Deson Development International Holdings Limited - Proxy Solicitation & Information Statement 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Deson Development International Holdings Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

==> picture [37 x 35] intentionally omitted <==

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE SHAREHOLDING INTERESTS IN HONG KONG OKABE COMPANY LIMITED

AND

NOTICE OF SPECIAL GENERAL MEETING

A letter from the Board is set out on pages 4 to 15 of this circular.

A notice convening the SGM of the Company to be held at 10:30 a.m. on 25 March 2010 at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong is set out in Appendix VI of this circular.

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

* For identification only

10 March 2010

			Page
DEFINITIONS . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
APPENDIX I	:	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . .	16
APPENDIX II	:	FINANCIAL INFORMATION OF THE TARGET GROUP . . .	111
APPENDIX III	:	UNAUDITED PRO FORMA FINANCIAL INFORMATION
		OF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . .	150
APPENDIX IV	:	VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	156
APPENDIX V	:	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	165
APPENDIX VI	:	NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	171

Accompanying document:

– proxy form

– i –

DEFINITIONS

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

“Acquisition” the proposed acquisition of the entire issued share capital of the Target Company by Lead Joy pursuant to the terms and conditions of the Agreement
“Agreement” the sale and purchase agreement dated 27 January 2010 entered into between the Vendors and the Purchaser in relation to the Acquisition
“Board” the board of Directors “Company” Deson Development International Holdings Limited, an exempted company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange
“Completion” the completion of the Acquisition pursuant to the terms and conditions of the Agreement
“Completion Date” 31 March 2010 or, if later, within five business days of the fulfillment of the conditions precedent of the Agreement
“connected person” has the meaning ascribed to it under the Listing Rules “Consideration” the total consideration for the Acquisition of HK$106,450,000
“Director(s)” the director(s) of the Company
“Enlarged Group” the Group as enlarged by the Acquisition
“Group” the Company and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Huizhou Golf” (Huizhou Golf Course Limited Company*), a sino-foreign joint venture incorporated in the PRC

* For identification only

– 1 –

DEFINITIONS

“Independent Third Party” a third person who is independent of the Company and its connected persons and who is not a connected person of the Company
“Interpath Profits” Interpath Profits Limited, a company incorporated in the British Virgin Islands with limited liability, 60% of the issued share capital of which is indirectly owned by the Company
“Latest Practicable Date” 3 March 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information included herein
“Lead Joy” or “Purchaser” Lead Joy Investments Limited, a company incorporated in the British Virgin Islands with limited liability, a wholly-owned subsidiary of Interpath Profits and an indirect 60% owned subsidiary of the Company
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Mellink”
Mellink Investment Limited, a company incorporated in Hong Kong with limited liability, in which 8,009,999 shares and one share in issue are held by the Target Company and OCL, respectively
“OCL” Okabe Co. Ltd., a limited company incorporated under the laws of Japan
“PRC”
the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macao Special Administrative Region of the People’s Republic of China and Taiwan
“RMB”
Renminbi, the lawful currency of the PRC
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM”
the special general meeting to be held on 25 March 2010 to approve the Agreement and the transactions contemplated thereunder
“Share(s)”
ordinary share(s) of HK$0.10 each in the share capital of the Company
“Shareholders” holders of Shares

– 2 –

DEFINITIONS
“Stock Exchange” The Stock Exchange of Hong Kong Limited “Target Company” Hong Kong Okabe Company Limited ( ), a company incorporated under Hong Kong laws with limited liability “Target Group” the Target Company and its subsidiaries “Vendors” collectively, OCL and Mr. Sehata Shinichi “%” per cent.

– 3 –

LETTER FROM THE BOARD

==> picture [37 x 34] intentionally omitted <==

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

Executive Directors:

Mr. Wang Ke Duan (Chairman) Mr. Tjia Boen Sien (Managing Director & Deputy Chairman)

Mr. Wang Jing Ning Mr. Keung Kwok Cheung

Independent non-executive Directors:

Dr. Ho Chung Tai, Raymond Mr. Siu Man Po Mr. Wong Shing Kay, Oliver

Registered office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Principal place of business: 11th Floor, Nanyang Plaza 57 Hung To Road, Kwun Tong Kowloon Hong Kong

10 March 2010

To the Shareholders

Dear Sirs,

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE SHAREHOLDING INTERESTS IN HONG KONG OKABE COMPANY LIMITED

A. INTRODUCTION

Reference is made to the announcement of the Company dated 27 January 2010. On 27 January 2010, the Purchaser, an indirectly non wholly-owned subsidiary of the Company, entered into the Agreement with the Vendors in relation to the acquisition of the entire shareholding interests in Hong Kong Okabe Company Limited. The total consideration of the Acquisition is HK$106,450,000.

The purpose of this circular is to give Shareholders further information on the terms of the Agreement and to provide Shareholders with such information concerning the Company and the Acquisition as is required by the Listing Rules.

* For identification only

– 4 –

LETTER FROM THE BOARD

B. THE AGREEMENT

(a) Date

27 January 2010

(b) Parties

(i) The Vendors
(1) OCL, a limited liability company incorporated in Japan.
(2) Mr. Sehata Shinichi.
(ii) The Purchaser

Lead Joy, a company incorporated in the British Virgin Islands with limited liability and an indirect 60% owned subsidiary of the Company, being a wholly-owned subsidiary of Interpath Profits, which is a 60% owned subsidiary of the Company.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendors (and, in the case of OCL, its ultimate beneficial owners) are Independent Third Parties.

(c) Assets to be acquired

Pursuant to the Agreement, the Vendors have agreed to sell and the Purchaser has agreed to purchase the entire issued share capital of the Target Company.

(d) Consideration

The Consideration is HK$106,450,000 which shall be satisfied in the following manner:

(i) an amount of HK$37,257,500 (being 35% of the Consideration) shall be payable in cash on or before 3rd February 2010 (and was so paid); and
(ii) the balance of HK$69,192,500 (being 65% of the Consideration) shall be payable in cash on the Completion Date.

The Consideration was arrived at after arm’s length negotiations between the Company and the Vendors and was determined taking into consideration (i) the audited consolidated net assets of the Target Group as at 30 September 2009 of approximately HK$96 million; (ii) the value of the land, buildings and structures held by Huizhou Golf as at 31 December 2009 as appraised by an independent property valuer (see Appendix IV in this Circular); and (iii) the prospects of the golf club business in the PRC and the potential increase in the value of the land owned by the Target Group as

– 5 –

LETTER FROM THE BOARD

described in detail in the paragraph headed “Reasons for the Acquisition” below. The Consideration will be financed by shareholders’ loans by the Group and the 40% minority shareholders of Interpath Profits (the immediate 100% holding company of Lead Joy) in the proportion of 60% and 40% respectively, in accordance with their respective shareholding interests in Interpath Profits. The Group will satisfy its portion by internal resources and future borrowings.

(e) Conditions precedent

Completion shall be conditional upon the fulfillment or waiver of the following conditions:

(i) the Company having obtained the approval of the Shareholders at the SGM of the Agreement and the transactions contemplated thereunder; and
(ii) the Company having obtained all necessary approvals of the Stock Exchange in connection with the entering into of the Agreement and the transactions contemplated thereunder.

If the above conditions are not fulfilled by 30 June 2010 (or such later date as the parties may agree), the Agreement shall terminate and all payments previously paid by the Purchaser to the Vendors under the Agreement as deposit shall be returned forthwith to the Purchaser.

(f) Completion

Completion shall take place at or before 5 p.m. on 31 March 2010 or, if later, within five business days from the date of fulfillment of all of the above conditions precedent.

C. INFORMATION ON THE PARTIES

The Group is principally engaged in (i) the construction business, as a main contractor, as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services, mainly in Hong Kong and the PRC; (ii) property development and investment; and (iii) the trading of medical equipment and provision of related installation and maintenance services.

OCL is a limited company incorporated in Japan which is principally engaged in the manufacturing and sales of building materials and equipment. The Target Company is an investment holding company and holds nearly 100% of the entire issued share capital (8,009,999 out of 8,010,000 issued shares, with OCL holding the only other share in issue) in Mellink, which owns 90% equity interest (with the remaining 10% held by an Independent Third Party) in Huizhou Golf. Pursuant to the terms of the Agreement, OCL shall transfer all of its interest in Mellink to the Target Company on or before the Completion Date. As a result, it is expected that Mellink will become a wholly-owned subsidiary of the Target Company on or before Completion. Mellink is principally engaged in the sale of golf club memberships and investment holding business.

– 6 –

LETTER FROM THE BOARD

Huizhou Golf is principally engaged in golf club operation. It owns a piece of land located at Huizhou, PRC, with a total site area of approximately 1,008,725 sq. m., on which Huizhou Golf operates a golf course.

Set out below is a summary of key consolidated audited financial information of the Target Group for the two years ended 30 September 2009, which has been prepared in accordance with accounting policies in compliance with the Hong Kong Financial Reporting Standards issued by Hong Kong Institute of Certified Public Accountants:–

	For the year ended	For the year ended	For the year ended
	30 September
	2008		2009
	HK$ million	_HK$ _	million
Revenue	18		18
Loss before tax and loss for the year	(15)		(13)

Based on the consolidated audited financial information of the Target Group, its audited consolidated net assets value as at 30 September 2009 was approximately HK$96 million.

Pursuant to the sino-foreign co-operative agreement and the supplementary agreement for Huizhou Golf entered into in the years 1992 and 1993, respectively, the term of the joint venture of Huizhou Golf is for 30 years from the date of issue of the business license up to year 2023. Upon the expiry of the term of the joint venture, the fixed assets of Huizhou Golf shall be transferred to Shenzhen Kang He Tai Trading Company Limited ( ) who holds 10% shareholding interest in Huizhou Golf, at nil consideration. A consent has been obtained by the Directors from Shenzhen Kang He Tai Trading Company Limited ( ) such that Shenzhen Kang He Tai Trading Company Limited ( ) has agreed to apply for extension of the term of the joint venture upon expiry. The extension of the term of the joint venture, including the duration of such extension and the consideration, will be subject to the approval of the relevant PRC authorities. In this regard, Shenzhen Kang He Tai Trading Company Limited ( ) has agreed to use it best endeavors to assist Huizhou Golf in obtaining the relevant approval from the relevant PRC authorities. It is expected that the costs involved in applying for the extension will not be substantial. The Directors expect that the application for extension of the term of the joint venture will be processed in accordance with the relevant PRC legal requirements and do not foresee any substantial difficulties. As such, the Directors do not foresee there will be material effect on the operation of the Target Group. As the financial information of the Target Group in Appendix II and the unaudited pro forma financial information of the Enlarged Group in Appendix III have taken into account of the expiration of the joint venture term in year 2023, the Directors consider that it is fair and reasonable to acquire the Target Company even if the term cannot be extended at the expiration of the joint venture term in year 2023.

* For identification only

– 7 –

LETTER FROM THE BOARD

D. REASONS FOR THE ACQUISITION

One of the principal existing businesses of the Group is property development and investment. The Group currently owns a number of sites in Huizhou which are planned to be developed into residential properties. The piece of land owned by Huizhou Golf and on which it operates a golf course is contiguous with the sites owned by the Group. The Acquisition will result in the consolidation of the site owned by Huizhou Golf with its golf club environment and facilities with the adjacent residential development sites already owned by the Group, which is expected to enhance both the attractiveness of the residential properties and therefore their value, and also the combined value of the consolidated sites. The Target Group recorded an audited consolidated loss for each of the two years ended 30 September 2009. Following Completion, the Directors will evaluate possible means of improving the Target Group’s operating performance and its financial conditions. In this connection, the Directors note that the amount of the Consideration (HK$106,450,000):

i. is not substantially more than the audited consolidated net assets of the Target Group as at 30 September 2009 (approximately HK$96 million); and
ii. would be less than such net assets if the value of land held by Huizhou Golf was to be adjusted upward by HK$16,867,000 by reference to the fair value of prepaid land lease payments as disclosed in unaudited pro forma statement of assets and liabilities of the Enlarged Group set out in Appendix III to this circular.

Taking all of the foregoing factors into account, notwithstanding the net current liability of the Target Group as at 30 September 2007, 2008 and 2009 as disclosed in the financial information of the Target Group set out in Appendix II to this circular, the Directors consider the Acquisition to be in the interests of the Company and the Shareholders as a whole and the terms of the Acquisition and the related Consideration are fair and reasonable.

E. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The Target Company was incorporated on 20 October 1992 as an investment holding company and holds nearly 100% of the entire issued share capital (8,009,999 out of 8,010,000 issued shares, with OCL holding the only other share in issue) in Mellink, which owns 90% equity interest (with the remaining 10% held by an Independent Third Party) in Huizhou Golf. Pursuant to the terms of the Agreement, OCL shall transfer all of its interest in Mellink to the Target Company on or before the Completion Date. As a result, it is expected that Mellink will become a wholly-owned subsidiary of the Target Company on or before Completion.

For the year ended 30 September 2007

Review of results

The Target Group recorded total revenue and gross profit of approximately HK$16.0 million and HK$1.3 million, respectively. Administration expenses amounted to HK$14.3 million which are mainly comprised of land use tax, business tax, salaries,

– 8 –

LETTER FROM THE BOARD

commission and depreciation, such amount is significant when compare to the total revenue for the year because the business tax rate applicable to entertainment business is high and there is a new type of tax, namely, land use tax became effective since 1 January 2007. For the year ended 30 September 2007, net loss for the year was approximately HK$13.1 million. The net loss for the year was mainly attributable to the operating loss and loss on disposal of golf club facilities in the amount of approximately HK$1.1 million.

Interests in an associate

The Target Company owns a 25% shareholding interests in Pacific Chest Limited, a company incorporated in Hong Kong which is principally engaged in property trading business. As at 30 September 2007, the net liabilities of Pacific Chest Limited amounted to HK$61.9 million, and the Target Group made full provision for the amount due from this associate and has discontinued the recognition of its share of loss because it exceeded the Target Company’s interests in this associate.

Capital expenditure

Total capital expenditure for the year ended 30 September 2007 was approximately HK$1.5 million, which was mainly for the purchase of golf club facilities in connection with the golf business in the PRC.

Liquidity and financial resources

As at 30 September 2007, the Target Group had total assets of HK$152.0 million, which was financed by total liabilities and shareholders’ equity of HK$40.2 million and HK$111.8 million, respectively. It had current assets of HK$19.8 million, comprising mainly cash and cash equivalents and prepayments, deposit and other receivables. It had current liabilities of HK$25.7 million, comprising mainly membership deposits. The Target Group’s gearing ratio was 11.5%, which was calculated based on the non-current liabilities of HK$14.5 million and long term capital (equity and non-current liabilities) of HK$126.3 million.

Capital commitment

As at 30 September 2007, the Target Group had no significant capital commitment.

Significant investments, material acquisition and disposals

In the year ended 30 September 2007, the Target Group made no material acquisitions or disposals of subsidiaries and associated companies.

Charges on assets

As at 30 September 2007, the assets of the Target Group were not under any charge.

– 9 –

LETTER FROM THE BOARD

Exposure to foreign currency risk

The business of the Target Group was mainly operated in the PRC and its principal activities were conducted in HK$ and RMB. The continuing appreciation of RMB inevitably increased the operating cost. However, the fluctuation in RMB was relatively mild and the PRC operation was naturally hedged to future RMB income; therefore, the Target Group’s exposure to market risk for changes in foreign currency exchange rate was not significant.

Contingent liabilities

As at 30 September 2007, the Target Group did not have any significant contingent liabilities.

Human Resources

As at 30 September 2007, the Target Group had 153 employees, 147 of whom were based in the PRC. The total employee benefits expenses including directors’ emoluments for the year ended 30 September 2007 amounted to HK$3.5 million. All employees were remunerated based on industry practice and in accordance with the prevailing employment law.

For the year ended 30 September 2008

Review of results

The Target Group recorded total revenue of approximately HK$18.1 million, representing an increase of 13% as compared with the previous year. Gross profit for the period was approximately HK$1.2 million, representing a decrease of 5.7% as compared with the previous year. Administration expenses amounted to HK$18.3 million which are mainly comprised of the land use tax, business tax, salaries, commission and depreciation, such amount is significant when compare to the total revenue for the year because the business tax rate applicable to entertainment business is high and full year provision of land use tax was accrued instead of nine months for the year ended 30 September 2007, also, business tax in relation to disposal of items of property, plant and equipment had been incurred. For the year ended 30 September 2008, net loss for the year was approximately HK$14.7 million, representing an increase of 12.2% as compared with the previous year. The net loss for the year was mainly attributable to the operating loss and loss on disposal of items of property, plant and equipment in the amount of approximately HK$1.9 million.

Interests in an associate

The Target Company owned a 25% shareholding interests in Pacific Chest Limited, a company incorporated in Hong Kong which was principally engaged in property trading business. Pacific Chest Limited had disposed of the last property it held and had become dormant since then. As at 30 September 2008, the net liabilities of Pacific Chest Limited amounted to HK$51.9 million, and the Target Group had

– 10 –

LETTER FROM THE BOARD

made full provision for the amount due from this associate and discontinued the recognition of its share of loss because it exceeded the Target Company’s interests in this associate.

Capital expenditure

Total capital expenditure for the year ended 30 September 2008 was approximately HK$1.7 million, which was mainly for the purchase of tools and equipment in connection with the golf business in the PRC.

Liquidity and financial resources

As at 30 September 2008, the Target Group had total assets of HK$153.2 million, which was financed by total liabilities and shareholders’ equity of HK$43.8 million and HK$109.4 million respectively. It had current assets of HK$19.8 million, comprising mainly cash and cash equivalents. It had current liabilities of HK$30.2 million, comprising mainly membership deposits and deferred income and accruals. The gearing ratio for the Target Group was 11.0%, which was calculated based on the non-current liabilities of HK$13.6 million and long term capital (equity and non-current liabilities) of HK$123.0 million.

Capital commitment

As at 30 September 2008, the Target Group had no material capital commitment.

Significant investments, material acquisition and disposals

During the year ended 30 September 2008, the Target Group made no material acquisitions or disposals of subsidiaries and associated companies.

Charges on assets

As at 30 September 2008, the assets of the Target Group were not under any charge.

Exposure to foreign currency risk

Contingent liabilities

As at 30 September 2008, the Target Group did not have any significant contingent liabilities.

– 11 –

LETTER FROM THE BOARD

Human Resources

As at 30 September 2008, the Target Group had 160 employees, 154 of whom were based in the PRC. The total employee benefits expenses including directors’ emoluments for the year ended 30 September 2008 amounted to HK$4.1 million. All employees were remunerated based on industry practice and in accordance with the prevailing employment law.

For the year ended 30 September 2009

Review of results

The Target Group recorded total revenue of approximately HK$18.4 million, representing an increase of 2.2% as compared with the previous year. Gross profit for the period was approximately HK$2.1 million, representing an increase of 77% as compared with the previous year. Administration expenses amounted to HK$15.5 million which are mainly comprised of land use tax, business tax, salaries, commission and depreciation, such amount is significant when compare to the total revenue for the year because the business tax rate applicable to entertainment business is high. For the year ended 30 September 2009, net loss for the year was approximately HK$13.0 million, representing a decrease of 11.3% as compared with the previous year. The improvement in operating result was mainly due to the decrease in loss on disposal of items of property, plant and equipment from HK$1.9 million in the previous year to HK$0.1 million in the current year, and the decrease in depreciation expense of HK$8.0 million in the previous year to HK$7.8 million in the current year.

Interests in an associate

For the year ended 30 September 2008, the Target Group had made full provision for the amount due from this associate and had discontinued the recognition of its share of loss because it exceeded the Target Company’s interests in this associate. Since Pacific Chest Limited had no operation since the year ended 30 September 2008, and there was no funding commitment in relation to this associate, the Directors do not believe that there would be any material potential risk and contingent liability that may arise from such interest.

Capital expenditure

Total capital expenditure for the year ended 30 September 2009 was approximately HK$0.9 million, which was mainly for the purchase of golf club facilities and tools and equipment in connection with the golf business in the PRC.

Liquidity and financial resources

As at 30 September 2009, the Target Group had total assets of HK$142.4 million, which was financed by total liabilities and shareholders’ equity of HK$46.0 million and HK$96.4 million, respectively. It had current assets of HK$17.1 million, comprising mainly cash and cash equivalents. It had current liabilities of HK$33.4 million,

– 12 –

LETTER FROM THE BOARD

comprising mainly membership deposits and deferred income and accruals. The gearing ratio for the Target Group was 11.6%, which was calculated based on the non-current liabilities of HK$12.6 million and long term capital (equity and non-current liabilities) of HK$109.0 million.

Capital commitment

As at 30 September 2009, the Target Group had no material capital commitment.

Significant investments, material acquisition and disposals

In the year ended 30 September 2009, the Target Group made no material acquisitions or disposals of subsidiaries and associated companies.

Charges on assets

As at 30 September 2009, the assets of the Target Group were not under any charge.

Exposure to foreign currency risk

The business of the Target Group was mainly operated in the PRC and its principal activities were conducted in HK$ and RMB. The continuing appreciation of RMB inevitably increased the operating cost. However, the fluctuation in RMB was relatively mild and the PRC operation was naturally hedged to future RMB income, therefore, the Target Group’s exposure to market risk for changes in foreign currency exchange rate was not significant.

Contingent liabilities

As at 30 September 2009, the Target Group did not have any significant contingent liabilities.

Human Resource

As at 30 September 2009, the Target Group had 201 employees, 197 of whom were based in the PRC. The total employee benefits expenses including directors’ emoluments for the year ended 30 September 2009 amounted to HK$5.3 million. All employees were remunerated based on industry practice and in accordance with the prevailing employment law.

Emphasis of matter

As disclosed in the financial information of the Target Group set out in Appendix II to this circular, as at 30 September 2007, 2008 and 2009, the Target Group had net current liabilities of approximately HK$5,854,000, HK$10,472,000 and HK$16,292,000, respectively. As set out in the unaudited pro forma financial information of the Enlarged Group in Appendix III to this circular, upon Completion,

– 13 –

LETTER FROM THE BOARD

the Enlarged Group would have net current assets and net assets of HK$200,045,000 and HK$500,058,000 respectively as at 30 September 2009. Taking into account the above and the existing cash resources and banking facilities available to the Group, the Directors believe that following Completion the Enlarged Group will have sufficient funding to provide financial support to the Target Group for the foreseeable future. The Directors are also not aware of any matter or fact which will render the Enlarged Group not having sufficient working capital for its requirements after the completion of the Acquisition in the foreseeable future.

F. FINANCIAL EFFECTS OF THE ACQUISITION ON THE EARNINGS, ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Upon Completion, the Target Company will become a non wholly-owned subsidiary of the Company in which the Company controls 60% shareholding interest through Lead Joy, and the financials results of the Target Group will be consolidated into the accounts of the Group. The unaudited pro forma financial information of the Enlarged Group set out in Appendix III to this circular was prepared as if the Acquisition had been completed on 30 September 2009 for the pro forma consolidated statement of financial position.

As set out in the unaudited pro forma consolidated statement of the financial position of the Enlarged Group in Appendix III to this circular, the Group had unaudited total assets and total liabilities of approximately HK$999,919,000 and HK$506,680,000 respectively as at 30 September 2009. Upon Completion, the Enlarged Group would have unaudited pro forma total assets and total liabilities of approximately HK$1,095,282,000 and HK$595,224,000 respectively.

Earnings

Upon Completion, the Target Company will become a non wholly-owned subsidiary of the Company and it is expected that the revenue and earnings before interest, taxation and depreciation of the Group will increase as a result of the Acquisition.

G. LISTING RULES IMPLICATIONS

The Acquisition constitutes a major transaction for the Company under the Listing Rules. The Agreement and the transactions contemplated thereunder are subject to the approval of the Shareholders by way of poll at the SGM. As, to the best knowledge and belief of the Directors, the Vendors are Independent Third Parties and no Shareholder has any material interest in the Acquisition which is different from other Shareholders, no Shareholder is required to abstain from voting in respect of the resolution to be proposed at the SGM for the approval of the Acquisition and the transactions contemplated under the Agreement.

H. SGM

The notice of the SGM is set out on pages 171 to 172 of this circular.

– 14 –

LETTER FROM THE BOARD

The results of the voting at the SGM will be announced by the Company following the conclusion thereof.

I. RECOMMENDATION

The Board considers that the Agreement has been entered into on normal commercial terms after arm’s length negotiation and the terms of the Agreement are fair and reasonable and in the interests of the Group and the Shareholders as a whole and therefore recommends that Shareholders vote in favour of the resolution to be proposed at the SGM for the approval of the Agreement and the transactions contemplated thereunder.

J. ADDITIONAL INFORMATION

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

By Order of the Board of Deson Development International Holdings Limited Tjia Boen Sien Managing Director and Deputy Chairman

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the audited financial results of the Group for the three financial years ended 31 March 2009 and unaudited financial results of the Group for the six months ended 30 September 2008 and 2009, as extracted from the audited financial statements and unaudited interim condensed financial statements of the Group for the relevant periods.

Consolidated Profit and Loss Account

CONTINUING OPERATIONS Turnover Cost of sales Gross profit Other income and gains Fair value gain on investment properties, net Fair value gain on available-for sale investments, net (transfer from equity on disposal) Administrative expenses Other operating income/ (expenses) Finance costs Share of profits and losses of: A jointly-controlled entity Assoicates Profit before tax Tax PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS DISCONTINUED OPEATION Loss for the year from a discontinued operation PROFIT FOR THE YEAR Attributable to: Equity holders of the Company Minority interests	Year 2009 HK$’000 (audited) 698,194 (587,101) 111,093 7,555 2,599 – (60,515) (3,538) (7,613) (10,708) (259) 38,614 (24,954) 13,660 – 13,660 12,570 1,090 13,660	ended 31 March For the six months ended 30 September 2008 2007 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 (audited) (audited) (unaudited) (unaudited) 599,787 396,334 251,971 343,461 (517,788) (336,386) (197,437) (307,722) 81,999 59,948 54,534 35,739 29,771 9,801 7,172 7,622 – 27,880 – – – 8,970 – – (64,784) (55,475) (29,079) (29,137) (2,155) (4,349) 2,469 2,091 (5,497) (3,322) (4,208) (3,219) (243) (3,090) (13) (14) 1,147 710 (172) 299 40,238 41,073 30,703 13,381 (18,671) (17,167) (16,886) (8,337) 21,567 23,906 13,817 5,044 (5,144) (17,271) – – 16,423 6,635 13,817 5,044 16,893 7,684 12,928 5,387 (470) (1,049) 889 (343) 16,423 6,635 13,817 5,044

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Assets, Liabilities and Minority Interests

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payment Interest in a jointly-controlled entity Interest in associates Available-for-sale investments Financial assets at fair value through profit or loss Amount due from an investee Deferred tax asset Total non-current assets CURRENT ASSETS Amount due from associates Amounts due from minority shareholders Properties held for sale Gross amount due from contract customers Inventories Accounts receivable Prepayments, deposits and other receivables Cash and cash equivalents Pledged deposits Non-current asset classified as held for sale Total current assets CURRENT LIABILITIES Gross amount due to contract customers Accounts payable Other payables and accruals Amounts due to associates Amounts due to minority shareholders Amounts due to related companies Tax payable Convertible notes Interest-bearing bank and other borrowings Total current liabilities NET CURRENT ASSETS	As at 31 March 2009 2008 2007 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 64,350 100,124 105,309 181,704 134,040 80,106 5,718 5,857 13,012 – 12,892 11,409 (2,408) 8,192 7,900 – – – 2,260 2,234 – – – 17,721 – – 262 251,624 263,339 235,719 26,650 23,620 24,563 – – 7 520,064 418,784 395,379 5,247 7,334 12,283 1,497 2,604 8,537 59,472 56,850 68,544 30,290 35,870 26,220 53,807 31,087 53,159 31,331 21,465 68,184 728,358 597,614 656,876 9,295 – – 737,653 597,614 656,876 38,626 35,564 29,104 44,269 32,861 38,670 171,116 129,679 175,060 262 547 534 19,529 17,360 11,824 27,166 23,813 – 45,914 31,747 22,334 15,721 – – 97,563 60,109 87,560 460,166 331,680 365,086 277,487 265,934 291,790	As at 30 September 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 63,546 101,130 197,666 136,200 5,649 5,788 5,161 14,166 (3,427) 7,634 – – 2,280 2,270 – – – – 270,875 267,188 37,011 26,196 – – 513,303 440,583 5,550 37,428 810 1,586 60,163 63,482 39,518 52,903 41,375 42,547 31,314 27,352 729,044 692,077 – – 729,044 692,077 49,631 77,701 31,097 57,345 129,595 122,199 262 292 20,131 18,560 20,107 33,219 55,381 37,671 – – 100,053 73,204 406,257 420,191 322,787 271,886	As at 30 September 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 63,546 101,130 197,666 136,200 5,649 5,788 5,161 14,166 (3,427) 7,634 – – 2,280 2,270 – – – – 270,875 267,188 37,011 26,196 – – 513,303 440,583 5,550 37,428 810 1,586 60,163 63,482 39,518 52,903 41,375 42,547 31,314 27,352 729,044 692,077 – – 729,044 692,077 49,631 77,701 31,097 57,345 129,595 122,199 262 292 20,131 18,560 20,107 33,219 55,381 37,671 – – 100,053 73,204 406,257 420,191 322,787 271,886
			267,188
			26,196 – 440,583 37,428 1,586 63,482 52,903 42,547 27,352
			692,077 –
			692,077
			77,701 57,345 122,199 292 18,560 33,219 37,671 – 73,204
			420,191
			271,886

– 17 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible notes Interest-bearing bank and other borrowings Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital Reserves Equity component of convertible notes Minority interests Total equity	As at 31 March 2009 2008 2007 HK$’000 HK$’000 HK$’000 (audited) (audited) (audited) 529,111 529,273 527,509 – 15,274 14,856 32,205 39,654 84,162 19,252 14,247 11,749 51,457 69,175 110,767 477,654 460,098 416,742 56,697 57,274 57,268 416,091 399,040 356,303 1,259 1,259 1,259 474,047 457,573 414,830 3,607 2,525 1,912 477,654 460,098 416,742	As at 30 September 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 593,662 539,074 – 15,494 81,012 41,320 19,411 14,277 100,423 71,091 493,239 467,983 56,697 57,105 431,869 407,137 – 1,259 488,566 465,501 4,673 2,482 493,239 467,983	As at 30 September 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 593,662 539,074 – 15,494 81,012 41,320 19,411 14,277 100,423 71,091 493,239 467,983 56,697 57,105 431,869 407,137 – 1,259 488,566 465,501 4,673 2,482 493,239 467,983
			15,494 41,320 14,277
			71,091
			467,983

			57,105 407,137 1,259
			465,501 2,482
			467,983

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION OF THE GROUP

The following financial information is an extract from the audited financial statements of the Group for the year ended 31 March 2009 together with notes thereto. Reference to page numbers in the audited financial statements of the Group is to the page numbers of the 2009 annual report of the Company.

