relevant PRC laws and regulations.

Gearing ratio

The Target Group’s gearing ratio, which represents the long-term liabilities to net assets, increased signifi cantly from (3.87) as at 31 December 2008 to (13.8) as at 31 December 2009. The increase was attributable to (i) the decrease of the Target Group’s total defi cit from approximately HK$27,572,000 as at 31 December 2008 to approximately HK$10,365,000 as at 31 December 2009; and (ii) the increase of the Target Group’s long term liabilities from approximately HK$106,751,000 as at 31 December 2008 to approximately HK$142,872,000 as at 31 December 2009.

LETTER FROM THE BOARD

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE TARGET GROUP FOR THE YEAR ENDED 31 DECEMBER 2010

Revenue

The Target Group is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, a membership-based club located in Beijing, PRC. For the year ended 31 December 2010, the Target Group recorded a turnover of approximately HK$159,516,000, representing an increase by approximately 16.8% in comparison with the last year. The increase was mainly attributed to (i) increase in food and beverage income by 47.1% to approximately HK$54,060,000 for the year ended 31 December 2010; and (ii) increase in membership entrance fees from approximately HK$47,493,000 for the year ended 31 December 2009 to HK$52,823,000 for the year ended 31 December 2010.

Gross profi t

The gross profi t of the Target Group for the year ended 31 December 2010 was approximately HK$76,496,000, representing an increase by 54.9% comparing with last year. The increase was attributable to (i) the increase in food and beverage income which with a higher gross profi t margin; (ii) the increase in membership entrance fees and (iii) the less proportional increase in cost of sales in which cost of operating right lease and depreciation were fairly stable during the year ended 31 December 2010.

Liquidity and Financial Resources

As at 31 December 2010, the Target Group held cash and cash equivalents of approximately HK$3,193,000, representing a decrease by 45.5% comparing to the balance as at 31 December 2009.

The Target Group was at net current liabilities position of approximately HK$123,663,000 as at 31 December 2010, representing a decrease by 20.0% comparing with balance as at 31 December 2009. The Target Group’s non-current borrowings decreased from approximately HK$22,715,000 as at 31 December 2009 to nil as at 31 December 2010. The total borrowings of the Target Group were increased slightly from approximately HK$51,222,000 as at 31 December 2009 to approximately HK$51,297,000 as at 31 December 2010.

The Target Group’s debt to equity ratio, which represents the borrowings to the total equity, decreased from (4.94) as at 31 December 2009 to 1.70 as at 31 December 2010. The signifi cant decrease of debt to equity ratio was mainly attributable to the overturn of total defi cit of approximately HK$10,365,000 as at 31 December 2009 to total equity of approximately HK$30,106,000 as at 31 December 2010.

Contingent liabilities

The Vendor, the sole shareholder of the Target Company, has pledged his interests in the entire issued share capital of the Target Group to an independent third party, Join Capital Limited, a company incorporated in Hong Kong and a wholly-owned indirect subsidiary of a Hong Kong listed company, COL Capital Limited, in connection with a loan facility amounting to HK$255 million with an interest of 2% per month and payable monthly in arrears for a 6-month term period.

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Charges on group assets

Save as disclosed in the “Contingent liabilities” section above, none of the Target Group’s assets has been pledged as security as at 31 December 2010.

Foreign exchange risk

Capital Structure

As at 31 December 2010, the Target Group had total borrowings of approximately HK$51,297,000. The share capital of the Target Group only comprised 1 issued ordinary share of the Target Company of par value of US$1 as at 31 December 2010.

Material investments

The Target Group had amounts due from related parties in the aggregate amount of approximately HK$235,115,000 as at 31 December 2010.

Material acquisitions and disposals of subsidiaries and associated companies

During the year ended 31 December 2010, the Target Group did not have any material acquisitions and disposals of subsidiaries and associated companies.

Number and policy of remuneration

As at 31 December 2010, the Target Group had 395 employees in total. The total staff costs of the Target Group amounted to approximately HK$21,250,000 for the year ended 31 December 2010. The Target Group offers a comprehensive and competitive remuneration, retirement scheme and benefi t package to its employees. The Target Group is required to make contribution to a social insurance contribution scheme in PRC of which the Target Group and its employees are each required to make contribution to fund the endowment insurance and unemployment insurance at the rates promulgated by the relevant PRC laws and regulations.

Gearing ratio

The Target Group’s gearing ratio, which represents the long-term liabilities to net assets, decreased signifi cantly from (13.8) as at 31 December 2009 to 4.54 as at 31 December 2010. The decrease was mainly attributable to the Target Group’s overturn of total defi cit of approximately HK$10,365,000 as at 31 December 2009 to total equity of approximately HK$30,106,000 as at 31 December 2010.

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FEASIBILITY STUDY PERFORMED BY THE COMPANY IN RESPECT OF THE PROSPECTS OF THE TARGET GROUP

The Company reviews the following aspects in order to ensure the feasibility of the prospects of the Target Group:

The Company has engaged an independent professional adviser to assist in performing an onsite check of the business model and operations of the Target Group, and its facilities, policies and procedures.
The Company has engaged professional parties to conduct legal due diligence, including the legal structure, review of material contracts, and legal and regulatory environment relevant to the operations of the Target Group.
The Company has enquired with the management of the Target Group in respect of the policy relating to the repair and maintenance of the facilities. The management of the Target Group confi rmed that internal control and record of the repair and maintenance of the facilities had been provided to the Company for its review.

Due diligence work performed by the Company

One of the conditions of the Acquisition is the Company’s satisfaction with the results of a due diligence investigation conducted by the Company and its advisers. The investigation will include the legal, fi nancial and business investigation in respect of the assets, liabilities, businesses, legitimacy and prospects of the Target Group. As at the Latest Practical Date, the Company was satisfi ed with the results of the due diligence investigation conducted so far. The Company has engaged a PRC legal adviser to perform a due diligence investigation with respect to the PRC affairs including to review the relevant and applicable PRC laws and regulations and to ascertain, among other things, whether the “Bayhood No. 9 Club” has obtained all the necessary licenses and permits for the business of operating and managing the subject golf course and other facilities including but not limited to restaurants, spa, club house. The Company has also instructed its reporting accountants to review the fi nancial information of the Target Group and engaged a valuer to analyse and value the business enterprise value of the “Bayhood No. 9 Club”.

Material fi ndings from the due diligence investigation

Based on the due diligence investigation conducted, the Board is of the view that (i) the business of the “Bayhood No. 9 Club” is viable with the ability to generate revenue of RMB219 million in 2015 and with a gross profi t margin of 62.6% in 2022; (ii) the fair market value of the subject company as of the valuation date, i.e. RMB528,000,000 (as disclosed under Appendix IV of this circular), is higher than the Consideration of the Acquisition; (iii) based on the interview with the management of “Bayhood No. 9 Club”, (a) high net worth individual is the target of “Bayhood No. 9”; (b) growth of the utilisation rate of the facilities of “Bayhood No. 9 Club” is possible in view of the current utilisation rate of its facility; and (c) the location of “Bayhood No. 9 Club” is easily accessible which is 3.5 km from Beijing International Airport and about 25 km from the metropolitan region of Beijing.

LETTER FROM THE BOARD

Based on the result of the feasibility study performed by the Company, and also the opinion/advice rendered by the Company’s reporting accountants, valuer and fi nancial adviser as disclosed in this circular, the Directors are satisfi ed with the results of its due diligence review on the Target Group and will continue such review up to the Completion. The Directors are also optimistic about the prospects of the Target Group.

INDUSTRY OVERVIEW

Overview of tourism industry in PRC

The tourism industry in PRC is one of the fastest growing industries and has witnessed continuous development and transformation driven by two decades long economic liberalisation and the government’s favourable policy framework. According to the research report “China Tourism Industry Forecast to 2012”, inbound industry in China will witness a signifi cant growth during 2011 to 2013, fueled by overseas investment and opening the domestic tourism market to foreign companies. Inbound tourism is projected to grow at a CAGR of around 8% during 2010 to 2013. Besides, PRC is branding and positioning its tourism industry at the global level to fuel growth in the tourism industry.

The increasing number of tourist arrivals and simultaneous rising per capita spending by tourist will boost the tourist receipts in coming years. Moreover, the tourist receipts received by top 5 provinces in PRC accounted for more than 60% of the total receipts generated during 2008. Of these fi ve provinces, Beijing witnessed more than US$4.5 billion in receipts. Backed by cultural promotion, easing VISA regulations and the government support, the industry will witness strong growth in number of tourist arrivals, which in turn will increase tourism receipts.

Consumer confi dence in PRC is expected to increase gradually in line with predicted improvements in the global economy and this should in turn result in increased spending on travel and tourism, thereby creating a positive impact on the tourism fl ows in the PRC market. In addition, economic recovery will also lead to improvements in tourist expenditure, which the Company believes will result in more travellers consuming premium tourism products and services.

Overview of the tourism industry in Beijing

Tourism in Beijing is stimulated by numerous policies set by the PRC government which encourage the growth of tourism industry. The reformation of PRC has also resulted in rapid development in this industry. Beijing tourism has grown from a small number of servicing units into one of the most important sectors of the economy in Beijing. The success of the organisation of Beijing Olympic Games 2008 has again become the most powerful evidence for this ancient city which has encountered development for thousands of years as well as enriched with deep and magnifi cent cultural elements to be the shinning stars that attract the eyes of the world.

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Domestic tourism industry in Beijing

The statistics shows that the potential of Beijing tourism products are still showing a dramatic increment throughout the years. Between 2001 and 2007, the cumulative amount of foreign tourists had keep on increment and fi nally reached about 4.36 million persons, which is an increase of almost 52% when compared to 2001. On the other hand, the amount of inbound tourists has consisted of 1.43 billion persons, which is a cumulative growth of about 30%. The revenue for domestic tourism has encountered a cumulative growth of about 98% and reaches RMB17.5 billion whereas the overall income from the sector of tourism has increased 86% up to RMB21 billion.

The sector of tourism industry has made up 7% of the Gross Domestic Product (GDP) of Beijing. This means that this industry has become one of the most important profi t making sectors which can improve the development of economy in Beijing. In order to further enlarge the scale of the entire tourism industry at the same time increase the quality of rapid development, the Beijing government has offi cially announced “the proposal for the ways to improve and stimulate the development of Beijing tourism industry” in year 2008. Domestic tourists who play a very important role in Beijing tourism industry will reach 1.83 billion persons, which is an increment of 5% with average spending ability with 10% increment. In total, the revenue for domestic tourism will reach at least RMB35 billion and the total income of Beijing tourism will reach the amount of RMB 40 billion.

Market trend of the membership fee in PRC

According to the article by Cybergolf, PRC now contains some 300 courses, more than half of which have opened since 2000. It is estimated that there are approximately 300,000 people who are either members of clubs or who play regularly. However, club memberships and green fees are among the most expensive in the world. The average entrance fee of a golf club is a staggering US$53,000, more than four times the cost of a club membership in Spain and Switzerland, the countries with Europe’s most expensive entrance fees. One in 10 Chinese clubs charges entrance fees exceeding US$100,000, with annual dues ranging between US$1,500 and US$4,000.

Tourist Arrivals

From January to September 2010, there were 41.58 million inbound overnight visits to PRC, an increase of 11% compared with the same period of 2009; foreign exchange earnings has reached US$33.7 million, an increase by 16%; Chinese citizens made 42.28 million outbound visits, an increase of 21% and 1.59 billion domestic visits, an increase of 10%; and revenue from domestic travel has reached US$142.8 billion, an increase of 24%.

Seasonality

With a booming economy, domestic tourism in PRC has developed fast. The PRC government also views domestic tourism as a good channel to boost domestic demand, which will enable the country to be less dependent on the economic development of investments and exports. PRC has created several weeklong holidays (known as Golden Weeks) to encourage people to travel around the country.

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Nevertheless, Golden Weeks also have its drawbacks. With traveling concentrated within these few Golden Weeks, the whole country becomes paralysed by hosts of travelers. As a result, many people have suggested that the government remove the Golden Week system and replace it with a compulsory pay-leave system. Heeding the advice of its people, the Labour Day Golden Week was removed in 2008. Nevertheless the issues that revolved around Golden Week may be viewed as a happy problem as domestic tourism continues to boom.

Economic overview of PRC

PRC’s economy has expanded rapidly since the adoption of reform and market liberalisation policies by the PRC government beginning in the late 1970’s. PRC economy has demonstrated strong and steady growth over the last three decades and has become one of the largest economies in the world. From 2000 to 2009, according to the National Bureau of Statistic of China, PRC’s nominal GDP grew from RMB9.9 trillion to RMB34.1 trillion and its nominal GDP per capita grew from RMB7,858 to RMB25,575, representing a CAGR of approximately 14.7% and 14.0% respectively.

Industrialisation and economic growth in PRC have resulted in rapid urbanisation in PRC through the migration of rural population to urban areas and the development of towns into cities. According to the National Bureau of Statistics of PRC, the total urban population in PRC increased from 459 million as of the end of 2000 to 622 million as of the end of 2009, representing an increase of 35.5% over this eight year period. During the same period, the urban population as a percentage of the total population increased from 36.2% to 46.6% and is projected to continue to increase rapidly over the next decade or more.

Along with the rapid economic growth, disposable income levels have grown signifi cantly. According to the National Bureau of Statistics of PRC, per capita annual disposable income of urban households in PRC has increased from RMB6,280 in 2000 to RMB17,175 in 2009, representing a CAGR of 11.8%. During the same period, per capita annual disposable income of rural households increased from RMB2,253 to RMB5,153, representing a CAGR of 9.6%.

Rising personal income and rapid urbanisation have driven strong growth in consumer spending in PRC, including traveling. According to the National Bureau of Statistics of PRC, total domestic traveling expenses in PRC increased from RMB0.32 trillion in 2000 to RMB1.02 trillion in 2009.

Pricing strategies

In view of the increasing disposable income levels of the population in PRC, the membership fee of golf course in PRC also upsurges in the past decade. The pricing strategies of the Target Group must be in line with the trend of the membership fee of golf course in PRC with a premium as the Target Group aims at the provision of luxurious services to its customers.

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Legislative Measures Supporting Tourism Growth

Over the past years, many legislative measures were implemented to support the tourism industry which has laid down the foundations for sustained growth in tourist arrivals and investments in selected destinations, creating opportunities for increased local employment and enhancing entrepreneurial capabilities of local government units and the private sector to venture into and create new tourism products and services.

Laws promoting tourism industry

According to 關於加快發展服務業的若干意見 (Several Opinions of the State Council on Speeding up the Development of Service Industry) promulgated by the State Council in March 2007, the PRC Government proposed to speed up the development of industries relating to people’s livelihood, with focus on meeting the aim of establishment of a society with a relatively better standard of living and the requirements of improving consumer spending patterns, accelerate the development of tourism, cultural, sport and leisure and recreational services, and increase policies support for service industries from tax, credit, land and price aspects, broaden the fi nancial sources for the service industries so as to bring along fast development of the same.

With the full implementation of the national policy to make tourism one of the country’s engines for investment, employment, economic growth and development, the government further develops and promotes more tourism areas in the country, prioritises and coordinates the sector’s infrastructure requirements, as well as facilitates the linkages of tourism with agriculture and other sectors, including the protection of environment and culture for the future generation.

With the aim of attracting more foreign tourists to these areas, the government also oversees a major tourism infrastructure program, helping different agencies and local authorities to identify and develop vital infrastructure, for example, access roads, airports, seaports etc in these tourism enterprise zones. Furthermore, the preferential policies of loans for small-medium size enterprises have been granted to the tourism enterprises which fulfi ll the necessary criteria. The fi nancial institutions would provide fi nancial supports to those tourism projects which are advantageous in terms of resources and market potential but temporarily sustain in operating diffi culties. Besides, programs and policies will continue to be implemented by the provincial government to strengthen the competitiveness of travel and tourism in PRC. In particular, it will focus on policies and programs which will contribute to the long term sustainable development of the market.

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Competition

The major competitors of the Target Company are other recreational and resort complex in Beijing. The Target Company also faces challenges and competition, to a certain extent, from other recreational and resort complex in Beijing in terms of size and investment amount.

In accordance with the statistics provided by 北高網 (www.northgolf.cn) in 2009, Beijing CBD Golf Club, Beijing Fragrant Hills International Golf Club, Beijing Pine Valley Resort & Country Club, Beijing Shunfeng Golf Country Club and “Bayhood No. 9 Club” were considered selling the most expensive golf club membership in Beijing. As such, Beijing CBD Golf Club, Beijing Fragrant Hills International Golf Club, Beijing Pine Valley Resort & Country Club, Beijing Shunfeng Golf Country Club are considered as competitors of “Bayhood No. 9 Club” in Beijing. They are similar to “Bayhood No. 9 Club” in terms of the number of holes, facilities and membership fees. In order to remain competitive, “Bayhood No. 9 Club” has to provide premium services to its members e.g. provision of two bag boys for each individual member. However, in view of the competitive strength of “Bayhood No. 9 Club” mentioned above, “Bayhood No. 9 Club” should be able to maintain its market share and further increase its profi tability by enhancing its facilities in future.

The new business sector of provision of recreational and tourism services in PRC is highly competitive in PRC with the presence of a large number of recreational and tourism service providers in the market, which can be divided into two categories according to the sectors of their target customers:

a. Large scale recreational and tourism service provider

This category of recreational and tourism service providers generally has golf course of 27 holes or more, hotel and resort and luxurious theme restaurant. This category of recreational and tourism service provider is the principal competitors as they also target on the premium customers.

b. Small scale recreational and tourism service provider

This category of recreational and tourism service providers generally has golf course of 27 holes or less. This category of recreational and tourism service provider is not the principal competitors as they also target on the public customers.

LAW & REGULATION

Laws and regulations relating to the golf course

According to the 國務院辦公廳關於暫停新建高爾夫球場的通知 (Notice on Suspension of New Golf Course Construction) promulgated by the State Council, the local people’s government at any level shall immediately conduct a comprehensive inspection at the existing golf course projects and golf course projects that are under construction within their administrative districts. The main purpose for the inspection is to verify the following: whether the formalities for obtaining approval for planning the golf course project are correct; whether the construction of the projects satisfi es the utilisation of the land according to overall planning and overall urban planning; and whether the land complies with the laws and regulations.

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Laws and regulations relating to the business hotel and other facilities provided by the Target Group

According to the 外商投資產業指導目錄2007修定稿 (Catalogue of Industries for Guiding Foreign Investment (Revised 2007)) issued by the National Development and Reform Commission and Ministry of Commerce, the construction and operation of high-end hotels is categorised as 限制外商投資的產業 (“restricted category for foreign investment”); the construction and operation of the ordinary and budget hotels is a 允許外商投資的產業 (“permitted category for foreign investment”). The PRC became a member of the WTO on 11 December 2001 and according to the 中華人民共和國加入議定書 (Protocol on the Accession of the PRC), foreign service providers are allowed to set up joint ventures, in which they can hold majority interests, to construct, renovate and operate hotels and restaurants. These restrictions were withdrawn by 10 December 2005 and a wholly foreign owned enterprise is now allowed.

1. Laws governing Security and Fire Control

According to 旅館業治安管理辦法 (Measures for the Control of Security in the Hotel Industry), which came into effect on 10 November 1987, an application for establishing a hotel in PRC shall be signed and have comments noted on it by a local public security organ, and such hotel is permitted to begin operation only after lawful registration and obtaining 特種行業許可證 (Special Industry Permit). The above measures however do not specify the period of validity of such Permit. If the hotel wishes to suspend operations, change its line of business, amalgamate, relocate, change its name or other such matters, it shall report the details to the local security bureau or branch bureau at county or at the municipal level for fi ling. According to the 機關、團體、企業、事業單位消防安全管理規定 (Provisions on the Administration of Fire Safety of State Organs, Organisations, Enterprises and Institutions), which came into effect on 1 May 2002, hotels, restaurant and spa are classifi ed as key administrative units of fi re control safety. Examination procedures for fi re control design shall be gone through in respect of any construction and decoration and replacement work of a hotel, and the hotel may commence the business after passing the inspection and acceptance over fi re control upon completion of the work.

Administration of Sanitation in Public Places

According to requirements concerning sanitary administration of public places, hotels, restaurants and spas are included in the sanitary administration area of public places and a sanitation permit shall be obtained. The sanitation permit shall be reviewed every two years. According to 餐飲服務許可管理辦法 (Administrative Measures for the Licensing of Catering Services), which came into effect on 1 May 2010, a catering service provider shall obtain a 餐飲服務許可證 (Catering Service License) and assume the food safety responsibilites for its catering services. The validity period of the said License is for 3 years. According to the 公共場所衞生管理條例實施細則 (Implementing Rules of Regulations on the Sanitary Administration of Public Places), which was revised on 12 February 2010, staff who serve the customers directly (including temporary workers) must conduct a health check once a year and obtain a health certifi cate before he/she goes to work.

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3. Administration of Food Safety

According to 食品安全法 (Food Safety Law), which came into effect on 1 June 2009, any enterprise or individual engaged in food and beverage operation shall obtain 食品生產許可 (Food Production License), 食品流通許可 (Food Circulation License) and 餐飲服務許可證 (Catering Service License). The Food Production License and Food Circulation License are issued by the food and drug administrative department at county level or higher. Restaurants must be in compliance with the relevant standards and requirements regarding food sourcing and storage, food processing, dining utensils, restaurant service and sanitary administration of take-away food. A catering service provider which has obtained a 餐飲服務許可證 (Catering Service License) shall not be required to obtain a Food Production License or a Food Circulation License to provide catering services.

4. Administration of Culture

According to 衞星電視廣播地面接收設施管理規定 (Requirements concerning the Administration of Television Programs and Film Broadcasts), which came into effect on 3 February 1994, hotels rated three-star or second class (national standard) or above with the capability of accommodating foreign visitors may apply to install ground satellite receiving facilities in order to receive interrupted foreign entertainment programs transmitted via satellites to local administrative departments of radio and television at county or municipal level. Upon completion of installing ground satellite receiving facilities, the enterprises would be issued 接收衞星傳送的電視節目許可證 (A Permit to Receive Television Programs Transmitted via Satellites) by the approving authority.

5. Administration of Sewage and Pollutant Discharge

According to the 建設部關於納入國務院決定的十五項行政許可的條件的規定 (Regulations on Conditions for 15 Administrative Licensing Items to be Determined by The Ministry of Construction), which came into effect on 1 December 2004, enterprises which connect or which plan to connect with the urban water discharging facilities to discharge their sewage shall apply for a urban water discharging permit from the competent urban construction department of their own area. According to the 城市排水許可管理辦法 (Administrative Measures for Urban Sewage License), which came into effect on 1 March 2007, enterprises discharging pollutants directly or indirectly into the waters shall apply for a 城市排水許可證 (urban sewage discharge permit) and 排污許可證 (discharge permit) from the local environmental protection departments. The validity period of the 城市排水許可證 (urban sewage discharge permit) and 排污許可證 (discharge permit) is for 5 years.

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6. Administration of the Safety of Special Equipment

Certain equipment, such as lifts (elevators and escalators), boilers and pressure vessels are classifi ed as special equipment. According to the 特種設備安全監察條例 (Regulations on Special Equipment Safety Inspection), which was revised on 24 January 2009, the abovementioned special equipment shall be registered with the municipal special equipment safety supervision and administration department of a municipality directly under the central government or district before or after such equipment is put into use. Regular examination shall also be performed on such equipment in accordance with technical safety standards and a 特種設備登記卡 (Special Equipment Registration Card) and a 特種設備使用登記證 (Special Equipment User Card) shall be issued. The user of special equipment shall request for regular examination by the relevant municipal special equipment safety supervision and administration department 1 month before the expiry date of the period of validity for safety inspection in accordance with technical safety standards. As there are many different types of special equipment, the exact duration of the period of validity for safety inspection is not specifi ed in the 特種設備安全監察條例 (Regulations on Special Equipment Safety Inspection). The relevant municipal special equipment safety supervision and administration department shall specify the next examination date in accordance with particular circumstances.

7. Administration of Sale of Tobacco and Alcohol

According to 中華人民共和國烟草專賣法 (the law of the People’s Republic of China on Tobacco Monopoly), which was revised on 27 August 2009, any enterprise or individual that is to engage in the retail trade of tobacco products shall be subject to the examination and approval of, before the issuance of a 煙草專賣零售許可證 (License for Tobacco Monopoly Retail Trade) by, the administrative department for industry and commerce under the people’s government at the county level on the commission of the department of tobacco monopoly administration at the next higher level. The validity period for the said License is for a maximum of 5 years. In areas where departments of tobacco monopoly administration at the county level have been set up, such departments may, after their examination and approval, also issue tobacco monopoly retail licences. According to 酒類流通管理辦法 (the Measures for Administration of Alcohol Circulation), which came into effect on 1 January 2006, alcohol managers should register for record to the competent commercial authority at the same level of industrial and commercial administrative department in the registration areas according to dependencies management principles within 60 days at obtaining of the business licence.

8. Taxation

(i) Income tax on enterprises

Under 中華人民共和國企業所得稅暫行條例 (the Provisional Regulations of the PRC Concerning Income Tax on Enterprises) promulgated by the State Council and which came into effect on 1 January 1994, state-owned enterprises, collectively-owned enterprises, private enterprises, joint ventures and joint stock limited enterprises engaged in production, businesses and other income producing enterprises are liable to pay income tax at the rate of 33% on their taxable incomes except that where, in relation to particular categories of enterprises, existing laws, administrative regulations or any other relevant regulations promulgated by the State Council provide for tax privilege and tax reduction policy.

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According to 中華人民共和國企業所得稅法 (PRC Corporate Income Tax Law) (the “CIT Law”) and 中華人民共和國企業所得稅法實施條例 (Regulations for the implementation of the PRC Income Tax on Enterprise) which both came into effect from 1 January 2008, and repealed 中華人民共和國企業所得稅暫行條例 (the Provisional Regulations of the PRC Concerning Income Tax on Enterprises) with effect from 1 January 2008, a uniform income tax rate of 25% will be applied to PRC resident enterprises notwithstanding if such enterprises are foreign-invested. A resident enterprise (both ForeignInvested Enterprise and domestic company) must pay enterprise income tax for its income derived from or accruing both in and outside PRC.

The CIT Law and its implementation rules provide that income tax rate of 10% will be applicable to dividends payable to non-PRC resident enterprise investors if the dividends are derived from sources within PRC. However, if there is a tax treaty between PRC and the relevant jurisdictions in which such non-PRC enterprise shareholders reside, the relevant tax may be reduced or exempted.

However, according to 國務院關於實施企業所得稅過渡優惠政策的通知 (the Notice of the State Council on the Implementation of the Transitional Preferential Policies in respect of Enterprise Income Tax) which came into effect on 1 January 2008, enterprises established prior to 16 March 2007 that previously enjoy the preferential policies of low tax rates shall be gradually transited to enjoy the statutory tax rate within fi ve years after the implementation of the CIT Law. Among them, the enterprises that enjoy the enterprise income tax rate of 15% shall be subject to the enterprise income tax rate of 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. The enterprises that previously enjoy the tax rate of 24% shall be subject to the tax rate of 25% as of 2008. As of 1 January 2008, the enterprises that previously enjoy “2-year exemption and 3-year half payment”, “5-year exemption and 5-year half payment” of the enterprise income tax and other preferential treatments in the form of periodic tax deductions and exemptions may, after the implementation of the CIT Law, continue to enjoy the relevant preferential treatments under the preferential measures and the time period prescribed in the former tax law, administrative regulations and relevant documents until the expiration of the said time period. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make profi ts, its preferential time period shall be calculated from 2008.

(ii) Value added tax

The Provisional Regulations of PRC Concerning Value Added Tax (中華人民共和國增值稅暫行條例) promulgated by the State Council and came into effect on 1st January, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of PRC Concerning Value Added Tax (中華人民共和國增值稅暫行條例實施細則), value added tax is imposed on goods sold in or imported into PRC and on processing, repair and replacement services provided within PRC.

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Value added tax payable in PRC is charged on an aggregated basis at a rate of 13 or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductive value added tax already paid by the taxpayer on purchases of goods and services in the same fi nancial year.

(iii) Business tax

Both the Provisional Rules of the People’s Republic of China on Business Tax (中華人民共和國營業稅暫行條例) which came into effect on 1 January 2009 and the Detailed Rules for the Implementation of the Provisional Rules of the People’s Republic of China on Business Tax (中華人民共和國營業稅暫行條例實施細則) which came into effect on 1 January 2009, stipulate that, all units and individuals except entertainment business engaged in the provision of taxable labour services, the assignment of intangible assets or sale of immovable properties, within the territory of PRC, are required to pay 3% or 5% business tax on their gross business turnover. The business tax with regard to the entertainment business is at the rate of 20%.

To the extent, the above laws and regulations are applicable to the existing business operated by the Target Group, the Target Group is required to maintain the requisite approvals, licenses and permits issued under the said laws and regulations to operate its business.

The periods of validity of the requisite approvals, licenses and permits issued under the above laws and regulations range from 3 years to 5 years, although some approvals, licenses and permits do not have any specifi ed periods of validity.

Regarding those approvals, permits and licenses which are subject to periodic examinations or verifi cations by relevant authorities and are valid only for a fi xed period of time or subject to renewal and accreditation, if the Target Group is unable to meet the relevant requirements or found in material breach of any laws or regulations, and as a result unable to pass the examination or verifi cation, the Target Group could be penalised according to the relevant laws and regulations or the relevant approvals, permits or licenses could be revoked. While the Target Group has passed the examinations and verifi cations in the past and have not been penalised before, the Target Group cannot assure that it will be able to pass every examination or verifi cation in the future. There can be no assurance that the Target Group will be able to renew all of the licenses when they are expired. If the Target Group cannot obtain and maintain all licenses required by it to operate its business, its business could be interrupted or the continued operations of the business may be subject to fi ne and penalty.

LETTER FROM THE BOARD

The Target Group has obtained licenses and approvals which are necessary for the operation of its business, save that the Target Group is still in the course of: (i) applying for a 城市排水許可證 (urban sewage discharge permit) and a 排污許可證 (discharge permit) in accordance with the 城市排水許可管理辦法 (Administrative Measures for Urban Sewage License), (2) registering for a 酒類流通備案登記 (Alcohol Circulation Registration Record) in accordance with the 酒類流通管理辦法 (the Measures for Administration of Alcohol Circulation), and there has been no non-compliance history in relation to licenses and permits already obtained by the Target Group. It is expected that the outstanding permits may be obtained and the outstanding registration may be completed within a month’s time. The Target Group does not foresee any serious diffi culties in obtaining the outstanding permits and completing the outstanding registration.

RISK FACTORS

Ricks involved in investing in a new business and running different lines of businesses

The investment in the new business sector of provision of recreational and tourism services in PRC may pose signifi cant challenges to the Group’s administrative, fi nancial and operational resources. Since the Group does not have any exposure to or experience in the new business, it is not in a position to assure the timing and amount of any return that may be generated from the new business, nor is it certain to control the operational risks that could lead to a loss.

In running different lines of businesses, the Group’s management may lose its business focus. It is also diffi cult for the management to manage the Shareholders’ expectations as the growth and returns differ in different business lines and different investment projects.

The coherence in running different lines of businesses greatly depends on the level of experience and accuracy of the management’s assessment of the new business investment and its impact on the Group as a whole which will be affected by the information obtained for the new business, such as the accuracy of the historical data gathered, industrial and market information obtained, proposed changes in the government policy in the future years, expectation in the estimated length of the investment period and the period of returns, initial investment and any subsequent re-investment cost and/or related capital expenditure, economical changes, technological changes in the business, additional costs to be incurred for the contingency plans, foreseeable changes in the customer base and the market requirement in both products and services, industrial and market competitors, possible political, cultural or environmental changes and any possible changing elements.

Termination of Cooperation Construction and Operating Agreement

The Cooperation Construction and Operating Agreement may be terminated upon the occurrence of any of the following events: (a) the Cooperation Construction and Operating Agreement cannot be performed practically due to force majeure; (b) both parties agree to the termination; (c) any party has lost the capacity to practically perform the Cooperation Construction and Operating Agreement; or (d) a party has committed a material breach of the Cooperation Construction and Operating Agreement rendering performance of it unnecessary. In the event that the Cooperation Construction and Operating Agreement is terminated, “Bayhood No. 9 Club” may lose the right to engage in its operation.

LETTER FROM THE BOARD

Uncertainty of the performance of “Bayhood No. 9 Club”

The operation of the Target Group will depend on the acceptance of the facilities by the market. Costs must be incurred for continuous upgrading in service level and repair and maintenance of the facilities of “Bayhood No. 9 Club”. However, no one could guarantee that such cost to be incurred must lead to a corresponding increase in the revenue of “Bayhood No. 9 Club” or in the market share in future or enable “Bayhood No. 9 Club” to otherwise compete effectively. Any failure on the continuous service upgrading and repair and maintenance for the facilities of “Bayhood No. 9 Club” will adversely affect the business, fi nancial conditions and results of operation of the Target Group.

The dependence on the compliance by Beihu of its contractual obligations under the Cooperation Construction and Operating Agreement

The rights of Bayhood No. 9 to operate the club facilities on the Subject Land up to 31 December 2051 depend on the compliance by Beihu of its contractual obligations and validity of its representations and warranties under the Cooperation Construction and Operating Agreement. Any breach by Beihu of the same will result in economic loss to Bayhood No. 9 whose only recourse will be against Beihu for recovery of the loss.

The success of “Bayhood No. 9 Club” is dependent on the continued services of several key management personnel of the Target Group and the ability to attract and retain talented personnel

The future success of the Target Group depends heavily upon the continued services of the senior executives and several key employees of the Target Group and its ability to attract and retain talented personnel. In particular, the Group relies on the expertise and experience of Mr. CHEN Guang Tian, general manager of “Bayhood No. 9 Club”, and deputy general managers of “Bayhood No. 9 Club”, Mr. ZHU Ya Ping and Ms. WANG Li Jun. In particular, Mr. CHEN concentrates on the brand positioning and continuous improvement of the fi nancial performance of “Bayhood No. 9 Club” and is crucial to the Group. Mr. ZHU and Ms. WANG oversee the business operations and maintain “Bayhood No. 9 Club”, and cultivate and maintain business relationships with “Bayhood No. 9 Club’s” customers. If any of them is unable or unwilling to continue in his/her present position, the Group may not be able to replace him/her easily or at all and its business, fi nancial condition and results of operations may be materially and adversely affected. The Group has to incur additional expenses to recruit, train and retain personnel and may not be able to achieve its strategic objectives at a similar cost.

Allegations, complaints or reports made by third parties, which could affect the reputation, corporate

image and operation of “Bayhood No. 9 Club”

It may be likely that “Bayhood No. 9 Club” may face negative press reports, allegations and complaints about its operation made by third parties and in media reports in relation to its operations or fi nancial conditions. Whether or not justifi ed, any incidents, regulatory investigations or reports through the media or other third parties involving “Bayhood No. 9 Club” could harm its reputation and its corporate image, or otherwise affect its ability to expand or conduct its business, and may therefore have a material and adverse effect on its business, cash fl ow, fi nancial condition, result of operations and prospects.

LETTER FROM THE BOARD

No assurance that the quality of the products or services offered by the Target Group can meet the customers’ expectations

There can be no assurance that the quality of the products or services offered by the Target Group can be maintained up to its required standards or meet the customers’ expectations. Any failure in the quality of the products or services offered by the Target Group or sold under its brand may have an adverse effect on its business, reputation and fi nancial condition.

The business operations may be subject to acts of God, epidemics or pandemics which are beyond the control of the Target Group and which may cause damage, loss or disruption to the business of the Target Group

Natural disasters, epidemics or pandemics and other acts of God which are beyond the control of the Target Group may adversely affect the economy, infrastructure and livelihood of the people in PRC. Some cities in PRC are under the threat of fl oods, earthquakes, sandstorms, snowstorms, fi res or droughts. For instance, in May and June 2008, a serious earthquake and its successive aftershocks hit Sichuan, leading to a tremendous loss of lives and injury and destruction of assets in the region. In April 2009, a H1N1 Swine Flu broke out in Mexico and spread globally, resulting in a loss of lives and widespread fear. The business of the Target Group and fi nancial condition may be adversely affected in a material respect if such natural disasters occur in PRC. A recurrence of SARS, an outbreak of swine or avian infl uenza, or any epidemic, in Beijing or other areas of PRC, may result in material disruptions to the operations of the Target Group or a slowdown of PRC’s economy, which may materially and adversely affect the business, fi nancial condition and results of operations of the Target Group.

The business operations of the Target Group may be subject to acts of terrorist attacks and other acts of violence or war which are beyond the Target Group’s control and which may cause damage, loss or disruption to the business of the Target Group

Acts of war and terrorism may also injure the employees, cause loss of lives, damage the facilities in “Bayhood No. 9 Club”, which may materially affect the revenue and overall fi nancial condition of the Target Group. The potential for war or terrorist attacks may also cause uncertainty and cause the business of the Target Group to suffer in ways that the Target Group cannot predict. The business, fi nancial condition and results of operations of the Target Group may be materially and adversely affected as a result.

Threat of competition from similar club

No one can assure that there will not be any opening of similar club in Beijing in future. The opening of clubhouse or resorts may result in an increase in entertainment, services and amenities, which will intensify competition in Beijing. In addition, some of the competitors may have greater fi nancial resources than the Target Group or provide services that “Bayhood No. 9 Club” may not provide. No one can assure that the development strategy will enable “Bayhood No. 9 Club” to successfully compete with the newly established clubs in Beijing in future. If “Bayhood No. 9 Club” cannot compete effectively with its competitors, its business, cash fl ow, fi nancial condition, results of operations and prospects may be materially and adversely affected.

LETTER FROM THE BOARD

Breach of regulations in relation to housing provident fund in Beijing

Pursuant to the Beijing Municipal Tentative Regulations on Social Insurance (北京市社會保險暫行規定) promulgated on 1 August 1992, enterprises shall make contributions to the housing provident fund for employees with Beijing residency. Enterprises will be subject to a penalty ranging from RMB10,000 to RMB50,000 if the enterprises fail to pay on time upon request of the governing authority. The Target Group confi rmed that as at 31 December 2010, the amount of contributions unpaid is approximately RMB2,924,000 which has been provided for in the accounts.

Inadequate insurance coverage for all possible losses that “Bayhood No. 9 Club” could suffer

It is impossible to assure that the insurance coverage will be adequate to cover all losses in the event of a major casualty. Certain events such as nuclear events, acts of war or terrorism and epidemic outbreaks are excluded from coverage by these insurance policies. As a result, certain acts and events could expose Bayhood No. 9 to signifi cant uninsured losses. If those losses or damages for amounts exceed the limits of the insurance coverage, if any, or for claims outside the scope of the insurance coverage, if any, the Target Group’s business, fi nancial conditions and results of operations could be materially and adversely affected. In addition to the damages caused directly by a casualty loss such as fi re, natural disasters, acts of war or terrorism, the Target Group might suffer a disruption of its business or be subject to claims by third parties who may be injured or harmed as a result of these events.

Moreover, the Target Group may be unable to renew or replace the existing insurance policies of “Bayhood No. 9 Club” when they expire on commercially reasonable terms, or at all, which could result in substantially higher insurance costs or signifi cantly increase the risk of loss or damage due to uninsured events and may affect its operation.

The Company is a holding company and relies on dividend payments from its operating subsidiaries

The Company is a holding company and conduct all of its business through its operating subsidiaries in PRC. As a result, its ability to pay dividends depends on dividends and other distributions received from its operating subsidiaries. If the Company’s subsidiaries incur debt or losses, it may impair their ability to pay dividends or other distributions to the Company, which could adversely affect its ability to pay dividends to the Shareholders.

Under the current PRC laws, dividends of PRC companies can be paid only out of the after-tax profi t calculated according to PRC accounting principles, which differ in many respects from generally accepted accounting principles in other jurisdictions. Furthermore, PRC law requires foreign invested enterprises, such as its operating subsidiaries in PRC, to set aside part of their net profi t as statutory reserves. The Company’s PRC subsidiaries are required to set aside each year at least 10% of its after-tax profi ts for such year, as reported in its PRC statutory fi nancial statements, to the statutory surplus reserve of such PRC subsidiaries. Such reserve may not be discontinued until the accumulated amount has reached 50% of the registered capital of PRC subsidiaries. These statutory reserves are not available for distribution to the Company, except in liquidation. The calculation of distributable profi ts under PRC Accounting Standards and Regulations differs in certain aspects from the calculation under HKFRS. As a result, the Company’s subsidiaries in PRC may not be able to pay any dividend in a given year to the Company if they do not have distributable profi ts as determined under PRC Accounting Standards and Regulations, even if it has profi ts for that year as determined under HKFRSs.

LETTER FROM THE BOARD

Limitations on the ability of the Company’s PRC subsidiaries to remit their entire after-tax profi ts to the Company in the form of dividends or other distributions could adversely affect its ability to grow, make investments that could be benefi cial to its business, pay dividends and otherwise fund and conduct its business. The Company cannot assure others that its subsidiaries will generate suffi cient earnings and cash fl ows to pay dividends or otherwise distribute suffi cient funds to the Company to enable it to pay dividends to the Shareholders.

In addition, restrictive covenants in bank credit facilities, joint venture agreements or other arrangements that the Company or its subsidiaries may enter into in the future may also restrict the ability of its subsidiaries to pay dividends or make distributions to the Company. These restrictions could reduce the amount of dividends or other distributions the Company receives from its subsidiaries, which in turn would restrict its ability to pay dividends to the Shareholders.

The valuation of the business of Bayhood No. 9 may be lower

The business valuation of Bayhood No. 9, which is one of the considerations on which the Company proceeds with the Acquisition is arrived at by American Appraisal China Limited (“the Valuer”) in the context of economic outlook and industry overview taken by the Valuer, and on the assumption of accuracy of information, data and representations provided to the Valuer. The value of the business of Bayhood No. 9 may be lower if subsequent events adversely go beyond the views taken by the Valuer on the economy of PRC and the tourism industry in PRC. Similarly, the value would decline if the assumptions on which the Valuer based for the valuation are fl awed.