CONSOLIDATED INCOME STATEMENT

Year ended 31 March 2009

Notes CONTINUING OPERATIONS REVENUE 5 Cost of sales Gross profit Other income and gains 5 Fair value gain on investment properties, net 15 Administrative expenses Other operating expenses Finance costs 7 Share of profits and losses of: A jointly-controlled entity Associates PROFIT BEFORE TAX 6 Tax 10 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS DISCONTINUED OPERATION Loss for the year from a discontinued operation 12 PROFIT FOR THE YEAR Attributable to: Equity holders of the Company 11 Minority interests	2009 HK$’000 698,194 (587,101) 111,093 7,555 2,599 (60,515) (3,538) (7,613) (10,708) (259) 38,614 (24,954) 13,660 – 13,660 12,570 1,090 13,660	2008 HK$’000 599,787 (517,788) 81,999 29,771 – (64,784) (2,155) (5,497) (243) 1,147 40,238 (18,671) 21,567 (5,144) 16,423 16,893 (470) 16,423

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 13 Basic – For profit for the year – For profit from continuing operations Diluted – For profit for the year – For profit from continuing operations	2009 HK$’000 2.20 cents 2.20 cents 2.20 cents 2.20 cents	2008 HK$’000 2.95 cents

		3.85 cents

		2.95 cents

		3.79 cents

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 March 2009

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investment properties 15 Prepaid land lease payments 16 Interest in a jointly-controlled entity 19 Interests in associates 20 Available-for-sale investments 21 Financial assets at fair value through profit or loss 22 Amount due from an investee 23 Total non-current assets CURRENT ASSETS Amounts due from associates 20 Properties held for sale 25 Gross amount due from contract customers 26 Inventories 27 Accounts receivable 28 Prepayments, deposits and other receivables 29 Cash and cash equivalents 30 Pledged deposits 30 Non-current asset classified as held for sale 31 Total current assets CURRENT LIABILITIES Gross amount due to contract customers 26 Accounts payable 32 Other payables and accruals 33 Amounts due to associates 20 Amounts due to minority shareholders 24 Amounts due to related companies 34 Tax payable Convertible notes 37 Interest-bearing bank and other borrowings 35 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2009 HK$’000 64,350 181,704 5,718 – (2,408) – 2,260 – 251,624 26,650 520,064 5,247 1,497 59,472 30,290 53,807 31,331 728,358 9,295 737,653 38,626 44,269 171,116 262 19,529 27,166 45,914 15,721 97,563 460,166 277,487 529,111	2008 HK$’000 100,124 134,040 5,857 12,892 8,192 – 2,234 –
		263,339
		23,620 418,784 7,334 2,604 56,850 35,870 31,087 21,465
		597,614 –
		597,614
		35,564 32,861 129,679 547 17,360 23,813 31,747 – 60,109
		331,680
		265,934
		529,273

– 21 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes NON-CURRENT LIABILITIES Convertible notes 37 Interest-bearing bank and other borrowings 35 Deferred tax liabilities 36 Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital 38 Reserves 40(a) Equity component of convertible notes 37 Minority interests Total equity	2009 HK$’000 – 32,205 19,252 51,457 477,654 56,697 416,091 1,259 474,047 3,607 477,654	2008 HK$’000 15,274 39,654 14,247
		69,175
		460,098

		57,274 399,040 1,259
		457,573 2,525
		460,098

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2009

Notes
At 1 April 2007
Exchange realignment
Share of reserves of
associates
Revaluation surplus on
leasehold buildings
14
Deferred tax on revaluation
surplus on leasehold
buildings
36
Reversal of deferred tax
liability upon disposal of a
leasehold building
36
Release upon disposal of a
leasehold building
Release of revaluation
reserve
Total income and expense
for the year recognised
directly in equity
Profit/(loss) for the year
Total income and expense
for the year
Dividends paid to minority
shareholders
Disposal of subsidiaries
41
Repurchase of shares
38
Exercise of share options
38
Share repurchase expenses
38
Share issue expenses
38
Share options expired during
the year
39
Equity-settled share option
arrangements
39
At 31 March 2008

Attributable to equity holders of the Company
Issued
capital
Share
premium
account
Contributed
surplus
Property
revaluation
reserve
Capital
reserve
Capital
redemption
reserve
Exchange
fluctuation
reserve
Investment
revaluation
reserve
Share
option
reserve
Equity
component
of
convertible
notes
Reserve
funds
Retained
profits
Total
Minority
interests
Total
equity
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
57,268
122,563
15,262
28,841
(9,121)
9,362
10,830
1,814
1,081
1,259
3,260
172,411
414,830
1,912
416,742
–
–
–
–
–
–
15,206
–
–
–
–
–
15,206
1,422
16,628
–
–
–
–
–
–
508
(564)
–
–
–
–
(56)
–
(56)
–
–
–
13,253
–
–
–
–
–
–
–
–
13,253
–
13,253
–
–
–
(2,876)
–
–
–
–
–
–
–
–
(2,876)
–
(2,876)
–
–
–
378
–
–
–
–
–
–
–
–
378
–
378
–
–
–
(4,437)
–
–
–
–
–
–
–
4,437
–
–
–
–
–
–
(977)
–
–
–
–
–
–
–
977
–
–
–
–
–
–
5,341
–
–
15,714
(564)
–
–
–
5,414
25,905
1,422
27,327
–
–
–
–
–
–
–
–
–
–
–
16,893
16,893
(470)
16,423
–
–
–
5,341
–
–
15,714
(564)
–
–
–
22,307
42,798
952
43,750
–
–
–
–
–
–
–
–
–
–
–
–
–
(256)
(256)
–
–
–
–
–
–
(304)
–
–
–
–
–
(304)
(83)
(387)
(74)
(179)
–
–
–
74
–
–
–
–
–
(74)
(253)
–
(253)
80
258
–
–
–
–
–
–
(66)
–
–
–
272
–
272
–
(2)
–
–
–
–
–
–
–
–
–
–
(2)
–
(2)
–
(147)
–
–
–
–
–
–
–
–
–
–
(147)
–
(147)
–
–
–
–
–
–
–
–
(1,015)
–
–
1,015
–
–
–
–
–
–
–
–
–
–
–
379
–
–
–
379
–
379
57,274
122,493
15,262
34,182
(9,121)
9,436
26,240
1,250
379
1,259
3,260
195,659
457,573
2,525
460,098

– 23 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes
At 1 April 2008
Exchange realignment
Share of reserves of
associates
Revaluation surplus on
leasehold buildings
14
Deferred tax on revaluation
surplus on leasehold
buildings
36
Release of revaluation
reserve
Total income and expense
for the year recognised
directly in equity
Profit for the year
Total income and expense
for the year
Dividends paid to minority
shareholders
Repurchase of shares
38
Share repurchase expenses
38
Share options expired during
the year
39
At 31 March 2009

Attributable to equity holders of the Company
Issued
capital
Share
premium
account
Contributed
surplus
Property
revaluation
reserve
Capital
reserve
Capital
redemption
reserve
Exchange
fluctuation
reserve
Investment
revaluation
reserve
Share
option
reserve
Equity
component
of
convertible
notes
Reserve
funds
Retained
profits
Total
Minority
interests
Total
equity
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
57,274
122,493
15,262
34,182
(9,121)
9,436
26,240
1,250
379
1,259
3,260
195,659
457,573
2,525
460,098
–
–
–
–
–
–
1,975
–
–
–
–
–
1,975
213
2,188
–
–
–
–
–
–
108
(194)
–
–
–
–
(86)
–
(86)
–
–
–
4,520
–
–
–
–
–
–
–
–
4,520
–
4,520
–
–
–
(1,225)
–
–
–
–
–
–
–
–
(1,225)
–
(1,225)
–
–
–
(946)
–
–
–
–
–
–
–
946
–
–
–
–
–
–
2,349
–
–
2,083
(194)
–
–
–
946
5,184
213
5,397
–
–
–
–
–
–
–
–
–
–
–
12,570
12,570
1,090
13,660
–
–
–
2,349
–
–
2,083
(194)
–
–
–
13,516
17,754
1,303
19,057
–
–
–
–
–
–
–
–
–
–
–
–
–
(221)
(221)
(577)
(686)
–
–
–
577
–
–
–
–
–
(577)
(1,263)
–
(1,263)
–
(17)
–
–
–
–
–
–
–
–
–
–
(17)
–
(17)
–
–
–
–
–
–
–
–
(379)
–
–
379
–
–
–
56,697
121,790
15,262
36,531
(9,121)
10,013
28,323
1,056
–
1,259
3,260
208,977
474,047
3,607
477,654

These reserve accounts comprise the consolidated reserves of HK$416,091,000 (2008: HK$399,040,000) in the consolidated balance sheet.

The contributed surplus of the Group represents the excess of the nominal value of the subsidiaries’ shares acquired over the nominal value of the Company’s shares issued in exchange thereof, pursuant to the Group reorganisation on 21 May 1997.

The capital reserve of the Group as at 1 April 2008 and 31 March 2009 comprised goodwill arising from the acquisition of subsidiaries prior to 1 April 2002 as detailed in note 17.

The reserve funds of the Group include statutory reserves required to be appropriated from the profit after tax of the Company’s subsidiaries in Mainland China under the laws and regulations of the People’s Republic of China (“PRC”). The amount of the appropriation is at the discretion of these subsidiaries’ board of directors.

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 March 2009

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax: From continuing operations From a discontinued operation 12 Adjustments for: Finance costs 7 Share of profits and losses of: A jointly-controlled entity Associates Interest income 5 Fair value gain on investment properties, net 15 Dividend income from available-for-sale investments 5 Gain on disposal of subsidiaries 41 Equity-settled share option expense 6 Net gain on disposal of a leasehold building 5, 6 Loss on disposal of items of property, plant and equipment 6 Depreciation 6 Recognition of prepaid land lease payments 6 Provision for inventories 6 Impairment of an amount due from a jointly-controlled entity 6 Impairment of an available-for-sale investment 6 Impairment of an amount due from an investee 6 Impairment of accounts receivable 6 Reversal of impairment of accounts receivable 6 Impairment of other receivables 6 Reversal of impairment of other receivables 6 Decrease/(increase) in completed properties Decrease/(increase) in properties under development Decrease in gross amount due from contract customers Decrease/(increase) in inventories Decrease/(increase) in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Increase in gross amount due to contract customers Increase/(decrease) in accounts payable Increase/(decrease) in other payables and accruals Cash generated from/(used in) operations – page 35	2009 HK$’000 38,614 – 7,613 10,708 259 (1,206) (2,599) – – – – 39 3,756 139 136 3,174 – – 5,113 (2,623) 153 (900) 62,376 (115,134) 16,990 2,809 971 (5,062) 6,632 3,062 11,218 40,768 24,630	2008 HK$’000 40,238 (5,152) 5,557 243 (1,147) (2,726) – (6,810) (3,163) 379 (12,819) 234 6,515 249 107 243 2,400 3,840 3,165 (5,407) 965 (3,933) 22,978 43,261 (46,645) 5,143 (310) 11,980 (15,380) 6,460 (3,378) (34,378) (10,269)

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Cash generated from/(used in) operations – page 34 Interest paid Hong Kong profits tax paid Overseas taxes paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Dividends received from available-for-sale investments Dividends received from associates Purchases of items of property, plant and equipment Additions of investment properties Increase in financial assets at fair value through profit or loss Proceeds from disposal of items of property, plant and equipment Disposal of subsidiaries 41 Advance to a jointly-controlled entity Capital injection to an associate Repayment from/(advances to) associates, net Repayment from investees Decrease/(increase) in pledged deposits Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of the Company’s shares 38 Proceeds from issue of shares 38 Share repurchase expenses 38 Share issue expenses 38 New bank and other borrowings Repayment of bank and other borrowings Advances from related companies, net Advances from minority shareholders Dividends paid to minority shareholders Net cash inflow/(outflow) from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS – page 36	2009 HK$’000 24,630 (9,815) (9) (7,362) 7,444 1,206 – 960 (6,563) – – 144 – (990) – (3,315) – (9,866) (18,424) (1,263) – (17) – 66,085 (34,343) 3,353 2,169 (221) 35,763 24,783	2008 HK$’000 (10,269) (5,139) – (12,983) (28,391) 2,726 6,810 2,740 (6,180) (33,087) (2,234) 27,179 921 (1,969) (2,020) 1,098 11,481 50,989 58,454 (253) 272 (2) (147) 62,100 (130,859) 23,813 5,536 (256) (39,796) (9,733)

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS – page 35 Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 30 Bank overdrafts, secured 35	2009 HK$’000 24,783 5,153 303 30,239 53,807 (23,568) 30,239	2008 HK$’000 (9,733) 11,306 3,580 5,153 31,087 (25,934) 5,153

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

31 March 2009

Notes NON-CURRENT ASSETS Interests in subsidiaries 18 CURRENT ASSETS Prepayment 29 Cash and cash equivalents 30 Total current assets CURRENT LIABILITIES Accruals 33 Convertible notes 37 Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible notes 37 Net assets EQUITY Issued capital 38 Reserves 40(b) Equity component of convertible notes 37 Total equity	2009 HK$’000 352,683 34 64 98 1,421 15,721 17,142 (17,044) 335,639 – 335,639 56,697 277,683 1,259 335,639	2008 HK$’000 357,679 23 72 95 786 – 786 (691) 356,988 15,274 341,714 57,274 283,181 1,259 341,714

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 March 2009

1. CORPORATE INFORMATION

Deson Development International Holdings Limited is a limited liability company incorporated in Bermuda. The principal place of business of the Company is located at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong.

During the year, the Group was involved in the following activities:

the construction business, as a main contractor, as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services, mainly in Hong Kong and Mainland China;
property development and investment; and
trading of medical equipments, provision of related installation and maintenance services.

In the prior year, the Group disposed of and discontinued its operation of fitness centres and trading of fitness equipments. Further details regarding the discontinued operation are set out in note 12 to the financial statements.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for leasehold buildings, investment properties and financial assets at fair value through profit or loss, which have been measured at fair value. Non-current asset held for sale is stated at the lower of its carrying amount and fair value less cost to sell as further explained in note 2.4. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 March 2009. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries. Acquisitions of minority interests are accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill.

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new interpretations and amendments to HKFRSs for the first time for the current year’s financial statements.

HKAS 39 and HKFRS 7 Amendments to HKAS 39 Financial Instruments: Recognition and Amendments Measurement and HKFRS 7 Financial Instruments: Disclosures – Reclassification of Financial Assets HK(IFRIC)-Int 12 Service Concession Arrangements HK(IFRIC)-Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of these new interpretations and amendments has had no significant financial effect on these financial statements and there have been no significant changes to the accounting policies applied in these financial statements.

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKFRS 1 (Revised) First-time Adoption of HKFRSs[2] HKFRS 1 and HKAS 27 Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS Amendments 27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate[1] HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment – Vesting Conditions and Cancellations[1] HKFRS 3 (Revised) Business Combinations[2] HKFRS 7 Amendments Amendments to HKFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments[1] HKFRS 8 Operating Segments[1] HKAS 1 (Revised) Presentation of Financial Statements[1] HKAS 23 (Revised) Borrowing Costs[1] HKAS 27 (Revised) Consolidated and Separate Financial Statements[2] HKAS 32 and HKAS 1 Amendments to HKAS 32 Financial Instruments: Presentation and Amendments HKAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation[1] HKAS 39 Amendment Amendment to HKAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items[2] HK(IFRIC)-Int 9 and Amendments to HK(IFRIC)-Int 9 Reassessment of Embedded HKAS 39 Amendments Derivatives and HKAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives[5] HK(IFRIC)-Int 13 Customer Loyalty Programmes[3] HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate[1] HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation[4] HK(IFRIC)-Int 17 Distribution of Non-cash Assets to Owners[2] HK(IFRIC)-Int 18 Transfers of Assets from Customers[6] HKFRSs (Amendments) Improvements to HKFRSs[7] *

1 Effective for annual periods beginning on or after 1 January 2009
2 Effective for annual periods beginning on or after 1 July 2009

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3 Effective for annual periods beginning on or after 1 July 2008
4 Effective for annual periods beginning on or after 1 October 2008
5 Effective for annual periods ending on or after 30 June 2009
6 Effective for transfers of assets from customers received on or after 1 July 2009
7 Effective for annual periods beginning on or after 1 January 2009, 1 July 2009 and 1 January 2010, as appropriate
Improvements to HKFRSs contain amendments to HKFRS 2, HKFRS 5, HKFRS 7, HKFRS 8, HKAS 1, HKAS 7, HKAS 8, HKAS 10, HKAS 16, HKAS 17, HKAS 18, HKAS 19, HKAS 20, HKAS 23, HKAS 27, HKAS 28, HKAS 29, HKAS 31, HKAS 34, HKAS 36, HKAS 38, HKAS 39, HKAS 40, HKAS 41, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKFRS 8 and HKAS 1 (Revised) may result in new or amended disclosures and the adoption of HKFRS 3 (Revised) and HKAS 27 (Revised) may result in changes in accounting policies, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

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

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

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

A joint venture is treated as:

(a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture;
(b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or
(d) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Jointly-controlled entity

A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s interest in a jointly-controlled entity is stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. The Group’s share of the post-acquisition results and reserves of a jointly-controlled entity is included in the consolidated income statement and consolidated reserves, respectively.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively.

When an investment in an associate is classified as held for sale, it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill on acquisitions for which the agreement date is on or after 1 January 2005

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 March. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill previously eliminated against consolidated reserves

Prior to the adoption of the HKICPA’s Statement of Standard Accounting Practice 30 “Business Combinations” (“SSAP 30”) in 2001, goodwill arising on acquisition was eliminated against consolidated reserves in the year of acquisition. On the adoption of HKFRS 3, such goodwill remains eliminated against consolidated capital reserve and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit becomes impaired.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets, financial assets, investment properties, and non-current asset classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises in those expenses categories consistent with the function of the impaired asset, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

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

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a jointly-controlled entity;
(d) the party is a member of the key management personnel of the Group;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.

Property, plant and equipment and depreciation

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

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged. An annual transfer from the asset revaluation reserve to retained profits is made for the difference between the depreciation based on the revalued carrying amount of an asset and the depreciation based on the asset’s original cost. On disposal of a revalued asset, the relevant portion of the property revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis or the reducing balance basis to write off the cost or valuation of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold buildings	2.5% on the straight-line basis
Leasehold improvements	Over the remaining lease terms
Furniture and fixtures	15% on the reducing balance basis
Office equipment	15% on the reducing balance basis
Tools and equipment	15% on the reducing balance basis
Motor vehicles	15% on the reducing balance basis

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation methods are reviewed, and adjusted if appropriate, at least at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Investment properties

Investment properties are interests in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date.

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Property, plant and equipment and depreciation” up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as a revaluation in accordance with the policy stated under “Property, plant and equipment and depreciation” above.

Non-current asset held for sale

Non-current asset is classified as held for sale if its carrying amount will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary to the sale of such an asset and its sale must be highly probable.

Non-current asset classified as held for sale is measured at the lower of its carrying amount and fair value less cost to sell.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

The Group assesses whether a contract contains an embedded derivative when the Group first becomes a party to it and assesses whether an embedded derivative is required to be separated from the host contract when the analysis shows that the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on these financial assets are recognised in the income statement. The net fair value gain or loss recognised in the income statement does not include any interest earned on these financial assets, which are recognised in accordance with the policy set out for “Revenue recognition” below.

Financial assets may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or is not classified in any of the other two categories above. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the income statement as “Other income” in accordance with the policies set out for “Revenue recognition” below. Losses arising from the impairment of such investments are recognised in the income statement as “Impairment losses on available-for-sale financial assets” and are transferred from the available-for-sale investment revaluation reserve.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. A provision for impairment is made for an available-for-sale equity investment when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgement. In addition, the Group evaluates other factors, such as the share price volatility. Impairment loss on equity instrument classified as available for sale is not reversed through the income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities at amortised cost (including interest-bearing loans and other borrowings)

Financial liabilities including accounts payable, other payables, amounts due to associates, amounts due to minority shareholders, amounts due to related companies and interest-bearing bank and other borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost. The related interest expense is recognised within “Finance costs” in the income statement.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

Financial guarantee contracts

Financial guarantee contracts in the scope of HKAS 39 are accounted for as financial liabilities. A financial guarantee contract is recognised initially at its fair value less transaction costs that are directly attributable to the acquisition or issue of the financial guarantee contract, except when such contract is recognised at fair value through profit or loss. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the balance sheet date; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.

Convertible notes

The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. On issuance of convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible note; and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of finished goods. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to disposal.

Construction contracts

Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders, claims and incentive payments. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable and fixed construction overheads.

Revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the proportion of costs incurred to date to the estimated total cost of the relevant contract.

Revenue from cost plus construction contracts is recognised on the percentage of completion method, by reference to the recoverable costs incurred during the period plus the related fee earned, measured by the proportion of costs incurred to date to the estimated total cost of the relevant contract.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

Contracts for services

Contract revenue on the rendering of services comprises the agreed contract amount. Costs of rendering services comprise labour and other costs of personnel directly engaged in providing the services and attributable overheads.

Revenue from the rendering of services is recognised based on the percentage of completion of the transaction, provided that the revenue, the costs incurred and the estimated costs to completion can be measured reliably. The percentage of completion is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction. Where the outcome of a contract cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Properties held for sale

Properties under development which are intended for sale are included in properties held for sale and are stated at the lower of cost and net realisable value, which is estimated by the directors based on the prevailing market conditions. Costs include all costs directly incurred in the properties under development, including development expenditure, borrowing costs and other direct costs.

Completed properties for sale are stated at the lower of cost and net realisable value. Cost includes all development expenditure, applicable borrowing costs and other direct costs attributable to such properties. Net realisable value is determined by reference to the prevailing market prices on an individual property basis.

Cash and cash equivalents

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

For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interest in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interest in a joint venture, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

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

(a) from construction contracts, on the percentage of completion basis, as further explained in the accounting policy for “Construction contracts” above;
(b) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(c) from the rendering of services, when the services are rendered or on the percentage of completion basis, as further explained in the accounting policy for “Contracts for services” above;
(d) from the sale of property interests, when all the conditions of sale have been met and the risks and rewards of ownership have been transferred to the buyer;
(e) rental income, on a time proportion basis over the lease terms;
(f) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; and
(g) dividend income, when the shareholders’ right to receive payment has been established.

Share-based payment transactions

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using the Black-Scholes model, further details of which are given in note 39 to the financial statements. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

The Group has adopted the transitional provisions of HKFRS 2 in respect of equity-settled awards and has applied HKFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested by 1 April 2005 and to those granted on or after 1 April 2005.

Other employee benefits

Pension schemes

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

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries and associates are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Land appreciation tax

Under the Provisional Regulations on land appreciation tax (“LAT”) implemented upon the issuance of the Provisional Regulations of the PRC on 27 January 1995, all gains arising from the transfer of real estate properties in Mainland China with effect from 1 January 1994 are subject to LAT at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from sales of properties less deductible expenditures including amortisation of land use rights, borrowing costs and all property development expenditures.

The subsidiaries of the Group engaging in the property development business in Mainland China are subject to land appreciation taxes, which have been included in income tax. However, the implementation of these taxes varies amongst various Mainland China cities and the Group has not finalised its land appreciation tax returns with various tax authorities. Accordingly, significant judgement is required in determining the amount of land appreciation and its related taxes. The ultimate tax determination is uncertain during the ordinary course of business. The Group recognises these liabilities based on management’s best estimates. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact on the income tax and provisions of land appreciation taxes in the period in which such determination is made.

Estimation uncertainty

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

Estimation of fair value of investment properties

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including:

(a) current prices in an active market for properties of a different nature, condition or location (or subject to different leases or other contracts), adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The principal assumptions for the Group’s estimation of the fair value include those related to current market rents for similar properties in the same location and condition, appropriate discount rates, expected future market rents and future maintenance costs.

The carrying amount of investment properties at 31 March 2009 was HK$181,704,000 (2008: HK$134,040,000).

Estimates regarding the realisability of deferred tax assets

Estimating the amount for deferred tax assets arising from tax losses requires a process that involves determining appropriate provisions for taxation, forecasting future years’ taxable income and assessing the ability to utilise tax benefits through future taxable profits. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details of the unrecognised tax losses of the Group are set out in note 36 to the financial statements.

Useful lives and impairment of property, plant and equipment

The Group determines the useful lives and related depreciation charges for its property, plant and equipment based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The estimated useful lives could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles.

Management will increase the depreciation charge where useful lives are less than previously estimated, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned. Actual economic lives of property, plant and equipment may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and therefore depreciation in the future periods.

Impairment of accounts receivable

Impairment of accounts receivable is made based on assessment of the recoverability of receivables due from customers. The identification of impairment requires management judgements and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact on the carrying value of the receivables and impairment losses/ reversal of impairment losses in the period in which such estimate has been changed.

4. SEGMENT INFORMATION

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

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

(a) the construction business segment is engaged in construction contract works as a main contractor as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services;

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) the property development and investment business segment is engaged in property development of residential and commercial properties and holding of investment properties; and
(c) the “others” segment comprises, principally, trading of medical equipment and provision of related installation and maintenance services.

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

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

(a) Business segments

The following tables present revenue, profit/(loss) and certain assets, liabilities and expenditures information for the Group’s business segments for the years ended 31 March 2009 and 2008.

		Continuing	operations			idated 2008 HK$’000 628,121 21,278
Constr busi 2009 HK$’000 591,014 1,952 592,966 16,005 (10,708) (259)	uction ness 2008 HK$’000 445,680 13,698 459,378 5,204 (243) 1,147	Property development and investment business 2009 2008 HK$’000 HK$’000 94,990 128,140 4,397 6,163 99,387 134,303 46,241 40,141 – – – –	Oth 2009 HK$’000 12,190 – 12,190 (667) – –	ers 2008 HK$’000 25,967 391 26,358 (1,556) – –	Tot 2009 HK$’000 698,194 6,349 704,543 61,579 1,206 – – (5,591) (7,613) (10,708) (259) 38,614 (24,954) 13,660
						649,399

						35,517 9,536 (2,400) 3,163 (6,077) (5,557) (243) 1,147
						35,086 (18,663)
						16,423

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Continuing operations		idated 2008 HK$’000 787,235 12,892 8,192 – 52,634
Construction business Property development and investment business Others 2009 2008 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 130,217 128,214 763,017 598,005 3,934 61,016 – 12,892 – – – – (2,408) 8,192 – – – – 9,295 – – – – – (141,825) (113,987) (155,282) (116,734) (1,942) (5,666) 1,719 2,077 1,048 469 989 2,512 139 249 – – – – – – (2,599) – – – – (12,819) – – – – (3) 156 42 – – – 3,174 243 – – – – – 3,840 – – – – 2,816 – 1,290 2,965 1,007 – (186) (128) (2,437) (5,279) – – 153 965 – – – – (900) (3,933) – – – – – – – – 136 107 358 220 5,953 51,132 252 3,204	Tot 2009 HK$’000 897,168 – (2,408) 9,295 85,222 989,277 (299,049) (212,574) (511,623) 3,756 139 (2,599) – 39 3,174 – 5,113 (2,623) 153 (900) 136 6,563
		860,953

		(236,387) (164,468)
		(400,855)

		6,515 249 – (12,819) 234 243 3,840 3,165 (5,407) 965 (3,933) 107 55,741

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

The following table presents revenue and certain asset and expenditure information for the Group’s geographical segments for the years ended 31 March 2009 and 2008.

Segment revenue: Sales to external customers Attributable to a discontinued operation Revenue from continuing operations Other segment information: Segment assets Capital expenditure	Hong 2009 HK$’000 282,486 – 282,486 114,372 483	Kong 2008 HK$’000 262,916 (6,170) 256,746 127,007 1,248	Mainland China 2009 2008 HK$’000 HK$’000 415,708 365,205 – (22,164) 415,708 343,041 874,905 733,946 6,080 54,493	Consolidated 2009 2008 HK$’000 HK$’000 698,194 628,121 – (28,334) 698,194 599,787 989,277 860,953 6,563 55,741

5. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents the aggregate of gross revenue earned from construction works and the net amount of maintenance works invoiced, property development and investment business, trading of medical equipment, provision of related installation and maintenance services and an appropriate proportion of income from operation of fitness centres and trading of fitness equipment.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An analysis of revenue, other income and gains is as follows:

Notes Revenue Income from construction contracting and related business Income from property development and investment business Income from trading of medical equipment, provision of related installation and maintenance services Attributable to continuing operations reported in the consolidated income statement Income from operation of fitness centres and trading of fitness equipment attributable to a discontinued operation 12 Other income and gains Bank interest income Other interest income Gross rental income 6 Dividend income from available-for-sale investments Net gain on disposal of a leasehold building 6 Others Attributable to continuing operations reported in the consolidated income statement Other income and gains from operation of fitness centres and trading of fitness equipment attributable to a discontinued operation: Bank interest income 12 Others 12	Group 2009 2008 HK$’000 HK$’000 591,014 445,680 94,990 128,140 12,190 25,967 698,194 599,787 – 28,334 698,194 628,121 611 1,626 595 1,083 3,210 3,919 – 6,810 – 12,819 3,139 3,514 7,555 29,771 – 17 – 1,026 7,555 30,814	Group 2009 2008 HK$’000 HK$’000 591,014 445,680 94,990 128,140 12,190 25,967 698,194 599,787 – 28,334 698,194 628,121 611 1,626 595 1,083 3,210 3,919 – 6,810 – 12,819 3,139 3,514 7,555 29,771 – 17 – 1,026 7,555 30,814
		599,787 28,334
		628,121

		1,626 1,083 3,919 6,810 12,819 3,514
		29,771 17 1,026
		30,814

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):[#]

Notes
Cost of properties sold
Cost of construction contracting
Cost of inventories sold and services provided
Auditors’ remuneration
Depreciation
14
Recognition of prepaid land lease payments
16
Minimum lease payments under operating leases on land
and buildings
Gain on disposal of a leasehold building
Less: Derecognition of prepaid land lease payments
16
Net gain on disposal of a leasehold building
5
Loss on disposal of items of property, plant and
equipment^
Gross rental income
5
Less: Outgoings
Net rental income
Employee benefit expense (including Directors’
emoluments – note 8):
Wages and salaries
Equity-settled share option expense
39
Pension schemes contributions*
Less: Amount capitalised
Foreign exchange differences, net^
Provision for inventories
Impairment of an amount due from a jointly-controlled
entity^
Impairment of an available-for-sale investment^
Impairment of an amount due from an investee^
Impairment of accounts receivable^
28
Reversal of impairment of accounts receivable^
28
Impairment of other receivables^
29
Reversal of impairment of other receivables^
29

Group
2009
2008
HK$’000
HK$’000
42,599
84,146
536,092
419,114
8,410
22,488
1,680
2,110
3,756
6,515
139
249
2,702
5,652
–
(19,836)
–
7,017
–
(12,819)
39
234
(3,210)
(3,919)
122
200
(3,088)
(3,719)
31,990
39,145
–
379
755
1,107
(2,372)
(2,702)
30,373
37,929
(1,418)
839
136
107
3,174
243
–
2,400
–
3,840
5,113
3,165
(2,623)
(5,407)
153
965
(900)
(3,933)

At 31 March 2009, there were no forfeited contributions available to the Group to reduce contributions to the pension schemes in future years (2008: Nil).
^ These amounts are included in “Other operating expenses” on the face of the consolidated income statement.
The disclosures presented in this note include those amounts charged/credited in respect of the discontinued operation.

– 50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. FINANCE COSTS

Interest on bank loans, overdrafts and other borrowings wholly repayable within five years Interest on convertible notes Total interest expense on financial liabilities not at fair value through profit or loss Less: Interest capitalised on properties under development Attributable to continuing operations reported in the consolidated income statement Attributable to a discontinued operation (note 12)	Group 2009 2008 HK$’000 HK$’000 9,185 11,410 1,077 1,050 10,262 12,460 (2,649) (6,903) 7,613 5,557 7,613 5,497 – 60 7,613 5,557	Group 2009 2008 HK$’000 HK$’000 9,185 11,410 1,077 1,050 10,262 12,460 (2,649) (6,903) 7,613 5,557 7,613 5,497 – 60 7,613 5,557
		12,460 (6,903)
		5,557

		5,497 60
		5,557

8. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance, are as follows:

Fees Other emoluments: Salaries and allowances Equity-settled share option expense Pension schemes contributions	Group 2009 2008 HK$’000 HK$’000 312 360 3,538 4,075 – 130 76 114 3,614 4,319 3,926 4,679	Group 2009 2008 HK$’000 HK$’000 312 360 3,538 4,075 – 130 76 114 3,614 4,319 3,926 4,679
		4,075 130 114
		4,319
		4,679

In the prior year, the directors were granted share options, in respect of their services to the Group, under the share option scheme of the Company, further details of which are set out in note 39 to the financial statements. The fair value of such options, which had been recognised in the income statement over the vesting period, was determined as at the date of grant and the amount is included in the above directors’ remuneration disclosures.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Independent non-executive Directors

The fees paid to independent non-executive Directors during the year were as follows:

2009 Dr. Ho Chung Tai, Raymond Mr. Siu Man Po Mr. Wong Shing Kay, Oliver 2008 Dr. Ho Chung Tai, Raymond Mr. Siu Man Po Mr. Wong Shing Kay, Oliver	Fees Equity-settled share option expense Total remuneration HK$’000 HK$’000 HK$’000 120 – 120 96 – 96 96 – 96 312 – 312 144 2 146 120 2 122 96 – 96 360 4 364	Fees Equity-settled share option expense Total remuneration HK$’000 HK$’000 HK$’000 120 – 120 96 – 96 96 – 96 312 – 312 144 2 146 120 2 122 96 – 96 360 4 364
		312

		146 122 96
		364

There were no other emoluments payable to the independent non-executive Directors during the year (2008: Nil).

(b) Executive Directors

2009 Mr. Wang Ke Duan Mr. Tjia Boen Sien Mr. Wang Jing Ning Mr. Keung Kwok Cheung Mr. Ong Chi King 2008 Mr. Wang Ke Duan Mr. Tjia Boen Sien Mr. Wang Jing Ning Mr. Keung Kwok Cheung Mr. Ong Chi King	Fees HK$’000 – – – – – – – – – – – –	Salaries and allowances Equity-settled share option expense Pension schemes contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 540 – – 540 1,338 – 12 1,350 480 – 12 492 963 – 46 1,009 217 – 6 223 3,538 – 76 3,614 540 – – 540 1,431 7 24 1,462 480 14 12 506 946 35 46 1,027 678 70 32 780 4,075 126 114 4,315	Salaries and allowances Equity-settled share option expense Pension schemes contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 540 – – 540 1,338 – 12 1,350 480 – 12 492 963 – 46 1,009 217 – 6 223 3,538 – 76 3,614 540 – – 540 1,431 7 24 1,462 480 14 12 506 946 35 46 1,027 678 70 32 780 4,075 126 114 4,315
			3,614

			540 1,462 506 1,027 780
			4,315

Mr. Ong Chi King resigned as an executive Director on 27 June 2008.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

There was no arrangement under which a Director waived or agreed to waive any remuneration during the year (2008: Nil).

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included two (2008: three) Directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining three (2008: two) non-director, highest paid employees for the year are as follows:

Salaries and allowances Pension schemes contributions	Group 2009 2008 HK$’000 HK$’000 1,904 1,264 53 40 1,957 1,304	Group 2009 2008 HK$’000 HK$’000 1,904 1,264 53 40 1,957 1,304
		1,304

The remuneration of these three (2008: two) non-director, highest paid employees for the year fell within the band of nil to HK$1,000,000.

10. TAX

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits arising in Hong Kong during the year. The lower Hong Kong profits tax rate is effective from the year of assessment 2008/09, and so is applicable to the assessable profits arising in Hong Kong for the whole year ended 31 March 2009. No Hong Kong profits tax had been provided in the prior year as the Group’s subsidiaries either did not generate any assessable profits arising in Hong Kong during that year or had available tax losses brought forward from prior years to offset the assessable profits generated during that year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

LAT in Mainland China is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from the sale of properties less deductible expenditures including amortisation of land use rights, borrowing costs and all property development expenditures.

Current – Hong Kong Charge for the year Current – Elsewhere Charge for the year Underprovision/(overprovision) in prior years Deferred (note 36) LAT in Mainland China Total tax charge for the year	Group 2009 2008 HK$’000 HK$’000 9 – 9,360 8,095 (21) 4,657 3,757 262 11,849 5,657 24,954 18,671	Group 2009 2008 HK$’000 HK$’000 9 – 9,360 8,095 (21) 4,657 3,757 262 11,849 5,657 24,954 18,671
		18,671

– 53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

A reconciliation of the tax expense applicable to profit before tax using the statutory rate for the jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax charge at the effective tax rates is as follows:

Profit before tax (including loss from a discontinued operation)
Tax at the statutory tax rate of 16.5% (2008: 17.5%)
Effect of different rates for companies operating in other jurisdictions
Effect on opening deferred tax of decrease in rates
Adjustments in respect of current tax of previous periods
Profits and losses attributable to associates
Profits and losses attributable to a jointly-controlled entity
Income not subject to tax
Expenses not deductible for tax
Effect of withholding tax at 10% or 5% on the distributable profits
of the Group’s PRC subsidiaries
Tax losses utilised from previous periods
Tax losses and temporary differences not recognised
LAT
Others
Tax charge at the Group’s effective rate of 64.6% (2008: 53.2%)
Represented by:
Tax credit attributable to a discontinued operation (note 12)
Tax charge attributable to continuing operations reported in the
consolidated income statement

Group
2009
2008
HK$’000
HK$’000
38,614
35,086
6,371
6,140
4,221
3,453
(31)
–
(21)
4,657
43
(201)
1,767
43
(3,465)
(5,686)
1,675
1,993
3,108
–
(2,392)
(446)
1,891
3,091
11,849
5,657
(62)
(38)
24,954
18,663
–
(8)
24,954
18,671
24,954
18,663

The share of tax attributable to the jointly-controlled entity and associates amounting to nil (2008: HK$4,000) and HK$498,000 (2008: HK$1,948,000), respectively, are included in “Share of profits and losses of a jointly-controlled entity and associates” on the face of the consolidated income statement.

11. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated profit attributable to equity holders of the Company for the year ended 31 March 2009 includes a loss of HK$4,795,000 (2008: a loss of HK$5,198,000) which has been dealt with in the financial statements of the Company (note 40(b)).

12. DISCONTINUED OPERATION

On 27 September 2007, the Company announced the decision of its board of directors to dispose of its entire interest in Fitness Concept Limited (“FCL”) and its subsidiaries (the “Disposed Group”). The Disposed Group is engaged in the operation of fitness centres and trading of fitness equipment and is a separate business segment. The disposal of the Disposed Group was completed on 30 September 2007.

– 54 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results of the Disposed Group for the prior year are presented below:

Revenue, other income and gains (note 5) Expenses Finance costs (note 7) Loss of the discontinued operation Gain on disposal of the Disposed Group Loss before tax from the discontinued operation Tax credit (note 10) Loss for the year from the discontinued operation Attributable to: Equity holders of the Company Minority interests The net cash flows incurred by the Disposed Group were as follows: Operating activities Investing activities Financing activities Net cash outflow Loss per share: Basic, from the discontinued operation Diluted, from the discontinued operation	2008 HK$’000 29,377 (37,632) (60)
	(8,315) 3,163
	(5,152) 8
	(5,144)

	(5,127) (17)
	(5,144)

	2008 HK$’000 (2,205) (1,136) 2,753
	(588)

	(0.90 cent) (0.84 cent)

The calculations of basic and diluted loss per share from the discontinued operation were based on:

	2008
Loss attributable to ordinary equity holders of
the Company from the discontinued operation	HK$5,127,000
Weighted average number of ordinary shares in issue
during the year used in the basic earnings per share calculation	572,634,425
Weighted average number of ordinary shares used in
the diluted earnings per share calculation	608,331,739

13. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of basic earnings per share amounts is based on the profit for the year attributable to ordinary equity holders of the Company, and the weighted average number of ordinary shares in issue during the year, as adjusted to reflect the share repurchase during the year ended 31 March 2009.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The calculation of diluted earnings per share amounts is based on the profit for the year attributable to ordinary equity holders of the Company, adjusted to reflect the interest on the convertible notes. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

The calculations of basic and diluted earnings per share are based on:

Earnings
Profit/(loss) attributable to ordinary equity holders of the Company,
used in the basic earnings per share calculation:
From continuing operations
From a discontinued operation
Interest on convertible notes
Profit attributable to ordinary equity holders of the Company before
interest on convertible notes
Attributable to:
Continuing operations
Discontinued operation
Shares
Weighted average number of ordinary shares in issue during the year
used in the basic earnings per share calculation
Effect of dilution – weighted average number of ordinary shares:
Share options
Convertible notes

Group
2009
2008
HK$’000
HK$’000
12,570
22,020
–
(5,127)
12,570
16,893
1,077
1,050
13,647
17,943
13,647
23,070
–
(5,127)
13,647
17,943
Number of shares
2009
2008
570,127,894
572,634,425
–
697,314
35,000,000
35,000,000
605,127,894*
608,331,739

Because the diluted earnings per share amount is increased when taking the convertible notes into account, the convertible notes had an anti-dilutive effect on the basic earnings per share for the year and were ignored in the calculation of diluted earnings per share. Therefore, diluted earnings per share amounts are based on the profit for the year of HK$12,570,000 and the weighted average of 570,127,894 ordinary shares in issue during the year.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Group

31 March 2009 At 31 March 2008 and at 1 April 2008: Cost or valuation Accumulated depreciation Net carrying amount At 1 April 2008, net of accumulated depreciation Additions Disposals Surplus on revaluation Depreciation provided during the year Transfer to investment properties (note 15) Exchange realignment At 31 March 2009 At 31 March 2009: Cost or valuation Accumulated depreciation Net carrying amount Analysis of cost or valuation: At cost At valuation	Leasehold buildings Leasehold improvements HK$’000 HK$’000 93,128 1,768 – (1,766) 93,128 2 93,128 2 – 5,343 – – 4,520 – (1,563) (418) (43,005) – 28 – 53,108 4,927 53,108 7,126 – (2,199) 53,108 4,927 – 7,126 53,108 – 53,108 7,126	Furniture and fixtures Office equipment Tools and equipment HK$’000 HK$’000 HK$’000 3,340 6,151 6,259 (1,817) (4,936) (3,656) 1,523 1,215 2,603 1,523 1,215 2,603 154 685 100 (1) (94) – – – – (264) (458) (693) – – – 12 7 29 1,424 1,355 2,039 3,505 6,582 6,408 (2,081) (5,227) (4,369) 1,424 1,355 2,039 3,505 6,582 6,408 – – – 3,505 6,582 6,408	Motor vehicles HK$’000 6,400 (4,747) 1,653 1,653 281 (88) – (360) – 11 1,497 6,406 (4,909) 1,497 6,406 – 6,406	Total HK$’000 117,046 (16,922)
				100,124

				100,124 6,563 (183) 4,520 (3,756) (43,005) 87
				64,350
				83,135 (18,785)
				64,350

				30,027 53,108
				83,135

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Leasehold buildings Leasehold improvements HK$’000 HK$’000 31 March 2008 At 1 April 2007: Cost or valuation 86,094 8,167 Accumulated depreciation (2,216) (3,766) Net carrying amount 83,878 4,401 At 1 April 2007, net of accumulated depreciation 83,878 4,401 Additions 3,409 563 Disposals (7,343) (49) Disposal of subsidiaries (note 41) – (4,367) Surplus on revaluation 13,253 – Depreciation provided during the year (3,362) (691) Exchange realignment 3,293 145 At 31 March 2008 93,128 2 At 31 March 2008: Cost or valuation 93,128 1,768 Accumulated depreciation – (1,766) Net carrying amount 93,128 2 Analysis of cost or valuation: At cost – 1,768 At valuation 93,128 – 93,128 1,768	Furniture and fixtures Office equipment Tools and equipment HK$’000 HK$’000 HK$’000 4,983 7,392 17,453 (3,263) (4,809) (6,003) 1,720 2,583 11,450 1,720 2,583 11,450 148 651 636 (154) (31) – – (1,393) (8,700) – – – (278) (616) (1,246) 87 21 463 1,523 1,215 2,603 3,340 6,151 6,259 (1,817) (4,936) (3,656) 1,523 1,215 2,603 3,340 6,151 6,259 – – – 3,340 6,151 6,259	Motor vehicles HK$’000 5,601 (4,324) 1,277 1,277 773 – (131) – (322) 56 1,653 6,400 (4,747) 1,653 6,400 – 6,400	Total HK$’000 129,690 (24,381)
			105,309

			105,309 6,180 (7,577) (14,591) 13,253 (6,515) 4,065
			100,124
			117,046 (16,922)
			100,124

			23,918 93,128
			117,046

The Group’s leasehold buildings, except for a property located in Hong Kong with a carrying value of HK$1,413,000 as at 31 March 2009 (the “Property”), were revalued individually at the balance sheet date by B.I. Appraisals Limited, independent professionally qualified valuers, at an aggregate open market value of HK$51,695,000 based on their existing use. In the opinion of the Directors, the carrying value of the Property approximates to its fair value as at 31 March 2009 with reference to recent market transactions. A revaluation surplus of HK$4,520,000 (2008: HK$13,253,000) resulting from the revaluation has been credited to the property revaluation reserve.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the leasehold buildings are as follows:

Long term lease: Hong Kong Medium term leases: Hong Kong Mainland China	Group 2009 2008 HK$’000 HK$’000 1,413 1,475 37,000 39,400 14,695 52,253 53,108 93,128	Group 2009 2008 HK$’000 HK$’000 1,413 1,475 37,000 39,400 14,695 52,253 53,108 93,128
		93,128

Had the Group’s leasehold buildings been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been approximately HK$17,807,000 as at 31 March 2009 (2008: HK$55,036,000).

As at 31 March 2009, certain leasehold buildings of the Group with aggregate carrying amounts of HK$38,413,000 (2008: HK$83,880,000) were pledged to secure certain banking facilities granted to the Group (note 35).

15. INVESTMENT PROPERTIES

Carrying amount at 1 April Additions Net profit from fair value adjustment Transfer from owner-occupied property (note 14) Exchange realignment Carrying amount at 31 March	Group 2009 2008 HK$’000 HK$’000 134,040 80,106 – 49,561 2,599 – 43,005 – 2,060 4,373 181,704 134,040	Group 2009 2008 HK$’000 HK$’000 134,040 80,106 – 49,561 2,599 – 43,005 – 2,060 4,373 181,704 134,040
		134,040

The Group’s investment properties are situated in Mainland China and are held under the following lease terms:

Long term lease Medium term lease	2009 HK$’000 129,950 51,754 181,704	2008 HK$’000 134,040 –
		134,040

The Group’s investment properties were revalued on 31 March 2009 by B.I. Appraisals Limited, independent professionally qualified valuers, at HK$181,704,000, on an open market, existing use basis.

As at 31 March 2009, the investment properties of the Group with aggregate carrying amounts of HK$181,704,000 (2008: HK$134,040,000) were pledged to secure certain banking facilities granted to the Group (note 35).

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 March 2009, investment properties of the Group with carrying amounts of HK$129,950,000 (2008: Nil) and HK$51,754,000 (2008: Nil) were leased to an independent third party and a related company under operating leases, respectively.

Further particulars of the Group’s investment properties are included on page 19.

16. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 April Recognised during the year Derecognised during the year Carrying amount at 31 March Current portion included in prepayments, deposits and other receivables Non-current portion	Group 2009 2008 HK$’000 HK$’000 5,996 13,262 (139) (249) – (7,017) 5,857 5,996 (139) (139) 5,718 5,857	Group 2009 2008 HK$’000 HK$’000 5,996 13,262 (139) (249) – (7,017) 5,857 5,996 (139) (139) 5,718 5,857
		5,996 (139)
		5,857

An analysis of the carrying amounts of prepaid land lease payments of the Group at the balance sheet date is as follows:

Situated in Hong Kong and held under: Medium term lease Long term lease	Group 2009 2008 HK$’000 HK$’000 4,975 5,106 882 890 5,857 5,996	Group 2009 2008 HK$’000 HK$’000 4,975 5,106 882 890 5,857 5,996
		5,996

At 31 March 2009, the leasehold land of the Group was pledged to secure certain banking facilities granted to the Group (note 35).

17. GOODWILL

Cost Accumulated impairment Disposal of subsidiaries (note 41) Net carrying amount	Group 2009 2008 HK$’000 HK$’000 – 4,000 – (4,000) – – – –	Group 2009 2008 HK$’000 HK$’000 – 4,000 – (4,000) – – – –
		–

As at 1 April 2005, Mega Fitness (Shanghai) Investments Limited was a 75%-owned subsidiary of the Company. Subsequently, the remaining 25% equity interest in Mega Fitness (Shanghai) Investments Limited with no carrying value was acquired by the Group at a cash consideration of HK$4,000,000, resulting in goodwill of HK$4,000,000. As the estimated recoverable amount arising from Mega Fitness (Shanghai) Investments Limited was of minimal amount, this resulted in an impairment loss of HK$4,000,000.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the prior year, Mega Fitness (Shanghai) Investments Limited was disposed of by the Group.

As further detailed in note 2.4 to the financial statements, the Group applied the transitional provisions of HKFRS 3 that permitted goodwill in respect of business combinations which occurred prior to 2001, to remain eliminated against the consolidated capital reserve.

The amount of goodwill remaining in consolidated capital reserve, arising from the acquisition of subsidiaries prior to the adoption of SSAP 30 in 2001, amounted to HK$9,121,000 as at 31 March 2009 and 2008.

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries	Company 2009 2008 HK$’000 HK$’000 156,031 156,031 196,652 201,648 352,683 357,679	Company 2009 2008 HK$’000 HK$’000 156,031 156,031 196,652 201,648 352,683 357,679
		357,679

The amounts advanced to the subsidiaries included in interests in subsidiaries above are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the Directors, these advances are considered as quasi-equity loans to the subsidiaries.

Details of the principal subsidiaries are as follows:

	Place of	Nominal value		Percentage of	Percentage of
	incorporation	of issued	Class of	equity attributable
	or registration/	share/registered	shares	to the	Company	Principal
Name	operations	capital	held	Direct	Indirect	activities
Beijing Chang De	PRC/Mainland	RMB16,000,000	(ii)	–	60	Decoration
Architectural &	China					engineering
Decoration Co., Ltd. (a)*
Deson Development	British Virgin	US$200	Ordinary	100	–	Investment
Holdings Limited	Islands/Hong					holding
	Kong
Deson Development	Hong Kong	HK$20,000,100	Class A	–	100	Construction
Limited		HK$20,000,000	Class B			contracting and
			(i)			investment
						holding
Deson Industries Limited	British Virgin	US$1	Ordinary	–	100	Investment
	Islands/Hong					holding
	Kong
Deson Property	PRC/Mainland	HK$70,000,000	(ii)	–	100	Property
Development (Kaifeng)	China					development
Co., Ltd. (b)*
Deson Ventures Limited	British Virgin	US$1	Ordinary	–	100	Investment
	Islands/Hong					holding
	Kong
Hua Sheng International	PRC/Mainland	US$6,400,000	(ii)	–	100	Property
Real Estate Development	China					development
(Shanghai) Co., Ltd. (b)*
Kenworth Engineering	Hong Kong	HK$54,374,140	Ordinary	–	100	Provision of
Limited		HK$20,000,000	Preference			electrical and
			(iii)			mechanical
						engineering
						services

– 61 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

==> picture [367 x 258] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Place|of|Nominal|value|Percentage|of|
|incorporation|of|issued|Class|of|equity|attributable|
|or|registration/|share/registered|shares|to|the|Company|Principal|
|Name|operations|capital|held|Direct|Indirect|activities|
|PRC/Mainland|HK$37,000,000|(ii)|–|60|Property|
|(b)|China|development|
|Medical|Technologies|Hong|Kong|HK$10,000|Ordinary|–|100|Trading|of|
|Limited|medical|
|equipment|
|Super|Sight|Investments|British|Virgin|US$1|Ordinary|–|100|Property|
|Inc.|Islands/|development|
|Mainland|
|China|
|PRC/Mainland|US$700,000|(ii)|–|100|Decoration|
|(a)|China|engineering|
|Wonderful|Hope|Limited|British|Virgin|US$1|Ordinary|–|100|Property|
|Islands/|development|
|Mainland|
|China|
|PRC/Mainland|RMB15,000,000|(ii)|–|100|Property|
|(b)|China|investment|
|PRC/Mainland|RMB10,000,000|(ii)|–|100|Property|
|(b)|China|investment|

----- End of picture text -----

(a) Registered as a Sino-foreign investment enterprise under PRC law
(b) Registered as wholly-foreign-owned enterprises under PRC law
Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

Notes:

(i) The holders of these non-voting class B shares are not entitled to dividend distributions. Moreover, upon the winding-up of this company, the class B shareholders are not entitled to any return of assets if the assets of the Company are less than HK$100 trillion.
(ii) The issued or paid-up capital of these subsidiaries is not classified.
(iii) The holders of the preference shares have a cumulative preferential right to the company’s profits at 10% of the nominal amount of share capital, but are not entitled to receive notice of or attend or vote at any meeting of members or any meeting of directors.

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

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INTEREST IN A JOINTLY-CONTROLLED ENTITY

Share of net liabilities Due from a jointly-controlled entity Impairment	Group 2009 2008 HK$’000 HK$’000 (13,495) (2,787) 19,456 18,466 (5,961) (2,787) 13,495 15,679 – 12,892

The amount due from the jointly-controlled entity is unsecured, interest-free and has no fixed terms of repayment except for an amount of HK$7,178,000 (2008: HK$7,178,000) which bears interest at the prime rate in Hong Kong plus 1% per annum. In the opinion of the Directors, this balance is considered as quasi-equity loan to the jointly-controlled entity.

Particulars of the jointly-controlled entity are as follows:

Name Place of registration and operations Nominal value of issued ordinary share capital Kenworth- Watfield Joint Venture Limited Hong Kong HK$1,000,000	Percentage of Principal activities Ownership interest Voting power Profit sharing 50 50 50 Provision of electrical and mechanical engineering services

The investment in a jointly-controlled entity is held through a subsidiary of the Company.

The following table illustrates the summarised financial information of the Group’s jointly-controlled entity extracted from its financial statements:

Share of the jointly-controlled entity’s assets and liabilities: Current assets Non-current assets Current liabilities Net liabilities Share of the jointly-controlled entity’s results: Revenue Total expenses Tax Loss after tax	2009 HK$’000 1,939 7 (15,441) (13,495) – (10,708) – (10,708)	2008 HK$’000 9,245 19 (12,051) (2,787) 1,586 (1,825) (4) (243)

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INTERESTS IN ASSOCIATES

					Group	Group
					2009		2008
				HK$’000			HK$’000
Share of net assets/(liabilities)					(2,408)		8,192

Due from associates				26,650			23,620

Due to associates					(262)			(547)

The balances with associates are unsecured, interest-free and repayable on demand.
Particulars of the principal	associates as at the	balance sheet date are as		follows:
			Percentage of
	Particulars of	Place of	ownership
	issued shares	incorporation/	attributable
	held/registered	registration		to the	Principal
Name	paid-up capital	and operations		Group	activities
Asia Construction	Ordinary shares	Hong Kong		49	Investment holding
Holdings Limited	of HK$1
Deson Metals Company	Ordinary shares	Hong Kong/		40	Trading of
Limited*	of HK$1 each	Mainland			construction
		China			materials
Fortune On Engineering	Ordinary shares	Hong Kong		40	Property
Limited*	of HK$1 each				development
Visonic Deson Limited*	Ordinary shares	Hong Kong		50	Selling,
	of HK$1 each				distribution and
					marketing of
					home security
					and	automation
					products
* (ii)	Registered capital of	PRC/Mainland China		20	Property management
	RMB1,000,000
	(i)

Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

Notes:

(i) The issued or paid-up capital of this associate is not classified.
(ii) The remittance of dividends to the Group from this associate operating outside Hong Kong is subject to the availability of foreign currencies generated and retained by this associate.

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

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, the carrying amount of an interest in an associate, Fuzhou Jiandi Concrete Co., Ltd., amounting to HK$9,295,000 was reclassified as non-current asset classified as held for sale. Further details of the non-current asset classified as held for sale are included in note 31 to the financial statements.

The Group’s shareholding in the associates comprises equity shares held through subsidiaries of the Company.

The Group has discontinued the recognition of its share of losses of certain associates because they exceeded the Group’s interests in these associates. The Group’s aggregate unrecognised share of losses of these associates for the current year and cumulatively amounted to HK$689,000 (2008: HK$324,000) and HK$1,533,000 (2008: HK$844,000), respectively.

The following table illustrates the summarised financial information of the Group’s associates extracted from their management accounts or financial statements:

Assets Liabilities Revenues Losses	2009 HK$’000 67,529 76,872 121,342 (699)	2008 HK$’000 107,670 91,179 139,955 (643)

21. AVAILABLE-FOR-SALE INVESTMENTS

Unlisted equity investments, at cost* Impairment	Group 2009 2008 HK$’000 HK$’000 2,400 2,400 (2,400) (2,400) – –

Represented unlisted equity investments, at cost, of HK$2,400,079 (2008: HK$2,400,079).

The above investments in equity securities are designated as available-for-sale financial assets and have no fixed maturity date or coupon rate.

An impairment was recognised for an unlisted equity investment with a carrying amount of HK$2,400,001 (before deducting the impairment loss) (2008: HK$2,400,001) because this investment has been loss-making for some time. There is no change in the impairment account during the current year.

As at 31 March 2009, an unlisted equity investment with a carrying amount of HK$78 (2008: HK$78) was stated at cost less impairment because the range of reasonable fair value estimates is so significant that the Directors are of the opinion that its fair value cannot be measured reliably.

22. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

					Group	Group
					2009	2008
					HK$’000	HK$’000
Investment-linked	deposits,	at	fair	value	2,260	2,234

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above balances at 31 March 2009 were designated as financial assets at fair value through profit or loss at the date of inception as these financial assets contained embedded derivatives. The fair values of the above investment-linked deposits are determined based on the discounted cash flow.

As at 31 March 2009, one of the above investment-linked deposits with a carrying amount of HK$1,130,000 (2008: HK$1,117,000) was pledged to secure certain banking facilities granted to the Group (note 35).

23. AMOUNT DUE FROM AN INVESTEE

Due from an investee Impairment	Group 2009 2008 HK$’000 HK$’000 3,840 3,840 (3,840) (3,840) – –	Group 2009 2008 HK$’000 HK$’000 3,840 3,840 (3,840) (3,840) – –
		–

An impairment was recognised for an amount due from an investee with a carrying amount of HK$3,840,000 (before deducting the impairment loss) (2008: HK$3,840,000) because this investee has been loss-making for some time. There is no change in the impairment account during the current year.

The amount due from investee is unsecured, interest-free and repayable on demand. In the opinion of the Directors, this amount is classified as non-current asset as the Group has no intention of demanding repayment in the near future.

24. AMOUNTS DUE TO MINORITY SHAREHOLDERS

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

25. PROPERTIES HELD FOR SALE

Completed properties Properties under development	Group 2009 2008 HK$’000 HK$’000 315,253 199,358 204,811 219,426 520,064 418,784	Group 2009 2008 HK$’000 HK$’000 315,253 199,358 204,811 219,426 520,064 418,784
		418,784

As at 31 March 2009, certain completed properties held for sale of the Group with aggregate carrying amounts of HK$79,065,000 (2008: Nil) were pledged to secure certain banking facilities granted to the Group (note 35).