Net current liabilities

As of 31 December 2008, 2009 and 2010, the Target Group’s net current liabilities were approximately HK$225 million, HK$154 million and HK$124 million respectively, which were mainly attributable to the payables to entities controlled by the key management of the Target Group and other payables and accrual liabilities.

Changes and uncertainties in PRC laws, government rules and regulations may have an adverse impact

on the Target Group’s operations

The operation of the Target Group is subject to a variety of government rules and regulations (e.g. environmental protection, food safety etc.). Compliances with such regulation can be expensive and noncompliance may result in adverse publicity and potentially signifi cant monetary damages and fi nes or suspension of the Target Group’s business operations.

LETTER FROM THE BOARD

Changes in the economic, political, legal and regulatory conditions in PRC may have an adverse impact on the Target Group’s operations

All of the Target Group’s assets are located in PRC and all of the Target Group’s revenue is derived from goods or services offered in “Bayhood No. 9 Club”. As such, the results of operations and prospects of the Target Group are subject, to a signifi cant degree, to the economic, political, legal and regulatory conditions in PRC. The economy of PRC differs from the economies of most developed countries in many respects, including the extent of government involvement, allocation of resources, capital reinvestment, level of development, growth rate, and control of foreign exchange. Historically, PRC economy was centrally-planned, with a series of economic plans promulgated and implemented by PRC Government. However, since 1978, PRC Government has been promoting economic and political reforms. The economy of PRC has shifted gradually from a planned economy toward a market-oriented economy.

Continued government control of the economy may have a negative effect on the Target Group. For example, the fi nancial condition of the Target Group may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to the Target Group. No assurance can be given that PRC Government will continue to pursue economic reforms. A variety of policies and other measures may be taken by PRC Government to regulate the economy, including the introduction of measures to control infl ation, changes in the rate or method of taxation or the imposition of additional restrictions on currency conversions and remittances abroad. Some of these measures may have a negative impact on the Target Group although they may benefi t the overall PRC economy. The business, fi nancial condition and results of operations of the Target Group may be adversely affected by some restrictive changes in PRC Government’s economic, political, legal and regulatory conditions, social policies, tax regulations or policies.

REASONS FOR THE ACQUISITION

As disclosed in the Company’s 2009 annual report, the Group targets to expand its business into cultural and tourism sectors, the development of which the PRC government is energetically promoting. The 12th Five-Year Plan of PRC proposed the development of the tourism industry. According to the “Guidelines of the Plan for the Promotion of Tourism Industry Development” issued by the State Council, tourism is one of the strategic pillar industries in the development of the nation’s economy. Annual revenue of the tourism industry is projected to grow by 12% from 2011 to 2015, which shows PRC’s strong commitment to develop the tourism industry.

According to statistics from the National Bureau of Statistics, GDP per capita of PRC has maintained rapid growth in recent years, rising from approximately RMB16,000 in 2006 to approximately RMB25,000 in 2009. As the income of Chinese households increase, the travel patterns of domestic tourists have changed from sightseeing to leisure travelling, which have created new business opportunities in the tourism sector. The Target Group, which is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, is an attractive acquisition target for the Group because it focuses on the high-net-worth sector who are able to afford leisure and recreational travelling. The Board believes that the acquisition will enable the Group to diversify into recreational and tourism-related businesses and leverage opportunities brought from the rapid growth of the industry. The management experience in operating “Bayhood No. 9 Club” will be valuable and applicable to the recreational and tourism-related business developments of the Group, and will enhance investment returns for both the Group and the Shareholders.

LETTER FROM THE BOARD

As shown in the fi nancial information stated in this circular, the Target Group has recorded continuous growth in revenue, gross profi t, profi t before tax and net profi t after tax. Sales revenues and net profi t after tax for the year ended 31 December 2010 reached HK$159.5 million and HK$38.1 million respectively. The Board considers that it is benefi cial for the Group to broaden its sources of income and the Board believes that the Acquisition could enhance the overall fi nancial performance of the Group.

In view of the above, the Directors (including the independent non-executive Directors) consider that the terms and conditions of the Sale and Purchase Agreement to be fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in advertising business, content production business and properties investment through a jointly controlled entity. As disclosed in the annual report of the Group for the year ended 31 December 2009, the management has kept a close watch on the latest development of the cultural and tourism sectors, and foresees an enormous potential from the cultural and tourism sectors. The Group is determined to become an integrated platform that incorporates traditional and new media by expanding into the cultural and tourism businesses in tandem with the existing media operation.

Upon Completion, the Enlarged Group will, through the Target Group, engage in the tourism business with a primary focus on the recreational and resort complex, which is, in the opinion of the Company, a fast growing market with strong potential demand for quality leisure and relaxation tourist area. The Company believes that in view of the strong growth in the tourism industry, it is expected that the Target Group will be able to contribute recurring cashfl ow and favourable returns to the Group.

FINANCIAL EFFECT OF THE ACQUISITION

As illustrated in the unaudited pro forma fi nancial position of the Enlarged Group as set out in Appendix III to this circular which has been prepared as if the Completion had taken place on 31 December 2010, upon Completion: (i) the total consolidated net assets attributable to the equity holders of the Company would increase from approximately HK$894 million to approximately HK$1,011 million; (ii) the total assets would increase from approximately HK$1,353 million to approximately HK$1,921 million; and (iii) the total liabilities would increase from approximately HK$459 million to HK$1,080 million. The increase in the total assets is mainly due to the increase in property, plant and equipment, goodwill and intangible assets as a result of the Acquisition.

Based on the unaudited pro forma consolidated fi nancial statement of the Enlarged Group which has been prepared as if the Completion had taken place on the 1 January 2010, the consolidated loss of the Group for the year ended 31 December 2010 would decrease from approximately HK$484 million to approximately HK$465 million mainly due to the profi t contribution from the Target Group.

SPECIFIC MANDATE FOR THE ISSUE OF THE CONSIDERATION SHARES

In contemplation of the proposed allotment and issue of the First Consideration Shares and Second Consideration Shares pursuant to the terms of the Sale and Purchase Agreement, the Company proposes to seek the grant of the specifi c mandate from the Shareholders at the EGM.

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

The Acquisition constitutes a very substantial acquisition for the Company pursuant to Rule 14.06(5) of the Listing Rules and is, accordingly, subject to the approval of the Shareholders at the EGM pursuant to Rule 14.49 of the Listing Rules.

To the best of the Directors’ knowledge having made all reasonable enquiries, information and belief, none of the Shareholders, the Directors and the chief executives of the Company and their respective associates has any material interest in the Acquisition as at the Latest Practicable Date. Accordingly, no Shareholder is required to abstain from voting at the EGM.

PRINCIPAL BUSINESS OF THE GROUP

The Group is principally engaged in advertising business, content production business and properties investment through a jointly controlled entity.

EGM

A notice convening the EGM to be held on Friday, 8 July 2011 at 10:00 a.m. at Empire Room 1, Empire Hotel Hong Kong, 33 Hennessy Road, Wanchai, Hong Kong is set out on pages 243 to 244 of this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the offi ce of the Company’s branch share registrar in Tricor Tengis Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the 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 EGM or any adjournment thereof should you so wish and in such event, the proxy form shall be deemed to be revoked.

RECOMMENDATION

The Directors are of the opinion that the terms of the Sale and Purchase Agreement are on normal commercial terms, fair and reasonable and that the Acquisition is in the interests of the Company and the Shareholders as a whole. The Directors recommend the Shareholders to vote in favour of the resolution as set out in the notice of EGM to approve, among other things, the transactions contemplated under the Sale and Purchase Agreement and grant of specifi c mandate to issue new Shares at the EGM.

GENERAL

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of EGM.

By the Order of the Board Media China Corporation Limited Yuen Hoi Po Chairman

Hong Kong, 17 June 2011

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the fi nancial position and results of the Group as at and for each of the three years ended 31 December 2008, 2009 and 2010. Save as otherwise disclosed, the fi nancial information shown in this Appendix, including but not limited to (loss)/earnings per share, has not taken into account the Share Consolidation effective on 16 May 2011 and the proposed Rights Issue announced by the Company on 6 May 2011.

CONSOLIDATED INCOME STATEMENTS

Continuing operations Sales Cost of sales Gross (loss)/prof t Other income and other gains, net Marketing and selling expenses Administrative expenses Provision for impairment of intangible assets Share of prof t of an associated company Finance costs (Loss)/prof t before taxation Taxation (Loss)/prof t for the year from continuing operations Discontinued operation Loss for the year from discontinued operation (Loss)/prof t for the year Attributable to: Equity holders of the Company Non-controlling interests	Year 2008 HK$’000 (Restated) (Note 2) 186,008 (235,256) (49,248) 12,432 (25,862) (188,629) (173,843) 37,449 (55,499) (443,200) 2,078 (441,122) — (441,122) (441,117) (5) (441,122)	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) 284,058 171,308 (181,377) (116,944) 102,681 54,364 77,373 35,526 (24,006) (19,462) (61,677) (76,660) — (478,428) 3,335 6,931 (31,291) (1,125) 66,415 (478,854) (421) (4,813) 65,994 (483,667) (64,618) — 1,376 (483,667) 1,383 (483,463) (7) (204) 1,376 (483,667)	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) 284,058 171,308 (181,377) (116,944) 102,681 54,364 77,373 35,526 (24,006) (19,462) (61,677) (76,660) — (478,428) 3,335 6,931 (31,291) (1,125) 66,415 (478,854) (421) (4,813) 65,994 (483,667) (64,618) — 1,376 (483,667) 1,383 (483,463) (7) (204) 1,376 (483,667)
			54,364 35,526 (19,462) (76,660) (478,428) 6,931 (1,125)
			(478,854) (4,813)
			(483,667) —
			(483,667)

			(483,463) (204)
			(483,667)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(Loss)/earnings per share for (loss)/prof t attributable to the equity holders of the Company for the year Basic (loss)/earnings per share — From continuing operations — From discontinued operation Diluted (loss)/earnings per share — From continuing operations — From discontinued operation Dividend	Year 2008 HK$’000 (Restated) (Note 2) HK Cents (2.49) — (2.49) (2.49) — (2.49) —	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) HK Cents HK Cents 0.35 (1.70) (0.34) — 0.01 (1.70) 0.35 (1.70) (0.34) — 0.01 (1.70) — —	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) HK Cents HK Cents 0.35 (1.70) (0.34) — 0.01 (1.70) 0.35 (1.70) (0.34) — 0.01 (1.70) — —
			(1.70)

			(1.70) —
			(1.70)

			—

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Loss)/prof t for the year Other comprehensive (expense)/income: Currency translation differences Other comprehensive (expense)/income for the year, net of tax Total comprehensive (expense)/income for the year Total comprehensive (expense)/income attributable to: Equity holders of the Company Non-controlling interests	Year 2008 HK$’000 (Restated) (Note 2) (441,122) (10,279) (10,279) (451,401) (451,396) (5) (451,401)	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) 1,376 (483,667) 58,819 13,582 58,819 13,582 60,195 (470,085) 60,202 (469,913) (7) (172) 60,195 (470,085)	ended 31 December 2009 2010 HK$’000 HK$’000 (Restated) (Note 2) 1,376 (483,667) 58,819 13,582 58,819 13,582 60,195 (470,085) 60,202 (469,913) (7) (172) 60,195 (470,085)
			13,582
			(470,085)

			(469,913) (172)
			(470,085)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEETS

NON-CURRENT ASSETS Property, plant and equipment Intangible assets Investment properties Interest in an associated company Loan to a jointly controlled entity — non-current Deferred tax assets Other non-current assets CURRENT ASSETS Exclusive advertising agency right Trade receivables Amounts due from a jointly controlled entity and its subsidiaries Financial assets at fair value through prof t or loss Prepayments, deposits and other receivables Cash and cash equivalents Assets of disposal group held for sale CURRENT LIABILITIES Agency fee payables — current Trade payables Receipt in advance, other payables and accrued liabilities Amount due to an associated company Current income tax liabilities Liabilities of disposal group held for sale	As at 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Note 2) (Note 2) 8,654 3,816 3,730 1,054,263 511,141 114,670 — — 359,890 285,287 253,144 268,986 62,534 62,634 64,809 50,112 18,468 18,737 10,926 1,852 1,741 1,471,776 851,055 832,563 401,911 — 51,121 55,497 127,882 22,474 36,559 32,495 26,747 11,130 — 28,000 129,221 40,587 36,849 226,894 648,072 236,678 861,212 849,036 401,869 — — 118,347 861,212 849,036 520,216 785,367 167,117 136,492 24,887 36,089 2,383 135,060 92,689 159,413 54,905 30,619 32,848 36,141 13,997 17,533 1,036,360 340,511 348,669 — — 36,347 1,036,360 340,511 385,016	As at 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Note 2) (Note 2) 8,654 3,816 3,730 1,054,263 511,141 114,670 — — 359,890 285,287 253,144 268,986 62,534 62,634 64,809 50,112 18,468 18,737 10,926 1,852 1,741 1,471,776 851,055 832,563 401,911 — 51,121 55,497 127,882 22,474 36,559 32,495 26,747 11,130 — 28,000 129,221 40,587 36,849 226,894 648,072 236,678 861,212 849,036 401,869 — — 118,347 861,212 849,036 520,216 785,367 167,117 136,492 24,887 36,089 2,383 135,060 92,689 159,413 54,905 30,619 32,848 36,141 13,997 17,533 1,036,360 340,511 348,669 — — 36,347 1,036,360 340,511 385,016
		832,563
		51,121 22,474 26,747 28,000 36,849 236,678
		401,869
		118,347
		520,216
		136,492 2,383 159,413 32,848 17,533
		348,669
		36,347
		385,016

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NET CURRENT (LIABILITIES)/ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Agency fee payables — non-current Convertible notes Deferred tax liabilities NET ASSETS EQUITY Capital and reserves attributable to the equity holders of the Company Share capital Reserves Non-controlling interests TOTAL EQUITY	As at 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Note 2) (Note 2) (175,148) 508,525 135,200 1,296,628 1,359,580 967,763 418,209 — — 44,271 47,875 — 18,394 — 74,130 480,874 47,875 74,130 815,754 1,311,705 893,633 186,976 277,293 287,945 627,762 1,033,403 604,851 814,738 1,310,696 892,796 1,016 1,009 837 815,754 1,311,705 893,633	As at 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Note 2) (Note 2) (175,148) 508,525 135,200 1,296,628 1,359,580 967,763 418,209 — — 44,271 47,875 — 18,394 — 74,130 480,874 47,875 74,130 815,754 1,311,705 893,633 186,976 277,293 287,945 627,762 1,033,403 604,851 814,738 1,310,696 892,796 1,016 1,009 837 815,754 1,311,705 893,633
		967,763
		— — 74,130
		74,130
		893,633

		287,945 604,851
		892,796 837
		893,633

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2008

BUSINESS REVIEW AND PROSPECTS

The fi nancial tsunami spread across the world in 2008, infl icting a heavy blow to the economies of China and the Asian region. Nevertheless, underpinned by a series of stimulus measures introduced by the Chinese government, China achieved a 9% growth in GDP last year and the disposable income per capita of urban residents increased by 8.4% year on year. China’s economy still remained the driving force in the development of the global economy.

As the overall performance of the national economy was relatively good, China’s media advertising industry excelled over its counterparts elsewhere last year. According to CTR Market Research, media advertising expenditure in China grew 15% over 2007 on the back of the Beijing Olympic Games. Meanwhile, media advertising expenditure in many developed countries edged up by less than 5% during the period, and those in a few developed countries even registered a decline. In terms of total media advertising expenditure, China was behind only the U.S.. Expenditure on television advertising exceeded that of other media, accounting for 76% of total media advertising expenditure in China. Last year, television advertising expenditure increased by 16%, beating the overall growth rate of the media advertising industry. Cosmetics/bathroom products, food, pharmaceuticals, commercial/service industries and beverages were the fi ve sectors that spent the most on television advertising. Expenditures made by commercial and service industries posted the fastest growth at 34%.

Financial performance

The Group achieved a turnover of HK$186,008,000 in 2008. Revenue from television advertising maintained satisfactory growth comparing to 2007. The competitive edges of the Group were further strengthened by successfully obtaining the exclusive advertising agency rights of Guangdong Satellite TV. On the other hand, revenue from content production stagnated during 2008 as the Group took a relatively conservative approach to developing the business and did not make any major investment in this fi eld.

The cost of sales of the Group for year 2008 was mainly attributable to the amortization expense of the six-year exclusive advertising agency right for the Travel Channel, which is a fi xed cost in nature. As the advertising revenue generated from the six-year exclusive advertising agency right is not adequate to cover the amortization expense, and given the fact that there was no downward adjustment in the agency fee payable in year 2008, the Group suffered a gross loss during for the year.

The impairment expense was related to the Group’s content production business. The cash fl ow projection of the content production cash-generating unit were adjusted to refl ect the effect of deteriorating economic environment, resulting in goodwill impairment expense of HK$117,166,000 (2007: Nil).

The administrative expenses and selling and marketing expenses for the year ended 31 December 2008 were in aggregate HK$203,543,000, in which the staff costs in the two types of the above expenses were approximately HK$38,168,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Loss attributable to shareholders for 2008 was HK$441,117,000 and basic loss per share was HK cents 2.49. The enlarged loss comparing to 2007 was primarily attributable to the fact that taking the deteriorating economic environment into consideration, the management decided to make a non-cash impairment provision of HK$249,746,000 on goodwill, programme and fi lm rights, programme and fi lm production in progress and receivables arising from sales made in prior years. The management believes that the provision should be adequate to cover the potential losses occurred in 2008 and does not foresee further provisions of a similar scale in 2009. In addition, certain stock options were granted during the year according to the Company’s share option scheme, and non-cash share-based payment expense of HK$77,135,000 were incurred as a result.

Business review

Year 2008 marked a milestone in the Group’s corporate development. After China Broadband Capital Partners, L.P. became the single largest shareholder of the Company, the board of directors underwent a major reshuffl e and new talents with extensive media management experience were introduced into it. The strategic goal for the Group was adjusted towards becoming a leading cross media enterprise in China.

The Company’s name was changed from Asian Union New Media (Group) Limited to Media China Corporation Limited, effective from 20 October 2008, to better refl ect the future business development and direction of the Group. While continuing to expand traditional satellite TV channels, the Group will also explore and develop new media platforms such as digital TV, mobile TV and IPTV so as to establish a cross media platform that integrates traditional media and new media.

Television advertising

Despite a challenging operating environment, the Group’s television advertising segment grew well last year. 2008 saw plenty of breaking news, which not only increased the popularity of provincial satellite TVs, but also boosted advertising expenditure on these channels. Revenue from television advertising amounted to HK$177,818,000 for the year ended 31 December 2008. Revenue was mainly derived from the following three areas: (1) being an exclusive advertising agency for the Travel Channel; (2) being an exclusive advertising agency for Guangdong Satellite TV; and (3) provision of media resources procurement services to international advertising agencies. As the last two businesses were developed after the completion of an acquisition in the fourth quarter of 2008, the majority of advertising revenue for 2008 still came from the Travel Channel.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As the audience of the Travel Channel in general possesses greater purchasing power and a taste for a better lifestyle, marketing efforts of many famous brands are aimed at appealing to this group of audience. In order to draw their attention, the Group recruited talented content producers during the year to produce a wide variety of creative and interesting TV programs which featured travel, lifestyle, drama, golf etc. As a result, the position of the Travel Channel as a travel, leisure and lifestyle program provider was further strengthened and its brand value was further enhanced. According to CTR Market Research, the popularity rating of the Travel Channel continued to rise. It showed that 86.6% of viewers rated its programs as “health-conscious and trendy”. The Travel Channel was ranked the third among the “Ten Most Infl uential Provincial Satellite TV Channels in 2007” by the “2008 Report on the infl uence of TV networks in China”. These results clearly demonstrate that Travel Channel is widely recognized in China and exerts great infl uence upon its viewers. The accurate position of the Travel Channel in the market helped draw advertisers from different industries in China and overseas such as fi nancial services, automobile makers, consumer products and travel and leisure companies. These advertisers signed contracts for title sponsor, trailer sponsor, slogan sponsor and a whole range of brand marketing programs which lasted for a year or so. These transactions not only generated steady revenue to the Group, but also strengthened the image of the Travel Channel.

In October 2008, the Group successfully acquired the entire equity interests in Blower Investments Limited, whose subsidiary, Guangzhou Zhanshi Advertising Company Limited 廣州湛視廣告有限公司, was named as the exclusive advertising agency of Guangdong Satellite TV for a 3-year period from 1 January 2009 to 31 December 2011. Guangdong Satellite TV’s broadcasting footprint covers 690 million viewers in China and 2 billion viewers worldwide. It airs a variety of programs such as dramas, news and documentaries, and grasped the second largest market share among TV channels covering the Guangdong Province. Combined annual advertising value of Guangdong Satellite TV and the Travel Channel owned and managed by the Group amounted to RMB 6 billion. The management believes that the Group will benefi t from synergistic effects of the two satellite TV operations. We are confi dent that the Group’s share in China’s media advertising industry will be further enlarged, laying a solid foundation for its future development.

Meanwhile, the Group expanded its operation to the provision of media resources procurement services through Guangdong Sinofocus Media Limited, a subsidiary of Blower Investments Limited. Its target customers are mainly major international advertising agencies. Through centralized procurement of the media resources from regional TV stations across the nation, the Group provides the customers with one-stop solutions ranging from broadcasting and monitoring of advertising to the arrangement of payment. With its extensive marketing experience and good connections in China’s media advertising market, we believe that Guangdong Sinofocus Media Limited can make a breakthrough in the media resources procurement business with the fi nancial support of the Group. It should be one of the catalysts to propel the growth of our television advertising operation.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Content production

Revenue from content production segment for 2008 being signifi cantly lower comparing to 2007. The lower revenue of this segment was due to a lack of investment in new projects during the year. The Group has taken a relatively long-term strategy to develop this business and will invest in the production of fi lms and TV programs in a prudent manner with an emphasis on small scale investments with a reasonable return. This strategy will help us to better control our risk and to secure a stable source of revenue. At the end of last year, the production house jointly established by the Group and BAZAAR, a renowned magazine, rolled out two series of lifestyle programs at the prime time on Travel Channel. The programs were warmly received by their audiences.

The market for new media has been fl ourishing. According to research, users of Internet Protocol TV (IPTV) increased to some 1.97 million while mobile TV users were over 1.2 million during the Beijing Olympic Games. Moreover, switching of broadcast signals to digital is scheduled in 2015. As such, China is stepping up efforts in preparing the transformation. New media is expected to experience phenomenal growth in the nation. The management fi rmly believes it will not only provide more channels for distributing our fi lms and TV programs, but will also create synergy effects with our existing businesses such as television advertising business.

Business outlook

Global economies are expected to remain volatile under the impact of fi nancial tsunami. We foresee that the media industry in China will be full of challenges. Nonetheless, in order to maintain the steady growth of the national economy, the central government and local governments may launch new stimulus measures to boost demand. These measures would likely give support to the development of media industry.

By taking advantage of the combined resources of the Travel Channel and Guangdong Satellite TV, as well as accurate market positioning and unique programs, the Group will continue to increase its market coverage and grasp the opportunities brought about by a booming domestic media sector. We will beef up efforts in cost control and streamline the management process. An integrated platform for traditional media and new media will be developed, setting a solid foundation for becoming a leading cross media operator in China. In doing so, the Group will create greater value for shareholders.

FINANCIAL REVIEW

Liquidity and fi nancial resources

As at 31 December 2008, the Group held cash and bank balances of approximately HK$226,894,000, which has been increased signifi cantly compared to 31 December 2007. This is mainly because the funds raised through share issuances during the year have not yet been fully invested and utilized. The current ratio slightly decreased to 0.83 as at 31 December 2008. The gearing ratio, representing long term liabilities to net assets, decreased to 0.59 at 31 December 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group mainly operates in China and is exposed to foreign exchange risk arising from Renminbi currency exposures, primarily with respect to the Hong Kong dollars. All borrowings during the year were based on market interest rate. The Group had no bank loan outstanding as at 31 December 2008.

Foreign exchange risk

For the year ended 31 December 2008, the Group had derived an exchange gain of approximately HK$22,891,000. The Group mainly operated in the PRC and is exposed to foreign exchange risk arising from Chinese Renminbi currency exposures, primarily with respect to Hong Kong dollar. The Group has not used any forward contracts, currency borrowings or other means to hedge its foreign currency exposure but manages through constant monitoring to limit as much as possible its net exposures.

Charges on group assets

None of the Group’s assets have been pledged as security as at 31 December 2008.

Contingent liabilities

The Group did not have any signifi cant contingent liabilities as at 31 December 2008.

Gearing ratio

The Group’s gearing ratio, representing long-term liabilities to net assets, decreased to 0.59 as at 31 December 2008.

Capital structure

The Group has mainly relied on its equity and internally generated cash fl ow to fi nance its operations. As at 31 December 2008, the Group has no outstanding borrowings.

During the year, the Company has (i) issued 1,900,000,000 new ordinary shares at HK$0.0991 each upon the exercise of warrants; (ii) issued 700,000,000 new ordinary shares upon completion of an acquisition; and (iii) repurchased 120,600,000 ordinary shares at an average cost of HK$0.038 each.

Signifi cant investments held

As at 31 December 2008, the Company had interests in subsidiaries of approximately HK$790,685,000 and the Group had interest in an associated company of approximately HK$285,287,000. The Group had amounts due from a jointly controlled entity and its subsidiaries of approximately HK$99,093,000. As at 31 December 2008, the Group held fi nancial assets at fair value through profi t or loss in the amount of approximately HK$11,130,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of material acquisitions and disposals of subsidiaries and associated companies

In October 2008, the Company has completed the acquisition of the entire issued share capital of Blower Investments Limited. 700 million ordinary shares of the Company have been issued as the fi rst tranche of considerations for the acquisition. Pursuant to the acquisition agreement, a maximum of another 1,400 million ordinary shares of the Company will be issued as the second and third tranche of the considerations for the acquisition subject to certain conditions, one of which being whether the consolidated net profi t of Blower Investments Limited and its subsidiaries (the “Blower Group”) for the 12 months ending 30 June 2009 and 30 June 2010 (subject to certain adjustments) is or exceeds HK$80 million and HK$100 million respectively. For details, please refer to the Circular issued by the Group on 17 September 2008.

One of the key assets of the Blower Group is the exclusive advertising agency agreement with Guangdong Provincial Satellite Television (“Guangdong SAT TV”), pursuant to which Guangzhou Zhanshi Advertising Co., Ltd, a wholly-owned subsidiary of the Blower Group, has been appointed as the exclusive advertising agency for Guangdong SAT TV for the period from 1 January 2009 to 31 December 2011. The exclusive advertising agency right is subject to annual renewal.

During the year, the Blower Group contributed sales and profi ts attributable to equity holders of the Company of HK$6,171,000 and HK$1,585,000 respectively for the period from October 2008 to 31 December 2008. If the acquisition had occurred on 1 January 2008, the Group’s sales and profi ts attributable to equity holders of the Company would have been increased by HK$4,223,000 and HK$3,093,000 respectively.

Future prospects

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Human Resources

As at 31 December 2008, the Group employed a total of 5 full-time employees in Hong Kong and a work force of about 79 in the PRC. The total staff costs (inclusive of share-based payments) of the Group amounted to approximately HK$38,168,000 for the year ended 31 December 2008. The Group operates different remuneration schemes for sales and non-sales employees. Sales personnel are remunerated on the basis of on-target-earning packages comprising salary and sales commission. Non-sales personnel are remunerated by monthly salary which is reviewed by the Group from time to time and adjusted based on performance. In addition to salaries, the Group provides staff benefi ts including medical insurance, contribution to staff provident fund and discretionary training subsidies. Share options and bonuses are also available at the discretion of the Group and depending on the performance of the Group.

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2009

BUSINESS REVIEW AND PROSPECTS

The Group returned to profi tability and achieved revenues of HK$284,058,000 from continuing operations in 2009, a signifi cant increase of 53% over 2008. Gross profi t and profi t from continuing operations were HK$102,681,000 and HK$65,994,000, respectively.

The Company completed an open offer and a share placement in December 2009 and raised net proceeds of approximately HK$430 million. IDG Capital Partners, a well-known professional investment fund, was introduced as our strategic shareholder, and our shareholding structure and capital base were further strengthened. IDG Capital Partners possesses in-depth knowledge and extensive experience in China’s media, cultural and tourist sectors and has made many successful investments in these areas.

The Group’s fi nancial and liquidity position was further improved after the open offer and share placement, providing a solid foundation for its sustainable development. As at 31 December 2009, cash and bank balances reached HK$648,072,000, almost tripled that at the end of 2008. Net current assets amounted to HK$508,525,000 compared to net current liabilities of HK$175,148,000 a year earlier. Total equity amounted to HK$1,311,705,000, an increase of 61% year-on-year.

In light of poor profi tability and a weak outlook, management decided to dispose of its interest in Guangzhou ZhanShi Advertising Company Ltd. (“Guangzhou ZhanShi”) in the fi rst half of 2009 in order to focus on developing other media businesses with growth potential. Guangzhou ZhanShi was the exclusive advertising agency for the Satellite TV Channel of the Guangdong Television. The relevant loss for the year was reported under discontinued operation and is not expected to recur since 2010.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Market Review

The Chinese economy was adversely impacted by a slowdown in exports in the fi rst half of 2009. Nevertheless, it staged a remarkable rebound in the second half as the Chinese government introduced a series of measures to revive domestic demand and the global economy gradually picked up. China’s GDP grew by 8.7% in real terms last year. As market sentiment improved, advertisers were more willing to increase their marketing expenditures. As a result, the domestic advertising market bounced back vigorously in the second half after experiencing a period of doldrums. According to CTR Market Research, 2009 PRC media advertising expenditure soared 13.5% year-on-year to US$74 billion. TV remained the primary medium for domestic advertisers. In 2009, more than RMB395.2 billion was spent on TV advertising, an increase of 15% over 2008 and representing 78% of total advertising expenditure in China. Toiletries, business and services, foodstuffs, beverages and pharmaceuticals were the leading sectors of advertising spending.

China’s motion picture industry also experienced astonishing growth last year. The box offi ce revenue from cities nationwide topped RMB6.2 billion, an increase of 43% over 2008. There were 12 domestically produced movies reporting gross revenue of more than RMB100 million. The industry has entered into a new “golden age”. Meanwhile, the government has taken various measures to promote the development of the cultural industries and accelerated the restructuring of the motion picture sector. It also encouraged fi nancial institutions to offer greater fi nancial support to the motion picture industry.

Business Review

The television advertising segment remained the biggest revenue contributor to the Group. Its revenue totaled HK$274,410,000 in 2009, an increase of 54% over the previous year. The growth rate was much higher than the 15% industry growth rate in TV advertising expenditure in China for 2009. Segment profi t was HK$69,442,000, which was mainly derived from the provision of media resources procurement services to international advertising agencies and direct customers, and from being the exclusive advertising agency for the Travel Channel. Revenue from the content production segment was HK$9,648,000. The Group has redirected resources into fi lm and TV program production, including the blockbuster “Bodyguards and Assassins” which was released at the end of last year.

Television Advertising Business

The Group provided media resources procurement services through its wholly-owned subsidiary, Guangdong Sinofocus Media Company Limited (“Sinofocus”), which was acquired in the fourth quarter of 2008. Sinofocus has extensive relationships with international advertising agencies. It helps them procure media resources from local TV stations in China and offers them one-stop solutions ranging from planning, broadcasting and monitoring of advertising to payment logistics. While maintaining strategic partnerships with international advertising agencies, Sinofocus has successfully expanded its customer base and developed business relationships with direct customers. In 2009, the media resources procurement business achieved satisfactory growth and contributed 9% of the total revenue of the television advertising segment. This ratio is expected to rise further, thus broadening our income base. With insights into local market, Sinofocus is determined to expand its customer base to medium and large domestic clients in China by providing them with professional advertising agency services of international standards.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Another major contributor to the Group’s television advertising segment was the exclusive advertising agency business for the Travel Channel. In 2009, the Travel Channel’s advertising revenue increased by 41% and accounted for approximately 91% of total revenue from the television advertising segment. The signifi cant increase was attributable to the following reasons:

the Group’s strategy of broadening advertising revenue sources by organizing nationwide reality shows and competitions, and leveraging on sponsors’ promotional programs in other media;
increased sales revenue from special sponsorship and program title sponsorship;
extension of broadcast coverage into more second-tier cities.

Moreover, the Group managed to enter into an agreement to lower exclusive advertising agency fees for the Travel Channel in 2008 and 2009 by RMB50 million. As a result, operating costs of the Group were substantially reduced.

The Group has further strengthened cooperation with the Hainan Television Broadcasting Station (“Hainan TV”) in the operation of the Travel Channel. A new joint venture formed by the Group and a wholly-owned subsidiary of Hainan TV became the exclusive advertising agent of the Travel Channel with effect from 1 January 2010. After the restructuring, each of the Group and Hainan TV effectively own approximately 50% of the economic interests in the operation of the Travel Channel. Ms. Wang Ping, the former deputy chief editor of Hunan Satellite TV, was appointed as the general manager of the joint venture and of Hai Nan Haishi Tourist Satellite TV Media Co., Ltd 海南海視旅遊衛視傳媒有限責任公司 (“Hainan Haishi”), and she is now in charge of both the operation and advertising affairs of the Travel Channel. Ms. Wang was acclaimed “The Queen of Variety Shows” in China and produced a number of popular programs, including “Music Forever”, “Super Girl” and “Strictly Come Dancing”. “Strictly Come Dancing” was the top-ranked variety show in China and the most widely seen program on Hunan Satellite TV in 2007. Management believes that with a stable and sustainable business structure, the quality of TV programs on the Travel Channel and its advertising sales will further improve under the helm of Ms. Wang and a seasoned management team.

Content Production Business

In 2009, the Group resumed the content production business and made its maiden investment in fi lm production by producing “Bodyguards and Assassins”. The blockbuster was released in December 2009 and received enthusiastic response in the market. Its box offi ce revenue from Mainland China approached to RMB300 million and the response in Hong Kong, Singapore and Malaysia were also very promising. Relevant income from the movie are expected to be recorded in the consolidated fi nancial statements for year 2010. “Bodyguards and Assassins” was directed by renowned director Teddy Chan and co-produced by Huang Jiangxin and Peter Chan. It featured an all-star line-up from Mainland China, Hong Kong and Taiwan, including Donnie Yen, Fan Bingbing, Leon Lai, Nicholas Tse and Hu Jun.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Meanwhile, the Group and Shanghai Media Group (“SMG”), a leading domestic media group, will jointly invest in the production of a TV drama called “Grandmaster”. The scripts for the domestically produced drama have almost been completed and shooting is expected to commence later in 2010. “Grandmaster” tells inspiring stories about how domestic Go (Wei Qi) players pursue their goal of becoming grandmasters. With exciting plots and unique themes, it is set to stand out in the competitive domestic TV drama market.

Besides, the Group and a group company of IDG Capital Partners have jointly invested in the production of a fi lm called “Snow Flower and the Secret Fan”. It depicts the intimate relationships between two pairs of girls in two different time periods. Starring famous actresses Li Bingbing and Jun Ji-hyun, the fi lm is directed by Wang Ying, the director of “The Joy Luck Club”. Shooting is currently under way.

Other segment

Revenue from other segment was HK$8,388,000 in 2009, mainly derived from the disposal of investment securities.

FINANCIAL REVIEW

Continuing Operations

Sales revenue for the year ended 31 December 2009 amounted to HK$284,058,000, being a 53% increase comparing to the prior year. The signifi cant growth was mainly driven by the increase in sales from television advertising segment of HK$96,592,000 or 54% during the year. Due to our strategy for the extension of advertising revenue sources to organization of large-scale activities and reality shows through which we could make use of media resources in addition to the Travel Channel air time, and also the signifi cant growth of revenue from special sponsorship and program title sponsorship, the Travel Channel’s advertising revenue grew by 41% during the year. In addition, Sinofocus operation also contributed net sales revenue of HK$25 million through the media resources procurement services.

Cost of sales mainly represented the average agency fees payable for the exclusive advertising agency right, net of a one-off reduction of agency fees payable of RMB50 million in the current year. Accordingly, cost of sales during the year dropped by 23% despite the increase of sales revenue during the year, leading to a gross profi t of HK$102,681,000 in current year comparing to a gross loss of HK$49,248,000 in the prior year.

Other gains, net mainly comprised gain on disposal of exclusive advertising agency right, interest income from loan to a jointly controlled entity, bank interest income and fair value gain on fi nancial assets at fair value through profi t or loss. The signifi cant increase in other gains, net is mainly due to the recording of a one-off gain on disposal of exclusive advertising agency right of HK$66,290,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Marketing and selling expenses mainly attributed to the television advertising segment. Although sales revenue from the television advertising segment for the year increased by 54% comparing to prior year, marketing and selling expenses for the year slightly dropped to HK$24,006,000 (2008: HK$25,862,000) or by 7% comparing to the prior year due to the effective cost control especially through regular revisit of commission policy.

Total administrative expenses for the year amounted to HK$61,677,000 (2008: HK$188,629,000), being a 67% decrease comparing to the prior year. This was mainly due to the following reasons: i) Exchange gain mainly resulting from the appreciation of RMB against HK$ dropped signifi cantly to HK$806,000 during the year from HK$22,891,000 in the prior year; ii) non-cash share-based payments dropped to HK$13,762,000 during the year from HK$77,135,000 in the prior year; and iii) there was a provision for impairment of trade and other receivables of HK$75,903,000 included in the administrative expenses in the prior year, while in current year there was a write back of such provision of HK$3,359,000. If all the above factors are excluded, the remaining administrative expenses for the year in fact decreased to HK$52,080,000 (2008: HK$58,482,000) or by 11% comparing to the prior year due to our continued effort in cost control.

Finance costs for the year, which mainly represented notional non-cash interest accretion on convertible notes and pre-agreed periodic payments on exclusive advertising agency right, reduced to HK$31,291,000 (2008: HK$55,499,000) or by 44% comparing to the prior year. The amounts were recorded in accordance to the relevant fi nancial reporting standards but there were in fact no cash interest payments. No similar fi nance costs are expected to recur since 2010.

Discontinued Operation

The loss for the year from discontinued operation of HK$64,618,000 was related to the disposal of the exclusive advertising agency business for the Satellite TV Channel of Guangdong Television conducted through Guangzhou Zhanshi Advertising Company Limited 廣州湛視廣告有限公司 (“Guangzhou Zhanshi 廣州湛視”). Such loss is not expected to recur since 2010.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and treasury management

As at 31 December 2009, the Group held cash and cash equivalents of approximately HK$648,072,000, increased by around 2 times comparing to the balance as at 31 December 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group was at net current asset position of HK$508,525,000 while it was at net current liability position of HK$175,148,000 as at 31 December 2008. As at 31 December 2008, the agency fee payables for the Travel Channel for the future twelve months were included as current liabilities in accordance to the relevant fi nancial reporting standards, although they are not yet due and the relevant advertising sales (and thus the relevant cash infl ows and receivables) were not yet incurred. This leads to higher than normal current liability amount and thus leads to the net current liability position. Excluding such undue agency fee payables for the Travel Channel, the Group is at net current asset position of HK$49,370,000 as at 31 December 2008. The increase of net current asset during the year was mainly due to the net proceeds raised through the completion of open offer and share placement in December 2009. The adjusted current ratio, representing the total current assets to the total current liabilities excluding the undue agency fees payable for the Travel Channel, signifi cantly increased from 1.06 as at 31 December 2008 to 2.49 as at 31 December 2009.

The debt to equity ratio, representing the sum of borrowings and convertible notes to total equity, decreased from 0.05 as at 31 December 2008 to 0.04 as at 31 December 2009, and is still remained at a very low level. Except for the convertible notes, the Group had no outstanding borrowing as at 31 December 2009 and 31 December 2008.

Foreign exchange risk

For the year ended 31 December 2009, the Group had derived an exchange gain of approximately HK$806,000. The Group mainly operates in China and is only exposed to foreign exchange risk arising from Chinese Renminbi currency exposures, primarily with respect to the Hong Kong dollars. Accordingly, the exchange rate risk of the Group is considered to be relatively low. The Group has not used any forward contracts, currency borrowings or other means to hedge its foreign currency exposure but manages through constant monitoring to limit as much as possible its net exposures.

Capital Structure

The Group has mainly relied on its equity and internally generated cash fl ow to fi nance its operations. As at 31 December 2009, the Group had no outstanding borrowing except for the convertible notes.

During the year, the Company has issued 9,031,616,992 new ordinary shares upon completion of the open offer of three offer shares for every eight shares and a share placement at a price of HK$0.048 per share. Details of the open offer and the share placement are disclosed in the Company’s circular dated 25 November 2009.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pledge of assets and contingent liabilities

As at 31 December 2009, none of our assets was pledged and we did not have any material contingent liabilities or guarantees.

Gearing ratio

The Group’s gearing ratio, representing the Group’s long term liabilities to net assets, was decreased signifi cantly from 0.59 as at 31 December 2008 to 0.04 as at 31 December 2009.

Human resources

As at 31 December 2009, the Group employed a total of 93 full-time employees in Hong Kong and the PRC. The total staff costs (inclusive of share-based payments) of the Group amounted to approximately HK$35,037,000 for the year ended 31 December 2009. The Group operates different remuneration schemes for sales and non-sales employees. Sales personnel are remunerated on the basis of on-target-earning packages comprising salary and sales commission. Non-sales personnel are remunerated by monthly salary which is reviewed by the Group from time to time and adjusted based on performance. In addition to salaries, the Group provides staff benefi ts including medical insurance, contribution to staff provident fund and discretionary training subsidies. Share options and bonuses are also available at the discretion of the Group and depending on the performance of the Group.