In addition, certain completed properties held for sale of the Group with aggregate carrying amounts of HK$34,684,000 (2008: Nil) were pledged through the equity interest in a subsidiary to secure other loans amounting to HK$20,000,000 (2008: Nil) granted to the Group (note 35).

The application of the land use certificates of certain parcels of land with aggregate carrying value of HK$22,851,000 (2008: HK$27,803,000) were in progress at the balance sheet date.

Further particulars of the Group’s properties held of sale are included on page 17 to 18.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. CONSTRUCTION CONTRACTS

Gross amount due from contract customers Gross amount due to contract customers Contract costs incurred plus recognised profits less recognised losses and provision for foreseeable losses to date Less: Progress billings	Group 2009 2008 HK$’000 HK$’000 5,247 7,334 (38,626) (35,564) (33,379) (28,230) 1,669,158 1,357,364 (1,702,537) (1,385,594) (33,379) (28,230)

27. INVENTORIES

Trading goods 28. ACCOUNTS RECEIVABLE Accounts receivable Impairment Retention monies receivable	Group 2009 2008 HK$’000 HK$’000 1,497 2,604 Group 2009 2008 HK$’000 HK$’000 73,580 74,664 (21,443) (22,443) 52,137 52,221 7,335 4,629 59,472 56,850

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 90 days for the sale of trading goods and 180 days for the sale of completed properties held for sale. For retention monies receivable in respect of construction works carried out by the Group, the due dates are usually one year after the completion of the construction works. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s accounts receivable relate to a large number of diversified customers, there is no significant concentration of credit risk. Accounts receivable are non-interest-bearing.

– 67 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An aged analysis of the accounts receivable as at the balance sheet date, based on the invoice date and net of provision, is as follows:

Current to 90 days 91 to 180 days 181 to 360 days Over 360 days Retention monies receivable Total	Group 2009 2008 HK$’000 HK$’000 32,153 25,636 5,989 7,061 333 5,797 13,662 13,727 52,137 52,221 7,335 4,629 59,472 56,850	Group 2009 2008 HK$’000 HK$’000 32,153 25,636 5,989 7,061 333 5,797 13,662 13,727 52,137 52,221 7,335 4,629 59,472 56,850
		52,221 4,629
		56,850

The movements in provision for impairment of accounts receivable are as follows:

At 1 April Impairment losses recognised (note 6) Amount written off as uncollectible Impairment losses reversed (note 6) Disposal of subsidiaries (note 41) Exchange realignment At 31 March	Group 2009 2008 HK$’000 HK$’000 22,443 55,005 5,113 3,165 (4,154) (16,928) (2,623) (5,407) – (13,698) 664 306 21,443 22,443	Group 2009 2008 HK$’000 HK$’000 22,443 55,005 5,113 3,165 (4,154) (16,928) (2,623) (5,407) – (13,698) 664 306 21,443 22,443
		22,443

Included in the above provision for impairment of accounts receivable is a provision for individually impaired accounts receivable of HK$21,443,000 (2008: HK$22,443,000) with a carrying amount of HK$21,443,000 (2008: HK$22,443,000). The individually impaired accounts receivable relate to customers that were in financial difficulties or the customers that were in default in repayments and the receivables were not expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances.

The aged analysis of the accounts receivable that are neither individually nor collectively considered to be impaired is as follows:

Neither past due nor impaired Less than 3 months past due 3 to 6 months past due More than 6 months past due	Group 2009 2008 HK$’000 HK$’000 36,952 30,020 3,938 7,731 67 2,070 11,180 12,400 52,137 52,221	Group 2009 2008 HK$’000 HK$’000 36,952 30,020 3,938 7,731 67 2,070 11,180 12,400 52,137 52,221
		52,221

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances.

None of the retention monies receivable is either past due or impaired.

29. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepayments Deposits Other receivables Impairment	Group 2009 2008 HK$’000 HK$’000 21,143 21,551 1,241 2,071 22,384 23,622 12,823 17,886 (4,917) (5,638) 7,906 12,248 30,290 35,870	Company 2009 2008 HK$’000 HK$’000 34 23 – – 34 23 – – – – – – 34 23	Company 2009 2008 HK$’000 HK$’000 34 23 – – 34 23 – – – – – – 34 23
			23 – –
			–
			23

Except for other receivables against which impairment has been made, the remaining assets are neither past due nor impaired. The financial assets included in the above net balances relate to receivables for which there was no recent history of default.

The movements in provision for impairment of other receivables are as follows:

At 1 April Impairment losses recognised (note 6) Amount written off as uncollectible Impairment losses reversed (note 6) Disposal of subsidiaries (note 41) Exchange realignment At 31 March	Group 2009 2008 HK$’000 HK$’000 5,638 8,499 153 965 (4) – (900) (3,933) – (192) 30 299 4,917 5,638	Group 2009 2008 HK$’000 HK$’000 5,638 8,499 153 965 (4) – (900) (3,933) – (192) 30 299 4,917 5,638
		5,638

Included in the above provision for impairment of other receivables is a provision for individual other receivables that defaults in repayments and these receivables were not expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

Note Cash and bank balances Time deposits Less: Pledged deposits for banking facilities 35 Cash and cash equivalents	Group 2009 2008 HK$’000 HK$’000 53,807 31,087 31,331 21,465 85,138 52,552 (31,331) (21,465) 53,807 31,087	Company 2009 2008 HK$’000 HK$’000 64 72 – – 64 72 – – 64 72	Company 2009 2008 HK$’000 HK$’000 64 72 – – 64 72 – – 64 72
			72 –
			72

At the balance sheet date, the aggregate cash and bank balances and deposits of the Group denominated in Renminbi (“RMB”) amounted to HK$50,208,000 (2008: HK$26,015,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

31. NON-CURRENT ASSET CLASSIFIED AS HELD FOR SALE

							Group
							2009	2008
							HK$’000	HK$’000
Non-current	asset	classified	as	held	for	sale	9,295	–

Details of the asset held for sale are as follows:

			Percentage of
	Particulars of	Place of	ownership
	issued shares	incorporation/	attributable
	held/registered	registration	to the
Name	paid-up capital	and operations	Group	Principal activity
Fuzhou Jiandi Concrete	Registered	PRC/Mainland	40	Manufacture of
Co., Ltd.*	capital of	China		concrete
	RMB15,000,000			products

Not audited by Ernst & Young Hong Kong or other member of firm of the Ernst & Young global network.

On 31 March 2009, the Group signed a sale and purchase agreement with an independent third party regarding the disposal of the Group’s entire interest in the above associate, accordingly, the interest has been classified as an asset held for sale. As at 31 March 2009, the carrying amount of the interest approximates to the sale consideration as per the sales and purchase agreement less any expected costs to complete the transaction. The completion of the transaction is subject to the approval of the share transfer by the local PRC government authorities. Subsequent to the balance sheet date, the approval of the share transfer was obtained.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. ACCOUNTS PAYABLE

An aged analysis of the accounts payable as at the balance sheet date, based on the invoice date, is as follows:

Current to 90 days 91 to 180 days 181 to 360 days Over 360 days	Group 2009 2008 HK$’000 HK$’000 36,713 25,544 260 2 277 1,043 7,019 6,272 44,269 32,861	Group 2009 2008 HK$’000 HK$’000 36,713 25,544 260 2 277 1,043 7,019 6,272 44,269 32,861
		32,861

Accounts payable are non-interest-bearing and are normally settled on 30-day terms.

33. OTHER PAYABLES AND ACCRUALS

Deposits received Other payables Accruals	Group 2009 2008 HK$’000 HK$’000 3,120 5,678 63,433 31,484 104,563 92,517 171,116 129,679	Company 2009 2008 HK$’000 HK$’000 – – – – 1,421 786 1,421 786	Company 2009 2008 HK$’000 HK$’000 – – – – 1,421 786 1,421 786
			786

Other payables are non-interest-bearing and repayable on demand.

34. AMOUNTS DUE TO RELATED COMPANIES

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

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. INTEREST-BEARING BANK AND OTHER BORROWINGS

2009	2008
Contractual interest rate (%) Maturity 5.94 to 13.50 2009 to 2010 Prime rate + 0.50 On demand Prime rate + 0.875 2009 12.00 2009 to 2010 13.00 2009 4.00 2009 5.94 to 6.83 2011 to 2015 – – 2009	Contractual interest rate (%) Maturity 7.74 to 10.94 2008 to 2009 Prime rate + 0.50 On demand Prime rate + 0.875 2008 – – – – – – 7.74 to 8.69 2010 to 2015 4.00 2009 2008	HK$’000 14,409 25,934 19,766 – –
		60,109 –
		60,109
		39,654 15,274
		54,928
		115,037


Contractual interest rate (%) Maturity 4.00 2009 – –	Contractual interest rate (%) Maturity – – 4.00 2009	HK$’000 – 15,274
		15,274

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Analysed into: Bank loans, overdrafts and trust receipt loans repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years Other borrowings repayable: Within one year or on demand In the second year	Group 2009 2008 HK$’000 HK$’000 71,913 60,109 7,910 7,819 16,159 18,431 8,136 13,404 104,118 99,763 41,371 – – 15,274 41,371 15,274 145,489 115,037	Company 2009 2008 HK$’000 HK$’000 – – – – – – – – – – 15,721 – – 15,274 15,721 15,274 15,721 15,274	Company 2009 2008 HK$’000 HK$’000 – – – – – – – – – – 15,721 – – 15,274 15,721 15,274 15,721 15,274
			–
			– 15,274
			15,274
			15,274

The carrying amounts of these bank and other borrowings approximate to their fair values as at the balance sheet date. The fair value of bank and other borrowings has been calculated by discounting the expected future cash flows at the prevailing interest rates.

The Group’s banking facilities are secured by:

(i) the pledge of certain of the Group’s leasehold buildings situated in Hong Kong and Mainland China of HK$38,413,000 (2008:HK$83,880,000) (note 14);
(ii) the pledge of the Group’s investment properties situated in Mainland China of HK$181,704,000 (2008: HK$134,040,000) (note 15);
(iii) the pledge of the Group’s leasehold land situated in Hong Kong of HK$5,857,000 (2008: HK$5,996,000) (note 16);
(iv) the pledge of the Group’s deposits of HK$31,331,000 (2008: HK$21,465,000) (note 30);
(v) the pledge of certain of the Group’s completed properties held for sale situated in Mainland China of HK$79,065,000 (2008: Nil) (note 25); and
(vi) the pledge of one of the Group’s financial assets at fair value through profit or loss of HK$1,130,000 (2008: HK$1,117,000) (note 22).

In addition, the above banking facilities are secured by corporate guarantees executed by the Company.

The Group’s other loans amounting to HK$20,000,000 (2008: Nil) are secured by the Group’s equity interest in a subsidiary which held completed properties held for sale of HK$34,684,000 (2008: Nil) (note 25) and bear interest at 12% per annum. These loans are repayable in four equal instalments of HK$5,000,000 each commencing on 28 September 2009 and all loan instalments are repayable within one year.

The Group’s other loan amounting to HK$5,650,000 (2008: Nil) is unsecured, bears interest at 13% per annum and is repayable on 9 December 2009.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. DEFERRED TAX

The movements in deferred tax asset and liabilities during the year are as follows:

Deferred tax asset

Group and Company

Losses available for offsetting against future taxable profits HK$’000

At 1 April 2007 Deferred tax charged to the income statement during the year (note 10) Deferred tax asset at 31 March 2008, 1 April 2008 and 31 March 2009	262 (262)
	–

Deferred tax liabilities

Group

2009	2009
Revaluation of properties HK$’000 14,008 649 1,225 23 15,905	Withholding taxes HK$’000 – 3,108 – – 3,108 2008	Total HK$’000 14,247 3,757 1,225 23
		19,252


Accelerated tax depreciation HK$’000 239 – 239	Revaluation of properties HK$’000 11,510 2,498 14,008	Total HK$’000 11,749 2,498
		14,247

The Group has estimated tax losses arising in Hong Kong of HK$577,390,000 (2008: HK$581,745,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. The Group also has tax losses arising in Mainland China of HK$15,155,000 (2008: HK$15,362,000) that will expire in one to five years for offsetting against future taxable profit. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries with uncertain future operating profit streams.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between China and jurisdiction of the foreign investors. For the Group, the applicable rate is 5% or 10%. The Group is therefore liable to withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

37. CONVERTIBLE NOTES

On 24 April 2006, the Company issued 4% convertible notes with a total nominal value of HK$15,750,000. There was no movement in the number of convertible notes during the year. These notes have a three-year term and were issued at par, giving total proceeds of HK$15,750,000. Interest is payable half-yearly in arrears at a nominal annual interest rate of 4%. These notes are convertible at any time from the first anniversary of the issue date to the thirtieth day prior to the maturity date, at the holder’s option, into 35,000,000 ordinary shares of the Company at an initial conversion price of HK$0.45 per share.

The fair value of the liability component of the convertible notes was determined, upon issuance, using the prevailing market interest rate for similar debt without a conversion option of 7% and is carried as a long term liability. The remainder of the proceeds was allocated to the conversion option that is recognised and included in shareholders’ equity.

The convertible notes have been split as to the liability and equity components, as follows:

Nominal value of convertible notes issued Equity component Liability component at the issuance date Interest expense Interest paid Liability component at 31 March (note 35)	2009 HK$’000 15,750 (1,259) 14,491 3,082 (1,852) 15,721	2008 HK$’000 15,750 (1,259)
		14,491 2,005 (1,222)
		15,274

Subsequent to the balance sheet date, the convertible notes were fully redeemed on 23 April 2009.

38. SHARE CAPITAL

	2009	2008
	HK$’000	HK$’000
Authorised:
1,500,000,000 (2008: 1,500,000,000) ordinary shares
of HK$0.10 each	150,000	150,000
Issued and fully paid:
566,973,017 (2008: 572,738,017) ordinary shares
of HK$0.10 each	56,697	57,274

A summary of the transactions during the current and prior years with reference to the movements in the Company’s issued ordinary share capital is as follows:

– 75 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes At 1 April 2007 Repurchase of shares (i) Exercise of share options (ii) Share repurchase expenses Share issue expenses At 31 March 2008 and 1 April 2008 Repurchase of shares (i) Share repurchase expenses At 31 March 2009	Number of shares in issue 572,683,017 (745,000) 800,000 572,738,017 – – 572,738,017 (5,765,000) 566,973,017 – 566,973,017	Issued capital HK$’000 57,268 (74) 80 57,274 – – 57,274 (577) 56,697 – 56,697	Share premium account HK$’000 122,563 (179) 258 122,642 (2) (147) 122,493 (686) 121,807 (17) 121,790	Total HK$’000 179,831 (253) 338 179,916 (2) (147) 179,767 (1,263) 178,504 (17) 178,487

Notes:

(i) The Company repurchased a total of 5,765,000 (2008: 745,000) of its own shares on The Stock Exchange of Hong Kong Limited (the ’’Stock Exchange’’) at prices ranging from HK$0.12 to HK$0.32 per share (2008: HK$0.335 to HK$0.34 per share), for a total consideration, before expenses, of HK$1,263,000 (2008: HK$253,000). The repurchased shares were cancelled and an amount equivalent to the nominal value of these shares of HK$577,000 (2008: HK$74,000) was transferred from retained profits to the capital redemption reserve. The premium of HK$686,000 (2008: HK$179,000) paid for the repurchased shares and the share repurchase expenses of HK$17,000 (2008: HK$2,000) were charged against the share premium account.
(ii) In the prior year, 800,000 share options were exercised at an exercise price of HK$0.34 per share for a total consideration, before expenses, of HK$272,000, together with a release of the share option reserve amounting to HK$66,000, which was credited to the share premium account.

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 39 to the financial statements.

39. SHARE OPTION SCHEME

On 14 August 2002, the share option scheme of the Company adopted on 21 May 1997 ceased to operate and a new share option scheme (the “Scheme”) was adopted on the same day to comply with the requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. The options granted under the old scheme will remain in force and effect.

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company operates the Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include the Company’s directors, including independent non-executive directors, the Company’s shareholders and other employees of the Group. The Scheme became effective on 14 August 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company at the adoption date of the Scheme. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

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

The offer of a grant of share options may be accepted within 30 days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the Scheme at any time during a period not exceeding 10 years after the date when the option is granted and expiring on the last date of such period.

The exercise price of the share options is determinable by the directors, but may not be less than the highest of (i) the Stock Exchange closing price of the Company’s shares on the date of offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of an ordinary share.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

– 77 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following share options were outstanding under the Scheme during the year:

Name or category of participant Directors Ho Chung Tai, Raymond Siu Man Po Tjia Boen Sien Wang Jing Ning Keung Kwok Cheung Ong Chi King (resigned on 27 June 2008) Other employees, in aggregate Total	Numbe	r of share options Expired during the year At 31 March 2009 Date of grant of share options Exercise period of share options Exercise price of share options At grant date of* options*** HK$ per share HK$ per share (150,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (150,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (500,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (1,000,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (2,500,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (5,000,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (9,300,000) – (17,900,000) – 29 January 2008 11 February 2008 to 10 February 2009 0.4 0.34 (27,200,000) –
	At 1 April 2008 150,000 150,000 500,000 1,000,000 2,500,000 5,000,000 9,300,000 17,900,000 27,200,000	Expired during the year (150,000) (150,000) (500,000) (1,000,000) (2,500,000) (5,000,000) (9,300,000) (17,900,000) (27,200,000)

The vesting period of the share options is from the date of grant until the commencement of the exercise period.
** The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.
*** The price of the Company’s shares disclosed as at the date of grant of the share options is the Stock Exchange closing price on the trading day immediately prior to the date of grant of the options.

No share option was granted during the year. In the prior year, the fair value of the share options granted was HK$379,000 (approximately HK$0.014 each).

In the prior year, the fair value of equity-settled share options granted was estimated as at the date of grant using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the year ended 31 March 2008:

		2008
Dividend	yield (%)	0.00
Expected	volatility (%)	23.00
Historical	volatility (%)	23.00
Risk-free	interest rate (%)	2.58
Expected	life of option (year)	1.00
Weighted	average share price (HK$)	0.34

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The expected life of the options was based on the historical data over the past three years and was not necessarily indicative of the exercise patterns that may occur. The expected volatility reflected the assumption that the historical volatility was indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

During the year, 27,200,000 share options (2008: 10,450,000) expired and an amount of HK$379,000 (2008: HK$1,015,000) was transferred from the share option reserve to retained profits in respect of these options.

At the balance sheet date, no share option was outstanding under the Scheme.

40. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity of the financial statements.

(b) Company

Notes At 1 April 2007 Loss for the year 11 Repurchase of shares 38 Exercise of share options 38 Share repurchase expenses 38 Share issue expenses 38 Share options expired during the year 39 Equity-settled share option arrangements 39 At 31 March 2008 and 1 April 2008 Loss for the year 11 Repurchase of shares 38 Share repurchase expenses 38 Share options expired during the year 39 At 31 March 2009	Share premium account Contributed surplus HK$’000 HK$’000 122,563 155,531 – – (179) – 258 – (2) – (147) – – – – – 122,493 155,531 – – (686) – (17) – – – 121,790 155,531	Share option reserve HK$’000 1,081 – – (66) – – (1,015) 379 379 – – – (379) –	Capital redemption reserve Accumulated losses HK$’000 HK$’000 9,362 (401) – (5,198) 74 (74) – – – – – – – 1,015 – – 9,436 (4,658) – (4,795) 577 (577) – – – 379 10,013 (9,651)	Total HK$’000 288,136 (5,198) (179) 192 (2) (147) – 379
				283,181 (4,795) (686) (17) –
				277,683

The Company’s contributed surplus represents the excess of the fair value of the shares of the subsidiaries acquired pursuant to the Group reorganisation on 21 May 1997, over the nominal value of the Company’s shares issued in exchange therefor. Under the Companies Act 1981 of Bermuda (as amended), a distribution may be made out of the contributed surplus provided that the Company will

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

be able to pay its liabilities as they fall due and subsequent to the distribution, the aggregate amount of its total liabilities, issued share capital and share premium, is less than the realisable value of its assets.

The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share-based payment transactions in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be forfeited.

41. DISPOSAL OF SUBSIDIARIES

Notes Net assets disposed of: Property, plant and equipment 14 Interests in associates Goodwill 17 Amounts due from associates Amounts due from minority shareholders Inventories Accounts receivable Provision for impairment of accounts receivable 28 Other receivables Provision for impairment of other receivables 29 Cash and bank balances Accounts payable Other payables and accruals Exchange fluctuation reserve Minority interests Legal fee incurred Gain on disposal of subsidiaries Satisfied by: Cash	2009 HK$’000 – – – – – – – – – – – – – – – – – – – –	2008 HK$’000 14,591 (406) – 344 7 6,136 16,333 (13,698) 10,167 (192) 4,943 (3,898) (31,239) (304) (83) 2,701 136 3,163 6,000 6,000

An analysis of net inflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows:

Cash consideration Cash and bank balances disposed of Less: Legal fee paid Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries	2009 HK$’000 – – – – –	2008 HK$’000 6,000 (4,943) 1,057 (136) 921

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

Major non-cash transaction

In the prior year, the Group’s investment in an investee increased by HK$2,400,000 by capitalising the amount advanced to that investee.

43. CONTINGENT LIABILITIES

At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows:

Guarantees given to banks in connection with banking facilities granted to subsidiaries	Group 2009 2008 HK$’000 HK$’000 – –	Company 2009 2008 HK$’000 HK$’000 258,100 159,110

In respect of the guarantees granted to subsidiaries, banking facilities in the amount of HK$108,624,000 (2008: HK$90,939,000) were utilised by the subsidiaries as at 31 March 2009.

44. OPERATING LEASE ARRANGEMENTS

(a) The Group as lessor

The Group leases certain of its properties under operating lease arrangements, with leases negotiated for terms ranging from three to six years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At 31 March 2009, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	2009 HK$’000 3,684 4,747 8,431	2008 HK$’000 3,443 5,538
		8,981

During the year, the Group recognised HK$3,905,000 (2008: Nil) in respect of contingent rentals receivable which was calculated according to certain percentage on the turnover of the tenant.

(b) The Group as lessee

The Group leases certain of its office properties under operating lease arrangements, with leases negotiated for terms ranging from one to fifteen years.

– 81 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 31 March 2009, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	2009 HK$’000 2,133 6,022 10,050 18,205	2008 HK$’000 758 2,248 3,501
		6,507

The Company had no operating lease arrangements as at 31 March 2009 (2008: Nil).

45. COMMITMENTS

At the balance sheet date, neither the Group nor the Company had any significant commitments.

46. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year:

Notes Management fees received from associates (i) Management fees received from a related company (i) Interest income from a jointly-controlled entity (ii) Rental income from related companies (iii)	2009 HK$’000 831 240 441 2,580	2008 HK$’000 807 120 586 273

Notes:

(i) The management fees were charged by reference to actual costs incurred for the services provided by the Group.
(ii) The interest income from a jointly-controlled entity was charged at the prime rate plus 1% per annum on an amount due from it of HK$7,178,000 (2008: HK$7,178,000).
(iii) The rental income was charged to FCL and one of FCL’s subsidiaries at HK$45,000 (2008: HK$45,000) and HK$170,000 (2008: Nil) per month, respectively. Mr. Tjia Boen Sien is a director of and has beneficial interests in the Company and FCL while Mr. Keung Kwok Cheung is the director of the Company and FCL.
(b) Other transactions with related parties:

In the prior year, on 25 September 2007, the Group entered into a sale and purchase agreement with Ideal Choice Holdings Limited, a company wholly owned by Mr. Tjia Boen Sien, the Managing Director and Deputy Chairman and a substantial shareholder of the Company, in relation to the disposal of 100% interest in FCL and the related shareholder’s loan, at a total consideration of HK$6,000,000. FCL and its subsidiaries are principally engaged in operation of fitness centres and trading of fitness equipment business. The disposal was completed on 30 September 2007 and the sales proceeds were fully settled upon completion of the disposal. Details of this disposal of subsidiaries are included in note 41 to the financial statements.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Outstanding balances with related parties:
(i) Details of the Group’s balances with its jointly-controlled entity and associates as at the balance sheet date are included in notes 19 and 20 to the financial statements, respectively;
(ii) Details of the Company’s balances with its subsidiaries as at the balance sheet date are included in note 18 to the financial statements;
(iii) Details of the Group’s balances with its minority shareholders as at the balance sheet date are included in note 24 to the financial statements; and
(iv) Details of the Group’s balances with its related companies as at the balance sheet date are included in note 34 to the financial statements.
(d) Compensation of key management personnel of the Group:

The key management personnel of the Group are the directors of the Company. Details of their remuneration are disclosed in note 8 to the financial statements.

47. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the balance sheet date are as follows:

2009 Financial assets Amount due from a jointly-controlled entity (note 19) Amounts due from associates Financial assets at fair value through profit or loss Accounts receivable Financial assets included in prepayments, deposits and other receivables (note 29) Cash and cash equivalents Pledged deposits	Financial assets at fair value through profit or loss HK$’000 – – 2,260 – – – – 2,260	Group Loans and receivables HK$’000 13,495 26,650 – 59,472 9,147 53,807 31,331 193,902	Total HK$’000 13,495 26,650 2,260 59,472 9,147 53,807 31,331
			196,162

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial liabilities

	Financial liabilities
	at amortised cost
	HK$’000
Accounts payable	44,269
Financial liabilities included in other payables and accruals (note 33)	63,433
Amounts due to associates	262
Amounts due to minority shareholders	19,529
Amounts due to related companies	27,166
Convertible notes	15,721
Interest-bearing bank and other borrowings	129,768
	300,148

2008

Group

Financial assets

Amount due from a jointly-controlled entity (note 19) Amounts due from associates Financial assets at fair value through profit or loss Accounts receivable Financial assets included in prepayments, deposits and other receivables (note 29) Cash and cash equivalents Pledged deposits	Financial assets at fair value through profit or loss HK$’000 – – 2,234 – – – – 2,234	Loans and receivables HK$’000 15,679 23,620 – 56,850 14,319 31,087 21,465 163,020	Total HK$’000 15,679 23,620 2,234 56,850 14,319 31,087 21,465
			165,254

Financial liabilities

	Financial liabilities
	at amortised cost
	HK$’000
Accounts payable	32,861
Financial liabilities included in other payables and accruals (note 33)	31,484
Amounts due to associates	547
Amounts due to minority shareholders	17,360
Amounts due to related companies	23,813
Convertible notes	15,274
Interest-bearing bank and other borrowings	99,763
	221,102

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets

Company

Amounts due from subsidiaries (note 18) Cash and cash equivalents	Loans and receivables 2009 2008 HK$’000 HK$’000 196,652 201,648 64 72 196,716 201,720	Loans and receivables 2009 2008 HK$’000 HK$’000 196,652 201,648 64 72 196,716 201,720
		201,720

Financial liabilities

Convertible notes	Financial liabilities at amortised cost 2009 2008 HK$’000 HK$’000 15,721 15,274

48. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise interest-bearing bank and other borrowings, convertible notes, available-for-sale investments, financial assets at fair value through profit or loss, balances with a jointly-controlled entity, associates, minority shareholders and related companies, cash and cash equivalents and pledged deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as accounts receivable, accounts payable, deposits and other receivables, and other payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with a floating interest rate in Hong Kong and PRC.

The interest rates and terms of repayment of interest-bearing bank and other borrowings are disclosed in note 35 to the financial statements. Other financial assets and liabilities of the Group do not have material interest rate risk. Interest-bearing bank loans and overdrafts, other loans, cash and bank balances, and short term deposits are stated at cost and are not revalued on a periodic basis. Floating-rate interest income and expense are charged to the consolidated income statement as incurred.

The nominal interest rates of the financial instruments approximate to their respective effective interest rates.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax and equity (through the impact on floating rate borrowings).

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Group

			Increase/	Increase/
			(decrease)	(decrease)	Increase/
			in basis	in profit	(decrease)
			points	before tax	in equity*
			HK$’000	HK$’000
2009
Hong	Kong	dollar	100	(1,005)	–
Hong	Kong	dollar	(100)	1,005	–
2008
Hong	Kong	dollar	100	(541)	–
Hong	Kong	dollar	(100)	541	–

Excluding retained profits

Foreign currency risk

The monetary assets and transactions of several subsidiaries of the Group are principally denominated in foreign currencies, which expose the Group to foreign currency risk. The Group currently has no particular hedging vehicles to hedge its exposure to foreign exchange risk. It is the Group’s policy to monitor foreign exchange exposure and to make use of appropriate hedging measures when required.

The following table demonstrates the sensitivity at the balance sheet date to a reasonably possible change in the RMB exchange rates, with all other variables held constant, of the Group’s profit before tax and the Group’s equity (due to changes in the fair value of monetary assets and liabilities).

	Increase/	Increase/
	(decrease)	(decrease)	Increase/
	in exchange	in profit	(decrease)
	rate	before tax	in equity*
	%	HK$’000	HK$’000
2009
If Hong Kong dollar weakens against RMB	5	(1,963)	–
If Hong Kong dollar strengthens against RMB	(5)	1,963	–
2008
If Hong Kong dollar weakens against RMB	5	(4,895)	–
If Hong Kong dollar strengthens against RMB	(5)	4,895	–

Excluding retained profits

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

The credit risk of the Group’s other financial assets, which comprise an amount due from a jointly-controlled entity, amounts due from associates, financial assets at fair value through profit or loss, other receivables, cash and cash equivalents and pledged deposits, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s accounts receivable are widely dispersed in different sectors and industries.

Further quantitative data in respect of the Group’s exposure to credit risk arising from accounts receivable and other receivables are disclosed in notes 28 and 29 to the financial statements, respectively.

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., accounts receivable) and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, convertible notes, and other interest-bearing borrowings. The Group’s policy is to ensure the matching of maturity of its financial liabilities against its financial assets, and the maintenance of a current ratio, defined as current assets over current liabilities, at above one so as to enhance a stable liquidity.

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

Group

Accounts payable Financial liabilities included in other payable and accruals (note 33) Amounts due to associates Amounts due to minority shareholders Amounts due to related companies Convertible notes Interest-bearing bank and other borrowings	On demand HK$’000 – 63,433 262 19,529 27,166 – 23,568 133,958	Less than 12 months HK$’000 44,269 – – – – 15,750 79,434 139,453	2009 1 to 5 years HK$’000 – – – – – – 29,379 29,379	Over 5 years HK$’000 – – – – – – 8,622 8,622	Total HK$’000 44,269 63,433 262 19,529 27,166 15,750 141,003
					311,412

– 87 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Accounts payable Financial liabilities included in other payable and accruals (note 33) Amounts due to associates Amounts due to minority shareholders Amounts due to related companies Convertible notes Interest-bearing bank and other borrowings	On demand HK$’000 – 31,484 547 17,360 23,813 – 25,934 99,138	Less than 12 months HK$’000 32,861 – – – – – 34,175 67,036	2008 1 to 5 years HK$’000 – – – – – 15,750 26,250 42,000	Over 5 years HK$’000 – – – – – – 13,404 13,404	Total HK$’000 32,861 31,484 547 17,360 23,813 15,750 99,763
					221,578

The contractual undiscounted payments of the Company’s financial liabilities in respect of the convertible notes amounted to HK$15,750,000 (2008: HK$15,750,000) and the maturity profile of these financial liabilities fell within the band of less than twelve months (2008: one to five years).

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2009 and 31 March 2008.

– 88 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes accounts payable, other payables and accruals, amounts due to associates, minority shareholders and related companies, and interest-bearing bank and other borrowings, less cash and cash equivalents. Capital includes convertible notes and equity attributable to equity holders of the Company. The gearing ratios as at the balance sheet dates were as follows:

Accounts payable Other payables and accruals Amounts due to associates Amounts due to minority shareholders Amounts due to related companies Interest-bearing bank and other borrowings Less: Cash and cash equivalents Net debt Convertible notes, the liability component Equity attributable to equity holders of the Company Total capital Capital and net debt Gearing ratio	Group 2009 2008 HK$’000 HK$’000 44,269 32,861 171,116 129,679 262 547 19,529 17,360 27,166 23,813 129,768 99,763 (53,807) (31,087) 338,303 272,936 15,721 15,274 474,047 457,573 489,768 472,847 828,071 745,783 41% 37%

49. POST BALANCE SHEET EVENTS

(a) On 6 May 2009, Deson Development Holdings Limited (“DDHL”), a wholly-owned subsidiary of the Company entered into a shareholders’ agreement with Skill Achieve Investments Limited (“Skill Achieve”), an independent third party, pursuant to which the parties agreed to form a joint venture company named Deson Development International Holdings Investment Limited (“DDIHIL”). DDIHIL will invest in a 10% equity interest in Zhejiang Construction Investment Group Company Limited (“ZJC”), a state-owned enterprise in PRC as reorganised under a reorganisation scheme. ZJC is principally engaged in the businesses of construction investment management and construction contracting in PRC as a main contractor.

According to the above mentioned shareholders’ agreement and a supplementary agreement dated 25 June 2009, the issued share capital of DDIHIL will be owned as to 20% by DDHL and 80% by Skill Achieve. In order to finance the investment in the 10% equity interest in ZJC, DDHL and Skill Achieve agreed to advance shareholders’ loans to DDIHIL in proportion to their respective equity interests in DDIHIL. Accordingly, DDHL shall advance a total amount of RMB29 million (equivalent to approximately HK$32.9 million), and Skill Achieve shall advance a total amount of RMB116 million (equivalent to approximately HK$131.8 million), to DDIHIL. As at the date of this report, shareholders’ loan of RMB8.7 million has been advanced by DDHL to DDIHIL.

(b) As detailed in note 37 to the financial statements, on 23 April 2009, the convertible notes were fully redeemed at HK$15,750,000.

50. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 24 July

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED FINANCIAL INFORMATION OF THE GROUP

The following financial information is an extract from the unaudited financial statements of the Group for the six months ended 30 September 2009 together with notes thereto.

The board of directors (the “Board”) of Deson Development International Holdings Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the six months ended 30 September 2009, together with the comparative figures for the six months ended 30 September 2008 as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2009

Notes REVENUE 3 Cost of sales Gross profit Other income and gains 3 Administrative expenses Other operating income Finance costs 5 Share of profits and losses of: A jointly-controlled entity Associates PROFIT BEFORE TAX 4 Tax 6 PROFIT FOR THE PERIOD Attributable to: Equity holders of the Company Minority interests EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 7 Basic Diluted	2009 HK$’000 251,971 (197,437) 54,534 7,172 (29,079) 2,469 (4,208) (13) (172) 30,703 (16,886) 13,817 12,928 889 13,817 2.28 cents N/A	2008 HK$’000 343,461 (307,722) 35,739 7,622 (29,137) 2,091 (3,219) (14) 299 13,381 (8,337) 5,044 5,387 (343) 5,044 0.94 cents 0.94 cents

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 September 2009

PROFIT FOR THE PERIOD OTHER COMPREHENSIVE INCOME Exchange differences on translating foreign operations Share of other comprehensive income for the period Less: Reclassification adjustment: Release upon disposal of an associate Other comprehensive income for the period, net of tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Attributable to: Equity holders of the Company Minority interests	2009 HK$’000 13,817 2,256 633 (603) 2,286 16,103 15,031 1,072 16,103	2008 HK$’000 5,044 3,200 103 – 3,303 8,347 8,390 (43) 8,347

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 September 2009

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties 8 Prepaid land lease payments Interest in a jointly-controlled entity Interests in associates Available-for-sale investments Financial assets at fair value through profit or loss Total non-current assets CURRENT ASSETS Amounts due from associates Properties held for sale 9 Gross amount due from contract customers Inventories Accounts receivable 10 Prepayments, deposits and other receivables Cash and cash equivalents Pledged deposits Non-current asset classified as held for sale Total current assets CURRENT LIABILITIES Gross amount due to contract customers Accounts payable 11 Other payables and accruals Amounts due to associates Amounts due to minority shareholders Amounts due to related companies Tax payable Convertible notes 12 Interest-bearing bank and other borrowings Total current liabilities	30 September 2009 HK$’000 63,546 197,666 5,649 5,161 (3,427) – 2,280 270,875 37,011 513,303 5,550 810 60,163 39,518 41,375 31,314 729,044 – 729,044 49,631 31,097 129,595 262 20,131 20,107 55,381 – 100,053 406,257	31 March 2009 HK$’000 64,350 181,704 5,718 – (2,408) – 2,260 251,624 26,650 520,064 5,247 1,497 59,472 30,290 53,807 31,331 728,358 9,295 737,653 38,626 44,269 171,116 262 19,529 27,166 45,914 15,721 97,563 460,166

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital 13 Reserves Equity component of convertible notes Minority interests Total equity	30 September 2009 322,787 593,662 81,012 19,411 100,423 493,239 56,697 431,869 – 488,566 4,673 493,239	31 March 2009 277,487
		529,111
		32,205 19,252
		51,457
		477,654

		56,697 416,091 1,259
		474,047 3,607
		477,654

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Period ended 30 September 2009

==> picture [427 x 243] intentionally omitted <==

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

Attributable to equity holders of the Company
Equity
component
Share Property Capital Exchange Investment Share of
Issued premium Contributed revaluation Capital redemption fluctuation revaluation option convertible Reserve Retained Minority Total
capital account surplus reserve reserve reserve reserve reserve reserve notes funds profits Total interests equity
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 April 2008 57,274 122,493 15,262 34,182 (9,121) 9,436 26,240 1,250 379 1,259 3,260 195,659 457,573 2,525 460,098
Other comprehensive income – – – – – – 3,043 (40) – – – – 3,003 300 3,303
Profit for the period – – – – – – – – – – – 5,387 5,387 (343) 5,044
Total comprehensive income for the period – – – – – – 3,043 (40) – – – 5,387 8,390 (43) 8,347
Repurchase of shares (169) (290) – – – 169 – – – – – (169) (459) – (459)
Share repurchase expenses – (3) – – – – – – – – – – (3) – (3)
At 30 September 2008 57,105 122,200 15,262 34,182 (9,121) 9,605 29,283 1,210 379 1,259 3,260 200,877 465,501 2,482 467,983
At 1 April 2009 56,697 121,790 15,262 36,531 (9,121) 10,013 28,323 1,056 – 1,259 3,260 208,977 474,047 3,607 477,654
Other comprehensive income – – – – (119) – 1,589 121 – – – 512 2,103 183 2,286
Profit for the period – – – – – – – – – – – 12,928 12,928 889 13,817
Total comprehensive income for the period – – – – (119) – 1,589 121 – – – 13,440 15,031 1,072 16,103
Disposal of partial interest in a subsidiary – – – – – – – – – – – – – (6) (6)
Release of revaluation reserve – – – (512) – – – – – – – – (512) – (512)
Release upon expiry of convertible notes – – – – – – – – – (1,259) – 1,259 – – –
At 30 September 2009 56,697 121,790 15,262 36,019 (9,240) 10,013 29,912 1,177 – – 3,260 223,676 488,566 4,673 493,239
----- End of picture text -----*

These reserve accounts comprise the consolidated reserves of HK$431,869,000 (31 March 2009: HK$416,091,000) in the condensed consolidated statement of financial position.

The contributed surplus of the Group represents the excess of the nominal value of the subsidiaries’ shares acquired over the nominal value of the Company’s shares issued in exchange therefor, pursuant to the Group reorganisation on 21 May 1997.

The capital reserve of the Group as at 1 April 2009 and 30 September 2009 comprised goodwill arising from the acquisition of subsidiaries prior to 1 April 2002.

The reserve funds of the Group include statutory reserves required to be appropriated from the profit after tax of the Company’s subsidiaries in Mainland China under laws and regulations of the People’s Republic of China. The amount of the appropriation is at the discretion of these subsidiaries’ board of directors.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

For the six months ended 30 September 2009

CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdrafts, secured	2009 HK$’000 (23,399) (18,031) 5,821 (35,609) 30,239 444 (4,926) 41,375 (46,301) (4,926)	2008 HK$’000 1,131 (11,496) 18,583 8,218 5,153 (2,209) 11,162 42,547 (31,385) 11,162

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

These unaudited condensed financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities (the “Listing Rules”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and with Hong Kong Accounting Standard (“HKAS”) 34 “ Interim Financial Reporting ” issued by the Hong Kong Institute of Certified Public Accountants. They have been prepared under the historical cost convention, except for leasehold buildings, investment properties and financial assets at fair value through profit or loss, which have been measured at fair value. These unaudited condensed financial statements should be read in conjunction with the annual accounts for the year ended 31 March 2009.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual audited financial statements for the year ended 31 March 2009, except in relation to the following new Hong Kong Financial Reporting Standards (“HKFRSs”, which also include HKASs and interpretations) that affect the Group and are adopted by the Group for the first time for the current period’s financial statements:

HKAS 1 (Revised)	Presentation of Financial Statements
HKAS 23 (Revised)	Borrowing Costs
HKAS 32 and HKAS 1 Amendments	Amendments to HKAS 32 Financial Instruments:
	Presentation and HKAS 1 Presentation of Financial
	Statements – Puttable Financial Instruments	and
	Obligations Arising on Liquidation
HKFRS 1 and HKAS 27 Amendments	Amendments to HKFRS 1 First-time Adoption		of
	HKFRSs and HKAS 27 Consolidated and Separate
	Financial Statements – Cost of an Investment in a
	Subsidiary, Jointly Controlled Entity or Associate
HKFRS 2 Amendments	Amendments to HKFRS 2 Share-based Payment		–
	Vesting Conditions and Cancellations
HKFRS 7 Amendments	Amendments to HKFRS 7 Financial Instruments:
	Disclosures – Improving Disclosures about Financial
	Instruments
HKFRS 8	Operating Segments
HK(IFRIC)-Int 9 and HKAS 39	Amendments to HK(IFRIC)-Int 9 Reassessment		of
Amendments	Embedded Derivatives and HKAS 39 Financial
	Instruments: Recognition and Measurement		-
	Embedded Derivatives
HK(IFRIC)-Int 13	Customer Loyalty Programmes
HK(IFRIC)-Int 15	Agreements for the Construction of Real Estate
HK(IFRIC)-Int 16	Hedges of a Net Investment in a Foreign Operation
HKFRSs (Amendments)	Improvements to HKFRSs 2009 in relating to		the
	amendment to paragraph of HKAS 39

HKFRS 8 – Operating Segments

HKFRS 8 is a disclosure Standard that required the identification of operating segments to be performed on the same basis as financial information that is reported internally for the purpose of allocating resources between segments and assessing their performance. The predecessor Standard, HKAS14 Segment Reporting, required the identification of two sets of segments (business and geographical) using a risks and return approach. The application of HKFRS 8 has not resulted in a redesignation of the group’s reportable segments as compared with the primary reportable segments determined in accordance with HKAS 14 (see note 2).

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKAS 1 (Revised) – Presentation of Financial Statements

HKAS 1 (Revised) separates owner and non-owner changes in equity. The statement of changes in equity include only details of transactions with owner, with non-owner changes in equity presented in a single line. In addition, the standard introduced the statement of comprehensive income: it presents all items of recognised income and expensive, either in one single statement, or in two linked statements. The Group has elected to presents two statements.

The adoption of these new or revised HKFRSs has no material effect on the results and financial position of the Group for the current and prior accounting periods. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs May 2008[1] HKFRSs (Amendments) Improvements to HKFRSs April 2009[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[3] HKAS 39 Amendment Amendment to HKAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items[3] HKFRS 1 (Revised) First-time Adoption of HKFRS[3] HKFRS 2 Amendments Group cash-settled share-based payment transactions[6] HKFRS 3 (Revised) Business Combinations[3] HK(IFRIC)-Int 17 Distribution of Non-cash Assets to Owners[3] HK(IFRIC)-Int 18 Transfer of Assets from Customers[5]

1 Amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009
2 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for annual periods beginning on or after 1 July 2009
4 Effective for annual periods ending or after 30 June 2009
5 Effective for transfer of assets from customers received on or after 1 July 2009
6 Effective for annual periods beginning on or after 1 January 2010

The application of HKFR3 (Revised) may affect the accounting for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary. The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

2. SEGMENT INFORMATION

The Group has adopted HKFRS 8 Operating Segments with effect from 1 April 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, being the board of directors of the Company, in order to allocate resources to segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14, Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and return approach, with the entity’s “system of internal financial reporting to key management personnel” serving only as the starting point for the identification of such

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

segments. The application of HKFRS 8 has not resulted in a redesignation of the Group’s reportable segments as compared with the primary reportable segments determined in accordance with HKAS 14, nor has the adoption of HKFRS 8 changed the basis of measurement of segment profit or loss.

The following tables present revenue, profits/(losses) information for the Group’s business segments for the six months ended 30 September 2009 and 2008.

Segment revenue: Sales to external customers Other income and gains Total Segment results Interest income and dividend income Gain on disposal of an associate Gain on disposal of partial interest in subsidiaries Gain on disposal of a subsidiary Unallocated expenses Finance costs Share of profits and losses of: A jointly-controlled entity Associates Profit before tax Tax Profit for the period Other segment information: Depreciation Recognition of prepaid land lease payments Loss/(gain) on disposal of items of property, plant and equipment Impairment of accounts receivable Reversal of impairment of accounts receivable Reversal of impairment of other receivables	Construction business 2009 2008 HK$’000 HK$’000 121,575 309,467 991 3,480 122,566 312,947 (5,974) 5,255 (13) (14) (172) 299 843 862 69 69 – (3) – – – – (798) (908)	For the six months ended 30 September Property development and investment business Others 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 125,934 26,309 4,462 7,685 1,750 2,308 – 1,289 127,684 28,617 4,462 8,974 38,972 10,020 (96) 1,698 – – – – – – – – 1,039 459 40 1,492 – – – – 2 (7) 10 – 2,482 – – – (1,909) (1,107) – – – – – –	Consolidated 2009 2008 HK$’000 HK$’000 251,971 343,461 2,741 7,077 254,712 350,538 32,902 16,973 2,249 545 2,109 – 42 – 31 – (2,237) (1,203) (4,208) (3,219) (13) (14) (172) 299 30,703 13,381 (16,886) (8,337) 13,817 5,044 1,922 2,813 69 69 12 (10) 2,482 – (1,909) (1,107) (798) (908)	Consolidated 2009 2008 HK$’000 HK$’000 251,971 343,461 2,741 7,077 254,712 350,538 32,902 16,973 2,249 545 2,109 – 42 – 31 – (2,237) (1,203) (4,208) (3,219) (13) (14) (172) 299 30,703 13,381 (16,886) (8,337) 13,817 5,044 1,922 2,813 69 69 12 (10) 2,482 – (1,909) (1,107) (798) (908)
				350,538

				16,973 545 – – – (1,203) (3,219) (14) 299
				13,381 (8,337)
				5,044

				2,813 69 (10) – (1,107) (908)

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. REVENUE, OTHER INCOME AND GAINS

An analysis of revenue, other income and gains is as follows:

Revenue Income from construction contracting and related business Income from property development and investment business Income from trading of medical equipment, provision of related installation and maintenance services Other income and gains Bank interest income Other interest income Gain on disposal of an associate Gain on disposal of partial interest in subsidiaries Gain on disposal of a subsidiary Gross rental income Others	2009 HK$’000 121,575 125,934 4,462 251,971 134 2,115 2,109 42 31 1,595 1,146 7,172	2008 HK$’000 309,467 26,309 7,685
		343,461

		242 303 – – – 1,821 5,256
		7,622

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Cost of construction contracting Cost of properties sold Cost of inventories sold and services provided Depreciation Recognition of prepaid land lease payments Minimum lease payments under operating leases on land and buildings Loss/(gain) on disposal of items of property, plant and equipment^ Employee benefits expense (including directors’ emoluments): Wages and salaries Pension schemes contributions* Less: Amount capitalised Directors remuneration: Fee Salaries and allowances Pension scheme contributions Foreign exchange differences, net^ Impairment of accounts receivable^ Reversal of impairment of accounts receivable^ Reversal of impairment of other receivables^	2009 HK$’000 113,579 80,967 2,891 1,922 69 1,417 12 15,871 398 (1,927) 14,342 156 1,673 29 1,858 (2,256) 2,482 (1,909) (798)	2008 HK$’000 293,621 9,331 4,770 2,813 69 1,149 (10) 15,334 375 (1,210) 14,499 156 1,787 47 1,990 (66) – (1,107) (908)

At 30 September 2009, there were no forfeited contributions available to the Group to reduce contributions to the pension schemes in future years (2008: Nil).

^ These amounts are included in “Other operating income” on the face of the condensed consolidated income statement.

5. FINANCE COSTS

Interest on bank loans, overdrafts and other borrowings wholly repayable within five years Interest on convertible notes Total interest expense on financial liabilities not at fair value through profit or loss Less: Interest capitalised on properties under development	2009 HK$’000 6,717 67 6,784 (2,576) 4,208	2008 HK$’000 3,957 536 4,493 (1,274) 3,219

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. TAX

No Hong Kong profits tax has been provided as the Group’s subsidiaries either did not generate any assessable profits arising in Hong Kong during the period or had available tax losses brought forward from prior years to offset the assessable profits generated during the period (2008: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Land appreciation tax (“LAT”) in Mainland China is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from the sale of properties less deductible expenditures including amortisation of land use rights, borrowing costs and all property development expenditures.

Current – Elsewhere Charge for the period Underprovision/(overprovision) in prior periods Deferred LAT in Mainland China Total tax charge for the period	2009 HK$’000 4,814 (32) 124 11,980 16,886	2008 HK$’000 3,766 335 – 4,236
		8,337

7. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of basic earnings per share amounts is based on the profit for the period attributable to ordinary equity holders of the Company, and the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share during the six months ended 30 September 2009 have not been disclosed as no dilutive events existed during the period. The calculation of diluted earnings per share amounts for the six months ended 30 September 2008 was based on the profit for that period attributable to ordinary equity holders of the Company, adjusted to reflect the interest on the convertible notes. The weighted average number of ordinary shares used in the calculation was the number of ordinary shares in issue during that period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

The calculations of basic and diluted earnings per share are based on:

Earnings Profit attributable to ordinary equity holders of the Company, used in the basic earnings per share calculation: Interest on convertible notes Profit attributable to ordinary equity holders of the Company before interest on convertible notes	2009 HK$’000 12,928 – 12,928	2008 HK$’000 5,387 536
		5,923

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Shares Weighted average number of ordinary shares in issue during the period used in the basic earnings per share calculation Effect of dilution-weighted average number of ordinary shares: Convertible notes	Number of shares 2009 2008 566,973,017 572,429,848 – 35,000,000 566,973,017 607,429,848*

Because the diluted earnings per share amount was increased when taking the convertible notes into account, the convertible notes had an anti-dilutive effect on the basic earnings per share for the six months ended 30 September 2008 and were ignored in the calculation of diluted earnings per share. Therefore, diluted earnings per share amounts were based on the profit for the six months ended 30 September 2008 of HK$5,387,000 and the weighted average of 572,429,848 ordinary shares in issue during that year.

8. INVESTMENT PROPERTIES

30 September 2009 HK$’000 Carrying amount at 1 April 181,704 Additions 14,354 Net profit from fair value adjustment – Transfer from owner-occupied property – Exchange realignment 1,608 Carrying amount at 30 September/31 March 197,666	31 March 2009 HK$’000 134,040 – 2,599 43,005 2,060
	181,704

The Group’s investment properties are situated in Mainland China and are held under the following lease terms:

30 September 2009 HK$’000 Long term lease 145,454 Medium term lease 52,212 197,666	31 March 2009 HK$’000 129,950 51,754
	181,704

The Group’s investment properties were revalued on 31 March 2009 by B.I. Appraisals Limited, independent professionally qualified valuers, at HK$181,704,000 on an open market, existing use basis.

As at 30 September 2009, the investment properties of the Group with aggregate carrying amounts of HK$183,312,000 (31 March 2009: HK$181,704,000) were pledged to secure certain banking facilities granted to the Group.

As at 30 September 2009, investment properties of the Group with carrying amounts of HK$145,454,000 (31 March 2009: HK$129,950,000) and HK$52,212,000 (31 March 2009: HK$51,754,000) were leased to an independent third party and a related company under an operating lease, respectively.

– 102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. PROPERTIES HELD FOR SALE

30 September 2009 HK$’000 Completed properties 261,217 Properties under development 252,086 513,303	31 March 2009 HK$’000 315,253 204,811
	520,064

As at 30 September 2009, certain completed properties held for sale of the Group with aggregate carrying amounts of HK$44,080,000 (31 March 2009: HK$79,065,000) were pledged to secure certain banking facilities granted to the Group.

In addition, certain completed properties held for sale of the Group with aggregate carrying amounts of HK$33,071,000 (31 March 2009: HK$34,684,000) were pledged through the equity interest in a subsidiary to secure other loans amounting to HK$15,000,000 (31 March 2009: HK$20,000,000) granted to the Group.

10. ACCOUNTS RECEIVABLE

An aged analysis of the accounts receivable as at the reporting date, based on the invoice date and net of provision, is as follows:

30 September 2009 HK$’000 Current to 90 days 33,502 91 to 180 days 4,811 181 to 360 days 4,439 Over 360 days 11,127 53,879 Retention monies receivable 6,284 Total 60,163	31 March 2009 HK$’000 32,153 5,989 333 13,662
	52,137 7,335
	59,472

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. ACCOUNTS PAYABLE

An aged analysis of the accounts payable as at the reporting date, based on the invoice date, is as follows:

30 September 2009 HK$’000 Current to 90 days 22,659 91 to 180 days 179 181 to 360 days 673 Over 360 days 7,586 31,097	31 March 2009 HK$’000 36,713 260 277 7,019
	44,269

Accounts payable are non-interest-bearing and are normally settled on 30-day terms.

12. CONVERTIBLE NOTES

On 24 April 2006, the Company issued 4% convertible notes with a total nominal value of HK$15,750,000. These notes had a three-year term and were issued at par, giving total proceeds of HK$15,750,000. Interest was payable half-yearly in arrears at a nominal annual interest rate of 4%. These notes were convertible at any time from the first anniversary of the issue date to the thirtieth day prior to the maturity date, at the holder’s option, into 35,000,000 ordinary shares of the Company at an initial conversion price of HK$0.45 per share.

The fair value of the liability component of the convertible notes was determined, upon issuance, using the prevailing market interest rate for similar debt without a conversion option of 7%. The remainder of the proceeds was allocated to the conversion option that was recognised and included in shareholders’ equity.

The convertible notes had been split as to the liability and equity components, as follows:

30 September 2009 HK$’000 Nominal value of convertible notes issued – Equity component – Liability component at the issuance date – Interest expense – Interest paid – Liability component at 30 September/31 March –	31 March 2009 HK$’000 15,750 (1,259)
	14,491 3,082 (1,852)
	15,721

The convertible notes were fully redeemed on 23 April 2009.

– 104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. SHARE CAPITAL

30 September 2009 HK$’000 Authorised: 1,500,000,000 (31 March 2009: 1,500,000,000) ordinary shares of HK$0.10 each 150,000 Issued and fully paid: 566,973,017 (31 March 2009: 566,973,017) ordinary shares of HK$0.10 each 56,697	31 March 2009 HK$’000 150,000

	56,697

Share options

Details of the Company’s share option scheme are included in the section headed “Share Option Scheme”.

14. OPERATING LEASE COMMITMENTS

The Group leases certain of its office properties under operating lease arrangements, with leases negotiated for terms ranging from one to fifteen years.

At 30 September 2009, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

30 September 2009 HK$’000 Within one year 1,209 In the second to fifth years, inclusive 2,267 After five years 2,939 6,415	31 March 2009 HK$’000 2,133 6,022 10,050
	18,205

15. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the period:

Notes Management fees received from associates (i) Management fees received from a related company (i) Interest income from a jointly-controlled entity (ii) Rental income from a related company (iii)	2009 HK$’000 522 120 216 1,299	2008 HK$’000 414 120 225 1,294

Notes:

(i) The management fees were charged by reference to actual costs incurred for the services provided by the Group.

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The interest income from a jointly-controlled entity was charged at the prime rate plus 1% per annum on an amount due from it of HK$7,178,000 (31 March 2009: HK$7,178,000).
(iii) The rental income was charged to Fitness Concept Limited (“FCL”) and one of its subsidiary at HK$45,000 and HK$171,000 per month respectively. Mr. Tjia Boen Sien is a director of and has beneficial interest in the Company and FCL while Mr. Keung Kwok Cheung is a director of the Company and FCL.
(b) Outstanding balances with related parties:

Details of the Group’s balances with its jointly-controlled entity, associates, minority shareholders and related companies as at the reporting date are included in the financial statements;

The key management personnel of the Group are the directors of the Company. Details of their remuneration are disclosed in note 4 to the financial statements.

16. COMPARATIVE AMOUNTS

Due to the adoption of the new and revised HKFRSs during the current period, certain comparative amounts have been adjusted to conform with the current period’s presentation.

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. MANAGEMENT DISCUSSION AND ANALYSIS

The Group’s major business segment during the period comprises (i) construction, as a main contractor, as well as the provision of contracting intelligent building engineering, and electrical and mechanical (“E&M”) services; (ii) property development and investment; and (iii) trading of medical equipment, provision of related installation and maintenance services.

Construction business (including E&M works)

The Group will uphold an on-going parallel development of its construction business (including E&M works) in both the PRC and Hong Kong. With its proven track records and adequate expertise in the main contracting business, in April 2006, the Group had been promoted from “List of Approved Contractors for Public Works under Group C (on probation) of the Building Category under Environment, Transport and Works Bureau of the HKSAR” to “List of Approved Contractors for Public Works under Group C of the Building Category under Environment, Transport and Works Bureau of the HKSAR”. Together with the license in Group II under the “Turn-key Interior Design and Fitting-out Works” under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works” and the 11 licenses held under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works under Environment, Transport and Works Bureau of the Government of the HKSAR”, the above enables the Group to take an active part in the construction business development (including E&M works).

Property development and investment

Asian Villas City Square, Haikou, Hainan Province is developed into a residential and commercial complex with a total gross floor area of approximately 117,000 sq. metres. Construction were completed in last year. As at the Latest Practicable Date, the total sales contract sum achieved amounted to approximately RMB327 million.

On 9 June 2005, the Group was granted the land use rights of a development site in Long Ting district of the city of Kaifeng. The Directors intend to develop a residential and commercial complex on the site with an estimated gross floor area of approximately 202,000 sq. metres. Up to now, gross floor area of 27,924 sq. metres of construction has been completed and has started to contribute to the sales revenue of the Group. The remaining area of the land is under construction, being processed smoothly, and it is expected the construction will be completed by 2011. In April 2007, the Group was granted the land use rights of a development site adjacent to the original site in Long Ting District, with gross floor area of approximately 25,000 sq. metres, the Directors intend to develop this additional site together with the original site.

On 2 November 2006, the Group obtained the land use rights of a development site in Huidong province of PRC. The Directors intend to develop residential villas on the site with an estimated gross floor area of approximately 220,796 sq. metres. It is expected the development will soon be commenced. On 27 January 2010, the Group entered into an agreement in relation to the acquisition of the entire shareholding

– 107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

interests in the Target Company, the piece of land owned by the Target Group at Huizhou is contiguous with the sites already obtained by the Group in 2006, the Acquisition will result in the consolidation of land now owned by Huizhou Golf and the sites already owned by the Group, which is expected to bring synergy to the property development of the Group’s subsidiary and to enhance the combined value of the relevant land.

The Group purchased a hotel in Haikou, the capital of Hainan Province, PRC through the acquisition of a subsidiary in the prior years. The hotel has a gross floor area of 20,668 square metres. As at the Latest Practicable Date, the hotel was leased out to generate recurring rental income. In view of the great potential which Hainan Province has as an upscale tourist destination, the Directors consider the growth prospects to be promising.

Although the residual effect of the macro-economic tightening measures have added uncertainties to the growth of the PRC economy, the Directors believe that the austerity measure had only a moderate and short term impact on the property market in PRC. With strong sustained economic growth in PRC, coupled with the constant appreciation of RMB, the PRC property market offers tremendous opportunities, and the Group will continue to place emphasis on strengthening the property development and investment business in Kaifeng and Hainan, and may acquire additional land bank to richen its land reserve, however, the Group currently has no specific investment plan in relation to any particular project.

Noteworthy is the fact that Directors believe the hosting of the World Expo in Shanghai, PRC in 2010 will have a positive impact on the PRC property market and the property development and investment segment will continue to provide a sizable contribution to the Group’s operating results in the coming years.