Details of material acquisitions and disposals of subsidiaries and associated companies

On 25 June 2009, the Group had entered into an agreement to dispose of its 100% equity interests in Guangzhou Zhanshi Advertising Company Limited (“Guangzhou Zhanshi”) to independent third parties. Guangzhou Zhanshi is principally engaged in advertising agency and has been appointed as the exclusive advertising agency for Guangdong Provincial Satellite Television for the period from 1 January 2009 to 31 December 2011. For details, please refer to the announcement issued by the Company on 25 June 2009.

Signifi cant investments held

As at 31 December 2009, the Company had interests in subsidiaries of approximately HK$812,705,000 and the Group had interest in an associated company of approximately HK$253,144,000. The Group had amounts due from a jointly controlled entity and its subsidiaries of approximately HK$95,129,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Future prospects

After completion of the open offer and share placement, the Group had more than HK$600 million cash on hand as at 31 December 2009. Approximately HK$150 million will be used to enhance the development of media resources procurement business. It will be used for working capital, research and development on and acquisition of new media and Internet advertising businesses. In addition, the Group will focus our effort in the development of medium and large local clients in China. In fact, more than half of China’s advertising spending, including those from the large and medium domestic enterprises, were conducted through network other than international advertising agencies. The related businesses are expected to become one of the Group’s core revenue sources in the future.

The common interests in the Travel Channel have tied the Group and Hainan TV Group closer. The operation and advertising business are organized by a unifi ed management team under Ms. Wang Ping. We expect that advertising revenue of the Travel Channel this year will exceed that of last year. Based on unaudited management information, advertising sales revenue from the Travel Channel in January and February 2010 grew 30% over the same period of last year. Moreover, a total of approximately RMB160 million worth of advertising contracts were already concluded for this year. While striving to generate more revenue by organizing major events and seeking special sponsorship and program title sponsorship income, the Travel Channel will actively strengthen cooperation with local governments and tourism administrations on the production of travel-related promotional programs. For instance, it entered into an agreement with Guangdong Provincial Tourism Administration to jointly produce a program called “Guangdong in the Eyes of Asians”. In addition, the Travel Channel will increase the budget on brand building, talent recruitment, program production and procurement of TV programs and dramas in 2010. It also plans to gradually extend coverage into second and third-tier cities in China and targets to reach 600 million audiences eventually. In the medium and long run, the new management team has set clear target for the Travel Channel — to breakthrough advertising revenue of RMB700 million in fi ve-year’s time.

The Group will cooperate with its strategic shareholder to expand cultural and tourism businesses through equity investment or acquisitions. The cultural and tourist sectors are regarded by the China government as strategically important for boosting economic development. With thriving domestic demand, the two sectors have tremendous room for growth. Hinged on the Travel Channel, the Group will make use of its powerful cross-media platform to market and promote cultural and tourism businesses, enhance their infl uence and enrich the contents of its media operation. The Company entered into a Memorandum of Understanding (“MOU”) with the Shaanxi Provincial Tourism Administration to invest in key tourism projects and leading tourism enterprises in Shaanxi Province. The provincial government contemplates to restructure key tourism projects and leading tourism enterprises in the province for future public listing, and we can enjoy pre-emptive rights of relevant investments at favourable terms. It is expected that the total investment will be no more than RMB100 million.

We have set an investment budget of HK$100 million for the content production business for 2010. The Group will continue to seek partners for joint investment in the production of premier fi lms and TV programs under effective risk control.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group is determined to become an integrated platform that incorporates traditional and new media. It will expand into the cultural and tourism businesses in tandem with the existing media operation. We believe that the implementation of the policy of promoting the convergence of telecommunications, broadcasting and Internet networks in China will create new opportunities for us. The Group will strive hard to realize fully the synergies of its various businesses, creating greater value for shareholders.

MANAGEMENT DISCUSSIONS AND ANALYSIS FOR THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2010

RESULTS OF BUSINESS SEGMENTS

Business Review

Continuing operations: Advertising Content production Properties investment Others Total	Sales revenues 2010 2009 *HK$’000* HK$’000 161,340 274,410 4,787 9,648 5,181 — — — 171,308 284,058	Segment results 2010 2009 *HK$’000* HK$’000 13,957 69,442 (8,604) (7,732) 1,974 — — 8,388 7,327 70,098

Advertising business

The Group’s advertising business derived most of its revenue from the provision of media resources procurement services to international advertising agencies and direct customers, as well as from acting as an exclusive advertising agency for the Travel Channel through a joint venture formed with Hainan TV. The advertising business arising from the Travel Channel remained the key contributor to the Group’s revenue.

Tourist service operators as well as mid- and high-end consumer products and services providers are major target advertisers of the Travel Channel. As domestic retail sector expanded remarkably last year, retail sales of various mid- and high-end consumer products grew by a double-digit fi gure while income of tourism industry grew by more than 20% over 2009. As a result, the Group saw satisfactory growth in advertising income from the tourism sector, auto sector and electronic consumer product sector. However, as mentioned in the preceding paragraphs, after taking into account the fi erce competition in the market, the ever increasing content production cost and the upward adjustment on the discount rate applicable, the Group has revised its future cash fl ow projection for its advertising business. This has resulted in a non-cash goodwill impairment charge of HK$470,444,000 during the year.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In order to focus resources on the development of core business and to accelerate recovery of working capital, management decided to dispose of the media resources procurement operation of Sinofocus Media Group in November 2010 at a consideration of HK$82 million. The proceeds would be used for the development of other businesses with greater potential. Meanwhile, in late 2010, the Group has obtained a three-year exclusive right to operate the advertising business for certain sectors at Beijing Railway Station and Beijing West Railway Station. Beijing is a national transportation hub and provides plenty room for media advertising growth. The national railway system and the national express rail network are also developing rapidly. After proper investment in and restructuring of advertising resources, management believes that this business will experience robust growth and help to further diversify the Group’s income sources.

Content production business

The Group invested more than HK$60 million in content production business in year 2010. “The Love of the Hawthorn Tree” directed by Zhang Yi-mou was rolled out in the second half of last year. Featuring pure love, the fi lm was widely acclaimed in the market and produced satisfactory box-offi ce receipts. Meanwhile, the production of “Snow Flower and the Secret Fan”, which stars Korean famous actress Jun Ji-hyun and China’s pop-star Li Bingbing, is in full swing. Management expects both of the aforementioned movies and other TV programs will bring in returns in year 2011.

Properties investment

In September 2010, the Group acquired a 50% interest in certain offi ce units and retail facilities at Shenzhen Tian An International Building and a 50% interest in the management company of this building for a consideration of HK$280 million. Shenzhen Tian An International Building is located in Renmin South Road, Luohu District, Shenzhen and total fl oor areas acquired amounted to approximately 31,700m[2] . Most of the said offi ce units and retail facilities have been leased to third parties.

FINANCIAL REVIEW

Liquidity and capital resources

We have adopted prudent treasury management objectives aimed at principal protection and maintaining suffi cient liquidity to meet our various funding requirements in accordance with the strategic plans and policies. As at 31 December 2010, the Group held cash and cash equivalents of approximately HK$236,678,000, being a 63% decrease comparing to the balance as at 31 December 2009.

The Group was at net current asset position of HK$135,200,000 as at 31 December 2010 (2009: HK$508,525,000). The current ratio, representing the total current assets to the total current liabilities, decreased from 2.49 as at 31 December 2009 to 1.35 as at 31 December 2010.

The debt to equity ratio, representing the sum of borrowings and convertible notes to total equity, decreased from 0.04 as at 31 December 2009 to zero as at 31 December 2010. The Group had no outstanding borrowing as at 31 December 2010.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Currency Exchange Exposure

For the year ended 31 December 2010, the Group derived an exchange gain of approximately HK$15,963,000. The Group mainly operates in China and is only exposed to foreign exchange risk arising from Chinese Renminbi currency exposures, primarily with respect to the Hong Kong dollars. Accordingly, the exchange rate risk of the Group is considered to be relatively low.

Pledge of Assets and Contingent Liabilities

As at 31 December 2010, none of the Group’s assets was pledged and the Group did not have any material contingent liabilities or guarantees.

Gearing ratio

The Group’s gearing ratio, representing long-term liabilities to net assets, increased from 0.04 as at 31 December 2009 to 0.08 as at 31 December 2010.

Human resources

As at 31 December 2010, the Group employed a total of approximately 70 full-time employees in Hong Kong and the PRC. The staff costs (inclusive of share-based payments) of the Group amounted to approximately HK$30,991,000 for the year ended 31 December 2010. The Group operates different remuneration schemes for sales and non-sales employees. Sales personnel are remunerated on the basis of on-target-earning packages comprising salary and sales commission. Non-sales personnel are remunerated by monthly salary which is reviewed by the Group from time to time and adjusted based on performance. In addition to salaries, the Group provides staff benefi ts including medical insurance, contribution to staff provident fund and discretionary training subsidies. Share options and bonuses are also available at the discretion of the Group and depending on the performance of the Group.

Capital structure

The Group has mainly relied on its equity and internally generated cash fl ow to fi nance its operations. As at 31 December 2010, the Group had no outstanding borrowing.

During the year, the Company has issued (i) 1,065,217,391 new ordinary shares upon conversion of convertible notes at a conversion price of HK$0.046 per share; and (ii) 49,995 new ordinary shares upon exercise of share options.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of material acquisitions and disposals of subsidiaries and associated companies

On 10 September 2010, the Company and Effort Wonder Limited, a wholly owned subsidiary of the Company, has entered into an acquisition agreement with Winshine Group Limited (“Winshine Group”) and Tian An China Investments Company Limited whereby the Group will purchase the entire issued share capital of Green Harmony Investments Limited (“Green Harmony”) and Green Villa Investments Limited (“Green Villa”) and the shareholder’s loan owed by Green Villa to Winshine Group as at the date of completion for a consideration of HK$280,000,000. The major asset of Green Harmony and Green Villa is the holding of 50% of the registered capital of each of Shenzhen ITC Tian An Co., Limited (“Shenzhen ITC”) and Shenzhen Tian An International Building Property Management Co., Limited (“Shenzhen Tian An”), both being joint venture enterprises established in the PRC. Shenzhen ITC owns various fl oors and units in Shenzhen Tian An International Building in Shenzhen, the PRC. Most of the said fl oors and units are presently under leases to third parties. Shenzhen Tian An presently engages in the business of property management and is managing the said Shenzhen Tian An International Building. The said transaction has been completed by the end of September 2010.

By December 2010, the Group also completed the acquisition of entire registered capital of Shanghai Zhenlejian Advertising Company Limited (“Shanghai Zhenlejian”) for a consideration of RMB500,000 (equivalent to HK$588,000). Shanghai Zhenlejian is principally engaged in advertising agency business in the PRC.

On 16 November 2010, the Company and KH Investment Holdings Limited (“KH Investment”) entered into an agreement pursuant to which the Company agreed to sell and the KH Investment agreed to purchase all the Company’s equity interest in and its loans to Sinofocus Media (Holdings) Limited (“Sinofocus”) at an aggregate consideration of HK$82,000,000. Sinofocus, a wholly-owned subsidiary of the Company, is an investment holding company holding various subsidiaries engaged in advertising agency and media resources procurement business. The said disposal was terminated pursuant to the deed of termination entered into between the Company and KH Investment on 15 April 2011.

On 19 May 2011, the Company and DVN (Holdings) Limited (“DVN”), an independent third party, entered into an agreement pursuant to which the Company agreed to sell and DVN agreed to purchase all the Company’s equity interest in and its loans to Sinofocus at an aggregate consideration of HK$82,000,000. Sinofocus will cease to be a subsidiary of the Company upon completion of the disposal.

Signifi cant investments held

As at 31 December 2010, the Group held investments properties which were located in the PRC in the amount of approximately HK$359,890,000, through a 50% indirectly owned jointly controlled entity acquired in year 2010. The amounts recognized in the profi t and loss for investment properties was approximately HK$2,170,000 for the year ended 31 December 2010.

As at 31 December 2010, the Company had interests in subsidiaries of approximately HK$855,917,000 and the Group had interest in an associated company of approximately HK$268,986,000. The Group had amounts due from a jointly controlled entity and its subsidiaries of approximately HK$91,556,000 as at 31 December 2010.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2010, the Group had fi nancial assets at fair value through profi t or loss in an amount of HK$28,000,000.

Fluctuation of intangible assets and exclusive advertising agency rights

The Group’s intangible assets were decreased signifi cantly from approximately HK$511,141,000 as at 31 December 2009 to approximately HK$114,670,000 as at 31 December 2010. The signifi cant decrease of the intangible assets was mainly attributable to the impairment expense charged on the Group’s goodwill in the amount of approximately HK$470,444,000.

The impairment charge was made after taken into account the following factors, among others, into consideration, management has adjusted downwards the projected annual net cash infl ow during the next fi ve-year period for its advertising:

the year-on-year growth of sales from the advertising business slowed down during the second half of 2010 comparing to the fi rst half of 2010;
the marketing and selling expenses in relation to advertising sales and costs of programme production has been increasing since the second half of 2010, and such rising trend is expected to continue in the near future;
the market competition in the advertising market in the PRC is still very intense; and
the proposed disposal of Sinofocus Media (Holdings) Limited and its subsidiaries which engaged in advertising agency and media resources procurement business.

Taking into account the adjustments on the cash fl ow projection as mentioned above and the upward adjustments on the discount rate applicable, the impairment tests on goodwill resulted in an impairment loss of approximately HK$470,444,000 (2009: nil).

The Group’s held two streams of exclusive advertising agency right which are recognized as noncurrent and current assets respectively. Both of the non-current and current exclusive advertising agency right had been decreased signifi cantly from approximately HK$569,427,000 and HK$401,911,000 respectively as at 31 December 2008 to nil as at 31 December 2009. The decrease of the noncurrent exclusive advertising agency right was mainly attributable to the disposal in the amount of HK$380,225,000 and amortization expense of HK$190,113,000 charged on the non-current exclusive advertising agency right.

The signifi cant decrease of the Group’s current exclusive advertising agency right was mainly attributable to the disposal of a subsidiary in the amount of HK$147,606,000 and an amortization expense of HK$239,121,000 charged for the year 2009.

The Group’s current exclusive advertising agency right increased from nil as at 31 December 2009 to HK$51,121,000 as at 31 December 2010 which was mainly attributable to the Group’s acquisition of the exclusive advertising agency right in certain sectors for Beijing Railway Station and Beijing West Railway station for the year 2010.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Future prospects

Looking ahead into 2011, media and advertising markets in China will continue to grow at a rapid pace. While delivering the 2011 government work report, Premier Wen Jiabao stressed that service industry will be promoted to boost cultural and tourism expenditures. According to the “Guidelines of the Plan for the Promotion of Tourism Industry Development” issued by the State Council, tourism is one of the strategic pillar industries in the development of the nation’s economy. Annual revenue of the tourism industry is projected to grow by 12% from 2011 to 2015, which shows PRC’s strong commitment to develop the tourism industry. The management believes these policies will provide a sound business environment for the media and tourism industries, which is benefi cial to the Travel Channel’s operation.

According to statistics from the National Bureau of Statistics, GDP per capita of PRC has maintained rapid growth in recent years, rising from approximately RMB16,000 in 2006 to approximately RMB25,000 in 2009. As the income of Chinese households increase, the travel patterns of domestic tourists have changed from sightseeing to leisure travelling, which have created new business opportunities in the tourism sector. Leverage opportunities brought from the rapid growth of the industry, the Group proposed in February 2011 to conditionally acquire Beijing “Bayhood No. 9 club”. The Group plans to expand into recreational and tourism-related businesses through this fl agship project. “Bayhood No. 9 Club”, located near the city center of Beijing, is a membership-based luxury club which comprises of business hotel facilities, an 18-hole golf course, driving range facilities, theme restaurants and cafes, spa facilities, retail shops, and the fi rst PGA branded and managed golf academy in Asia. It focuses on the high-net-worth sector who are able to afford leisure and recreational travelling. Management believes that the acquisition of “Bayhood No. 9 Club” will establish a solid foundation for the Group to seize considerable opportunities in the leisure travelling business. As of the date of this announcement, the acquisition is not yet completed.

Note:

1 GENERAL INFORMATION

Media China Corporation Limited (the “Company”) and its subsidiaries (together, the “Group”) is principally engaged in advertising business, content production business and properties investment through a jointly controlled entity. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 27 May 2002 under the Company Law (2002 Revision) (Cap. 22) of the Cayman Islands.

The address of the Company’s registered offi ce is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

The Company is listed on The Stock Exchange of Hong Kong Limited.

These fi nancial statements are presented in thousand Hong Kong dollars (HK$’000), unless otherwise stated.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

The consolidated fi nancial statements of the Company have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certifi ed Public Accountants (“HKICPA”). The consolidated fi nancial statements have been prepared under the historical cost convention, as modifi ed by the revaluation of fi nancial assets at fair value through profi t or loss and investment properties, which are carried at fair value.

The preparation of fi nancial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial statements, are disclosed in note 4.

Changes in accounting policy and disclosures:

(i) New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory and relevant to the Group for the fi nancial year beginning 1 January 2010.

HKFRS 3 (revised), ‘Business Combinations’, and consequential amendments to HKAS 27, ‘Consolidated and Separate Financial Statements’, HKAS 28, ‘Investments in Associates’, and HKAS 31, ‘Interests in Joint Ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the fi rst annual reporting period beginning on or after 1 July 2009.

The revised standard continues to apply the acquisition method to business combinations but with some signifi cant changes compared with HKFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classifi ed as debt subsequently re-measured through the consolidated income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed.

HKAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifi es the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in profi t or loss. HKAS 27 (revised) has had no impact on the current year, as none of the non-controlling interests have a defi cit balance; there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests.

HKAS 1 (amendment), ‘Presentation of Financial Statements’. The amendment clarifi es that the potential settlement of a liability by the issue of equity is not relevant to its classifi cation as current or non-current. By amending the defi nition of current liability, the amendment permits a liability to be classifi ed as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

HKAS 36 (amendment), ‘Impairment of Assets’, effective 1 January 2010. The amendment clarifi es that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defi ned by paragraph 5 of HKFRS 8, ‘Operating segments’ (that is, before the aggregation of segments with similar economic characteristics).
HKFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment clarifi es that HKFRS 5 specifi es the disclosures required in respect of non-current assets (or disposal groups) classifi ed as held for sale or discontinued operations. It also clarifi es that the general requirement of HKAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of HKAS 1.
(ii) New and amended standards, and interpretations mandatory for the fi rst time for the fi nancial year beginning 1 January 2010 but not currently relevant to the Group (although they may affect the accounting for future transactions and events)
HKAS 17 (amendment), ‘Leases’, deletes specifi c guidance regarding classifi cation of leases of land, so as to eliminate inconsistency with the general guidance on lease classifi cation. As a result, leases of land should be classifi ed as either fi nance or operating lease using the general principles of HKAS 17, i.e. whether the lease transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee. Prior to the amendment, land interest which title is not expected to pass to the Group by the end of the lease term was classifi ed as operating lease under “Leasehold land and land use rights”, and amortized over the lease term.
HK(IFRIC) – Int 17, ‘Distribution of Non-cash Assets to Owners’, effective on or after 1 July 2009. The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. HKFRS 5 has also been amended to require that assets are classifi ed as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.
HK(IFRIC) – Int 18, ‘Transfers of Assets from Customers’, effective for transfer of assets received on or after 1 July 2009. This interpretation clarifi es the requirements for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both).
HK(IFRIC) – Int 9, ‘Reassessment of Embedded Derivatives and HKAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009. This amendment to HK(IFRIC) – Int 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifi es a hybrid fi nancial asset out of the ‘fair value through profi t or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity fi rst became a party to the contract and the date of any contract amendments that signifi cantly change the cash fl ows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remain classifi ed as at fair value through profi t or loss in its entirety.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HK(IFRIC) – Int 16, ‘Hedges of a Net Investment in a Foreign Operation’ effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of HKAS 39 that relate to a net investment hedge are satisfi ed. In particular, the group should clearly document its hedging strategy because of the possibility of different designations at different levels of the group. HKAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifi es guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives.
HKFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’, effective form 1 January 2010. In addition to incorporating HK(IFRIC) 8, ‘Scope of HKFRS 2’, and HK(IFRIC) – Int 11, ‘HKFRS 2 — Group and treasury share transactions’, the amendments expand on the guidance in HK(IFRIC) – Int 11 to address the classifi cation of group arrangements that were not covered by that interpretation.
(iii) New standards, amendments and interpretations have been issued but are not effective for the fi nancial year beginning 1 January 2010 and have not been early adopted.

HKAS 32 (Amendment) Classifi cation of Rights Issue HK(IFRIC) – Int 19 Extinguishing Financial Liabilities with Equity Instruments HKAS 24 (Revised) Related Party Disclosures HK(IFRIC) – Int 14 Prepayments of a Minimum Funding Requirement HKFRS 9 Financial Instruments Improvements to HKFRSs 2010: HKFRS 3 (Revised) Business Combinations HKFRS 7 (Amendment) Financial Instruments: Disclosures HKAS 1 (Amendment) Presentation of Financial Statements HKAS 27 (Amendment) Consolidated and Separate Financial Statements

The Group has already commenced an assessment of the impact of new standards, amendments and interpretations to existing standards but is not yet in a position to state whether these new standards, amendments and interpretations to existing standards would have a signifi cant impact to its results of operations and fi nancial position.

(b) Group accounting

(i) Consolidation

The consolidated fi nancial statements include the fi nancial statements of the Company and all of its subsidiaries made up to 31 December.

(ii) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the fi nancial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifi able net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated income statement.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(iii) Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control or signifi cant infl uence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profi t or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or fi nancial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassifi ed to profi t or loss.

If the ownership interest in an associate is reduced but signifi cant infl uence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassifi ed to profi t or loss where appropriate.

(iv) Associated company

Associated company is an entity over which the Group has signifi cant infl uence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Interest in an associated company is accounted for by the equity method of accounting and are initially recognized at cost. The Group’s interest in an associated company includes goodwill identifi ed on acquisition, net of any accumulated impairment loss.

The Group’s share of its associated company’s post-acquisition profi ts or losses is recognized in the consolidated income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associated company equals or exceeds its interest in an associated company, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associated company.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Unrealized gains on transactions between the Group and its associated company are eliminated to the extent of the Group’s interest in an associated company. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated company have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses arising in interest in an associated company are recognized in the consolidated income statement.

(v) Jointly controlled entities (“JCE”)

A jointly controlled entity is a joint venture whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity. In prior years, interests in JCE were accounted for using the equity method, which recognized the share of JCE’s post-acquisition profi ts or losses in the consolidated income statement, and the cumulative post-acquisition movements are adjusted against the carrying amount of the investment stated in the consolidated balance sheet. When the Group’s share of losses in JCE equals or exceeds its interests in the JCE, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the JCE.

With effect from 1 January 2010, the Group adopts the proportionate consolidation method as set out in HKAS 31 — “Interests in Joint Ventures” for the recognition of interests in JCE. The Directors of the Company consider that the use of proportionate consolidation method better refl ects the substance and economic reality of the Group’s interests in JCE and presents more reliable and relevant information of the Group.

Under the proportionate consolidation method, the Group combines its shares of the JCE’s individual income and expenses, assets and liabilities and cash fl ows on a line-by-line basis with similar items in the Group’s fi nancial statements. The Group recognizes the portion of gains or losses on the sale of assets by the Group to the JCE that is attributable to the other venturers. The Group does not recognize its share of profi ts or losses from the JCE that result from the Group’s purchase of assets from the JCE until they re-sells the assets to an independent party. However, a loss on the transaction is recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets, or an impairment loss.

Although the change in accounting policy does not have any effect on the Group’s net assets as at 31 December 2009 and 1 January 2009 and the Group’s profi t attributable to equity holders of the Company for the year ended 31 December 2009 and 31 December 2008, it would result in certain changes in individual line items of the consolidated fi nancial statements. The new accounting policy has been applied retrospectively and the comparatives have been restated accordingly.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Effect on the consolidated income statement

Continuing operations: Sales Cost of sales Gross prof t Other income and other gains, net Marketing and selling expenses Administrative expenses Share of losses of jointly controlled entities Share of prof t of an associated company Finance costs Prof t before taxation Taxation Prof t for the year from continuing operations Discontinued operation: Loss for the year from discontinued operation Prof t for the year Attributable to: Equity holders of the Company Non-controlling interests	For the year ended 31 December 2009 (As previously reported) HK$’000 276,451 (179,472) 96,979 84,408 (24,006) (51,251) (8,342) — (31,291) 66,497 (413) 66,084 (64,618) 1,466 1,383 83 1,466	Effect of change in accounting policy HK$’000 7,607 (1,905) 5,702 (7,035) — (10,426) 8,342 3,335 — (82) (8) (90) — (90) — (90) (90)	For the year ended 31 December 2009 (As restated) HK$’000 284,058 (181,377) 102,681 77,373 (24,006) (61,677) — 3,335 (31,291) 66,415 (421) 65,994 (64,618) 1,376 1,383 (7) 1,376

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Continuing operations: Sales Cost of Sales Gross Prof t Other income and other gains, net Marketing and selling expenses Administrative expenses Provision of impairment of intangible assets Share of prof ts of jointly controlled entities Share of prof t of an associated company Finance costs Loss before taxation Taxation Loss for the year from continuing operations Discontinued operation: Loss for the year from discontinued operation Loss for the year Attributable to: Equity holders of the Company Non-controlling interests	For the year ended 31 December 2008 (As previously reported) HK$’000 179,431 (230,144) (50,713) 12,588 (25,862) (177,681) (173,843) 13,328 — (40,963) (443,146) 2,091 (441,055) — (441,055) (441,117) 62 (441,055)	Effect of change in accounting policy HK$’000 6,577 (5,112) 1,465 (156) — (10,948) — (13,328) 37,449 (14,536) (54) (13) (67) — (67) — (67) (67)	For the year ended 31 December 2008 (As restated) HK$’000 186,008 (235,256) (49,248) 12,432 (25,862) (188,629) (173,843) — 37,449 (55,499) (443,200) 2,078 (441,122) — (441,122) (441,117) (5) (441,122)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Effect on the consolidated statement of comprehensive income

Prof t for the year Other comprehensive income: Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: Equity holders of the Company Non-controlling interests Loss for the year Other comprehensive expense: Currency translation differences Other comprehensive expense for the year, net of tax Total comprehensive expense for the year Total comprehensive expense attributable to: Equity holders of the Company Non-controlling interests	For the year ended 31 December 2009 (As previously reported) HK$’000 1,466 58,819 58,819 60,285 60,202 83 60,285 For the year ended 31 December 2008 (As previously reported) HK$’000 (441,055) (10,279) (10,279) (451,334) (451,396) 62 (451,334)	Effect of change in accounting policy HK$’000 (90) — — (90) — (90) (90) Effect of change in accounting policy HK$’000 (67) — — (67) — (67) (67)	For the year ended 31 December 2009 (As restated) HK$’000 1,376 58,819 58,819 60,195 60,202 (7) 60,195 For the year ended 31 December 2008 (As restated) HK$’000 (441,122) (10,279) (10,279) (451,401) (451,396) (5) (451,401)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Effect on the consolidated balance sheet

NON-CURRENT ASSETS Property, plant and equipment Intangible assets Interests in jointly controlled entities Interest in an associated company Loan to a jointly controlled entity — non-current Deferred tax assets Other non-current assets CURRENTS ASSETS Trade receivables Amounts due from a jointly controlled entity and its subsidiaries Prepayments, deposits and other receivables Cash and cash equivalents CURRENT LIABILITIES Agency fee payables Trade payables Receipt in advance, other payables and accrued liabilities Amount due to an associated company Current income tax liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	31 December 2009 (As previously reported) HK$’000 3,131 434,938 264,260 — — 18,468 — 720,797 129,054 91,300 26,680 643,037 890,071 167,117 34,811 36,222 — 13,423 251,573 638,498 1,359,295	Effect of change in accounting policy HK$’000 685 76,203 (264,260) 253,144 62,634 — 1,852 130,258 (1,172) (58,805) 13,907 5,035 (41,035) — 1,278 56,467 30,619 574 88,938 (129,973) 285	31 December 2009 (As restated) HK$’000 3,816 511,141 — 253,144 62,634 18,468 1,852 851,055 127,882 32,495 40,587 648,072 849,036 167,117 36,089 92,689 30,619 13,997 340,511 508,525 1,359,580

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NON-CURRENT LIABILITIES Convertible notes NET ASSETS EQUITY Capital and reserves attributable to the equity holders of the Company Share capital Reserves Non-controlling interests TOTAL EQUITY	31 December 2009 (As previously reported) HK$’000 47,875 1,311,420 277,293 1,033,403 1,310,696 724 1,311,420	Effect of change in accounting policy HK$’000 — 285 — — — 285 285	31 December 2009 (As restated) HK$’000 47,875 1,311,705 277,293 1,033,403 1,310,696 1,009 1,311,705

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NON-CURRENT ASSETS Property, plant and equipment Intangible assets Interests in jointly controlled entities Interest in an associated company Loan to a jointly controlled entity – non-current Deferred tax assets Other non-current assets CURRENT ASSETS Exclusive advertising agency right Trade receivables Amount due from a jointly controlled entity and its subsidiaries Financial assets at fair value through prof t or loss Prepayments, deposits and other receivables Cash and cash equivalents CURRENT LIABILITIES Agency fee payables – current Trade payables Receipt in advance, other payables and accrued liabilities Amount due to an associated company Current income tax liabilities	1 January 2009 (As previously reported) HK$’000 7,489 978,060 267,639 — — 35,794 — 1,288,982 401,911 55,248 106,798 11,130 121,196 216,511 912,794 785,367 24,880 79,532 — 30,062 919,841	Effect of change in accounting policy HK$’000 1,165 76,203 (267,639) 285,287 62,534 14,318 10,926 182,794 — 249 (70,239) — 8,025 10,383 (51,582) — 7 55,528 54,905 6,079 116,519	1 January 2009 (As restated) HK$’000 8,654 1,054,263 — 285,287 62,534 50,112 10,926 1,471,776 401,911 55,497 36,559 11,130 129,221 226,894 861,212 785,367 24,887 135,060 54,905 36,141 1,036,360

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Agency fee payables – non-current Convertible notes Deferred tax liabilities NET ASSETS EQUITY Capital and reserves attributable to the equity holders of the Company Share capital Reserves Non-controlling interests TOTAL EQUITY	1 January 2009 (As previously reported) HK$’000 (7,047) 1,281,935 418,209 44,271 4,076 466,556 815,379 186,976 627,762 814,738 641 815,379	Effect of change in accounting policy HK$’000 (168,101) 14,693 — — 14,318 14,318 375 — — — 375 375	1 January 2009 (As restated) HK$’000 (175,148) 1,296,628 418,209 44,271 18,394 480,874 815,754 186,976 627,762 814,738 1,016 815,754

HKICPA has published Exposure Draft (“ED”) 9 “Joint Arrangements”, which proposes to eliminate the choice of proportionate consolidation as a method to account for an entity’s investment in a jointly controlled entity. If ED 9 becomes effective, the Group will be required to change its accounting policy for the interests in jointly controlled entities from proportionate consolidation to equity method.

(c) Foreign currency translation

(i) Functional and presentation currency

Items included in the fi nancial statements of each of the Group’s entities are measured using Renminbi (“RMB”), the currency of the primary economic environment in which the entity operates (“the functional currency”). As the Company is listed on the Main Board of the Stock Exchanges of Hong Kong, the directors considers that it will be more appropriate to adopt Hong Kong dollar as the Group’s and the Company’s presentation currency. Accordingly, the consolidated fi nancial statements are presented in Hong Kong dollars (“HK$”).

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income statement.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Group companies

The results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
c) all resulting exchange differences are recognized in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the consolidated income statement as part of the gain or loss on sale.

(d) Investment properties

Investment property, principally comprising leasehold land and offi ce buildings, is held for long-term rental yields and is not occupied by the Group. It also includes properties that are being constructed or developed for future use as investment properties. Land held under operating leases are accounted for as investment properties when the rest of the defi nition of an investment property is met. In such cases, the operating leases concerned are accounted for as if they were fi nance leases. Investment property is initially measured at cost, including related transaction costs. After initial recognition at cost investment properties are carried at fair value, representing open market value determined at each reporting date by external valuers. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specifi c asset. If the information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash fl ow projections. Changes in fair values are recorded in the consolidated income statement as part of a valuation gain or loss in other income.

(e) Property, plant and equipment

Property, plant and equipment, comprising leasehold land and buildings, plant, equipment and other assets are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are expensed in the consolidated income statement during the fi nancial period in which they are incurred.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

Property, plant and equipment

3 to 10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2(w)).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated income statement.

(f) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets of the acquired subsidiary/associated company/JCE at the date of acquisition. Goodwill on acquisitions of subsidiaries/JCE is included in intangible assets. Goodwill on acquisitions of associated company is included in interest in associated company. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefi t from the business combination in which the goodwill arose identifi ed according to operating segment.

(ii)

Exclusive advertising agency rights

Exclusive advertising agency rights comprise the rights to sell the advertising resources of television channels in the People’s Republic of China (the “PRC”) on a sole agency basis. The Group is contracted to make pre-agreed periodic payments during the sole agency period.

The cost of the exclusive advertising agency rights represents net present value of those pre-agreed periodic payments to be made during the sole agency period, and those pre-agreed periodic payments constitute a contractual obligation to deliver cash or other monetary assets and hence are considered to be a fi nancial liability. The exclusive advertising agency rights are amortized on a straight-line basis from the effective date of the right over the sole agency period and are stated at cost net of accumulated amortization and impairment losses, if any. Interest accreted on the present value of preagreed periodic payments is charged to the consolidated income statement within fi nance costs.

(iii) Programmes and fi lm rights

Programmes and fi lms rights acquired from outsiders are stated at acquisition costs plus fi lm enhancement costs less accumulated amortization and impairment losses, if any.

Self-produced programmes and fi lms products are completed programmes and fi lms produced and are stated at the lower of cost and net realizable value. Cost of programmes and fi lm products, accounted for on a programme-by-programme or fi lm-by-fi lm basis, includes production costs, cost of services, direct labour costs, facilities and raw materials consumed in the creation of a programme or a fi lm.

The costs of programmes and fi lm rights are charged to the consolidated income statement proportionately to the estimated projected revenues over their expected economic benefi cial period. Additional amortization will be charged if estimated projected revenues adversely differ from the previous estimation. Estimated projected revenues will be reviewed on a programme-by-programme or fi lm-by-fi lm basis at a regular interval.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

When programmes and fi lm rights are sold, carrying amount of those programmes and fi lm rights is recognized as an expense in the year in which the related revenue is recognized. The amount of any write-down of programmes and fi lm rights to net realizable value and all losses of programmes and fi lm rights are recognized as an expense in the year the write-down or loss occurs.

At each balance sheet date, both internal and external market information is considered to assess whether there is any indication that assets included in programmes and fi lm rights are impaired. If any such indication exists, the carrying amount of such assets is assessed and where relevant, an impairment loss is recognized in the consolidated income statement.

(iv) Programmes and fi lms production in progress

Programmes and fi lms production in progress are accounted for on a programme-by-programme or fi lm-by-fi lm basis and are stated at cost less accumulated impairment losses, if any. Cost of programmes or fi lms production in progress includes production costs, costs of services, direct labour costs, facilities and raw materials consumed in the creation of a programme or a fi lm. Upon completion, these programmes and fi lms under production are reclassifi ed as programmes and fi lm rights.

(g) Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classifi ed as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probably.

(h) Financial assets

Classifi cation

The Group classifi es its fi nancial assets in the following categories: at fair value through profi t or loss and loans and receivables. The classifi cation depends on the purpose for which the fi nancial assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition.

(i) Financial assets at fair value through profi t or loss

Financial assets at fair value through profi t or loss are fi nancial assets held for trading. A fi nancial asset is classifi ed in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classifi ed as current assets.

(ii) Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classifi ed as non-current assets. The Group’s loans and receivables comprise “loan to a jointly controlled entity“, “trade and other receivables”, “amounts due from a jointly controlled entity and its subsidiaries” and “cash and cash equivalents” in the consolidated balance sheet.

100

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Recognition and measurement

Regular way purchases and sales of fi nancial assets are recognized on the trade-date — the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all fi nancial assets not carried at fair value through profi t or loss. Financial assets carried at fair value through profi t or loss are initially recognized at fair value, and transaction costs are expensed in the consolidated income statement. Financial assets are derecognized when the rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profi t or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the “fi nancial assets at fair value through profi t or loss” category are presented in the consolidated income statement within “other income and other gains, net”, in the period in which they arise. Dividend income from fi nancial assets at fair value through profi t or loss is recognized in the consolidated income statement as part of “other income and other gains, net” when the Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a fi nancial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash fl ow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specifi c inputs.

The Group assesses at each reporting period whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. Impairment testing on loans and receivable are described in note 2(i).

(i)

Trade and other receivables

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy or fi nancial reorganization, and default of delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognized in the consolidated income statement within “administrative expenses”. When a trade receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited against “administrative expenses” in the consolidated income statement.

(j)

Cash and cash equivalents

Cash and cash equivalents includes cash on hand and deposits held at call with banks.

(k) Share capital

Ordinary shares and preference shares are classifi ed as equity.

Preference shares are classifi ed as equity as there is no contractual right to convert the preference shares to any outfl ow of liability on the Company.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Costs directly attributable to the repurchase of issued ordinary shares are shown in equity as a deduction and the nominal value of the shares repurchased is transferred from the retained earnings to the capital redemption reserve.

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(l) Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s consolidated fi nancial statements in the period in which the dividends are approved by the Company’s shareholders, or directors where appropriate.

(m) Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classifi ed as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

(n) Borrowings

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

The fair value of the liability portion of a convertible note is determined using a market interest rate for an equivalent non-convertible note. This amount is recorded as a liability on an amortized cost basis until extinguished on conversion or maturity of the notes. The remainder of the proceeds is allocated to the conversion option. This is recognized in shareholder’s equity, net of income tax effects.

Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

(o) Current and deferred income tax

The tax expense for the year comprises current and deferred tax. Tax is recognized in the consolidated income statement, except to the extent that it relates to item recognised in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries, JCE and an associated company operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated fi nancial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profi t or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, JCE and an associated company, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

102

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outfl ow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for future operating losses.

When there are a number of similar obligations, the likelihood that an outfl ow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outfl ow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

(q) Revenue recognition

Revenue comprises the fair value of consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, rebates and discounts and after eliminating sales within the Group.

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefi ts with fl ow to the entity and when specifi c criteria have been met for each of the Group’s activities as described below.

Advertising and commission income are recognized when services are rendered and revenue can be reliably measured.

When services are exchanged or swapped for services which are of a similar nature and value, the exchange is not regarded as a revenue-generating transaction.

When services are rendered in exchange for dissimilar services, the exchange is regarded as a revenuegenerating transaction. The revenue is measured at the fair value of the services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the services received cannot be measured reliably, the revenue is measured at the fair value of the services provided in a barter transaction, by reference to non-barter transaction involving similar services, adjusted by the amount of any cash or cash equivalents transferred.

Revenue from the sale of television programmes and fi lm rights is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the television programmes and fi lm rights are delivered to customers and the title has passed or rights have been assigned.

Income from licensing and sub-licensing of television programmes and fi lm rights is recognized upon the delivery of the pre-recorded audio visual products and the materials for video features to the customers, in accordance with the terms of the underlying contracts. In case where income from licensing and sub-licensing of fi lm rights is contingent to the receipt of revenue from the box offi ces, income is only recognized when it is probable that the licensing fee will be received, which is normally when the event has occurred.

Rental and management fee income from investment property is recognized in the consolidated income statement on a straight-line basis over the term of the lease.

Interest income is recognized on a time proportion basis using the effective interest method.

Dividend income is recognized when the right to receive payment is established.

103

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(r) Employee benefi ts

(i) Employee leave entitlements

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

Employee entitlements to sick leave, maternity and other non-accumulating compensated absences are not recognized until the time of leave.

(ii) Retirement benefi t costs

The Group operates a defi ned contribution retirement benefi ts scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all those employees who are eligible to participate in the Scheme. The Scheme became effective on 1 December 2000. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the consolidated income statement as they became payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in an independent administered fund. The Group’s employer contributions vest fully with the employees when contributed into the Scheme except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the Scheme.

The Company’s subsidiaries in the PRC except Hong Kong are members of the state-managed retirement benefi ts scheme operated by the government of the PRC except Hong Kong. The retirement scheme contributions, which are based on a certain percentage of the salaries of the subsidiaries’ employees, are charged to the consolidated income statement in the period to which they relate and represent the amount of contributions payable by these subsidiaries to the scheme.

For both retirement benefi ts schemes, the Group has no legal or constructive obligation to pay further contributions if the funds do not hold suffi cient assets to pay all employees the benefi ts relating to employee service in the current or prior periods.

Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is available.

(iii) Termination benefi ts

Termination benefi ts are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefi ts. The Group recognizes termination benefi ts when it is demonstrably committed to terminate the employment of current employees without possibility of withdrawal. In case of an offer made to encourage voluntary redundancy, the termination benefi ts are measured based on the number of employees expected to accept offer. Benefi ts falling due more than 12 months after the end of the reporting period are discounted to present value.

(iv) Profi t-sharing and bonus plans

The Group recognises a liability and an expense for bonuses and profi t-sharing, based on a formula that takes into consideration the profi t attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(s) Share-based payments

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

including any market performance conditions;
excluding the impact of any service and non-market performance vesting conditions (for example, profi tability, sales growth targets and remaining an employee of the entity over a specifi ed time period); and
excluding the impact of any non-vesting conditions.

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specifi ed vesting conditions are to be satisfi ed. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated income statement, with a corresponding adjustment to equity.