Trading of medical equipment

With rising affluence especially in Hong Kong and the major cities in PRC, the consumers’ increasing health awareness, especially among higher-income urban consumers, has continued to create higher demand for medical equipments, and our effort in trading of medical equipment should continue to pay off in terms of sales growth and market penetration in PRC. In the coming year, we will expand our distribution channels and will introduce a broader range of products to spur sales growth.

While the global economy appears to have stabilised and has been showing positive signs and evidence of recovering, the recovery is generally expected to be anemic and moderate. The Group remains optimistic of the medium to longer term prospects of the property sector in the PRC and continues to be committed to those projects that are being undertaken by the Group. On the other hand, the Group will continue to adopt efficacious cost management strategies and maintain tight credit control to cope with challenges and enhance competitiveness under the difficult operating environment.

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. INDEBTEDNESS

Borrowing

As at 31 January 2010, being the latest practicable date for ascertaining certain information for inclusion in this indebtedness statements, the Enlarged Group had the following indebtedness:

i. Secured bank loans of approximately HK$148,498,000;
ii. Secured loan from an independent third party of approximately HK$20,000,000;
iii. Unsecured loans from an independent third party of approximately HK$11,780,000;
iv. Unsecured amounts due to associates of approximately HK$262,000;
v. Unsecured amounts due to minority shareholders of subsidiaries of approximately HK$54,131,000; and
vi. Unsecured amounts due to related companies of approximately HK$17,988,000.

The secured bank and other borrowings were secured by (i) the pledge of certain of the Enlarged Group’s leasehold buildings situated in Hong Kong and Mainland China; (ii) the pledge of the Enlarged Group’s investment properties situated in Mainland China; (iii) the pledge of the Enlarged Group’s leasehold land situated in Hong Kong; (iv) the pledge of certain of the Enlarged Group’s deposits; (v) the pledge of certain of the Enlarged Group’s completed properties held for sale situated in Mainland China; (vi) the pledge of the Enlarged Group’s equity interest in a subsidiary which held certain completed properties held for sale; and (vii) the pledge of one of the Enlarged Group’s financial assets at fair value through profit or loss.

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not have any mortgages, charges, debentures, loan capital, debt securities, bank loans and overdrafts or other similar indebtedness, finance leases, liabilities under acceptance of acceptance credits or any guarantees of other material contingent liabilities as at the close of business on 31 January 2010.

The Directors have confirmed that there has been no material change in the indebtedness of the Enlarged Group since 31 January 2010.

Contingent liabilities

As at 31 January 2010, there were no significant contingent liabilities for the Enlarged Group.

– 109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Commitments

As at 31 January 2010, there were no significant commitments for the Enlarged Group.

6. WORKING CAPITAL

The Directors are of the opinion that after taking into account the credit facilities and internal resources available to the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements.

The Directors are not aware of any matter or fact which will render the Enlarged Group not having sufficient working capital for its requirements after completion of the Acquisition.

7. FINANCIAL AND TRADING PROSPECTS

The Enlarged Group is principally engaged in (i) the construction business, as a main contractor, as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services, mainly in Hong Kong and the PRC; (ii) property development and investment; and (iii) the trading of medical equipment and provision of related installation and maintenance services. It is the Enlarged Group’s strategy to place emphasis on strengthening the property development and investment business and acquire additional land bank to richen its land reserve. The Directors consider that the Acquisition will bring synergy to the property development business of the Enlarged Group’s subsidiary and to enhance the combined value of the relevant land.

– 110 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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

==> picture [152 x 39] intentionally omitted <==

The Board of Directors

Deson Development International Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Hong Kong Okabe Company Limited (“HK Okabe”) and its subsidiaries (hereinafter collectively referred to as the “HK Okabe Group”) for each of the three years ended 30 September 2007, 2008 and 2009 (the “Relevant Periods”) set out in Section I below, for inclusion in the circular of Deson Development International Holdings Limited (“Deson”) dated 10 March 2010 (the “Circular”) in connection with the proposed acquisition of the entire shareholding interests in HK Okabe (the “Acquisition”), pursuant to a sale and purchase agreement dated 27 January 2010.

HK Okabe was incorporated in Hong Kong with limited liability on 20 October 1992 and is engaged in investment holding. The principal activities of HK Okabe Group during the Relevant Periods consisted of the operation of a golf club in the People’s Republic of China (the “PRC”).

As at the date of this report, HK Okabe had the following subsidiaries:

			Nominal value
			of issued
		Place of	ordinary share	Percentage of equity
		incorporation or	capital/	interest attributable
Name of		registration/	registered	to HK Okabe		Principal
subsidiaries		operations	capital	Direct	Indirect	activities
Mellink		Hong Kong	HK$8,010,000	100%	–	Selling of golf
	Investment					club
	Limited					memberships and
	(“Mellink”)					investment
		PRC/Mainland China	RMB90,000,000	–	90%	holding Golf club operation
	(Huizhou Golf
	Course Limited
	Company* or
	“Huizhou
	Golf”)

English translation name for identification purpose only

– 111 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The statutory financial statements of HK Okabe and Mellink for the years ended 30 September 2007 and 2008 were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) and were audited by K.S. Cheung & Co, Certified Public Accountants, Hong Kong. The statutory financial statements of HK Okabe and Mellink for the year ended 30 September 2009 were prepared in accordance with HKFRSs and were audited by NAC Pui C.P.A. & Co, Certified Public Accountants, Hong Kong.

The statutory financial statements of Huizhou Golf for the years ended 31 December 2007 and 2008 were prepared in accordance with the relevant accounting rules and regulations applicable in the PRC and were audited by , certified public accountants registered in the PRC. As at the date of this report, no statutory audited financial statements have been prepared for Huizhou Golf for the year ended 31 December 2009. The management accounts of Huizhou Golf for the years ended 30 September 2007, 2008 and 2009 have not been audited.

The statutory financial statements of HK Okabe for the years ended 30 September 2007, 2008 and 2009 were qualified in respect of the failure to present consolidated financial statements in accordance with Hong Kong Accounting Standard No. 27 “Consolidated and Separate Financial Statements” (“HKAS 27”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), the failure to equity account for its share of the results of an associate in accordance with Hong Kong Accounting Standard No. 28 “Investments in Associates” (“HKAS 28”) issued by the HKICPA, the scope limitation of the impairment of HK Okabe’s interests in Mellink and Huizhou Golf and the scope limitation of the impairment of HK Okabe’s amount due from a minority shareholder of Huizhou Golf.

The statutory financial statements of Mellink for the years ended 30 September 2007, 2008 and 2009 were qualified in respect of the failure to present consolidated financial statements in accordance with HKAS 27 issued by the HKICPA and the scope limitation of the impairment of Mellink’s interests in Huizhou Golf. The statutory financial statements of Mellink for the years ended 30 September 2008 and 2009 were further emphasised in respect of material uncertainty which may cast significant doubt about Mellink’s ability to continue as a going concern.

For the purpose of this report, the directors of HK Okabe have prepared the underlying financial information, which include the consolidated balance sheets of HK Okabe Group and the balance sheets of HK Okabe as at 30 September 2007, 2008 and 2009, the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of HK Okabe Group for each of the Relevant Periods, together with the notes thereon (the “Underlying Financial Information”), set out in this report in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong.

The directors of Deson are responsible for the preparation of the Financial Information in order to give a true and fair view. In preparing the Financial Information that give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently, that judgements and estimates made are reasonable, and that the reasons for any

– 112 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

significant departure from applicable accounting standards are stated. It is our responsibility to form an independent opinion, based on our audit, on the Financial Information and to report our opinion thereon.

Procedures Performed in Respect of the Relevant Periods

The Financial Information has been prepared from the Underlying Financial Information on the basis set out in note 2.1 of Section II below. For the purpose of this report, we have carried out an independent audit on the Financial Information for the Relevant Periods in accordance with Hong Kong Standards on Auditing issued by the HKICPA, and have carried out such additional procedures as we considered necessary in accordance with Auditing Guideline No. 3.340 “Prospectuses and the Reporting Accounting” issued by the HKICPA. No adjustments were considered necessary to adjust the Underlying Financial Information.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation and true and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of Deson, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

The result of HK Okabe and Mellink have been consolidated in the Financial Information for the Relevant Periods in accordance with the relevant HKFRSs and on the basis of preparation as set out in note 2.1 of Section II below. We have also performed additional audit procedures on the financial statements of HK Okabe and Mellink and have satisfied ourselves that there is no material financial impact on the Financial Information arising from the above qualifications.

Opinion in Respect of the Relevant Periods

In our opinion, on the basis of preparation as set out in note 2.1 of Section II below, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of HK Okabe and HK Okabe Group as at 30 September 2007, 2008 and 2009 and of the consolidated results and consolidated cash flows of HK Okabe Group for each of the Relevant Periods.

– 113 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 2.1 of Section II to the Financial Information concerning the adoption of the going concern basis on which the Financial Information has been prepared. As at 30 September 2007, 2008 and 2009, HK Okabe Group had net current liabilities of approximately HK$5,854,000, HK$10,472,000 and HK$16,292,000, respectively. The holding company of HK Okabe Group has confirmed its intention to provide continuing financial support to HK Okabe Group so as to enable it to meet its liabilities as and when they fall due and to enable HK Okabe Group to continue operating for the foreseeable future. Furthermore, upon completion of the Acquisition, Deson will provide financial support to HK Okabe Group to enable it to meet its financial liabilities as and when they fall due and to enable HK Okabe Group to continue operating for the foreseeable future. These conditions indicate the existence of a material uncertainty which may cast significant doubt on HK Okabe Group’s ability to continue as a going concern.

– 114 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

I. FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENTS

Notes REVENUE 5 Cost of sales Gross profit Other income 5 Administrative expenses Other operating income/(expenses), net LOSS BEFORE TAX 6 Income tax expense 9 LOSS FOR THE YEAR Attributable to: Owners of the parent 10 Minority interests	2007 HK$’000 16,028 (14,768) 1,260 977 (14,295) (1,025) (13,083) – (13,083) (13,083) – (13,083)	2008 HK$’000 18,058 (16,870) 1,188 810 (18,280) 1,606 (14,676) – (14,676) (14,676) – (14,676)	2009 HK$’000 18,449 (16,342) 2,107 529 (15,548) (108) (13,020) – (13,020) (13,020) – (13,020)

– 115 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED BALANCE SHEETS

Notes NON-CURRENT ASSETS Property, plant and equipment 11 Prepaid land lease payments 12 Interests in an associate 14 Due from a minority shareholder of a subsidiary 15 Total non-current assets CURRENT ASSETS Inventories 16 Accounts receivable 17 Prepayments, deposits and other receivables 18 Due from the holding company 19 Cash and cash equivalents 20 Total current assets CURRENT LIABILITIES Accounts payable 21 Deferred income and accruals 22 Membership deposits 23 Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred income 22 Net assets EQUITY Equity attributable to owners of the parent Issued capital 25 Reserves 26(a) Minority interests Total equity	2007 HK$’000 106,436 21,406 1,055 3,231 132,128 98 92 6,909 – 12,728 19,827 269 3,812 21,600 25,681 (5,854) 126,274 14,520 111,754 54,000 57,754 111,754 – 111,754	2008 HK$’000 108,282 21,871 – 3,295 133,448 115 214 1,857 – 17,574 19,760 213 9,269 20,750 30,232 (10,472) 122,976 13,551 109,425 54,000 55,425 109,425 – 109,425	2009 HK$’000 101,274 20,332 – 3,678 125,284 98 92 1,728 10 15,154 17,082 331 12,543 20,500 33,374 (16,292) 108,992 12,590 96,402 54,000 42,402 96,402 – 96,402

– 116 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Total equity HK$’000 107,929 7,008 (13,083)
Issued capital HK$’000 44,100 – – – 9,900 54,000 – – – 54,000 – – – 54,000	Share premium account Exchange fluctuation reserve** HK$’000 HK$’000 1,176 3,681 – 7,008 – – – 7,008 – – 1,176 10,689 – 12,347 – – – 12,347 1,176 23,036 – (3) – – – (3) 1,176 23,033	Retained profits* HK$’000 58,972 – (13,083) (13,083) – 45,889 – (14,676) (14,676) 31,213 – (13,020) (13,020) 18,193
			(6,075) 9,900
			111,754 12,347 (14,676)
			(2,329)
			109,425 (3) (13,020)
			(13,023)
			96,402

These reserve accounts comprise the combined reserves of HK$57,754,000, HK$55,425,000 and HK$42,402,000 as at 30 September 2007, 2008 and 2009, respectively.

– 117 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENTS

Notes CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax Adjustments for: Interest income 5 Loss on disposal of items of property, plant and equipment 6 Depreciation 6 Recognition of prepaid land lease payments 6 Decrease/(increase) in due from an associate Decrease/(increase) in due from a minority shareholder of a subsidiary Decrease/(increase) in inventories Decrease/(increase) in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Increase in due from the holding company Increase/(decrease) in accounts payable Increase in deferred income and accruals Decrease in membership deposits Cash generated from/(used in) operations Interest received Net cash flows from/(used in) operating activities	2007 HK$’000 (13,083) (414) 1,090 7,388 1,279 (3,740) (222) 368 (59) (16) (5,271) – 111 1,231 (575) (8,173) 414 (7,759)	2008 HK$’000 (14,676) (263) 1,922 7,950 1,554 (3,513) 1,055 (64) (17) (113) 5,609 – (81) 4,143 (850) 6,169 263 6,432	2009 HK$’000 (13,020) (137) 118 7,795 1,551 (3,693) – (452) 17 122 131 (10) 118 2,308 (250) (1,709) 137 (1,572)

– 118 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Notes CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Proceeds from disposal of prepaid land lease payments 12 Net cash flows from/(used in) investing activities CASH FLOW FROM A FINANCING ACTIVITY Proceeds from issue of shares and cash flow a from financing activity 25 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and balance balances 20 Time deposit with original maturity of less than three months 20 Cash and cash equivalents as stated in the statement of cash flows	2007 HK$’000 (1,462) 2,594 8,088 9,220 9,900 11,361 1,322 45 12,728 8,041 4,687 12,728	2008 HK$’000 (1,701) – – (1,701) – 4,731 12,728 115 17,574 2,163 15,411 17,574	2009 HK$’000 (862) 14 – (848) – (2,420) 17,574 – 15,154 2,413 12,741 15,154

– 119 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

BALANCE SHEETS

Notes NON-CURRENT ASSETS Property, plant and equipment 11 Interests in subsidiaries 13 Interests in an associate 14 Due from a minority shareholder of a subsidiary 15 Total non-current assets CURRENT ASSETS Cash and bank balances 20 CURRENT LIABILITIES Accruals 22 NET CURRENT LIABILITIES Net assets EQUITY Issued capital 25 Reserves 26(b) Total equity	2007 HK$’000 8 86,648 1,055 6,021 93,732 – 23 (23) 93,709 54,000 39,709 93,709	2008 HK$’000 2 90,472 – 6,021 96,495 3 24 (21) 96,474 54,000 42,474 96,474	2009 HK$’000 – 90,300 – 6,021 96,321 2 43 (41) 96,280 54,000 42,280 96,280

– 120 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

HK Okabe is a limited liability company incorporated in Hong Kong. The registered office of HK Okabe is located at Suite 2408, 24/F., Lippo Centre, Tower 2, 89 Queensway, Hong Kong.

During the Relevant Periods, HK Okabe Group was principally engaged in the operation of a golf club in the People’s Republic of China (the “PRC”).

As at the date of this report, in the opinion of the directors of Deson, the parent and ultimate holding company of HK Okabe is Okabe Co., Ltd.

2.1 BASIS OF PREPARATION

As at 30 September 2007, 2008 and 2009, HK Okabe Group had net current liabilities of approximately HK$5,854,000, HK$10,472,000 and HK$16,292,000, respectively.

In preparing the Financial Information, the directors of Deson have given careful consideration to the future liquidity of HK Okabe Group and have taken consideration of the follow events:

(a) The holding company of HK Okabe Group has confirmed its intention to provide continuing financial support to HK Okabe Group so as to enable it to meet its liabilities as and when they fall due and to enable HK Okabe Group to continue operating for the foreseeable future; and
(b) Upon completion of the proposed acquisition of the entire shareholding interests in HK Okabe, Deson will provide financial support to HK Okabe Group to enable it to meet its financial liabilities as and when they fall due and to enable HK Okabe Group to continue operating for the foreseeable future.

Consequently, the directors of Deson are satisfied that HK Okabe will be able to obtain necessary funding so as to meet its liabilities when they fall due for the foreseeable future. Accordingly, the Financial Information has been prepared on a going concern basis.

The Financial Information have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong institute of Certified Public Accountants (the “HKICPA”). They have been prepared under the historical cost convention. The Financial Information are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

For the purpose of preparing in the Financial Information, HK Okabe Group has adopted all the new and revised HKFRSs applicable throughout the Relevant Periods.

Basis of consolidation

The Financial Information include the financial statements of HK Okabe Group for the years ended 30 September 2007, 2008 and 2009. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which HK Okabe Group obtains control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within HK Okabe Group are eliminated on consolidation in full.

Minority interests represent the interests of outside shareholders not held by HK Okabe Group in the results and net assets of the HK Okabe’s subsidiaries.

– 121 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

HK Okabe Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKFRS 1 and HKAS 27	Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS	Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS	Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS	Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS
Amendments	27 Amendments _Consolidated and Separate Financial Statements _			–
	_Cost of an Investment in a Subsidiary, Jointly Controlled Entity _			or
	Associate 1
HKFRS 1 Amendments	Amendments to HKFRS 1 _First-time Adoption of Hong _	Kong Financial
	Reporting Standards – Additional Exemptions for First- time Adopters
	3
HKFRS 1 (Revised)	First-time Adoption of HKFRS 2
HKFRS 2 Amendments	Amendments to HKFRS 2 Share-based Payment – Vesting Conditions
	and Cancellations 1
HKFRS 2 Amendments	Amendments to HKFRS 2 Share-based Payment – Group Cash-settled
	Share-based Payment Transactions 3
HKFRS 3 (Revised)	Business Combinations 2
HKFRS 7 Amendments	Amendments to HKFRS 7 Financial Instruments:	Disclosures		–
	Improving Disclosures about Financial Instruments 1
HKFRS 8	Operating Segments 1
HKFRS 9	Financial Instruments 7
HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 23 (Revised)	Borrowing Costs 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements 2
HKAS 32 and HKAS 1	Amendments to HKAS 32 Financial Instruments: Presentation		and
Amendments	HKAS 1 Presentation of Financial Statements – Puttable Financial
	Instruments and Obligations Arising on Liquidation 1
HKAS 39 Amendment	Amendment to HKAS 39 Financial Instruments: Recognition		and
	Measurement – Eligible Hedged Items 2
HK(IFRIC)-Int 15	Agreements for the Construction of Real Estate 1
HK(IFRIC)-Int 17	Distribution of Non-cash Assets to Owners 2
HK(IFRIC)-Int 18	Transfers of Assets from Customers 8
HKAS 24 (Revised)	Related Party Disclosures 6
HKAS 32 Amendment	Amendment to HKAS 32 Financial Instruments:	Presentation		–
	Classification of Rights Issues 4
HK(IFRIC)-Int 14	Amendments to HK(IFRIC)-Int 14 Prepayments of a Minimum Funding
Amendments	Requirement 6
HK(IFRIC)-Int 19	Extinguishing Financial Liabilities with Equity Instruments 5
HK Interpretation 4	_Leases – Determination of the Length of Lease Term in _	respect of Hong
(Revised in December	Kong Land Leases 3
2009)

Apart from the above, the HKICPA has issued Improvements to HKFRSs and Improvements to HKFRSs 2009 which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to HKFRS 2, HKAS 38, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16 are effective for annual periods beginning on or after 1 July 2009 while the amendments to HKFRS 5, HKFRS 8, HKAS 1, HKAS 7, HKAS 17, HKAS 38 and HKAS 39 are effective for annual periods beginning on or after 1 January 2010 although there are separate transitional provisions for each standard or interpretation.

1 Effective for annual periods beginning on or after 1 January 2009

– 122 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Effective for annual periods beginning on or after 1 July 2009
3 Effective for annual periods beginning on or after 1 January 2010
4 Effective for annual periods beginning on or after 1 February 2010
5 Effective for annual periods beginning on or after 1 July 2010
6 Effective for annual periods beginning on or after 1 January 2011
7 Effective for annual periods beginning on or after 1 January 2013
8 Effective for transfers of assets from customers received on or after 1 July 2009

HK Okabe Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, HK Okabe Group considers these new and revised HKFRSs are unlikely to have a significant impact on HK Okabe Group’s results of operations and financial position.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity in which HK Okabe, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors; or over which HK Okabe has a contractual right to exercise a dominant influence with respect to that entity’s financial and operating policies.

The results of subsidiaries are included in HK Okabe’s income statements to the extent of dividends received and receivable. HK Okabe’s interests in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby HK Okabe Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which HK Okabe Group and the other parties have an interest.

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

A joint venture is treated as:

(a) a subsidiary, if HK Okabe, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors; or over which HK Okabe has a contractual right to exercise a dominant influence with respect to the joint venture’s financial and operating policies;
(b) a jointly-controlled entity, if HK Okabe does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if HK Okabe does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or

– 123 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(d) an equity investment accounted for in accordance with HKAS 39, if HK Okabe holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which HK Okabe Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

HK Okabe Group’s interests in an associate are stated in the consolidated balance sheet at HK Okabe Group’s share of net assets under the equity method of accounting, less any impairment losses. HK Okabe Group’s share of the post-acquisition results and reserves of the associate is included in the consolidated income statement and consolidated reserves, respectively.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises in those expense categories consistent with the function of the impaired asset, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting dates as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to HK Okabe Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, HK Okabe Group; (ii) has an interest in HK Okabe Group that gives it significant influence over HK Okabe Group; or (iii) has joint control over HK Okabe Group;
(b) the party is an associate;
(c) the party is a jointly-controlled entity;

– 124 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(d) the party is a member of the key management personnel of HK Okabe Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of the employees of HK Okabe Group, or of any entity that is a related party of HK Okabe Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, HK Okabe Group recognises such parts as individual assets with specific useful lives and depreciation.

Depreciation is calculated on the straight-line basis or on the reducing balance basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Golf club facilities on straight-line basis over 30 years Furniture and fixtures 15% on the reducing balance basis Office equipment 15% on the reducing balance basis Tools and equipment 15% on the reducing balance basis Motor vehicles 15% on the reducing balance basis

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation methods are reviewed, and adjusted if appropriate, at least at each reporting dates.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under operating leases are charged to the income statement on the straight-line basis over the operation period of Huizhou Golf.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

– 125 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Financial assets

Initial recognition and measurement

Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. HK Okabe Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that HK Okabe Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

HK Okabe Group’s financial assets include cash and cash equivalents, trade and other receivables, amount due from the holding company, an associate and a minority shareholder of a subsidiary.

Subsequent measurement

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The loss arising from impairment is recognised in the income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

the rights to receive cash flows from the asset have expired;
HK Okabe Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and
either (a) HK Okabe Group has transferred substantially all the risks and rewards of the asset, or (b) HK Okabe Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When HK Okabe Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of HK Okabe Group’s continuing involvement in the asset. In that case, HK Okabe Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that HK Okabe Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that HK Okabe Group could be required to repay.

– 126 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Impairment of financial assets

HK Okabe Group assesses at the reporting dates whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, HK Okabe Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If HK Okabe Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the income statement.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. HK Okabe Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

HK Okabe Group’s financial liabilities include trade and other payables, an amount due to the ultimate holding company, derivative financial instruments and interest-bearing loans and borrowings.

– 127 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Subsequent measurement

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if, and only if, there is currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting dates, taking into consideration interpretations and practices prevailing in the countries in which HK Okabe Group operates.

– 128 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Deferred tax is provided, using the liability method, on all temporary differences at the reporting dates between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the reporting dates and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the reporting dates and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Revenue recognition

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

(a) Revenue from the operation of the golf club is recognised when the services are rendered;
(b) Membership admission fees, on a time proportion basis over the operation period of the golf club;
(c) rental income, on a time proportion basis over the lease terms;

– 129 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(d) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Employee benefits

Pension schemes

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

The employees of HK Okabe Group’s subsidiary which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. This subsidiary are required to contribute a percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is HK Okabe’s functional and presentation currency. Each entity in HK Okabe Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in HK Okabe Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the reporting dates. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of the overseas subsidiary is currency other than the Hong Kong dollar. As at the reporting dates, the assets and liabilities of this subsidiary are translated into the presentation currency of HK Okabe at the exchange rates ruling at the reporting dates and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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

– 130 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of HK Okabe Group’s financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting dates. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Estimation uncertainty

Useful lives and impairment of property, plant and equipment

HK Okabe Group determines the useful lives and related depreciation charges for its property, plant and equipment based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The estimated useful lives could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles.

HK Okabe Group assesses whether there are any indicators of impairment for property, plant and equipment at the reporting dates. Property, plant and equipment are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The determination of fair value less costs to sell is based on the best information available to reflect the amount obtainable at the reporting dates, from disposal of the asset in an arm’s length transaction between knowledgeable and willing parties, after deducting the costs of disposal. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

4. OPERATING SEGMENT INFORMATION

HK Okabe Group was principally engaged in the operation of a golf club in the PRC and has only one reportable operating segment.

No geographical segment information is presented as all of HK Okabe Group’s revenue was derived in the PRC, and almost all of HK Okabe Group’s assets are located in the PRC.

– 131 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

5. REVENUE AND OTHER INCOME

Revenue, which is also HK Okabe Group’s turnover, represents the value of services rendered during the Relevant Periods.

An analysis of revenue and other income is as follows:

Revenue Rendering of services Membership admission fees Other income Bank interest income Rental income from the holding company Administration fee income from the holding company Others	2007 HK$’000 14,494 1,534 16,028 414 240 240 83 977	2008 HK$’000 16,459 1,599 18,058 263 240 240 67 810	2009 HK$’000 16,377 2,072
			18,449

			137 180 180 32
			529

6. LOSS BEFORE TAX

HK Okabe Group’s loss before tax is arriving at after charging/(crediting):

Notes Cost of services provided Depreciation 11 Recognition of prepaid land lease payments 12 Minimum lease payments under operating leases on land and buildings Loss on disposal of items of property, plant and equipment^ Auditors’ remuneration Employee benefit expense: Wages and salaries Pension schemes contributions Reversal of impairment of amount due from an associate^ Foreign exchange differences, net^	2007 HK$’000 14,768 7,388 1,279 284 1,090 92 3,404 77 3,481 – (65)	2008 HK$’000 16,870 7,950 1,554 369 1,922 98 4,052 90 4,142 (3,445) (83)	2009 HK$’000 16,342 7,795 1,551 308 118 127 5,189 68
			5,257
			– (10)

At the reporting dates, there were no forfeited contributions available to HK Okabe Group to reduce contributions to the pension scheme in future years.
^ These amounts are included in “Other operating income/(expenses), net” in the consolidated income statements.

– 132 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

7. DIRECTORS’ REMUNERATION

Directors’ remuneration for the Relevant Periods is as follows:

Fees Other emoluments	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 – – – – – – – – –	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 – – – – – – – – –
		–

8. FIVE HIGHEST PAID EMPLOYEES

Details of the remuneration of the five highest paid employees, who are non-director, during the Relevant Periods are as follows:

							Okabe Group
						2007	2008	2009
						HK$’000	HK$’000	HK$’000
Salaries,	allowances	and	benefits	in	kind	1,266	1,290	1,156

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

			Number	of employees
			2007	2008	2009
			HK$’000	HK$’000	HK$’000
Nil	to	HK$1,000,000	5	5	5

9. INCOME TAX

No provision for Hong Kong profits tax has been provided in the Relevant Periods as HK Okabe Group did not generate any assessable profits arising in Hong Kong during the Relevant Periods. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdiction in which HK Okabe Group operates.

– 133 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

A reconciliation of the tax credit applicable to loss before tax at the statutory rates for the jurisdictions in which HK Okabe Group are domiciled to the tax position is as follows:

HK Okabe Group

Loss before tax Tax at the statutory tax rate (2007: 17.5%; 2008: 16.5%; 2009: 16.5%) Effect on different rate for company operating in other jurisdiction Income not subject to tax Expenses not deductible for tax Tax losses and temporary differences not recognised Tax position	2007 HK$’000 (13,083) (2,290) (1,204) (279) 832 2,941 –	2008 HK$’000 (14,676) (2,422) (1,261) (798) 1,141 3,340 –	2009 HK$’000 (13,020) (2,148) (941) (208) 1,071 2,226 –

10. LOSS ATTRIBUTABLE TO OWNERS OF THE PARENT

The consolidated loss attributable to owners for the parent for the year ended 30 September 2007, 2008 and 2009 included loss of HK$17,000, profit of HK$2,765,000 and loss of HK$194,000, respectively, which has been dealt with in the financial statements of HK Okabe (note 26(b)).

11. PROPERTY, PLANT AND EQUIPMENT

HK Okabe Group

30 September 2007 At 1 October 2006: Cost Accumulated depreciation and impairment Net carrying value At 1 October 2006, net of accumulated depreciation and impairment Additions Disposals Depreciation provided During the year Exchange realignment At 30 September 2007 At 30 September 2007: Cost Accumulated depreciation and impairment Net carrying value	Golf club facilities HK$’000 155,099 (52,919) 102,180 102,180 1,267 (3,656) (6,068) 5,157 98,880 160,538 (61,658) 98,880	Furniture and fixtures HK$’000 8,233 (6,997) 1,236 1,236 94 – (135) 60 1,255 8,739 (7,484) 1,255	Office equipment HK$’000 874 (707) 167 167 70 – (77) 9 169 858 (689) 169	Tools and equipment HK$’000 7,796 (3,305) 4,491 4,491 31 – (632) 227 4,117 8,221 (4,104) 4,117	Motor vehicles HK$’000 8,019 (5,594) 2,425 2,425 – (28) (476) 94 2,015 8,108 (6,093) 2,015	Total HK$’000 180,021 (69,522) 110,499 110,499 1,462 (3,684) (7,388) 5,547 106,436 186,464 (80,028) 106,436

– 134 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

HK Okabe Group

30 September 2008 At 30 September 2007 and at 1 October 2007: Cost Accumulated depreciation and impairment Net carrying value At 1 October 2007, net of accumulated depreciation and impairment Additions Disposals Depreciation provided During the year Exchange realignment At 30 September 2008 At 30 September 2008: Cost Accumulated depreciation and impairment Net carrying value	Golf club facilities HK$’000 160,538 (61,658) 98,880 98,880 – (22) (6,647) 9,312 101,523 175,461 (73,938) 101,523	Furniture and fixtures HK$’000 8,739 (7,484) 1,255 1,255 52 (787) (229) 116 407 793 (386) 407	Office equipment HK$’000 858 (689) 169 169 33 (77) (39) 11 97 234 (137) 97	Tools and equipment HK$’000 8,221 (4,104) 4,117 4,117 1,616 (854) (618) 388 4,649 7,986 (3,337) 4,649	Motor vehicles HK$’000 8,108 (6,093) 2,015 2,015 – (182) (417) 190 1,606 7,970 (6,364) 1,606	Total HK$’000 186,464 (80,028)
						106,436

						106,436 1,701 (1,922) (7,950) 10,017
						108,282

						192,444 (84,162)
						108,282

– 135 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

HK Okabe Group

30 September 2009 At 30 September 2008 and at 1 October 2008: Cost Accumulated depreciation and impairment Net carrying value At 1 October 2008, net of accumulated depreciation and impairment Additions Disposals Depreciation provided During the year Exchange realignment At 30 September 2009 At 30 September 2009: Cost Accumulated depreciation and impairment Net carrying value	Golf club facilities HK$’000 175,461 (73,938) 101,523 101,523 488 – (6,638) 53 95,426 176,042 (80,616) 95,426	Furniture and fixtures HK$’000 793 (386) 407 407 10 – (110) – 307 726 (419) 307	Office equipment HK$’000 234 (137) 97 97 8 (5) (24) – 76 189 (113) 76	Tools and equipment HK$’000 7,986 (3,337) 4,649 4,649 351 – (639) 3 4,364 8,341 (3,977) 4,364	Motor vehicles HK$’000 7,970 (6,364) 1,606 1,606 5 (127) (384) 1 1,101 6,709 (5,608) 1,101	Total HK$’000 192,444 (84,162)
						108,282

						108,282 862 (132) (7,795) 57
						101,274

						192,007 (90,733)
						101,274

HK Okabe Group’s leasehold buildings are situated in Mainland China and are held under medium lease terms.

– 136 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

HK Okabe

30 September 2007
At 1 October 2006
Cost
Accumulated depreciation
Net carrying value
At 1 October 2006, net of accumulated depreciation
Depreciation provided during the year
At 30 September 2007, net of accumulated depreciation
At 30 September 2007
Cost
Accumulated depreciation
Net carrying value
30 September 2008
At 30 September 2007 and 1 October 2007
Cost
Accumulated depreciation
Net carrying value
At 1 October 2007, net of accumulated depreciation
Depreciation provided during the year
At 30 September 2008, net of accumulated depreciation
At 30 September 2008
Cost
Accumulated depreciation
Net carrying value

Furniture
and fixtures
HK$’000
74
(51)
23
23
(15)
8
74
(66)
8
74
(66)
8
8
(6)
2
74
(72)
2

– 137 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

30 September 2009 At 30 September 2008 and 1 October 2008 Cost Accumulated depreciation Net carrying value At 1 October 2008, net of accumulated depreciation Depreciation provided during the year At 30 September 2009, net of accumulated depreciation At 30 September 2009 Cost Accumulated depreciation Net carrying value	Furniture and fixtures HK$’000 74 (72) 2 2 (2) – – – –

12. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 October Recognised during the year Disposed during the year Exchange realignment Carrying amount at 30 September Current portion included in prepayments, deposits and other receivables Non-current portion	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 30,647 22,827 23,421 (1,279) (1,554) (1,551) (8,088) – – 1,547 2,148 13 22,827 23,421 21,883 (1,421) (1,550) (1,551) 21,406 21,871 20,332

HK Okabe Group’s leasehold land is situated in Mainland China and is held under medium lease term.

– 138 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

13. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Provision for impairment	2007 HK$’000 56,796 182,852 239,648 (153,000) 86,648	HK Okabe 2008 HK$’000 56,796 186,676 243,472 (153,000) 90,472	2009 HK$’000 56,796 186,504
			243,300 (153,000)
			90,300

The amounts advanced to the subsidiaries included in the interests in subsidiaries above are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors of Deson, these advances are considered as quasi-equity loans to the subsidiaries.

Details of the principal subsidiaries are as follows:

			Nominal value
			of issued	Percentage
		Place of	ordinary share	of equity
		incorporation	capital/	attributable		to
		or registration/	registered	HK	Okabe		Principal
Name		operations	capital	Direct	Indirect		activities
Mellink Investment		Hong Kong	HK$8,010,000	100%		–	Selling of golf
	Limited						club
							memberships
							and investment
		PRC/Mainland China	RMB90,000,000	–		90%	holding Golf club operation
	(“Huizhon Golf”)

Huizhou Golf is registered as a sino-foreign cooperative joint venture under the PRC law. The operation period of Huizhou Golf is thirty years from its registration date on 6 November 1993. Under the terms of the joint venture agreement, HK Okabe Group, the foreign joint venture partner, and the Chinese joint venture partner share the profit generated from Huizhou Golf at percentages of 90% and 10%, respectively. HK Okabe Group is also responsible for the cost of development of the golf club. No profit has been shared to the Chinese joint venture partner as Huizhou Golf has recorded losses since its registration. After the expiry of the tenure of Huizhou Golf, all the fixed assets of Huizhou Golf will be transferred to the Chinese joint venture partner at nil consideration.

– 139 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

14. INTERESTS IN AN ASSOCIATE

Unlisted shares, at cost Share of net assets Due from an associate Provision for Impairment	HK 2007 HK$’000 – – – 12,552 12,552 (11,497) 1,055	Okabe Group 2008 2009 HK$’000 HK$’000 – – – – – – 8,052 8,052 8,052 8,052 (8,052) (8,052) – –	HK Okabe 2007 2008 HK$’000 HK$’000 3 3 – – 3 3 12,552 8,052 12,555 8,055 (11,500) (8,055) 1,055 –	2009 HK$’000 3 –
				3 8,052
				8,055 (8,055)
				–

The amount advanced to the associate included in the interests in an associate above is unsecured, interest-free and has no fixed terms of repayment. In the opinion of the directors of Deson, this advance is considered as quasi-equity loans to the associate.

The movement in provision for impairment are as follows:

At 1 October Impairment losses reversed At 30 September	HK 2007 HK$’000 11,497 – 11,497	Okabe Group 2008 2009 HK$’000 HK$’000 11,497 8,052 (3,445) – 8,052 8,052	HK Okabe 2007 2008 HK$’000 HK$’000 11,500 11,500 – (3,445) 11,500 8,055	2009 HK$’000 8,055 –
				8,055

Particulars of the associate are as follows:

					Percentage of
					Ownership
					interest
			Particulars of		attributable to
			issued shares	Place of	HK Okabe	Principal
Name			held	incorporation	Group	activities
Pacific	Chest	Limited	Ordinary shares	Hong Kong	25	Property trading
			of HK$1 each

The above associate is not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

HK Okabe Group’s shareholding in the associate comprises equity shares held by HK Okabe. The associate has been accounted for using the equity method in these Financial Information.

HK Okabe Group has discontinued the recognition of its share of loss of the above associate because it exceeded HK Okabe Group’s interests in this associate.

– 140 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table illustrates the summarised financial information of HK Okabe Group’s associate extracted from its management accounts:

Assets Liabilities Revenue Profit/(loss)	2007 HK$’000 11,954 73,850 253 (325)	2008 HK$’000 4,199 56,049 13,914 10,046	2009 HK$’000 4,190 56,049 1 (9)

15. DUE FROM A MINORITY SHAREHOLDER OF A SUBSIDIARY

The amount due from a minority shareholder of a subsidiary is unsecured, interest-free and has no fixed terms of repayment. In the opinion of the directors of Deson, the amount was not likely to be repaid within the twelve months from the reporting dates.

16. INVENTORIES

Utility supplies Selling merchandises Tools and parts	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 56 45 34 28 41 47 14 29 17 98 115 98	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 56 45 34 28 41 47 14 29 17 98 115 98
		98

17. ACCOUNTS RECEIVABLE

			Okabe Group
		2007	2008	2009
		HK$’000	HK$’000	HK$’000
Accounts	receivable	92	214	92

HK Okabe Group’s sales are mainly made by credit cards or cash on delivery. The remaining amounts are made on credit with term of one month. HK Okabe Group seeks to maintain strict control over its outstanding receivables. In view of the aforementioned, there is no significant concentration of credit risk. Accounts receivable are non-interest-bearing.

An aged analysis of the accounts receivable as at the reporting dates, based on the invoice date, is as follows:

				Okabe Group
			2007	2008	2009
			HK$’000	HK$’000	HK$’000
Within	1	month	92	214	92

– 141 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The aged analysis of the accounts receivable that are neither individually nor collectively considered to be impaired is as follows:

Neither past due nor impaired	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 92 214 92

Receivables that were neither past due nor impaired relate to recoginsed and creditworthy credit card companies and a large number of diversified golf club members for whom there was no recent history of default.

18. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepaid land lease payments Prepayments Deposits and other receivables	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 1,421 1,550 1,551 7 15 14 5,481 292 163 6,909 1,857 1,728	HK Okabe Group 2007 2008 2009 HK$’000 HK$’000 HK$’000 1,421 1,550 1,551 7 15 14 5,481 292 163 6,909 1,857 1,728
		1,728

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

19. DUE FROM THE HOLDING COMPANY

The amount due from the holding company is unsecured, interest-free and repayable on demand.

20. CASH AND CASH EQUIVALENTS

Cash and balance balances Time deposit Cash and cash equivalents	HK 2007 HK$’000 8,041 4,687 12,728	Okabe Group 2008 2009 HK$’000 HK$’000 2,163 2,413 15,411 12,741 17,574 15,154	HK Okabe 2007 2008 HK$’000 HK$’000 – 3 – – – 3	2009 HK$’000 2 –
				2

At 30 September 2007, 2008 and 2009, the aggregate cash and bank balances and deposits of HK Okabe Group denominated in Renminbi (“RMB”) amounted to HK$1,229,000, HK$676,000 and HK$1,461,000, respectively. The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, HK Okabe Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of HK Okabe Group, and earn interest at the respective short term time deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

– 142 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

21. ACCOUNTS PAYABLE

An aged analysis of the accounts payable as at the reporting dates, based on the invoice date, is as follows:

				Okabe Group
			2007	2008	2009
			HK$’000	HK$’000	HK$’000
Within	1	month	269	213	331

The accounts payable are non-interest-bearing and normally settled on demand.

22. DEFERRED INCOME AND ACCRUALS

Deferred income Accruals Current portion Non-current portion	HK 2007 HK$’000 15,496 2,836 18,332 (3,812) 14,520	Okabe Group 2008 2009 HK$’000 HK$’000 14,520 13,551 8,300 11,582 22,820 25,133 (9,269) (12,543) 13,551 12,590	2007 HK$’000 – 23 23 (23) –	HK Okabe 2008 HK$’000 – 24 24 (24) –	2009 HK$’000 – 43
					43 (43)
					–

Deferred income represents membership admission fees received that is not yet recognised in the income statement.

23. MEMBERSHIP DEPOSITS

Membership deposits are non-interest-bearing and repayable upon the holder withdraws from the club membership.

24. DEFERRED TAX

HK Okabe Group has tax losses in Hong Kong of HK$8,252,000, HK$11,328,000 and HK$13,441,000 as at 30 September 2007, 2008 and 2009, respectively, that are available indefinitely for offsetting against future taxable profits of the companies in which losses arose. HK Okabe Group has tax losses arising in Mainland China of HK$35,685,000, HK$39,603,000 and HK$39,769,000 as at 30 September 2007, 2008 and 2009, respectively, that will expire in five years for offsetting against future taxable profit of the company in which losses arose. HK Okabe Group also has other temporary deductible differences arising in Mainland China of HK$4,048,000, HK$4,429,000 and HK$4,432,000 as at 30 September 2007, 2008 and 2009,respectively. Deferred tax assets have not been recognised in respect of these losses and temporary deductible differences as they have arisen in companies that have been loss-making for some time and it is not considered probably that taxable profits will be available against with the tax losses and the temporary deductible differences can be utilised.

– 143 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

25. SHARE CAPITAL

Authorised: 55,550,000 ordinary shares of HK$1 each Issued and fully paid: 54,000,000 ordinary shares of HK$1 each	2007 HK$’000 55,550 54,000	2008 HK$’000 55,550 54,000	2009 HK$’000 55,550

			54,000

During the year ended 30 September 2007, pursuant to an ordinary resolution passed on 9 October 2006, the authorised share capital of HK Okabe was increased from HK$45,550,000 to HK$55,550,000 by the creation of 10,000,000 additional shares of HK$1 each, ranking pari passu in all respects with the existing shares of HK Okabe. On the same date, 9,899,999 ordinary shares of HK$1 each were issued, being the par value of each share, for cash, ranking pari passu in all respects with the existing shares of HK Okabe.

26. RESERVES

(a) HK Okabe Group

The movements in HK Okabe Group’s reserves for the Relevant Periods are presented in the consolidated statements of changes in equity in Section I.

(b) HK Okabe

Balance at 1 October 2006 Loss for the year At 30 September 2007 and 1 October 2007 Profit for the year At 30 September 2008 and 1 October 2008 Loss for the year At 30 September 2009	Share premium account HK$’000 1,176 – 1,176 – 1,176 – 1,176	Retained profits HK$’000 38,550 (17) 38,533 2,765 41,298 (194) 41,104	Total HK$’000 39,726 (17)
			39,709 2,765
			42,474 (194)
			42,280

– 144 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

27. OPERATING LEASE ARRANGEMNETS

As lessee

HK Okabe Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging of one to two years.

At the reporting dates, HK Okabe Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2007 HK$’000 369 308 677	2008 HK$’000 308 – 308	2009 HK$’000 – –
			–

HK Okabe had no operating lease arrangements as at 30 September 2007, 2008 and 2009.

28. RELATED PARTIES TRANSACTIONS

(a) In addition to the transactions and balances detailed elsewhere in this accountants’ report, HK Okabe Group had the following material transactions with related parties during the Relevant Periods:

		HK Okabe Group	HK Okabe Group	HK Okabe Group
	Notes	2007	2008	2009
		HK$’000	HK$’000	HK$’000
Rental income from the holding
company	(i)	240	240	180
Administration fee income from the
holding company	(ii)	240	240	180

Notes:

(i) The rental income was charged at HK$20,000 per month for the years ended 30 September 2007, 2008, and 2009, respectively. Such arrangement was terminated in June 2009.
(ii) The administration fee income was charged at HK$20,000 per month for the years ended 30 September 2007, 2008, and 2009, respectively. Such arrangement was terminated in June 2009.
(b) Outstanding balances with related parties:

Details of HK Okabe Group’s balances with its holding company and its associate as at the end of the Relevant Periods are included in notes 19 and 14 to the Financial Information, respectively.

The key management personnel of HK Okabe Group, who are the directors of HK Okabe, did not receive any remuneration during the Relevant Periods.

– 145 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

29. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the Relevant Periods are as follows:

Financial assets

Due from an associate (note 14) Due from a minority shareholder of a subsidiary Accounts receivable Financial assets included in prepayments, deposits and other receivables (note 18) Due from the holding company Cash and cash equivalents	HK Okabe Group Loans and receivables 2007 2008 2009 HK$’000 HK$’000 HK$’000 1,055 – – 3,231 3,295 3,678 92 214 92 5,481 292 163 – – 10 12,728 17,574 15,154 22,587 21,375 19,097	HK Okabe Group Loans and receivables 2007 2008 2009 HK$’000 HK$’000 HK$’000 1,055 – – 3,231 3,295 3,678 92 214 92 5,481 292 163 – – 10 12,728 17,574 15,154 22,587 21,375 19,097
		19,097

Financial liabilities

Accounts payable Membership deposits	HK Okabe Group Loans and borrowings 2007 2008 2009 HK$’000 HK$’000 HK$’000 269 213 331 21,600 20,750 20,500 21,869 20,963 20,831	HK Okabe Group Loans and borrowings 2007 2008 2009 HK$’000 HK$’000 HK$’000 269 213 331 21,600 20,750 20,500 21,869 20,963 20,831
		20,831

Financial assets

Due from subsidiaries (note 13) Due from an associate (note 14) Due from a minority shareholder of a subsidiary Cash and bank balances	HK Okabe Loans and receivables 2007 2008 2009 HK$’000 HK$’000 HK$’000 86,648 90,472 90,300 1,055 – – 6,021 6,021 6,021 – 3 2 93,724 96,496 96,323	HK Okabe Loans and receivables 2007 2008 2009 HK$’000 HK$’000 HK$’000 86,648 90,472 90,300 1,055 – – 6,021 6,021 6,021 – 3 2 93,724 96,496 96,323
		96,323

30. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

HK Okabe Group’s principal financial instruments comprise cash and cash equivalents. The main purpose of these financial instruments is to raise finance for HK Okabe Group’s operations. HK Okabe Group has various other financial assets and liabilities such as balances with the holding company, an associate and a minority shareholder of a subsidiary, accounts receivable and payable, deposits and other receivables, and membership deposits, which arise directly from its operations.

– 146 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The main risks arising from HK Okabe Group’s financial instruments are foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.

Foreign currency risk

The monetary assets and transactions of a subsidiary of HK Okabe Group are principally denominated in a foreign currency, which expose HK Okabe Group to foreign currency risk. HK Okabe Group currently has no particular hedging vehicles to hedge its exposure to foreign exchange risk. It is HK Okabe Group’s policy to monitor foreign exchange exposure and to make use of appropriate hedging measures when required.

The following table demonstrates the sensitivity at the reporting dates to a reasonably possible change in the Renminbi (“RMB”) exchange rates, with all other variables held constant, of HK Okabe Group’s loss before tax (due to changes in the fair value of monetary assets and liabilities) and HK Okabe Group’s equity.

		Increase/
		(decrease)	Increase/
		in loss	(decrease)
		before tax	in equity*
	%	HK$’000	HK$’000
2007
If Hong Kong dollar weakens against RMB	5	155	–
If Hong Kong dollar strengthens against RMB	(5)	(155)	–
2008
If Hong Kong dollar weakens against RMB	5	(365)	–
If Hong Kong dollar strengthens against RMB	(5)	365	–
2009
If Hong Kong dollar weakens against RMB	5	(550)	–
If Hong Kong dollar strengthens against RMB	(5)	550	–

Excluding retained profits

Credit risk

HK Okabe Group maintains its credit policy for its business operation as detailed in note 17 to the Financial Information. In addition, all receivable balances are closely monitored on an ongoing basis and HK Okabe Group’s exposure to bad debts is not significant.

The credit risk of HK Okabe Group’s other financial assets, which comprise amounts due from the holding company, subsidiaries, an associate and a minority shareholder of a subsidiary, other receivables and cash and cash equivalents, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since HK Okabe Group’s sales on credit only made through recognised and creditworthy credit card companies, there is no requirement for collateral. There are no significant concentrations of credit risk within the Group as the customer bases of HK Okabe Group’s accounts receivable are mainly from the golf club members and are widely dispersed.

Further quantitative data in respect of HK Okabe Group’s exposure to credit risk arising from accounts receivable and other receivables are disclosed in notes 17 and 18 to the Financial Information, respectively.

– 147 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Liquidity risk

HK Okabe Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., accounts receivable) and projected cash flows from operations.

HK Okabe Group’s objective is to maintain a balance between continuity of funding and flexibility through the funding from the holding company. HK Okabe Group’s policy is to ensure the matching of maturity of its financial liabilities against its financial assets.

The maturity profile of HK Okabe Group’s financial liabilities as at the reporting dates, based on the contractual undiscounted payments, was as follows:

HK Okabe Group

Accounts payable Membership deposits Accounts payable Membership deposits Accounts payable Membership deposits	2007 On demand HK$’000 269 21,600
	21,869

	2008 On demand HK$’000 213 20,750
	20,963

	2009 On demand HK$’000 331 20,500
	20,831

Capital management

The primary objectives of HK Okabe Group’s capital management are to safeguard HK Okabe Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

HK Okabe Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, HK Okabe Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods.

– 148 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

HK Okabe Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes accounts payable, accruals, and membership deposits, less cash and cash equivalents. Capital includes equity attributable to owners of the parent. The gearing ratios as at the reporting dates were as follows:

Accounts payable Accruals Membership deposits Less: Cash and cash equivalents Net debt Total capital Capital and net debt Gearing ratio	2007 HK$’000 269 2,836 21,600 (12,728) 11,977 111,754 123,731 10%	2008 HK$’000 213 8,300 20,750 (17,574) 11,689 109,425 121,114 10%	2009 HK$’000 331 11,582 20,500 (15,154) 17,259 96,402 113,661 15%

31. EARNINGS PER SHARE

Earnings per share has not been presented as such information is not considered meaningful for the purpose of this report.

32. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by HK Okabe Group in respect of any period subsequent to 30 September 2009.

Yours faithfully, Ernst & Young Certified Public Accountants 18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong 10 March 2010

– 149 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the Acquisition.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group as at 30 September 2009 (the “Unaudited Pro Forma Financial Information”) gives effect to the Acquisition as if the Acquisition had been completed on 30 September 2009.

The accompanying Unaudited Pro Forma Financial Information is based upon the historical consolidated balance sheets of the Group and HK Okabe Group as extracted from the respective unaudited interim report for the six months ended 30 September 2009 and the Financial Information for the year ended 30 September 2009, respectively, as set out in Appendices I and II to the Circular. A narrative description of the pro forma adjustments of the Acquisition that are (i) directly attributable to the transactions; (ii) expected to have a continuing impact on the Group; and (iii) factually supportable, are summarised in the accompanying notes.

The accompanying Unaudited Pro Forma Financial Information is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Pro Forma Financial Information does not purport to describe the financial position that would have been presented had the Acquisition been completed. Further, the accompanying Unaudited Pro Forma Financial Information does not purport to predict the Enlarged Group’s future financial position.

The accompanying Unaudited Pro Forma Financial Information should be read in conjunction with the audited financial statements and unaudited interim condensed financial statements of the Group as set out in Appendix I and other financial information elsewhere in the Circular.

– 150 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES ON THE ENLARGED GROUP

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Investment in HK Okabe Interest in a jointly-controlled entity Interests in associates Due from a minority shareholder of a subsidiary Financial assets at fair value through profit or loss Total non-current assets CURRENT ASSETS Amount due from holding company Amounts due from associates Properties held for sale Gross amount due from contract customers Inventories Accounts receivable Prepayments, deposits and other receivables Cash and cash equivalents Pledged deposits Total current assets CURRENT LIABILITIES Gross amount due to contract customers Accounts payable Other payables and accruals Amounts due to associates Accounts due to minority shareholders Amounts due to related companies	The Group as at 30 September 2009 Note (1) HK$’000 63,546 197,666 5,649 – 5,161 (3,427) – 2,280 270,875 – 37,011 513,303 5,550 810 60,163 39,518 41,375 31,314 729,044 49,631 31,097 129,595 262 20,131 20,107	HK Okabe Group as at 30 September 2009 Note (2) HK$’000 101,274 – 20,332 – – – 3,678 – 125,284 10 – – – 98 92 1,728 15,154 – 17,082 – 331 12,543 – – –	Pro forma adjustments Total Fair value adjustments Note (3) Acquisition of HK Okabe Group Note (4) Elimination of investment in HK Okabe Group Note (5) HK$’000 HK$’000 HK$’000 HK$’000 164,820 197,666 25,981 16,867 – 106,450 (106,450) 5,161 (3,427) 3,678 2,280 396,159 10 37,011 513,303 5,550 908 60,255 41,246 56,529 (63,870) 31,314 746,126 49,631 31,428 142,138 262 20,131 42,580 20,107	Unaudited pro forma Enlarged Group HK$’000 164,820 197,666 42,848 – 5,161 (3,427) 3,678 2,280
				413,026
				10 37,011 513,303 5,550 908 60,255 41,246 (7,341) 31,314
				682,256
				49,631 31,428 142,138 262 62,711 20,107

– 151 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Pro forma adjustments

Membership deposits Tax payable Interest-bearing bank and other borrowings Total current liabilities NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred income Interest-bearing bank and other borrowings Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital Reserves Minority interests Total equity	The Group as at 30 September 2009 Note (1) HK$’000 – 55,381 100,053 406,257 322,787 593,662 – 81,012 19,411 100,423 493,239 56,697 431,869 488,566 4,673 493,239	HK Okabe Group as at 30 September 2009 Note (2) HK$’000 20,500 – – 33,374 (16,292) 108,992 12,590 – – 12,590 96,402 54,000 42,402 96,402 – 96,402	Total Fair value adjustments Note (3) Acquisition of HK Okabe Group Note (4) Elimination of investment in HK Okabe Group Note (5) HK$’000 HK$’000 HK$’000 HK$’000 20,500 55,381 100,053 439,631 306,495 702,654 12,590 81,012 19,411 113,013 589,641 110,697 (54,000) 474,271 16,867 (59,269) 6,819 584,968 4,673 589,641	Unaudited pro forma Enlarged Group HK$’000 20,500 55,381 100,053
				482,211
				200,045
				613,071
				12,590 81,012 19,411
				113,013
				500,058

				56,697 438,688
				495,385 4,673
				500,058

Notes:

(1) This column represents the historical unaudited financial information of the Group as at 30 September 2009 extracted from the unaudited interim condensed financial statements of the Group for the six months ended 30 September 2009 as set out in Appendix I to this Circular.

– 152 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(2) This column represents the historical audited financial information of HK Okabe Group as at 30 September 2009 extracted from the Financial Information of HK Okabe Group for the year ended 30 September 2009 as set out in Appendix II to this Circular.
(3) As indicated in the valuation report as included in the Appendix IV to the Circular, the market value of the prepaid land lease payments of HK Okabe Group were determined on 31 December 2009 by B.I. Appraisals Limited, independent professionally qualified valuers, at RMB84,730,000 (equivalent to HK$96,143,000 at exchange rate of 1.1347), based on an ongoing basis up to the expiration of the land use rights in the year 2044. The directors of the Company has made an adjustment on this market value of the prepaid land lease payments based on the expiration of the operation of (“Huizhou Golf”) in the year 2023 at which time all the fixed assets (including the prepaid land lease payments and all items of property, plant and equipment) of Huizhou Golf will be transferred to the Chinese joint venture partner at nil consideration pursuant to the joint venture agreement entered into by Mellink Investment Limited, a wholly-owned subsidiary of HK Okabe and (Shenzhen Kang He Tai Trading Co., Ltd., for identification only), the Chinese joint venture partner. On this basis, the market value of the prepaid land lease payment was discounted as a result of the shortening of useful life from year 2044 to year 2023 and that all the fixed assets will have no carrying amount upon the expiration of operation. The adjusted fair value of HK Okabe Group’s prepaid land lease payments determined by the directors of the Company based on the above basis is approximately RMB34,152,000 (equivalent to HK$38,750,000 at exchange rate of 1.1347).

As a result, adjusted fair value gain of HK$16,867,000 is recognised, represents the excess of the adjusted fair value of HK Okabe Group’s prepaid land lease payments determined by the directors of the Company of HK$38,750,000 as discussed above, over their carrying amounts as at 30 September 2009 of approximately HK$21,883,000 as discussed in note 12 to the Financial Information as included in the Appendix II to the Circular.

The carrying amount of HK Okabe Group’s golf course facilities as at 30 September 2009 approximates to the value as indicated in the valuation report as included in the Appendix IV to the Circular. The fair value of the remaining assets and liabilities of HK Okabe Group are assumed to be approximate to the carrying amounts.

(4) The adjustments represent the Acquisition by the Group of the entire shareholding interests in HK Okabe Group for a consideration of HK$106,450,000 to be satisfied by cash. 40% of the consideration will be contributed by certain minority shareholders of a subsidiary of the Group to finance the Acquisition.
(5) The adjustments represent the elimination of the acquisition cost incurred by the Group and the pre-acquisition reserves of HK Okabe Group. Excess amount of the fair value of the identifiable assets and liabilities of HK Okabe Group over the fair value of consideration given by the Group of HK$106,450,000 (the “Excess Amount”) amounting to HK$6,819,000 is recognised immediately in the income statement. Since the fair value of the identifiable assets and liabilities of HK Okabe Group at the date of completion of the Acquisition may be substantially different from the fair value of HK Okabe Group’s identifiable assets and liabilities used in the preparation of this unaudited pro forma statement of assets and liabilties of the Enlarged Group, the final amount of Excess Amount to be recognised in connection with the Acquisition will be different from the estimated Excess Amount stated herein.

– 153 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in section (1) of Appendix III to this circular.

==> picture [152 x 39] intentionally omitted <==

The Board of Directors

Deson Development International Holdings Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Deson Development International Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) set out in Appendix III to the Company’s circular dated 10 March 2010 (the “Circular”) issued by the Company in connection with the proposed acquisition (the “Acquisition”) of the entire shareholding interests in Hong Kong Okabe Company Limited (“HK Okabe”, together with its subsidiaries, “HK Okabe Group”), pursuant to a sale and purchase agreement dated 27 January 2010. The pro forma financial information is unaudited and has been prepared by the directors of the Company, solely for illustrative purposes, to provide information about how the Acquisition as described in the accompanying introduction to the Unaudited Pro Forma Financial Information might have affected the historical financial information in respect of the Group presented in Appendix I to the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the accompanying introduction and the notes to the Unaudited Pro Forma Financial Information in section (1) of Appendix III to the Circular.

Respective responsibilities of directors of the Company and the reporting accountants

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

It is our responsibility to form an opinion, as required by paragraph 4.29(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 financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily

– 154 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

of comparing the unadjusted financial information with source documents, considering the unaudited evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the 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 financial position of the Group as at 30 September 2009 had the Acquisition actually been completed on that date or any future date.

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.

Yours faithfully, Ernst & Young Certified Public Accountants 18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong 10 March 2010

– 155 –

VALUATION REPORT

APPENDIX IV

==> picture [59 x 44] intentionally omitted <==

==> picture [187 x 46] intentionally omitted <==

��

10 March 2010

The Board of Directors

Deson Development International Holdings Limited 11th Floor, Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon

Dear Sirs,

Re: The property in Huizhou Golf & Resort Club at Shi Er Tuo, Daling Town, Huidong County, Guangdong Province, the People’s Republic of China (the “PRC”)

In accordance with the instructions from Deson Development International Holdings Limited (hereinafter referred to as the “Company”) for us to assess the market value of the property in Huizhou Golf & Resort Club at Shi Er Tuo, Daling Town, Huidong County, Guangdong Province (hereinafter referred to as the “Property”), which are exhibited to us as those held by Huizhou Golf Course Limited Company (hereinafter referred to as “Huizhou Golf”) for the operation of a golf and resort club, we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the Property as at 31 December 2009 (hereinafter referred to as the “Date of Valuation”).