The cash subscribed for the shares issued when the options are exercised is credited to share capital (nominal value) and share premium, net of any directly attributable transaction costs.

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

(t) Borrowing Costs

Borrowing costs are expensed in the period in which they are incurred.

(u) Operating leases

Leases where substantially all the risks and rewards of ownership of assets retained by the lessor are classifi ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor), including upfront payment made for leasehold land and land use rights, are charged to the consolidated income statement on a straight-line basis over the period of the lease.

(v) Segment reporting

(w) Impairment of investments in subsidiaries, JCE, associated company and non-fi nancial assets

Assets that have an indefi nite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units). Non-fi nancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3 FINANCIAL RISK MANAGEMENT

(i) Financial risk factors

The Group’s activities expose it to a variety of fi nancial risks: cash fl ow and fair value interest rate risk, credit risk, foreign exchange risk, price risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of fi nancial market and seeks to minimize potential adverse effects on the Group’s fi nancial performance.

(a) Cash fl ow and fair value interest rate risk

The Group has loans to a jointly controlled entity and cash balances placed with reputable banks, which generate interest income for the Group.

Borrowings at variable rates expose the Group to cash fl ow interest-rate risk. Borrowings at fi xed rates expose the Group to fair value interest-rate risk.

The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

The Group analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refi nancing, renewal of existing positions, and alternative fi nancing. Based on these scenarios, the Group calculates the impact on profi t and loss of a defi ned interest rate shift. For each simulation, the same interest rate shift is used. The scenarios are run only for fi nancial assets and liabilities that represent the major fl oating interest-bearing positions.

Based on the simulations performed, if the interest rate increased/decreased by 60 basis-point with all other variables held constant, loss attributable to the equity holders of the Company for the year ended 31 December 2010 would have been approximately HK$1,420,000 (2009: HK$1,723,000) lower/ higher, respectively.

(b) Credit risk

The Group has no signifi cant concentrations of credit risk. The carrying amounts of bank balances, trade receivable and prepayments, deposits and other receivables represent the Group’s maximum exposure to credit risk in relation to fi nancial assets. The Group has policies that limit the amount of credit exposure to any fi nancial institutions. The Group has also policies in place to ensure that the sales are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers.

The credit risk on bank balances is limited because the counterparties are fi nancial institutions with good credit standing.

Other than concentration of credit risk on bank balances, which are deposited with several banks with good credit ratings, the Group has no signifi cant concentration of credit risk, with exposure spread over a number of counterparties.

(c) Foreign exchange risk

The Group mainly operates in the PRC and is exposed to foreign exchange risk arising from Renminbi currency exposures, primarily with respect to the HK dollar. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

The Group has not used any forward contracts, currency borrowings or other means to hedge its foreign currency exposure but manages through constant monitoring to limit as much as possible its net exposures.

The Group had certain investments in foreign operations in Renminbi, whose net assets were exposed to foreign currency translation risk. Fluctuation in such currencies would be refl ected in the movement of the translation reserve.

106

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2010, if Renminbi had strengthened/weakened by 5% against Hong Kong dollars with all other variables held constant, the loss for the year and accumulated losses would decrease/ increase by HK$26,435,000 (2009: profi t increase/decrease by HK$21,528,000), mainly as a result of foreign exchange gains/losses on translation of Renminbi dominated loans advance to subsidiaries.

The Group had no material foreign currency exposure on the net monetary position of each group entity against its respective functional currency.

(d) Liquidity risk

Prudent liquidity risk management includes maintaining suffi cient cash and bank balances.

Due to the dynamic nature of the Group’s underlying businesses, the Group monitors the current and expected liquidity requirements and maintains fl exibility in funding by maintaining suffi cient cash and cash equivalent to meet operational needs and possible investment opportunities.

The table below analyzed the fi nancial liabilities of the Group and the Company into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table were the contractual undiscounted cash fl ows. Balances due within twelve months equaled their carrying balances, as the impact of discounting was not signifi cant.

	Less than	Between	Between
	1 year	1 and 2 years	2 and 5 years
	HK$’000	HK$’000	HK$’000
Group
At 31 December 2010
Agency fee payables	136,492	—	—
Trade payables, other payables and
accrued liabilities	161,796	—	—
Amount due to an associated company	32,848	—	—
At 31 December 2009 (Restated)(Note 2)
Agency fee payables	167,117	—	—
Trade payables, other payables and
accrued liabilities	128,778	—	—
Amount due to an associated company	30,619	—	—
Company
At 31 December 2010
Other payables and accrued liabilities	41,850	—	—
At 31 December 2009
Other payables and accrued liabilities	3,288	—	—

(e) Price risk

Management considers that the Group is not subject to any signifi cant price risk.

107

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Capital risk management

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

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.

The Group monitors its capital structure on the basis of a total bank borrowings-to-total equity ratio. During 2010, the Group’s strategy was to maintain the total bank borrowings-to-total equity ratio below 10%. The total bank borrowings-to-total equity ratio at 31 December 2010 was 0% (2009: 0%).

(iii) Fair value estimation

The fair values of the Group’s fi nancial instruments are not materially different from their carrying values.

The fair values of fi nancial instruments that are not traded in active market are made references to amounts as determined by discounted cash fl ow techniques.

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

The table below analysis fi nancial instruments carried at fair value, by valuation method. The different levels have been defi ned as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)(level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)(level 3)

The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2010:

	Level 1	Level 2	Level 3	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Financial assets at fair value
through prof t or loss
— Listed equity securities	28,000	—	—	28,000

The fair value of fi nancial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing services, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for fi nancial assets held by the Group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily the listed equity investments.

108

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and judgements will, by defi nition, seldom equal the related actual results. The estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are addressed below.

(i) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with HKAS 36 “Impairment of Assets” (“HKAS 36”). The recoverable amounts of cash-generating units have been determined based on fair value less cost to sell calculations. These calculations require the use of estimates. Had the pre-tax discount rate, revenue growth rate and terminal growth rate applied to the discounted cash fl ow been different from the management’s estimate, the goodwill might result in impairment. Details of the assumptions are described in note 15 to the consolidated fi nancial statements.

(ii) Impairment of exclusive advertising agency rights

The exclusive advertising agency rights are reviewed for impairment whenever events or changes in circumstances in accordance with HKAS 36. The recoverable amounts have been determined based on fair value less costs to sell calculations. These calculations require the use of estimates. In determining the fair value less costs to sell, expected cash fl ows generated by the rights are discounted to their present value, which requires signifi cant judgement relating to the level of volume of air time being sold, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volume, selling price and operating costs. Had the actual results been different from the management’s estimate, the exclusive advertising agency rights might result in impairment.

(iii) Amortization and impairment of programmes and fi lm rights

Programmes and fi lm rights are amortized based on estimated projected revenue over their expected economic benefi cial periods, and additional amortization will be charged if estimated projected revenue adversely differs from the previous estimation. Programmes and fi lm rights are impaired to its net realizable value which is estimated based on projected revenues. Actual revenue might differ from such future revenue projections. In this regard, management prepares and regularly updates the detailed revenue projection for each signifi cant programme and fi lm. Had the actual results been different from the management’s estimate, the programmes and fi lm rights might result in impairment.

(iv) Recoverability of material trade receivables

The Group has signifi cant balance of trade receivables, mainly arising from television advertising and content production businesses. Management reviews the collectibility of its trade receivables on a regular basis. Provision for doubtful debts is established for trade receivables that are potentially uncollectible based on a specifi c identifi cation method. Determining adequate provision for doubtful debts requires management’s judgement. Conditions impacting the collectibility of the Group’s trade receivables could cause actual writeoffs to be materially different from the amounts reserved.

109

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(v) Income taxes

The Group recognizes income tax liabilities based on estimates of anticipated amounts of taxes that will be due. Where the fi nal tax outcome is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(vi) Recoverability of investments in fi lm production

Management assesses annually whether the programmes and fi lms production in progress have suffered any impairment. Such annual assessment is performed at each balance sheet date with reference mainly to current market conditions and trade history. If projected cash infl ow from these investments deteriorates, provision for impairment may be required.

(vii) Purchase price allocation

The fair value of the assets of the subsidiaries acquired at the acquisition date was determined by management’s assessment of the fair value of the assets. A portion of the purchase price is allocated to the business of the acquired subsidiaries based on the projected cash fl ow forecast of the business. Had management determined that a different fair value of the assets of the subsidiaries acquired at the acquisition date and different assumptions used for the preparation of the cash fl ow forecast of the business of the acquired subsidiaries, this would have caused different amount of asset value and goodwill at the date of acquisition.

(viii) Estimated fair values of investment properties

The Group carries its investment properties at fair value with changes in the fair values recognized in profi t or loss. It obtains independent valuations at least annually. At the end of each reporting period, the management update their assessment of the fair value of each property, taking into account the most recent independent valuations. The key assumptions used in this determination and the sensitivity of the directors’ estimates of these assumptions to the carrying amount of the investment properties are set out in note 17.

110

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5 SALES AND OTHER INCOME AND OTHER GAINS, NET

The Group is principally engaged in Advertising business, Content Production business and Properties Investment business through a jointly controlled entity. Revenues recognized during the year are as follows:

Sales
Advertising
Licensing and sub-licensing of f lm and TV programs
Rental and management fee income
Other income and other gains, net
Gain on disposal of exclusive advertising agency right_(note 16)
Dividend income on f nancial assets at fair value through prof t or loss
Interest income
Fair value (loss)/gain on f nancial assets at fair value through prof t or loss
Negative goodwill(note 31)_
Exchange gain
Miscellaneous
Total

Group
2010
2009
HK$’000
HK$’000
(Restated)
(Note 2)
161,340
274,410
4,787
9,648
5,181
—
171,308
284,058
—
66,290
—
277
9,574
1,802
(1,836)
8,176
10,344
—
15,963
806
1,481
22
35,526
77,373
206,834
361,431

The non-cash revenue arising from exchange of goods or services during the year included in sales from Advertising amounted to approximately HK$8,686,000 (2009: HK$8,191,000).

6 SEGMENT INFORMATION

The chief operating decision-maker has been identifi ed as the management committee which comprises the chief executive offi cer and the chief fi nancial offi cer of the Group. The management committee reviews the Group’s internal reporting in order to assess performance and allocate resources. The management committee has determined the operating segments based on these reports.

The management committee has determined that the Group is organized into three main operating segments: (i) Advertising business; (ii) Content Production business; and (iii) Properties Investment. The management committee measures the performance of the segments based on their respective segment results.

There are some changes in the operating segments presented in 2010 due to the change in the presentation of information to the management committee. The operating segment “Others” presented in 2009, which mainly represented the results from the Group’s investments in the fi nancial instruments, is no longer organized as a separate operating segment. The segment “Properties Investment” has been newly presented in 2010 as a result of the Group’s investments in investment properties.

There are no sales between the operating segments.

111

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s three operating segments operate in the PRC. No geographical segment information is presented.

Sales Segment results Exchange gain Share-based payments Provision for impairment of goodwill Negative goodwill Finance costs Unallocated costs, net Loss before taxation Taxation Loss for the year Non-controlling interests Loss attributable to the equity holders of the Company Segment assets Interest in an associated company Goodwill Amounts due from a jointly controlled entity and its subsidiaries Loan to a jointly controlled entity Assets of disposal group held for sale Unallocated assets Total assets Segment liabilities Liabilities of disposal group held for sale Unallocated liabilities Total liabilities Capital expenditures — Allocated — Unallocated Depreciation — Allocated — Unallocated Amortization	Advertising *HK$’000* 161,340 13,957 127,019 268,986 43,611 151,315 51,474 405 —	Content production *HK$’000* 4,787 (8,604) 118,195 — — 104,119 65,658 417 1,828	2010 Properties investment Total continuing operations *HK$’000* *HK$’000* 5,181 171,308 1,974 7,327 15,963 (3,011) (470,444) 10,344 (1,125) (37,908) (478,854) (4,813) (483,667) 204 (483,463) 391,853 637,067 — 268,986 — 43,611 26,747 64,809 118,347 193,212 1,352,779 29,941 285,375 36,347 137,424 459,146 672 117,804 1,903 25 847 1,317 — 1,828	Discontinued operation *HK$’000* — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Total *HK$’000* 171,308 7,327 15,963 (3,011) (470,444) 10,344 (1,125) (37,908) (478,854) (4,813) (483,667) 204 (483,463) 637,067 268,986 43,611 26,747 64,809 118,347 193,212 1,352,779 285,375 36,347 137,424 459,146 117,804 1,903 847 1,317 1,828

112

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Sales Segment results Interest income on loan to a jointly controlled entity Exchange gain Share-based payments Provision for impairment of intangible assets Loss on disposal of a subsidiary, net of provision for consideration receivable Gain on disposal of exclusive advertising agency right Finance costs Unallocated costs, net Prof t/(Loss) before taxation Taxation Prof t/(Loss) for the year Non-controlling interests Prof t/(Loss) attributable to the equity holders of the Company Segment assets Investment in an associated company Goodwill Amounts due from a jointly controlled entity and its subsidiaries Loan to a jointly controlled entity Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditures — Allocated — Unallocated Depreciation — Allocated — Unallocated Amortization	Advertising HK$’000 (Restated) (Note 2) 274,410 69,442 225,539 253,144 496,653 260,695 117 620 190,446	Content production HK$’000 (Restated) (Note 2) 9,648 (7,732) 96,768 — — 62,269 483 730 3,964	2009 Others Total continuing operations HK$’000 HK$’000 (Restated) (Restated) (Note 2) (Note 2) — 284,058 8,388 70,098 836 806 (13,762) — — 66,290 (31,291) (26,562) 66,415 (421) 65,994 7 66,001 — 322,307 — 253,144 — 496,653 32,495 62,634 532,858 1,700,091 — 322,964 65,422 388,386 — 600 — — 1,350 1,179 — 194,410	Discontinued operation HK$’000 (Restated) (Note 2) 206,240 (34,242) — — — (21,173) (13,159) — — — (68,574) 3,956 (64,618) — (64,618) — — — — — — — — — — 5 — 48 — 239,121	Total HK$’000 (Restated) (Note 2) 490,298 35,856 836 806 (13,762) (21,173) (13,159) 66,290 (31,291) (26,562) (2,159) 3,535 1,376 7 1,383 322,307 253,144 496,653 32,495 62,634 532,858 1,700,091 322,964 65,422 388,386 605 — 1,398 1,179 433,531

113

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1 January 2009 Advertising Content production Others Total continuing operations HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) (Restated) (Note 2) (Note 2) (Note 2) (Note 2) Segment assets 1,114,971 128,557 11,196 1,254,724 Investment in an associated company 285,287 — — 285,287 Goodwill 466,405 — — 466,405 Amounts due from a jointly controlled entity and its subsidiaries 36,559 Loan to a jointly controlled entity 62,534 Unallocated assets 227,479 Total assets 2,332,988 Segment liabilities 1,354,410 60,184 — 1,414,594 Unallocated liabilities 102,640 Total liabilities 1,517,234	Discontinued operation HK$’000 (Restated) (Note 2) — — — — — — — — — —	Total HK$’000 (Restated) (Note 2) 1,254,724 285,287 466,405 36,559 62,534 227,479
		2,332,988

		1,414,594 102,640
		1,517,234

Segment assets consist primarily of tangible and intangible assets, investment properties, other non-current assets, receivables and operating cash. They exclude goodwill, loan to a jointly controlled entity, deferred tax assets, amounts due from a jointly controlled entity and its subsidiaries and cash and cash equivalents for the corporate use.

Segment liabilities comprise operating liabilities including payables and accrued liabilities. They exclude items such as convertible notes, current income tax liabilities and deferred tax liabilities.

Capital expenditure comprises additions to property, plant and equipment, investment properties and intangible assets, including additions resulting from acquisitions through business combination.

7 FINANCE COSTS

Notional non-cash interest accretion on: — Convertible notes — Pre-agreed periodic payments on exclusive advertising agency right	Group 2010 2009 *HK$’000* HK$’000 1,125 3,604 — 27,687 1,125 31,291	Group 2010 2009 *HK$’000* HK$’000 1,125 3,604 — 27,687 1,125 31,291
		31,291

114

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8 (LOSS)/PROFIT BEFORE TAXATION

(Loss)/profi t before taxation is stated after crediting and charging the following:

Crediting Gain on disposal of property, plant and equipment Write back of provision for impairment of trade and other receivables Debiting Depreciation of property, plant and equipment_(note 15) Amortization of intangible assets(note 16) Auditor’s remuneration Provision for impairment of trade receivables(note 22)_ Provision for impairment of other receivables Operating lease rentals — land and buildings Donations Staff costs: Directors’ fees Wages and salaries Share-based payments Contributions to def ned contribution pension schemes		Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 127 346 — 3,359 2,164 2,529 1,828 194,410 3,352 2,215 9,548 — 671 — 6,708 6,457 114 —	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 127 346 — 3,359 2,164 2,529 1,828 194,410 3,352 2,215 9,548 — 671 — 6,708 6,457 114 —
		656 23,943 3,011 3,381	720 17,893 13,762 2,662
		30,991	35,037

9 TAXATION

Hong Kong profi ts tax has been provided at the rate of 16.5% (2009: 16.5%) on the estimated assessable profi t for the year. Taxation on profi ts outside Hong Kong has been calculated on the estimated assessable profi t for the year at the rates of taxation prevailing in the regions/countries in which the Group operates.

Effective from 1 January 2008, the Company’s subsidiaries incorporated in the PRC are required to determine and pay the Corporate Income Tax (“CIT”) in accordance with the Corporate Income Tax Law of the PRC (the “New CIT Law”) as approved by the National People’s Congress on 16 March 2007 and Detailed Implementations Regulations of the New CIT Law (the “DIR”) as approved by the State Council on 6 December 2007.

115

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

According to the New CIT Law and DIR, the income tax rates for both domestic and foreign investment enterprises have been unifi ed at 25% effective from 1 January 2008.

Current income tax — Hong Kong prof ts tax — PRC Corporate Income Tax Deferred income tax Income tax expense	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) — — 4,453 (15,684) 360 16,105 4,813 421	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) — — 4,453 (15,684) 360 16,105 4,813 421
		421

The tax on the Group’s (loss)/profi t before taxation differs from the theoretical amount that would arise using the domestic tax rate applicable to the profi t or loss before taxation of the consolidated entities in the respective countries as follows:

(Loss)/prof t before taxation Tax calculated at domestic tax rates applicable to the prof t or loss in the respective countries Income not subject to tax Expenses not deductible for tax purposes Utilization of previously unrecognized tax losses Unrecognized tax losses Income tax expense	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) (478,854) 66,415 (81,010) 11,893 (9,202) (16,767) 82,991 5,541 (389) (8,772) 12,423 8,526 4,813 421	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) (478,854) 66,415 (81,010) 11,893 (9,202) (16,767) 82,991 5,541 (389) (8,772) 12,423 8,526 4,813 421
		11,893 (16,767) 5,541 (8,772) 8,526
		421

The weighted average applicable tax rate was 16.9% (2009: 17.9%).

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The analysis of deferred tax assets and deferred tax liabilities is as follows:

Deferred tax assets to be recovered after more than 12 months Deferred tax liabilities to be recovered after more than 12 months_(note 31)_ Deferred tax (liabilities)/assets, net	Group 2010 2009 *HK$’000* HK$’000 18,737 18,468 (74,130) — (55,393) 18,468	Group 2010 2009 *HK$’000* HK$’000 18,737 18,468 (74,130) — (55,393) 18,468
		18,468

116

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movement in gross deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax assets:

At 1 January 2009 Charged to the consolidated income statement Exchange difference At 31 December 2009 Charged to the consolidated income statement Exchange difference At 31 December 2010		Group	Group	Total HK$’000 50,112 (31,700) 56 18,468 (360) 629 18,737
	Decelerated tax amortization in the PRC HK$’000 26,168 (19,194) 27 7,001 — 243 7,244	Impairment losses HK$’000 14,999 (7,420) 18 7,597 — 264 7,861	Tax losses HK$’000 8,945 (5,086) 11 3,870 (360) 122 3,632

Deferred tax liabilities:

At 1 January 2009 Credited to the consolidated income statement Exchange difference At 31 December 2009 Acquisition of subsidiaries and jointly controlled entities (note 31) At 31 December 2010		Group	Group	Total HK$’000 (18,394) 18,406 (12) — (74,130) (74,130)
	Investment properties HK$’000 — — — — (74,130) (74,130)	Intangible assets HK$’000 (4,076) 4,076 — — — —	Exchange difference HK$’000 (14,318) 14,330 (12) — — —

Deferred tax assets are recognized for tax losses carry-forward to the extent that the realization of the related tax benefi t through the future taxable profi ts is probable. As at 31 December 2010, the Group had unrecognized tax losses of approximately HK$346,217,000 (2009: HK$290,937,499) to carry forward against future taxable income, subject to agreement by the Inland Revenue Department of Hong Kong and local tax bureau of the PRC. The tax losses of the PRC subsidiaries have an expiry period of fi ve years, while the tax losses of Hong Kong subsidiaries have no expiry date. Losses amounting to HK$65,898,000 (2009: HK$66,001,000) and HK$26,537,000 (2009: Nil) expire in 2013 and 2015 respectively.

117

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred income tax liabilities of HK$8,994,000 (2009: HK$350,000) have not been recognized for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. Unremitted earnings totalled HK$89,944,000 as at 31 December 2010 (2009: HK$3,496,000).

10 DISCONTINUED OPERATION — GROUP

On 25 June 2009, the Group entered into an agreement to dispose of its 100% equity interests in Guangzhou Zhanshi Advertising Company Limited (“Guangzhou Zhanshi”) to independent third parties. Guangzhou Zhanshi was principally engaged in advertising agency and had been appointed as the exclusive advertising agency for Guangdong Provincial Satellite Television for the period from 1 January 2009 to 31 December 2011.

(a) An analysis of the results of the operation of the discontinued operation is as follows:

Sales Cost of sales_(note 16) Gross loss Other revenues Marketing and selling expenses Administrative expenses Provision for impairment of intangible assets(note 16)_ Loss on disposal of a subsidiary, net of provision for consideration receivable Loss before taxation Taxation Loss from discontinued operation Loss attributable to the equity holders of the Company	2010 *HK$’000* — — — — — — — — — — — —	2009 HK$’000 206,240 (239,121) (32,881) 2 (652) (711) (21,173) (13,159) (68,574) 3,956 (64,618) (64,618)

(b) An analysis of the cash fl ows of the discontinued operation is as follows:

Net cash outf ow from operating activities Net cash outf ow from investing activities Decrease in cash and cash equivalents	2010 *HK$’000* — — —	2009 HK$’000 (423) (5) (428)

118

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Net assets disposed of: Intangible asset — goodwill_(note 16) Exclusive advertising agency right(note 16) Property, plant and equipment(note 15)_ Trade receivables Prepayments, deposits and other receivable Cash and cash equivalents Agency fee payables Payables and accrued liabilities Loss on disposal of a subsidiary, net of provision for consideration receivable Cash received upon disposal of a subsidiary Cash and cash equivalents in a subsidiary disposed Net cash inf ow on disposal of a subsidiary	2010 *HK$’000* — — — — — — — — — — — — —	2009 HK$’000 24,813 147,606 246 13,489 5,669 353 (119,240) (50,836) 22,100 (13,159) 8,941 (353) 8,588

11 LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The loss attributable to equity holders of the Company is dealt with in the fi nancial statements of the Company to the extent of approximately HK$368,057,000 (2009: loss of HK$28,411,000).

12 (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the (loss)/profi t attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Weighted average number of ordinary shares in issue (thousands) (Loss)/prof t from continuing operations attributable to equity holders of the Company (HK$’000) Basic (loss)/earnings per share from continuing operations attributable to equity holders of the Company (HK cents per share) Loss from discontinued operation attributable to equity holders of the Company (HK$’000) Basic loss per share from discontinued operation attributable to equity holders of the Company (HK cents per share)	2010 28,356,759 (483,463) (1.70) — —	2009 19,068,808 66,001 0.35 (64,618) (0.34)

119

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Diluted (loss)/earnings per share

Diluted (loss)/earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. As at 31 December 2010, the Company has only one category of potential ordinary shares: share options (2009: share options and convertible notes). A calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s shares during the year) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

The conversion of all potential ordinary shares would have an anti-dilutive effect on the basic (loss)/earnings per share for the year ended 31 December 2010 (2009: same).

13 DIVIDEND

The directors do not recommend the payment of a fi nal dividend in respect of the year ended 31 December 2010 (2009: Nil).

14 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

The aggregate amounts of emoluments paid or payable to directors of the Company during the year are as follows:

Fees Salaries, bonuses, allowances and benef ts in kind Contributions to def ned contribution pension schemes Sub-total Share-based payments (i) Total	2010 *HK$’000* 656 3,423 20 4,099 358 4,457	2009 HK$’000 720 1,604 12
		2,336 4,912
		7,248

(i) Share-based payments represent the recognition of the fair value of share options of the Company granted to the directors over the vesting period.

120

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The remuneration of each director for the year ended 31 December 2010 is set out below:

		Salaries,	Contributions
		bonuses,	to def ned
		allowances	contribution
		and benef ts	pension		Share-based
Name of director	Fees	in kind	schemes	Sub-total	payments (i)	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Mr. YUEN Hoi Po (ii)	—	—	—	—	—	—
Mr. Hugo SHONG	—	—	—	—	—	—
Mr. ZHANG Changsheng	80	615	—	695	—	695
Mr. WANG Hong (ii)	—	1,576	12	1,588	359	1,947
Mr. Edward TIAN Suning	—	—	—	—	—	—
Mr. JIANG Jianning	144	—	—	144	—	144
Professor WEI Xin (iii)	26	—	—	26	—	26
Dr. WONG Yau Kar David	144	—	—	144	—	144
Mr. YUEN Kin	144	—	—	144	—	144
Mr. ZHAO Anjian (iv)	—	1,232	8	1,240	—	1,240
Mr. LI Ruigang (v)	118	—	—	118	—	118

(ii) Appointed in August 2010.

(iii) Appointed in October 2010.

(iv) Resigned in August 2010.

(v) Resigned in October 2010.

The remuneration of each director for the year ended 31 December 2009 is set out below:

		Salaries,	Contributions
		bonuses,	to def ned
		allowances	contribution
		and benef ts	pension		Share-based
Name of director	Fees	in kind	schemes	Sub-total	payments (i)	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Mr. Edward TIAN Suning	—	—	—	—	975	975
Mr. Hugo SHONG (vi)	—	—	—	—	—	—
Mr. ZHAO Anjian	—	1,604	12	1,616	1,502	3,118
Mr. ZHANG Changsheng	144	—	—	144	487	631
Mr. JIANG Jianning	144	—	—	144	487	631
Mr. LI Ruigang	144	—	—	144	487	631
Dr. WONG Yau Kar David	144	—	—	144	487	631
Mr. YUEN Kin	144	—	—	144	487	631

(vi) Appointed in December 2009.

Other than as presented above, for 2009 and 2010 there were:

(1) no arrangement under which a director waived or agreed to waive any remuneration; and

(2) no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group, or as compensation for loss of offi ce.

121

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Five highest paid individuals

The fi ve individuals whose emoluments were the highest in the Group for the year include two (2009: one) director(s) whose emoluments are refl ected in the analysis presented above. The emoluments payable to the three (2009: four) individuals during the year are as follows:

Salaries, bonuses, allowances and benef ts in kind Share-based payments Contributions to def ned contribution pension schemes The emoluments fell within the following bands: Emolument bands HK$1,500,001 — HK$2,000,000 HK$2,000,001 — HK$2,500,000 HK$2,500,001 — HK$3,000,000	Group 2010 2009 *HK$’000* HK$’000 4,393 4,847 1,117 5,211 35 80 5,545 10,138 Number of individuals 2010 2009 2 1 1 — — 3 3 4	Group 2010 2009 *HK$’000* HK$’000 4,393 4,847 1,117 5,211 35 80 5,545 10,138 Number of individuals 2010 2009 2 1 1 — — 3 3 4
		4

122

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15 PROPERTY, PLANT AND EQUIPMENT — GROUP

Cost
At 1 January 2009
Additions — continuing operations
Additions — discontinued operation
Disposals — continuing operations
Disposal of a subsidiary — discontinued operation_(note 10(c))
Exchange difference
At 31 December 2009
Accumulated depreciation
At 1 January 2009
Disposals — continuing operations
Disposal of a subsidiary — discontinued operation(note 10(c))_
Depreciation — continuing operations
Depreciation — discontinued operation
Exchange difference
At 31 December 2009
Net book value:
At 31 December 2009

Property,
plant and
equipment
HK$’000
(Restated)
(Note 2)
17,359
259
5
(6,670)
(300)
11
10,664
8,705
(4,383)
(54)
2,529
48
3
6,848
3,816

123

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cost
At 1 January 2010
Additions
Acquisition of subsidiaries and jointly controlled entities_(note 31)
Disposals
Exchange difference
Reclassif cation to assets of disposal group held for sale(note 31)
At 31 December 2010
Accumulated depreciation
At 1 January 2010
Disposals
Depreciation
Exchange difference
Reclassif cation to assets of disposal group held for sale(note 31)_
At 31 December 2010
Net book value:
At 31 December 2010

Property,
plant and
equipment
HK$’000
10,664
2,964
1,010
(4,997)
318
(1,342)
8,617
6,848
(3,906)
2,164
174
(393)
4,887
3,730

Depreciation expense of HK$2,164,000 (2009: HK$2,006,000) has been charged in administrative expenses.

124

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16 INTANGIBLE ASSETS — GROUP

		Non-current assets	Non-current assets		Current assets
Goodwill *HK$’000* *(Restated)* *(Note 2)* 466,405 — (5,104) — (24,813) — — — 60,165 496,653 496,653 — 496,653	Exclusive advertising agency right *HK$’000* *(Restated)* *(Note 2)* 569,427 — — (380,225) — — (190,113) — 911 — — — —	Programmes and f lm rights *HK$’000* *(Restated)* *(Note 2)* 14,243 — — — — 3,294 (3,964) — 6 13,579 96,950 (83,371) 13,579	Programmes and f lms production in progress *HK$’000* *(Restated)* *(Note 2)* 3,855 341 — — — (3,294) — — 7 909 909 — 909	Others *HK$’000* *(Restated)* *(Note 2)* 333 — — — — — (333) — — — — — —	Exclusive advertising agency right *HK$’000* *(Restated)* *(Note 2)* 401,911 — (16,069) — (147,606) — — (239,121) 885
					—

					— —
					—

125

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Non-current assets	Non-current assets		Current assets
Goodwill *HK$’000* 496,653 — — — (470,444) 17,402 43,611 43,611 — 43,611	Exclusive advertising agency right *HK$’000* — — — — — — — — — —	Programmes and f lm rights *HK$’000* 13,579 — 16,378 (1,828) (7,984) 284 20,429 105,965 (85,536) 20,429	Programmes and f lms production in progress *HK$’000* 909 65,485 (16,378) — — 614 50,630 50,630 — 50,630	Others *HK$’000* — — — — — — — — — —	Exclusive advertising agency right *HK$’000* — 50,248 — — — 873
					51,121

					51,121 —
					51,121

Amortization of HK$1,828,000 (2009: HK$194,410,000) is included in the cost of sales. Impairment of HK$478,428,000 (2009: nil) is included in administrative expenses.

In December 2010, the Group has acquired the exclusive advertising agency right in certain sectors for Beijing Railway Station and Beijing West Railway Station. The agency right lasts for a period of three years since 1 January 2011 and the Group has a right for early termination at its own discretion with forfeit of deposit paid.

During the year ended 31 December 2006, Beijing Hua Yi Qian Si Advertising Company Limited (“Qiansi”), a whollyowned subsidiary of the Group, has entered into an exclusive advertising agency agreement (“Agreement”) with Hai Nan Haishi Tourist Satellite TV Media Co., Ltd. (“Hainan Haishi”), an associated company of a jointly controlled entity of the Group. Under the Agreement, Qiansi has been granted an exclusive right to sell all of the advertising resources of Hainan Haishi for a period of up to six years with effect from 1 January 2006. In return, Qiansi has agreed to make pre-agreed monthly payments to Hainan Haishi during the same period. In December 2009, Qiansi and Hainan Haishi have entered into a supplemental agreement, whereby the expiration date of the above-mentioned exclusive right was changed to 31 December 2009. Accordingly, the relevant intangible asset of HK$380,225,000 is treated as being disposed of and the relevant agency fee payables of HK$446,515,000 in relation to the periods after 31 December 2009 are derecognized. The difference of HK$66,290,000 is recorded as a gain on disposal of exclusive advertising agency right included in “other gains, net” for the year ended 31 December 2009 (note 5).

The Group considered the exclusive advertising agency rights to be an intangible asset representing the right to sell advertising resources. The present value of pre-agreed periodic payments to be made in subsequent years were capitalized and accounted for as intangible assets in the consolidated balance sheet, and those pre-agreed periodic payments constitute a contractual obligation to deliver cash and hence were considered to be a fi nancial liability. The exclusive advertising agency right is amortized on a straight-line basis from the effective date of the right over the shorter of the remaining license period and the non-cancellable license period and is stated net of accumulated amortization. Interest accreted on the present value of pre-agreed periodic payments, if any, is charged to the consolidated income statement within fi nance costs.

Based on the revenue projection for each signifi cant programme and fi lm, the management consider the net realizable value is lower than its carrying value and thus impairment was recognized.

126

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identifi ed according to operating segment as follows:

	2010	2009
	*HK$’000*	HK$’000
		(Restated)
		(Note 2)
Advertising business	43,611	496,653

The recoverable amount of a CGU is determined based on fair value less cost to sell calculations. These calculations use cash fl ow projections based on fi nancial budgets approved by management covering a fi ve-year period. Cash fl ows beyond the fi ve-year period are extrapolated using the estimate rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.

Key assumptions used for fair value less cost to sell calculations:

	Advertising business
	2010	2009
— Compound annual growth rate of revenue
in f ve-year period (2009: six-year period)	22%	23%
— Annual growth rate beyond the f ve-year period
(2009: six-year period)	4%	3%
— Discount rate	17.4%	15%

Management determined the average annual revenue growth rate based on past performance and its expectations of market development. The discount rates used refl ect specifi c risks relating to the relevant segments.

When preparing the cash fl ow projection in fi ve-year period for the advertising CGU, management has adjusted downwards the projected annual net cash infl ow during the next fi ve-year period after taking into account the following factors, among others:

the year-on-year growth of sales from the advertising CGU slowed down during the second half of 2010 comparing to the fi rst half of 2010;
the marketing and selling expenses in relation to advertising sales and costs of programme production has been increasing since the second half of 2010, and such rising trend is expected to continue in the near future;
the market competition in the advertising market in the PRC is still very intense; and
the proposed disposal of Sinofocus Media (Holdings) Limited and its subsidiaries which engaged in advertising agency and media resources procurement business (see note 31 for details).

Taking into account the adjustments on the cash fl ow projection and applicable discount rate as mentioned above, the impairment tests on goodwill resulted in an impairment loss of approximately HK$470,444,000 (2009: nil).

If the compound annual growth rate of revenue in the fi rst fi ve-year period applied had been 1% lower and the discount rate applied had been 1% higher than management’s estimates as at 31 December 2010 with all other variables held constant, a further impairment provision of HK$43,611,000 would be required for the goodwill associated with the advertising business CGU as at 31 December 2010.

127

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17 INVESTMENT PROPERTIES

At fair value: Opening balance at 1 January Acquisitions of subsidiaries and jointly controlled entities_(note 31)_ Exchange difference Closing balance at 31 December	Group 2010 2009 *HK$’000* HK$’000 — — 359,004 — 886 — 359,890 —	Group 2010 2009 *HK$’000* HK$’000 — — 359,004 — 886 — 359,890 —
		—

The investment properties were located in the PRC and were held through a 50% indirectly-owned jointly controlled entity acquired in year 2010. In accordance to proportionate consolidation method, 50% of the fair value of the investment properties was included in the Group’s consolidated fi nancial statements.

(a) Amounts recognized in profi t and loss for investment properties

Rental and management fee income Direct operating expenses from property that generated rental income Direct operating expenses from property that did not generate rental income	2010 *HK$’000* 5,181 (3,011) — 2,170	2009 HK$’000 — — —
		—

(b) Valuation basis

The Group obtains independent valuations for its investment properties at least annually. At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations carried out by B.I. Appraisals Limited, a fi rm of independent and qualifi ed professional valuers not connected with the Group. The directors determine a property’s value within a range of reasonable fair value estimates.

The basis of valuation of the fair value of the investment properties was the current prices in an active market for similar investment properties.

128

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Leasing arrangements

Some of the investment properties are leased to tenants under long term operating leases with rentals payable monthly. The Group’s interests in minimum lease payments under non cancellable operating leases of investment properties not recognised in the fi nancial statements are receivable as follows:

Within one year Later than one year but no later than 5 years Later than 5 years	2010 *HK$’000* 9,125 28,651 49,196 86,972	2009 HK$’000 — — —
		—

18 INTERESTS IN SUBSIDIARIES — COMPANY

Unlisted shares at cost_(note a)_ Provision for impairment loss Loans advance to subsidiaries Provision for impairment loss	Company 2010 2009 *HK$’000* HK$’000 793,913 790,979 (634,827) (634,827) 159,086 156,152 1,058,788 656,553 (361,957) — 696,831 656,553 855,917 812,705	Company 2010 2009 *HK$’000* HK$’000 793,913 790,979 (634,827) (634,827) 159,086 156,152 1,058,788 656,553 (361,957) — 696,831 656,553 855,917 812,705
		156,152

		656,553 —
		656,553

		812,705

All the balances with subsidiaries were unsecured, interest-free and not repayable in the forseeable future.

Particulars of the principal subsidiaries are set out in note 36 to the consolidated fi nancial statements.

Note a: Expenses relating to share options granted by the Company to (i) certain employees working for, and (ii) parties providing services to, subsidiaries of the Group is recognized as deemed investments in subsidiaries.

129

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19 INTEREST IN AN ASSOCIATED COMPANY

At 1 January Share of prof ts Dividend distribution Exchange differences At 31 December Included in the above balances: Goodwill : At 1 January Exchange differences At 31 December	Group 2010 2009 *HK$’000* HK$’000 253,144 285,287 6,931 3,335 — (29,712) 8,911 (5,766) 268,986 253,144 132,577 135,013 4,604 (2,436) 137,181 132,577

The amount due to an associated company is unsecured, non-interest bearing and repayable on demand.

No indication for impairment of goodwill of an associated company was noted during the year.

The particulars of the associated company as at 31 December 2010 are as follows:

	Place of
	establishment
	and kind of		Interest held	Principal activities
Name	legal entity	Registered capital	indirectly	and place of operation
Hai Nan Haishi Travel	The PRC,	RMB115,963,100	49%	Production of
Satellite TV Media	limited liability			television programmes
Co., Ltd (*)	company			(other than news) for the
				Travel Channel in the PRC

(*) The name of the company referred to above represent management’s best effort in translating the Chinese name of the company as no English names for that company has been registered.

130

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s share of the results and its aggregated assets (including goodwill) and liabilities of the associated company at 31 December 2010 were as follows:

Assets: Non-current assets Current assets Liabilities: Current liabilities Net assets Revenue Prof t for the year	2010 *HK$’000* 121,205 327,320 448,525 (89,873) 358,652 197,582 18,859	2009 HK$’000 124,833 261,371 386,204 (58,132) 328,072 128,157 9,075

There are no contingent liabilities and commitments relating to the Group’s interest in the associated company, and no contingent liabilities and commitments of the associated company itself.

20 AMOUNTS DUE FROM A JOINTLY CONTROLLED ENTITY AND ITS SUBSIDIARIES — GROUP

Loan to a jointly controlled entity-non-current Amounts due from a jointly controlled entity and its subsidiaries- current	2010 *HK$’000* 64,809 26,747 91,556	Group 2009 HK$’000 (Restated) (Note 2) 62,634 32,495 95,129	1 January 2009 HK$’000 (Restated) (Note 2) 62,534 36,559 99,093

As at 31 December 2010, 2009 and 1 January 2009, the loan to a jointly controlled entity is unsecured, interest-bearing at prevailing market rates and not repayable in the coming twelve months.

The current portion of the amounts due from a jointly controlled entity and its subsidiaries are unsecured, non-interest bearing and repayable on demand.

131

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The particulars of the principal jointly controlled entities and its subsidiaries as at 31 December 2010 are as follows:

	Place of
	establishment				Principal
	and kind of		Interest		activities and
Name	legal entity	Registered capital	held indirectly		place of operation
			2010	2009
Shenzhen ITC Tian An	The PRC,	US$8,880,000	50%	—	Holding and rental
Co., Ltd. (2)	Sino-foreign equity				of investment
	joint venture				properties in the PRC
Shenzhen Tian An	The PRC,	RMB3,000,000	50%	—	Property management
International Building	Sino-foreign equity				in the PRC
Property Management	joint venture
Co., Ltd. (2)
Hainan Hailu Advertising	The PRC,	RMB1,000,000	50%	50%	Advertising agency,
Limited Liability	limited liability				design and
Company (3)	company				production
AUFM GROUP
Asia Union Film and	The PRC,	RMB120,000,000	50%	50%	Investment in
Media (1) (3)	limited liability				television drama,
	company				f lm production
					and advertising
					production in
					the PRC
Beijing Ying Shi Film	The PRC,	RMB500,000	30%	30%	Television drama
& Television Art	limited liability				production in
Limited Liability	company				the PRC
Company (3)
Beijing Hua Yi Shan	The PRC,	RMB1,020,000	25.50%	25.50%	Advertisement
He Shui Advertising	limited liability				production in
Company Limited (3)	company				the PRC

(1) On 3 July 2007, the Group entered into an agreement with Poly Culture and Arts Co., Ltd. (“PCACL”) pursuant to which the Group has agreed to repay the shareholder’s loans of approximately RMB150 million on behalf of AUFM to PCACL. On the other hand, PCACL has agreed to transfer to the Group its right to share 25% of the future dividends and other distribution of AUFM out of the retained distributable profi ts of AUFM. After the repayment of the abovementioned shareholder’s loans by the Group, AUFM will continue to be a jointly controlled entity of the Group but the profi t sharing ratio of the Group in AUFM will increase from 50% to 75%. The Group has already fully repaid the abovementioned shareholder’s loans on behalf of AUFM in 2007.

On 10 May 2009, the shareholders of AUFM passed a resolution, pursuant to which PCACL has agreed to transfer to the Group its right to share the remaining 25% of the dividends and other distribution of AUFM out of the retained distributable profi ts of AUFM for the future three years in return for an annual receipt of a fi xed consideration of RMB3,000,000. Accordingly, AUFM will continue to be a jointly controlled entity of the Group but the profi t sharing ratio of the Group in AUFM will be 100% during the three-year period. The additional 25% share of results of AUFM net of the consideration has been included in “administrative expenses” in the consolidated income statement.

(2)
Acquired in September 2010 (see note 31 for details).
(3) The names of the companies referred to above represent management’s best effort in translating the Chinese names of the companies as no English names for these companies have been registered.

132

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21 FINANCIAL INSTRUMENTS BY CATEGORY — GROUP AND COMPANY

The accounting policies for fi nancial instruments were applied to the line items below:

Group

Assets as per consolidated balance sheet

As at 31 December 2010 Trade receivables Amounts due from a jointly controlled entity and its subsidiaries Financial assets at fair value through prof t or loss Prepayments, deposits and other receivables Cash and cash equivalents Assets of disposal group held for sale Total As at 31 December 2009 Trade receivables Amounts due from a jointly controlled entity and its subsidiaries Prepayments, deposits and other receivables Cash and cash equivalents Total As at 1 January 2009 Trade receivables Amounts due from a jointly controlled entity and its subsidiaries Financial assets at fair value through prof t or loss Prepayments, deposits and other receivables Cash and cash equivalents Total	Loans and receivables HK$’000 22,474 26,747 — 36,849 236,678 118,347 441,095 127,882 32,495 40,587 648,072 849,036 55,497 36,559 — 129,221 226,894 448,171	Financial assets at fair value through prof t or loss HK$’000 — — 28,000 — — — 28,000 — — — — — — — 11,130 — — 11,130	Total HK$’000 (Restated) (Note 2) 22,474 26,747 28,000 36,849 236,678 118,347 469,095 127,882 32,495 40,587 648,072 849,036 55,497 36,559 11,130 129,221 226,894 459,301

133

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Group

Liabilities as per consolidated balance sheet

As at 31 December 2010
Agency fee payables
Trade payables
Receipts in advance, other payables and accrued liabilities
Amount due to an associated company
Liabilities of disposal group held for sale
Total
As at 31 December 2009
Agency fee payables
Trade payables
Receipts in advance, other payables and accrued liabilities
Amount due to an associated company
Convertible notes
Total
As at 1 January 2009
Agency fee payables
Trade payables
Receipts in advance, other payables and accrued liabilities
Amount due to an associated company
Convertible notes
Total

Other
f nancial
liabilities
at amortized
cost
HK$’000
(Restated)
(Note 2)
136,492
2,383
159,413
32,848
36,347
367,483
167,117
36,089
92,689
30,619
47,875
374,389
1,203,576
24,887
135,060
54,905
44,271
1,462,699

134

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

Assets as per balance sheet

As at 31 December 2010 Prepayments, deposits and other receivables Amounts due from subsidiaries Cash and cash equivalents Total As at 31 December 2009 Amounts due from subsidiaries Cash and cash equivalents Total Company Liabilities as per balance sheet	Loans and receivables HK$’000 14 696,831 56,476
	753,321

	656,553 425,059
	1,081,612

As at 31 December 2010 Other payables and accrued liabilities Total As at 31 December 2009 Other payables and accrued liabilities Convertible notes Total	Other f nancial liabilities at amortized cost HK$’000 41,850
	41,850

	3,288 47,875
	51,163

135

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22 TRADE RECEIVABLES — GROUP

At 31 December 2010, the aging analysis of the trade receivables is as follows:

0 — 3 months 4 — 6 months Over 6 months Reclassif cation to assets of disposal group held for sale_(note 31)_ Provision for doubtful debts (all made against trade receivables aged over 6 months)	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 64,030 120,516 7,158 6,148 14,051 1,218 85,239 127,882 (53,051) — 32,188 127,882 (9,714) — 22,474 127,882	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 64,030 120,516 7,158 6,148 14,051 1,218 85,239 127,882 (53,051) — 32,188 127,882 (9,714) — 22,474 127,882
		127,882 —
		127,882 —
		127,882

The net carrying amounts of the trade receivables of the Group are denominated in Renminbi.

The Group generally requires customers to pay in advance, but grants a credit period of 30 days to 90 days to some customers.

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. As at 31 December 2010, HK$9,714,000 of the trade receivables was considered impaired (2009: nil).

The aging analysis of trade receivables that were past due but not impaired is as follows:

4 — 6 months Over 6 months Reclassif cation to assets of disposal group held for sale	Group 2010 2009 *HK$’000* HK$’000 7,158 6,148 4,337 1,218 11,495 7,366 (3,438) — 8,057 7,366	Group 2010 2009 *HK$’000* HK$’000 7,158 6,148 4,337 1,218 11,495 7,366 (3,438) — 8,057 7,366
		7,366 —
		7,366

Management does not expect any material losses from non-performance by these counterparties, as these relate to a number of independent customers for whom there is no recent history of default.

136

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Movements on the Group’s provision for doubtful debts are as follows:

At 1 January Provision for doubtful debts Write back of over-provision Write-off against trade receivables Exchange differences At 31 December	Group 2010 2009 *HK$’000* HK$’000 — 29,659 9,548 — — (3,359) — (26,300) 166 — 9,714 —	Group 2010 2009 *HK$’000* HK$’000 — 29,659 9,548 — — (3,359) — (26,300) 166 — 9,714 —
		—

The creation and release of provision for doubtful debts have been included in administrative expenses in the consolidated income statement (note 8). Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

The carrying amounts of trade receivables approximate their respective fair values.

The maximum exposure to credit risk at the balance sheet date is the carrying value of trade receivables disclosed above. The Group does not hold any collateral as security.

23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS — GROUP

Equity security: Listed in Hong Kong Market value of listed security	2010 *HK$’000* 28,000 28,000	Group 2009 HK$’000 — —	1 January 2009 HK$’000 11,130
			11,130

Financial assets at fair value through profi t or loss are presented within “operating activities” as part of changes in working capital in the cash fl ow statement (note 30(a)).

Changes in fair value of fi nancial assets at fair value through profi t or loss are recorded in “other gains, net” in the consolidated income statement (note 5).

The fair value of the equity security was based on its current bid prices in an active market.

137

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES — GROUP AND COMPANY

Prepayments, deposits and other receivables Provision for doubtful receivables	2010 *HK$’000* 36,849 — 36,849	Group 2009 HK$’000 (Restated) (Note 2) 63,422 (22,835) 40,587	1 January 2009 HK$’000 (Restated) (Note 2) 129,221 — 129,221	Company 2010 2009 *HK$’000* HK$’000 14 — — — 14 —	Company 2010 2009 *HK$’000* HK$’000 14 — — — 14 —
					—

The amounts due from related companies were unsecured, non-interest bearing and repayable on demand. The carrying amounts of prepayments, deposits and other receivables of the Group and the Company are denominated in the following currencies:

HK$ RMB	2010 *HK$’000* 19,100 17,749 36,849	Group 2009 HK$’000 (Restated) (Note 2) 19,032 21,555 40,587	1 January 2009 HK$’000 (Restated) (Note 2) 60,876 68,345 129,221	Company 2010 2009 *HK$’000* HK$’000 14 — — — 14 —	Company 2010 2009 *HK$’000* HK$’000 14 — — — 14 —
					—

The carrying amounts of prepayments, deposits and other receivables approximate their fair values.

The maximum exposure to credit risk at the balance sheet date is the carrying value of prepayments, deposits and other receivables disclosed above.

138

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25 CASH AND CASH EQUIVALENTS — GROUP AND COMPANY

		Group		Company	Company
			1 January
	2010	2009	2009	2010	2009
	*HK$’000*	HK$’000	HK$’000	*HK$’000*	HK$’000
		(Restated)	(Restated)
		(Note 2)	(Note 2)
Cash and bank balances	236,678	648,072	226,894	56,476	425,059
	236,678	648,072	226,894	56,476	425,059

Denominated in :
HK$	147,415	580,250	161,330	56,474	425,057
RMB	79,859	58,218	55,839	—	—
United States Dollar (USD)	9,404	9,604	9,725	2	2
	236,678	648,072	226,894	56,476	425,059

Maximum exposure to credit risk	236,368	647,996	226,894	56,476	425,059

TRADE PAYABLES, RECEIPT IN ADVANCE, OTHER PAYABLES AND ACCRUED LIABILITIES
GROUP AND COMPANY
		Group		Company
			1 January
	2010	2009	2009	2010	2009
	*HK$’000*	HK$’000	HK$’000	*HK$’000*	HK$’000
		(Restated)	(Restated)
		(Note 2)	(Note 2)
Trade payables	2,383	36,089	24,887	—	—
Receipt in advance	5,358	11,050	45,175	—	—
Other payables and
accrued liabilities	154,055	81,639	89,885	41,850	3,288
Total	161,796	128,778	159,947	41,850	3,288

26 TRADE PAYABLES, RECEIPT IN ADVANCE, OTHER PAYABLES AND ACCRUED LIABILITIES — GROUP AND COMPANY

As at 31 December 2010, the deposits as a part of consideration of proposed disposal of HK$40,000,000 (note 31) was included in the other payables and accrued liabilities.

139

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2010, the aging analysis of the trade payables is as follows:

0 — 3 months 4 — 6 months Over 6 months Reclassif cation to liabilities of disposal group held for sale_(note 31)_	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 11,382 21,670 5 6,743 2,383 7,676 13,770 36,089 (11,387) — 2,383 36,089	Group 2010 2009 *HK$’000* HK$’000 (Restated) (Note 2) 11,382 21,670 5 6,743 2,383 7,676 13,770 36,089 (11,387) — 2,383 36,089
		36,089 —
		36,089

The carrying amounts of trade payables, receipt in advance, other payables and accrued liabilities approximate their fair values.

27 CONVERTIBLE NOTES — GROUP AND COMPANY

In September 2006, the Company issued a convertible note (“Second Tranche Convertible Note”) which can be converted into 3,202,234,673 ordinary shares at a conversion price of HK$0.049 per share (subject to adjustment), as additional considerations for the acquisition of the 100% equity interest in Anglo Alliance Co., Ltd completed in May 2005.

During the year, all of the remaining Second Tranche Convertible Note has been converted into 1,065,217,391 ordinary shares of the Company at an adjusted conversion price of HK$0.046 per share. There was no outstanding convertible note as at 31 December 2010.

The fair value of Second Tranche Convertible Note has been split between the liability and equity portion, as follows:

Equity portion Beginning of the year Conversion End of the year Liability portion Beginning of the year Interest accretion Conversion End of the year Total fair value Beginning of the year End of the year	Group and 2010 *HK$’000* 56,523 (56,523) — 47,875 1,125 (49,000) — 104,398 —	Company 2009 HK$’000 56,523 —
		56,523

		44,271 3,604 —
		47,875

		100,794
		104,398

140

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28 SHARE CAPITAL

	Authorized
Preference shares of HK$0.01 each Ordinary shares of HK$0.01 each *No. of shares* *No. of shares* ’000 HK$’000 ’000 HK$’000 240,760 2,408 60,000,000 600,000 240,760 2,408 30,000,000 300,000 Issued and fully paid		Total HK$’000 602,408

		302,408


Preference shares of HK$0.01 each *No. of shares* ’000 HK$’000 — — — — — — — — — — — — — —	Ordinary shares of HK$0.01 each *No. of shares* ’000 HK$’000 18,697,646 186,976 9,031,617 90,317 27,729,263 277,293 27,729,263 277,293 1,065,217 10,652 50 — 28,794,530 287,945	Total HK$’000 186,976 90,317
		277,293

		277,293 10,652 —
		287,945

Ordinary shares

During the year ended 31 December 2010, the Company has issued its ordinary shares as follows:

(i) In May 2010, all of the remaining second Tranche Convertible Note has been converted in to 1,065,217,391 ordinary shares of the Company at an adjusted conversion price of HK$0.046 each.

During the year ended 31 December 2009, the Company has issued its ordinary shares as follows:

(1) In December 2009, 7,011,616,992 new ordinary shares and 2,020,000,000 new ordinary shares were issued upon completion of the open offer of three offer shares for every eight shares and a share placement, respectively at a price of HK$0.048 per share. Details of the open offer and the placement were disclosed in the Company’s circular dated 25 November 2009.

141

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share options

Pursuant to the 10-year term share option scheme (“Option Scheme”) adopted by the Company on 30 July 2002, the Company can grant options to Qualifi ed Persons (as defi ned in the Option Scheme) for a consideration of HK$1.00 for each grant payable by the Qualifi ed Persons to the Company. The total number of the shares issued and to be issued upon exercise of options granted to each Qualifi ed Person (including exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1% of the shares then in issue. Pursuant to a resolution passed on the annual general meeting of the Company, dated 10 June 2008, the Company can grant up to 1,811,824,531 share options to the Qualifi ed Persons. Subsequent to that, 880,000,000 share options has been granted to the Qualifi ed Persons.

Subscription price in relation to each option pursuant to the Option Scheme shall not be less than the higher of (i) the closing price of the shares as stated in Stock Exchange’s daily quotation sheets on the date on which the option is offered to a Qualifi ed Person; or (ii) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheets for the 5 trading days immediately preceding the date of offer; or (iii) the nominal value of the shares of the Company. During the year, share-based payment expense of approximately HK$3,011,000 is charged to the consolidated income statement (2009: HK$13,762,000).

Movement of share options during the current year and the prior year is as follows:

Tranche Date of share options granted 1 7 March 2008 2 5 May 2008 3 4 November 2008 Tranche Date of share options granted 1 7 March 2008 2 5 May 2008 3 4 November 2008			Number of sh	are options		Exercisable as at 31 December 2010 Exercise price (adjusted) Vesting date Expiry date HK$ 631,125,000 0.149 From 1 April 2008 to 1 March 2011 31 December 2012 123,750,000 0.130 From 1 April 2009 31 December 2015 835,262,505 0.043 From 8 March 2009 to 8 March 2011 31 December 2015 1,590,137,505 Exercisable as at 31 December 2009 Exercise price (adjusted) Vesting date Expiry date HK$ 315,562,500 0.149 From 1 April 2008 to 1 March 2011 31 December 2012 134,062,500 0.130 From 1 April 2009 31 December 2015 752,812,500 0.043 From 8 March 2009 to 8 March 2011 31 December 2015 1,202,437,500
	Outstanding as at 1 January 2010 788,906,250 134,062,500 907,500,000 1,830,468,750	Granted during the year — — — —	Cancelled/ lapsed during the year — (10,312,500) (20,625,000) (30,937,500) Number of sh	Exercised during the year — — (49,995) (49,995) are options	Outstanding as at 31 December 2010 788,906,250 123,750,000 886,825,005 1,799,481,255
	Outstanding as at 1 January 2009 798,000,000 130,000,000 880,000,000 1,808,000,000	Granted during the year — — — —	Cancelled/ lapsed during the year (33,000,000) — — (33,000,000)	Adjustment during the year 23,906,250 4,062,500 27,500,000 55,468,750	Outstanding as at 31 December 2009 788,906,250 134,062,500 907,500,000 1,830,468,750

There are no performance conditions or market conditions required for these tranches of issued options.

142

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29 RESERVES

Group

Balance at 1 January 2009 Prof t/(Loss) for the year Share-based payment expense Issuance of shares upon open offer and share placement Currency translation differences Transfer to statutory reserve Balance at 31 December 2009 Balance at 1 January 2010 Loss for the year Share-based payment expense Issuance of shares upon conversion of convertible notes Issue of shares upon exercise of share options Currency translation differences Transfer to statutory reserve Balance at 31 December 2010	Share premium HK$’000 (note ii) 916,039 — — 331,677 — — 1,247,716 Share premium HK$’000 (note ii) 1,247,716 — — 94,871 2 — — 1,342,589	Merger reserve HK$’000 (note i) 860,640 — — — — — 860,640 Merger reserve HK$’000 (note i) 860,640 — — — — — — 860,640	Equity component of convertible notes HK$’000 56,523 — — — — — 56,523 Equity component of convertible notes HK$’000 56,523 — — (56,523) — — — —	Statutory reserve HK$’000 (note iii) 47 — — — — 438 485 Statutory reserve HK$’000 (note iii) 485 — — — — — 111 596	Share option reserve HK$’000 77,135 — 13,762 — — — 90,897 Share option reserve HK$’000 90,897 — 3,011 — — — — 93,908	Capital redemption reserve HK$’000 (note iv) 1,206 — — — — — 1,206 Capital redemption reserve HK$’000 (note iv) 1,206 — — — — — — 1,206	Currency translation reserve A HK$’000 (11,589) — — — 58,819 — 47,230 Currency translation reserve A HK$’000 47,230 — — — — 13,550 — 60,780	ccumulated losses HK$’000 (1,272,239) 1,383 — — — (438) (1,271,294) ccumulated losses HK$’000 (1,271,294) (483,463) — — — — (111) (1,754,868)	Total HK$’000 627,762 1,383 13,762 331,677 58,819 — 1,033,403 Total HK$’000 1,033,403 (483,463) 3,011 38,348 2 13,550 — 604,851	Non- controlling interests HK$’000 (Restated) (Note 2) 1,016 (7) — — — — 1,009 Non- controlling interests HK$’000 (Restated) (Note 2) 1,009 (204) — — — 32 — 837	Total HK$’000 (Restated) (Note 2) 628,778 1,376 13,762 331,677 58,819 —
											1,034,412

											Total HK$’000 (Restated) (Note 2) 1,034,412 (483,667) 3,011 38,348 2 13,582 —
											605,688

143

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

At 1 January 2009 Share-based payment expense Issuance of shares upon open offer and share placement Loss for the year At 31 December 2009 At 1 January 2010 Share-based payment expense Issuance of shares upon conversion of convertible notes Issue of shares upon exercise of share options Loss for the year At 31 December 2010	Share premium HK$’000 (note ii) 916,039 — 331,677 — 1,247,716 1,247,716 — 94,871 2 — 1,342,589	Equity component of convertible note HK$’000 56,523 — — — 56,523 56,523 — (56,523) — — —	Share option reserve HK$’000 77,135 13,762 — — 90,897 90,897 3,011 — — — 93,908	Capital redemption reserve HK$’000 (note iv) 1,206 — — — 1,206 1,206 — — — — 1,206	Accumulated losses HK$’000 (458,623) — — (28,411) (487,034) (487,034) — — — (368,057) (855,091)	Total HK$’000 592,280 13,762 331,677 (28,411)
						909,308

						909,308 3,011 38,348 2 (368,057)
						582,612

Notes:

(i) The merger reserve of the Group derives from the difference between the nominal value of the Company’s shares issued to acquire the issued share capital of Universal Appliances Limited pursuant to the Group reorganisation in 2002, and the consolidated net asset value of Universal Appliances Limited so acquired. Under the Companies Law (2003 Revision) (Cap. 22) of the Cayman Islands, the merger reserve is distributable to shareholders under certain prescribed circumstances.
(ii) The share premium of the Company represents the excess of the fair value of the issued shares over the nominal value of the Company’s shares issued in exchange therefor. Under the Companies Law (2003 Revision) (Cap. 22) of the Cayman Islands, a company may make distributions to its members out of the share premium in certain circumstances.
(iii) The PRC laws and regulations require companies registered in the PRC to provide for certain statutory reserves, which are to be appropriated from the net profi t (after offsetting accumulated losses from prior years) as reported in their respective statutory fi nancial statements, before profi t distributions to equity holder. All statutory reserves are created for specifi c purposes. PRC companies are required to appropriate 10% of statutory net profi ts to statutory surplus reserves, upon distribution of their post-tax profi ts of the current year. A company may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50% of its registered capital. The statutory surplus reserves shall only be used to make up losses of the companies, to expand the companies’ production operations, or to increase the capital of the companies. In addition, a company may make further contribution to the discretional surplus reserve using its post-tax profi ts in accordance with resolutions of the board of directors.
(iv) During the year ended 31 December 2008, the Company repurchased 120,600,000 issued ordinary shares on the Stock Exchange, These repurchased shares were cancelled immediately upon repurchase. The total amount paid to acquire these issued ordinary shares of HK$4,609,000 were deducted from shareholders’ equity. A sum equivalent to the nominal value of the repurchased shares amounting to HK$1,206,000 has been transferred from accumulated losses to capital redemption reserve.

144

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of (loss)/profi t before taxation to cash used in operations

(Loss)/prof t before taxation from continuing operation Adjustments for: — Share of prof t of an associated company — Interest income — Depreciation — Gain on disposal of property, plant and equipment — Provision for impairment of intangible assets — Amortization of intangible assets — Share-based payments — Fair value loss/(gain) on f nancial assets at fair value through prof t or loss — Negative goodwill — Finance costs Operating (loss)/prof t before working capital changes Changes in working capital: — Decrease in amounts due from a jointly controlled entity and its subsidiaries — Decrease/(increase) in trade receivables, prepayments, deposits and other receivables — Decrease in agency fee payables, trade payables, receipt in advance, other payables and accrued liabilities and amount due to an associated company — (Increase)/decrease in short-term investments Cash used in operations	2010 *HK$’000* (478,854) (6,931) (9,574) 2,164 (127) 478,428 1,828 3,011 1,836 (10,344) 1,125 (17,438) 5,748 19,621 (26,641) (29,836) (48,546)	2009 HK$’000 (Restated) (Note 2) 66,415 (3,335) (1,802) 2,530 (346) — 194,410 13,762 (8,176) — 31,291 294,749 23,747 (1,071) (344,983) 19,306 (8,252)

(b) Signifi cant non-cash transaction

As detailed in note 16, Qiansi and Hainan Haishi have entered into a supplemental agreement in 2009, whereby the expiration date of the exclusive advertising agency right was changed to 31 December 2009. The relevant intangible asset was treated as being disposed of and the relevant agency fee payables are derecognized. Accordingly, the net book value of the relevant intangible asset of HK$380,225,000 is offset against the agency fees payables of HK$446,515,000 for the year ended 31 December 2009.

145

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31 BUSINESS COMBINATION AND HELD FOR SALE

(a) Business combination

The following table summarizes the total considerations paid by the Group for the above acquisitions and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

Consideration:
— Cash
Total consideration
Acquisition-related costs(included in administrative expenses
in the consolidated income statement for the year ended 31 December 2010)
Recognized amounts of identif able assets acquired and liabilities assumed
Property, plant and equipment_(note 15)
Investment properties(note 17)
Trade receivables
Prepayments, deposits and other receivables
Cash and cash equivalents
Trade payables
Receipt in advance, other payables and accrued liabilities
Current income tax liabilities
Deferred tax liabilities(note 9)
Total identif able net assets
Negative goodwill(note 5)_
Net cash outf ow on business combinations:
Cash
Cash and cash equivalents in subsidiaries and jointly controlled entities acquired
Total

HK$’000
280,588
280,588
218
1,010
359,004
1,610
5,138
26,351
(2,809)
(24,818)
(424)
(74,130)
290,932
10,344
280,588
(26,351)
254,237

146

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The sales included in the consolidated income statement since respective acquisition dates contributed by the subsidiaries acquired was HK$5,181,000. These acquired subsidiaries also contributed profi t of HK$12,534,000 over the same period. Had these acquires subsidiaries been consolidated from 1 January 2010, the consolidated income statement would show sales of HK$19,543,000 and profi t of HK$11,818,000.

(b) Held for sale

On 16 November 2010, the Company and KH Investment Holdings Limited (“the Purchaser”) entered into the agreement pursuant to which the Company agreed to sell and the Purchaser agreed to purchase all the Company’s shareholding interest in and its loans to Sinofocus Media (Holdings) Limited (“Sinofocus”) at an aggregate consideration of HK$82,000,000. Sinofocus, a wholly-owned subsidiary of the Company, is an investment holding company holding various subsidiaries engaged in advertising agency and media resources procurement business. Upon completion of the said disposal, Sinofocus will cease to be a subsidiary of the Company.

The said consideration shall be satisfi ed by the Purchaser in cash by installments in the following manner:

(i) an amount of HK$40,000,000 being the deposit and part of the consideration, has been paid by the Purchaser to the Company upon signing of the agreement (included in receipt in advance, other payables and accrued liabilities in the consolidated balance sheet as at 31 December 2010); and
(ii) the balance of consideration of HK$42,000,000 shall be paid upon completion of the disposal.

The Board regularly reviews the Group’s strategy and reassesses whether its various operations align with its strategy. As disclosed in the Company’s 2009 annual report, the Group targets to expand its business into cultural and tourism sectors which could make good synergy with its existing operations. In order to focus the Group’s resources and efforts on developing its core operations and to speed up the recovery of working capital, the Board decided to dispose of the advertising agency and media resources procurement business under Sinofocus.

Assets of disposal group held for sale as at 31 December 2010:

Property, plant and equipment_(note 15) Trade receivables(note 22)_ Prepayments, deposits and other receivables Cash and cash equivalents	HK$’000 949 53,051 43,331 21,016
	118,347

Liabilities of disposal group held for sale as at 31 December 2010:

Trade payables_(note 26)_ Receipt in advance, other payables and accrued liabilities Current income tax liabilities	HK$’000 11,387 24,473 487
	36,347

147

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32 COMMITMENTS

At 31 December 2010, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Not later than one year Later than one year and not later than f ve years	Land and buildings 2010 2009 *HK$’000* HK$’000 5,838 6,199 5,049 6,636 10,887 12,835	Land and buildings 2010 2009 *HK$’000* HK$’000 5,838 6,199 5,049 6,636 10,887 12,835
		12,835

33 RELATED PARTY TRANSACTIONS

(i) Saved as disclosed elsewhere, the Group has entered into the following signifi cant related party transactions during the year:

	2010	2009
	*HK$’000*	HK$’000
		(Restated)
		(Note 2)
Interest income on loan to a jointly controlled entity	—	836
Reduction of agency fee payable to Hainan Haishi	—	56,787
Consulting fee and advertising production fee
charged by a jointly controlled entity	—	(2,019)

The interests on loan to a jointly controlled entity for the year have been waived.

All the transactions with related parties were entered into in accordance with terms agreed by related parties.

(ii) Key management compensation

Remuneration for key management personnel, including amounts paid to the Company’s directors, is disclosed in note 14 (a) and certain of the highest paid employees is disclosed in note 14 (b).

148

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34 SUBSEQUENT EVENTS

On 26 January 2011, the Group and Mr. HE Peng (the”Vendor”) has entered into a sale and purchase agreement, pursuant to which the Group has conditionally agreed to acquire the entire equity interests in Smart Title Limited free from encumbrances for the consideration of HK$500 million. The consideration of HK$500 million shall be settled in the following manner:

(i) HK$395 million of the consideration shall be paid in cash upon completion of the acquisition;
(ii) HK$70 million of the consideration shall be settled by issuance of 2,000,000,000 new ordinary shares of the Company at HK$0.035 each upon completion of the acquisition; and
(iii) the remaining HK$35 million of the consideration shall be settled by the issuance of a maximum of 1,000,000,000 new ordinary shares of the Company at HK$0.035 each, provided that:
(a) the number of new ordinary shares to be issued by the Company will be adjusted downwards on a dollar to dollar basis if the audited net profi t after tax of Smart Title Limited and its subsidiaries (the “Target Group”) for the years 2011 and 2012 shall be less than RMB80,000,000 in aggregate;
(b) following the deduction of the value of the new ordinary shares issued under the preceding subparagraph (a), if there shall still be in existence a shortfall, the Vendor shall compensate such shortfall in cash on a dollar to dollar to basis; and
(c) in case the Target Group suffers an aggregated net loss after tax for the years 2011 and 2012, in addition to the compensation under the preceding subparagraph (a) and (b), the Vendor shall compensate the Group for the aggregated loss on a dollar to dollar basis.

The completion of the acquisition is subject to the satisfaction of certain conditions precedent. As at the date of this annual report, the acquisition has not yet been completed.

The Target Group is principally engaged in the provision of recreational and tourism services through the management of “Bayhood No. 9 Club”, a membership-based luxury club which comprises of business hotel facilities, an 18-hole golf course, driving range facilities, theme restaurants and cafes, spa facilities, retail shops, and the fi rst PGA branded and managed golf academy in Asia. “Bayhood No. 9 Club” is located near the city centre of Beijing, PRC.

35 APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated fi nancial statements were approved by the Board of Directors on 21 March 2011.

149

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36 PARTICULARS OF PRINCIPAL SUBSIDIARIES

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

		Nominal value
	Place of incorporation/	of Issued
	establishment and	ordinary share/	Interest	Principal activities
Name	kind of legal entity	registered capital	held	and place of operation
Anglo Alliance Co., Ltd (1)	British Virgin Islands,	US$2 ordinary	100%	Investment holding
	limited company
Beijing Hua Yi Hao Ge Media	PRC, co-operative	RMB120,000,000	100%	Investment holding and
Culture Co., Ltd. (4)	joint venture			licensing of f lms and
				TV drama in the PRC
Beijing Hua Yi Qian Si	PRC, co-operative	RMB5,000,000	100%	Advertising agency
Advertising Company	liability company			in the PRC
Limited (3)
Effort Wonder Limited (1)(3)	British Virgin Islands,	US$1 ordinary	100%	Investment holding
	limited company
Sinofocus Media (Holdings)	British Virgin Islands,	US$1 ordinary	100%	Investment holding
Limited (1)	limited company
Sinofocus Media Limited (2)	Hong Kong,	HK$10,000 ordinary	100%	Advertising agency
	limited company			in Hong Kong
Guangdong Sinofocus Media	PRC, wholly-owned	RMB50,000,000	100%	Advertising agency
Limited	foreign enterprise			in the PRC
Beijing Hezonglianheng	PRC, limited liability	RMB5,000,000	100%	Advertising agency
Advertising Co., Ltd.	enterprise			in the PRC
Shanghai Zhenlejian	PRC, limited liability	RMB500,000	100%	Advertising agency
Advertising Co., Ltd. (3)	company			in the PRC
Media China (Hong Kong)	Hong Kong,	HK$2 ordinary	100%	Group treasury and
Limited (1)(2)	limited company			administrative services
				in Hong Kong
Universal Appliances Limited	Hong Kong,	HK$499,373,000	100%	Investment holding and
(1)(2)	limited company	ordinary		licensing of f lms
		HK$43,337,000		in Hong Kong
		preference

(1) Shares held directly by the Company.
(2) The Statutory fi nancial statements of these companies for the year ended 31 December 2010 are audited by PricewaterhouseCoopers.
(3) Acquired in 2010 (see note 31 for details).
(4) The names of the companies referred to above represent management’s best effort in translating the Chinese names of the companies as no English names for these companies have been registered.

150

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BUSINESS TREND AND TRADING PROSPECTS OF THE GROUP

Year ended 31 December 2009 compared with year ended 31 December 2008

The Group’s turnover from continuing operations and total comprehensive income attributable to the Shareholders for the year ended 31 December 2009 amounted to HK$284 million (2008: HK$186 million) and HK$60 million (2008: total comprehensive expense of HK$451 million). As compared to the corresponding period in 2008, the turnover increased by approximately HK$98 million while the Group turned from a net loss of HK$441 million to a net profi t of HK$1 million. The signifi cant improvement was mainly attributable to (i) the signifi cant increase in turnover and the turnaround from gross loss to gross profi t; (ii) the increase in other income and other gains; and (iii) the signifi cant decrease of administrative expenses and impairment charge of intangible assets.

Year ended 31 December 2010 compared with year ended 31 December 2009

The Group’s turnover from continuing operations and total comprehensive expenses attributable to the Shareholders for the year ended 31 December 2010 amounted to HK$171 million (2009: HK$284 million) and HK$470 million (2009: total comprehensive income of HK$60 million). As compared to the corresponding period in 2009, the turnover decreased by approximately HK$113 million while the Group turned from a net profi t approximately HK$1 million to a net loss of HK$484 million. The signifi cant loss was mainly resulted from an impairment charge of intangible assets of approximately HK$478 million.

Prospects

Of the foreseeable severe competition on the media business in which the Group is engaged, the Management is contemplating to identify and diversify its business area. The Directors consider that the proposed acquisition of the Target Group offers a good chance for the Group to enter into the rapidly growing leisure and tourism industry. The Management believes that the extension of the new business line will provide a steady source of income to the Group, resulting from the growth of PRC economy and continuously increasing consumptions on tourism industry. The Management is of the view that the new business will contribute new source of revenue to the Group in the very near future.

INDEBTEDNESS

As at the close of business on 30 April 2011, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this Circular, the Enlarged Group had outstanding borrowings of approximately HK$52 million.

151

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at the close of business on 30 April 2011, the Vendor, the sole shareholder of the Target Company, has pledged his interests in the entire issued share capital of the Target Group to an independent third party, Join Capital Limited, a company incorporated in Hong Kong and a wholly-owned indirect subsidiary of a Hong Kong listed company, COL Capital Limited, in connection with a loan facility amounting to HK$255 million with an interest of 2% per month and payable monthly in arrears for a 6-month term period. It is not anticipated that any material liabilities will arise to the Enlarged Group from the contingent liabilities disclosed above.

Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital and overdrafts or other similar indebtedness, fi nance leases or hire purchase commitment, liabilities under acceptances (other than normal trade bills), or acceptance credits, or any guarantees or other material contingent liabilities at the close of business on 30 April 2011.

WORKING CAPITAL STATEMENT

The Company has proposed to raise approximately HK$259.2 million before expenses by way of Rights Issue. The prospectus in relation to the Rights Issue has been issued by the Company on 24 May 2011. As stated in the prospectus, the latest time to terminate the underwriting agreement in relation to the Rights Issue by the underwriter is by 4:00 p.m. on 13 June 2011 (the “Latest Time for Termination”). As the Company has not received any notice to terminate the underwriting agreement from the underwriter before the Latest Time for Termination, the directors of the Company are of the opinion that the Company has secured the net proceeds from the Rights Issue of approximately HK$251.3 million (net of estimated expenses) which will be used to fi nance the Acquisition.

Taking into account the expected completion of the Acquisition and the fi nancial resources available to the Enlarged Group, including the internally generated funds, cash and cash equivalents on hands and the net proceeds from the Rights Issue as set out in the preceding paragraph, the directors of the Company are of the opinion that the Enlarged Group has suffi cient working capital for its present requirements, that is, for at least the next 12 months from the date of this Circular.

MATERIAL CHANGE

Save as disclosed below, the Directors are not aware of any adverse material changes in the fi nancial or trading position or outlook of the Group since 31 December 2010, the date to which the last published audited consolidated fi nancial statements of the Group were made up.

152

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at the close of business on 30 April 2011, Beijing Hua Yi Hao Ge Media Culture Limited (“Hua Yi Hao Ge”), an indirect wholly owned subsidiary of the Company, is a party to a possible litigation in the PRC whereby Hai Nan Haishi Tourist Satellite TV Media Co., Ltd. (“Hainan Haishi”) has obtained an order from the People’s Court of Yang Pu Economic Development Zone of Hainan Province to freeze its assets in connection with the allegation of an amount of RMB79.9 million alleged to be due from Hua Yi Hao Ge to Hainan Haishi. The alleged amount arose from the Group’s exclusive advertising agency business with Hainan Haishi before 31 December 2008, starting with the exclusive advertising agency agreement signed between the Group and Hainan Haishi dated 12 May 2006. The amount payable to Hainan Haishi has already been accrued in the Group’s consolidated fi nancial statements since the year ended 31 December 2008, which has not yet been settled as of the Latest Practicable Date. The Directors do not anticipate that any material liabilities will arise other than those provided for and believe that the Group has suffi cient fi nancial resources to discharge the debt.

RESTRICTION ON REMITTANCE

153

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of a report received from the Company’s reporting accountant, PricewaterhouseCoopers, Certifi ed Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

17 June 2011

The Directors Media China Corporation Limited

Dear Sirs,

We report on the fi nancial information (the “Financial Information”) of Smart Title Limited (the “Target Company”) and its subsidiaries (together, the “Target Group”) which comprises the consolidated balance sheets of the Target Group as at 31 December 2008, 2009 and 2010, the balance sheet of the Target Company as at 31 December 2010, and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash fl ow statements of the Target Group for each of the years ended 31 December 2008, 2009 and 2010 (the “Relevant Periods”) and a summary of signifi cant accounting policies and other explanatory notes. This Financial Information has been prepared by the directors of Media China Corporation Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix II to the circular of the Company dated 17 June 2011 (the “Circular”) in connection with the proposed acquisition of the Target Company by the Company (the “Acquisition”).

The Target Company was incorporated in the British Virgin Islands with limited liability on 9 August 2010. Pursuant to a group reorganization as described in Note 1.2 of Section II headed “Reorganization” below, which was completed on 1 September 2010, the Target Company becomes the holding company of the subsidiaries now comprising the Target Group (the “Reorganization”).

As at the date of this report, the Target Company has direct and indirect interests in the subsidiaries as set out in Note 27 of Section II below.

154

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The Financial Information has been prepared based on the audited consolidated fi nancial statements or, where appropriate, unaudited consolidated fi nancial statements of the Target Company with no adjustment made thereon.

Directors’ responsibility

The director of the Target Company during the Relevant Periods is responsible for the preparation and the fair presentation of the consolidated fi nancial statements of the Target Company in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certifi ed Public Accountants (the “HKICPA”). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the fair presentation of the consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The directors of the Company are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with HKFRSs issued by the HKICPA and accounting policies presently adopted by the Company and its subsidiaries (together, the “Group”) as set out in the audited annual consolidated fi nancial statements of the Company for the year ended 31 December 2010 as extracted in Appendix I to the Circular. This responsibility includes selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Financial Information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Company as at 31 December 2010 and of the state of affairs of the Target Group as at 31 December 2008, 2009 and 2010 and of the Target Group’s results and cash fl ows for each of the Relevant Periods then ended.

We draw attention to Note 2.1 of Section II below, which states that the Target Group’s current liabilities exceeded its current assets by HK$123,663,000 as of 31 December 2010. This condition, along with other matters as described in Note 2.1 of Section II below, indicate the existence of a material uncertainty which may cast signifi cant doubt about the ability of the Target Group to continue as a going concern. Our opinion is not qualifi ed in respect of this matter.

155

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

I. FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the Financial Information of the Target Group prepared by the directors of the Company as at 31 December 2008, 2009 and 2010 and for each of the years ended 31 December 2008, 2009 and 2010.

Consolidated income statements

Note Sales 5 Cost of sales 6 Gross prof t Other income and other gains, net 5 Administrative expenses 6 Finance costs, net 9 Prof t before taxation Taxation 10 Prof t for the year Attributable to: Equity holder of the Target Company Earnings per share for prof t attributable to the equity holder of the Target Company for the year Basic and diluted earnings per share 11	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 114,044 136,610 159,516 (80,697) (87,215) (83,020) 33,347 49,395 76,496 4,598 723 1,169 (22,837) (20,917) (20,273) — — — 15,108 29,201 57,392 (8,864) (11,965) (19,258) 6,244 17,236 38,134 6,244 17,236 38,134 6,244 17,236 38,134	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 114,044 136,610 159,516 (80,697) (87,215) (83,020) 33,347 49,395 76,496 4,598 723 1,169 (22,837) (20,917) (20,273) — — — 15,108 29,201 57,392 (8,864) (11,965) (19,258) 6,244 17,236 38,134 6,244 17,236 38,134 6,244 17,236 38,134
	2008 HK$’000 114,044 (80,697) 33,347 4,598 (22,837) — 15,108 (8,864) 6,244 6,244 6,244	2009 HK$’000 136,610 (87,215) 49,395 723 (20,917) — 29,201 (11,965) 17,236 17,236 17,236

156

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Consolidated statements of comprehensive income

Year ended 31 December	Year ended 31 December	Year ended 31 December
2008 HK$’000 6,244 (1,599) (1,599) 4,645 4,645	2009 HK$’000 17,236 (29) (29) 17,207 17,207	2010 HK$’000 38,134
		337
		337
		38,471

		38,471

157

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Consolidated balance sheets

Note NON-CURRENT ASSETS Property, plant and equipment 12 Deferred tax assets 10 CURRENT ASSETS Inventories 14 Prepayments and other receivables 16 Amounts due from related parties 26(b) Cash and cash equivalents 17 CURRENT LIABILITIES Trade payables 21 Receipt in advance, other payables and accrued liabilities 22 Amounts due to related parties 26(b) Current income tax liabilities Borrowings 20 Deferred revenue 24 NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Other payables 22 Borrowings 20 Deferred revenue 24 NET (LIABILITIES)/ASSETS EQUITY Capital and reserves attributable to the equity holder of the Target Company Share capital 18 Reserves 19 TOTAL (DEFICIT)/EQUITY	As	at 31 December 2009 2010 HK$’000 HK$’000 283,048 285,459 3,957 5,118 287,005 290,577 2,890 3,283 2,859 2,998 159,599 235,115 5,860 3,193 171,208 244,589 3,279 5,211 91,729 94,698 132,350 118,548 23,233 44,656 28,507 51,297 46,608 53,842 325,706 368,252 (154,498) (123,663) 132,507 166,914 15,828 20,471 22,715 — 104,329 116,337 142,872 136,808 (10,365) 30,106 — — (10,365) 30,106 (10,365) 30,106
	2008 HK$’000 301,691 2,963 304,654 2,121 2,090 112,575 3,284 120,070 2,554 80,211 170,739 10,253 40,595 41,193 345,545 (225,475) 79,179 11,852 — 94,899 106,751 (27,572) — (27,572) (27,572)	2009 HK$’000 283,048 3,957 287,005 2,890 2,859 159,599 5,860 171,208 3,279 91,729 132,350 23,233 28,507 46,608 325,706 (154,498) 132,507 15,828 22,715 104,329 142,872 (10,365) — (10,365) (10,365)

158

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Balance sheet

		As at
	Note	31 December 2010
		HK$’000
NON-CURRENT ASSETS
Investment in a subsidiary	13 (a)	780
Amounts due from subsidiaries	13 (b)	58,759
TOTAL ASSETS		59,539
TOTAL ASSETS LESS CURRENT LIABILITIES		59,539
NET ASSETS		59,539
EQUITY
Capital and reserves attributable to the equity holder
of the Target Company
Share capital	18	—
Reserves	19	59,539
TOTAL EQUITY		59,539

The Target Company has been newly incorporated in the year 2010 and has not involved in any signifi cant business transactions since its date of incorporation other than the Reorganization as described in Note 1.2.

159

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Note Cash f ows from operating activities Cash generated from operations 23 Income tax paid Net cash generated from operating activities Cash f ows from investing activities Interest received Purchase of an asset through acquisition of subsidiaries, net of cash Purchase of property, plant and equipment Disposals of property, plant and equipment Increase in advances to related parties Net cash used in investing activities Cash f ows from f nancing activities Proceeds from borrowings Repayments of borrowings Finance costs paid Finance costs re-charged to related parties Increase/(decrease) in advances from related parties Net cash generated from/(used in) f nancing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange gains on cash and cash equivalents Cash and cash equivalents at end of the year 17	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 16,078 41,090 63,646 — — — 16,078 41,090 63,646 45 28 36 — — 779 (17,049) (33,545) (8,541) 105 29 — (49,965) (232) (37,665) (66,864) (33,720) (45,391) 17,379 28,598 4,389 — (18,044) (6,064) (3,450) (4,625) (4,803) 3,450 4,625 4,803 31,962 (15,355) (19,401) 49,341 (4,801) (21,076) (1,445) 2,569 (2,821) 4,523 3,284 5,860 206 7 154 3,284 5,860 3,193	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 16,078 41,090 63,646 — — — 16,078 41,090 63,646 45 28 36 — — 779 (17,049) (33,545) (8,541) 105 29 — (49,965) (232) (37,665) (66,864) (33,720) (45,391) 17,379 28,598 4,389 — (18,044) (6,064) (3,450) (4,625) (4,803) 3,450 4,625 4,803 31,962 (15,355) (19,401) 49,341 (4,801) (21,076) (1,445) 2,569 (2,821) 4,523 3,284 5,860 206 7 154 3,284 5,860 3,193
	2008 HK$’000 16,078 — 16,078 45 — (17,049) 105 (49,965) (66,864) 17,379 — (3,450) 3,450 31,962 49,341 (1,445) 4,523 206 3,284	2009 HK$’000 41,090 — 41,090 28 — (33,545) 29 (232) (33,720) 28,598 (18,044) (4,625) 4,625 (15,355) (4,801) 2,569 3,284 7 5,860

160

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Consolidated statements of changes in equity

For the year ended 31 December 2008 Balance at 1 January 2008 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Balance at 31 December 2008 For the year ended 31 December 2009 Balance at 1 January 2009 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Balance at 31 December 2009	Share capital HK$’000 (Note 18) — — — — — — — —	Capital reserves HK$’000 47,089 — — 47,089 47,089 — — 47,089	Exchange reserves HK$’000 226 — (1,599) (1,373) (1,373) — (29) (1,402)	Accumulated losses HK$’000 (79,532) 6,244 — (73,288) (73,288) 17,236 — (56,052)	Total HK$’000 (32,217) 6,244 (1,599) (27,572) (27,572) 17,236 (29) (10,365)

161

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Consolidated statements of changes in equity (Continued)

For the year ended 31 December 2010 Balance at 1 January 2010 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Capital contribution from owner Balance at 31 December 2010	Share capital HK$’000 (Note 18) — — — — —	Capital reserves HK$’000 47,089 — — 2,000 49,089	Exchange reserves HK$’000 (1,402) — 337 — (1,065)	Accumulated losses HK$’000 (56,052) 38,134 — — (17,918)	Total HK$’000 (10,365) 38,134 337 2,000 30,106

162

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1 GENERAL INFORMATION, REORGANIZATION AND BASIS OF PRESENTATION

1.1 General information

The Target Company was incorporated in the British Virgin Islands on 9 August 2010 with limited liability. The address of the Company’s registered offi ce is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

The Target Company is an investment holding company and its subsidiaries are principally engaged in the provision of recreational and tourism services through the management of Beijing Bayhood No. 9 Business Hotel Company Limited (the “Bayhood No. 9 Club”), a membership-based club located in Beijing, the People’s Republic of China (the “PRC”).

As at 31 December 2010, the Target Company is 100% owned by Mr. HE Peng.

1.2 Reorganization

The Target Group underwent a group reorganization (the “Reorganization”), pursuant to which the certain companies under the common control of Mr. HE Peng were transferred to the Target Company. The Reorganization involved the following:

On 26 February 2010, Happy Era Culture Development (Beijing) Limited (歡樂時代文化發展（北京）有限公司) (“Happy Era”) was set up by Mr. HE Peng.

On 23 July 2010, Happy Era acquired 100% equity interest in “Bayhood No. 9 Club”, which is wholly-owned by Mr. HE Peng. As Happy Era has not involved in any other business prior to the acquisition of “Bayhood No. 9 Club” and does not meet the defi nition of a business, such acquisition is not considered a business combination but as part of the Reorganization.

On 20 August 2010, the Target Company acquired 100% equity interest in Power Progress Limited (“Power Progress”) and its wholly-owned subsidiary, Nengrong Culture (Beijing) Limited (能榮文化（北京）有限公司) (“Nengrong Culture”) from a third party for a cash consideration of HK$2,000,000, which became wholly-owned subsidiaries of the Target Company. As Power Progress and Nengrong Culture do not have any business, such acquisition is considered as acquisition of assets.

On 1 September 2010, Nengrong Culture acquired 100% equity interest in Happy Era.

Upon completion of the Reorganization, the Target Company became the holding company of the companies comprising the Target Group, details of which are set out in Note 27 below.

163

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

1.3 Basis of presentation

Immediately prior to and after the Reorganization, the Bayhood No. 9 Club is held by Mr. HE Peng. Pursuant to the Reorganization, Beijing Bayhood No. 9 Business Hotel Company Limited and the Bayhood No. 9 Club are transferred to the Target Company. The Target Company and the intermediate holding companies now comprising the Target Group have not been involved in any other business prior to the Reorganization and do not meet the defi nition of a business. The Reorganization is merely a reorganization of the Bayhood No. 9 Club with no change in management of such business and the ultimate owner of the Bayhood No. 9 Club remains the same. Accordingly, the fi nancial information of the companies now comprising the Target Group is presented using the carrying values of the Bayhood No. 9 Club under Mr. HE Peng for all periods presented. For the purpose of this report, the Financial Information of the Target Group has been prepared on a basis in accordance with the principles set out in 1(f) of Appendix 3 of the Auditing Guideline 3.340 “Prospectus and the Reporting Accountant” issued by Hong Kong Institute of Certifi ed Public Accountants (the “HKICPA”).

For companies acquired from a third party during each of the Relevant Periods, they are included in the Financial Information of the Target Group from the date of the acquisition.

Inter-company transactions, balances and unrealized gains/losses on transactions between group companies are eliminated on consolidation.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of this Financial Information is set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The Financial Information of the Target Company has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by HKICPA. The Financial Information has been prepared under the historical cost convention, unless otherwise stated in this summary of accounting policies.

164

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

As at 31 December 2010, the Target Group’s current liabilities exceeded its current assets by HK$123,663,000. This condition indicates the existence of a material uncertainty which may cast signifi cant doubt on the Target Group’s ability to continue as a going concern and, therefore, the Target Group may be unable to realize its assets and discharge its liabilities in the normal course of business. The directors are of the opinion that the Target Group will be able to fi nance its future working capital and fi nancial requirements. Based on the working capital forecast for the next 12 months from the date of this report, the directors have a reasonable expectation that the Target Group will be able to generate suffi cient funds from its business to continue in operational existence for the foreseeable future based on the assessment of the business liquidity and cash fl ow requirements for the next twelve months. Accordingly, the Financial Information has been prepared on a going concern basis. Should the Target Group be unable to operate as a going concern, adjustments would have to be made to write down the value of assets to their recoverable amounts, and to provide for any further liabilities which might arise. The effect of these adjustments has not been refl ected in the Financial Information.

The preparation of Financial Information in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Target Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the Financial Information are disclosed in Note 4.

165

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Standards, amendments and interpretations to existing standards that were not yet effective and were not early adopted by the Target Group

The following standards, amendments and interpretations to existing standards were published and were mandatory for the accounting periods of the Target Group beginning on or after 1 January 2011 or later periods, but the Target Group did not early adopt them:

Effective for the accounting period beginning on or after

HKAS 24 (Revised)	Related Party Disclosures	1 January 2011
HKFRS 9	Financial Instruments	1 January 2013
HK(IFRIC) — Int 19	Extinguishing Financial Liabilities with	1 July 2010
	Equity Instruments
Amendment to HKAS 1	Presentation of Financial Information	1 January 2011
Amendments to HKAS 12	Deferred Tax: Recovery of Underlying	1 January 2012
	Assets
Amendment to HKAS 27	Consolidated and Separate Financial	1 July 2010
	Statements
Amendment to HKAS 32	Classif cation of Rights Issues	1 February 2010
Amendments to HKAS 34	Interim Financial Reporting	1 January 2011
Amendments to HKFRS 1	Limited Exemption From Comparative	1 July 2010
	HKFRS 7 Disclosures for First-time
	Adopters
Amendments to HKFRS 1	First-time Adoption of Hong Kong Financial	1 January 2011
	Reporting Standards
Amendments to HKFRS 3	Business Combinations	1 July 2010
Amendments to HKFRS 7	Financial Instruments: Disclosures	1 January 2011
Amendments to	Customer Loyalty Programmes	1 January 2011
HK(IFRIC) — Int 13
Amendments to	Prepayments of a Minimum Funding	1 January 2011
HK(IFRIC) — Int 14	Requirement

The Target Group has already commenced an assessment of the impact of the new standards, amendments to the standards and interpretations but is not yet in a position to state whether these new standards, amendments to standards and interpretations would have a signifi cant impact to the Target Group’s results of operations and fi nancial position.

166

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.2 Consolidation

Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Target Group has the power to govern the fi nancial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Target Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Target Group. They are de-consolidated from the date that control ceases.

(i) Acquisition method of accounting

Except for the Reorganization, the Target Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Target Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Target Group recognizes any noncontrolling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Target Group.

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to refl ect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Target Company on the basis of dividend and receivable.

167

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(ii) Business combinations under common control

The Target Group applies the predecessor values accounting to account for business combination of entities or businesses under common control. The fi nancial information incorporate the fi nancial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses fi rst came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognized in respect of goodwill or excess of acquirer’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the contribution of the controlling party’s interest. All differences between the cost of acquisition (fair value of consideration paid) and the amounts at which the assets and liabilities are recorded have been recognized directly in equity as part of the capital reserve.

The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when combining entities or businesses fi rst came under common control, where this is a shorter period, the date of the common control combination is disregarded.

The comparative amounts in the fi nancial information are presented as if the entities or businesses had been combined at the earliest balance sheet date presented or when they fi rst came under common control, whichever is the later.

A uniform set of accounting policies is adopted by those entities. All intra-group transactions, balances and unrealized gains on transactions between combining entities or businesses are eliminated on consolidation.

168

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the fi nancial information of each of the Target Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Target Company’s functional currency is Renminbi (“RMB”) and its presentation currency is Hong Kong dollars (“HK$”). In the opinion of the shareholder of Target Company, HK$ is the appropriate currency for the purpose of the users of the Financial Information.

(b) Transactions and balances

The results and fi nancial position of all the Target Group entities (none of which has the currency of a hyper-infl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(c) all resulting exchange differences are recognized in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the consolidated statement of comprehensive income as part of the gain or loss on sale.

169

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.4 Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash fl ow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Target Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the consolidated income statement during the fi nancial period in which they are incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Golf courses	30 years
Buildings	20 – 30 years
Leasehold improvement	5 years
Furniture, computer and equipment	3 – 5 years
Machinery and equipment	5 – 10 years
Motor vehicles	4 – 5 years

Construction in progress is stated at historical cost less impairment losses. Historical cost includes expenditure that is directly attributable to the construction and consultancy fee.

Major costs in restoring property, plant and equipment to their normal working conditions are charged to the consolidated income statement. Improvements are capitalized and depreciated over their expected useful lives to the Target Group.

No depreciation is provided on construction in progress since they are not ready for use. On completion, the costs are transferred to the appropriate property, plant and equipment.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.5).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within ‘Other income and other gains, net’ in the consolidated income statement.

When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

170

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.5 Impairment of non-fi nancial assets

Assets that have an indefi nite useful life are not subject to amortization and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which they are separately identifi ed cash fl ows (cash-generating units). Non-fi nancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.6 Financial instruments

The Target Group classifi es its fi nancial assets as loans and receivables. The classifi cation depends on the purposes for which the fi nancial assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition.

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the balance sheet date. These are classifi ed as non-current assets. The Target Group’s loans and receivables comprise ‘other receivables’, ‘amounts due from related parties” and ‘cash and cash equivalents’ in the consolidated balance sheet.

Regular purchases and sales of fi nancial assets are recognized on the trade-date – the date on which the Target Group commits to purchase or sell the asset. They are derecognized when the rights to receive cash fl ows from the investments have expired or have been transferred and the Target Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

The Group assesses at each balance sheet date whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. Impairment testing of other receivables is described in Note 2.7.

171

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.7 Other receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Target Group will not be able to collect all amounts due according to the original terms of receivables. Signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy or fi nancial reorganization, and default or delinquency in payments are considered indicators that the receivables are impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the consolidated income statement within ‘administrative expenses’. When the receivables are uncollectible, they are written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited against ‘administrative expenses’ in the consolidated income statement.

2.8 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. The cost of fi nished goods comprises all direct costs of purchase. It excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.9 Cash and cash equivalents

Cash and cash equivalents includes cash in hand and deposits held at call with banks with original maturities of three months or less.

2.10 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated income statement, except to the extent that it relates to items recognized directly in equity. In this case, the tax is also recognized in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Target Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

172

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Deferred income tax assets are recognized to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Target Group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.11 Employee benefi ts

(a) Employee leave entitlements

Employee entitlements to sick leave, maternity and other non-accumulating compensated absences are not recognized until the time of leave.

(b) Retirement benefi t costs

In accordance with the rules and regulations in the People’s Republic of China (the “PRC”), the PRC-based employees of the Target Group participate in various defi ned contribution retirement benefi t plans organised by the relevant municipal and provincial governments in the PRC under which the Target Group and the PRC based employees are required to make monthly contributions to these plans calculated as a percentage of the employees’ salaries.

The municipal and provincial governments undertake to assume the retirement benefi t obligations of all existing and future retired PRC based employees payable under the plans described above. Other than the monthly contributions, the Target Group has no further obligation for the payment of retirement and other post retirement benefi ts of its employees. The assets of these plans are held separately from those of the Target Group in independently administrated funds managed by the PRC governments.

The Target Group’s contributions to the defi ned contribution retirement schemes are expensed as incurred.

173

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.12 Share capital

Ordinary shares are classifi ed as equity.

2.13 Trade payables

Trade payables are obligations to pay for goods that have been acquired in the ordinary course of business from suppliers. Trade payables are classifi ed as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

2.14 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.

Borrowings are classifi ed as current liabilities unless the Target Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

2.15 Provisions

Provision is recognized when the Target Group has a present legal or constructive obligation as a result of past events; it is probable that an outfl ow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses.

Where there are a number of similar obligations, the likelihood that an outfl ow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outfl ow with respect to any one item included in the same class of obligations may be small.

174

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.16 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Target Group’s activities. Revenue is shown net of value-added tax and discounts.

The Target Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefi ts will fl ow to the entity and specifi c criteria have been met for each of the Target Group’s activities as described below.

Revenue is recognized as follows:

(a) Food and beverage income and club activities income

Food and beverage income and club activities income are accounted for when the services are rendered.

(b) Members’ annual fees

Members’ annual fees are recognized on a straight-line basis over the subscription period.

Membership entrance fees represent non-refundable upfront registration fee for lifetime entitlement by members for using the golf facilities and enjoying certain privileges in other facilities in the club and are recognized on a reducing balance method for which the membership is granted and the reducing rate is based upon historical usage pattern of existing members. The portion of membership entrance fees which relates to services not yet rendered as at year end is included in the fi nancial information as deferred revenue.

(d) Rental income

Rental income from operating lease is recognized on a straight-line basis over the lease term.

(e) Interest income

Interest income is recognized on a time proportion basis using the effective interest method.

175

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.17 Operating leases

Leases in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.

2.18 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-marker, who is responsible for allocating resources and assessing performance of the operating segments and making strategies decisions during the Relevant Periods, has been identifi ed as the directors of the companies now comprising the Target Group. In accordance with the Target Group’s internal fi nancial reporting structure, the Target Group has determined that it operates in one business and geographical location.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Target Group’s activities expose it to a variety of fi nancial risks factors: market risk (including foreign exchange risk and cash fl ow interest rate risk), credit risk and liquidity risk.

Risk management is carried out by the senior management of the Target Group. Formal and informal meetings are held to identify and evaluated signifi cant risks and to develop procedures to deal with any risks in relation to the Target Group’s business.

(a) Market risk

(i) Foreign exchange risk

Foreign currency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in foreign exchange rates. Foreign exchange risk arises from monetary assets and liabilities denominated in foreign currencies.

The Target Group operates mainly in the PRC. Majority of revenues and costs are denominated in RMB, which is same as the functional currency. Also, there are no signifi cant assets and liabilities denominated in other currencies.

176

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Certain bank balances are denominated in HK$ and United States dollars (“US$”) and are not exposed to signifi cant foreign exchange risk. The Target Group decides not to hedge these immaterial foreign currency exposures but manages through constant monitoring to limit as much as possible its net exposures. Details of the Target Group’s bank balances denominated in foreign currencies are disclosed in Note 17.

(ii) Cash fl ow interest rate risk

The Target Company has no signifi cant interest bearing assets. The Target Company’s income and operating cash fl ows are substantially independent of changes in market interest rate.

(b) Credit risk

The credit risk of the Target Company arises from cash and cash equivalents as well as credit exposures on amounts due from related parties. The carrying amounts of these balances represent the Target Company’s maximum exposure to credit risk in relation to fi nancial assets.

As at 31 December 2008, 2009 and 2010, all bank balances are deposited in reputable local fi nancial institutions without signifi cant credit risk. Management does not expect any losses from non-performance by these banks. The Target Group does not hold any collateral as security as at 31 December 2008, 2009 and 2010.

For credit exposures to the amounts due from related parties, management assesses the credit quality of the counterparties, taking into account its fi nancial position, past experience and other factors. The management considers the Group has insignifi cant credit risks on its receivables.

177

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(c) Liquidity risk

The Target Group’s policy is to regularly monitor current and expected liquidity requirements to ensure suffi cient cash is maintained. As at 31 December 2010, the Target Group’s current liabilities exceeded its current assets. The directors closely monitor the liquidity position of the Target Group by assessing the business liquidity, working capital and cash fl ow requirements for the coming twelve months. Based on the assessment, the directors are of the opinion that the Target Group will be able to generate suffi cient funds from its business to continue in operational existence for the foreseeable future. For details, please refer to Note 2.1.

The table below analyzes the Target Group’s fi nancial liabilities into relevant maturity groupings based on the remaining period from the balance sheet dates to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash fl ows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not signifi cant.

At 31 December 2008 Trade payables Other payables and accrued liabilities Amounts due to related parties Borrowings Total At 31 December 2009 Trade payables Other payables and accrued liabilities Amounts due to related parties Borrowings Total At 31 December 2010 Trade payables Other payables and accrued liabilities Amounts due to related parties Borrowings Total	Within 1 year HK$’000 2,554 38,169 170,739 40,595 252,057 3,279 29,173 132,350 28,507 193,309 5,211 33,198 118,548 51,297 208,254	Between 1 and 5 years HK$’000 — — — — — — — — 22,715 22,715 — — — — —	Total HK$’000 2,554 38,169 170,739 40,595
			252,057

			3,279 29,173 132,350 51,222
			216,024

			5,211 33,198 118,548 51,297
			208,254

178

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

3.2 Capital risk management

The Target Group regards its total equity as capital.

The Target Group’s objective when managing capital is to safeguard the Target Company’s ability to continue as a going concern in order to provide returns for shareholders and benefi ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

3.3 Fair value estimation

The carrying value less impairment provision of cash and cash equivalents, amounts due from/ to related parties, trade payables and borrowings are assumed to approximate their fair values.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

The Target Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by defi nition, seldom equal the related actual results. The estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.

(a) Revenue recognition

The membership entrance fees represent upfront registration fee and are recognized at rate that refl ect the estimated timing, nature and value of the benefi ts provided on a reducing balance basis. The estimated rate is based on the historical usage pattern of existing members. The Target Group may adjust the rate based on latest available information. The corresponding impact will be accounted for prospectively and may have a signifi cant impact to future fi nancial statements.

At 31 December 2008, 2009 and 2010, if the estimated rate had increased/decreased by 5%, the profi t for the year would have been HK$3,709,000, HK$2,715,000 and HK$2,249,000 higher/lower for the Relevant Periods, respectively.

179

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(b) Estimated useful lives and residual value of property, plant and equipment

The Target Group determines the estimated useful lives, residual value and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and function. The Target Group periodically reviews changes in technology and industry conditions, asset retirement activity and residual values to determine adjustments to estimated remaining useful lives and depreciation rates. Periodic reviews could result in a change in depreciable lives and therefore depreciation expense in future periods.

(c) Corporate income taxes and other taxes

The Target Group is principally subject to income taxes and business tax in the PRC. Signifi cant judgement is required in determining the provision for income taxes and other taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Target Group recognizes tax liabilities based on estimates of anticipated amounts of taxes that will be due. Where the fi nal tax outcome is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. During the year ended 31 December 2010, there was a reversal of business tax provision amounting to HK$18,612,000.

5 SALES AND OTHER INCOME AND OTHER GAINS, NET

Year ended 31 December	Year ended 31 December	Year ended 31 December
2008 HK$’000 28,360 38,033 4,234 43,417 114,044 45 4,400 16 74 63 4,598	2009 HK$’000 36,745 48,083 4,289 47,493 136,610 28 — 119 574 2 723	2010 HK$’000 54,060 48,280 4,353 52,823
		159,516

		36 — 60 1,007 66
		1,169

180

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

6 EXPENSES BY NATURE

Expenses included in cost of sales and administrative expenses are analyzed as follows:

— Employee benef t expense (including director’s emoluments) — Depreciation — Legal and professional fee — Cost of food and beverage — Operating right lease — Business tax — Other expenses Total cost of sales and administrative expenses	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2008 HK$’000 15,832 19,678 1,495 11,906 20,331 19,342 14,950 103,534	2009 HK$’000 18,152 20,532 306 12,333 20,977 22,079 13,753 108,132	2010 HK$’000 21,250 19,536 538 22,056 21,351 5,499 13,063
			103,293

Auditor’s remuneration during the Relevant Periods was Nil.

The business tax recognized amounted to HK$19,342,000, HK$22,079,000 and HK$24,111,000 during the Relevant Periods, respectively. During the year ended 31 December 2010, there was a reversal of provision of business tax in previous years amounted to HK$18,612,000.

7 EMPLOYEE BENEFIT EXPENSE (INCLUDING DIRECTOR’S EMOLUMENTS)

Salaries and wages Retirement benef ts scheme contributions Other employee benef ts	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2008 HK$’000 15,072 681 79 15,832	2009 HK$’000 17,183 937 32 18,152	2010 HK$’000 18,220 2,821 209
			21,250

181

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

8 DIRECTOR’S EMOLUMENTS

The director did not receive or will not receive any fees or other emoluments in respect of his services to the Target Company during the Relevant Periods.

9 FINANCE COSTS, NET

Finance costs on Bank borrowings Other borrowings Finance costs charged to related parties	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 870 1,845 1,973 2,580 2,780 2,830 3,450 4,625 4,803 (3,450) (4,625) (4,803) — — —	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 870 1,845 1,973 2,580 2,780 2,830 3,450 4,625 4,803 (3,450) (4,625) (4,803) — — —
	2008 HK$’000 870 2,580 3,450 (3,450) —	2009 HK$’000 1,845 2,780 4,625 (4,625) —

All fi nance costs were arising from borrowings raised on behalf of related parties (Note 20) and had been re-charged to related parties (Note 26) during the Relevant Periods.

10 TAXATION

The Target Group is not subject to Hong Kong profi ts tax as it has no assessable income arising in or derived from Hong Kong during the Relevant Periods.

Effective from 1 January 2008, the companies now comprising the Target Group incorporated in the PRC, are required to determine and pay the Corporate Income Tax (“CIT”) in accordance with the Corporate Income Tax Law of the PRC (the “New CIT Law”) as approved by the National People’s congress on 16 March 2007 and Detailed Implementations Regulations of the New CIT Law (the “DIR”) as approved by the State Council on 6 December 2007.

According to the new CIT Law and DIR, the income tax rates for both domestic and foreign investment enterprises have been unifi ed at 25% effective from 1 January 2008.

Taxation on oversea profi ts has been calculated on the estimated assessable profi t for the year at the rates of taxation prevailing in the countries in which the Target Group operates.

182

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The amount of income tax charged in the consolidated income statement represents:

Current income tax — PRC corporate income tax Deferred income tax Income tax expense	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2008 HK$’000 9,209 (345) 8,864	2009 HK$’000 12,953 (988) 11,965	2010 HK$’000 20,264 (1,006)
			19,258

The tax on the Target Group’s profi t before taxation differs from the theoretical amount that would arise using the tax rate applicable to the profi t of the Target Group as follows:

Prof t before taxation Tax calculated at domestic tax rates applicable to prof t in the PRC Expenses not deductible for tax purposes Effect on deferred tax arising from changes in statutory tax rate The analysis of deferred tax assets is as follows: Deferred tax assets Deferred tax asset to be recovered after more than 12 months	Year ended 31 December	Year ended 31 December
	2008 2009 2010 HK$’000 HK$’000 HK$’000 15,108 29,201 57,392 3,777 7,300 14,348 4,474 4,665 4,910 613 — — 8,864 11,965 19,258 As at 31 December	2010 HK$’000 57,392
		14,348 4,910 —
		19,258

	2008 2009 2010 HK$’000 HK$’000 HK$’000 2,963 3,957 5,118

183

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

11 EARNINGS PER SHARE

Basic and diluted earnings per share are calculated by dividing the profi t for the year by the weighted average number of ordinary shares in issue during the year. There is no difference between basic and diluted earnings per share for the Target Group during the Relevant Periods.

Prof t for the year Weighted average number of ordinary shares Basic and diluted earnings per share	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 6,244 17,236 38,134 1 1 1 6,244 17,236 38,134	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 6,244 17,236 38,134 1 1 1 6,244 17,236 38,134	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 6,244 17,236 38,134 1 1 1 6,244 17,236 38,134
		2009 HK$’000 17,236 1 17,236	2010 HK$’000 38,134 1
			38,134

12 PROPERTY, PLANT AND EQUIPMENT

At 1 January 2008 Cost Accumulated depreciation Net book amount Year ended 31 December 2008 Opening net book amount Exchange differences Additions Disposals Depreciation Closing net book amount At 31 December 2008 Cost Accumulated depreciation Net book amount Year ended 31 December 2009 Opening net book amount Exchange differences Additions Disposals Depreciation Closing net book amount	Golf courses HK$’000 118,987 (21,170) 97,817 97,817 5,228 — — (6,778) 96,267 125,600 (29,333) 96,267 96,267 148 — — (6,481) 89,934	Buildings HK$’000 191,365 (11,289) 180,076 180,076 9,810 — — (6,388) 183,498 202,000 (18,502) 183,498 183,498 288 — — (6,591) 177,195	Machinery and equipment HK$’000 10,428 (4,229) 6,199 6,199 328 1,212 — (1,734) 6,005 12,257 (6,252) 6,005 6,005 8 882 — (1,946) 4,949	Furniture, computer and equipment Leasehold improvement HK$’000 HK$’000 11,722 6,787 (8,344) (6,019) 3,378 768 3,378 768 253 40 3,890 274 — — (1,818) (380) 5,703 702 16,384 7,447 (10,681) (6,745) 5,703 702 5,703 702 8 1 302 46 (29) — (2,050) (179) 3,934 570	Motor vehicles Construction in progress HK$’000 HK$’000 12,191 — (3,962) — 8,229 — 8,229 — 480 — 3,548 — (161) — (2,580) — 9,516 — 16,301 — (6,785) — 9,516 — 9,516 — 15 — 247 — (27) — (3,285) — 6,466 —	Total HK$’000 351,480 (55,013)
						296,467

						296,467 16,139 8,924 (161) (19,678)
						301,691

						379,989 (78,298)
						301,691

						301,691 468 1,477 (56) (20,532)
						283,048

184

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

12 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

At 31 December 2009 Cost Accumulated depreciation Net book amount Year ended 31 December 2010 Opening net book amount Exchange differences Additions Depreciation Closing net book amount At 31 December 2010 Cost Accumulated depreciation Net book amount	Golf courses HK$’000 125,801 (35,867) 89,934 89,934 3,036 – (5,037) 87,933 130,170 (42,237) 87,933	Buildings HK$’000 202,323 (25,128) 177,195 177,195 6,036 – (6,709) 176,522 209,349 (32,827) 176,522	Machinery and equipment HK$’000 13,159 (8,210) 4,949 4,949 159 1,525 (2,235) 4,398 15,167 (10,769) 4,398	Furniture, computer and equipment Leasehold improvement HK$’000 HK$’000 16,661 7,505 (12,727) (6,935) 3,934 570 3,934 570 110 29 518 697 (2,150) (165) 2,412 1,131 17,767 8,475 (15,355) (7,344) 2,412 1,131	Motor vehicles Construction in progress HK$’000 HK$’000 16,472 — (10,006) — 6,466 — 6,466 – 213 118 2,693 6,813 (3,240) – 6,132 6,931 19,782 6,931 (13,650) – 6,132 6,931	Total HK$’000 381,921 (98,873)
						283,048

						283,048 9,701 12,246 (19,536)
						285,459

						407,641 (122,182)
						285,459

Depreciation of the Target Group’s property, plant and equipment has been recognized as follows:

Cost of sales Administrative expenses Charged to consolidated income statements	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 18,108 18,419 17,284 1,570 2,113 2,252 19,678 20,532 19,536	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 18,108 18,419 17,284 1,570 2,113 2,252 19,678 20,532 19,536	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 18,108 18,419 17,284 1,570 2,113 2,252 19,678 20,532 19,536
		2009 HK$’000 18,419 2,113 20,532	2010 HK$’000 17,284 2,252
			19,536

185

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

13 INVESTMENTS IN SUBSIDIARIES — TARGET COMPANY

(a) Investment in a subsidiary

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 — 27.	2009 HK$’000 —	2010 HK$’000 780

(b) Amounts due from subsidiaries

Amounts due from subsidiaries	As at 31 December
	2008 2009 2010 HK$’000 HK$’000 HK$’000 — — 58,759

The amounts due from subsidiaries were unsecured, interest-free and not repayable in the foreseeable future.

14 INVENTORIES

Food and golf products	As at 31 December
	2008 2009 2010 HK$’000 HK$’000 HK$’000 2,121 2,890 3,283

The cost of inventories recognized as expense and included in ‘cost of sales’ amounted to HK$11,906,000, HK$12,333,000 and HK$22,056,000 during the Relevant Periods, respectively.

There is no provision on inventories made in respect of inventory obsolescence and net realizable value during the Relevant Periods.

186

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

15 FINANCIAL INSTRUMENTS BY CATEGORY

The accounting policies for fi nancial instruments have been applied to the line items below:

Loans and receivables	Loans and receivables	Loans and receivables
As at 31 December
2008 2009 2010 HK$’000 HK$’000 HK$’000 1,499 485 1,703 112,575 159,599 235,115 3,284 5,860 3,193 117,358 165,944 240,011 Other f nancial liabilities at amortized cost		2010 HK$’000 1,703 235,115 3,193
		240,011

As at 31 December
2008 HK$’000 2,554 83,927 40,595 170,739 297,815	2009 HK$’000 3,279 95,207 51,222 132,350 282,058	2010 HK$’000 5,211 102,387 51,297 118,548
		277,443

16 PREPAYMENTS AND OTHER RECEIVABLES

Prepayments Other receivables		As at 31 December	As at 31 December	As at 31 December
		2008 HK$’000 591 1,499 2,090	2009 HK$’000 2,374 485 2,859	2010 HK$’000 1,295 1,703
				2,998

The carrying amounts of other receivables approximate their fair values.

As at 31 December 2008, 2009 and 2010, all balances were denominated in RMB.

187

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

17 CASH AND CASH EQUIVALENTS

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 3,284 3,184	2009 HK$’000 5,860 5,740	2010 HK$’000 3,193

		3,022

As at 31 December 2008, 2009 and 2010, the Target Group’s cash and cash equivalents were denominated in the following currencies:

RMB HK dollar US dollar Others		As at 31 December	As at 31 December	As at 31 December
		2008 HK$’000 2,452 18 743 71 3,284	2009 HK$’000 5,741 18 29 72 5,860	2010 HK$’000 2,711 12 422 48
				3,193

The cash at bank are kept in bank accounts opened with banks in the PRC where the remittance of funds is subject to foreign exchange control.

188

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

18 SHARE CAPITAL

The Target Company was incorporated on 9 August 2010 with an authorized capital of 50,000 ordinary shares of US$1 each.

As disclosed in Note 2, the fi nancial information has been prepared on a combined basis such that the fi nancial information of the companies and businesses now comprising the Target Group, during the Relevant Periods were combined. Combined share capital represents the share capital of the Target Company. For the purpose of the Financial Information, the issued share capital of Smart Title Limited was assumed to have been issued on 1 January 2008, and the difference between that amount and the aggregate amounts of the respective paid-in capital of the companies and businesses now comprising the Target Group as at 31 December 2008, 2009 and 2010 had been recognized under the capital reserve account.

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 390 HK$8	2009 HK$’000 390 HK$8	2010 HK$’000 390

		HK$8

189

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

19 RESERVES

(a) Target Group

For the year ended 31 December 2008 Balance at 1 January 2008 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Balance at 31 December 2008 For the year ended 31 December 2009 Balance at 1 January 2009 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Balance at 31 December 2009	Capital reserves HK$’000 (Note) 47,089 — — 47,089 47,089 — — 47,089	Exchange reserves Accumulated losses HK$’000 HK$’000 226 (79,532) — 6,244 (1,599) — (1,373) (73,288) (1,373) (73,288) — 17,236 (29) — (1,402) (56,052)	Total HK$’000 (32,217) 6,244 (1,599) (27,572) (27,572) 17,236 (29) (10,365)

190

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

19 RESERVES (CONTINUED)

(a) Target Group (Continued)

For the year ended 31 December 2010 Balance at 1 January 2010 Comprehensive income – Prof t for the year Other comprehensive income – Currency translation differences Capital contribution from owner Balance at 31 December 2010 Target Company For the year ended 31 December 2010 Comprehensive loss – Loss for the period Other comprehensive income – Currency translation differences Capital contribution from owner Balance at 31 December 2010	Capital reserves HK$’000 (Note) 47,089 — — 2,000 49,089 Capital reserves HK$’000 (Note) — — 49,089 49,089	Exchange reserves Accumulated losses HK$’000 HK$’000 (1,402) (56,052) — 38,134 337 — — — (1,065) (17,918) Exchange reserves Accumulated losses HK$’000 HK$’000 — (1,220) 11,670 — — — 11,670 (1,220)	Total HK$’000 (10,365) 38,134 337 2,000 30,106 Total HK$’000 (1,220) 11,670 49,089 59,539

(b) Target Company

Note: Capital reserves mainly represent cost of investments in subsidiaries as held by the Target Group, which was fi nanced by shareholder loans granted by the shareholder of the Target Company. The shareholder of the Target Company confi rmed he did not require repayment of the shareholder loans by the Target Company and such amounts were treated as shareholder contribution.

191

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

20 BORROWINGS

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 — 17,916 22,679 40,595 40,595	2009 HK$’000 22,715 5,792 22,715 28,507 51,222	2010 HK$’000 —
		27,793 23,504
		51,297
		51,297

As at 31 December 2008, 2009 and 2010, the Target Group’s total borrowings were repayable as follows:

Within 1 year Between 1 to 2 years		As at 31 December	As at 31 December	As at 31 December
		2008 HK$’000 40,595 — 40,595	2009 HK$’000 28,507 22,715 51,222	2010 HK$’000 51,297 —
				51,297

All loans are guaranteed by related parties and key management of the Target Group (Note 26).

The weighted average effective interest rates at 31 December 2008, 2009 and 2010, were 9.78%, 10.27% and 9.34% per annum, respectively.

As at 31 December 2008, 2009 and 2010, the carrying amounts of the Target Group’s borrowings are denominated in RMB and approximate their fair values.

192

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

21 TRADE PAYABLES

As at 31 December

	2008	2009	2010
	HK$’000	HK$’000	HK$’000
Trade payables	2,554	3,279	5,211

As at 31 December 2008, 2009 and 2010, the aging analysis of the trade payables is as follows:

Up to 3 months Over 3 months and up to 6 months Over 6 months and up to 12 months Over 12 months		As at 31 December	As at 31 December	As at 31 December
		2008 HK$’000 1,529 601 52 372 2,554	2009 HK$’000 2,231 491 174 383 3,279	2010 HK$’000 3,186 1,460 — 565
				5,211

As at 31 December 2008, 2009 and 2010, all balances were denominated in RMB.

22 RECEIPT IN ADVANCE, OTHER PAYABLES AND ACCRUED LIABILITIES

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 8,136 11,852 72,075 92,063 (11,852) 80,211	2009 HK$’000 12,350 15,828 79,379 107,557 (15,828) 91,729	2010 HK$’000 12,782 20,471 81,916
		115,169
		(20,471)
		94,698

The other payables and accrual liabilities included business tax payable and construction fee payable. The carrying amounts of other payables and accrued liabilities approximate their fair values.

As at 31 December 2008, 2009 and 2010, majority of the balances were denominated in RMB.

193

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

23 NOTE TO CONSOLIDATED CASH FLOW STATEMENTS

(a) Cash generated from operations

Prof t before taxation Adjustments for: — Depreciation_(Note 12) — Amortization of deferred membership entrance fee — Impairment of asset — Foreign exchange losses/(gains) on operating activities — Loss on disposal of property, plant and equipment — Interest income — Operating right lease(Note 6) — Payment of operating right lease(Note 25) Changes in working capital: — Inventories — Prepayments and other receivables — Trade payables — Receipt in advance, other payables and accrued liabilities — Deferred revenue — Change in net balances with related parties(Note)_ Cash generated from operations		Year ended 31 December	Year ended 31 December	Year ended 31 December
		2008 HK$’000 15,108 19,678 (46,137) — 18 29 (45) 20,331 (16,499) (198) (806) 1,164 20,090 34,665 (31,320) 16,078	2009 HK$’000 29,201 20,532 (50,978) — (33) 27 (28) 20,977 (17,023) (765) (764) 721 20,519 42,307 (23,603) 41,090	2010 HK$’000 57,392 19,536 (58,006) 1,221 — — (36) 21,351 (17,327) (288) (39) 1,786 319 55,550 (17,813) 63,646

Note: The amount represented the adjustments for non-cash movements of net balances with related parties arising from the expenses paid on behalf of the Target Group by related parties or expenses paid on behalf of related parties by the Target Group.

(b) Analysis of changes in deferred membership entrance fee income and rental income during the Relevant Periods.

At 1 January Cash inf ow from membership entrance fee and rental income Increase in receivables from a related party Membership entrance fee income and rental income recognized during the year Exchange differences At 31 December		Year ended 31 December	Year ended 31 December	Year ended 31 December
		2008 HK$’000 115,768 34,665 24,947 (46,137) 6,849 136,092	2009 HK$’000 136,092 42,307 23,287 (50,978) 229 150,937	2010 HK$’000 150,937 55,550 16,218 (58,006) 5,480 170,179

194

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

24 DEFERRED REVENUE

Deferred revenue includes the deferred membership entrance fee income and rental income during the Relevant Periods.

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 35,468 80,300 115,768 49,792 (36,317) 6,849 136,092 (41,193) 94,899	2009 HK$’000 41,193 94,899 136,092 55,841 (41,225) 229 150,937 (46,608) 104,329	2010 HK$’000 46,608 104,329
		150,937 61,165 (47,403) 5,480
		170,179 (53,842)
		116,337

25 OPERATING LEASE COMMITMENT

The following table sets forth our contractual obligations for the dates indicated:

Operating lease commitments Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years		As at 31 December	As at 31 December	As at 31 December
		2008 HK$’000 17,009 70,587 825,514 913,110	2009 HK$’000 17,036 71,552 808,948 897,536	2010 HK$’000 18,509 74,037 818,531
				911,077

The Target Group has entered into an agreement with a related party, Beihu International Golf Club Limited（“北湖國際高爾夫俱樂部有限公司”）, which grant an operating rights to the Target Group for the operation of a golf club in Beijing from 2006 to 2051 with an annual renewal fee of RMB15,000,000 which increase by 5% for every 5 years (Note 26).

195

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

26 RELATED PARTY TRANSACTIONS

The Target Group is controlled by Smart Title Limited, a company incorporated in the British Virgin Islands. The ultimate controlling party of the Target Group is Mr. HE Peng.

(a) Transactions with related parties:

The following transactions were undertaken by the Target Group with related parties during the Relevant Periods.

(i) Sales and purchases of goods to/from an entity controlled by key management personnel

Sales of goods Purchases of goods	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 — — 351 1,826 697 1,038

Sales of goods were entered with a related party on a cost basis. Purchases of goods were negotiated with related parties on commercial terms agreed by both parties.

(ii) Loans and fi nance cost charged to entities controlled by Mr. HE Peng

Loans raised/(repaid) on behalf of the related parties Finance costs charged_(Note 9)_	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 17,379 10,554 (173 3,450 4,625 4,803

(iii) Transfer of property, plant and equipment from an entity controlled by key management personnel

Transfer of property, plant and equipment at cost	Year ended 31 December 2008 2009 2010 HK$’000 HK$’000 HK$’000 6,373 316 1,595

(iv) Key management compensation

Key management personnel is deemed to be the director of the Target Company who has responsibility for planning, directing and controlling the activities of the Target Company. All key management compensation is borne by a related party entity controlled by Mr. HE Peng during the Relevant Periods.

196

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

26 RELATED PARTY TRANSACTIONS (CONTINUED)

(a) Transactions with related parties: (Continued)
(v) Operating lease

(b) Balances with related parties:

The Target Group had the following principal balances with related parties:

As at 31 December	As at 31 December	As at 31 December
2008 HK$’000 112,575 137,961 32,778 170,739	2009 HK$’000 159,599 128,719 3,631 132,350	2010 HK$’000 235,115

		115,048 3,500
		118,548

Note i: As at 31 December 2008, 2009 and 2010, advances to related parties mainly included the loans borrowed by the Target Group on behalf of the related parties, the receipts of membership fees by the related parties on behalf of the Target Group and the expenses paid on behalf of the related parties by the Target Group.
Note ii: As at 31 December 2008, 2009 and 2010, advances from related parties mainly includes the loans tranferred from the related parties and the expenses paid on behalf of the Target Group by the related parties.

As at 31 December 2008, 2009 and 2010, the balances are interest free, unsecured, repayable on demand and approximate their respective fair values.

197

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

27 PARTICULARS OF PRINCIPAL SUBSIDIARIES

As at the date of this report, the Target Company has direct and indirect interests in the following subsidiaries:

						Economic interest	Economic interest	Economic interest
	Place of incorporation/	Date of incorporation/	Type of legal	Principal activities and	Issued/ paid-in	attributable to the Target Group
Name	establishment	establishment	Entity	place of operation	capital	Directly Indirectly
Power Progress Limited	Hong Kong	3 September 2009	Limited liability	Investment holding in	HK$1	100%		—
(“能榮有限公司”)			company	Hong Kong	ordinary share
Nengrong Culture	PRC	7 June 2010	Limited liability	Business administration	US$100,000	—	100%
(Beijing) Limited			company	consultancy in PRC
(“能榮文化(北京)有
限公司”)
Happy Era Culture	PRC	26 February 2010	Limited liability	Media and marketing	RMB100,000	—	100%
Development			company	consultancy in PRC
(Beijing) Limited
(“歡樂時代文化發展
(北京)有限公司”)
Beijing Bayhood No.	PRC	9 July 2003	Limited liability	Provision of recreational	RMB50,000,000	—	100%
9 Business Hotel			company	and tourism
Company Limited				services through
(“北京北湖九號商務				the management
酒店有限公司”)				of “Bayhood No. 9
				Club”, a membership-
				based club in PRC

28 CONTINGENT LIABILITIES

The sole shareholder of the Target Company, Mr. HE Peng, pledged his interests in the entire issued share capital of Target Group to an independent third party, Join Capital Limited, a company incorporated in Hong Kong and a wholly-owned indirect subsidiary of a Hong Kong listed company, COL Capital Limited, in connection with a loan facility amounting to HK$255 million with an interest of 2% per month and payable monthly in arrears for a 6 months term period.

It is not anticipated that any material liabilities will arise to the Target Group from the contingent liabilities disclosed above.

198

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

29 SUBSEQUENT EVENTS

On 16 May 2011, the Company, Unique Talent and the Vendor entered into the Supplemental Agreement, pursuant to which the Vendor agrees to discharge all of the outstanding borrowings of the Target Group owing to banks, fi nancial institutions and other third parties and set off of amount payable and receivable between members of the Target Group and their respective related parties outside the Target Group with an intent to reduce such amounts on accounting entries. In order to ensure that the Target Group’s amount due from/to related parties will be settled before the Completion, the Consideration paid by the Company for the acquisition of the Target Company shall be reduced by reference to the amount involved if the Vendor fails to fulfi ll its obligations under the Supplemental Agreement. In the event that the reductions above shall exceed the Consideration, the Company shall have the option either to terminate the Sale and Purchase Agreement or proceed with Completion and claim for the excess.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited fi nancial statements have been prepared by the Target Company or any of the companies now comprising the Target Group in respect of any period subsequent to 31 December 2010 up to the date of this report. No dividend or distribution has been declared or made by the Target Company or any of the companies now comprising the Target Group in respect of any period subsequent to 31 December 2010.

Yours faithfully,

PricewaterhouseCoopers

Certifi ed Public Accountants

199

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

The following is an illustrative and unaudited pro forma fi nancial information of the Enlarged Group (“Unaudited Pro Forma Financial Information”), including the unaudited pro forma consolidated balance sheet, the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated cash fl ow statement and the unaudited pro forma statement of adjusted net tangible assets, which have been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the proposed acquisition of 100% of the issued share capital of Smart Title Limited (the “Target Company”) (the “Acquisition”) by Unique Talent Group Limited, a wholly owned subsidiary of the Company, as if it had taken place on 31 December 2010 for the unaudited pro forma consolidated balance sheet and the unaudited pro forma statement of adjusted net tangible assets and on 1 January 2010 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash fl ow statement.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the balance sheet, results of operations and cash fl ows of the Group had the Acquisition been completed as at 31 December 2010 or 1 January 2010, where applicable, or at any future date.

The Unaudited Pro Forma Financial Information should be read in conjunction with other fi nancial information included elsewhere in this circular.

200

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(a) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

Pro forma adjustments
The Group
as at
31 December
2010
Target Group
as at
31 December
2010
Other pro forma adjustments
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
Note 1
Note 2
Note 3
Note 4
Note 7
Non-current assets
Property, plant and equipment
3,730
285,459
29,350
Intangible assets
71,059
—
438,344
Goodwill
43,611
—
130,152
Investment properties
359,890
—
Investment in a subsidiary
—
—
518,000
(518,000)
Interest in an associated company
268,986
—
Loan to a jointly controlled
entity — non-current
64,809
—
Deferred tax assets
18,737
5,118
Other non-current assets
1,741
—
832,563
290,577
Current assets
Inventories
—
3,283
Exclusive advertising agency right
51,121
—
Trade receivables
22,474
—
Amounts due from a jointly controlled
entity and its subsidiaries
26,747
—
Financial assets at fair value through prof t
or loss
28,000
—
Prepayments, deposits and other receivables
36,849
2,998
Amounts due from related parties
—
235,115
(169,845)
Cash and cash equivalents_(Note 12)_
236,678
3,193
(395,000)
401,869
244,589
Assets of disposal group held for sale
118,347
—
520,216
244,589

Pro forma
Enlarged
Group
HK$’000
318,539
509,403
173,763
359,890
—
268,986
64,809
23,855
1,741
1,720,986
3,283
51,121
22,474
26,747
28,000
39,847
65,270
(155,129)
81,613
118,347
199,960

201

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(a) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP (CONTINUED)

Current liabilities Agency fee payables — current Trade payables Receipt in advance, other payables and accrued liabilities Amount due to an associated company Current income tax liabilities Borrowings Deferred revenue Amounts due to related parties Liabilities of disposal group held for sale Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Other payables Borrowings Deferred tax liabilities Deferred revenue Net assets Equity Capital and reserves attributable to the equity holders of the Company (Note 12) Non-controlling interests Total equity	The Group as at 31 December 2010 HK$’000 Note 1 136,492 2,383 159,413 32,848 17,533 — — — 348,669 36,347 385,016 135,200 967,763 — — 74,130 — 74,130 893,633 892,796 837 893,633	Pro forma adjustments Target Group as at 31 December 2010 Other pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 2 Note 3 Note 4 Note 6 Note 7 — 5,211 94,698 5,370 — 44,656 51,297 (51,297) 53,842 118,548 (118,548) 368,252 — 368,252 (123,663) 166,914 20,471 — — 119,248 116,337 (9,296) 136,808 30,106 30,106 123,000 (30,106) (5,370) — 30,106	Pro forma Enlarged Group HK$’000 136,492 7,594 259,481 32,848 62,189 — 53,842 —
			552,446 36,347
			588,793 (388,833)
			1,332,153
			20,471 — 193,378 107,041
			320,890
			1,011,263

			1,010,426 837
			1,011,263

202

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(b) UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

Pro forma adjustments

Continuing operations Sales Cost of sales Gross prof t Other income and other gains, net Marketing and selling expenses Administrative expenses Provision for impairment of intangible assets Share of prof t of an associated company Finance costs (Loss)/prof t before taxation Taxation (Loss)/prof t for the year from continuing operations Discontinued operation Loss for the year from discontinued operation (Loss)/prof t for the year Attributable to: Equity holders of the Company Non-controlling interests	The Group for the year ended 31 December 2010 HK$’000 Note 1 171,308 (116,944) 54,364 35,526 (19,462) (76,660) (478,428) 6,931 (1,125) (478,854) (4,813) (483,667) — (483,667) (483,463) (204) (483,667)	Target Group for the year ended 31 December 2010 Other pro forma adjustments HK$’000 HK$’000 HK$’000 Note 2 Note 5 Note 6 159,516 (2,788) (83,020) (11,415) 76,496 1,169 — (20,273) (5,370) — — — 57,392 (19,258) 38,134 — 38,134 38,134 (14,203) (5,370) — 38,134	Pro forma Enlarged Group HK$’000 328,036 (211,379) 116,657 36,695 (19,462) (102,303) (478,428) 6,931 (1,125) (441,035) (24,071) (465,106) — (465,106) (464,902) (204) (465,106)

203

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

Cash f ows from operating activities Cash (used in)/generated from operations Income tax paid Net cash (used in)/generated from operating activities Cash f ows from investing activities Interest received Purchases of property, plant and equipment Acquisition of subsidiaries and jointly controlled entities — net of cash acquired Purchase of an asset through acquisition of subsidiaries, net of cash Purchases of intangible assets Disposals of property, plant and equipment Increase in advances to related parties Deposits received for proposed disposal Net cash used in investing activities Cash f ows from f nancing activities Proceeds from issuance of shares on exercise of share options Finance cost paid Finance cost re-charged to related parties Proceeds from borrowings Repayment of borrowings Decrease in advances from related parties Net cash generated from/(used in) f nancing activities_(Note 12) Net decrease in cash and cash equivalents(Note 12)_ Cash and cash equivalents at 1 January Exchange (losses)/gains on cash and cash equivalents Cash and cash equivalents at 31 December Analysis of cash and cash equivalents Cash and cash equivalents of the Group Reclassif cation to assets of disposal group held for sale	The Group for the year ended 31 December 2010 HK$’000 Note 1 (48,546) (1,214) (49,760) 9,574 (2,447) (254,237) — (115,733) 229 — 40,000 (322,614) 2 — — — — — 2 (372,372) 648,072 (18,006) 257,694 257,694 (21,016) 236,678	Pro forma adjustments Target Group for the year ended 31 December 2010 Other pro forma adjustments HK$’000 HK$’000 Note 2 Note 3 63,646 — 63,646 36 (8,541) — (389,140) 779 — — (37,665) — (45,391) — (4,803) 4,803 4,389 (6,064) (19,401) (21,076) (2,821) 5,860 (5,860) 154 3,193 3,193 — 3,193	Pro forma Enlarged Group HK$’000 15,100 (1,214) 13,886 9,610 (10,988) (643,377) 779 (115,733) 229 (37,665) 40,000 (757,145) 2 (4,803) 4,803 4,389 (6,064) (19,401) (21,074) (764,333) 648,072 (17,852) (134,113) (134,113) (21,016) (155,129)

204

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(d) UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS OF THE ENLARGED GROUP

			Unaudited
	Net		pro forma
	tangible assets		adjusted net	Unaudited pro
	of the Group		tangible assets	form adjusted
	attributable to	Unaudited	of the Enlarged	net tangible
	equity holders	net tangible	Group	assets of the
	of the	assets of the	attributable to	Enlarged
	Company as at	Group per	equity holders	Group per
	31 December	Consolidated	of the	Consolidated
	2010	Share	Company	Share
	HK$’000	HK$	HK$’000	HK$
	Note 8 & 12	Note 9 & 12	Note 10 & 12	Note 11 & 12
Net tangible assets attributable
to equity holders of the
Company	778,126	0.27	327,260	0.10

205

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(e) NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The amounts are extracted from the audited consolidated balance sheet of the Group as at 31 December 2010 and the audited consolidated income statement and the audited consolidated cash fl ow statement of the Group for the year ended 31 December 2010, as set out in Appendix I to this Circular.
The amounts are extracted from the fi nancial information of the Target Group, as set out in Appendix II to this Circular.
The adjustment represents the consideration of the Transaction which will be settled in the following manner:
HK$395,000,000 of the consideration shall be paid in cash on Completion;
HK$70,000,000 of the consideration shall be settled by issuance of 200,000,000 Consolidated Shares by the Company (“First Consideration Shares”) to the Vendor on Completion. For the purpose of this Unaudited Pro Forma Financial Information, fair value of First Consideration shares is HK$82,000,000, which is determined by the closing price of the Consolidated Share of the Company, at HK$0.41 per Consolidated Share, as at 31 December 2010; and
the remaining HK$35,000,000 of the consideration shall be settled by issuance of 100,000,000 Consolidated Shares by the Company (“Second Consideration Shares”) to the Vendor upon fulfi llment of the Vendor’s indemnity in accordance with the sale and purchase agreement. According to the Acquisition Agreement, the aggregate consideration of HK$35,000,000 is subject to the adjustment based on the aggregated audited net profi t after tax of the Target Group for the year 2011 and 2012. For the purpose of this Unaudited Pro Forma Financial Information, it is assumed that the profi t guarantee as described above will be achieved so that the consideration shall not be adjusted accordingly. On that basis, the fair value of this contingent consideration is estimated to be insignifi cant. For the purpose of this Unaudited Pro Forma Financial Information, fair value of Second Consideration Share is HK$41,000,000, which is determined by the closing price of the Consolidated Share of the Company, at HK$0.41 per Consolidated Share, as at 31 December 2010.
Upon completion of the Acquisition, the identifi able assets and liabilities of the Target Group will be accounted for in the consolidated fi nancial statements of the Enlarged Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standard No. 3 (Revised), “Business Combinations”.

206

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

For the purpose of the Unaudited Pro Forma Financial Information, the Directors have estimated the fair values of the identifi able assets and liabilities of the Target Group as at 31 December 2010, after taking reference of a separate valuation report dated 28 February 2011 for the purpose of purchase price allocation prepared by an independent valuer (American Appraisal China Limited). No separate valuation reports as at 1 January 2010 and 31 December 2010 were prepared for the purpose of this Unaudited Pro Forma Financial Information. Had these reports been prepared, the amounts of the fair values of the identifi able assets and liabilities, and, accordingly, the amount of gains on the excess of fair value of net identifi able assets acquired over the cost of Acquisition or goodwill for the compilation of the Unaudited Pro Forma Financial Information of the Enlarged Group may be different from the amounts presented above and the difference may be signifi cant.

The Directors consider that it is reasonable to estimate the allocation of purchase price based on the valuation report prepared by an independent valuer as of 28 February 2011 because no major changes are expected by the Directors with respect to political, legal and economic conditions that would have a signifi cant impact on the valuation.

The fair value adjustment comprises (i) increase in the carrying amounts of property, plant and equipment of HK$29,350,000; (ii) recognition of intangible assets of HK$438,344,000; (iii) decrease in the carrying amounts of deferred revenue of HK$9,296,000; and (iv) the related tax adjustments of HK$119,248,000, arising from the fair value adjustments on the property, plant and equipment, intangible assets and deferred revenue based on the applicable tax rate.

The excess amount of the consideration over the Group’s share of the fair value of the net identifi able assets of the Target Group is recognized as goodwill.

The goodwill arising on the Acquisition of the Target Group is calculated as follows:

Consideration
Less: Identif ed assets acquired and liabilities assumed
Goodwill
Net assets of the Target Group
Fair value adjustment as per separate valuation report,
other than Appendix IV, as at 28 February 2011
— Property, plant and equipment
— Intangible assets
— Deferred revenue
Effect on deferred tax liabilities estimated at the tax rate of 25%
Identif ed assets acquired and liabilities assumed

HK$’000
518,000
(387,848)
130,152
HK$’000
30,106
29,350
438,344
9,296
(119,248)
387,848

207

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Since the fair values of the consideration and the assets and liabilities of the Target Group at the Completion date may substantially different from the fair values used in the preparation of this Unaudited Pro Forma Financial Information of the Enlarged Group, the fi nal amounts of the identifi ed net assets (including intangible assets) and goodwill to be recognized in connection with the Acquisition may be different from the amounts presented here and the differences may be signifi cant. For the purpose of this Unaudited Pro Forma Financial Information, the Company has ensured the steps taken on the assessment of impairment on property, plant and equipment, intangible assets and goodwill has been properly performed in accordance with Hong Kong Accounting Standard No. 36 ‘‘Impairment of Assets’’ which is consistent with the accounting policy of the Company. On that basis, the Directors concluded that no impairment in the value of property, plant and equipment, intangible assets and goodwill is considered necessary.

The valuation of approximately RMB528 million is developed assuming that the business will be expected to exchange between hypothetical market participant willing buyers and sellers at fair value, while this Unaudited Pro Forma Financial Information is prepared based on actual consideration paid of approximately RMB422 million by the Company to the Vendor which may depends on the relative bargaining power between two parties in a negotiation process, perceived risks and other factors.

Also, the valuation of companies and businesses is not a precise science and the conclusions arrived at in many cases will of necessity be subjective and dependent on the exercise of individual judgement. There is, therefore, no indisputable single value and a valuer normally express the opinion on the value as falling within a likely range.

The adjustment also represents consolidation entries for elimination of investment cost of the Company and share capital and reserves of the Target Group.

The adjustment represents the reduction of membership entrance fees recognized, additional depreciation of property, plant and equipment and additional amortization of intangible assets, as a consequence of the recognition of fair value adjustment of deferred revenue, property, plant and equipment and intangible assets in Note 4 above.

The adjustment amounts represent the fair value adjustments on deferred revenue on a reducing balance method, fair value adjustments on intangible assets over the remaining operating lease period (i.e 41 years as at 31 December 2010) and the fair value adjustments on property, plant and equipment over the remaining useful life of the respective property, plant and equipment.

The adjustment represents the recognition of direct expenses of the Transaction.

208

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The adjustment represents (i) the discharge of all outstanding borrowings of the Target Group made on behalf of its related parties owing to banks, fi nancial institutions and other third parties and (ii) set-off of amounts payable and receivable between members of the Target Group and their respective parties outside the Target Group before the Completion of the Acquisition pursuant to the Sale and Purchase Agreement. For the purpose of this Unaudited Pro Forma Financial Information, the Directors have assumed that they will not exercise their right to reduce the Consideration by the remaining outstanding net receivables from related parties outside the Target Group. Had they exercised the right to reduce the Consideration, the amounts due from related parties and the consideration payable by cash would have reduced by approximately HK$65,270,000.
The net tangible assets of the Group attributable to equity holders of the Company as at 31 December 2010 is based on the audited consolidated net assets of the Group attributable to the Company’s equity holders as at 31 December 2010 of approximately HK$892,796,000, with an adjustment for the intangible assets of approximately HK$114,670,000, as set out in Appendix I to this Circular.
The number of shares used for the calculation of the unaudited net tangible assets of the Group per share is 2,879,453,000 Consolidated Shares (taking into account the effect of the Share Consolidation which was approved at the extraordinary general meeting of the Company held on 13 May 2011 and became effective on 16 May 2011).
The unaudited pro forma adjusted net tangible assets of the Enlarged Group as at 31 December 2010 are based on the unaudited pro forma consolidated balance sheet of the Enlarged Group set out in Section (a) above, being the amount of the unaudited pro forma adjusted net assets attributable to the equity holders of the Enlarged Group as at 31 December 2010 of approximately HK$1,010,426,000, with an adjustment for the intangible assets and goodwill amounting to approximately HK$683,166,000.
The number of shares used for the calculation of the unaudited pro forma adjusted net tangible assets of the Enlarged Group per share is 3,179,453,000 Consolidated Shares, comprising 2,879,453,000 Consolidated Shares as described in note 9 above and the 300,000,000 Consolidated Shares to be issued to the Vendor as described in Note 3 above.

209

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Company has proposed to raise approximately HK$259.2 million before expenses by way of Rights Issue. The prospectus in relation to the Rights Issue has been issued by the Company on 24 May 2011. As stated in the prospectus, the latest time to terminate the underwriting agreement in relation to the Rights Issue by the underwriter is by 4:00 p.m. on 13 June 2011 (the “Latest Time for Termination”). As the Company has not received any notice to terminate the underwriting agreement from the underwriter before the Latest Time for Termination, the directors of the Company are of the opinion that the Company has secured the net proceeds from the Rights Issue of approximately HK$251.3 million (net of estimated expenses) which will be used to fi nance the Acquisition. No adjustment has been made to this Unaudited Pro Forma Financial Information in respect of the Rights Issue.
(i) Had the Company adjusted this Unaudited Pro Forma Financial Information in respect of the Rights Issue, the cash and cash equivalents of the pro forma Enlarged Group would have increased by HK$251.3 million (being the estimated net proceeds from the Rights Issue after deduction of the estimated related expenses). The corresponding impact on certain unaudited pro forma fi nancial information is summarized as follows:

	Pro forma
	Enlarged Group	Net proceeds
	(as reported	from
	above)	Rights Issue	As adjusted
	HK$’000	HK$’000	HK$’000
Unaudited pro forma consolidated balance sheet
As at 31 December 2010
Cash and cash equivalents	(155,129)	251,311	96,182
Capital and reserves attributable
to the equity holders of
the Company	1,010,426	251,311	1,261,737
Unaudited pro forma consolidated cash f ow statement
For the year ended 31 December 2010
Cash f ows from f nancing
activities	(21,074)	251,311	230,237
Net (decrease)/increase in cash
and cash equivalents	(764,333)	251,311	(513,022)

210

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(ii) Had the Company adjusted this Unaudited Pro Forma Financial Information in respect of the Rights Issue, the number of shares used for the calculation would have increased to 4,319,179,453 Consolidated Shares and the unaudited net tangible assets of the Group would have increased to HK$1,029.4 million. The corresponding impact on the unaudited pro forma statement of adjusted net tangible assets of the Enlarged Group is summarized as follows:

	Net tangible
	assets of
	the Group
	attributable to	Unaudited net
	equity holders	tangible assets
	of the Company	of the Group per
	as at 31 December	Consolidated
	2010	Share
	HK$’000	HK$
Net tangible assets attributable to equity
holders of the Company (as reported above)	778,126	0.27
Rights Issue	251,311	N/A
As adjusted	1,029,437	0.24

(iii) Had the Company adjusted this Unaudited Pro Forma Financial Information in respect of the Rights Issue, the number of shares used for the calculation would have increased to 4,619,179,453 Consolidated Shares and the unaudited net tangible assets of the Enlarged Group would have increased to HK$578.6 million. The corresponding impact on the unaudited pro forma statement of adjusted net tangible assets of the Enlarged Group is summarized as follows:

	Unaudited pro
	forma adjusted	Unaudited pro
	net tangible	forma adjusted
	assets of the	net tangible
	Enlarged Group	assets of the
	attributable to	Enlarged Group
	equity holders of	per Consolidated
	the Company	Share
	HK$’000	HK$
Net tangible assets attributable to equity
holders of the Company (as reported above)	327,260	0.10
Rights Issue	251,311	N/A
As adjusted	578,571	0.13

Other than the above adjustments, no adjustments have been made to refl ect any trading results or other transactions of the Group and Target Group entered into subsequent to 31 December 2010.

211

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(B) REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from PricewaterhouseCoopers, Certifi ed Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANT’S REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF MEDIA CHINA CORPORATION LIMITED

We report on the unaudited pro forma fi nancial information set out on pages 200 to 211 under the heading of “Unaudited Pro Forma Financial Information” (the “Unaudited Pro Forma Financial Information”) in Appendix III of the circular dated 17 June 2011 (the “Circular”) of Media China Corporation Limited (the “Company”), in connection with the proposed acquisition of Smart Title Limited (the “Transaction”) by the Company. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Transaction might have affected the relevant fi nancial information of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 200 to 211 of the Circular.

Respective Responsibilities of Directors of the Company and the Reporting Accountant

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

It is our responsibility to form an opinion, as required by paragraph 4.29(7) 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 fi nancial 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.

212

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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 HKICPA. Our work, which involved no independent examination of any of the underlying fi nancial information, consisted primarily of comparing the audited consolidated balance sheet as at 31 December 2010, audited consolidated income statement and audited cash fl ow statement of the Group for the year ended 31 December 2010 as set out in the “Unaudited Pro Forma Financial Information” section of this Circular with the Financial Information of the Group as set out in Appendix I of this Circular, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with suffi cient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

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

the fi nancial position of the Group as at 31 December 2010 or any future date, or
the results and cash fl ows of the Group for the year ended 31 December 2010 or any future periods.

OPINION

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certifi ed Public Accountants

Hong Kong, 17 June 2011

213

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

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17 June 2011

The Directors Media China Corporation Limited Room 3503, Tower 2, Lippo Centre, 89 Queensway, Hong Kong

Our Ref.: 11/0448

Dear Sirs,

VALUATION AND SENSITIVITY ANALYSIS OF INDICATED BUSINESS ENTERPRISE VALUE OF BEIJING BAYHOOD No. 9 BUSINESS HOTEL LIMITED

Pursuant to the terms, conditions and purpose of an engagement agreement dated 23 February 2011 (“Engagement Agreement”) between Media China Corporation Limited (“Company” or “Client”) and American Appraisal China Limited (“American Appraisal”), we have completed the valuation (“Valuation”) of the 100% equity interest in the Beijing Bayhood No. 9 Business Hotel Limited (“Bayhood No. 9” or the “Subject Company”). We understand that the Company contemplates acquisition of the above mentioned interest. The Valuation is prepared as of 28 February 2011 (“Valuation Date”). Most of the assumptions were provided by the management of the Company (“Management”).

We understand that the Company, with our consent, will disclose this letter in the circular to the shareholders and to The Stock Exchange of Hong Kong Limited (“Stock Exchange”) in accordance with the requirements of the Rules Governing the Listing of Securities on Stock Exchange (“Listing Rules”).

This report identifi es the asset appraised, describes the scope of work, states the basis of value, specifi es key inputs and assumptions, explains the valuation methodology utilized, and presents our conclusion of value. In preparing our report, we aim to largely comply with the reporting standands recommended by the United States Uniform Standards of Professional Appraisal Practice (“USPAP”). This letter is intended to present only a summary discussion of the data, reasoning, major assumptions and analyses that were used by American Appraisal to develop the opinion of value. Supporting documentation concerning these matters has been retained in our work papers.

214

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Purpose of Valuation and Scenario Analysis

The Client intends to acquire the 100% equity interest of Smart Title Limited (“Target Group”), which is the ultimate holding company of Bayhood No. 9 (“Proposed Transaction”). As the Proposed Transaction constitutes a very substantial acquisition under Chapter 14 of the Listing Rules, a valuation report on the Subject Company is required to be included in the circular for dispatch to the shareholders of the Company.

With the Client’s approval and as stipulated by the Engagement Agreement, we have completed the Valuation of 100% equity interest in the Bayhood No. 9. In formulating our opinion, we relied upon completeness and accuracy of operational and fi nancial information provided by the Company.

The intended use of the Valuation is to serve as basis for the compliance of the Listing Rules. The ultimate transaction, if happens, and the corresponding acquisition prices would be the results of negotiations between the transacting parties. Our valuations only form part of the information for the Client to consider and the responsibility for determining the fair value and the acquisition price of the Subject Company rests solely with the Company. The results of our analysis should not be construed to be a fairness opinion, a solvency opinion, or an investment recommendation. It is inappropriate to use our valuation report for purpose other than its intended use or by third parties. These third parties should conduct their own investigation and independent assessment of the fi nancial projections and underlying assumptions.

Basis of Value

We have appraised the Subject Company on the basis of fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value is generally interpreted to have the same defi nition of fair market value in continued use, which is defi ned as the estimated amount at which the company might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, and with the buyer and seller contemplating retention of the business for continuation of current operations unless the break-up of the business or the sale of its assets would yield greater investment returns.

Description of the Subject Company

Bayhood No. 9 is a membership-based luxury golf club house. Located in the near city centre of Beijing, the club house provides recreational and tourism services through its business hotel facilities, an 18-hole golf course, driving range facilities, theme restaurants and cafes, etc.

215

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Set up in 2003, the Subject Company is a limited liability company with registered share capital of RMB 50 million in the PRC. Over the past few years, the revenue of the Subject Company mainly came from sale of membership, golf course and theme restaurants operation. Up to December 2010, Bayhood No. 9 had a total of 394 members, while under the current estimation by the Management, it can serve at maximum of approximately 1,200 members. Being one of the largest club houses in Beijing, it offers golf course and resort residences to high-end customers. The average entrance membership fee in 2010 was approximately RMB 1.06 million. Except the green fees with 50% discount offered to members, the club house charges the same fees for both members and non-members for using the golf and recreational facilities.

To use the land where the club house located (the “Subject Land”), the Subject Company has entered into Co-operation Corporation Construction and Operating Agreement (“Agreement”) with Beihu International Golf Club Limited 北湖國際高爾夫俱樂部有限公司 (“Beihu”) in December 2005. Through the Agreement, Bayhood No. 9 has been granted the right to manage and operate the club facilities on the Subject Land up to December 31, 2051. Upon the expiry, Bayhood No. 9 shall transfer the ownership of the club facilities to the counterparty. Based on the terms, the Subject Company has to pay an annual fee of RMB 15 million as rental expenses to Beihu. The annual fee is subject to an increase of 5% every 5 years. The fi rst fee increase is due in 2011.

During the year ended 31 December 2010, the Target Group recorded revenue and net profi t of approximately HKD 160 million and HKD 38 million, respectively.

Financial Review of Bayhood No. 9

We were provided with the draft audit fi nancial statements of the Target Group for the four years ended 31 December 2010. Since Bayhood No. 9 is the major operating company of the Target Group, it is assumed the fi nancial statements of the Target Group have substantially represented the operating results of Bayhood No. 9.

As the accumulated number of members increased gradually each year, revenues from sale of membership, annual fees and the overall income from golf course, food and beverage and other facilities increased as well. On the other hand, since many of the operating costs and expenses, such as depreciation, rental fee payable, staff costs, maintenance costs, etc. are relatively fi xed in nature, therefore, gross profi t margin increased signifi cantly in 2010; and this lifted up the net profi t margin for Bayhood No. 9 signifi cantly from 5.5% in 2008 to 12.6% in 2009 and 23.9% in 2010.

Without substantial expansion, the balances of non-current assets, including real estate, structures, buildings, plants and machineries, remained relatively stable over the past few years. No long-term borrowing was noted and short-term loan of HKD 51.3 million was recorded on 31 December 2010. The loan was borrowed on behalf of a related company, Beihu and associated balance in amount due from the related company was observed.

Due to the nature of club house business, no substantial account receivables and inventories are required. Net current liabilities were observed over the past few years. The long term liabilities mainly comprised of deferred revenue, which represented sales of membership fees to be amortized over its estimated useful lives. With the increase of profi ts in 2010, the Target Group had a net asset values of HKD 30.1 million as of 31 December 2010 after a few years of operations since 2006.

216

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Economic Outlook

The major variables reviewed in order to evaluate the overall state of the national economy include the current level of and changes in the gross domestic product (GDP), exchange rate, and the infl ation rate. An overview of economy of China, where businesses of the Subject Company are transacted, was essential to develop this outlook. The following economic discussion was extracted from Economic Intelligence Unit “China: Country outlook” dated 1 March 2011.

Economic Growth

Real GDP growth hit 10.3% in 2010, according to the National Bureau of Statistics, up from 9.2% in 2009. Stronger growth was driven by rising activity in most parts of the economy, thanks to loose credit conditions and a government-backed stimulus package that boosted investment. Economic expansion will slow to 9% in 2011 as stimulus spending comes to an end and policy tightening leads to a slowdown in growth in property investment. Weakening demand in major OECD markets will also serve to damp down export growth. However, strong income growth will support consumption, despite the fact that higher infl ation will erode purchasing power. Low or negative real interest rates and relatively loose credit conditions will also encourage consumer purchases of high value items.

Infl ation

Keeping infl ation under control is now the government’s main policy challenge. Year-on-Year consumer price infl ation hit 4.9% in January and is expected to average 5% in 2011. Strong liquidity growth and booming demand have contributed to the acceleration in price increases, but rising input costs are the main threat in 2011-15. The large pay rises that fi rms are having to offer in order to keep workers may put upward pressure on consumer prices, as well as raising manufacturing costs; this mechanism has a particularly strong impact on prices for labor-intensive agricultural products. Rising global commodity price pressures are a further concern.

Exchange Rate

China is under intense pressure from its trading partners, most notably the US, to allow the Renminbi to appreciate more rapidly. As evidence that the Chinese government manipulates the exchange rate to support exports, critics of China’s policies cite the country’s rapid accumulation of foreign-exchange reserves owing to its persistently large current- and capital account surpluses. (China’s reserves rose further in 2010, to reach nearly US$2.9trn.) The Chinese government is likely to remain highly cautious in the area of exchange-rate policy, and is not expected to bow to foreign pressure for a substantial revaluation. However, it will allow the Renminbi to strengthen gradually during the forecast period, and in real terms the currency’s appreciation will be faster. Despite the problems that this will cause for exporters, Renminbi appreciation is desirable, as it should help to reduce the surpluses on China’s capital and current accounts, which are contributing signifi cantly to domestic and global economic imbalances. The average exchange rate in 2011 is forecast at RMB6.48:US$1, and the Renminbi is expected to appreciate against the US dollar by an average of 3.8% a year in 2011-15.

217

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Industry Overview

The industry discussion below was extracted from information provided by the Management.

Overview of tourism industry in PRC

The tourism industry in PRC is one of the fastest growing industries and has witnessed continuous development and transformation driven by two decades long economic liberalization and the government’s favorable policy framework. According to the research report “China Tourism Industry Forecast to 2012”, inbound industry in China will witness a signifi cant growth during 2011 to 2013, fueled by overseas investment and opening the domestic tourism market to foreign companies. Inbound tourism is projected to grow at a CAGR of around 8% during 2010 — 2013. Besides, PRC is branding and positioning its tourism industry at the global level to fuel growth in tourism industry.

The increasing number of tourist arrivals and simultaneous rising per capita spending by tourist will boost the tourist receipts in coming years. Moreover, the tourist receipts received by top 5 provinces in PRC accounted for more than 60% of the total receipts generated during 2008. Of these fi ve provinces, Beijing witnessed more than US$4.5 billion in receipts. Backed by cultural promotion, easing VISA regulations, and the government support, the industry will witness strong growth in number of tourist arrivals, which in turn will increase tourism receipts.

Consumer confi dence in PRC is expected to increase gradually in line with predicted improvements in the global economy and this should in turn result in increased spending on travel and tourism, thereby creating a positive impact on the tourism fl ows in the PRC market. In addition, economic recovery will also lead to improvements in tourist expenditure, which we believe will result in more travelers consuming premium tourism products and services.

Information Sources and Key Assumptions

We have discussions with the Management with regard to the history, operations and prospects of the Subject Company. An on-site inspection on the physical conditions of major assets of the Subject Company by our team was performed in early March 2011. As a part of due diligence, we conducted an analysis of the economic outlook, industry overview and competitive environment to understand the demand and supply situation. In assessing the basis of the fi nancial projections provided by the Management (“Financial Projections”), we also performed a search and analysis of comparable companies, a review of certain fi nancial data, operating statistics and other relevant documents. We considered that the Financial Projections provided by the Management was prepared with due care and consideration. Where appropriate the most current information obtained during our valuation due diligence was used. Specifi cally, certain adjustments were made to expect operating and cost data as provided in the Financial Projections in respect of the future operation of the Subject Company provided to us by the Management.

We made reference to or reviewed the following major documents and data:

Financial Projections prepared by the Management

218

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Audited fi nancial statements of the Target Group for the fi scal years ended 2007, 2008, 2009 and 2010
A copy of the Co-operation Construction and Operating Agreement dated 20 December 2005
A copy of legal due diligence report issued on 26 January 2011
Other industry reports sourced independently
Business tax policy in China applicable to the industry of Bayhood No. 9
Breakdown of historical revenue, cost of revenue and operating expenses
Breakdown of member list, membership fees and associated amortized income

We assumed that the data we obtained in the course of the valuation, along with the opinions and representations provided to us by the Company are true and accurate and accepted them without independent verifi cation except as expressly described herein. We have no reason to suspect that any material facts have been omitted, nor are we aware of any facts or circumstances, which would render the information, opinion and representations made to us to be untrue, inaccurate or misleading. In arriving at our opinion of value, we have considered the following principal factors:

the stage of development of the Subject Company;
the historical costs, current fi nancial condition of the Subject Company;
the Financial Projections provided by the Management;
the economic outlook for China and specifi c competitive environments affecting the industry of Bayhood No. 9;
the legal and regulatory issues of Bayhood No. 9 industry in general and other specifi c legal opinions relevant to the Subject Company;
the risks of the Subject Company; and
the experience of Subject Company’s management team.

Due to the changing environments in which the Subject Company is operating, a number of assumptions have to be made in arriving at our value conclusion. The key assumptions adopted in this valuation:

no major changes are expected in political, legal and economic conditions in China;
regulatory environment and market conditions for Bayhood No. 9 industry will be developing according to prevailing market expectations;

219

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

there will be no major changes in the current taxation law in China;
the Subject Company will not be constrained by the availability of fi nance;
exchange rates and interest rates will not differ materially from those presently prevailing; and
Bayhood No. 9 will retain competent management, key personnel and technical staff to support their ongoing operations.

Valuation Methodology Overview

In the appraisal of the equity, or the net assets, of a business, regardless of their diversity, location, or technological complexity, there are three basic approaches to value. The descriptive titles typically attached to these approaches are cost, income, and market. In normal circumstances, the appraiser is obliged to consider all three approaches, as any, or perhaps all, may provide reliable measures of value.

Cost approach established value based on the cost of reproducing or replacing the property less depreciation from physical deterioration and functional and economic obsolescence, if present and measurable. This approach might be considered the most consistently reliable indication of value for assets without a known used market or separately identifi able cash fl ows attributable to assets appraised.

Income approach is the conversion of expected periodic benefi ts of ownership into an indication of value. It is based on the principle that an informed buyer would pay no more for the property than an amount equal to the present worth of anticipated future benefi ts (income) from the same or equivalent property with similar risk.

Market approach considers prices recently paid for similar assets, with adjustments made to the indicated market prices to refl ect condition and utility of the appraised assets relative to the market comparable. Assets for which there is an established used market may be appraised by this approach.

To develop our opinion of value, the three generally accepted approaches to value are considered: cost, market and income. While useful for certain purposes, the cost approach is generally not considered applicable to the valuation of a going concern, as it does not capture future earning potential of the business. Thus it is not utilized in the valuation.

In membership-based club house industry, since the business values of entities are mainly driven by a few factors, such as new members to be developed, membership fees and maximum members of the club house, etc, the most commonly used method for investment decision making within the industry is net present value (NPV) analysis/discounted cash fl ow (DCF) analysis. Considered that the above factors are highly subject to the stage of the development, usage utilization, location, revenue recognition and the differentiation of services, club houses may not be directly comparable across the industry and application of market approach is not practical. Therefore, in forming our opinion, we rely upon the income approach to prepare a business enterprise value analysis of the Subject Company.

220

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

We consider that the departure from the USPAP, in respect of using various approaches to arrive at a valuation conclusion and the reliance on income approach only, are permitted based on the reasons above and will not render the indicative value so derived not credible for intended use of this proposal. From the Management’s point of view, the value derived from the income approach is considered reasonably suffi cient for the purpose of disclosure. The Management is also fully aware of our scope of work.

Income Approach

Discounted Cash Flow method of the income approach was used to value the Subject Company. This method explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefi ts such as periodic income, cost savings, or sale proceeds. Indication of value is developed by discounting future net cash fl ow to the present value at a rate that refl ects both the current return requirements of the market and the risks inherent in the specifi c investment. Discounted Cash Flow analysis is based on the timing on the occurrence of future cash fl ows and does not involve the application of accounting policies which governor income and expenses recognized on accrual basis and matching principle.

Revenue

Revenue is mainly derived from sales of membership, golf course revenue and theme restaurant, representing more than 80% of total revenue until 2022. Based on the following key assumptions, revenue on accural basis (under HKFRS) was projected to increase gradually from RMB 154 million in 2011 to RMB 219 million in 2015, at compound annual growth rate (“CAGR”) of 9.3%. The increase would be mainly due to the continuous growth in membership and is relatively higher than 7.3% of CAGR of tourist expenditure in the PRC from 2009 to 2014 given its early stage of the Subject Company. The forecast of tourist expenditure in the PRC was extracted from the published by Business Monitor International Ltd. in Q1 2011. The expected CAGR of 9.3% on revenue of the Subject Company from 2011 to 2015 is line with the historical growth which was 20% from HKD114 million (approximately RMB 104 million) in 2008 to HKD137 million (approximately RMB 120 million) in 2009 and 17% growth to HKD160 million (approximately RMB 138 million) in 2010 as compared with 2009. In the Discounted Cash Flow Analysis, we consider the time value of income when received instead of the revenue on accrual basis.

221

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

i) Membership fees

Membership fees include the entrance fees which are up-front registration fee and annual fees. The entrance fees received are considered as cash-infl ows in the discounted cash fl ow analysis and would be deferred and recognized as revenue based upon historical usage pattern of existing members for the calculation of income tax. It was assumed the number of new members would grow 10% annually in conjunction with the China GDP growth increasingly driven by domestic consumption as discussed in the Economic Outlook and all the 1,200 membership would be sold out in 2020 which take the time period proportionally as building up approximately 280 new members in the past 4 years. The Management planned to increase the entrance fees from RMB1.06 million in 2010 to RMB 1.28 million in 2018. Annual fees would be charged at RMB 11,200- 12,500 during the forecasting period and the annual adjustment on annual fees is much lower than the expected infl ation rate in China.

Members

Members
	2007A	2008A	2009A	2010A	2011F	2012F	2013F	2014F
Members	251	303	354	394	455	513	577	647
New Members	133	52	51	40	61	58	64	70
Growth					15%	9%	10%	9%
	2015F	2016F	2017F	2018F	2019F	2020F	2021F	2022F
Members	724	809	903	1006	1119	1200	1200	1200
New Members	77	85	94	103	113	81	0	0
Growth	10%	10%	11%	10%	10%	–28%
Membership Fees
RMB’000	2007A	2008A	2009A	2010A	2011F	2012F	2013F	2014F
Entrance	626	993	1,052	1,064	1,080	1,180	1,180	1,180
Annual	13.8	12.7	10.7	10.7	11.2	11.2	11.7	11.7
RMB’000	2015F	2016F	2017F	2018F	2019F	2020F	2021F	2022F
Entrance	1,280	1,280	1,280	1,280	1,382	1,382	1,382	1,382
Annual	11.7	12.1	12.1	12.1	12.5	12.5	12.5	12.5

A: actual

F: forecast

ii) Golf course revenue

Golf course revenue comprised of green fee, caddy fee, buggy fee and driving range fee. Management expected that the revenue of golf course would grow at approximately 10% annually until 2015. The growth would parallel to that of total number of members afterwards. The golf course revenue per member would gradually decrease from 2011 to 2015 and then keep constant thereafter.

222

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

iii) Theme restaurant

Theme restaurant in Bayhood No. 9 provides premier dining service to high-end customers in Beijing. The Management expected that the revenue from theme restaurant would increase annually by 25% in 2011, 15% in 2012 and 5% from 2013 to 2015. The growth rate would be parallel to the total number of members afterwards. Revenue from theme restaurants is expected to grow with the increasing accumulated number of members, expected GDP growth and infl ation rate in China in the near future. In fact, the revenue growth rate from theme restaurant in 2011 and 2012 is lower than the historical growth rate of 48% in 2010.

Gross profi t

Cost of revenue comprised of business tax, food and beverage, rental expenses, depreciation, material consumption and salaries. With the increase of revenue, the gross profi t margin was assumed to rise from 48.0% in 2010 to 62.6% in 2022 (under HKFRS). Except for the food and beverage costs which is expected to grow in line with growth in revenue from theme restaurants, other key components of cost of sales are relatively fi xed in nature (e.g. depreciation), grow in a much lower rate than growth in revenue (e.g. operating lease rental which grows 5% in every 5 years), or grow in line with expected infl ation rate in China. Accordingly, the overall growth rate in revenue is higher than the overall growth rate in cost of sales, leading to increasing trend of gross profi t margin. The projected margins are higher than the median of comparable companies, 45%, but still within their range that average of 21% to 70% were observed over the past 5 years.

For food and beverage, the Management expected that the theme restaurant could transfer the infl ation of food materials to their high-end customers who were generally less sensitive to the price. Thus, same cost of sales of approximately 40% in 2010 was applied from 2011 to 2022. For rental expenses, the amount was estimated according to the Agreement entered with Beihu in December 2005. According to the terms, the annual rental expense is RMB 15.75 million in 2011 and then increase by 5% over every 5 years. The Management assumed salaries would grow at 6% annually, which is in line with their expected infl ation rate in general. The depreciation charges were estimated according to the historical track record and depreciation policy of the Subject Company.

Operating expenses

Operating expenses include general administrative items, advertising expenses, depreciation, amortization as well as overhead. As most items were assumed to grow at 6% per annum which is line with the expected infl ation in China, the overall operating expenses as percentage of revenue was projected to range from 9% to 12% during the period from 2011 to 2022, causing the earnings before interest and tax (EBIT) margin increase from 36.0% in 2010 to 51.1% in 2022.

Business and Income tax

Industry standard business tax and income tax policy were applied to Bayhood No. 9 in China in the discounted cash fl ow analysis.

223

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

Capital expenditure

As at 31 December 2010, building, structures and golf courses accounted for over 83.3% of total original costs of fi xed assets, with depreciable lives ranging from 20 to 30 years. Management assumed that insignifi cant capital expenditure would be required for building, structures and golf courses in the projection period from year 2011 to 2022. In the Financial Projections, Management assumed an annual capital expenditure of RMB 5.1 million from 2011 to 2022 for general maintenance, which represent 9% of original cost of fi xed assets other than building, structures and golf courses as at 31 December 2010. Based on the current business plan, the Management assumed the estimated amount would be suffi cient to support the future operation. After 2022, it was assumed the capital expenditure would approximate to annual depreciation charges.

Cash fl ows beyond 2022

The cash fl ows attributable to the Subject Company from 2023 to 2051, the expiration of the Agreement, were capitalized as the constant annuity over the remaining 29 years (2023-2051) and discounted to present at 14.5% discount rate.

Working capital

Due to the nature of club house business, no substantial amounts of account receivable and inventory are required. Net working liabilities were observed in historical track record of the Subject Company. Thus, no working capital was projected by the Management.

Discount rate

The rate at which the annual net cash fl ows discounted to present value is based on the estimated weighted average cost of capital (“WACC”), which incorporates the cost of equity and debt, weighted by the proportionate amount of each source of capital in the capital structure.

WACC Computation:

WACC = Ke * (Eq/IC) + Kd * (D/IC)

Where:

Ke = Cost of equity Eq = Equity IC = Invested capital (equity plus all interest bearing debt) Kd = After-tax cost of debt D = Debt

Given that the Subject Company is all equity fi nancing, we only consider the cost of equity in determining the discount rate of the Subject Company. The cost of equity for the valuation was developed through the application of the Capital Asset Pricing Model (“CAPM”), which is the most commonly adopted method of estimating the cost of equity. CAPM states that the cost of equity is the risk-free rate plus a linear function of a measure of systematic risk (“Beta”) times equity market premium in general. In estimating the Beta, we have observed the share price movement relative to overall equity market index of several listed comparable companies in the golf course industry set out below. Companies in the golf course industry are regarded generally to be subjected to the same systematic risks as Bayhood No. 9. Small-company premium of 4.07% was added to cost of equity, in view of the size of operation. Such

224

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

premium was extracted from the study of Ibbotson Risk Premia Over Time Report (“Ibbotson Report”), published by Morningstar Inc. Ibbotson Report contains data that enable reader to analyze equity and size premium in US capital market over historical time period that can be dated back to 1929. Ibbotson Report gives fi nancial and valuation professionals the tools to determine mid-, low-, and micro-cap size premia using customizable start and end dates. Ibbotson Report categorizes stocks listed on the New York Stock Exchange into mid-, low-, and micro-cap deciles according to their market value of common equity and quantifi es the small-company size premium for each decile. Based on the equity value of the Subject Company, it belongs to the micro-cap decile and by applying the size premia data quoted in the 2011 Ibbotson Report, 4.07% was selected as the small-company size premium. In view of the early stage of development of the Subject Company and the non-diversifi able risk borne by investment in a single golf course, a company-specifi c risk premium of 2% was also added subjectively to cost of equity.

Bloomberg Comparable Companies Accordia Golf Co Ltd PGM Holdings K K SRI Sports Ltd City Sports & Recreation PCL	Code 2131 JP 2466 JP 7825 JP CSR TB

The computation of the estimated cost of equity is shown as follows:

Ke	=	Rf+ ERP x Beta + SCP +	CSR
Where
Ke	=	Required return on equity
Rf	=	Risk-free rate of return	=	4.16%	Rfis based on the yield on China
					government long-term bond with maturity in
					2060 as of the Valuation Date.
β	=	Beta	=	0.57	Beta is a measure of the relationship
					between industry risk and the aggregate
					market. It is based on the betas of the
					selected comparable companies.
ERP	=	Equity risk premium	=	7.29%	The ERP is the expected return of the
					market (Rm) in excess of the risk-free rate
					(Rf), or, is based on US equity risk premium
					(extracted from 2011 Ibbotson Report) plus
					the market systematic risk in China.
SCP	=	Small-company premium	=	4.07%	The SCP is necessary due to the small size
					of not captured the CAPM. The SCP was
					selected based on companies in the category
					of micro capitalization (extracted from 2011
					Ibbotson Report)
CSR	=	Company-specif c	=	2%	It is the non-diversif able risk borne by
		risk premium			investment in single golf course and the
					early stage of development

225

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

As such, our analysis concludes that a discount rate of 14.5% is considered appropriate for valuing the Subject Company.

Lack of Marketability Discount (“LOMD”)

The concept of marketability deals with the liquidity of an ownership interest, that is, how quickly and easily it can be converted to cash if the owner chooses to sell. The lack of marketability discount refl ects the fact that there is no ready market for shares in a closely held corporation. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in public companies. Therefore, a share or stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company.

Acquisitions and transaction prices between public and private companies provide indication of LOMD. By referencing to relevant empirical studies, 15% was applied in this Valuation.

Value indicated by the income approach

The above key inputs and assumptions result in the value indication for the Subject Company of RMB 528 million (rounded to nearest million).

Sensitivity Analysis

As part of our valuation, a sensitivity analysis of value indication arrived at using the income approach was performed. We have tested sensitivity of the Subject Company value to changes of the discount rate (WACC) and the result is presented below:

	Indicated Value
WACC	RMB’000
12.5%	586,000
13.5%	556,000
14.5%	528,000
15.5%	503,000
16.5%	481,000

Conclusion of Value

Based upon the investigation and analysis outlined above, it is our opinion that the fair market value of the Subject Company as of the Valuation Date is reasonably represented by the amount of RENMINBI FIVE HUNDRED AND TWENTY EIGHT MILLION (RMB 528,000,000) ONLY.

This conclusion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantifi ed or ascertained.

226

BUSINESS VALUATION OF BAYHOOD NO. 9

APPENDIX IV

We do not provide assurance on the achievability of any fi nancial results estimated by the Company because events and circumstances frequently do not occur as expected; differences between actual and expected results may be material; and achievement of the forecasted results is dependent on actions, plans, and assumptions of Management.

We have not investigated the title to or any liabilities against the property appraised.

We hereby certify that we have neither present nor prospective interests in the Company or the value reported.

Respectfully submitted, For and on behalf of

AMERICAN APPRAISAL CHINA LIMITED

Ricky Lee

Senior Vice President and Director

Note: Mr. Lee has been involved in business enterprise and intangible asset valuation services for the purposes of joint venture, merger & acquisition and public listing for over fi fteen years and is a fellow member of the Association of Chartered Certifi ed Accountants, accredited senior appraiser of the American Society of Appraisers and charter holder of the Chartered Financial Analyst.

227

LETTERS IN RELATION TO DISCOUNTED FUTURE ESTIMATED CASH FLOWS

APPENDIX V

The following is the text of a report received from PricewaterhouseCoopers, Certifi ed Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

REPORT FROM REPORTING ACCOUNTANT ON DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE BUSINESS VALUATION OF BEIJING BAYHOOD NO. 9 BUSINESS HOTEL LIMITED

TO THE BOARD OF DIRECTORS OF MEDIA CHINA CORPORATION LIMITED

We have been engaged to report on the calculations of the discounted future estimated cash fl ows on which the business valuation (the “Valuation”) dated 28 February 2011 prepared by American Appraisal China Limited in respect of the appraisal of the fair value of the 100% equity interest in Beijing Bayhood No. 9 Business Hotel Limited (the “Subject Company”) is based. The Valuation is set out in Appendix IV of the Circular of Media China Corporation Limited (the “Company”) dated 17 June 2011 (the “Circular”) in connection with the acquisition by the Company of a 100% equity interest in the Subject Company by the Company. The Valuation based on the discounted future estimated cash fl ows is regarded as a profi t forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

Directors’ Responsibility for the Discounted Future Estimated Cash Flows

The directors of the Company are responsible for the preparation of the discounted future estimated cash fl ows in accordance with the bases and assumptions determined by the directors and as set on pages 214 to 227 of the Circular. This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future estimated cash fl ows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Reporting Accountant’s Responsibility

It is our responsibility to report, as required by paragraph 29(2) of Appendix 1B of the Listing Rules, on the calculations of the discounted future estimated cash fl ows on which the Valuation is based. We are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future estimated cash fl ows are based and our work does not constitute any valuation of the Subject Company.

228

LETTERS IN RELATION TO DISCOUNTED FUTURE ESTIMATED CASH FLOWS

APPENDIX V

We conducted our work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future estimated cash fl ows, so far as the calculations are concerned, has been properly compiled in accordance with the bases and assumptions as set out on pages 214 to 227 of the Circular. We reviewed the arithmetical calculations and the compilation of the discounted future estimated cash fl ows in accordance with the bases and assumptions.

The discounted cash fl ows do not involve the adoption of accounting policies. The discounted cash fl ows depend on future events and on a number of assumptions which cannot be confi rmed and verifi ed in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under paragraph 29(2) of Appendix 1B of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of our work, or arising out of or in connection with our work.

Opinion

Based on the foregoing, in our opinion, the discounted future estimated cash fl ows, so far as the calculations are concerned, has been properly compiled in all material respects in accordance with the bases and assumptions made by directors of the Company as set out on pages 214 to 227 of the Circular.

PricewaterhouseCoopers Certifi ed Public Accountants Hong Kong, 17 June 2011

229

LETTERS IN RELATION TO DISCOUNTED FUTURE ESTIMATED CASH FLOWS

APPENDIX V

==> picture [91 x 55] intentionally omitted <==

Unit 1305, 13 Floor,

Carpo Commercial Building, 18-20 Lyndhurst Terrace, Central, Hong Kong

The Board of Directors MEDIA CHINA CORPORATION LIMITED Suite 3503, 35/F Tower Two, Lippo Centre 89 Queensway Hong Kong

Dear Sirs,

We refer to the valuation dated 28 February 2011 prepared by American Appraisal China Limited (the “Valuer”) in relation to the appraisal of the market value of the 100% equity interest in Bayhood No. 9 (the “Valuation”). As stated in the valuation report from the Valuer, the Valuation has been arrived at and based on the income approach, which takes into account the cash fl ow projection of the business relating to the Bayhood No. 9 for the period from 2011 to 2022 (the “Projection”). As such, the Projection is regarded as a profi t forecast under Rule 14.61 of the Listing Rules. Terms used in this letter have the same meanings as defi ned elsewhere in the circular dated 17 June 2011 (the “Circular”), of which this letter forms part, unless the context requires otherwise.

We have reviewed the Projection upon which the Valuation has been made, and have discussed with you and the Valuer the information and documents provided by you, which formed part of the bases and assumptions upon which the Projection have been made. We have also considered the letter addressed to the Board from PricewaterhouseCoopers, as set out in Appendix V to the Circular regarding whether the calculations for the Projection were compiled properly.

On the basis of the foregoing, we are satisfi ed that the Projection for which you as the directors of the Company are solely responsible, have been made after due and careful enquiry.

Yours faithfully, For and on behalf of

Donvex Capital Limited Doris Sy Director

230

GENERAL INFORMATION

APPENDIX VI

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, confi rm 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 misleading.

2. SHARE CAPITAL

Share capital

The authorised and issued share capital of the Company as (i) at the Latest Practicable Date, (ii) immediately following completion of the Rights Issue, and (iii) immediately after Completion are as follows:

As at the Latest Practicable Date
Authorised
6,000,000,000 Consolidated Shares
240,760,000 Preference Shares
Issued as fully paid
2,879,452,969 Consolidated Shares
Immediately following completion of the Rights Issue
Authorised
6,000,000,000 Consolidated Shares
240,760,000 Preference Shares
Issued and to be issued as fully paid
4,319,179,453 Consolidated Shares
Immediately after Completion
200,000,000 Consolidated Shares to be issued on Completion (being the
First Consideration Shares converted into Consolidated
Shares)
100,000,000 Consolidated Shares, if fully issued, upon fulf llment of the
Vendor’s Indemnity (being the Second Consideration Shares
converted into Consolidated Shares)
4,619,179,453
Consolidated Shares in issue immediately following the issue of
the First Consideration Shares (converted into Consolidated
Shares) and Second Consideration Shares (it fully issued)
(converted into Consolidated Shares)

HK$
600,000,000
2,407,600
287,945,296.9
600,000,000
2,407,600
431,917,945.3
20,000,000
10,000,000
461,917,945.3

231

GENERAL INFORMATION

APPENDIX VI

The First Consideration Shares and the Second Consideration Shares shall rank pari passu in all aspects, including all rights as to dividend, voting and interest in capital, among themselves and with all other Shares then in issue on the dates of issue of the First Consideration Shares and Second Consideration Shares.

The Shares are primarily listed on the Main Board of the Stock Exchange. No part of the Share or loan capital of the Company is listed or dealt in, nor is listing or permission to deal in the Share or loan capital of the Company being, or proposed to be, sought on any other stock exchange.

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the First Consideration Shares and Second Consideration Shares.

There are no arrangements under which future dividends will be waived or agreed to be waived.

232

GENERAL INFORMATION

APPENDIX VI

3. DIRECTORS’ DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which (i) were required to be notifi ed to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notifi ed to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules (the “Model Code”), were as follows:

		Number of
		Consolidated
		Shares	Approximate
		interested or	percentage of
		deemed to be	the issued share
		interested (long	capital of the
Name of Director	Nature of Interest	position)	Company
Mr. YUEN Hoi Po	Interest of a controlled	798,150,000	18.48%#
	corporation_(Note 1)_
Mr. Edward TIAN Suning	Interest of a controlled	245,155,489	8.51%
	corporation_(Note 2)_
	Benef cial Interest_(Note 3)_	6,187,500	0.21%
Mr. ZHANG Changsheng	Benef cial Interest_(Note 3)_	3,093,750	0.11%
Mr. WANG Hong	Benef cial Interest_(Note 3)_	9,281,250	0.32%
	Family Interest	230,000	0.01%
Mr. WONG Yau Kar, David	Benef cial Interest_(Note 3)_	3,093,750	0.11%
Mr. YUEN Kin	Benef cial Interest_(Note 3)_	3,093,750	0.11%

# This fi gure has taken into account the number of Shares to be issued under the Rights Issue.

Notes:

Mr. YUEN Hoi Po is deemed to be interested in 798,150,000 Consolidated Shares held by his wholly-owned corporations namely, Ming Bang Limited and Rich Public Limited.
Mr. Edward TIAN Suning is deemed to be interested in 245,155,489 Consolidated Shares held by CBC China Media Limited.
These represent the Shares to be allotted and issued upon exercise of the share options granted to Mr. Edward TIAN Suning, Mr. ZHANG Changsheng, Mr. WANG Hong, Mr. WONG Yau Kar, David and Mr. YUEN Kin under the share option scheme of the Company, respectively.

233

GENERAL INFORMATION

APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO), which (i) were required to be notifi ed to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions, if any, in which they were taken or deemed to have under such provisions of the SFO); (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to in such provisions of the SFO; or (iii) were required, pursuant to the Model Code, to be notifi ed to the Company and the Stock Exchange.

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors or chief executives of the Company, the following persons (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who, as at the Latest Practicable Date, was directly and indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or had any options in respect of such capital, were as follows:

		Number of
		Consolidated
		Shares	Approximate
		interested or	percentage of
		deemed to be	the issued share
		interested (long	capital of the
Name of Shareholder	Nature of Interest	position)	Company
Sun Hung Kai International	Benef cial owner_(Note a)_	1,266,651,484	29.33%#
Limited
Sun Hung Kai Securities	Interest of a controlled	1,266,651,484	29.33%#
Limited	corporation_(Note a)_
Sun Hung Kai & Co.	Interest of a controlled	1,266,651,484	29.33%#
Limited	corporation_(Note a)_
Allied Properties (H.K.)	Interest of a controlled	1,266,651,484	29.33%#
Limited	corporation_(Note a)_
Allied Group Limited	Interest of a controlled	1,266,651,484	29.33%#
	corporation_(Note a)_
LEE Seng Hui	Interest of a controlled	1,266,651,484	29.33%#
	corporation_(Note a)_

234

GENERAL INFORMATION

APPENDIX VI

		Number of
		Consolidated
		Shares	Approximate
		interested or	percentage of
		deemed to be	the issued share
		interested (long	capital of the
Name of Shareholder	Nature of Interest	position)	Company
LEE Su Hwei	Interest of a controlled	1,266,651,484	29.33%#
	corporation_(Note a)_
LEE Seng Huang	Interest of a controlled	1,266,651,484	29.33%#
	corporation_(Note a)_
Rich Public Limited	Benef cial owner_(Note b)_	798,150,000	18.48%#
Ming Bang Limited	Interest of a controlled	798,150,000	18.48%#
	corporation_(Note c)_
Mr. HE Peng	Benef cial owner_(Note d)_	300,000,000	10.42%
CBC China Media Limited	Benef cial owner_(Note e)_	245,155,489	8.51%

# These fi gures have taken into account the number of Shares to be issued under the Rights Issue.

Notes:

a. The 1,266,651,484 Consolidated Shares are the Rights Shares which Sun Hung Kai International Limited has underwritten under the Rights Issue. Sun Hung Kai International Limited is a wholly-owned subsidiary of Sun Hung Kai Securities Limited, a wholly-owned subsidiary of Sun Hung Kai & Co. Limited, which in turn is a non wholly-owned subsidiary of Allied Properties (H.K.) Limited. Allied Properties (H.K.) Limited is a non wholly-owned subsidiary of Allied Group Limited in which Mr. LEE Seng Hui, Ms. LEE Su Hwei and Mr. LEE Seng Huang are the trustees of the Lee and Lee Trust, having 53.32% interest in Allied Group Limited as at 8 June 2011. Accordingly, they are deemed to have the same long position as Sun Hung Kai International Limited.
b. Rich Public Limited is an investment holding company incorporated in the British Virgin Islands and its entire issued share capital is benefi cially owned by Ming Bang Limited.
c. Ming Bang Limited is an investment holding company incorporated in the British Virgin Islands and its entire issued share capital is benefi cially owned as to Mr. YUEN Hoi Po, the Chairman and an Executive Director of the Company. Mr. YUEN is also a director of Ming Bang Limited.
d. Mr. HE Peng, as vendor, entered into a conditional sale and purchase agreement dated 26 January 2011 with Unique Talent as purchaser and the Company as the purchaser’s guarantor for the sale and purchase of the Target Share and the assignment of the Shareholder’s Loan. Pursuant to the Sale and Purchase Agreement, 200,000,000 Consolidated Shares will be issued by the Company to Mr. HE Peng on Completion, and 100,000,000 Consolidated Shares will be issued by the Company to Mr. HE Peng upon fulfi llment of the Vendor’s Indemnity.
e. CBC China Media Limited is an investment holding company incorporated in the British Virgin Islands. Mr. Edward TIAN Suning is the Non-executive Director of the Company and the director of CBC China Media Limited.

235

GENERAL INFORMATION

APPENDIX VI

As at the Latest Practicable Date, 侯弘先生 (Mr. HOU Hong) is interested in 30% of the issued shares of 北京那小嘴文化有限公司 (Beijing Na Xiao Zui Wen Hua You Xian Gong Si), a subsidiary of the Company.

Save as disclosed above, so far as is known to the Directors or chief executives of the Company, the Company had not been notifi ed of any other interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO, or any persons (other than the Directors and chief executives of the Company) who, as at the Latest Practicable Date, was directly and indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group, or had any options in respect of such capital.

5. SERVICE CONTRACT

As the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which does not expire or is not terminable by such member of the Group within one year without payment of compensation (other than statutory compensation).

6. LITIGATION

Save as disclosed below, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened by or against the Group.

北京華億浩歌傳媒文化有限公司 (Beijing Hua Yi Hao Ge Media Culture Limited) (“Hua Yi Hao Ge”), an indirect wholly owned subsidiary of the Company, is a party to a possible litigation in PRC whereby 海南海視旅遊衛視傳媒有限責任公司 (Hai Nan Haishi Tourist Satellite TV Media Co., Ltd.) (“Hainan Haishi”) has obtained an order from 海南省洋浦經濟開發區人民法院 (the People’s Court of Yang Pu Economic Development Zone of Hainan Province*) to freeze its assets in connection with the allegation of an amount of RMB79.9 million alleged to be due from Hua Yi Hao Ge to Hainan Haishi. The alleged amount arose from the Group’s exclusive advertising agency business with Hainan Haishi before 31 December 2008, starting with the exclusive advertising agency agreement signed between the Group and Hainan Haishi dated 12 May 2006. The amount payable to Hainan Haishi has already been accrued in the Group’s consolidated fi nancial statements since the year ended 31 December 2008, and the Directors believe that the Group has suffi cient fi nancial resources to discharge the debt.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief and based on information provided by the Vendor, the Target Group was not engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Target Group.

236

GENERAL INFORMATION

APPENDIX VI

7. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective associates had any interest in any business which competes or may compete, either directly or indirectly, with the business of the Group or have or may have any other confl icts of interest with the Group pursuant to the Listing Rules.

8. DIRECTORS’ & EXPERTS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, none of the Directors or experts (as referred to below) were materially interested in any subsisting contract or arrangement which is signifi cant in relation to the business of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors or experts (as referred to below) had any direct or indirect interest in any assets which have been, since 31 December 2010, being the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of, or leased to any member of the Enlarged Group.

9. EXPERT AND CONSENT

The following are the qualifi cations of the experts who have given their opinions and advice which are contained or referred to in this circular:

Name Qualifi cation Donvex Capital Limited (“Donvex”) A corporation licensed to carry out type 6 (advising on corporate fi nance) regulated activities under the SFO PricewaterhouseCoopers (“PwC”) Certifi ed Public Accountants American Appraisal China Limited Independent professional valuer (“American Appraisal”)

As at the Latest Practicable Date, each of Donvex, PwC and American Appraisal did not have any shareholding in any member of the Group and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of Donvex, PwC and American Appraisal have given and have not withdrawn their written consent to the issue of this circular, with the inclusion of and references to their names, opinions and/or reports in the form and context in which they appear.

As at the Latest Practicable Date, each of Donvex, PwC and American Appraisal did not have any direct or indirect interest in any assets which have been acquired, or disposed of by, or leased to any member of the Group, or are proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2010 (the date to which the latest published audited consolidated fi nancial statements of the Group were made up).

237

GENERAL INFORMATION

APPENDIX VI

10. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by the members of the Enlarged Group within two years immediately preceding the date of this circular, which are or may be material:

(a) the Sale and Purchase Agreement;
(b) the Supplemental Agreement;
(c) the sale and purchase agreement dated 19 May 2011 entered into between the Company and DVN (Holdings) Limited, whereby the Company agreed to sell the entire issued share capital in and assign its loans due from Sinofocus Media (Holdings) Limited to DVN (Holdings) Limited at an aggregate consideration of HK$82,000,000;
(d) the underwriting agreement dated 5 May 2011 entered into between the Company and Sun Hung Kai International Limited as the underwriter in relation to the proposed issue of 1,439,726,484 new Consolidated Shares by way of a rights issue to be offered to the qualifying shareholders for subscription on the basis of one rights share for every two Consolidated Shares held on 23 May 2011, with the underwriting commission being 3% of the subscription price multiplied by the total number of underwritten shares on the terms set out in the prospectus issued by the Company dated 24 May 2011;
(e) the deed of termination entered into between the Company and KH Investment Holdings Limited on 15 April 2011, whereby both parties agreed to terminate the sale and purchase agreement entered into between the Company and KH Investment Holdings Limited on 16 November 2010 with effect from 15 April 2011;
(f) the sale and purchase agreement entered into between the Company and KH Investment Holdings Limited on 16 November 2010, whereby the Company agreed to sell the Company’s entire issued share capital in and its loans to Sinofocus Media (Holdings) Limited at an aggregate consideration of HK$82,000,000;
(g) the sale and purchase agreement dated 10 September 2010 made between Effort Wonder Limited, a wholly owned subsidiary of the Company, and the Company with Winshine Group Limited and Tian An China Investments Company Limited 天安中國投資有限公司, whereby Effort Wonder Limited will purchase and Winshine Group Limited will sell the entire issued share capital of Green Harmony Investments Limited and the entire issued share capital of Green Villa Investments Limited and the loan owed by Green Villa Investments Limited to Winshine Group Limited less certain amount for the consideration of HK$280,000,000;
(h) the supplemental agreement to the exclusive advertising agency agreement dated 14 December 2009 entered into between 北京華億千思廣告有限公司 (“Qiansi”) and 海南海視旅遊衛視傳媒有限責任公司 (“Hainan Haishi”), whereby the annual fi xed considerations payable by Qiansi to Hainan Haishi for 2008 and 2009 were reduced from RMB198 million to RMB166 million and RMB180 million respectively, and the expiration date of the said exclusive advertising agency agreement was changed to 31 December 2009;

238

GENERAL INFORMATION

APPENDIX VI

(i) supplemental agreement to the underwriting agreement dated 19 November 2009 entered into between the Company, Oriental Patron Asia Limited and CBC China Media Limited, which supplemented and amended the underwriting agreement dated 3 November 2009, whereby the latest time for fulfi lment of certain conditions precedent in the said underwriting agreement were revised;
(j) the supplemental agreement to the placing agreement dated 19 November 2009 entered into between the Company and Oriental Patron Asia Limited which supplemented and amended the placing agreement dated 3 November 2009, whereby if less than six placees had been procured for the subscription of all or a substantial part of the placing shares in accordance with the said placing agreement, Oriental Patron Asia Limited had to provide the necessary information on the placees to the Company as soon as possible;
(k) the underwriting agreement dated 3 November 2009 entered into by the Company, Oriental Patron Asia Limited and CBC China Media Limited in relation to the issue of not less than approximately 7,011,616,992 offer shares (before Share Consolidation) by the Company on the basis of three offer shares for every eight existing Shares held on 24 November 2009 to the qualifying shareholders at the subscription price of HK$0.048 (before Share Consolidation) per offer share with the underwriting commission being 2.25% of the subscription price multiplied by the number of offer shares actually underwritten;
(l) the placing agreement dated 3 November 2009 entered into between the Company and Oriental Patron Asia Limited in relation to the placing of up to an aggregate of 2,020,000,000 new Shares (before Share Consolidation) on a best effort basis at HK$0.048 (before Share Consolidation) per placing share by Oriental Patron Asia Limited to not fewer than six placees with the placing commission being 2.25% of the placing price multiplied by the number of the placing shares actually placed;
(m) the termination and settlement agreement dated 25 June 2009 entered into among 廣東中觀傳媒有限公司 Guangdong Sinofocus Media Limited* (“Sinofocus”), 羅勝 (“Luo Sheng”), 陳學誠 (“Chen Xue Cheng”), 庄桌彪 (“Zhuang Zhuo Biao”), and 廣州湛視廣告有限公司 (“Guangzhou Zhanshi”) in relation to the settlement of the inter-company debt between Guangzhou Zhanshi and Sinofocus amounting to RMB28,000,000 and the termination of an equity transfer agreement entered into among Sinofocus, 羅勝 (“Luo Sheng”), 陳學誠 (“Chen Xue Cheng”) and Huang Ming Guo on 13 August 2008 at a consideration of RMB500,000;
(n) the loan agreement dated 30 September 2010 made between Beijing Rural Commercial Co., Ltd., Chaoyang Sub-branch 北京農村商業銀行股份有限公司朝陽支行 and Bayhood No. 9 for advance of a loan of RMB3.8 million to Bayhood No. 9 by Beijing Rural Commercial Co., Ltd 北京農村商業銀行股份有限公司;
(o) the Beijing redecoration, renovation and construction contract dated 28 May 2010 made between 北京高雅居裝飾有限公司 (“Beijing Gao Ya Ju”) and Bayhood No. 9, pursuant to which Bayhood No. 9 appointed Beijing Gao Ya Ju to undertake the decoration works in the clubhouse for Bayhood No. 9’s VIP members;

239

GENERAL INFORMATION

APPENDIX VI

(p) the pledge agreement dated 17 September 2010 entered into between Happy Era and Mr. CHEN Guang Tian as pledgor in favour of Join Capital Limited as pledgee, whereby Happy Era and Mr. CHEN Guang Tian pledged 100% of the registered capital of Bayhood No. 9 to Join Capital Limited;
(q) the pledge agreement dated 17 September 2010 entered into between Nengrong Culture as pledgor in favour of Join Capital Limited as pledgee, whereby Nengrong Culture pledged the entire registered capital of Happy Era to Join Capital Limited;
(r) the pledge agreement dated 17 September 2010 entered into between the Hong Kong Company as pledgor in favour of Join Capital Limited as pledgee, whereby the Hong Kong Company pledged the entire registered capital of Nengrong Culture to Join Capital Limited;
(s) the debenture dated 17 September 2010 entered into between the Hong Kong Company and Join Capital Limited creating a fl oating charge over all the undertaking, asset, property of the Hong Kong Company to Join Capital Limited;
(t) the deed of assignment and subordination dated 9 September 2010 made between the Vendor, the Target Company, the Hong Kong Company and Join Capital Limited;
(u) the share charge dated 9 September 2010 made between the Target Company and Join Capital Limited creating a charge over the share capital of the Hong Kong Company to Join Capital Limited;
(v) the debenture dated 9 September 2010 incorporating a fl oating charge over all the undertaking, asset, property of the Target Company made by the Target Company to Join Capital Limited;
(w) the deed of assignment and subordination dated 9 September 2010 entered into by the Vendor, the Target Company and Join Capital Limited; and
(x) the share charge dated 9 September 2010 creating a charge over the entire issued share capital of the Target Company made between the Vendor and Join Capital Limited.

The pledge agreements and share charge agreements in (p) to (x) above were entered into pursuant to the loan agreement dated 9 September 2010 made between Join Capital Limited and the Vendor for securing the repayment of a loan to the aggregate extent of HK$255,000,000 to the Vendor by Join Capital Limited and interests thereon.

The Vendor will discharge the pledge agreements and share charge agreements on Completion and Unique Talent has the right to pay the cash part of the Consideration to Join Capital Limited directly to discharge such agreements.

240

GENERAL INFORMATION

APPENDIX VI

11. MISCELLANEOUS

(a) The registered offi ce of the Company is at Cricket Square, Hutchins Drive, P. O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and the head offi ce and principal place of business in Hong Kong is at Suite 3503, 35/F, Tower Two, Lippo Centre, 89 Queensway, Hong Kong.
(b) The company secretary of the Company is Mr. HAU Wai Man, Raymond, who is a fellow member of the Association of Chartered Certifi ed Accountants and a member of Hong Kong Institute of Certifi ed Public Accountants and has accumulated over 10 years of experience in international accounting fi rms and corporations in Hong Kong and PRC.
(c) The branch share registrar of the Company in Hong Kong is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company at Suite 3503, 35/F, Tower Two, Lippo Centre, 89 Queensway, Hong Kong during normal business hours on any weekday (except Saturdays, Sundays and public holidays), from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(c) the published annual reports of the Company for the two fi nancial years ended 31 December 2009 and 2010;
(d) the accountant’s report of the Target Group as set out in Appendix II to this circular;
(e) the report on unaudited pro forma fi nancial information of the Enlarged Group as set out in Appendix III to this circular;
(f) a business valuation report on Bayhood No. 9 prepared by American Appraisal as set out in Appendix IV to this circular;
(g) the report from the reporting accountant in relation to discounted future estimated cash fl ows as set out in Appendix V to this circular;
(h) the report from the fi nancial adviser in relation to discounted future estimated cash fl ows as set out in Appendix V to this circular;

241

GENERAL INFORMATION

APPENDIX VI

(i) the written consents from the experts referred to under the section headed “General Information - Expert and Consent” in this Appendix;
(j) a copy of each of the circulars issued by the Company pursuant to the requirements set out in Chapter 14 and/or 14A of the Listing Rules since 31 December 2010 (being the date to which the latest published audited consolidated fi nancial statements of the Company was made).

242

NOTICE OF EGM

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MEDIA CHINA CORPORATION LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 419)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Media China Corporation Limited (the “Company”) will be held at Empire Room 1, Empire Hotel Hong Kong, 33 Hennessy Road, Wanchai, Hong Kong on Friday, 8 July 2011 at 10:00 a.m. for the purposes of considering and, if thought fi t, passing the following resolutions with or without amendments as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT conditional upon passing of resolution 2 below:

the sale and purchase agreement dated 26 January 2011 (the “Sale and Purchase Agreement”) as amended by the supplemental agreement dated 16 May 2011 (the “Supplemental Agreement”), both entered into between Unique Talent Group Limited, a wholly owned subsidiary of the Company, as purchaser, Mr. HE Peng as vendor and the Company as the purchaser’s guarantor in relation to the acquisition of the entire issued share capital of Smart Title Limited and the loan owed by Smart Title Limited to Mr. HE Peng (copies of the Sale and Purchase Agreement and the Supplemental Agreement having been produced to the Meeting and marked “A” and “B”, respectively and initialed by the Chairman of the Meeting for the purpose of identifi cation) and the transactions contemplated thereby be and are hereby approved, confi rmed and ratifi ed and THAT any director of the Company be and is hereby authorised to do such acts and things, to sign and execute all such further documents and to take such steps as they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Sale and Purchase Agreement and the Supplemental Agreement or any transactions contemplated under the Sale and Purchase Agreement and the Supplemental Agreement;”

“ THAT conditional upon passing of resolution 1 above:

subject to the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the First Consideration Shares (as defi ned in the circular of the Company dated 17 June 2011) and the Second Consideration Shares (as defi ned in the circular of the Company dated 17 June 2011), the First Consideration Shares and the Second Consideration Shares be issued and allotted by way of specifi c mandate in accordance with the terms of the Sale and Purchase Agreement as amended by the Supplemental Agreement and

243

NOTICE OF EGM

THAT any two directors of the Company or any director and the company secretary where the related document(s) shall be under seal be and is/are hereby authorised to sign, seal, execute, perfect and deliver all such documents and do all such deeds, acts, matters and other things as may be considered necessary or desirable for the purpose of the implementation of the above specifi c mandate.”

By Order of the Board Media China Corporation Limited YUEN Hoi Po Chairman

Hong Kong, 17 June 2011

Registered Offi ce:

Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Principal place of business in Hong Kong:

Suite 3503, 35/F Tower Two, Lippo Centre 89 Queensway Hong Kong

Notes:

(i) A member entitled to attend and vote at the above meeting is entitled to appoint one proxy or, if he/she is a holder of more than one share, more proxies to attend and vote instead of him/her. A proxy needs not be a member of the Company.
(ii) Where there are joint holders of any share of the Company, any one of such joint holders may vote at the meeting, either personally or by proxy, in respect of such share as if he/she was solely entitled thereto, but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands fi rst on the Register of Members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
(iii) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a certifi ed copy of such power of attorney or authority, must be lodged with the Company’s Share Registrar, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration not less than 48 hours before the time appointed for holding the meeting.
(iv) Completion and return of the form of proxy will not preclude a member from attending the meeting and voting in person at the meeting or any adjournment thereof if he/she so desires. If a member attends the meeting after having deposited the form of proxy, his/her form of proxy will be deemed to have been revoked.

244

AI assistant

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED — Proxy Solicitation & Information Statement 2011

49495_rns_2011-06-16_57bf87d8-a37e-48ae-b530-733ca69f9af3.pdf

MEDIA CHINA CORPORATION LIMITED

VERY SUBSTANTIAL ACQUISITION

AND

PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE NEW SHARES

Financial adviser to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MEDIA CHINA CORPORATION LIMITED

VERY SUBSTANTIAL ACQUISITION

AND

PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE NEW SHARES

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Date:

Parties:

Assets and Shareholder’s Loan to be acquired

Consideration

LETTER FROM THE BOARD

Basis of the Consideration

Conditions Precedent

The Vendor’s warranties and undertakings

Protections afforded to Unique Talent regarding existing charges over the equities of the Target Group

Completion

The First Consideration Shares and the Second Consideration Shares

Impact on the shareholding structure of the Company

Scenario 1:

Scenario 2:

Note 1

Note 2

Note 3

Treatment of the Target Company in the accounts of the Group

Shareholding Structure

Immediately before Completion

Immediately upon Completion

Management control

INFORMATION ON THE TARGET GROUP

Business of Bayhood No. 9

Current business model

LETTER FROM THE BOARD

Cooperation Construction and Operating Agreement

Revenue model

Target customers and sales channel

(i) Marketing strategies for high net worth individuals and corporations

(ii) Membership program

Facilities utilisation

Cost Structure

IT system

LETTER FROM THE BOARD

Policies on insurance and customer service assurance

Quality control

Human resources and policy

Competitive advantages of the Target Group

LETTER FROM THE BOARD

Established reputation with nation-wide brand recognition

Future Plan and Development

Management expertise

1. CHEN Guang Tian

2. ZHU Ya Ping

3. WANG Li Jun

4. TIAN Ying

5. JIANG Yan Li

FINANCIAL RESULTS OF THE TARGET GROUP

OVERALL DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Revenue

Cost of Sale

Gross margin

Administrative expenses

Balance Sheet

Property, plant and equipment

LETTER FROM THE BOARD

Borrowings

Amounts with related parties

Deferred revenue

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED Proxy Solicitation & Information Statement 2011