It is our understanding that this valuation document is to be used for disclosure purpose in relation to the proposed acquisition of the entire shareholding interests in Hong Kong Okabe Company Limited by the Company and/or its subsidiaries (hereinafter together referred to as the “Group”).

This letter, forming part of our valuation report, identifies the property being valued; explains the basis and methodology of our valuation; lists out the assumptions, the title investigation and the limiting conditions made in the course of our valuation; and states our opinion of value.

– 156 –

VALUATION REPORT

APPENDIX IV

BASIS OF VALUATION AND ASSUMPTIONS

The objective of our valuation is to provide an independent opinion of the worth / investment value of the Property as at the Date of Valuation on an ongoing basis. We are instructed to provide apportionments of the reported value of the Property between the land element and the leasehold improvements (including buildings and structures erected and other leasehold improvements made on the land) thereof as of the Date of Valuation.

According to the International Valuation Standard (8th Edition 2007), which is also adopted by Hong Kong Institute of Surveyors, there are two valuation bases, namely, market value basis and valuation bases other than market value. Our valuation of the Property is on market value basis. The term “Market Value” is define as “the estimated amount for which a property should exchange on the Date of Valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

We assumed that, subject to the above definition, both the buyer and the seller contemplate the retention of the Property at its existing state for the continuation of the current operation as a going concern business, and both seeking their maximum economic self-interest in arriving at an arm’s-length transaction. The market value in continued existing use is further defined as the market value of a property based on continuation of its existing use as part of an on-going business, assuming the property could be sold in the open market for its existing use, and otherwise in keeping with the market value definition regardless of whether or not the existing use represents the highest and best use of the property.

The opinion of the market value in continued existing use is not necessarily intended to represent the amount that might be realized from piecemeal disposal of the Property or from some other alternate uses.

Having considered the general and inherent characteristics of the Property, we are of the opinion that the Property is of specialized nature and it is impracticable to ascertain the indication of value of the Property on market basis. Our valuation on the Property is on the basis of the depreciated replacement cost (“DRC”), the definition of which is that “DRC is based on an estimate of the Market Value for the existing use of the land, plus the current gross replacement (reproduction) costs of the improvements, less allowances for physical deterioration and all relevant forms of obsolescence and optimization.”

The DRC basis is considered as a surrogate for Market Value due to the absence of market based comparison and that the basis is a commonly accepted method in negotiating merger and acquisition in China.

This investigation is concerned solely with the value of the Property. Excluded from this investigation are machinery, equipment, supplies, inventories, materials on hand, spare parts and all other tangible assets of current nature and intangible assets that might exist. Our opinion of value are not related to the earning capacity of the business. It is assumed

– 157 –

VALUATION REPORT

APPENDIX IV

that prospective earnings are adequate to support the concluded value of the Property plus the value of other assets not included in this valuation, and sufficient net working capital. This report does not attempt to arrive at the value of Huizhou Golf as a total business entity.

Our valuation has been made on the assumption that the Property is sold on the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement that would serve to affect its value. In addition, no account has been taken of any option or right of pre-emption concerning or effecting a sale of the Property and no forced sale situation in any manner is assumed in our valuation.

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

In addition, in the course of our valuation, we have made the following assumptions:

a) The Property has been constructed, occupied and used in full compliance with, and without contravention of all ordinances, except only where otherwise stated.
b) The Property is finished and maintained in reasonable condition commensurate with its age and use and is in its original layout without any unauthorized alteration.
c) All consents, approvals, required licences, permits, certificates and authorizations have been obtained, except only where otherwise stated, for the use of the Property upon which our valuation is based.

Other specific assumptions, if any, have been stated in the footnotes of the valuation certificate.

VALUATION METHODOLOGY & PROCEDURES

Having considered the general and inherent characteristics of the Property, which is owner-occupied and operated as a golf and resort club, we have adopted the depreciated replacement cost (“DRC”) method. The DRC method is an application of the Cost Approach in valuing specialized properties and is based on an estimate of the market value for the existing use of the land in the property valued, and the costs to reproduce or replace in new condition the buildings and structures being valued in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The DRC method generally furnishes the most reliable indication of value for a property in the absence of a known market based on comparable sales.

– 158 –

VALUATION REPORT

APPENDIX IV

TITLE INVESTIGATION

We have been provided by the Company with copies of title documents relating to the Property. In the course of our valuation, we have relied on the advice given by the Company regarding the title to the Property and the legal opinion dated 8 February 2010 prepared by (Guangdong Shen Jun Lian Law Firm), the Group’s legal advisor on PRC law, regarding the title to and the interest of Huizhou Golf in the Property.

LIMITING CONDITIONS

Our valuation has been carried out in accordance with The HKIS Valuation Standards on Properties (1st Edition 2005) issued by the Hong Kong Institute of Surveyors and under generally accepted valuation procedures and practices, which are in compliance with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited.

We have inspected the exterior and, where possible, the interior of the Property. However, no structural survey has been made nor have any tests been carried out on any of the building services provided in the Property. We are, therefore, not able to report that the Property is free from rot, infestation or any other structural defects. Yet, in the course of our inspection, we did not note any serious defects.

We have not conducted on-site measurement to verify the correctness of the site and floor areas of the Property but have assumed that the areas shown on the documents made available to us are correct. Dimensions, measurements and areas included in the valuation certificate attached are based on information contained in the documents provided to us by the Company and are therefore approximations only.

We have relied to a considerable extent on the information and advices made available to us by the Company on such matters as planning approvals, statutory notices, easements, tenure, site and floor areas and all other relevant matters in the identification of the Property. We have not seen original planning consents and have assumed that the Property have been erected, occupied and used in accordance with such consents.

We have not investigated any financial data pertaining to the present or prospective earning capacity of the operation in which the Property is used. It was assumed that prospective earnings would provide a reasonable return on the fair market value of the Property, plus the value of any assets not included in this valuation, and adequate net working capital.

This valuation reflects facts and conditions existing at the Date of Valuation. Subsequent events have not been considered and we are not required to update our report for such events and conditions.

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

– 159 –

VALUATION REPORT

APPENDIX IV

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We were also advised that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

CURRENCY

Unless otherwise stated, all monetary amounts stated in the valuation certificate are in Renminbi (RMB).

REMARKS

We hereby confirm that we have neither present nor prospective interests in the Group, Huizhou Golf and its holding companies, the Property, or the values reported herein.

Our valuation certificate is attached.

Yours faithfully, For and on behalf of

B.I. APPRAISALS LIMITED William C. K. Sham Registered Professional Surveyor (G.P.) China Real Estate Appraiser MRICS, MHKIS, MCIREA Executive Director

Note: Mr. William C. K. Sham is a qualified valuer on the approved List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the Hong Kong Institute of Surveyors. Mr. Sham has over 25 years’ experience in the valuation of properties in Hong Kong and has over 10 years’ experience in asset valuation in the People’s Republic of China and the Asia Pacific regions.

– 160 –

VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Property

Description & tenure

Market value in Particulars of existing state as at occupancy 31 December 2009

The property in Huizhou The Property is a golf and resort Golf & Resort Club, Shi club developed on a site formed by Er Tuo, Daling Town, two parcels of land with a total site Huidong County, area of approximately 1,008,724.99 Guangdong Province, sq.m. (10,857,916 sq.ft.). the PRC The Property comprises an 18-hole golf course with a total length for the fairway of 7,020 yards and four tennis courts together with fourteen blocks of 1 to 2-storey buildings including a block of 2-storey clubhouse, two blocks of 2-storey members’ home, eleven blocks of 1-storey buildings as golf cart garage, repair workshop, sand warehouse, electricity plant room, guardhouse, staff quarters and staff canteen; and various blocks of ancillary buildings and structures including a driving range, a guardhouse, storages for LP gas container, petroleum and sand, sewage treatment stations, car parking shed and water tower.

The Property is RMB168,600,000 currently occupied by Huizhou Golf for the (See Note 12 below) operation of a golf and resort club.

The buildings and structures were completed in the period between 1997 and 2009.

The total gross floor area of the buildings in the Property is approximately 9,474.41 sq.m. (101,983 sq.ft.).

The land use rights of the Property have been granted for other commercial and services uses for a term due to expire in 2044 (see Notes 2 and 3)

Notes:

(1) Pursuant to the Contract for Grant of State-owned Land Use Right dated 9 June 1994 entered into between (Huidong County State-owned Land Bureau) and Huizhou Golf, the land use right of a parcel
of land with a site area of approximately 1,333,200 sq.m. has been agreed to be granted to Huizhou Golf for the development of a golf course project for a term of 50 years.
(2) Pursuant to the Certificate of State-owned Land Use (2004) 020103 (Hui Dong Guo Yong (2004) No. 020103) dated 8 March 2004 issued by People’s Government of Huidong County, the land use right of a parcel of land with a site area of 200,000.00 sq.m. has been granted to Huizhou Golf for a term due to expire on 17 August 2044 for other commercial and services uses.

– 161 –

VALUATION REPORT

APPENDIX IV

(3) Pursuant to the Certificate of State-owned Land Use (2004) 020104 (Hui Dong Guo Yong (2004) No. 020104) dated 8 March 2004 issued by People’s Government of Huidong County, the land use right of a parcel of land with a site area of 1,133,066.60 sq.m. has been granted to Huizhou Golf for a term due to expire on 25 July 2044 for other commercial and services uses.
(4) We have been advised that eight portions of the land mentioned in Note 2 above with a total site area of 324,341.61 sq.m. have subsequently been carved out and disposed of in about 2007. Accordingly, the net site area for the Property is 1,008,724.99 sq.m.
(5) Pursuant to fourteen sets of Certificate of Real Estate Ownership issued by People’s Government of Huidong County, the title to fourteen blocks of buildings in the Property with a total gross floor area of 9,474.41 sq.m. is vested in Huizhou Golf. Details of the said certificates are summarized as follows:

		Date of	Name of	No. of	Gross Floor
Certificate No.		Registration	Building	Storey	Area
					(sq.m.)
C0272571		28 January	Members’	2	1,112.28
(Yue Fang Di Zheng Zi	No. C0272571)	2001	Home Block
			A
C0272572		28 January	Senior Staff	1	218.93
(Yue Fang Di Zheng Zi	No. C0272572)	2001	Quarters A
C0272573		28 January	Staff Canteen	1	314.26
(Yue Fang Di Zheng Zi	No. C0272573)	2001
C0272574		28 January	Electricity Plant	1	91.12
(Yue Fang Di Zheng Zi	No. C0272574)	2001	Room
C0272575		28 January	Guardhouse	1	65.29
(Yue Fang Di Zheng Zi	No. C0272575)	2001
C0272576		28 January	Female Staff	1	641.48
(Yue Fang Di Zheng Zi	No. C0272576)	2001	Quarters
C0272577		28 January	Male Staff	1	641.62
(Yue Fang Di Zheng Zi	No. C0272577)	2001	Quarters
C0272578		28 January	Repair	1	664.29
(Yue Fang Di Zheng Zi	No. C0272578)	2001	Workshop
C0272579		28 January	Guardhouse	1	33.09
(Yue Fang Di Zheng Zi	No. C0272579)	2001
C0272580		28 January	Clubhouse	2	3,343.17
(Yue Fang Di Zheng Zi	No. C0272580)	2001
C0272581		28 January	Senior Staff	1	178.02
(Yue Fang Di Zheng Zi	No. C0272581)	2001	Quarters
C0272582		28 January	Sand Warehouse	1	331.38
(Yue Fang Di Zheng Zi	No. C0272582)	2001
C0272583		28 January	Golf Cart	1	910.98
(Yue Fang Di Zheng Zi	No. C0272583)	2001	Garage
C0274668		27 November	Members’	2	928.50
(Yue Fang Di Zheng Zi	No. C0274668)	2001	Home Block
			B

(6) Pursuant to the Sino-foreign Co-operative Agreement for Huizhou Golf dated 16 March 1992 entered into amongst (Huizhou City Hui An Industry Development Head Limited, “Party A”) (Huidong County Agricultural Resources Development Limited, “Party B”) and
Mellink Investment Limited (“Party C”), all three parties agreed to set up the co-operative joint venture company of Huizhou Golf. Major terms and conditions of the Sino-foreign Co-operative Agreement are summarized as follows:
a) The total investment and registered capital of Huizhou Golf are HK$100,000,000 and HK$50,000,000 respectively.

– 162 –

VALUATION REPORT

APPENDIX IV

b) Party A is to provide the land with an area of approximately 1,500 mu as capital; Party B is to provide the supplies of water, electricity and communication and facilities for livings; and Party C is to provide the registered capital and all the investment capital.
c) The profit is to be distributed among the three parties on the ratio of 50% (Party A), 10% (Party B) and 40% (Party C).
d) The co-operative period of Huizhou Golf is for 30 years from the date of issue of the business licence.
e) Upon expiry of the co-operative period, the fixed assets of Huizhou Golf shall be transferred to Party A and Party B at nil consideration at a ratio of 80% and 20% respectively.
(7) Pursuant to the Supplementary Agreement of the Sino-foreign Co-operative Agreement for Huizhou Golf dated 28 December 1993 entered into between Huizhou City Hui An Industry Development Head Limited (“Party A”) and Mellink Investment Limited (“Party B”), both parties agreed to amend the Sino-foreign Co-operative Agreement after Huidong County Agricultural Resources Development Limited had withdrawn from the co-operation. Major terms and conditions of the Supplementary Agreement are summarized as follows:
a) Party A is to be responsible for the requisition procedure for the land of approximately 1,200 mu and to provide water, electricity and communication facilities; whereas Party B is to provide the total capital investment of HK$100,000,000.
b) The shareholdings in Huizhou Golf between Party A and Party B are 10% and 90% respectively.
c) Upon expiry of the co-operative period, the fixed assets of Huizhou Golf shall be transferred to Party A at nil consideration.
(8) Pursuant to the Business Licence of Huizhou Golf issued by (Huizhou Municipal Industry & Commerce Administration Bureau) dated 6 June 2007, Huizhou Golf was established on 6 November 1992 with a Registered No. 001919 (Qi Zuo Yue Hui Zong Zi No. 001919), the scope of business of which include to develop and operate an 18-hole golf course with ancillary facilities including golf clubhouse, members’ rest-house, restaurant, business hall, etc. It also states that the period of operation is from 6 November 1993 to 5 November 2023.
(9) We have been advised by the Company that Huizhou Golf is a 90% indirectly-owned subsidiary of Hong Kong Okabe Company Limited.
(10) The legal opinion of Guangdong Shen Jun Lian Law Firm dated 8 February 2010 is summarized as follows:
a) Huizhou Golf is a Sino-foreign joint venture company duly formed and validly existing under the PRC laws.
b) Huizhou Golf is in possession of a proper legal title to the Property and is entitled to transfer, sell, mortgage and lease the Property in accordance with the relevant PRC laws.
c) The Property is currently used in accordance with its permitted usage.
d) The Property is not subject to any third party lease or mortgage.
e) Apart from that all fixed assets of Huizhou Golf shall be transferred to the PRC partner at nil consideration upon expiry of the co-operative period as stated in Article 74 of the Articles of Association of Huizhou Golf, Huizhou Golf has not entered into any agreement for transferring, selling, mortgaging, leasing, licensing of the Property.
f) The Property or its ownership is not involved in any seizure, distraint, realization, or other dispute or contention; and is not restricted by any onerous or unusual deed, term or condition.

– 163 –

VALUATION REPORT

APPENDIX IV

(11) In the course of our valuation, we have not taken into consideration the arrangement of the fixed assets upon expiry of the co-operative period.
(12) The apportioned values for the land element and leasehold improvements of the Property are RMB84,730,000, RMB84,130,000 respectively.
(13) The status of title and grant of major approvals, consents or licences in accordance with the information provided by the Company and the aforesaid legal opinion are as fo1lows:

Contract for Grant of State-owned Land Use Rights Yes Certificate of State-owned Land Use Yes Certificate of Real Estate Ownership Yes

– 164 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(i) Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the Shares, underlying Shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to the provisions under Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which he would be deemed or taken to have under Sections 344 and 345 of the SFO) or the Model Code for Securities Transactions by Directors of Listed Companies, or which would have to be, pursuant to Section 352 of the SFO, entered in the register referred to herein:

			Approximate
			percentage of
			the Company’s
		Number of	issued share
Name of Director	Capacity	Shares	capital
Mr. Tjia Boen Sien	Interest by attribution	226,250,000	39.90%
(“Mr. Tjia”)	(Note 1)
	Beneficial Owner	42,009,400	7.41%
Mr. Wang Jing Ning	Beneficial Owner	12,839,600	2.26%
Mr. Wang Ke Duan	Beneficial Owner	268,960	0.05%
Mr. Siu Man Po	Beneficial Owner	180,000	0.03%

Note 1: These Shares were held by Sparta Assets Limited (“Sparta Assets”), a company incorporated in the British Virgin Islands which was wholly owned by Mr. Tjia.

(ii) Save as disclosed below, the Directors or chief executive of the Company are not aware of any other person (other than a Director or chief executive whose interests are disclosed under (i) above) who, as at the Latest Practicable Date, had an interest or short position in the Shares or the underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of

– 165 –

GENERAL INFORMATION

APPENDIX V

Part XV of the SFO or who will be interested, directly or indirectly, 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:

			Approximate
			percentage of
			the Company’s
		Number of	issued share
Name of Shareholder	Capacity	shares	capital
Sparta Assets (Note 1)	Beneficial Owner	226,250,000	39.90%
Mr. Tjia Boen Sien	Interests of	226,250,000	39.90%
	controlled
	corporation
	Directly beneficially	42,009,400	7.41%
	own
Penta Investment	Investment manager	102,030,000	18.00%
Advisers Limited
(“Penta”)
Mr. John Zwaanstra	Interests of	102,030,000	18.00%
(Note 2)	controlled
	corporation
Penta Asia Fund, Ltd.	Interests of	67,052,000	11.83%
(“Penta Asia”)	controlled
(Note 3)	corporation
Mr. Todd Zwaanstra	Trustee (other than a	67,052,000	11.83%
(Note 3)	bare trustee)
Mercurius GP LLC	Founder of a	67,052,000	11.83%
(“Mercurius”)	discretionary trust
(Note 4)

Notes:

Sparta Assets, a company incorporated in the British Virgin Islands and wholly owned by Mr. Tjia Boen Sien, was beneficially interested in 226,250,000 ordinary Shares of the Company.
Mr. John Zwaanstra was deemed to have interests in the Shares of the Company through his 100% interest in Penta. Mr. John Zwaanstra was also deemed to have interests in the shares of the Company in which Penta Asia and Mercurius were interested through his control of more than one-third of the voting power of Mercurius.
These interests were held by Penta Master Fund, Ltd. (“Penta Master”), a wholly-owned subsidiary of Penta Asia. Mr. Todd Zwaanstra was deemed to have interests in the Shares of the Company in which Penta Master was interested pursuant to his control of more than one-third of the voting power of Penta Asia as trustee of the Mercurius Partners Trust (“Mercurius Trust”), which is a discretionary trust.
Mercurius was the founder of the Mercurius Trust and was therefore deemed to have interests in the shares of the Company in which Mr. Todd Zwaanstra were interested as the trustee of the Mercurius Trust.

– 166 –

GENERAL INFORMATION

APPENDIX V

Save as disclosed above, no person, other than the Directors of the Company, whose interest are set out in paragraph (i) above, at the Latest Practicable Date, had registered an interest or short position in the Shares of the Company that was required to be recorded pursuant to Section 336 of the SFO.

3. COMPETING INTERESTS

As at the Latest Practicable Date, the Directors were not aware that any of the Directors had interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group which fell to be disclosed under the Listing Rules.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or proposed Directors had entered into any existing or proposed service contracts with the Company or any other member of the Group save for those expiring or determinable by the relevant employer within one year without payment of compensation (other than statutory compensation).

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position, including debts, borrowings and liabilities conditions, of the Group since 31 March 2009, being the date to which the latest published audited consolidated financial statements of the Group were made up.

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or the Enlarged Group.

7. DIRECTORS’ INTERESTS IN CONTRACTS

So far as the Directors are aware, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets of material importance to the Company which had been acquired or disposed of or leased to or which were proposed to be acquired or disposed of or leased to any member of the Enlarged Group since 31 March 2009, the date to which the latest published audited consolidated financial statements of the Group were made up.

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Enlarged Group taken as a whole.

– 167 –

GENERAL INFORMATION

APPENDIX V

8. MATERIAL CONTRACTS

Save as disclosed below, there are no material contracts (other than contracts entered into in the ordinary course of business) which have been entered into by the Company or any other member in the Enlarged Group in the two years immediately preceding the date of this circular and which are or may be material:

(a) A tenancy agreement dated 19 March 2008 entered into between (Megafit Chengdu Recreation Development
Company Limited) (an indirectly wholly-owned subsidiary of the Company), as the landlord, and (Shanghai Megafit Fitness Centre Company Limited) (a company indirectly non-wholly owned by Mr. Tjia Boen Sien (the Managing Director and Deputy Chairman of the Company), as the tenant, in relation to the lease of the property located at No. 1 Xiao Ke Jia Xiang, 5th Floor, Jinjiang Area, Chengdu, Sichuan Province, PRC. The tenancy agreements are contracted for three years commencing 1 April 2008, and the monthly rent payable is RMB150,000.
(b) A tenancy agreement dated 19 March 2008 entered into between Deson Development Limited (an indirectly wholly-owned subsidiary of the Company), as the landlord, and Fitness Concept Limited (a company indirectly wholly-owned by Mr. Tjia Boen Sien (the Managing Director and Deputy Chairman of the Company), as the tenant, in relation to the lease of the property located at Unit 04-05, 11/F, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong. The tenancy agreements are contracted for three years commencing 1 April 2008, and the monthly rent payable is HK$45,000.
(c) A shareholders agreement dated 6 May 2009 entered into between Deson Development Holdings Limited (“ DDHL ”) (a wholly-owned subsidiary of the Company) and Skill Achieve Investments Limited (“ Skill Achieve ”) in relation to the formation of a joint venture company named Deson Development International Holdings Investment Limited (“ DDIHIL ”), the issued share capital of which will be owned as to 70% by Skill Achieve and as to 30% by DDHL. DDIHIL will invest in a 10% equity interest in Zhejiang Construction Investment Group Company Limited (“ ZJC ”), a state-owned enterprise in PRC as reorganized under a reorganization scheme. So as to fund DDIHIL’s investment in a 10% equity interest in the reorganized ZJC, the parties to the shareholders agreement have agreed to advance shareholder’s loans to DDIHIL in proportion to their respective shareholdings in the DDIHIL. Accordingly, DDHL shall advance the total sum of RMB24 million, and Skill Achieve shall advance the total sum of RMB56 million to the JV Company.
(d) A supplemental agreement dated 25 June 2009 entered into between DDHL and Skill Achieve in relation to the variation of the terms of the joint venture company formed under the shareholders agreement dated 6 May 2009. The issued share capital of DDIHIL will be owned as to 20% by DDHL and 80% by Skill Achieve. In order to finance the investment in the 10% equity interest in ZJC,

* For identification only

– 168 –

GENERAL INFORMATION

APPENDIX V

DDHL and Skill Achieve agreed to advance shareholders’ loans to DDIHIL in proportion to their respective equity interests in DDIHIL. Accordingly, DDHL shall advance a total amount of RMB29 million, and Skill Achieve shall advance a total amount of RMB116 million, to DDIHIL.

(e) A sale and purchase agreement dated 9 December 2009 entered into between Super Sight Investments Inc., as the vendor, and Mr. Wang Jing Ning (a Director of the Company), as the purchaser, in relation to the sale and purchase of the properties located at shops 201 and 202 of Phase IV of Asian Villas City Square, Southern Area, Jinpen Industrial Development Zone, Haikou, Hainan Province, PRC. The consideration of the disposal is RMB7,164,276.
(f) The Agreement.

9. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts (the “ Experts ”) who have given their advice, letters or reports for the inclusion in this circular:

		Nature of opinion
Name	Qualification	or advice	Date of Opinion
Ernst & Young	Certified Public	Accountants’	10 March 2010
	Accountants	Report
B.I. Appraisals	Chartered	Property Valuation	10 March 2010
Limited	Surveyors	Report

10. CONSENT

The Experts have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their advice, letters, reports and references to their names in the form and context in which they appear.

As at the Latest Practicable Date, none of the Experts had any shareholding in the Company or any other member of the Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Group.

As at the Latest Practicable Date, none of the Experts had any direct or indirect interests in any assets which had been acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2009 (the date to which the latest published audited consolidated financial statements of the Group were made up) or proposed to be so acquired, disposed of or leased.

– 169 –

GENERAL INFORMATION

APPENDIX V

11. MISCELLANEOUS

(a) The Company’s registered office is at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda and its principal place of business in Hong Kong is at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong.
(b) The Hong Kong branch share registrar of the Company is Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(c) The Company secretary of the Company is Mr. Lam Wing Wai, Angus. He is a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants.
(d) The English text of this circular shall prevail over Chinese text in the case of any inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong up to and including the date of the SGM:–

(a) the memorandum of association and bye-laws of the Company;
(b) the audited consolidated accounts of the Group for each of the two years ended 31 March 2008 and 31 March 2009, respectively, the text of which is set out in Appendix I to this circular;
(c) the accountants’ report on the financial information of the Target Group prepared by Ernst & Young, the text of which is set out in Appendix II to this circular;
(d) the letter in respect of the unaudited pro forma financial information of the Enlarged Group prepared by Ernst & Young, the text of which is set out in Appendix III to this circular;
(e) the valuation report prepared by B.I. Appraisals Limited, the text of which is set out in Appendix IV to this circular;
(f) the written consents of the Experts; and
(g) the material contracts referred to in the paragraph headed “Material contracts” in this appendix.

– 170 –

NOTICE OF THE SGM

APPENDIX VI

==> picture [37 x 34] intentionally omitted <==

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Deson Development International Holdings Limited (the “Company”) will be held at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong, on 25 March 2010 at 10:30 a.m. for the purpose of considering and, if thought fit, passing (with or without modification) the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

(A) the sale and purchase agreement dated 27 January 2010 (the “Agreement”) entered into among (i) Okabe Co. Ltd. and Mr. Sehata Shinichi, as vendors; and (ii) Lead Joy Investments Limited as purchaser, in relation to the acquisition of the entire shareholding interests in Hong Kong Okabe Company Limited (a copy of the Agreement has been produced to the meeting marked “A” and initialed by the Chairman of the meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(B) the directors of the Company (the “Directors”) be and are hereby authorised to do all such acts and things, sign and execute all such further documents and take such steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to implement and/or give effect to or in connection with the Agreement and the transactions contemplated thereunder.”

By Order of the Board of Deson Development International Holdings Limited Tjia Boen Sien

Managing Director and Deputy Chairman

Hong Kong, 10 March 2010

Notes:

A shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is appointed. A proxy need not be a shareholder of the Company.

* For identification only

– 171 –

NOTICE OF THE SGM

APPENDIX VI

In order to be valid, the proxy form together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be deposited at the Company branch share registrar in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting thereof.
Completion and return of the proxy form shall not preclude a shareholder from attending and voting in person at the meeting or any adjournment thereof if he or she so desires and, in such event, the instrument appointing a proxy shall be deemed to have been revoked.
Where there are joint holders of any share, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if he/she were solely entitled to vote; but if more than one of such joint holders be present at the meeting in person or by proxy, then the one of such holders whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.
Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll.
As at the date of this notice, the executive Directors of the Company are Mr. Wang Ke Duan, Mr. Tjia Boen Sien, Mr. Wang Jing Ning and Mr. Keung Kwok Cheung and the independent non-executive Directors of the Company are Dr. Ho Chung Tai, Raymond, Mr. Siu Man Po and Mr. Wong Shing Kay, Oliver.

– 172 –

AI assistant

Deson Development International Holdings Limited — Proxy Solicitation & Information Statement 2010

49078_rns_2010-03-09_98d1b917-da4a-4f97-b643-628fb4b31afb.pdf

**DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED ***

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE SHAREHOLDING INTERESTS IN HONG KONG OKABE COMPANY LIMITED

AND

NOTICE OF SPECIAL GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

**DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED ***

(Stock Code: 262)

To the Shareholders

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE SHAREHOLDING INTERESTS IN HONG KONG OKABE COMPANY LIMITED

A. INTRODUCTION

B. THE AGREEMENT

(a) Date

(b) Parties

(c) Assets to be acquired

(d) Consideration

(e) Conditions precedent

(f) Completion

C. INFORMATION ON THE PARTIES

D. REASONS FOR THE ACQUISITION

E. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

For the year ended 30 September 2007

Review of results

Interests in an associate

Capital expenditure

Liquidity and financial resources

Capital commitment

Significant investments, material acquisition and disposals

Charges on assets

Exposure to foreign currency risk

Contingent liabilities

Human Resources

For the year ended 30 September 2008

Review of results

Interests in an associate

Capital expenditure

Liquidity and financial resources

Capital commitment

Significant investments, material acquisition and disposals

Charges on assets

Exposure to foreign currency risk

Contingent liabilities

Human Resources

For the year ended 30 September 2009

Review of results

Interests in an associate

Capital expenditure

Liquidity and financial resources

Capital commitment

Significant investments, material acquisition and disposals

Charges on assets

Exposure to foreign currency risk

Contingent liabilities

Human Resource

Emphasis of matter

F. FINANCIAL EFFECTS OF THE ACQUISITION ON THE EARNINGS, ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Earnings

G. LISTING RULES IMPLICATIONS

H. SGM

I. RECOMMENDATION

J. ADDITIONAL INFORMATION

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Consolidated Profit and Loss Account

Consolidated Assets, Liabilities and Minority Interests

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2. AUDITED FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED CASH FLOW STATEMENT

Deson Development International Holdings Limited Proxy Solicitation & Information Statement 2010

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED *

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED *