Du Du 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 shares in China Natural Investment Company Limited (“ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser, the 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.

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China Natural Investment Company Limited 中國天然投資有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8250)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF ISLAND KINGDOM GROUP AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the Company to be held at 9:30 a.m. on Monday, 1 November 2010 at Chairman Room II, Level 2, Royal Park Hotel, 8 Pak Hok Ting Street, Shatin, New Territories, Hong Kong is set out on pages EGM-1 to EGM-2 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof to the office of the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

This circular will remain on the “Latest Company Announcements” page of the GEM website at http://www.hkgem.com for at least seven (7) days from the date of publication and on the website of the Company at http://www.chinanatural.com.hk.

15 October 2010

CONTENTS

			Page
Characteristics of GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Definitions . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			5
Appendix I	–	Financial information on the Group . . . . . . . . . . . . . . . . . .	I-1
Appendix IIA	–	Financial information on Island Kingdom . . . . . . . . . . . . .	IIA-1
Appendix IIB	–	Financial information on the Kingston Group . . . . . . . . . .	IIB-1
Appendix IIC	–	Financial information on the Vida Group . . . . . . . . . . . . . .	IIC-1
Appendix III	–	Unaudited pro forma financial information of
		the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Notice of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			EGM-1

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the main board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

– 1 –

DEFINITIONS

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

“Acquisition” the acquisition of the Sale Share and the Sale Loan pursuant to the terms and conditions of the Agreement

“Agreement” the agreement dated 9 September 2010 and entered into between the Purchaser and the Vendor in respect of the Acquisition
“Announcement” the announcement of the Company dated 9 September 2010 relating to the Acquisition
“associates” has the meaning as ascribed to it in the GEM Listing Rules
“Board” the board of Directors
“BVI” the British Virgin Islands
“Company” China Natural Investment Company Limited, a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on GEM
“Completion” completion of the Acquisition in accordance with the terms and conditions of the Agreement
“Completion Date”
the date on which Completion will take place in accordance with the terms and conditions of the Agreement
“connected person(s)”
has the meaning as ascribed to it in the GEM Listing Rules
“Consideration”
the consideration for the Acquisition, being HK$21.5 million
“Core Healthcare”
Core Healthcare Investment Holdings Limited, the former name of the Company
“Deposit”
the refundable deposit of HK$8 million paid by the Group to the Vendor on or before signing of the Agreement

– 2 –

DEFINITIONS

“Director(s)”
the director(s) of the Company
“EGM”
the extraordinary general meeting of the Company to be held at 9:30 a.m. on Monday, 1 November 2010 at Chairman Room II, Level 2, Royal Park Hotel, 8 Pak Hok Ting Street, Shatin, New Territories, Hong Kong for the purposes of considering and, if thought fit, approving, among other matters (if any), the Acquisition
“Enlarged Group” the Group immediately after Completion
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM
“Group” the Company and its subsidiaries
“HK Health Check”
Hong Kong Health Check and Laboratory Holdings Company Limited (now known as China Gogreen Assets Investment Limited), a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Island Kingdom”
Island Kingdom Company Limited, a company incorporated in the BVI with limited liability, and as at the date of the Agreement, wholly and beneficially owned by the Vendor
“Island Kingdom Group”
Island Kingdom and its subsidiaries
“Kingston Group”
Kingston Group Holdings Limited and its subsidiaries
“Latest Practicable Date”
12 October 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Long Stop Date”
at or before 5:00 p.m. on 30 November 2010 or such later date as the Vendor and the Purchaser may agree in writing

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DEFINITIONS

“PRC”

the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan
“Purchaser”

Chemosino International Limited, a company incorporated in the BVI with limited liability and a direct wholly-owned subsidiary of the Company

“Sale Loan” all the outstanding loans due from the Island Kingdom Group to the Vendor as at the Completion Date irrespective of whether or not the same are due and payable on the Completion Date
“Sale Share” one ordinary share of nominal value of US$1.00 in the issued share capital of Island Kingdom, representing the entire issued share capital of Island Kingdom
“SFO” the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)
“Share(s)” ordinary share(s) of HK$0.05 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Vendor” Mr. Ling Wai Hoi, being the vendor named in the Agreement
“Vida Group” Vida Laboratories Limited and its subsidiary
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“US$” United States dollars, the lawful currency of the United States of America
“%” per cent.

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LETTER FROM THE BOARD

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China Natural Investment Company Limited 中國天然投資有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8250)

Executive Directors: Mr. U Man Iong (Chairman) Mr. Li Wai Hung Mr. Chow Kai Wah, Gary

Independent non-executive Directors: Mr. Chan Yip Man, Norman Mr. Hui Sin Kwong Mr. Leung Chi Kin

Registered office: PO Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands

Head office and principal place of business in Hong Kong: Unit 1210A, 12th Floor Champion Building 301-309 Nathan Road Kowloon Hong Kong

15 October 2010

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF ISLAND KINGDOM GROUP

INTRODUCTION

Reference is made to the Announcement in which the Company announced that on 9 September 2010, the Purchaser (a direct wholly-owned subsidiary of the Company) and the Vendor entered into the Agreement for the acquisition of the entire issued share capital of Island Kingdom, and all the shareholder’s loans to the Island Kingdom Group at an aggregate consideration of HK$21.5 million.

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LETTER FROM THE BOARD

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 19 of the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM.

The purpose of this circular is to provide you with details of the Agreement and the Acquisition, further information of the Group and the Enlarged Group and to give you notice of the EGM.

THE AGREEMENT

Major terms of the Agreement are set out below.

Date: 9 September 2010 Parties: Purchaser: Chemosino International Limited, a direct wholly-owned subsidiary of the Company Vendor: Mr. Ling Wai Hoi

The Vendor was a director of a wholly-owned subsidiary of the Company who resigned as a director on 13 December 2009. Save as disclosed above, the Vendor is independent of the Company and its connected persons. By virtue of Rule 20.11(2) of the GEM Listing Rules, the Vendor is a connected person of the Company. However, as more particularly described in the sub-section headed “Exempted connected transaction” under the section headed “Implications under the GEM Listing Rules” below, the Acquisition is an exempted connected transaction which is exempt from all the reporting, announcement and independent shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules.

Assets to be acquired

The Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to dispose of the Sale Share (being the entire issued share capital of Island Kingdom) and the Sale Loan. As at the date of the Agreement, the Sale Loan amounted to approximately HK$37.60 million.

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LETTER FROM THE BOARD

Consideration

The Consideration of HK$21.50 million shall be settled by cash by the Purchaser in the following manner:

(a) the refundable Deposit (being an amount equal to HK$8 million) shall be paid to the Vendor on or before the signing of the Agreement; and
(b) the remaining balance of the Consideration of HK$13.50 million shall be paid to the Vendor upon Completion.

As at the date of the Announcement, i.e. 9 September 2010, the Deposit has been paid by the Group to the Vendor.

It is intended that the Group will fund the payment of the Consideration by the proceeds of the placing as disclosed in the announcement of the Company dated 29 April 2009, the intended usage of which is for potential acquisitions of pharmaceutical companies.

The Consideration was determined by the parties after arm’s length negotiations by reference to, among other matters: (i) the face value of the Sale Loan; and (ii) the business potential of the Island Kingdom Group, in particular, the Good Manufacturing Practice certified factory that the Vida Group is currently operating in Hong Kong. Taking into account the above factors and the benefits of the Acquisition as disclosed in the section headed “Reasons for and benefits of the Acquisition” below, the Directors (including the independent non-executive Directors) consider that the terms of the Acquisition (including the basis of the Consideration) are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Completion shall be conditional upon:

(a) approval having been obtained from the Shareholders (or, if so required by the GEM Listing Rules, the independent Shareholders) of the Agreement and the transactions contemplated thereunder at the EGM; and
(b) the Vendor’s representations, warranties and undertakings contained in the Agreement remaining true and accurate in all respects and not misleading in any respect as at the Completion Date.

The Purchaser has the right to waive condition (b) above. In the event that the above conditions are not fulfilled (or as the case may be, waived by the Purchaser) before the Long Stop Date, (i) the Agreement shall cease and determine and neither party shall have any obligations towards each other; and (ii) the Vendor shall refund the Deposit, without interest, to the Purchaser within two (2) business days after the Long Stop Date.

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LETTER FROM THE BOARD

Completion

Completion shall take place within two (2) business days after fulfillment (or waiver) of the last of the conditions precedent set out in the Agreement or such other date and time as the Vendor and the Purchaser may agree in writing.

It is the intention of the Group that it will continue its existing business after Completion and there will not be any significant changes thereto as a result of the Acquisition. Apart from operating the existing business, the Group has been seeking quality properties for investment and new business opportunities with potential growth which will enhance the Shareholders’ value. Up to the Latest Practicable Date, the Company has not entered into any agreement, arrangement, understanding or negotiation on any disposal of any members of the Group, the existing business of the Group or its assets. It is not intended that there will be any change in the Directors in connection with the Acquisition.

Financial impact of the Acquisition on the Group

Immediately after Completion, each member of the Island Kingdom Group will become an indirect wholly-owned subsidiary of the Company and the financial results of the Island Kingdom Group will be consolidated into the consolidated financial statements of the Company. The Group had an audited net loss of approximately HK$1,456,000 for the year ended 30 June 2010. Based on the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group contained in Appendix III to this circular, the Enlarged Group would have a net profit of approximately HK$2,237,000 for the year ended 30 June 2010 assuming that Completion had taken place on 1 July 2009.

The Group had audited total assets and total liabilities of approximately HK$147.5 million and HK$1.6 million respectively as at 30 June 2010. Based on the unaudited pro forma total assets and total liabilities as set out in the unaudited pro forma consolidated statement of financial position of the Enlarged Group contained in Appendix III to this circular, the total assets and the total liabilities of the Enlarged Group would have been increased to approximately HK$173.9 million and HK$29 million as at 30 June 2010 respectively assuming that Completion had taken place on 30 June 2010.

INFORMATION ON THE ISLAND KINGDOM GROUP

Island Kingdom is a company incorporated in the BVI with limited liability on 28 September 2009 and is wholly and beneficially owned by the Vendor as at the date of the Agreement. Other than being the holding company of the Kingston Group and the Vida Group, Island Kingdom has not engaged in any other business activity.

On 18 August 2010, the Vendor undertook a series of acquisition with certain third parties independent of the Company and its connected persons, after which (i) he became the sole shareholder of Island Kingdom; and (ii) Island Kingdom became the holding company of the Kingston Group and the Vida Group. The total acquisition cost of the Island Kingdom Group paid by the Vendor is approximately HK$12 million.

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LETTER FROM THE BOARD

The simplified shareholding and group structure of the Island Kingdom Group as at the date of the Agreement is set out below:

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

Vendor
100%
Island Kingdom
100% 100%
Kingston Group Vida Group
(Marketing and sale of (Manufacturing and sale of
health supplements) medicines)
----- End of picture text -----

As at 31 May 2010, the audited total and net liabilities of Island Kingdom were approximately HK$5.05 million.

Set out below is some financial information of Island Kingdom:

For the period from 28 September 2009 (date of incorporation) to 31 May 2010 (Audited) HK$’000 Turnover Nil Net loss before and after taxation 5,045

As at 31 May 2010, the audited consolidated total asset value and net liabilities of the Kingston Group were approximately HK$5.81 million and HK$17.37 million respectively.

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LETTER FROM THE BOARD

Set out below is some consolidated financial information of the Kingston Group:

		For the	For the
	For the	nine months	five months
	year ended	ended	ended
	31 March	31 December	31 May
	2009	2009 (note)	2010
	(Audited)	(Audited)	(Audited)
	HK$’000	HK$’000	HK$’000
Turnover	14,979	7,841	3,302
Net loss before and after taxation	1,778	3,104	2,131

Note: The Kingston Group has changed its financial year end date from 31 March to 31 December.

As at 31 May 2010, the audited consolidated total asset value and net liabilities of the Vida Group were approximately HK$13.37 million and HK$20.29 million respectively.

Set out below is some consolidated financial information of the Vida Group:

		For the	For the
	For the	nine months	five months
	year ended	ended	ended
	31 March	31 December	31 May
	2009	2009 (note)	2010
	(Audited)	(Audited)	(Audited)
	HK$’000	HK$’000	HK$’000
Turnover	18,296	13,685	9,951
Net (loss)/profit before and
after taxation	(3,465)	7,802	(1,107)

Note: The Vida Group has changed its financial year end date from 31 March to 31 December.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Purchaser, a direct wholly-owned subsidiary of the Company, is an investment holding company. The Group is principally engaged in the provision of diagnostic testing and healthcare services and sale of pharmaceutical products, provision of related research and development, advertising and public relationship services, property investment and assets investment.

The Island Kingdom Group comprises two sub-groups, namely the Vida Group and the Kingston Group.

The Vida Group was established in 1977. It operates a Good Manufacturing Practice certified factory in Kwai Chung, Hong Kong. The designated annual production capacities of the factory are 350 million unit of solid dosage forms, 750 million milliliter of syrup and 210 million gram of creams and ointments. The Vida Group has about 60 staff.

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LETTER FROM THE BOARD

Its core business is the manufacturing and sale of generic western medicines. The Vida Group’s products are mainly branded generic medicines, such as remedies for cold and flu, cough, fever and skin infection. The Vida Group’s production facilities and back office are located in a leased premises in an industrial building in Kwai Chung, Hong Kong and occupy a total gross floor area of about 35,000 square feet. The Vida Group possesses a manufacturing licence and a wholesale poisons licence issued by the Department of Health of Hong Kong which is renewable annually, and is capable of producing medicines in different dosage forms including tablets, capsules, syrups, creams and ointments. Its major customers include private doctors, the Hospital Authority, over-the-counter retailers and medicine traders.

The Kingston Group is principally engaged in the marketing and selling of health supplements, such as cordyceps, ganoderma lucidum spores, fish oil omega-3, probiotics, squalene and green tea extract. With a team of sophisticated marketing professionals, as well as highly trained promoters, the Kingston Group sells its health products via popular retail chains and selected private clinics in Hong Kong. The major suppliers of the Kingston Group are Health Star LLC in the United States of America, AMS Life Science Co., Ltd. in Japan and Monikawa Kenkodo Co., Ltd. in Japan. No specific licence/permit is required for the business of the Kingston Group.

Before the first quarter of 2009, the Group had operated retail business on sale of health food and pharmaceutical products in Hong Kong. As mentioned in the annual report of the Company for the year ended 30 June 2009, the Company had evaluated that there was keen competition in the then retail business, and the economic climate and its economy of scale could not justify the continuance of such retail business of the Group. Hence, the Group closed down its health products retail outlet in the first quarter of 2009 and redirected its resources to the healthcare business in Hong Kong. However, the Directors consider that the healthcare and pharmaceutical markets both in Hong Kong and the PRC still present substantial opportunities for the Group’s future development. As disclosed in the interim report of the Company for the six months ended 31 December 2009, the Group has been focusing on seeking acquisition targets in the healthcare and pharmaceutical markets in Hong Kong and the PRC.

The Island Kingdom Group is managed and operated by one of its directors who has about 10 years’ experience in the pharmaceutical industry and a team of pharmacists. After Completion, such management team will remain with the Enlarged Group and will continue to be responsible for overseeing and operating the business of the Island Kingdom Group. The Directors consider that with such experienced management team, the Group will have sufficient management expertise and qualified personnel at operation level to operate the business of the Island Kingdom Group.

The qualifications, experiences and expertise of the pharmacists and senior management of the Island Kingdom Group who will be retained by the Enlarged Group after Completion are as follows:

(a) Anson P. H. Leung (梁伯豪), Chief Executive Officer, has been with Vida Laboratories Limited since 2002. Prior to joining Vida Laboratories Limited, Mr. Leung was in the investment banking industry, and was manager of

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LETTER FROM THE BOARD

private equity venture funds investing in Hong Kong and China assets. Mr. Leung possesses a Bachelor Degree in Commerce from the University of Newcastle, Australia, as well as a Master of Business Administration Degree from the University of Western Ontario, Canada.

(b) Brian W. T. Ng (伍永德), Quality Assurance Manager, joined Vida Laboratories Limited in May 2009 and he is currently the Authorized Person required by the Department of Health. Over the last 15 years, Mr. Ng has been appointed managerial positions in pharmaceutical manufacturing plants, medicine distribution businesses and community pharmacies. Mr. Ng is a registered pharmacist and he holds a Bachelor of Science Degree in Pharmacy from the University of Aston in Birmingham, United Kingdom.
(c) Lawrence K. T. Chan (陳錦濤), Quality Assurance Manager, joined Vida Laboratories Limited in August 2009. Mr. Chan is a registered pharmacist who graduated from University of Brighton, United Kingdom with a Bachelor of Science Degree in Pharmacy in early 90’s. Mr. Chan had spent most of the time in his career taking up managerial positions in the field of sales and marketing on pharmaceutical and health care products.
(d) Wendy W.M. Tsang (曾慧敏), Production Manager, joined Vida Laboratories Limited in April 2009. Miss Tsang has been appointed managerial positions in pharmaceutical manufacturing plants for more than 8 years. She possesses a Higher Diploma in Pharmaceutical Technology from Hong Kong Technical College.
(e) Eric Y.P. Yau (游遠平), Quality Control Manager, joined Vida Laboratories Limited in November 2006. Mr. Yau graduated from The Chinese University of Hong Kong in 1989 with a Bachelor of Science Degree in Chemistry. Mr. Yau had spent more than 14 years with managerial positions in the quality control laboratories in pharmaceutical manufacturing plants.
(f) Boris K.S. Lee (李廣生), Microbiologist, joined Vida Laboratories Limited in January 2010. Mr. Lee graduated from the City University of Hong Kong with a Bachelor of Science Degree in Applied Biology in 1997. Mr. Lee had over 6 years of supervisory and managerial experience in a public testing organization, providing testing and consultation service to the public.

The Directors acknowledge that the certification of Good Manufacturing Practice as recommended by the World Health Organization issued to the Vida Group by the Department of Health of Hong Kong, represents the attaining of the frequent updating requirements of good manufacturing and quality controls of drugs and pharmaceutical products in the industry. To the best of the Directors’ knowledge, there are only a limited number of drug manufacturers in Hong Kong which have attained such certification. In addition, the Vida Group and the Kingston Group have already established broad client bases over the years. Notwithstanding that the Island Kingdom Group was in a net liabilities position as at 31 May 2010 and recorded net losses in previous years, the Directors consider that the acquisition of the Island Kingdom Group, which has a good

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LETTER FROM THE BOARD

market reputation and broad client base as stated above, represents a good opportunity for the Group to re-enter into the healthcare and pharmaceutical markets in Hong Kong. Further, the Directors believe that the business currently engaged in by the Island Kingdom Group can complement the Group’s existing business, which will enable the Group to tap the market potential of pharmaceutical products and health supplements through the established distribution channels of the Island Kingdom Group. With a view to occupying a greater market share in the industry, the Group is dedicated to providing financial backup to the Island Kingdom Group for development and expansion after Completion to broaden its product range and client source, and strengthen its marketing force. The Directors are confident that with the experience of the management of the Island Kingdom Group and the financial support from the Group, the financial performance of the Island Kingdom Group is expected to turnaround and would generate profits to the Group in the near future.

Having considered the reasons for and benefits of the Acquisition as mentioned above, the Board is of the view that the terms of the Acquisition (including the Consideration) are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE GEM LISTING RULES

Very substantial acquisition

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 19 of the GEM Listing Rules. Accordingly, the Acquisition is subject to the approval of the Shareholders at the EGM.

Exempted connected transaction

The Vendor was a director of a wholly-owned subsidiary of the Company who resigned as a director on 13 December 2009. By virtue of Rule 20.11(2) of the GEM Listing Rules, the Vendor is a connected person of the Company. However, in view that the Acquisition is on normal commercial terms where (i) the Acquisition is a connected transaction only because it involves the Vendor who is a connected person of the Company by virtue of his relationship with a subsidiary of the Company; and (ii) the value of such subsidiary’s total assets, profits and revenue is below the threshold as referred to in Rule 20.31(9)(b) of the GEM Listing Rules, the Acquisition is exempt from all the reporting, announcement and independent shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules.

EGM

The EGM will be held at 9:30 a.m. on Monday, 1 November 2010 at Chairman Room II, Level 2, Royal Park Hotel, 8 Pak Hok Ting Street, Shatin, New Territories, Hong Kong, the notice of which is set out on pages EGM-1 to EGM-2 of this circular, for the Shareholders to consider and, if thought fit, approve the Acquisition.

In compliance with the GEM Listing Rules, the resolution will be voted by way of poll at the EGM.

– 13 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder is required to abstain from voting at the EGM.

You will find enclosed a form of proxy for use at the EGM. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof to the office of the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Directors consider that the terms of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole and recommend the Shareholders to vote in favour of the resolution set out in the notice of the EGM.

ADDITIONAL INFORMATION

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

By order of the Board China Natural Investment Company Limited Chow Kai Wah, Gary Executive Director

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

1. THREE-YEAR FINANCIAL INFORMATION

Financial information of the Group for each of the three years ended 30 June 2008, 2009 and 2010 are disclosed in the annual reports of the Company for the years ended 30 June 2008, 2009 and 2010 dated 23 September 2008, 24 September 2009 and 21 September 2010 respectively, which are published on the GEM website at http://www.hkgem.com and the Company’s website at http://www.chinanatural.com.hk.

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE GROUP

Set out below is the management discussion and analysis of the Group extracted from the respective annual reports of the Company for the three years ended 30 June 2010.

For the year ended 30 June 2008

Financial review

For the year ended 30 June 2008, the Group recorded a turnover of approximately HK$1,597,000, representing an increase of 23.05% compared with that of last financial year. The increase in turnover was mainly attributable to the increased provision of diagnostic testing services and sales of health food and pharmaceutical products.

Gross profit for the year ended 30 June 2008 was approximately HK$629,000, representing an increase of 198.93% compared with that of last financial year.

Basic loss per share was approximately HK5.356 cents, compared with the basic earnings per share of approximately HK0.223 cents in the last financial year. The reason was mainly attributable to losses in the valuation of convertible bonds issued by the Company in January 2008 and in the Group’s securities investment caused by the downturn in the Hong Kong’s stock market.

A net loss of approximately HK$360,925,000 was recorded for the year (2007: a net profit of approximately HK$8,396,000). In view of the Group’s active development of its core businesses and potential acquisitions and expansion, the Board does not recommend the payment of dividend for the year ended 30 June 2008.

Business review

The Group recorded a 22.71% increase in turnover for carcinoma diagnosis and testing service during the year. Sales of healthcare products jumped to approximately HK$188,000, representing an increase of 25.60% compared with the same period last year. Gross profit increased 198.93% to approximately HK$629,000.

– I-1 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In February 2008, Core Healthcare entered into a co-operation agreement with Xizang Medicine involving the development of new drugs. Core Healthcare agreed to invest approximately RMB200 million (equivalent to approximately HK$217.4 million) by way of capital injection for a 51% interest in the joint venture.

Despite the growth of the Group’s core medical and healthcare businesses, a downturn in Hong Kong’s stock market since the last quarter of 2007 led to a net loss recorded for the year. Loss related to securities investment accounted for approximately HK$15,256,000. However, we managed to minimize the loss by taking a more conservative investment strategy and reducing our exposure in the second half of the financial year under review.

Since 9 September 2008 which was the final closing date of a voluntary conditional securities exchange offer made by HK Health Check to acquire all issued shares of the Company (other than those already held by HK Health Check and parties acting in concert with it), HK Health Check has become the holding company of the Company. As at 23 September 2008, HK Health Check and parties acting in concert with it together held about 64.57% of the issued share capital of the Company.

Liquidity and financial resources

As at 30 June 2008, the Group held cash and bank balances of approximately HK$179,460,000 (2007: approximately HK$4,122,000). Net current liabilities amounted to approximately HK$265,488,000 (2007: net current assets approximately HK$34,799,000). Current ratio (defined as total current assets divided by total current liabilities) was approximately 0.46 times (2007: approximately 13.71 times).

The Group had no bank borrowing as at 30 June 2008 (2007: Nil).

Capital structure

As at 30 June 2008, capital deficiency attributable to shareholders of the Company was approximately HK$262,958,000 (2007: total equity approximately HK$38,055,000).

Most of the trading transactions, assets and liabilities of the Group were denominated in Hong Kong dollars. As at 30 June 2008, the Group had no significant exposure to foreign exchange and interest rate risks.

Capital commitment

On 18 February 2008, the Company entered into a co-operation agreement with Xizang Medicine whereby the Company agreed in principle to co-operate with Xizang Medicine to undertake the Class 1 New Drug Business, through a joint venture to be established and owned as to 51% and 49% by the Company and Xizang Medicine respectively. The Company agreed to invest an aggregate of RMB200 million approximately (equivalent to approximately HK$217.4 million), in the form

– I-2 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

of registered capital, into the joint venture. Details of the above were set out in the Company’s circular dated 13 March 2008 (2007: Nil).

The Directors have reviewed the status of this transaction and considered the date of completion is uncertain as the set up procedures are still under negotiation.

As at 30 June 2008, pursuant to the terms of the co-operation agreement, the Company has paid a deposit of RMB20,000,000 (equivalent to approximately HK$21,900,000).

Employee information

As at 30 June 2008, there were 8 staff members (2007: 10) employed by the Group.

An employee’s remuneration includes basic salary, year-end bonus and other allowances. Employees are remunerated based on their respective educational background, position and working experience. There are annual performance appraisal for promotion and salary increase. In addition, each employee enjoys mandatory provident fund, medical allowance and other fringe benefit.

During the year ended 30 June 2008, the Group did not grant any share option to its employees or Directors.

Contingent liabilities

As at 30 June 2008, the Group had no significant contingent liabilities.

For the year ended 30 June 2009

Financial review

For the year ended 30 June 2009, the Group recorded a turnover of approximately HK$4,890,000, representing an increase of 206.16% compared with that of the corresponding period in 2008.

Gross profit for the year under review was approximately HK$1,742,000, representing an increase of 177.05% compared with that of last financial year.

Basic earnings per share was approximately HK$0.414, compared with the basic loss per share of approximately HK$0.536 (restated) in the last financial year. The reason was mainly attributable to a gain on early redemption of convertible bonds during the year ended 30 June 2009.

Net profit attributable to the equity holders of the Company for the year ended 30 June 2009 was approximately HK$312,419,000 (2008: Loss of approximately HK$360,925,000).

– I-3 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In view of the Group’s active development of its core businesses and seeking for potential acquisitions or expansion, the Board does not recommend the payment of final dividend for the year ended 30 June 2009.

Review of operations

For the year ended 30 June 2009, the Group’s provision of its core diagnostic testing and healthcare services achieved sound results. Turnover increased by 56.87% to approximately HK$2,210,000.

As the recessionary pressure of Hong Kong’s economy ran deeper in 2008, the Group closed down our health products retail outlet in March 2009 and redirect our liquidity and human resources into the healthcare and pharmaceutical businesses.

Despite the growth of the Group’s core healthcare business, the investments held for trading recorded a loss of approximately HK$10,211,000 during the year under review, representing a decrease of 33.07% compared with a loss of approximately HK$15,256,000 in the last financial year.

Liquidity and financial resources

As at 30 June 2009, the Group held cash and bank balances of approximately HK$52,926,000 (2008: HK$179,460,000). Net current assets amounted to approximately HK$87,947,000 (2008: net current liabilities of approximately HK$265,488,000). Current ratio (defined as total current assets divided by total current liabilities) was approximately 47.69 times (2008: 0.46 times).

The Group had no bank borrowing as at 30 June 2009 (2008: Nil).

Capital structure

As at 30 June 2009, total equity attributable to shareholders was approximately HK$89,855,000 (2008: capital deficiency of approximately HK$262,958,000).

Most of the trading transactions, assets and liabilities of the Group were denominated in Hong Kong dollars. As at 30 June 2009, the Group had no significant exposure to foreign exchange and interest rate risks.

Capital commitment

As at 30 June 2009, the Group and the Company had no significant capital commitment.

Employee information

As at 30 June 2009, there were 13 staff members (2008: 8) employed by the Group.

– I-4 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance. On top of the regular remuneration and discretionary bonus, share options may be granted to selected employee by reference to the Group’s performance as well as individual’s performance. In addition, each employee enjoys mandatory provident fund, medical allowance and other fringe benefits.

Contingent liabilities

As at 30 June 2009, the Group had no significant contingent liabilities.

For the year ended 30 June 2010

Financial review

For the year ended 30 June 2010, the Group recorded revenue of approximately HK$4,704,000, representing a decrease of 3.8% compared with that of the corresponding period in 2009.

Gross profit for the year ended 30 June 2010 was approximately HK$2,424,000, representing an increase of 39.2% compared with that of the corresponding period in 2009.

Basic loss per share was approximately HK0.7 cents compared with the basic earnings per share of approximately HK206.7 cents in the financial year ended 30 June 2009. The turnaround was mainly attributable to the absence of an one-off gain on early redemption of convertible bonds for the year ended 30 June 2010.

Net loss of approximately HK$1,456,000 was recorded for the year ended 30 June 2010 (2009: net profit of approximately HK$312,419,000).

In view of the Group’s active development of its core business and seeking for potential acquisitions or expansion, the Board does not recommend the payment of final dividend for the year ended 30 June 2010.

Review of operations

For the year ended 30 June 2010, the Group’s provision of its core diagnostic testing and sale of pharmaceutical products achieved satisfactory results. Revenue from this segment increased by 44.1% to approximately HK$3,326,000.

The Group is undergoing business consolidation during the year ended 30 June 2010 which it has restructured its resources in the healthcare and pharmaceutical businesses, diversifying its core business into three segments – pharmaceuticals, property investment and assets investment related business. We believe that the new strategy will further optimize returns to our shareholders.

During the year ended 30 June 2010, the property and asset investments markets enjoyed strong growth. The investments held for trading a gain of approximately HK$22,239,000 (2009: a loss of approximately HK$10,211,000).

– I-5 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Liquidity and financial resources

As at 30 June 2010, the Group held cash and bank balances of approximately HK$42,973,000 (2009: HK$52,926,000). Net current assets amounted to approximately HK$84,745,000 (2009: HK$87,947,000). Current ratio (defined as total current assets divided by total current liabilities) was approximately 71.78 times (2009: 47.69 times).

The Group had no bank borrowing as at 30 June 2010 (2009: Nil).

Capital structure

As at 30 June 2010, total equity attributable to owners of the Company was approximately HK$145,943,000 (2009: HK$89,855,000). Most of the trading transactions, assets and liabilities of the Group were denominated in Hong Kong dollars. As at 30 June 2010, the Group had no significant exposure to foreign exchange and interest rate risks.

Capital commitment

As at 30 June 2010, the Group had no significant capital commitment.

Employee information

As at 30 June 2010, there were 8 staff members (2009: 13) employed by the Group.

Contingent liabilities

As at 30 June 2010, the Group had no significant contingent liabilities.

3. WORKING CAPITAL

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

– I-6 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

4. INDEBTEDNESS OF THE ENLARGED GROUP

Borrowings

As at the close of the business on 31 August 2010, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding borrowings of approximately HK$37.60 million representing the Sale Loan.

Contingent liabilities

As at 31 August 2010, the Enlarged Group had no material contingent liabilities.

Disclaimer

Save as referred to above and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have, as at 31 August 2010, any mortgages, charges, debentures or other loan capital or bank overdrafts, loan or other similar indebtedness or liabilities under acceptances (other than normal trade bills) or acceptance credit or hire purchase commitments or any guarantees or any material contingent liabilities.

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 of the Group since 30 June 2010, the date to which the latest published audited consolidated financial statements of the Group were made up.

6. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in the provision of diagnostic testing and healthcare services and sale of pharmaceutical products, provision of related research and development, advertising and public relationship services, property investment and assets investment.

Pharmaceutical business

The pharmaceutical industry in Hong Kong and PRC has been flourishing amidst the recovery of the macro-economy. The Group has grasped the opportunity to further sustain its foothold in the pharmaceutical market.

– I-7 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Group will continue to maintain and consolidate its position as one of the providers of specialized diagnostic testing and professional healthcare services for private and public medical institutions. The management of the Group has been actively exploring and identifying potential acquisition opportunities to speed up its business expansion in the pharmaceutical market.

As mentioned in the paragraph headed “Reasons for and benefits of the Acquisition” in the section headed “Letter from the Board” in this circular, the Directors considered that the acquisition of the Island Kingdom Group, which has a good market reputation and broad client base, represents a good opportunity for the Group to re-enter into the healthcare and pharmaceutical markets in Hong Kong. Further, the Directors believe that the business currently engaged in by the Island Kingdom Group can complement the Group’s existing business, which will enable the Group to tap the market potential of pharmaceutical products and health supplements through the established distribution channels of the Island Kingdom Group. The Directors are confident that with the experience of the management of the Island Kingdom Group and the financial support from the Group, the financial performance of the Island Kingdom Group is expected to turnaround and would generate profits to the Group in the near future.

After the Completion, the Enlarged Group will actively identifying ways to diversify the products range of the Island Kingdom Group to include different kinds of pharmaceutical products, health food and healthcare products with the aim to enhance client base in Hong Kong.

Assets investment

As the global economy and investment climate has recovered and stabilized, the property investment segment has brought tremendous returns to the Shareholders for the year ended 30 June 2010. The Group holds a positive view towards the property market and assets investment for the coming years. As disclosed in the Company’s announcement dated 27 September 2010, the Group has purchased certain car parks in Shatin to enlarge its investment property portfolio. The Group will continue to pursue acquisition for quality properties and seek new business opportunities with good potential to further strengthen and diversify its current investment portfolio. The Group will capitalize on any opportunities arising from an economic recovery.

– I-8 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

1. ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, Hong Kong.

==> picture [173 x 65] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

15 October 2010

The Board of Directors China Natural Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Island Kingdom Company Limited (“Island Kingdom”) for the period from 28 September 2009 (date of incorporation) to 31 May 2010 (the “Relevant Period”), for inclusion in the circular (the “Circular”) dated 15 October 2010 issued by China Natural Investment Company Limited (the “Company”) in connection with the proposed acquisition by the Company of the equity interest of Island Kingdom, and all the shareholder’s loans to Island Kingdom and its subsidiary.

Island Kingdom is a limited liability company incorporated in the British Virgin Islands (the “BVI”) on 28 September 2009 with an authorized share capital of US$50,000 divided into 50,000 shares of US$1 each. As at the date of this report, the entire issued share capital of US$1 is held by Mr. Ling Wai Hoi (the “Vendor”). The principal activity of Island Kingdom is investment holding. The addresses of Island Kingdom’s registered office and principal place of business are Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, the BVI.

As at the date of this report, Island Kingdom has the following subsidiaries, which are private companies with limited liability:

			Attributable
		Particulars of	equity
		issued and fully	interest held
	Date and place	paid up share	by Island
Name	of incorporation	capital	Kingdom	Principal activities
Kingston Group	18 September	Ordinary shares,	100%	Investment holding
Holdings Limited	2000, BVI	US$100	(Direct)
(“Kingston”)

– IIA-1 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

			Attributable
		Particulars of	equity
		issued and fully	interest held
	Date and place	paid up share	by Island
Name	of incorporation	capital	Kingdom	Principal activities
Vida Laboratories	2 December	Ordinary shares,	100%	Investment holding, and
Limited (“Vida”)	1977, Hong	HK$620,000	(Direct)	manufacturing,
	Kong			trading and packaging
				of pharmaceutical
				products
Healthy International	10 January 2001,	Ordinary shares,	100%	Trading of healthcare
Limited	Hong Kong	HK$10,000	(Indirect)	products and
				investment holding
Hong Kong Trustful	28 July 2000,	Ordinary shares,	100%	Dormant
Pharmaceutical Co.,	Hong Kong	HK$1,000,000	(Indirect)
Limited
Town Health Choice	9 January 2007,	Ordinary share,	100%	Trading of healthcare
Limited	Hong Kong	HK$1	(Indirect)	products
V-Express	11 March 2010,	Ordinary share,	100%	Trading of
Pharmaceutical	Hong Kong	HK$1	(Indirect)	pharmaceutical
Limited				products

No audited statutory financial statements for Island Kingdom and Kingston have been prepared up to the date of this report as they were incorporated in the BVI where there were no statutory audit requirements.

The statutory financial statements of Vida for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and were audited by Chang Leung Hui & Li C.P.A. Limited, Certified Public Accountants, Hong Kong.

The statutory financial statements of Healthy International Limited for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 were prepared in accordance with HKFRSs issued by the HKICPA, and were audited by Messrs. Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

The statutory financial statements of Hong Kong Trustful Pharmaceutical Co., Limited for the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010 were prepared in accordance with HKFRSs issued by the HKICPA, and were audited by Messrs. FTW & Partners CPA Limited, Certified Public Accountants, Hong Kong.

– IIA-2 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

The statutory financial statements of Town Health Choice Limited for the period from 9 January 2007 (date of incorporation) to 31 December 2009 were prepared in accordance with HKFRSs issued by the HKICPA, and were audited by Messrs. Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

No audited statutory financial statements of V-Express Pharmaceutical Limited have been prepared since its date of incorporation because it is newly incorporated.

For the purpose of this report, the sole director of Island Kingdom has prepared financial statements of Island Kingdom for the Relevant Period in accordance with HKFRSs issued by the HKICPA (the “Underlying Financial Statements”). We have audited the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of Island Kingdom for the Relevant Period set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were considered necessary to adjust the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the sole director of Island Kingdom who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Island Kingdom as at 31 May 2010, and of the results and cash flows of Island Kingdom for the Relevant Period.

We draw attention to Note 1 to the Financial Information below which indicates that Island Kingdom had net liabilities of HK$5,045,062 as at 31 May 2010. In addition, Island Kingdom incurred a net loss of HK$5,045,070 for the period ended 31 May 2010. These matters, along with other matters as set forth in Note 1 below, indicate the existence of a material uncertainty which may cast significant doubt on Island Kingdom’s ability to continue as a going concern.

– IIA-3 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

I. FINANCIAL INFORMATION

Statement of comprehensive income

Note Impairment losses of available-for-sale investments Administrative expenses Loss and total comprehensive expense for the period 8 Statement of financial position Notes Current liabilities Amount due to an immediate holding company 10 Net liabilities Capital and reserves Equity attributable to owners of Island Kingdom Share capital 11 Accumulated losses Total equity	Period from 28 September 2009 (date of incorporation) to 31 May 2010 HK$ (5,040,000) (5,070) (5,045,070) As at 31 May 2010 HK$ (5,045,062) (5,045,062) 8 (5,045,070) (5,045,062)

Statement of changes in equity

Issue of ordinary share Loss and total comprehensive expense for the period Balance at 31 May 2010	Attributable Share capital HK$ 8 – 8	to owners of Island Kingdom Accumulated losses Total equity HK$ HK$ – 8 (5,045,070) (5,045,070) (5,045,070) (5,045,062)

– IIA-4 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

Statement of cash flows

Cash flows from operating activities
Loss before tax
Impairment losses on available-for-sale investments
Net cash used in operating activities
Cash flows from investing activities
Acquisition of available-for-sale investments
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of equity share
Advances from an immediate holding company
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

Period from
28 September
2009 (date of
incorporation)
to 31 May 2010
HK$
(5,045,070)
5,040,000
(5,070)
(5,040,000)
(5,040,000)
8
5,045,062
5,045,070
–
–
–

– IIA-5 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

The Financial Information has been prepared on the historical cost convention except as otherwise stated in the accounting policies set out below.

The Financial Information has been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Financial Information of Island Kingdom is presented in Hong Kong dollars (“HK$”), which is the same as the functional currency of Island Kingdom.

Island Kingdom had net liabilities of HK$5,045,062 as at 31 May 2010. In addition, Island Kingdom incurred a net loss of HK$5,045,070 for the period ended 31 May 2010. Accordingly, as at the date of this report, Island Kingdom is reliant on the shareholder for support in order to meet its existing short term financial obligations.

The sole director of Island Kingdom is aware that, due to the above conditions, a material uncertainty exists which may cast significant doubt upon Island Kingdom’s ability to continue as a going concern. However, the sole director of Island Kingdom is of the opinion that there is a reasonable expectation that Island Kingdom will be able to continue as a going concern on the basis that the shareholder will continue to provide funding to Island Kingdom until the date of completion of the Acquisition and the Company will provide ongoing funding to Island Kingdom upon completion of the Acquisition.

Consequently, the sole director of Island Kingdom has concluded that Island Kingdom will be able to continue as a going concern and have prepared the Financial Information on a going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Financial Information for the Relevant Period, Island Kingdom has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKASs”), amendments and interpretations issued by the HKICPA that are effective for annual accounting periods beginning on or after 1 January 2010.

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

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] HKAS 24 (Revised) Related Party Disclosures[2] HKAS 32 (Amendment) Classification of Rights Issues[3] HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters[4] HKFRS 9 Financial Instruments[5] HK(IFRIC)-Int 14 (Amendment) Prepayments of a Minimum Funding Requirement[2] HK(IFRIC)-Int 19 Extinguishing Financial Liabilities with Equity Instruments[4]

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

– IIA-6 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

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

The sole director of Island Kingdom anticipates that the application of the other new and revised HKFRSs will have no material impact on the financial performance and financial position of Island Kingdom.

3. SIGNIFICANT ACCOUNTING POLICIES

Taxation

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

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Island Kingdom’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where Island Kingdom is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

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

Provisions

Provisions are recognized when Island Kingdom has a present obligation (legal or constructive) as a result of a past event, it is probable that Island Kingdom will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

– IIA-7 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect is material).

Financial instruments

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

Financial assets

Island Kingdom’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss (FVTPL), available-for-sale (AFS) financial assets and loans and receivables. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

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

Income is recognized on an effective interest basis for debt instruments other than financial assets classified as at FVTPL, of which interest income is included in net gains and losses.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near future; or
on initial recognition it is part of a portfolio of identified financial instruments that Island Kingdom manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

– IIA-8 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with Island Kingdom’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset.

AFS financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments.

Available-for-sale financial assets are measured at fair value at the end of the reporting period. Changes in fair value are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve until the financial asset is disposed of or determined to be impaired, at which time, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below).

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments, they are measured at cost less any identified impairment losses at the end of the reporting period (see the accounting policy in respect of impairment loss on financial assets below).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment (see the accounting policy in respect of impairment loss on financial assets below).

Impairment of financial assets

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

For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

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

– IIA-9 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

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

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

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

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

For financial assets measured at amortized cost, 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 recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss in subsequent periods. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt securities, impairment losses are subsequently reversed if an increase in the fair value of investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity

Debt and equity instruments issued by Island Kingdom are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Island Kingdom’s financial liabilities are generally classified into financial liabilities at FVTPL and other financial liabilities.

Effective interest method

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

Interest expense is recognized on an effective interest basis other than financial liabilities classified as at FVTPL, of which interest expense is included in net gains and losses.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL on initial recognition.

– IIA-10 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

A financial liability is classified as held for trading if:

it has been acquired principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that Island Kingdom manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with Island Kingdom’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss includes any interest paid on the financial liabilities.

Other financial liabilities

Other financial liabilities (including amount due to an immediate holding company) are subsequently measured at amortized cost using the effective interest method.

Equity instruments

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

Derecognition

Island Kingdom derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when a financial asset is transferred, Island Kingdom has transferred substantially all the risks and rewards of ownership of the asset to another entity. If Island Kingdom neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, Island Kingdom recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If Island Kingdom retains substantially all the risks and rewards of ownership of a transferred financial asset, Island Kingdom continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Island Kingdom derecognizes financial liabilities when, and only when, Island Kingdom’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

– IIA-11 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

Related parties

A party is considered to be related to Island Kingdom if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, Island Kingdom; (ii) has an interest in Island Kingdom that gives it significant influence over Island Kingdom; or (iii) has joint control over Island Kingdom;
(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 Island Kingdom or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(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 Island Kingdom, or of any entity that is a related party of Island Kingdom.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Island Kingdom’s accounting policies, which are described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the Relevant Period in which the estimates are revised if the revisions affect only that period, or in the period of the revisions and future periods if the revisions affect both current and future period. However, there are no critical accounting estimates or assumptions used in the Financial Information that the director of Island Kingdom expects will have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period.

5. CAPITAL RISK MANAGEMENT

Island Kingdom manages its capital to ensure that the entities in Island Kingdom will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. Island Kingdom’s overall strategy remains unchanged during the Relevant Period.

The capital structure of Island Kingdom consists of equity attributable to owners of Island Kingdom, comprising issued share capital and accumulated losses.

The management reviews the capital structure regularly. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management, Island Kingdom will balance its overall capital structure through the payment of dividends and the issue of new shares.

– IIA-12 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

As at 31 May 2010 HK$

Financial liabilities
At amortized cost:
- Amount due to an immediate holding company	5,045,062

(b) Financial risk management objectives and policies

Island Kingdom’s activities expose it to a variety of financial risks: market risks (including foreign currency risk, interest rate risk and other price risks), credit risk and liquidity risk. The management has been monitoring these risk exposures to ensure appropriate measures are implemented on a timely and effective manner so as to mitigate or reduce such risks.

Island Kingdom’s major financial instruments include amount due to an immediate holding company. Details of these financial instruments are disclosed in above. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Foreign currency risk management

The sole director of Island Kingdom considers that Island Kingdom’s exposure to foreign currency risk is minimal.

Interest rate risk management

Island Kingdom has minimal exposure to interest rate risk as Island Kingdom did not have any interest-bearing liabilities as at 31 May 2010.

Other price risks

As Island Kingdom has no significant investments in financial instruments at fair value, Island Kingdom is not exposed to significant price risk.

Credit risk management

At the end of the Relevant Period, the sole director of Island Kingdom considers that Island Kingdom’s exposure to credit risk is minimal.

Liquidity risk management

Island Kingdom’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and long term.

– IIA-13 –

APPENDIX IIA

FINANCIAL INFORMATION ON ISLAND KINGDOM

Liquidity table

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

	On demand	Total	Total
	or within	undiscounted	carrying
	one year	cash flows	amount
	HK$	HK$	HK$
At 31 May 2010
Non-derivative financial liabilities
- Amount due to an immediate
holding company	5,045,062	5,045,062	5,045,062

(c) Fair value of financial instruments

The sole director of Island Kingdom considers that the carrying amounts of financial liabilities recorded in the Financial Information approximate to its fair value.

At the end of the Relevant Period, Island Kingdom did not have any liabilities that were measured at the fair value measurements hierarchy.

7. INCOME TAX EXPENSE

No provision for Hong Kong profits tax has been made as Island Kingdom had no estimated assessable profits arising in or derived from Hong Kong for the period ended 31 May 2010.

No deferred income tax assets and liabilities have been recognized as Island Kingdom did not have material temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as at 31 May 2010.

8. LOSS FOR THE PERIOD

Loss for the period has been arrived at after charging:

						Period from
						28 September
						2009 (date of
						incorporation)
						to 31 May
						2010
						HK$
Impairment	losses	of	available-for-sale	investments	(Note)	5,040,000

Note:

At the end of the Relevant Period, Island Kingdom’s investment in approximately 19.35% equity interest in Vida at a cost of HK$5,040,000. During the period, a provision for impairment against the investment in Vida of HK$5,040,000 was recognized in profit or loss in view of the net liability position of Vida.

– IIA-14 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

9. DIRECTOR’S EMOLUMENTS

No remuneration has been paid or is payable to the sole director of Island Kingdom during the Relevant Period.

During the Relevant Period, no emoluments were paid by Island Kingdom to the sole director as an inducement to join or upon joining Island Kingdom or as compensation for loss of office. None of the sole director waived any emoluments during the Relevant Period.

10. AMOUNT DUE TO AN IMMEDIATE HOLDING COMPANY

The amount due to an immediate holding company, namely China Gogreen Assets Investment Limited, as at 31 May 2010 represents current account and is unsecured, interest-free and repayable on demand.

11. SHARE CAPITAL

As at 31 May 2010 HK$

*Authorized* 50,000 ordinary shares of US$1 each, equivalent to approximately *Issued and fully paid* 1 ordinary share of US$1 each, equivalent to approximately	390,000

	8

Note:

Island Kingdom was incorporated with an initial authorized share capital of US$50,000 divided into 50,000 ordinary shares of US$1 each. Upon incorporation, the Company allotted and issued 1 ordinary share of US$1 to the subscriber at par for cash.

II. EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in the Financial Information, no significant event took place subsequent to 31 May 2010.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Island Kingdom have been prepared in respect of any period subsequent to 31 May 2010.

Yours faithfully,

HLB Hodgson Impey Cheng Chartered Accountants

Certified Public Accountants Hong Kong

– IIA-15 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

2. MANAGEMENT DISCUSSION AND ANALYSIS ON ISLAND KINGDOM

Island Kingdom is a limited liability company incorporated in BVI on 28 September 2009. Its principal activity is investment holding.

For the period from 28 September 2009 (date of incorporation) to 31 May 2010:

(a) Turnover

For the period from 28 September 2009 (date of incorporation) to 31 May 2010, Island Kingdom had no turnover.

(b) Gross profit margin

For the period from 28 September 2009 (date of incorporation) to 31 May 2010, Island Kingdom had no gross profit.

(c) Administration expenses

For the period from 28 September 2009 (date of incorporation) to 31 May 2010, administration expenses was approximately HK$5,045,000. This represented an impairment losses of available-for-sale investments of HK$5,040,000. As at 31 May 2010, Island Kingdom’s investment in approximately 19.35% equity interest in Vida Laboratories Limited at a cost of HK$5,040,000. During the period from 28 September 2009 (date of incorporation) to 31 May 2010, a provision for impairment against the investment in Vida Laboratories Limited of HK$5,040,000 was recognized in profit or loss in view of the net liability position of Vida Laboratories Limited.

(d) Liquidity and financial resources

The working capital of Island Kingdom was mainly funded by its holding company.

(e) Capital structure

As at 31 May 2010, issued share capital was HK$8 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(f) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in HK$.

(g) Capital commitment

As at 31 May 2010, Island Kingdom did not have any capital commitment.

– IIA-16 –

APPENDIX IIA FINANCIAL INFORMATION ON ISLAND KINGDOM

(h) Contingent liability

As at 31 May 2010, Island Kingdom did not have any contingent liability.

(i) Employee information

As at 31 May 2010, there was no staff employed by Island Kingdom.

(j) Charges

As at 31 May 2010, Island Kingdom did not have any charges.

– IIA-17 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

1. ACCOUNTANTS’ REPORT

==> picture [173 x 66] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

15 October 2010

The Board of Directors

China Natural Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Kingston Group Holdings Limited (“Kingston”) and its subsidiaries (collectively referred to as the “Kingston Group”) for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 and the five months ended 31 May 2010 (the “Relevant Periods”), for inclusion in the circular (the “Circular”) dated 15 October 2010 issued by China Natural Investment Company Limited (the “Company”) in connection with the proposed acquisition by the Company of the equity interest of Island Kingdom Company Limited (“Island Kingdom”), and all the shareholder’s loans to Island Kingdom and its subsidiary.

Kingston is a limited liability company incorporated in the British Virgin Islands (the “BVI”) on 18 September 2000 with an authorized share capital of US$50,000 divided into 50,000 shares of US$1 each. As at the date of this report, the entire issued share capital of US$100 is held by Island Kingdom, a limited liability company incorporated in the BVI. The principal activity of Kingston is investment holding. The addresses of Kingston’s registered office and principal place of business are Sea Meadow House, Blackburne Highway, Road Town, Tortola, the BVI.

– IIB-1 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

As at the date of this report, Kingston has the following subsidiaries, which are private companies with limited liabilities:

		Particulars of	Attributable
		issued and	equity
	Date and place	fully paid up	interest held
Name	of incorporation	share capital	by Kingston	Principal activities
Healthy International	10 January 2001,	Ordinary shares,	100%	Trading of healthcare
Limited	Hong Kong	HK$10,000	(Direct)	products and
				investment holding
Hong Kong Trustful	28 July 2000,	Ordinary shares,	100%	Dormant
Pharmaceutical Co.,	Hong Kong	HK$1,000,000	(Direct)
Limited
Town Health Choice	9 January 2007,	Ordinary share,	100%	Trading of healthcare
Limited	Hong Kong	HK$1	(Indirect)	products

No audited statutory financial statements of Kingston have been prepared up to the date of this report as Kingston was incorporated in BVI where there was no statutory audit requirement.

The statutory financial statements of Healthy International Limited for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and were audited by Messrs. Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

For the purpose of this report, the sole director of Kingston has prepared consolidated financial statements of the Kingston Group for the Relevant Periods in accordance with HKFRSs issued by the HKICPA (the “Underlying Financial Statements”). We have been engaged to perform audit procedures on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA. However, the scope of our audit procedures was limited as we were not appointed as reporting accountants of the Kingston Group until after 1 January 2010 and thus did not observe the counting of physical inventories as at 31 March 2008, 31 March 2009 and 31 December 2009. We were unable to satisfy ourselves by alternative means concerning the

– IIB-2 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

existence of inventories held by the Kingston Group as at 31 March 2008, 31 March 2009 and 31 December 2009 which are stated in the consolidated statement of financial position at HK$2,202,372, HK$1,079,761 and HK$2,562,707, respectively. Any adjustments that might have been found to be necessary in respect of the above may have an effect on the net liabilities of the Kingston Group as at 31 March 2008, 31 March 2009 and 31 December 2009 and on its results for each of the Relevant Periods.

We have examined the Underlying Financial Statements for the Relevant Periods in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Kingston Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were considered necessary to adjust the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the sole director of Kingston who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

Except for the possible effects of the limitation in the scope of our audit procedures referred to above, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Kingston Group as at 31 March 2008, 31 March 2009, 31 December 2009 and 31 May 2010 and of its results and cash flows for each of the Relevant Periods.

We draw attention to Note 1 to the Financial Information below which indicates that the Kingston Group had net liabilities of HK$17,368,452 as at 31 May 2010. In addition, the Kingston Group incurred net losses of HK$1,391,301, HK$1,778,197, HK$3,104,172 and HK$2,130,810 for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 and the five months ended 31 May 2010, respectively. These matters, along with other matters as set forth in Note 1 below, indicate the existence of a material uncertainty which may cast significant doubt on the Kingston Group’s ability to continue as a going concern.

The comparative consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Kingston Group for the five months ended 31 May 2009 together with the notes thereon have been extracted from the Kingston Group’s unaudited financial information for the same period (the “31 May 2009 Financial Information”) which was prepared by the sole director of Kingston solely for the purpose of this report. We have reviewed the 31 May 2009 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the 31 May 2009 Financial Information consists of making enquiries, primarily of persons responsible for financial and

– IIB-3 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we could become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 31 May 2009 Financial Information.

On the basis of our review which does not constitute an audit, we are not aware of any material modifications should be made to the 31 May 2009 Financial Information.

I. FINANCIAL INFORMATION

Consolidated statement of comprehensive income

Year ended 31 March 2008 HK$ 22,658,013 (4,310,320)	Year ended 31 March 2009 HK$ 14,978,520 (5,288,194)	Nine months ended 31 December 2009 HK$ 7,840,543 (2,020,494)	Five months ended 31 May 2009 HK$ (Unaudited) 2,691,488 (677,864)	Five months ended 31 May 2010 HK$ 3,302,434 (806,722)
18,347,693 88,940 7,514 (9,400,167) (10,435,281) (1,391,301) –	9,690,326 107,615 (384) (4,746,829) (6,828,925) (1,778,197) –	5,820,049 415,404 (23,712) (5,587,705) (3,728,208) (3,104,172) –	2,013,624 66,515 (5,254) (2,285,667) (2,361,290) (2,572,072) –	2,495,712 149,263 (2,192) (2,963,580) (1,810,013)
				(2,130,810) –
(1,391,301)	(1,778,197)	(3,104,172)	(2,572,072)	(2,130,810)

– IIB-4 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

Consolidated statement of financial position

As at 31 March 2008 HK$ 525,286	As at 31 March 2009 HK$ 486,394	As at 31 December 2009 HK$ 149,047	As at 31 May 2010 HK$ 248,891
2,202,372 2,483,312 – – 850,497 5,536,181 1,625,519 10,763,558 4,027,663 16,416,740 (10,880,559)	1,079,761 2,063,767 – 45,200 298,251 3,486,979 1,240,302 14,838,878 27,663 16,106,843 (12,619,864)	2,562,707 2,682,742 – – 526,351 5,771,800 1,137,737 20,020,752 – 21,158,489 (15,386,689)	2,770,952 1,657,169 43,333 – 1,086,829
			5,558,283
			1,021,353 22,154,273 –
			23,175,626
			(17,617,343
(10,355,273)	(12,133,470)	(15,237,642)	(17,368,452

780 (10,356,053)	780 (12,134,250)	780 (15,238,422)	780 (17,369,232
(10,355,273)	(12,133,470)	(15,237,642)	(17,368,452

– IIB-5 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

Consolidated statement of changes in equity

Attributable to owners of Kingston Share capital Accumulated losses Total equity HK$ HK$ HK$ 780 (8,964,752) (8,963,972) – (1,391,301) (1,391,301) 780 (10,356,053) (10,355,273) – (1,778,197) (1,778,197) 780 (12,134,250) (12,133,470) – (3,104,172) (3,104,172) 780 (15,238,422) (15,237,642) – (2,130,810) (2,130,810) 780 (17,369,232) (17,368,452) 780 (10,345,927) (10,345,147) – (2,572,072) (2,572,072) 780 (12,917,999) (12,917,219)	Attributable to owners of Kingston Share capital Accumulated losses Total equity HK$ HK$ HK$ 780 (8,964,752) (8,963,972) – (1,391,301) (1,391,301) 780 (10,356,053) (10,355,273) – (1,778,197) (1,778,197) 780 (12,134,250) (12,133,470) – (3,104,172) (3,104,172) 780 (15,238,422) (15,237,642) – (2,130,810) (2,130,810) 780 (17,369,232) (17,368,452) 780 (10,345,927) (10,345,147) – (2,572,072) (2,572,072) 780 (12,917,999) (12,917,219)	Attributable to owners of Kingston Share capital Accumulated losses Total equity HK$ HK$ HK$ 780 (8,964,752) (8,963,972) – (1,391,301) (1,391,301) 780 (10,356,053) (10,355,273) – (1,778,197) (1,778,197) 780 (12,134,250) (12,133,470) – (3,104,172) (3,104,172) 780 (15,238,422) (15,237,642) – (2,130,810) (2,130,810) 780 (17,369,232) (17,368,452) 780 (10,345,927) (10,345,147) – (2,572,072) (2,572,072) 780 (12,917,999) (12,917,219)
780 – 780 – 780 –	(10,356,053) (1,778,197) (12,134,250) (3,104,172) (15,238,422) (2,130,810)	(10,355,273 (1,778,197
		(12,133,470 (3,104,172
		(15,237,642 (2,130,810
780	(17,369,232)
780 –	(10,345,927) (2,572,072)	(10,345,147 (2,572,072
780	(12,917,999)

– IIB-6 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Consolidated statement of cash flows

Cash flows from operating activities Loss before tax Adjustments for: Bank interest income Reversal of impairment loss of trade receivables Depreciation of property, plant and equipment Impairment loss recognized in respect of trade and other receivables Impairment loss recognized in respect of amounts due from related parties Impairment loss recognized in respect of goodwill Loss on disposal of property, plant and equipment Operating cash flows before movement in working capital (Increase)/Decrease in inventories (Increase)/Decrease in trade and other receivables (Increase)/Decrease in amount due from a director Increase in amount due from a related party Decrease in trade and other payables Net cash used in operating activities	Year ended 31 March 2008 HK$ (1,391,301) (182) – 567,456 94,120 845,766 – –	Year ended 31 March 2009 HK$ (1,778,197) (238) – 315,423 1,849,818 – – –	Nine months ended 31 December 2009 HK$ (3,104,172) (126) (368,800) 180,279 – – 18,903 171,656	Five months ended 31 May 2009 HK$ (Unaudited) (2,572,072) (238) – 378,912 – – – –	Five months ended 31 May 2010 HK$ (2,130,810) (37) (144,361) 55,906 – – – 60
	115,859 440,432 486,403 – – (6,845,681) (5,802,987)	386,806 1,122,611 (1,430,273) (45,200) – (385,217) (351,273)	(3,102,260) (1,482,946) (250,175) 45,200 – (121,465) (4,911,646)	(2,193,398) 492,721 2,364,576 – – (1,354,597) (690,698)	(2,219,242) (208,245) 1,169,934 – (43,333) (116,384)
					(1,417,270)

– IIB-7 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Year ended 31 March 2008 HK$ (15,599) – 182	Year ended 31 March 2009 HK$ (276,531) – 238	Nine months ended 31 December 2009 HK$ (14,588) (3) 126	Five months ended 31 May 2009 HK$ (Unaudited) (57,883) – 238	Five months ended 31 May 2010 HK$ (155,810) – 37
(15,417) 5,983,204 – 5,983,204 164,800 685,697	(276,293) 4,075,320 (4,000,000) 75,320 (552,246) 850,497	(14,465) 5,181,874 (27,663) 5,154,211 228,100 298,251	(57,645) 1,535,585 – 1,535,585 787,242 398,807	(155,773)
				2,133,521 –
				2,133,521
				560,478 526,351
850,497	298,251	526,351	1,186,049	1,086,829

– IIB-8 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

The Financial Information has been prepared on the historical cost convention except as otherwise stated in the accounting policies set out below.

The Financial Information of the Kingston is presented in Hong Kong dollars (“HK$”), which is the same as the functional currency of the Kingston.

The Kingston Group had net liabilities of HK$17,368,452 as at 31 May 2010. In addition, the Kingston Group incurred net losses of HK$1,391,301, HK$1,778,197, HK$3,104,172 and HK$2,130,810 for the financial years ended 31 March 2008, 31 March 2009, 31 December 2009 and the five months ended 31 May 2010. Accordingly, as at the date of this report, the Kingston Group is reliant on the shareholder for support in order to meet its existing short term financial obligations.

The sole director of Kingston is aware that, due to the above conditions, a material uncertainty exists which may cast significant doubt upon the Kingston Group’s ability to continue as a going concern. However, the sole director of Kingston is of the opinion that there is a reasonable expectation that the Kingston Group will be able to continue as a going concern on the basis that the shareholder will continue to provide funding to the Kingston Group until the date of completion of the Acquisition and the Company will provide ongoing funding to the Kingston Group upon completion of the Acquisition.

Consequently, the sole director of Kingston has concluded that the Kingston Group will be able to continue as a going concern and have prepared the Financial Information on a going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Kingston Group has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKASs”), amendments and interpretations issued by the HKICPA that are effective for annual accounting years beginning on or after 1 January 2010.

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

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] HKAS 24 (Revised) Related Party Disclosures[2] HKAS 32 (Amendment) Classification of Rights Issues[3] HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters[4] HKFRS 9 Financial Instruments[5] HK(IFRIC)–Int 14 (Amendment) Prepayments of a Minimum Funding Requirement[2] HK(IFRIC)–Int 19 Extinguishing Financial Liabilities with Equity Instruments[4]

1 Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate.

2 Effective for annual periods beginning on or after 1 January 2011.

– IIB-9 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

3 Effective for annual periods beginning on or after 1 February 2010.

4 Effective for annual periods beginning on or after 1 July 2010.

5 Effective for annual periods beginning on or after 1 January 2013.

The sole director of Kingston anticipates that the application of the other new and revised HKFRSs will have no material impact on the financial performance and financial position of the Kingston Group.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

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

The results of subsidiaries acquired or disposed of during the year/period are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Kingston Group.

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

Non-controlling interests in subsidiaries are presented separately from the equity of the owners of Kingston.

Business combinations

Acquisition of businesses was accounted for using the purchase method. The cost of the acquisition was measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Kingston Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that met the relevant conditions for recognition were generally recognized at their fair values at the acquisition date.

Goodwill arising on acquisition was recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Kingston Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If, after assessment, the Kingston Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeded the cost of the business combination, the excess was recognized immediately in profit or loss.

The non-controlling interest in the acquiree was initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized. Contingent consideration was recognized, if and only if, the contingent consideration

– IIB-10 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

was probable and could be measured reliably. Subsequent adjustments to contingent consideration were recognized against goodwill.

Business combinations achieved in stages were accounted for as separate steps. Goodwill was determined at each step. Any additional acquisition did not affect the previously recognized goodwill.

Goodwill

Goodwill arising on acquisition of a business is carried at cost less accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.

For the purposes of impairment testing, goodwill is allocated to each of the Kingston Group’s cash-generating units expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.

Revenue recognition

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

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

the Kingston Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Kingston Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Kingston Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue in relation to sales of goods is recognized when the goods are delivered and title has passed.

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

Leasing

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

– IIB-11 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

The Kingston Group as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are recognized as a reduction of rental expense over the lease term on a straight-line basis.

Property, plant and equipment

Property, plant and equipment are stated in the consolidated statement of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognized so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment determined as the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Kingston’s net investment in a foreign operation, in which case, such exchange differences are recognized in other comprehensive income in the Financial Information and will be reclassified from equity to profit or loss on disposal of the foreign operation. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are recognized directly in other comprehensive income.

For the purpose of presenting the Financial Information, the assets and liabilities of the Kingston Group’s foreign operations are translated into the presentation currency of the Kingston Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity under the heading of foreign currency translation reserve (attributed to non-controlling interests as appropriate).

On disposal of a foreign operation (i.e. a disposal of the Kingston Group’s entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of Kingston are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Kingston Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange

– IIB-12 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

differences are reattributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Kingston Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets acquired arising on the acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in the foreign currency translation reserve.

Retirement benefit costs

Payments to defined contribution retirement benefit scheme are charged as expenses when employees have rendered services entitling them to the contributions.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Kingston Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Kingston Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

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

Impairment of tangible assets

At the end of each reporting period, the Kingston Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an

– IIB-13 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that standard.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is calculated using the first-in, first-out method.

Provisions

Provisions are recognized when the Kingston Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Kingston Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect is material).

Contingent liabilities acquired in a business combination

Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. At the end of each reporting period, such contingent liabilities are measured at the higher of the amount that would be recognized in accordance with HKAS 37 and the amount initially recognized less cumulative amortization recognized in accordance with HKAS 18.

Financial instruments

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

Financial assets

The Kingston Group’s financial assets are classified into one of three categories, including financial assets at fair value through profit or loss (FVTPL), available-for-sale (AFS) financial assets and loans and receivables. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

– IIB-14 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Effective interest method

Income is recognized on an effective interest basis for debt instruments other than financial assets classified as at FVTPL, of which interest income is included in net gains and losses.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near future; or
on initial recognition it is part of a portfolio of identified financial instruments that the Kingston Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Kingston Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

AFS financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments.

Available-for-sale financial assets are measured at fair value at the end of each reporting period. Changes in fair value are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve until the financial asset is disposed of or determined to be impaired, at which time, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below).

– IIB-15 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

any identified impairment losses at the end of each reporting period (see the accounting policy in respect of impairment loss on financial assets below).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, amount due from a related party, amount due from a director, cash and bank balances) are measured at amortized cost using the effective interest method, less any impairment (see the accounting policy in respect of impairment loss on financial assets below).

Impairment of financial assets

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

For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

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

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

In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss in subsequent periods. Any increase in fair value subsequent

– IIB-16 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

to an impairment loss is recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt securities, impairment losses are subsequently reversed if an increase in the fair value of investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity

Debt and equity instruments issued by the Kingston Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The Kingston Group’s financial liabilities are generally classified into financial liabilities at FVTPL and other financial liabilities.

Effective interest method

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

Interest expense is recognized on an effective interest basis other than financial liabilities classified as at FVTPL, of which interest expense is included in net gains and losses.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL on initial recognition.

A financial liability is classified as held for trading if:

it has been acquired principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Kingston Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Kingston Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Other financial liabilities

Other financial liabilities (including trade and other payables, amounts due to related parties and amount due to a related company) are subsequently measured at amortized cost using the effective interest method.

– IIB-17 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Equity instruments

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

Derecognition

The Kingston Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when a financial asset is transferred, the Kingston Group has transferred substantially all the risks and rewards of ownership of the asset to another entity. If the Kingston Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Kingston Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Kingston Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Kingston Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

The Kingston Group derecognizes financial liabilities when, and only when, the Kingston Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Related parties

A party is considered to be related to the Kingston 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 Kingston Group; (ii) has an interest in the Kingston Group that gives it significant influence over the Kingston Group; or (iii) has joint control over the Kingston 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 Kingston Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(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 the Kingston Group, or of any entity that is a related party of the Kingston Group.

– IIB-18 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Kingston Group’s accounting policies, which are described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year/period in which the estimates are revised if the revisions affect only that period, or in the period of the revisions and future periods if the revisions affect both current and future periods.

Key sources of estimation uncertainty

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

Estimated impairment loss of trade and other receivables

The Kingston Group’s policy for doubtful receivables is based on the on-going evaluation of the collectability and aging analysis of the trade and other receivables and on management’s judgments. Considerable judgment is required in assessing the ultimate realization of these receivables, including the current creditworthiness and the past collection history of each debtor, and the present values of the estimated future cash flows discounted at the effective interest rates. If the financial conditions of the Kingston Group’s debtors were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss of trade and other receivables may be required.

Estimated impairment loss of inventories

Net realizable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of changes in customer taste and competitor actions in response to changes to economic conditions.

5. CAPITAL RISK MANAGEMENT

The Kingston Group manages its capital to ensure that the entities in the Kingston Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Kingston Group’s overall strategy remains unchanged during the year/period.

The capital structure of the Kingston Group consists of debts, cash and cash equivalents and equity attributable to owners of Kingston, comprising issued share capital and accumulated losses.

The director of the Kingston Group reviews the capital structure regularly. As part of this review, the director of the Kingston Group considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management, the Kingston Group will balance its overall capital structure through the payment of dividends and the issue of new shares.

– IIB-19 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables: - Trade and other receivables - Amount due from a related party - Amount due from a director - Cash and bank balances Financial liabilities At amortized cost: - Trade and other payables - Amounts due to related parties - Amount due to a related company	As at 31 March 2008 HK$ 2,156,176 – – 850,497 1,625,519 10,763,558 4,027,663	As at 31 March 2009 HK$ 1,086,819 – 45,200 298,251 1,240,302 14,838,878 27,663	As at 31 December 2009 HK$ 1,871,079 – – 526,351 1,137,737 20,020,752 –	As at 31 May 2010 HK$ 1,074,518 43,333 – 1,086,829

				1,021,353 22,154,273 –

(b) Financial risk management objectives and policies

The Kingston Group’s activities expose it to a variety of financial risks: market risks (including foreign currency risk, interest rate risk and other price risks), credit risk and liquidity risk. The management has been monitoring these risk exposures to ensure appropriate measures are implemented on a timely and effective manner so as to mitigate or reduce such risks.

The Kingston Group’s major financial instruments include trade and other receivables, amount due from a related party, amount due from a director, cash and bank balances, trade and other payables, amounts due to related parties and amount due to a related company. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Foreign currency risk management

The Kingston Group has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are denominated in Hong Kong dollars. The Kingston Group currently does not have a formal foreign currency hedging policy. However, the management monitors foreign exchange exposure closely and will consider hedging significant foreign currency exposure should the need arise.

Interest rate risk management

The Kingston Group has minimal exposure to interest rate risk as the Kingston Group did not have any interest-bearing liabilities at the end of each reporting period. The Kingston Group currently does not have a formal interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging the interest rate risk should the need arise.

– IIB-20 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Other price risks

As the Kingston Group has no significant investments in financial instruments at fair values, the Kingston Group is not exposed to significant price risk.

Credit risk management

At the end of each reporting period, the Kingston Group’s maximum exposure to credit risk which will cause a financial loss to the Kingston Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognized financial assets as stated in the consolidated statement of financial position.

In order to minimize the credit risk, the management of the Kingston Group has delegated a team responsible for monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Kingston Group reviews the recoverable amount of each individual debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of Kingston considers that the Kingston Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

Other than concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings, the Kingston Group does not have any other significant concentration of credit risk.

Liquidity risk management

The Kingston Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and long term.

Liquidity tables

The following tables detail the Kingston Group’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Kingston Group can be required to pay. The tables include both interest and principal cash flows.

At 31 March 2008 Non-derivative financial liabilities - Trade and other payables - Amounts due to related parties - Amount due to a related company	On demand or within one year Total undiscounted cash flows HK$ HK$ 1,625,519 1,625,519 10,763,558 10,763,558 4,027,663 4,027,663 16,416,740 16,416,740	Total carrying amount HK$ 1,625,519 10,763,558 4,027,663
		16,416,740

– IIB-21 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

On demand or within one year Total undiscounted cash flows HK$ HK$ 1,240,302 1,240,302 14,838,878 14,838,878 27,663 27,663 16,106,843 16,106,843	On demand or within one year Total undiscounted cash flows HK$ HK$ 1,240,302 1,240,302 14,838,878 14,838,878 27,663 27,663 16,106,843 16,106,843	Total carrying amount HK$ 1,240,302 14,838,878 27,663
		16,106,843

1,137,737 20,020,752	1,137,737 20,020,752	1,137,737 20,020,752
21,158,489	21,158,489	21,158,489

1,021,353 22,154,273	1,021,353 22,154,273	1,021,353 22,154,273
23,175,626	23,175,626	23,175,626

(c) Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows.

The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market bid and ask prices respectively.
The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models (e.g. discounted cash flow analysis using observable and/or unobservable inputs).
The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

The director of Kingston considers that the carrying amounts of financial assets and financial liabilities recorded in the Financial Information approximate to their fair values.

– IIB-22 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Fair value measurements recognized in the consolidated statement of financial position

Financial instruments that are measured subsequent to initial recognition at fair value, are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

At the end of each reporting period, the Kingston Group did not have any assets and liabilities that were measured at the above fair value measurements hierarchy.

7. SEGMENT INFORMATION

The director of Kingston reviews the Kingston Group’s internal financial reporting and other information and also obtains other relevant external information in order to assess performance and allocate resources and operating segment is identified with reference to these.

The director of Kingston considers that the business of the Kingston Group is organized in one operating segment as trading of healthcare products in Hong Kong. Additional disclosure in relation to segment information is not presented as the management of Kingston assesses the performance of the only operating segment identified based on the consistent information as disclosed in the Financial Information.

The total net segment expense is equivalent to total comprehensive expense for the year/period as shown in the consolidated statement of comprehensive income and total segment assets and total segment liabilities are equivalent to total assets and total liabilities as shown in the consolidated statement of financial position.

Details of interest income and depreciation in relation to the single operating segment are disclosed in Notes 9 and 12 below respectively.

The Kingston is domiciled in the BVI with the Kingston Group’s major operations in Hong Kong. Total revenue, which is also the Kingston Group’s turnover, as disclosed in Note 8 below represented the revenue from external customers arising from trading of healthcare products in Hong Kong. The director of Kingston considers that all the assets of the Kingston Group are located in Hong Kong.

8. REVENUE

						Nine months	Five months	Five months
				Year ended	Year ended	ended	ended	ended
				31 March	31 March	31 December	31 May	31 May
				2008	2009	2009	2009	2010
				HK$	HK$	HK$	HK$	HK$
							(Unaudited)
Trading	of	healthcare	products	22,658,013	14,978,520	7,840,543	2,691,488	3,302,434

– IIB-23 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

9. OTHER INCOME

Bank interest income Sundry income Reversal of impairment loss of trade receivables	Year ended 31 March 2008 HK$ 182 88,758 – 88,940	Year ended 31 March 2009 HK$ 238 107,377 – 107,615	Nine months ended 31 December 2009 HK$ 126 46,478 368,800 415,404	Five months ended 31 May 2009 HK$ (Unaudited) 238 66,277 – 66,515	Five months ended 31 May 2010 HK$ 37 4,865 144,361
					149,263

10. OTHER GAINS AND LOSSES

					Nine months	Nine months	Five months	Five months
	Year ended		Year ended			ended	ended	ended
	31 March		31 March		31	December	31 May	31 May
		2008		2009		2009	2009	2010
		HK$		HK$		HK$	HK$	HK$
							(Unaudited)
Net foreign exchange gains/
(losses)		7,514		(384)		(23,712)	(5,254)	(2,192)

11. INCOME TAX EXPENSE

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 and reduced corporate profit tax rate from 17.5% to 16.5%, which is effective from the year of assessment 2008/2009. Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the year ended 31 March 2008 and at 16.5% of the estimated assessable profit for the financial years ended 31 March 2009, 31 December 2009 and for the five months ended 31 May 2010 and 2009. No provision for Hong Kong profits tax has been made as the Kingston Group incurred a tax loss for the year/period.

The tax charge for the year/period can be reconciled to the loss per the consolidated statement of comprehensive income as follows:

					Nine months	Five months	Five months
			Year ended	Year ended	ended	ended	ended
			31 March	31 March	31 December	31 May	31 May
			2008	2009	2009	2009	2010
			HK$	HK$	HK$	HK$	HK$
						(Unaudited)
Loss	before	tax	(1,391,301)	(1,778,197)	(3,104,172)	(2,572,072)	(2,130,810)

– IIB-24 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Tax at Hong Kong Profits Tax rate Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of temporary differences not recognized Tax effect of tax losses not recognized Utilization of tax losses previously not recognized Income tax expense for the year/ period	Year ended 31 March 2008 HK$ (243,478) 167,006 (32) 86,456 – (9,952) –	Year ended 31 March 2009 HK$ (293,403) 9,442 (39) 36,818 247,182 – –	Nine months ended 31 December 2009 HK$ (512,188) 32,445 (3,797) (16,640) 500,180 – –	Five months ended 31 May 2009 HK$ (Unaudited) (424,392) – (39) 56,930 367,501 – –	Five months ended 31 May 2010 HK$ (351,584) – (6) (15,459) 367,049 –
					–

12. LOSS FOR THE YEAR/ PERIOD

Loss for the year/period has been arrived at after charging/(crediting):

Employee benefits expense: Directors’ emoluments (Note 13) Other staff’s salaries and allowances Other staff’s retirement scheme contributions Total employee benefits expense	Year ended 31 March 2008 HK$ – 7,816,215 293,239 8,109,454	Year ended 31 March 2009 HK$ 440,000 4,332,715 181,996 4,954,711	Nine months ended 31 December 2009 HK$ 176,000 3,655,384 157,308 3,988,692	Five months ended 31 May 2009 HK$ (Unaudited) 220,000 1,953,636 73,729 2,247,365	Five months ended 31 May 2010 HK$ – 2,097,408 92,760
					2,190,168

– IIB-25 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

			Nine months	Five months	Five months
	Year ended	Year ended	ended	ended	ended
	31 March	31 March	31 December	31 May	31 May
	2008	2009	2009	2009	2010
	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
Auditors’ remuneration	80,000	10,000	10,000	10,000	–
Cost of inventories recognized as
an expense	4,310,320	5,288,194	2,020,494	677,864	806,722
Operating lease rentals in respect
of rented premises (included in
administrative expenses)	1,106,284	641,304	376,306	166,699	108,501
Depreciation of property, plant
and equipment (included in
administrative expenses)	567,456	315,423	180,279	378,912	55,906
Impairment loss recognized in
respect of goodwill (Note 27)	–	–	18,903	–	–
Impairment loss recognized in
respect of trade and other
receivables (included in
administrative expenses)	94,120	1,849,818	–	–	–
Impairment loss recognized in
respect of amounts due from
related parties (included in
administrative expenses)	845,766	–	–	–	–
Loss on disposal of property,
plant and equipment	–	–	171,656	–	60
Net foreign exchange (gains)/
losses	(7,514)	384	23,712	5,254	2,192
Reversal of impairment loss of
trade receivables	–	–	(368,800)	–	(144,361)

13. DIRECTORS’ EMOLUMENTS

The emoluments paid or payable to each of the Kingston’s directors were as follows:

Year ended 31 March 2008 Dr. Cho Kwai Chee (appointed on 31 October 2007) Mr. Cho Kwai Yee, Kevin (appointed on 31 October 2007) Mr. Chan Kam Keung (resigned on 31 October 2007)	Fees HK$ – – – –	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ – – – – – – – –	Total HK$ – – –
			–

– IIB-26 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

Year ended 31 March 2009 Mr. Ling Wai Hoi (appointed on 30 April 2008) Dr. Cho Kwai Chee (resigned on 30 April 2008) Mr. Cho Kwai Yee, Kevin (resigned on 30 April 2008) Nine months ended 31 December 2009 Dr. Hui Ka Wah, Ronnie, JP (appointed on 31 July 2009) Mr. Ling Wai Hoi (resigned on 31 July 2009) Five months ended 31 May 2010 Dr. Hui Ka Wah, Ronnie, JP (Unaudited) Five months ended 31 May 2009 Mr. Ling Wai Hoi	Fees HK$ – – – – – – – – –	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ 430,000 10,000 – – – – 430,000 10,000 – – 172,000 4,000 172,000 4,000 – – 215,000 5,000	Total HK$ 440,000 – –
			440,000

			– 176,000
			176,000

			–

			220,000

– IIB-27 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

14. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Kingston Group for the financial years ended 31 March 2008, 2009, 31 December 2009 and the five months ended 31 May 2009 and 2010, nil, one, one, one and nil director of Kingston whose emoluments are included in the disclosures in Note 13 above. The emoluments of the remaining five, four, four, four and five individuals were as follows:

Salaries and allowances Retirement scheme contributions	Year ended 31 March 2008 HK$ 2,504,003 60,000 2,564,003	Year ended 31 March 2009 HK$ 1,218,611 44,805 1,263,416	Nine months ended 31 December 2009 HK$ 1,044,574 34,361 1,078,935	Five months ended 31 May 2009 HK$ (Unaudited) 530,900 18,413 549,313	Five months ended 31 May 2010 HK$ 478,328 22,202
					500,530

Their emoluments were all within HK$1,000,000.

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

15. LOSS PER SHARE

Loss per share is not presented as such information is not considered meaningful for the purpose of this report.

– IIB-28 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

16. PROPERTY, PLANT AND EQUIPMENT

Leasehold improvements HK$ 922,840 –	Furniture and equipment HK$ 2,424,859 15,599	Total HK$ 3,347,699 15,599
922,840 242,770 1,165,610 – (242,770) 922,840 50,640 (574,170) 399,310 611,163 132,899 744,062 41,342 785,404 100,855 (71,114) 815,145 35,386 (574,170) 276,361	2,440,458 33,761 2,474,219 14,588 – 2,488,807 105,170 (2,353,579) 240,398 1,659,393 434,557 2,093,950 274,081 2,368,031 79,424 – 2,447,455 20,520 (2,353,519) 114,456	3,363,298 276,531
		3,639,829 14,588 (242,770)
		3,411,647 155,810 (2,927,749)
		639,708
		2,270,556 567,456
		2,838,012 315,423
		3,153,435 180,279 (71,114)
		3,262,600 55,906 (2,927,689)
		390,817
122,949 107,695 380,206 178,778	125,942 41,352 106,188 346,508	248,891

		149,047

		486,394

		525,286

– IIB-29 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum :

Leasehold improvements : 20% Furniture and equipment : 25 – 30%

17. INVENTORIES

Inventories represent healthcare products and are stated at the lower of cost and net realizable value.

18. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Total trade receivables, net of allowance Deposits paid Prepayments Other receivables	As at 31 March 2008 HK$ 2,627,727 (546,019)	As at 31 March 2009 HK$ 2,587,302 (1,849,818)	As at 31 December 2009 HK$ 1,780,378 –	As at 31 May 2010 HK$ 1,031,291 –
	2,081,708 320,666 6,470 74,468	737,484 957,448 19,500 349,335	1,780,378 655,609 156,054 90,701	1,031,291 488,395 94,256 43,227
	2,483,312	2,063,767	2,682,742	1,657,169

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

Within 60 days 61 – 120 days 121 – 180 days 181 – 240 days 241 – 360 days	As at 31 March 2008 HK$ 1,925,063 11,617 145,028 – – 2,081,708	As at 31 March 2009 HK$ 696,984 40,500 – – – 737,484	As at 31 December 2009 HK$ 1,730,256 44,241 – 2,939 2,942 1,780,378	As at 31 May 2010 HK$ 986,417 38,993 – – 5,881
				1,031,291

The Kingston Group grants an average credit period of 30 days to its customers. No interest is charged on overdue trade receivables. 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.

Trade receivables disclosed above include amounts which are past due at the end of each reporting period but against which the Kingston Group has not recognized an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. The Kingston Group does not hold any collateral or other credit enhancements over these balances.

– IIB-30 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

Ageing of past due but not impaired

As at 31 March 2008 HK$ Overdue by: 1 – 60 days 11,617 Over 60 days 145,028 156,645 Movement in the allowance for doubtful debts As at 31 March 2008 HK$ Balance at beginning of the year/ period 546,019 Impairment loss recognized on trade receivables – Amounts written off during the year/ period as uncollectible – Impairment loss reversed – Balance at end of the year/ period 546,019	As at 31 March 2009 HK$ 40,500 – 40,500 As at 31 March 2009 HK$ 546,019 1,849,818 (546,019) – 1,849,818	As at 31 December 2009 HK$ 44,241 5,881 50,122 As at 31 December 2009 HK$ 1,849,818 – (1,481,018) (368,800) –	As at 31 May 2010 HK$ 38,993 5,881
			44,874

			As at 31 May 2010 HK$ – – – –
			–

In determining the recoverability of a trade receivable, the Kingston Group considers any change in the credit quality of the trade receivable from the date of credit that was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to its large customer base.

As at 31 March 2008, 31 March 2009, 31 December 2009 and 31 May 2010, the allowance for doubtful debts arose from individually impaired trade receivables with balances of HK$546,019, HK$1,849,818, nil and nil respectively. The individually impaired trade receivables relate to customers that were in financial difficulties and only a portion of the receivables was expected to be recovered. The Kingston Group did not hold any collateral over these balances.

For the year ended 31 March 2008, an impairment loss of HK$94,120 in respect of other receivables was recognized in the consolidated statement of comprehensive income.

– IIB-31 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

19. AMOUNTS DUE FROM/(TO) RELATED PARTIES

Amounts due to related parties

Key Elegance Development Limited (Note (a)) Town Health International Investments Limited (formerly known as Town Health International Holdings Company Limited) (“Town Health”) and its subsidiaries (Note (b))	As at 31 March 2008 HK$ – 10,763,558 10,763,558	As at 31 March 2009 HK$ 5,472,322 9,366,556 14,838,878	As at 31 December 2009 HK$ – 20,020,752 20,020,752	As at 31 May 2010 HK$ – 22,154,273
				22,154,273

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

Notes:

(a) Key Elegance Development Limited held 51% of the issued share capital of Kingston as at 31 March 2009.
(b) A subsidiary of Town Health held 100%, 49%, 100% and 100% of the issued share capital of Kingston as at 31 March 2008, 2009, 31 December 2009 and 31 May 2010, respectively.

20. AMOUNT DUE FROM A DIRECTOR

Mr. Ling Wai Hoi Maximum amount outstanding during the year/period:	As at 31 March 2008 HK$ – –	As at 31 March 2009 HK$ 45,200 45,200	As at 31 December 2009 HK$ – 45,200	As at 31 May 2010 HK$ –

				–

The amount due is unsecured, interest-free and repayable on demand.

21. CASH AND BANK BALANCES

Cash and bank balances comprise cash held by the Kingston Group and the bank balances that carried interest at floating rates based on daily bank deposit rates and have original maturity of three months or less.

– IIB-32 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

22. TRADE AND OTHER PAYABLES

Trade payables Accrued expenses Deposits received Other payables	As at 31 March 2008 HK$ – 1,201,016 132,433 292,070 1,625,519	As at 31 March 2009 HK$ – 706,246 41,130 492,926 1,240,302	As at 31 December 2009 HK$ 115,218 778,575 27,466 216,478 1,137,737	As at 31 May 2010 HK$ 1,500 733,642 93,903 192,308
				1,021,353

The following is an aged analysis of trade payables based on the invoice date:

0 – 30 days 31 – 60 days Over 60 days	As at 31 March 2008 HK$ – – – –	As at 31 March 2009 HK$ – – – –	As at 31 December 2009 HK$ 13,925 17,293 84,000 115,218	As at 31 May 2010 HK$ 1,500 – –
				1,500

23. AMOUNT DUE TO A RELATED COMPANY

The amount due is unsecured, interest-free and repayable on demand.

24. SHARE CAPITAL

*Authorized* 50,000 shares of US$1 each, equivalent to approximately *Issued and fully paid* 100 shares of US$1 each, equivalent to approximately	As at 31 March 2008 HK$ 390,000 780	As at 31 March 2009 HK$ 390,000 780	As at 31 December 2009 HK$ 390,000 780	As at 31 May 2010 HK$ 390,000

				780

– IIB-33 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

25. DEFERRED TAXATION

At the end of each reporting period, the major items of deferred taxation which have not been recognized are as follows:

Unrecognized deferred tax liabilities arising from accelerated tax depreciation Unrecognized deferred tax assets arising from estimated tax losses	As at 31 March 2008 HK$ (13,645) 1,818,853 1,805,208	As at 31 March 2009 HK$ (49,683) 1,962,101 1,912,418	As at 31 December 2009 HK$ (59,764) 2,462,281 2,402,517	As at 31 May 2010 HK$ (86,367) 2,829,330
				2,742,963

The Kingston Group has unused tax losses of approximately HK$10,393,000, HK$11,891,000, HK$14,923,000 and HK$17,147,000 as at 31 March 2008, 31 March 2009, 31 December 2009 and 31 May 2010, respectively available for offset against future profits that may be carried forward indefinitely. No deferred tax asset has been recognized in respect of the tax losses due to the unpredictability of future profit streams.

Deferred tax liabilities arising from accelerated tax depreciation have not been recognized in the Financial Information as the amount was considered to be immaterial.

26. RETIREMENT BENEFIT SCHEME

The Kingston Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong Kong. The assets of the plans are held separately from those of the Kingston Group in funds under the control of trustees.

For each of the financial years ended 31 March 2008, 2009, 31 December 2009 and the five months ended 31 May 2009 and 2010, the total expense recognized in the consolidated statement of comprehensive income of HK$293,239, HK$191,996, HK$161,308, HK$78,729 and HK$92,760 represents contributions payable to the scheme by the Kingston Group at rates specified in the rules of the scheme.

– IIB-34 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

27. BUSINESS COMBINATION

For the nine months ended 31 December 2009

On 2 November 2009, Kingston acquired 100% of the issued share capital of Hong Kong Trustful Pharmaceutical Co., Limited for a cash consideration of HK$3. Hong Kong Trustful Pharmaceutical Co., Limited was dormant during the period.

HK$

Identifiable liabilities and contingent liabilities acquired: Other payables Goodwill arising on acquisition and impaired during the nine months ended 31 December 2009 Cash consideration paid Net cash outflow arising on acquisition: Cash consideration paid	(18,900
	18,903
	3

	3

Included in the loss for the nine months ended 31 December 2009 was nil attributable to the loss generated by Hong Kong Trustful Pharmaceutical Co., Limited. No revenue for the nine months ended 31 December 2009 was included in respect of Hong Kong Trustful Pharmaceutical Co., Limited.

Had this business combination been effected at 1 April 2009, the revenue of the Kingston Group for the nine months ended 31 December 2009 would have been HK$7,840,543, and the loss for the nine months ended 31 December 2009 would have been HK$3,107,972. The director of Kingston considered these pro-forma numbers to represent an approximate measure of the performance of the combined group to provide a reference point for comparison in future periods.

28. OPERATING LEASES

The Kingston Group as lessee

At the end of each reporting period, the Kingston Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive	As at 31 March 2008 HK$ 79,167 – 79,167	As at 31 March 2009 HK$ 236,800 11,200 248,000	As at 31 December 2009 HK$ 215,600 –	As at 31 May 2010 HK$ 192,000 128,000 320,000
			215,600

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

– IIB-35 –

APPENDIX IIB

FINANCIAL INFORMATION ON THE KINGSTON GROUP

29. RELATED PARTY TRANSACTIONS

In addition to those related party transactions and balances disclosed elsewhere in the Financial Information, the Kingston Group had the following significant transactions with its related parties during the year/period.

						Nine months	Nine months	Five months	Five months
							ended	ended	ended
	Nature of	Year ended		Year ended		31	December	31 May	31 May
Name of related party	transaction	31 March 2008		31 March 2009			2009	2009	2010
			HK$		HK$		HK$	HK$
								(Unaudited)
Healthy International
Beauty Therapy Centre
Company Limited
(Note (i))	Sales of goods		23,747		–		–	–	–
Subsidiaries of Town
Health_(Note (i))_	Sales of goods		–	1,970,987			–	–	134,861

Note:

(i) The sales to related parties were made according to the published prices and conditions offered by the Kingston Group’s subsidiaries to their customers.

Compensation of key management personnel

The remuneration of directors and other members of key management during the year/period were as follows:

Short-term employee benefits Post-employment benefits	Year ended 31 March 2008 HK$ – – –	Year ended 31 March 2009 HK$ 430,000 10,000 440,000	Nine months ended 31 December 2009 HK$ 172,000 4,000 176,000	Five months ended 31 May 2009 HK$ (Unaudited) 215,000 5,000 220,000	Five months ended 31 May 2010 HK$ – –
					–

II. EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in the Financial Information, no significant event took place subsequent to 31 May 2010.

– IIB-36 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of any of the companies comprising the Kingston Group have been prepared in respect of any period subsequent to 31 May 2010.

Yours faithfully, HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– IIB-37 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE KINGSTON GROUP

The Kingston Group was established in 2000 and engaged in the marketing and selling of health supplements, such as cordyceps, ganoderma lucidum spores, fish oil omega-3, probiotics, squalene and green tea extract. With a team of sophisticated marketing professionals, as well as highly trained promoters, the Kingston Group sells its health products via popular retail chains and selected private clinics in Hong Kong.

For the year ended 31 March 2008:

(a) Turnover

For the year ended 31 March 2008, turnover was approximately HK$22,658,000.

(b) Gross profit margin

For the year ended 31 March 2008, gross profit was approximately HK$18,348,000. Gross profit margin was 81%.

(c) Selling and distribution expenses

For the year ended 31 March 2008, selling and distribution expenses was approximately HK$9,400,000, which included employee benefits expense of approximately HK$3,476,000.

(d) Administration expenses

For the year ended 31 March 2008, administration expenses was approximately HK$10,435,000. Included in the administration expenses was impairment loss recognized in respect of trade and other receivables of approximately HK$94,000 which was considered to be unrecoverable and employee benefits expense of approximately HK$4,633,000.

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the year ended 31 March 2008 comprised of wages, salaries and staff welfare of HK$7,816,000 and pension and scheme contribution of HK$293,000, which were included in selling and distribution expenses of approximately HK$3,476,000 and administrative expenses of approximately HK$4,633,000.

– IIB-38 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(f) Liquidity and financial resources

The working capital of the Kingston Group was mainly funded by its internally generated funds and group companies. The average term of credit for customers was 30 days. As at 31 March 2008, the Kingston Group had a current ratio (total current assets divided by total current liabilities) of 0.34.

(g) Capital structure

As at 31 March 2008, issued share capital was HK$780 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(h) Property, plant and equipment

As at 31 March 2008, property, plant and equipment was approximately HK$525,000 comprised of furniture, equipment and leasehold improvements.

(i) Inventory

For the year ended 31 March 2008, inventory turnover was 186 days (inventory divided by cost of sales).

(j) Trade receivables and trade payables

As at 31 March 2008, 93% of trade receivables had an ageing within 60 days and no trade payables was overdue.

(k) Obligation under operating leases

As at 31 March 2008, the Kingston Group had obligation under operating leases of approximately HK$79,000.

(l) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(m) Capital commitment

As at 31 March 2008, the Kingston Group did not have any capital commitment.

(n) Contingent liability

As at 31 March 2008, the Kingston Group did not have any contingent liability.

– IIB-39 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(o) Employee information

As at 31 March 2008, there were approximately 42 staff employed by the Kingston Group. The Kingston Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(p) Charges

As at 31 March 2008, the Kingston Group did not have any charges.

For the year ended 31 March 2009:

The revenue was decreased by 34% to approximately HK$14,979,000. Like most other retailers in Hong Kong, the financial tsunami in 2008 had a material impact on the turnover and gross profit margin of the Kingston Group.

(a) Turnover

For the year ended 31 March 2009, turnover was decreased to approximately HK$14,979,000 (1 April 2007 to 31 March 2008: HK$22,658,000), representing a decrease of approximately 34% from previous year.

(b) Gross profit margin

For the year ended 31 March 2009, gross profit was approximately HK$9,690,000 (1 April 2007 to 31 March 2008: HK$18,348,000), representing a decrease of approximately 47% from previous year. Gross profit margin was decreased to 65% (1 April 2007 to 31 March 2008: 81%).

(c) Selling and distribution expenses

For the year ended 31 March 2009, selling and distribution expenses was approximately HK$4,747,000, which included employee benefits expense of approximately HK$1,805,000 (1 April 2007 to 31 March 2008: HK$9,400,000). The decrease of 50% was in line with the decrease in turnover.

(d) Administration expenses

For the year ended 31 March 2009, administration expenses was decreased by 35% to approximately HK$6,829,000 (1 April 2007 to 31 March 2008: HK$10,435,000). The decrease was in line with the decrease in turnover. Included in the administration expenses was impairment loss recognized in respect of trade and other receivable of approximately HK$1,850,000 which was considered to be unrecoverable and employee benefits expense of approximately HK$3,150,000.

– IIB-40 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the year ended 31 March 2009 comprised of wages, salaries and staff welfare of HK$4,773,000 (1 April 2007 to 31 March 2008: HK$7,816,000) and pension and scheme contribution of HK$182,000 (1 April 2007 to 31 March 2008: HK$293,000), which were included in selling and distribution expenses of approximately HK$1,805,000 and administrative expenses of approximately HK$3,150,000.

(f) Liquidity and financial resources

The working capital of the Kingston Group was mainly funded by its internally generated funds and group companies. The average term of credit for customers was 30 days. As at 31 March 2009, the Kingston Group had a current ratio (total current assets divided by total current liabilities) of 0.22.

(g) Capital structure

As at 31 March 2009, issued share capital was HK$780 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(h) Property, plant and equipment

As at 31 March 2009, property, plant and equipment was approximately HK$486,000 comprised of furniture, equipment and leasehold improvements.

(i) Inventory

For the year ended 31 March 2009, inventory turnover was decreased to 75 days (inventory divided by cost of sales).

(j) Trade receivables and trade payables

As at 31 March 2009, 95% of trade receivables had an ageing within 60 days and no trade payables was overdue.

(k) Obligation under operating leases

As at 31 March 2009, the Kingston Group had obligation under operating leases of approximately HK$248,000.

(l) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

– IIB-41 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(m) Capital commitment

As at 31 March 2009, the Kingston Group did not have any capital commitment.

(n) Contingent liability

As at 31 March 2009, the Kingston Group did not have any contingent liability.

(o) Employee information

As at 31 March 2009, there were approximately 26 staff (31 March 2008: 42) employed by the Kingston Group. The Kingston Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(p) Charges

As at 31 March 2009, the Kingston Group did not have any charges.

For the nine months ended 31 December 2009:

The revenue was decreased by 48% to approximately HK$7,841,000. The financial year end date of the Kingston Group was changed from 31 March to 31 December commencing from the financial year 2009. Accordingly, the financial statements for the period cover the nine-month period from 1 April 2009 to 31 December 2009. The corresponding amounts cover the twelve-month period from 1 April 2008 to 31 March 2009 and therefore may not be comparable with the amounts shown for the period.

(a) Turnover

For the nine months ended 31 December 2009, turnover was approximately HK$7,841,000 (1 April 2008 to 31 March 2009: HK$14,979,000). There was a decrease of HK$7,138,000 over that of the previous twelve months.

(b) Gross profit margin

For the nine months ended 31 December 2009, gross profit was approximately HK$5,820,000 (1 April 2008 to 31 March 2009: HK$9,690,000). Gross profit margin was increased to 74% (1 April 2008 to 31 March 2009: 65%).

– IIB-42 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(c) Selling and distribution expenses

For the nine months ended 31 December 2009, selling and distribution expenses was approximately HK$5,588,000, which included employee benefits expense of approximately HK$1,873,000 (1 April 2008 to 31 March 2009: HK$4,747,000). The increase was mainly attributed by the increasing of advertising expenses.

(d) Administration expenses

For the nine months ended 31 December 2009, administration expenses was decreased by 45% to approximately HK$3,728,000, which included employee benefits expense of approximately HK$2,115,000 (1 April 2008 to 31 March 2009: HK$6,829,000).

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the nine months ended 31 December 2009 comprised of salaries and staff welfare of HK$3,831,000 (1 April 2008 to 31 March 2009: HK$4,773,000) and pension and scheme contribution of HK$157,000 (1 April 2008 to 31 March 2009: HK$182,000), which were included in selling and distribution expenses of approximately HK$1,873,000 and administrative expenses of approximately HK$2,115,000.

(f) Other Income

For the nine months ended 31 December 2009, other income was approximately HK$415,000 (1 April 2008 to 31 March 2009: HK$108,000). Impairment loss of approximately HK$1,850,000 was made during the year ended 31 March 2009 in respect of trade and other receivables, approximately HK$369,000 was recovered from the trade debtors during the nine months ended 31 December 2009.

(g) Liquidity and financial resources

The working capital of the Kingston Group was mainly funded by its internally generated funds and group companies. The average term of credit for customers was 30 days. As at 31 December 2009, the Kingston Group had a current ratio (total current assets divided by total current liabilities) of 0.27.

(h) Capital structure

As at 31 December 2009, issued share capital was HK$780 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(i) Property, plant and equipment

As at 31 December 2009, property, plant and equipment was approximately HK$149,000 comprised of furniture, equipment and leasehold improvements.

– IIB-43 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(j) Inventory

For the nine months ended 31 December 2009, inventory turnover was increased to 346 days (inventory divided by cost of sales). The increase in inventory turnover days as compared to the year ended 31 March 2009 was due to the increase in product types of the Kingston Group in the nine months ended 31 December 2009. The Kingston Group has launched new products to the market and thus, more inventory was kept by the Kingston Group.

(k) Trade receivables and trade payables

As at 31 December 2009, 97% of trade receivables had an ageing within 60 days and 12% of trade payables had an ageing within 30 days.

(l) Obligation under operating leases

As at 31 December 2009, the Kingston Group had obligation under operating leases of approximately HK$216,000.

(m) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(n) Capital commitment

As at 31 December 2009, the Kingston Group did not have any capital commitment.

(o) Contingent liability

As at 31 December 2009, the Kingston Group did not have any contingent liability.

(p) Employee information

As at 31 December 2009, there were approximately 32 staff (31 March 2009: 26) employed by the Kingston Group. The Kingston Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(q) Charges

As at 31 December 2009, the Kingston Group did not have any charges.

– IIB-44 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

For the five months ended 31 May 2010:

The revenue was approximately HK$3,302,000 for the first five months in 2010. The management was optimistic about the results of remaining seven months.

(a) Turnover

For the five months ended 31 May 2010, turnover was approximately HK$3,302,000.

(b) Gross profit margin

For the five months ended 31 May 2010, gross profit was approximately HK$2,496,000. Gross profit margin was slightly increased to 76% (1 April 2009 to 31 December 2009: 74%).

(c) Selling and distribution expenses

For the five months ended 31 May 2010, selling and distribution expenses was approximately HK$2,964,000, which included employee benefits expense of approximately HK$1,077,000.

(d) Administration expenses

For the five months ended 31 May 2010, administration expenses was approximately HK$1,810,000, which included employee benefits expense of approximately HK$1,113,000.

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the five months ended 31 May 2010 comprised of salaries and staff welfare of HK$2,097,000 and pension and scheme contribution of HK$93,000, which were included in selling and distribution expenses of approximately HK$1,077,000 and administrative expenses of approximately HK$1,113,000.

(f) Other Income

For the five months ended 31 May 2010, other income was approximately HK$149,000. Impairment loss of approximately HK$1,850,000 was made during the year ended 31 March 2009 in respect of trade and other receivables, approximately HK$144,000 was recovered from the trade debtors during the five months ended 31 May 2010.

(g) Liquidity and financial resources

The working capital of the Kingston Group was mainly funded by its internally generated funds and group companies. The average term of credit for customers was 30 days. As at 31 May 2010, the Kingston Group had a current ratio (total current assets divided by total current liabilities) of 0.24.

– IIB-45 –

APPENDIX IIB FINANCIAL INFORMATION ON THE KINGSTON GROUP

(h) Capital structure

As at 31 May 2010, issued share capital was HK$780 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(i) Property, plant and equipment

As at 31 May 2010, property, plant and equipment was approximately HK$249,000 comprised of furniture, equipment and leasehold improvements.

(j) Inventory

The Kingston Group has continued to expand its business and increased its product types. For the five months ended 31 May 2010, inventory turnover was increased to 519 days (inventory divided by cost of sales).

(k) Trade receivables and trade payables

As at 31 May 2010, 96% of trade receivables had an ageing within 60 days and all trade payables had an ageing within 30 days.

(l) Obligation under operating leases

As at 31 May 2010, the Kingston Group had obligation under operating leases of approximately HK$320,000.

(m) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(n) Capital commitment

As at 31 May 2010, the Kingston Group did not have any capital commitment.

(o) Contingent liability

As at 31 May 2010, the Kingston Group did not have any contingent liability.

(p) Employee information

As at 31 May 2010, there were approximately 33 staff (31 December 2009: 32) employed by the Kingston Group. The Kingston Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(q) Charges

As at 31 May 2010, the Kingston Group did not have any charges.

– IIB-46 –

APPENDIX IIC FINANCIAL INFORMATION ON THE VIDA GROUP

1. ACCOUNTANTS’ REPORT

==> picture [173 x 66] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

15 October 2010

The Board of Directors

China Natural Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Vida Laboratories Limited (“Vida”) and its subsidiary (collectively referred to as the “Vida Group”) for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 and the five months ended 31 May 2010 (the “Relevant Periods”), for inclusion in the circular (the “Circular”) dated 15 October 2010 issued by China Natural Investment Company Limited (the “Company”) in connection with the proposed acquisition by the Company of the equity interest of Island Kingdom Company Limited (“Island Kingdom”), and all the shareholder’s loans to Island Kingdom and its subsidiary.

Vida is a limited liability company incorporated in Hong Kong on 2 December 1977 with an authorized share capital of HK$1,000,000 divided into 10,000 ordinary shares of HK$100 each. As at the date of this report, the entire issued share capital of HK$620,000 is held by Island Kingdom, a limited liability company incorporated in the British Virgin Islands (the “BVI”). The principal activities of Vida are investment holding, and manufacturing, trading and packaging of pharmaceutical products. The addresses of Vida’s registered office and principal place of business are Room 919, 9/F, Vanta Industrial Centre, 21-23 Tai Lin Pai Road, Kwan Chung, New Territories, Hong Kong.

– IIC-1 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

As at the date of this report, Vida has the following subsidiary, which is a private company with limited liability:

		Particulars of	Attributable
		issued and fully	equity
	Date and place	paid up share	interest held
Name	of incorporation	capital	by Vida	Principal activities
V-Express	11 March 2010,	Ordinary share,	100%	Trading of
Pharmaceutical	Hong Kong	HK$1	(Direct)	pharmaceutical
Limited				products

No audited statutory financial statements of V-Express Pharmaceutical Limited have been prepared since its date of incorporation because it is newly incorporated.

For the purpose of this report, the directors of Vida have prepared consolidated financial statements of the Vida Group for the Relevant Periods in accordance with HKFRSs issued by the HKICPA (the “Underlying Financial Statements”). We have been engaged to perform audit procedures on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA. However, the scope of our audit procedures was limited as we were not appointed as reporting accountants of the Vida Group until after 1 January 2010 and thus did not observe the counting of physical inventories as at 31 March 2008, 31 March 2009 and 31 December 2009. We were unable to satisfy ourselves by alternative means concerning the existence of inventories held by the Vida Group as at 31 March 2008, 31 March 2009 and 31 December 2009 which are stated in the consolidated statement of financial position at HK$3,293,104, HK$1,818,692 and HK$2,299,523, respectively. Any adjustments that might have been found to be necessary in respect of the above may have an effect on the net liabilities of the Vida Group as at 31 March 2008, 31 March 2009 and 31 December 2009 and on its results for each of the Relevant Periods.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Vida Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were considered necessary to adjust the Underlying Financial Statements in preparing our report for inclusion in the Circular.

– IIC-2 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

The Underlying Financial Statements are the responsibility of the directors of Vida who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

Except for the possible effects of the limitation in the scope of our audit procedures referred to above, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Vida Group as at 31 March 2008, 31 March 2009, 31 December 2009 and 31 May 2010 and of its results and cash flows for each of the Relevant Periods.

We draw attention to Note 1 to the Financial Information below which indicates that the Vida Group had net liabilities of HK$20,287,741 at 31 May 2010. In addition, the Vida Group incurred net losses of HK$4,652,459, HK$3,465,072 and HK$1,107,375 for the financial years ended 31 March 2008, 31 March 2009 and the five months ended 31 May 2010, respectively. These matters, along with other matters as set forth in Note 1 below, indicate the existence of a material uncertainty which may cast significant doubt on the Vida Group’s ability to continue as a going concern.

The comparative consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Vida Group for the five months ended 31 May 2009 together with the notes thereon have been extracted from the Vida Group’s unaudited financial information for the same period (the “31 May 2009 Financial Information”) which was prepared by the directors of Vida solely for the purpose of this report. We have reviewed the 31 May 2009 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the 31 May 2009 Financial Information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we could become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 31 May 2009 Financial Information.

On the basis of our review which does not constitute an audit, we are not aware of any material modifications should be made to the 31 May 2009 Financial Information.

– IIC-3 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

I. FINANCIAL INFORMATION

Consolidated statement of comprehensive income

Year ended 31 March 2008 HK$ 17,744,384 (17,050,803)	Year ended 31 March 2009 HK$ 18,296,220 (16,687,051)	Nine months ended 31 December 2009 HK$ 13,684,940 (13,364,913)	Five months ended 31 May 2009 HK$ (Unaudited) 6,097,444 (6,663,883)	Five months ended 31 May 2010 HK$ 9,951,221 (9,028,550)
693,581 87,266 (36,150) (3,942,255) (1,320,251) (4,517,809) (134,650) (4,652,459) –	1,609,169 19,583 (43,978) (3,631,276) (1,293,192) (3,339,694) (125,378) (3,465,072) –	320,027 11,155 10,935,124 (2,764,704) (674,719) 7,826,883 (24,970) 7,801,913 –	(566,439) 5,145 (39,243) (1,533,319) (421,162) (2,555,018) (44,765) (2,599,783) –	922,671 148,404 3,865 (1,702,307) (480,008)
				(1,107,375) –
				(1,107,375) –
(4,652,459)	(3,465,072)	7,801,913	(2,599,783)	(1,107,375)

– IIC-4 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Consolidated statement of financial position

As at 31 March 2008 HK$ 16,980,756	As at 31 March 2009 HK$ 15,753,755	As at 31 December 2009 HK$ 2,187,971	As at 31 May 2010 HK$ 2,486,122
3,293,104 3,356,158 5,006,335 6,038 11,661,635 3,282,577 404,312 3,015,184 6,702,073 4,959,562 21,940,318 995,946 49,501,579 50,497,525	1,818,692 3,187,656 5,886,822 6,038 10,899,208 1,737,252 403,862 2,033,373 4,174,487 6,724,721 22,478,476 1,012,886 53,487,869 54,500,755	2,299,523 4,620,382 – 1,987,378 8,907,283 3,775,825 – – 3,775,825 5,131,458 7,319,429 998,078 25,501,717 26,499,795	2,452,942 5,641,097 – 2,789,962
			10,884,001
			3,276,970 – –
			3,276,970
			7,607,031
			10,093,153
			1,059,977 29,320,917
			30,380,894
(28,557,207)	(32,022,279)	(19,180,366)	(20,287,741

500,000 – (29,057,207)	500,000 – (32,522,279)	620,000 4,920,000 (24,720,366)	620,000 4,920,000 (25,827,741
(28,557,207)	(32,022,279)	(19,180,366)	(20,287,741

– IIC-5 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Consolidated statement of changes in equity

Attributable to Share capital Share premium HK$ HK$ 500,000 – – –	Attributable to Share capital Share premium HK$ HK$ 500,000 – – –	owners of Vida Accumulated losses Total equity HK$ HK$ (24,404,748) (23,904,748) (4,652,459) (4,652,459) (29,057,207) (28,557,207) (3,465,072) (3,465,072) (32,522,279) (32,022,279) 7,801,913 7,801,913 – 5,040,000 (24,720,366) (19,180,366) (1,107,375) (1,107,375) (25,827,741) (20,287,741) (30,963,231) (30,463,231) (2,599,783) (2,599,783) (33,563,014) (33,063,014)	owners of Vida Accumulated losses Total equity HK$ HK$ (24,404,748) (23,904,748) (4,652,459) (4,652,459) (29,057,207) (28,557,207) (3,465,072) (3,465,072) (32,522,279) (32,022,279) 7,801,913 7,801,913 – 5,040,000 (24,720,366) (19,180,366) (1,107,375) (1,107,375) (25,827,741) (20,287,741) (30,963,231) (30,463,231) (2,599,783) (2,599,783) (33,563,014) (33,063,014)
500,000 – 500,000 – 120,000 620,000 –	– – – – 4,920,000 4,920,000 –	(29,057,207) (3,465,072) (32,522,279) 7,801,913 – (24,720,366) (1,107,375)	(28,557,207 (3,465,072
			(32,022,279 7,801,913 5,040,000
			(19,180,366 (1,107,375
620,000	4,920,000	(25,827,741)
500,000 –	– –	(30,963,231) (2,599,783)	(30,463,231 (2,599,783
500,000	–	(33,563,014)

– IIC-6 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Consolidated statement of cash flows

Cash flows from operating activities Profit/(Loss) before tax Adjustments for: Wavier of advance from a former shareholder Depreciation of property, plant and equipment (Gain)/Loss on disposal of property, plant and equipment Interest income Interest expense Operating cash flows before movement in working capital Decrease/(Increase) in inventories Decrease/(Increase) in trade and other receivables Increase/(Decrease) in trade and other payables Decrease/(Increase) in amounts due from related companies Decrease in amount due to a related company Net cash generated from/ (used in) operating activities	Year ended 31 March 2008 HK$ (4,652,459) – 1,747,627 – (35) 134,650	Year ended 31 March 2009 HK$ (3,465,072) – 1,555,949 43,161 – 125,378	Nine months ended 31 December 2009 HK$ 7,801,913 – 374,943 (10,936,333) – 24,970	Five months ended 31 May 2009 HK$ (Unaudited) (2,599,783) – 455,828 43,161 – 44,765	Five months ended 31 May 2010 HK$ (1,107,375) (148,402) 219,681 – (2) –
	(2,770,217) 439,287 233,817 328,701 (642,990) – (2,411,402)	(1,740,584) 1,474,412 168,502 (1,528,385) (880,487) (450) (2,506,992)	(2,734,507) (480,831) (1,432,726) 2,023,765 5,886,822 (403,862) 2,858,661	(2,056,029) 277,685 377,522 (1,851,208) (129,039) – (3,381,069)	(1,036,098) (153,419) (1,020,715) (288,554) – –
					(2,498,786)

– IIC-7 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Year ended 31 March 2008 HK$ – (117,515) 35	Year ended 31 March 2009 HK$ 5,100 (377,209) –	Nine months ended 31 December 2009 HK$ 24,897,860 (770,686) –	Five months ended 31 May 2009 HK$ (Unaudited) 5,100 (115,206) –	Five months ended 31 May 2010 HK$ – (517,832) 2
(117,480) (134,650) 2,200,001 – 2,065,351 (463,531) (2,545,615)	(372,109) (125,378) 3,986,290 – 3,860,912 981,811 (3,009,146)	24,127,174 (24,970) (27,986,152) 5,040,000 (22,971,122) 4,014,713 (2,027,335)	(110,106) (44,765) 2,803,517 – 2,758,752 (732,423) (2,274,990)	(517,830)
				– 3,819,200 –
				3,819,200
				802,584 1,987,378
(3,009,146)	(2,027,335)	1,987,378	(3,007,413)	2,789,962

– IIC-8 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

The Financial Information has been prepared on the historical cost convention except as otherwise stated in the accounting policies set out below.

The Financial Information of Vida is presented in Hong Kong dollars (“HK$”), which is the same as the functional currency of Vida.

The Vida Group had net liabilities of HK$20,287,741 as at 31 May 2010. In addition, the Vida Group incurred net losses of HK$4,652,459, HK$3,465,072 and HK$1,107,375 for the years ended 31 March 2008 and 2009, and the five months ended 31 May 2010, respectively. Accordingly, as at the date of this report, the Vida Group is reliant on the shareholder for support in order to meet its existing short term financial obligations.

The directors of Vida are aware that, due to the above conditions, a material uncertainty exists which may cast significant doubt upon the Vida Group’s ability to continue as a going concern. However, the directors of Vida are of the opinion that there is a reasonable expectation that the Vida Group will be able to continue as a going concern on the basis that the shareholder will continue to provide funding to the Vida Group until the date of completion of the Acquisition and the Company will provide ongoing funding to the Vida Group upon completion of the Acquisition.

Consequently, the directors of Vida have concluded that the Vida Group will be able to continue as a going concern and have prepared the Financial Information on a going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Vida Group has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKASs”), amendments and interpretations issued by the HKICPA that are effective for annual accounting years beginning on or after 1 January 2010.

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

HKFRSs (Amendments) Improvements to HKFRSs 2010[1] HKAS 24 (Revised) Related Party Disclosures[2] HKAS 32 (Amendment) Classification of Rights Issues[3] HKFRS 1 (Amendment) Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters[4] HKFRS 9 Financial Instruments[5] HK(IFRIC)–Int 14 (Amendment) Prepayments of a Minimum Funding Requirement[2] HK(IFRIC)–Int 19 Extinguishing Financial Liabilities with Equity Instruments[4]

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

– IIC-9 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

The directors of Vida anticipate that the application of the other new and revised HKFRSs will have no material impact on the financial performance and financial position of the Vida Group.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

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

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Vida Group.

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

Non-controlling interests in subsidiary is presented separately from the equity of the owners of Vida.

Revenue recognition

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

the Vida Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Vida Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Vida Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue in relation to sales of goods is recognized when the goods are delivered and title has passed.

Income from provision of sub-contracting services is recognized upon the completion of the rendering of the relevant service.

– IIC-10 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Leasing

The Vida Group as lessee

Leasehold land for own use

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, interest in leasehold land is accounted for as operating leases and amortized over the lease term on a reducing balance basis.

Property, plant and equipment

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

Depreciation is recognized so as to write off the cost of assets less their residual values over their useful lives, using the reducing balance method.

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Vida’s net investment in a foreign operation, in which case, such exchange differences are recognized in other comprehensive income in the Financial Information and will be reclassified from equity to profit or loss on disposal of the foreign operation. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for

– IIC-11 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are recognized directly in other comprehensive income.

For the purpose of presenting the Financial Information, the assets and liabilities of the Vida Group’s foreign operations are translated into the presentation currency of the Vida Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity under the heading of foreign currency translation reserve (attributed to non-controlling interests as appropriate).

On disposal of a foreign operation (i.e. a disposal of the Vida Group’s entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of Vida are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Vida Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are reattributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Vida Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as 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 eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefit scheme are charged as expenses when employees have rendered services entitling them to the contributions.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Vida Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.

– IIC-12 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Vida Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

Impairment of tangible assets

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

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that standard.

Inventories

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

– IIC-13 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Provisions

Provisions are recognized when the Vida Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Vida Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Financial instruments

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

Financial assets

The Vida Group’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss (FVTPL), available-for-sale (AFS) financial assets and loans and receivables. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

Income is recognized on an effective interest basis for debt instruments other than financial assets classified as at FVTPL, of which interest income is included in net gains and losses.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near future; or
on initial recognition it is part of a portfolio of identified financial instruments that the Vida Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

– IIC-14 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Vida Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

AFS financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments, they are measured at cost less any identified impairment losses at the end of each reporting period (see the accounting policy in respect of impairment loss on financial assets below).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, amounts due from related companies and cash and bank balances) are measured at amortized cost using the effective interest method, less any impairment (see the accounting policy in respect of impairment loss on financial assets below).

Impairment of financial assets

For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

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

– IIC-15 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

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

For financial assets carried at amortized cost, the amount of the impairment is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the assets carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

Financial liabilities and equity

Debt and equity instruments issued by the Vida Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The Vida Group’s financial liabilities are generally classified into financial liabilities at FVTPL and other financial liabilities.

Effective interest method

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

Interest expense is recognized on an effective interest basis other than financial liabilities classified as at FVTPL, of which interest expense is included in net gains and losses.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL on initial recognition.

– IIC-16 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

A financial liability is classified as held for trading if:

it has been acquired principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Vida Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Vida Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Other financial liabilities

Other financial liabilities (including trade and other payables, amount due to a related company, bank overdrafts and advances from shareholders) are subsequently measured at amortized cost using the effective interest method.

Equity instruments

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

Derecognition

The Vida Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when a financial asset is transferred, the Vida Group has transferred substantially all the risks and rewards of ownership of the asset to another entity. If the Vida Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Vida Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Vida Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Vida Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

The Vida Group derecognizes financial liabilities when, and only when, the Vida Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

– IIC-17 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Related parties

A party is considered to be related to the Vida 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 Vida Group; (ii) has an interest in the Vida Group that gives it significant influence over the Vida Group; or (iii) has joint control over the Vida 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 Vida Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(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 the Vida Group, or of any entity that is a related party of the Vida Group.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Vida Group’s accounting policies, which are described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Key sources of estimation uncertainty

Estimated impairment loss of trade and other receivables

The Vida Group’s policy for doubtful receivables is based on the on-going evaluation of the collectability and aging analysis of the trade and other receivables and on management’s judgments. Considerable judgment is required in assessing the ultimate realization of these receivables, including the current creditworthiness and the past collection history of each debtor, and the present values of the estimated future cash flows discounted at the effective interest rates. If the financial conditions of the Vida Group’s debtors were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss of trade and other receivables may be required.

Estimated impairment loss of inventories

– IIC-18 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

could change significantly as a result of changes in customer taste and competitor actions in response to changes to economic conditions.

5. CAPITAL RISK MANAGEMENT

The Vida Group manages its capital to ensure that the entities in the Vida Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Vida Group’s overall strategy remains unchanged during the year/period.

The capital structure of the Vida Group consists of cash and cash equivalents and equity attributable to owners of Vida, comprising issued share capital, share premium and accumulated losses.

The directors of the Vida Group reviews the capital structure regularly. As part of this review, the directors of the Vida Group considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management, the Vida Group will balance its overall capital structure through the payment of dividends and the issue of new shares.

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables: - Trade and other receivables - Amounts due from related companies - Cash and bank balances Financial liabilities At amortized cost: - Trade and other payables - Amount due to a related company - Bank overdrafts – secured - Advances from shareholders	As at 31 March 2008 HK$ 3,123,031 5,006,335 6,038 3,282,577 404,312 3,015,184 49,501,579	As at 31 March 2009 HK$ 2,783,319 5,886,822 6,038 1,737,252 403,862 2,033,373 53,487,869	As at 31 December 2009 HK$ 4,266,108 – 1,987,378 3,775,825 – – 25,501,717	As at 31 May 2010 HK$ 5,207,868 – 2,789,962

				3,276,970 – – 29,320,917

(b) Financial risk management objectives and policies

The Vida Group’s activities expose it to a variety of financial risks: market risks (including foreign currency risk, interest rate risk and other price risks), credit risk and liquidity risk. The management has been monitoring these risk exposures to ensure appropriate measures are implemented on a timely and effective manner so as to mitigate or reduce such risks.

The Vida Group’s major financial instruments include trade and other receivables, amounts due from related companies, cash and bank balances, trade and other payables, amount due to a related company, bank overdrafts and advances from shareholders. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

– IIC-19 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Foreign currency risk management

The Vida Group has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are denominated in Hong Kong dollars. The Vida Group currently does not have a formal foreign currency hedging policy. However, the management monitors foreign exchange exposure closely and will consider hedging significant foreign currency exposure should the need arise.

Interest rate risk management

The Vida Group has minimal exposure to interest rate risk as the Vida Group did not have any interest-bearing liabilities as at 31 December 2009 and 31 May 2010. The management of the Vida Group consider that the Vida Group’s exposure to interest rate risk was minimal for the years ended 31 March 2008 and 2009. The Vida Group currently does not have a formal interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging the interest rate risk should the need arise.

Other price risks

As the Vida Group has no significant investments in financial instruments at fair values, the Vida Group is not exposed to significant price risk.

Credit risk management

At the end of each reporting period, the Vida Group’s maximum exposure to credit risk which will cause a financial loss to the Vida Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognized financial assets as stated in the consolidated statement of financial position.

In order to minimize the credit risk, the management of the Vida Group has delegated a team responsible for monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Vida Group reviews the recoverable amount of each individual trade debt and debt investment at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Vida consider that the Vida Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

Other than concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings, the Vida Group does not have any other significant concentration of credit risk.

Liquidity risk management

The Vida Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and long term.

– IIC-20 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Liquidity tables

The following tables detail the Vida Group’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Vida Group can be required to pay. The tables include both interest and principal cash flows.

On demand or within one year HK$ 3,282,577 404,312 3,015,184 – 6,702,073	More than one year Total undiscounted cash flows HK$ HK$ – 3,282,577 – 404,312 – 3,015,184 49,501,579 49,501,579 49,501,579 56,203,652	More than one year Total undiscounted cash flows HK$ HK$ – 3,282,577 – 404,312 – 3,015,184 49,501,579 49,501,579 49,501,579 56,203,652	Total carrying amount HK$ 3,282,577 404,312 3,015,184 49,501,579
			56,203,652

1,737,252 403,862 2,033,373 –	– – – 53,487,869	1,737,252 403,862 2,033,373 53,487,869	1,737,252 403,862 2,033,373 53,487,869
4,174,487	53,487,869	57,662,356	57,662,356

3,775,825 –	– 25,501,717	3,775,825 25,501,717	3,775,825 25,501,717
3,775,825	25,501,717	29,277,542	29,277,542

3,276,970 –	– 29,320,917	3,276,970 29,320,917	3,276,970 29,320,917
3,276,970	29,320,917	32,597,887	32,597,887

(c) Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market bid and ask prices respectively.

– IIC-21 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models (e.g. discounted cash flow analysis using observable and/or unobservable inputs).
The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

The directors of Vida consider that the carrying amounts of financial assets and financial liabilities recorded in the Financial Information approximate to their fair values.

Fair value measurements recognized in the consolidated statement of financial position

Financial instruments that are measured subsequent to initial recognition at fair value, are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

At the end of each reporting period, the Vida Group did not have any assets and liabilities that were measured at the above fair value measurements hierarchy.

7. SEGMENT INFORMATION

The directors of Vida review the Vida Group’s internal financial reporting and other information and also obtain other relevant external information in order to assess performance and allocate resources and operating segment is identified with reference to these.

The directors of Vida consider that the business of the Vida Group is organized in one operating segment as manufacturing, trading and packaging in pharmaceutical products in Hong Kong. Additional disclosure in relation to segment information is not presented as the directors of Vida assess the performance of the only operating segment identified based on the consistent information as disclosed in the Financial Information.

The total net segment income/expense is equivalent to total comprehensive income/expense for the year/period as shown in the consolidated statement of comprehensive income and the total segment assets and total segment liabilities are equivalent to total assets and total liabilities as shown in the consolidated statement of financial position.

Details of interest income and depreciation in relation to the operating segment are disclosed in Notes 9 and 13 below respectively.

Vida is domiciled in Hong Kong with the Vida Group’s major operations in Hong Kong. Total revenue, which is also the Vida Group’s turnover, as disclosed in Note 8 below represented the revenue from external customers arising from manufacturing, trading and packaging in pharmaceutical products in Hong Kong. The directors of Vida consider that all the assets of the Vida Group are located in Hong Kong.

– IIC-22 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

8. REVENUE

			Nine months	Five months	Five months
	Year ended	Year ended	ended	ended	ended
	31 March	31 March	31 December	31 May	31 May
	2008	2009	2009	2009	2010
	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
Sales and packaging of
pharmaceutical products	17,744,384	18,296,220	13,684,940	6,097,444	9,951,221

9. OTHER INCOME

Bank interest income Sundry income	Year ended 31 March 2008 HK$ 35 87,231 87,266	Year ended 31 March 2009 HK$ – 19,583 19,583	Nine months ended 31 December 2009 HK$ – 11,155 11,155	Five months ended 31 May 2009 HK$ (Unaudited) – 5,145 5,145	Five months ended 31 May 2010 HK$ 2 148,402
					148,404

10. OTHER GAINS AND LOSSES

Net foreign exchange gains/ (losses) Gain/(Loss) on disposal of property, plant and equipment	Year ended 31 March 2008 HK$ (36,150) – (36,150)	Year ended 31 March 2009 HK$ (817) (43,161) (43,978)	Nine months ended 31 December 2009 HK$ (1,209) 10,936,333 10,935,124	Five months ended 31 May 2009 HK$ (Unaudited) 3,918 (43,161) (39,243)	Five months ended 31 May 2010 HK$ 3,865 –
					3,865

11. FINANCE COSTS

			Nine months	Five months	Five months
	Year ended	Year ended	ended	ended	ended
	31 March	31 March	31 December	31 May	31 May
	2008	2009	2009	2009	2010
	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
Interest on bank overdrafts
wholly repayable within one
year	134,650	125,378	24,970	44,765	–

– IIC-23 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

12. INCOME TAX EXPENSE

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 and reduced corporate profit tax rate from 17.5% to 16.5%, which is effective from the year of assessment 2008/2009. Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the year ended 31 March 2008 and at 16.5% of the estimated assessable profit for the financial years ended 31 March 2009, 31 December 2009 and for the five months ended 31 May 2010 and 2009. No provision for Hong Kong profits tax has been made as the Vida Group incurred a tax loss for the year/period.

The tax charge for the year/period can be reconciled to the profit/(loss) per the consolidated statement of comprehensive income as follows:

Year ended 31 March 2008 HK$ (4,652,459)	Year ended 31 March 2009 HK$ (3,465,072)	Nine months ended 31 December 2009 HK$ 7,801,913	Five months ended 31 May 2009 HK$ (Unaudited) (2,599,783)	Five months ended 31 May 2010 HK$ (1,107,375)

(814,180) 48,837 (6) 121,557 643,792	(571,737) 45,108 – 71,492 455,137	1,287,316 – (2,082,124) (429,778) 1,224,586	(428,964) – – 10,525 418,439	(182,717) 24,486 – (9,187) 167,418
–	–	–	–	–

– IIC-24 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

13. PROFIT / (LOSS) FOR THE YEAR / PERIOD

Profit/(loss) for the year/period has been arrived at after charging/(crediting):

Employee benefits expense: Directors’ emoluments (Note 14) Other staff’s wages, salaries and allowances Other staff’s retirement scheme contributions Long service payments Total employee benefits expense (Note (i)) Auditors’ remuneration Cost of inventories recognised as an expense Depreciation of property, plant and equipment (Note (ii)) Operating lease rentals in respect of rented premises (included in cost of sales) Impairment loss of trade receivables Waiver of advance from a former shareholder Net foreign exchange (gains)/ losses (Gain)/Loss on disposal of property, plant and equipment	Year ended 31 March 2008 HK$ 324,000 7,392,439 312,768 (26,590) 8,002,617 30,000 17,050,803 1,747,627 – 1,158 – 36,150 –	Year ended 31 March 2009 HK$ 376,000 7,293,741 289,552 124,774 8,084,067 31,500 16,687,051 1,555,949 189,000 – – 817 43,161	Nine months ended 31 December 2009 HK$ 417,000 5,654,102 225,696 (4,441) 6,292,357 23,000 13,364,913 374,943 917,759 – – 1,209 (10,936,333)	Five months ended 31 May 2009 HK$ (Unaudited) 145,000 3,027,854 114,745 (19,164) 3,268,435 11,500 6,663,883 455,828 156,304 – – (3,918) 43,161	Five months ended 31 May 2010 HK$ 398,000 3,411,055 156,310 61,898
					4,027,263

					13,500 9,028,550 219,681 730,000 – (148,402) (3,865) –

Notes:

(i) Employee benefits expense of HK$4,829,631, HK$4,781,517, HK$3,963,476 and HK$2,529,068 were included in cost of sales for the financial years ended 31 March 2008, 2009, 31 December 2009 and the five months ended 31 May 2010. The remaining employee benefits expense was included in selling and administrative expenses for each of the Relevant Periods.
(ii) Depreciation of HK$839,310, HK$743,516, HK$236,855 and HK$119,299 were included in cost of sales for the financial years ended 31 March 2008, 2009, 31 December 2009 and the five months ended 31 May 2010. The remaining depreciation was included in other operating expenses for each of the Relevant Periods.

– IIC-25 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

14. DIRECTORS’ EMOLUMENTS

The emoluments paid or payable to each of Vida’s directors were as follows:

Fees HK$ – – – – –	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ – – – – 312,000 12,000 – – 312,000 12,000	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ – – – – 312,000 12,000 – – 312,000 12,000	Total HK$ – – 324,000 –
			324,000

– – – –	– – 364,000 –	– – 12,000 –	– – 376,000 –
–	364,000	12,000	376,000

– – – – – – –	– 325,000 – – – 84,000 –	– 5,000 – – – 3,000 –	– 330,000 – – – 87,000 –
–	409,000	8,000	417,000

– IIC-26 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

Fees HK$ – – –	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ – – 393,000 5,000 393,000 5,000	Other emoluments Salaries and other benefits Contributions to retirement benefits scheme HK$ HK$ – – 393,000 5,000 393,000 5,000	Total HK$ – 398,000
			398,000

– – – –	– – 140,000 –	– – 5,000 –	– – 145,000 –
–	140,000	5,000	145,000

15. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Vida Group, one of the Vida’s directors whose emoluments are included in the disclosures in Note 14 above. The emoluments of the remaining four individuals were as follows:

Wages, salaries and allowances Retirement scheme contributions	Year ended 31 March 2008 HK$ 2,009,871 48,000 2,057,871	Year ended 31 March 2009 HK$ 2,262,008 48,000 2,310,008	Nine months ended 31 December 2009 HK$ 1,079,190 36,000 1,115,190	Five months ended 31 May 2009 HK$ (Unaudited) 891,847 20,000 911,847	Five months ended 31 May 2010 HK$ 813,762 20,000
					833,762

Their emoluments were all within HK$1,000,000.

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

16. (LOSS)/EARNINGS PER SHARE

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

– IIC-27 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

17. PROPERTY, PLANT AND EQUIPMENT

Land and buildings HK$ 16,061,580 – –	Plant and machinery HK$ 9,107,980 23,780 –	Furniture, fixtures and office equipment HK$ 2,840,892 14,088 –	Moulds HK$ 628,430 4,500 –	Decoration HK$ 12,556,628 53,230 –	Motor vehicle HK$ 491,055 – (209,154)	Computer equipment HK$ 282,876 21,917 –	Total HK$ 41,969,441 117,515 (209,154)
16,061,580 – – 16,061,580 – (16,061,580) – – – 4,014,508 385,892 – 4,400,400 376,900 – 4,777,300 – (4,777,300) – – –	9,131,760 74,506 (184,100) 9,022,166 148,690 – 9,170,856 74,300 9,245,156 7,063,131 413,726 – 7,476,857 336,230 (135,839) 7,677,248 219,763 – 7,897,011 111,584 8,008,595	2,854,980 32,323 – 2,887,303 185,723 – 3,073,026 191,833 3,264,859 2,347,517 101,493 – 2,449,010 87,659 – 2,536,669 74,098 – 2,610,767 47,188 2,657,955	632,930 2,467 – 635,397 – – 635,397 – 635,397 474,160 39,692 – 513,852 30,386 – 544,238 17,092 – 561,330 7,716 569,046	12,609,858 213,830 – 12,823,688 402,320 (12,823,688) 402,320 247,500 649,820 8,857,731 750,425 – 9,608,156 643,106 – 10,251,262 39,852 (10,251,262) 39,852 45,056 84,908	281,901 – – 281,901 – (281,901) – – – 318,650 34,482 (209,154) 143,978 27,585 – 171,563 5,517 (177,080) – – –	304,793 54,083 – 358,876 33,953 – 392,829 4,199 397,028 282,876 21,917 – 304,793 54,083 – 358,876 18,621 – 377,497 8,137 385,634	41,877,802 377,209 (184,100)
							42,070,911 770,686 (29,167,169)
							13,674,428 517,832
							14,192,260
							23,358,573 1,747,627 (209,154)
							24,897,046 1,555,949 (135,839)
							26,317,156 374,943 (15,205,642)
							11,486,457 219,681
							11,706,138
– – 11,284,280 11,661,180	1,236,561 1,273,845 1,344,918 1,654,903	606,904 462,259 350,634 405,970	66,351 74,067 91,159 119,078	564,912 362,468 2,572,426 3,001,702	– – 110,338 137,923	11,394 15,332 – –	2,486,122

							2,187,971

							15,753,755

							16,980,756

– IIC-28 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

The above items of property, plant and equipment, except for land and buildings, are depreciated on a reducing balance basis at the following rate per annum :

Land and buildings	:	4%
Plant and machinery	:	20%
Furniture, fixtures and office equipment	:	20%
Moulds	:	25%
Decoration	:	20%
Motor vehicle	:	20%
Computer equipment	:	100%

All of the Vida Group’s land and buildings have been pledged to a bank to secure general banking facilities granted to the Vida Group. The carrying amounts of the land and buildings shown above comprise land in Hong Kong and held under medium-term lease.

18. INVENTORIES

Raw materials Packing materials Finished goods	As at 31 March 2008 HK$ 1,766,055 649,419 877,630 3,293,104	As at 31 March 2009 HK$ 1,389,399 92,985 336,308 1,818,692	As at 31 December 2009 HK$ 1,191,468 644,088 463,967 2,299,523	As at 31 May 2010 HK$ 1,166,441 530,917 755,584
				2,452,942

19. TRADE AND OTHER RECEIVABLES

Trade receivables Deposits paid Rental and utility deposits Prepayments Other receivables	As at 31 March 2008 HK$ 2,800,617 221,024 270,621 12,103 51,793 3,356,158	As at 31 March 2009 HK$ 2,351,854 345,868 319,721 58,469 111,744 3,187,656	As at 31 December 2009 HK$ 3,363,619 332,209 556,198 22,065 346,291 4,620,382	As at 31 May 2010 HK$ 3,860,701 366,775 531,398 66,454 815,769
				5,641,097

– IIC-29 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

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

Within 30 days 31 – 60 days 61 – 90 days 91 – 120 days Over 120 days	As at 31 March 2008 HK$ 1,097,144 1,030,042 501,396 102,890 69,145 2,800,617	As at 31 March 2009 HK$ 1,247,997 861,350 91,862 34,940 115,705 2,351,854	As at 31 December 2009 HK$ 1,663,935 771,588 578,605 145,014 204,477 3,363,619	As at 31 May 2010 HK$ 1,951,574 1,099,374 419,860 126,515 263,378
				3,860,701

The Vida Group grants an average credit period of 30 days to its customers. No interest is charged on trade receivables.

Trade receivables disclosed above include amounts (see below for aged analysis) which are past due at the end of each reporting period but against which the Vida Group has not recognized an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. The Vida Group does not hold any collateral or other credit enhancements over these balances.

Ageing of past due but not impaired

Overdue by: 1 – 30 days 31 – 60 days 61 – 90 days Over 90 days	As at 31 March 2008 HK$ 769,930 198,582 70,641 50,150 1,089,303	As at 31 March 2009 HK$ 360,373 90,525 49,070 94,945 594,913	As at 31 December 2009 HK$ 805,780 329,204 84,730 125,709 1,345,423	As at 31 May 2010 HK$ 599,856 419,860 126,515 263,378
				1,409,609

– IIC-30 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

20. AMOUNTS DUE FROM RELATED COMPANIES

Vida Pharmaceutical Limited (Note (i)) Tinhankin Pharmaceutical Limited (Note (ii)) Maximum amount outstanding during the year/period: Vida Pharmaceutical Limited Tinhankin Pharmaceutical Limited	As at 31 March 2008 HK$ 744,556 4,261,779 5,006,335 744,556 4,261,779	As at 31 March 2009 HK$ 1,025,018 4,861,804 5,886,822 1,025,018 4,861,804	As at 31 December 2009 HK$ – – – 1,025,018 4,861,804	As at 31 May 2010 HK$ – –
				–

				–

				–

Notes:

(i) Vida Pharmaceutical Limited was controlled by Vida’s director, Mr. Chung Nai Cheong and his close family members. The balance with the related company was unsecured, interest-free and had no fixed terms of repayment.
(ii) Tinhankin Pharmaceutical Limited was controlled by Vida’s director, Mr. Chung Nai Cheong and his close family members. The balance with the related company was unsecured, interest-free and had no fixed terms of repayment.

21. CASH AND BANK BALANCES

							As at	As at	As at	As at
						31	March	31 March	31 December	31 May
							2008	2009	2009	2010
							HK$	HK$	HK$	HK$
Cash	at	banks	and	on	hand		6,038	6,038	1,987,378	2,789,962

The bank balances carried interest at floating rates based on daily bank deposit rates.

– IIC-31 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash at banks and on hand, net of outstanding bank overdrafts. Cash and cash equivalents at the end of each reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows:

Cash at banks and on hand Bank overdrafts – secured_(Note 22)_	As at 31 March 2008 HK$ 6,038 (3,015,184) (3,009,146)	As at 31 March 2009 HK$ 6,038 (2,033,373) (2,027,335)	As at 31 December 2009 HK$ 1,987,378 – 1,987,378	As at 31 May 2010 HK$ 2,789,962 –
				2,789,962

22. BANK OVERDRAFTS – SECURED

		As at	As at	As at		As at
		31 March	31 March	31 December	31 May
		2008	2009	2009		2010
		HK$	HK$	HK$		HK$
Bank overdrafts – secured_(Note_	21)	3,015,184	2,033,373	–		–

The bank overdrafts were secured by a charge over the Vida Group’s land and buildings (note 17) and bore interest at Hong Kong dollar prime rate plus 1% per annum, or the overnight HIBOR plus 2%, whichever is higher.

23. TRADE AND OTHER PAYABLES

Trade payables Other payables and accruals Deposits received	As at 31 March 2008 HK$ 855,435 2,256,279 170,863 3,282,577	As at 31 March 2009 HK$ 474,824 1,134,856 127,572 1,737,252	As at 31 December 2009 HK$ 1,810,032 1,867,419 98,374 3,775,825	As at 31 May 2010 HK$ 1,583,931 1,594,665 98,374
				3,276,970

– IIC-32 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

The following is an aged analysis of trade payables based on the invoice date:

0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days More than 120 days	As at 31 March 2008 HK$ 689,647 28,700 3,300 – 133,788 855,435	As at 31 March 2009 HK$ 416,804 7,995 1,097 – 48,928 474,824	As at 31 December 2009 HK$ 1,083,561 677,138 – – 49,333 1,810,032	As at 31 May 2010 HK$ 1,061,080 454,899 18,619 – 49,333
				1,583,931

24. AMOUNT DUE TO A RELATED COMPANY

The amount due was unsecured, interest-free and had no fixed terms of repayment.

25. ADVANCES FROM SHAREHOLDERS

The amounts due were unsecured, interest-free and not repayable within twelve months.

26. SHARE CAPITAL

As at 31 March 2008 HK$ 1,000,000	As at 31 March 2009 HK$ 1,000,000	As at 31 December 2009 HK$ 1,000,000	As at 31 May 2010 HK$ 1,000,000

500,000 –	500,000 –	500,000 120,000	620,000 –
500,000	500,000	620,000	620,000

Note:

On 21 October 2009, the issued share capital of Vida was increased from HK$500,000 to HK$620,000 by creation of 1,200 ordinary shares of HK$100 each at a price of HK$4,200 per ordinary share for cash for the purpose of increasing the working capital of Vida. All the shares rank pari passu in all respects with the existing shares of Vida.

– IIC-33 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

27. DEFERRED TAXATION

At the end of each reporting period, the major items of deferred taxation which have not been recognized are as follows:

Unrecognized deferred tax (liabilities)/assets arising from accelerated/(decelerated) tax depreciation Unrecognized deferred tax assets arising from estimated tax losses	As at 31 March 2008 HK$ (85,119) 4,573,073 4,487,954	As at 31 March 2009 HK$ (151,752) 4,766,884 4,615,132	As at 31 December 2009 HK$ 278,026 5,991,471 6,269,497	As at 31 May 2010 HK$ 287,214 6,158,022
				6,445,236

The Vida Group has unused tax losses of approximately HK$26,131,000, HK$28,890,000, HK$36,312,000 and HK$37,321,000 as at 31 March 2008, 31 March 2009, 31 December 2009 and 31 May 2010, respectively available for offset against future profits that may be carried forward indefinitely. No deferred tax asset has been recognized in respect of the decelerated tax depreciation and the tax losses due to the unpredictability of future profit streams.

Deferred tax liabilities arising from accelerated tax depreciation have not been recognized in the Financial Information as the amount was considered to be immaterial.

28. RETIREMENT BENEFIT SCHEME

The Vida Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong Kong. The assets of the plans are held separately from those of the Vida Group in funds under the control of trustees.

For each of the financial years ended 31 March 2008, 2009, 31 December 2009 and the five months ended 31 May 2009 and 2010, the total expense recognized in the consolidated statement of comprehensive income of HK$324,768, HK$301,552, HK$233,696, HK$119,745 and HK$161,310 represents contributions payable to the scheme by the Vida Group at rates specified in the rules of the scheme.

– IIC-34 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

29. OPERATING LEASES

The Vida Group as lessee

At the end of each reporting period, the Vida Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive	As at 31 March 2008 HK$ – – –	As at 31 March 2009 HK$ 252,000 63,000 315,000	As at 31 December 2009 HK$ 1,626,000 660,000 2,286,000	As at 31 May 2010 HK$ 1,416,000 110,000
				1,526,000

Operating leases relate to office premises and warehouse facilities with lease terms of between 1 to 2 years.

30. COMMITMENTS

	As at	As at	As at	As at
	31 March	31 March	31 December	31 May
	2008	2009	2009	2010
	HK$	HK$	HK$	HK$
Contracted but not provided for:
Commitments for the
acquisition of property, plant
and equipment	–	–	331,443	860,000

31. RELATED PARTY TRANSACTIONS

The remuneration of key management personnel during the year/period was as follows:

Compensation of key management personnel Short-term employee benefits Post-employment benefits	Year ended 31 March 2008 HK$ 312,000 12,000 324,000	Year ended 31 March 2009 HK$ 364,000 12,000 376,000	Nine months ended 31 December 2009 HK$ 409,000 8,000 417,000	Five months ended 31 May 2009 HK$ (Unaudited) 140,000 5,000 145,000	Five months ended 31 May 2010 HK$ 393,000 5,000
					398,000

– IIC-35 –

APPENDIX IIC FINANCIAL INFORMATION ON THE VIDA GROUP

II. EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in the Financial Information, no significant event took place subsequent to 31 May 2010.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of any of the companies comprising the Vida Group have been prepared in respect of any period subsequent to 31 May 2010.

Yours faithfully,

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants Hong Kong

– IIC-36 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE VIDA GROUP

The Vida Group was established in 1977 and has its own Good Manufacturing Practice certified factory in Hong Kong. Its core business is the manufacturing and sale of generic western medicines. The Vida Group’s products are mainly branded generic medicines, such as remedies for cold and flu, cough, fever and skin infection. The Vida Group’s production facilities and back office are located in Hong Kong and occupy a total gross floor area of about 35,000 square feet. The Vida Group possesses a manufacturing licence and a wholesale poisons licence issued by the Department of Health of Hong Kong, and is capable of producing medicines in different dosage forms including tablets, capsules, syrups, creams and ointments. Its major customers include private doctors, the Hospital Authority, over-the-counter retailers and medicine traders.

For the year ended 31 March 2008:

(a) Turnover

For the year ended 31 March 2008, turnover was approximately HK$17,744,000.

(b) Gross profit margin

For the year ended 31 March 2008, gross profit was approximately HK$694,000. Gross profit margin was 3.9%.

(c) Selling and administrative expenses

For the year ended 31 March 2008, selling and administrative expenses was approximately HK$3,942,000, mainly was employee benefits expense of approximately HK$3,173,000.

(d) Other operating expenses

For the year ended 31 March 2008, other operating expenses was approximately HK$1,320,000.

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the year ended 31 March 2008 comprised of wages, salaries and staff welfare of HK$7,716,000 and pension, scheme contribution and long service payments of HK$286,000, which were included in selling and administrative expenses of approximately HK$3,173,000 and cost of sales of approximately HK$4,829,000.

– IIC-37 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(f) Liquidity and financial resources

The working capital of the Vida Group was mainly funded by its internally generated funds. The average term of credit for customers was 30 days. As at 31 March 2008, the Vida Group had a current ratio (total current assets divided by total current liabilities) of 1.74.

(g) Capital structure

As at 31 March 2008, issued share capital was HK$500,000 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(h) Property, plant and equipment

As at 31 March 2008, property, plant and equipment was approximately HK$16,981,000 mainly contributed by land and buildings, decoration and plant and machinery.

(i) Inventory

For the year ended 31 March 2008, inventory turnover was 70 days (inventory divided by cost of sales).

(j) Trade receivables and trade payables

As at 31 March 2008, 76% of trade receivables had an ageing within 60 days and 84% of trade payables had an ageing within 60 days.

(k) Obligation under operating leases

As at 31 March 2008, the Vida Group did not have any obligation under operating leases.

(l) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(m) Capital commitment

As at 31 March 2008, the Vida Group did not have any capital commitment.

(n) Contingent liability

As at 31 March 2008, the Vida Group did not have any contingent liability.

– IIC-38 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(o) Employee information

As at 31 March 2008, there were approximately 57 staff employed by the Vida Group. The Vida Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(p) Charges

As at 31 March 2008, the Vida Group did not have any charges.

For the year ended 31 March 2009:

The revenue was slightly increased by 3.1% to approximately HK$18,296,000. Since the Vida Group’s products are mainly branded generic medicines, the consumption of these products was not affected by the financial tsunami in 2008.

(a) Turnover

For the year ended 31 March 2009, turnover was increased to approximately HK$18,296,000 (1 April 2007 to 31 March 2008: HK$17,744,000), representing an increase of approximately 3.1% from previous year.

(b) Gross profit margin

For the year ended 31 March 2009, gross profit was approximately HK$1,609,000 (1 April 2007 to 31 March 2008: HK$694,000), representing an increase of approximately 131.8% from previous year. Gross profit margin was increased to 8.8% (1 April 2007 to 31 March 2008: 3.9%).

(c) Selling and administrative expenses

For the year ended 31 March 2009, selling and administrative expenses decreased by 8% to approximately HK$3,631,000 (1 April 2007 to 31 March 2008: HK$3,942,000), mainly was employee benefits expense of approximately HK$3,303,000.

(d) Other operating expenses

For the year ended 31 March 2009, other operating expenses remained steady and was approximately HK$1,293,000 (1 April 2007 to 31 March 2008: HK$1,320,000).

– IIC-39 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the year ended 31 March 2009 comprised of wages, salaries and staff welfare of HK$7,670,000 (1 April 2007 to 31 March 2008: HK$7,716,000) and pension, scheme contribution and long service payments HK$414,000 (1 April 2007 to 31 March 2008: HK$286,000), which were included in selling and administrative expenses of approximately HK$3,303,000 and cost of sales of approximately HK$4,781,000.

(f) Liquidity and financial resources

The working capital of the Vida Group was mainly funded by its internally generated funds. The average term of credit for customers was 30 days. As at 31 March 2009, the Vida Group had a current ratio (total current assets divided by total current liabilities) of 2.61.

(g) Capital structure

As at 31 March 2009, issued share capital was HK$500,000 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(h) Property, plant and equipment

As at 31 March 2009, property, plant and equipment was approximately HK$15,754,000 mainly contributed by land and buildings, decoration and plant and machinery.

(i) Inventory

For the year ended 31 March 2009, inventory turnover was decreased to 40 days (inventory divided by cost of sales).

(j) Trade receivables and trade payables

As at 31 March 2009, 90% of trade receivables had an ageing within 60 days and 89% of trade payables had an ageing within 60 days.

(k) Obligation under operating leases

As at 31 March 2009, the Vida Group had obligation under operating leases of approximately HK$315,000.

(l) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

– IIC-40 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(m) Capital commitment

As at 31 March 2009, the Vida Group did not have any capital commitment.

(n) Contingent liability

As at 31 March 2009, the Vida Group did not have any contingent liability.

(o) Employee information

As at 31 March 2009, there were approximately 45 staff (31 March 2008: 57) employed by the Vida Group. The Vida Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(p) Charges

As at 31 March 2009, the Vida Group did not have any charges.

For the nine months ended 31 December 2009:

The financial year end date of the Vida Group was changed from 31 March to 31 December commencing from the financial year 2009. Accordingly, the financial statements for the period cover the nine-month period from 1 April 2009 to 31 December 2009. The corresponding amounts cover the twelve-month period from 1 April 2008 to 31 March 2009 and therefore may not be comparable with the amounts shown for the period. The revenue was decreased by 25% to approximately HK$13,685,000. The decrease was resulted from the change of financial year end date.

(a) Turnover

For the nine months ended 31 December 2009, turnover was approximately HK$13,685,000 (1 April 2008 to 31 March 2009: HK$18,296,000). There was a decrease of HK$4,611,000 over that of the previous twelve months.

(b) Gross profit margin

For the nine months ended 31 December 2009, gross profit was approximately HK$320,000 (1 April 2008 to 31 March 2009: HK$1,609,000). Gross profit margin was decreased to 2.3% (1 April 2008 to 31 March 2009: 8.8%).

– IIC-41 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(c) Selling and administrative expenses

For the nine months ended 31 December 2009, selling and administrative expenses was approximately HK$2,765,000 (1 April 2008 to 31 March 2009: HK$3,631,000), comprising mainly of employee benefits expense of approximately HK$2,329,000. The decrease was resulted from the change of financial year end date.

(d) Other operating expenses

For the nine months ended 31 December 2009, other operating expenses was decreased by 48% to approximately HK$675,000 (1 April 2008 to 31 March 2009: HK$1,293,000).

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the nine months ended 31 December 2009 comprised of wages, salaries and staff welfare of HK$6,071,000 (1 April 2008 to 31 March 2009: HK$7,670,000) and pension, scheme contribution and long service payments HK$221,000 (1 April 2008 to 31 March 2009: HK$414,000), which were included in selling and administrative expenses of approximately HK$2,329,000 and cost of sales of approximately HK$3,963,000.

(f) Other gains and losses

For the nine months ended 31 December 2009, other gains and losses of approximately HK$10,935,000 which included a gain on disposal of land and buildings of approximately HK$10,936,000.

(g) Liquidity and financial resources

The working capital of the Vida Group was mainly funded by its internally generated funds. The average term of credit for customers was 30 days. As at 31 December 2009, the Vida Group had a current ratio (total current assets divided by total current liabilities) of 2.36.

(h) Capital structure

As at 31 December 2009, issued share capital was HK$620,000 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(i) Property, plant and equipment

As at 31 December 2009, property, plant and equipment was approximately HK$2,188,000 mainly contributed by plant and machinery.

– IIC-42 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(j) Inventory

For the nine months ended 31 December 2009, inventory turnover was decreased to 47 days (inventory divided by cost of sales).

(k) Trade receivables and trade payables

As at 31 December 2009, 72% of trade receivables had an ageing within 60 days and 97% of trade payables had an ageing within 30 days.

(l) Obligation under operating leases

As at 31 December 2009, the Vida Group had obligation under operating leases of approximately HK$2,286,000.

(m) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(n) Capital commitment

As at 31 December 2009, the Vida Group had contracted but not provided for commitments in acquisition of property, plant and equipment of approximately HK$331,000.

(o) Contingent liability

As at 31 December 2009, the Vida Group did not have any contingent liability.

(p) Employee information

As at 31 December 2009, there were approximately 60 staff (31 March 2009: 45) employed by the Vida Group. The Vida Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(q) Charges

As at 31 December 2009, the Vida Group did not have any charges.

For the five months ended 31 May 2010:

The revenue was approximately HK$9,951,000 for the first five months in 2010. The management was optimistic about the results of remaining seven months.

– IIC-43 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(a) Turnover

For the five months ended 31 May 2010, turnover was approximately HK$9,951,000.

(b) Gross profit margin

For the five months ended 31 May 2010, gross profit was approximately HK$923,000. Gross profit margin was increased to 9.3% (1 April 2009 to 31 December 2009: 2.3%).

(c) Selling and administrative expenses

For the five months ended 31 May 2010, selling and administrative expenses was approximately HK$1,702,000, mainly was employee benefits expense of approximately HK$1,498,000.

(d) Other operating expenses

For the five months ended 31 May 2010, other operating expenses was approximately HK$480,000.

(e) Employee benefits expense

Employee benefits expense (including directors’ remuneration) for the five months ended 31 May 2010 comprised of wages, salaries and staff welfare of HK$3,809,000 and pension, scheme contribution and long service payments HK$218,000 which were included in selling and administrative expenses of approximately HK$1,498,000 and cost of sales of approximately HK$2,529,000.

(f) Liquidity and financial resources

The working capital of the Vida Group was mainly funded by its internally generated funds. The average term of credit for customers was 30 days. As at 31 May 2010, the Vida Group had a current ratio (total current assets divided by total current liabilities) of 3.32.

(g) Capital structure

As at 31 May 2010, issued share capital was HK$620,000 and there was no other issued or outstanding loan capital, preference shares or convertible securities.

(h) Property, plant and equipment

As at 31 May 2010, property, plant and equipment was approximately HK$2,486,000 mainly contributed by plant and machinery.

– IIC-44 –

APPENDIX IIC

FINANCIAL INFORMATION ON THE VIDA GROUP

(i) Inventory

For the five months ended 31 May 2010, inventory turnover was increased to 41 days (inventory divided by cost of sales).

(j) Obligation under operating leases

As at 31 May 2010, the Vida Group had obligation under operating leases of approximately HK$1,526,000.

(k) Trade receivables and trade payables

As at 31 May 2010, 72% of trade receivables had an ageing within 60 days and 96% of trade payables had an ageing within 30 days.

(l) Foreign exchange risk

Foreign exchange risk was minimal as majority of transactions were denominated in Hong Kong dollars.

(m) Capital commitment

As at 31 May 2010, the Vida Group had contracted but not provided for commitments in acquisition of property, plant and equipment of approximately HK$860,000.

(n) Contingent liability

As at 31 May 2010, the Vida Group did not have any contingent liability.

(o) Employee information

As at 31 May 2010, there were approximately 60 staff (31 December 2009: 60) employed by the Vida Group. The Vida Group remunerates its employees mainly based on industry practices and their respective educational background, experience and performance.

(p) Charges

As at 31 May 2010, the Vida Group did not have any charges.

– IIC-45 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. Introduction

The unaudited pro forma financial information of the Enlarged Group, comprising the unaudited pro forma consolidated statement of comprehensive income, the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group (the “Unaudited Pro Forma Financial Information”), has been prepared by the Directors to illustrate the effect of the Acquisition.

The Unaudited Pro Forma Financial Information should be read in conjunction with the financial information on the Group as set out in Appendix I, the financial information on Island Kingdom as set out in Appendix IIA, the financial information on the Kingston Group as set out in Appendix IIB, the financial information on the Vida Group as set out in Appendix IIC and other financial information included elsewhere in this circular. The Unaudited Pro Forma Financial Information does not take account of any trading or other transactions subsequent to the date of the financial statements included in the Unaudited Pro Forma Financial Information.

2. Unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group

The following is the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group, as if the Acquisition had been completed at the commencement of the period being reported on (i.e. 1 July 2009). The unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group has been prepared based on the audited consolidated statement of comprehensive income of the Group for the year ended 30 June 2010 as extracted from the Company’s published annual report for the financial year ended 30 June 2010, the audited statement of comprehensive income of Island Kingdom for the period from 28 September 2009 (date of incorporation) to 31 May 2010 as extracted from the accountants’ report on Island Kingdom (set out in Appendix IIA to this circular), the audited consolidated statement of comprehensive income of the Kingston Group for the financial year ended 31 December 2009 as extracted from the accountants’ report on the Kingston Group (set out in Appendix IIB to this circular) and the audited consolidated statement of comprehensive income of the Vida Group for the financial year ended 31 December 2009 as extracted from the accountants’ report on the Vida Group (set out in Appendix IIC to this circular), after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition.

The unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the results of the Group for the year ended 30 June 2010 or any future periods.

– III-1 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group Financial year ended 30 June 2010 (Audited) HK$ 4,704,192 (2,280,095)	Island Kingdom Period ended 31 May 2010 The Kingston Group Financial year ended 31 December 2009 The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Audited) (Audited) (Unaudited) HK$ HK$ HK$ HK$ Notes – 7,840,543 13,684,940 (116,619) 2.1 – (2,020,494) (13,364,913) 10,269 2.1	Island Kingdom Period ended 31 May 2010 The Kingston Group Financial year ended 31 December 2009 The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Audited) (Audited) (Unaudited) HK$ HK$ HK$ HK$ Notes – 7,840,543 13,684,940 (116,619) 2.1 – (2,020,494) (13,364,913) 10,269 2.1	Island Kingdom Period ended 31 May 2010 The Kingston Group Financial year ended 31 December 2009 The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Audited) (Audited) (Unaudited) HK$ HK$ HK$ HK$ Notes – 7,840,543 13,684,940 (116,619) 2.1 – (2,020,494) (13,364,913) 10,269 2.1	Pro forma Enlarged Group (Unaudited) HK$ 26,113,056 (17,655,233)
2,424,097 435,624 – – (12,135,193) (331,041) (16,752,288) – 22,238,798 3,010,697 16,950 (1,092,356) (363,649)	– – – – (5,045,070) – – – – – – (5,045,070) –	5,820,049 415,404 (23,712) (5,587,705) (3,728,208) – – – – – – (3,104,172) –	320,027 11,155 10,935,124 (2,764,704) 106,350 2.1 – 5,040,000 2.2 (24,970) (674,719) – (1,000,000) 2.3 – – – 7,801,913 –	8,457,823 862,183 10,911,412 (8,246,059) (15,868,471) (356,011) (17,427,007) (1,000,000) 22,238,798 3,010,697 16,950
				2,600,315 (363,649)
(1,456,005)	(5,045,070)	(3,104,172)	7,801,913	2,236,666

– III-2 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group:

2.1 The adjustment represents the elimination of the intra-group transactions within the Enlarged Group, as if the Acquisition had been completed at the commencement of the period being reported on. This adjustment is not expected to have a continuing effect on the Enlarged Group.
2.2 The adjustment represents the elimination of impairment loss recognized on available-for-sale investment held by Island Kingdom, as if the Acquisition had been completed at the commencement of the period being reported on. This adjustment is not expected to have a continuing effect on the Enlarged Group.
2.3 The adjustment reflects the estimated costs related to the Acquisition amounting to HK$1,000,000 expensed in profit or loss, as if the Acquisition had been completed at the commencement of the period being reported on. In accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations” (applicable for annual periods beginning on or after 1 July 2009), acquisition-related costs are costs the acquirer incurs to effect a business combination, and the acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received. This adjustment is not expected to have a continuing effect on the Enlarged Group.

3. Unaudited pro forma consolidated statement of financial position of the Enlarged Group

The following is the unaudited pro forma consolidated statement of financial position of the Enlarged Group, as if the Acquisition had been completed at the date reported on (i.e. 30 June 2010). The unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared based on the audited consolidated statement of financial position of the Group as at 30 June 2010 as extracted from the Company’s published annual report for the year ended 30 June 2010, the audited statement of financial position of Island Kingdom as at 31 May 2010 as extracted from the accountants’ report on Island Kingdom (set out in Appendix IIA to this circular), the audited consolidated statement of financial position of the Kingston Group as at 31 May 2010 as extracted from the accountants’ report on the Kingston Group (set out in Appendix IIB to this circular) and the audited consolidated statement of financial position of the Vida Group as at 31 May 2010 as extracted from the accountants’ report on the Vida Group (set out in Appendix IIC to this circular), after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition.

The unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the financial position of the Group as at 30 June 2010 or any future date.

– III-3 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group As at 30 June 2010 (Audited) HK$ 833,504 4,928,583 55800000	Island Kingdom As at 31 May 2010 (Audited) HK$ – – –	The Kingston Group As at 31 May 2010 (Audited) HK$ 248,891 – –	The Vida Group As at 31 May 2010 (Audited) HK$ 2,486,122 – –	Pro forma adjustments (Unaudited) HK$ Notes	Pro forma Enlarged Group (Unaudited) HK$ 3,568,517 4,928,583 55800000
,, – 61,562,087 – 4,425,542 38,543,793 42,972,539 85,941,874 1,197,353 – 1,197,353 363,649 – – 363,649	– – – – – – – – 5,045,062 5,045,062 – – – –	– 248,891 2,770,952 1,700,502 – 1,086,829 5,558,283 1,021,353 22,154,273 23,175,626 – – – –	– 2,486,122 2,452,942 5,641,097 – 2,789,962 10,884,001 3,276,970 – 3,276,970 – 1,059,977 29,320,917 30,380,894	21,500,000 3.1 (34,365,979) 3.2 42,701,255 3.3 (80,849) 3.4 (21,500,000) 3.1 (1,000,000) 3.5 (80,849) 3.4 (5,045,062) 3.2 (29,320,917) 3.2	,, 29,835,276
					94,132,376
					5,223,894 11,686,292 38,543,793 24,349,330
					79,803,309
					5,414,827 22,154,273
					27,569,100
					363,649 1,059,977 –
					1,423,626
145,942,959	(5,045,062)	(17,368,452)	(20,287,741)		144,942,959

12,961,745 132,981,214	8 (5,045,070)	780 (17,369,232)	620,000 (20,907,741)	(620,788) 3.3 43,322,043 3.3 (1,000,000) 3.5	12,961,745 131,981,214
145,942,959	(5,045,062)	(17,368,452)	(20,287,741)		144,942,959

– III-4 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to the unaudited pro forma consolidated statement of financial position of the Enlarged Group:

3.1 The adjustment reflects the settlement of the Consideration of HK$21,500,000 by cash by the Group, as if the Acquisition had been completed at the date reported on.
3.2 The adjustment reflects the elimination of the loans due from the Island Kingdom Group to the Vendor at 31 May 2010, as if the Acquisition had been completed at the date reported on.
3.3 The adjustment reflects the elimination of the combined share capital of HK$620,788 and the combined pre-acquisition reserves of HK$43,322,043 (debit balance) of the Island Kingdom Group, as if the Acquisition had been completed at the date reported on. For the purpose of the preparation of the unaudited pro forma consolidated statement of financial position of the Enlarged Group, the combined pre-acquisition reserves of the Island Kingdom Group of HK$43,322,043 (debit balance) represent the aggregate of the accumulated losses of Island Kingdom of HK$5,045,070 (based on the audited statement of financial position of Island Kingdom as at 31 May 2010 as set out in Appendix IIA to this circular), the accumulated losses of the Kingston Group of HK$17,369,232 (based on the audited consolidated statement of financial position of the Kingston Group as at 31 May 2010 as set out in Appendix IIB to this circular) and the share premium of HK$4,920,000 and the accumulated losses of the Vida Group of HK$25,827,741 (based on the audited consolidated statement of financial position of the Vida Group as at 31 May 2010 as set out in Appendix IIC to this circular).

For the purpose of the preparation of the unaudited pro forma consolidated statement of financial position of the Enlarged Group, the combined net liabilities of the Island Kingdom Group of HK$42,701,255 (represented by the combined share capital of HK$620,788 and the combined pre-acquisition reserves of HK$43,322,043 (debit balance) of the Island Kingdom Group) have been assumed to approximate the fair values of the assets, liabilities and contingent liabilities of the Island Kingdom Group on Completion. The excess of the Consideration of HK$21,500,000 over the combined net liabilities of the Island Kingdom Group of HK$42,701,255 and the carrying amount of the loans due from the Island Kingdom Group to the Vendor of HK$34,365,979, amount to HK$29,835,276. As the Acquisition will be accounted for by applying the acquisition method, this excess is recognized as goodwill arising from the Acquisition on the unaudited pro forma consolidated statement of financial position of the Enlarged Group. Since the actual fair values of the assets, liabilities and contingent liabilities of the Island Kingdom Group on Completion would be different from their estimated fair values used in the preparation of the unaudited pro forma consolidated statement of financial position of the Enlarged Group presented above, the actual amount of goodwill arising from the Acquisition might be materially different from the estimated amount as shown in this Appendix.

For the purpose of the preparation of the unaudited pro forma consolidated statement of financial position of the Enlarged Group in accordance with the requirements of Hong Kong Accounting Standard 36 “Impairment of Assets”, the Directors consider that no impairment is required in respect of the goodwill arising from the Acquisition taking into account the business potential of the Island Kingdom Group (in particular, the Good Manufacturing Practice certified factory that the Vida Group is currently operating in Hong Kong) and other factors as disclosed in the paragraph headed “Reasons for and benefits of the Acquisition” in the “Letter from the Board” in this circular. After Completion, the Group will perform annual impairment test for the cash-generating unit to which the goodwill has been allocated in accordance with the Company’s accounting policies and the requirements of Hong Kong Accounting Standard 36 “Impairment of Assets”, and the Company’s auditors will perform audit procedures thereon in respect of their audit of the consolidated financial statements of the Group for the next financial year in accordance with the requirements of Hong Kong Accounting Standard 36 “Impairment of Assets”.

3.4 The adjustment reflects the elimination of the intra-group balances within the Enlarged Group, as if the Acquisition had been completed at the date reported on.
3.5 The adjustment reflects the estimated costs related to the Acquisition amounting to HK$1,000,000 expensed in profit or loss, as if the Acquisition had been completed at the date reported on.

– III-5 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

4. Unaudited pro forma consolidated statement of cash flows of the Enlarged Group

The following is the unaudited pro forma consolidated statement of cash flows of the Enlarged Group, as if the Acquisition had been completed at the commencement of the period being reported on (i.e. 1 July 2009). The unaudited pro forma consolidated statement of cash flows of the Enlarged Group has been prepared based on the audited consolidated statement of cash flows of the Group for the year ended 30 June 2010 as extracted from the Company’s published annual report for the year ended 30 June 2010, the audited statement of cash flows of Island Kingdom for the period from 28 September 2009 (date of incorporation) to 31 May 2010 as extracted from the accountants’ report on Island Kingdom (set out in Appendix IIA to this circular), the audited consolidated statement of cash flows of the Kingston Group for the financial year ended 31 December 2009 as extracted from the accountants’ report on the Kingston Group (set out in Appendix IIB to this circular) and the audited consolidated statement of cash flows of the Vida Group for the financial year ended 31 December 2009 as extracted from the accountants’ report on the Vida Group (set out in Appendix IIC to this circular), after incorporating the pro forma adjustments as described in the accompanying notes to illustrate the effect of the Acquisition.

The unaudited pro forma consolidated statement of cash flows of the Enlarged Group has been prepared for illustrative purposes only, based on the judgments and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the cash flows of the Group for the year ended 30 June 2010 or any future periods.

– III-6 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group Financial year ended 30 June 2010 (Audited) HK$ (1,092,356) – (270,486) (28,400) 331,041 719,638 – – 9,098,393 (3,010,697) – – (16,950) 41,417 740,372	Island Kingdom Period ended 31 May 2010 (Audited) HK$ (5,045,070) – – – – – – – – – – 5,040,000 – – –	The Kingston Group Financial year ended 31 December 2009 (Audited) HK$ (3,104,172) – (126) – – 180,279 (368,800) 171,656 – – 18,903 – – – –	The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Unaudited) HK$ HK$ Notes 7,801,913 5,040,000 2.2 (1,000,000) 2.3 – 1,000,000 2.3 – – 24,970 374,943 – (10,936,333) – – – – (5,040,000) 2.2 – – –	Pro forma adjustments (Unaudited) HK$ Notes	Pro forma Enlarged Group (Unaudited) HK$ 2,600,315 1,000,000 (270,612) (28,400) 356,011 1,274,860 (368,800) (10,764,677) 9,098,393 (3,010,697) 18,903 – (16,950) 41,417 740,372
				5,040,000 2.2 (1,000,000) 2.3
6,511,972 – 4,542,229 (13,106,906) 1,980,544 – – – (72,161)	(5,070) – – – – – – – (5,070)	(3,102,260) (1,482,946) (250,175) – (121,465) 45,200 – – (4,911,646)	(2,734,507) (480,831) (1,432,726) – 2,023,765 – 5,886,822 (403,862) 2,858,661		670,135 (1,963,777) 2,859,328 (13,106,906) 3,882,844 45,200 5,886,822 (403,862)
					(2,130,216)

– III-7 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Cash flows from investing activities Payment for the Consideration, net of cash and cash equivalents of the Island Kingdom Group acquired Payment for acquisition-related costs Payments for investment properties Payments for property, plant and equipment Payments for prepaid lease payments Acquisition of available-for-sale investments Proceeds from disposal of property, plant and equipment Net cash inflow on disposal of subsidiaries Net cash outflow on acquisition of subsidiaries Decrease in time deposits with original maturity of more than three months when acquired Dividends received Interest received Net cash (used in)/ generated from investing activities	The Group Financial year ended 30 June 2010 (Audited) HK$ – – (55,783,050) (428,443) (4,970,000) – 42,659 2,843,720 – 13,700,000 28,400 270,486	Island Kingdom Period ended 31 May 2010 (Audited) HK$ – – – – – (5,040,000) – – – – – –	The Kingston Group Financial year ended 31 December 2009 (Audited) HK$ – – – (14,588) – – – – (3) – – 126	The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Unaudited) HK$ HK$ Notes – (21,500,000) 4.1 298,251 4.1 (2,027,335) 4.1 – (1,000,000) 4.2 – (770,686) – – 24,897,860 – – – – –	Pro forma adjustments (Unaudited) HK$ Notes	Pro forma Enlarged Group (Unaudited) HK$ (23,229,084) (1,000,000) (55,783,050) (1,213,717) (4,970,000) (5,040,000) 24,940,519 2,843,720 (3) 13,700,000 28,400 270,612
					(21,500,000) 4.1 298,251 4.1 (2,027,335) 4.1
	(44,296,228)	(5,040,000)	(14,465)	24,127,174		(49,452,603)

– III-8 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group Financial year ended 30 June 2010 (Audited) HK$ 38,670,918 – 9,775,000 – – – (331,041)	Island Kingdom Period ended 31 May 2010 (Audited) HK$ – 8 – 5,045,062 – – –	The Kingston Group Financial year ended 31 December 2009 (Audited) HK$ – – – 5,181,874 (27,663) – –	The Vida Group Financial year ended 31 December 2009 Pro forma adjustments (Audited) (Unaudited) HK$ HK$ Notes – 5,040,000 (5,040,008) 4.3 – – – (27,986,152) (24,970)	Pro forma Enlarged Group (Unaudited) HK$ 38,670,918 – 9,775,000 10,226,936 (27,663) (27,986,152) (356,011)
48,114,877 3,746,488 39,226,051	5,045,070 – –	5,154,211 228,100 298,251	(22,971,122) 4,014,713 (2,027,335) (298,251) 4.1 2,027,335 4.1	30,303,028
				(21,279,791) 39,226,051
42,972,539	–	526,351	1,987,378	17,946,260

Notes to the unaudited pro forma consolidated statement of cash flows of the Enlarged Group:

4.1 The adjustment reflects the settlement of the Consideration of HK$21,500,000 by cash by the Group, net of cash and cash equivalents of the Island Kingdom Group acquired, as if the Acquisition had been completed at the commencement of the period being reported on. This adjustment is not expected to have a continuing effect on the Enlarged Group.
4.2 The adjustment reflects the payment of the estimated costs related to the Acquisition amounting to HK$1,000,000, as if the Acquisition had been completed at the commencement of the period being reported on. This adjustment is not expected to have a continuing effect on the Enlarged Group.
4.3 The adjustment reflects the elimination of the share capital of HK$8 of Island Kingdom and the share capital of HK$120,000 and share premium of HK$4,920,000 of Vida Laboratories Limited, as if the Acquisition had been completed at the commencement of the period being reported on. This adjustment is not expected to have a continuing effect on the Enlarged Group.

– III-9 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from the auditors of the Company, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, Hong Kong, addressed to the directors of the Company and prepared for the sole purpose of inclusion in this circular.

==> picture [173 x 65] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

15 October 2010

The Directors

China Natural Investment Company Limited

Dear Sirs,

REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

We report on the unaudited pro forma financial information of China Natural Investment Company Limited (the “Company”) and its subsidiaries (collectively, the “Group”), as enlarged by the acquisition of Island Kingdom Company Limited (hereinafter collectively referred to as the “Enlarged Group”), comprising the unaudited pro forma consolidated statement of comprehensive income, the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group (the “Unaudited Pro Forma Financial Information”), as set out in Section A entitled “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix III of the Company’s circular dated 15 October 2010 (the “Circular”). The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the Acquisition (as defined in the Circular) might have affected the financial information presented in the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Section A of Appendix III of the Circular.

– III-10 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Respective responsibilities of the 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 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 7.31(7) of the GEM 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 (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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 7.31(1) of the GEM Listing Rules.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, based on the judgments 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 Enlarged Group as at 30 June 2010 or any future date; or
the results or cash flows of the Enlarged Group for the year ended 30 June 2010 or any future periods.

– III-11 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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 7.31(1) of the GEM Listing Rules.

Yours faithfully, HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– III-12 –

APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS OF DIRECTORS

As at the Latest Practicable Date, save as mentioned below, none of the Directors and chief executive has any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he is taken or deemed to have taken under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules:

Long positions in the Shares:

			Approximate % of
			the Company’s
		Number of	issued share
		issued/	capital as at
		underlying	the Latest
Name of Director	Capacity	Shares held	Practicable Date
U Man Iong	Beneficial owner	60,000,000	11.94%
		(Note)
Chow Kai Wah, Gary	Beneficial owner	18,000	0.00%

Note: These Shares represent the Shares to be allotted and issued pursuant to the referral agreement as disclosed in the circular of the Company dated 13 March 2008.

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors, as at the Latest Practicable Date, the Company has not been notified by any person (other than the Directors as set out in the section headed “Disclosure of interests of Directors” above) who had interests or short positions in the shares or underlying shares of the Company which are required to be recorded in the register maintained by the Company pursuant to section 336 of the SFO.

– IV-1 –

APPENDIX IV

GENERAL INFORMATION

4. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by members of the Group within the two years preceding the issue of this circular and which are or may be material:

(a) the termination agreement dated 7 November 2008 entered into between the Company and 西藏諾迪康藥業股份有限公司 (unofficial English translation being Xizang Rhodiola Pharmaceutical Co., Ltd.) (“ Xizang Medicine ”) for termination of the co-operation agreement dated 18 February 2008 entered into between the Company and Xizang Medicine in which the Company undertook the business of the development, manufacture and sale of Natriuretic Peptide (凍幹重組人腦利納肽) and all rights and obligations in relation thereto in the PRC through a domestic company to be established in the PRC by Xizang Medicine and the Company, which is a joint venture to be established and owned as to 51% and 49% by the Company and Xizang Medicine respectively;
(b) the sale and purchase agreement dated 10 February 2009 entered into between the Purchaser and Wei Wen Ya for the sale and purchase of the entire issued share capital of, and all the shareholder ’s loan to, China Natural Pharmaceutical Holdings Company Limited at an aggregate consideration of HK$3,000,000;
(c) the supplemental deed executed by the Company on 18 February 2009 in relation to the modifications to the conditions of the HK$150,000,000 1% convertible bonds due in 2012 created and issued by the Company on 31 January 2008 to allow early redemption of the convertible bonds;
(d) the top-up placing and subscription agreement dated 29 April 2009 entered into between HK Health Check, the Company and Kingston Securities Limited (“ KSL ”) in relation to the (i) top-up placing of 1,200,000,000 existing shares of the Company of HK$0.001 each by KSL at HK$0.025 per top-up placing share; and (ii) top-up subscription of 1,200,000,000 shares of the Company of HK$0.001 each by HK Health Check at HK$0.025 per top-up subscription share;
(e) the provisional sale and purchase agreement dated 2 October 2009 entered into between China Universal Limited (a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company) and The First Development Limited for the sale and purchase of the properties located at Shop Nos. 4, 53, 54, 56 and 57 on Ground Floor of Commercial Centre, Fullview Garden, No. 18 Siu Sai Wan Road, Hong Kong at a consideration of HK$17,200,000;

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APPENDIX IV

GENERAL INFORMATION

(f) the conditional placing agreement dated 23 October 2009 entered into between the Company and KSL in relation to the placing of a maximum of 185,000,000 new shares of the Company of HK$0.01 each by KSL at HK$0.13 per placing share;
(g) the sale and purchase agreement dated 8 April 2010 entered into between the Purchaser, the Company and Good Pace International Limited for the sale and purchase of the entire issued share capital of, and the sale debt to, China Natural Pharmaceutical Holdings Company Limited at an aggregate consideration of HK$5,500,000;
(h) the conditional placing agreement dated 20 April 2010 entered into between the Company and Fordjoy Securities and Futures Limited (“ Fordjoy ”) in relation to the placing of a maximum of 37,000,000 new shares of the Company of HK$0.05 each by Fordjoy at HK$0.43 per placing share;
(i) the conditional placing agreement dated 20 April 2010 entered into between the Company and Fordjoy in relation to the placing of a maximum of 243,000,000 new shares of the Company of HK$0.05 each by Fordjoy at HK$0.43 per placing share (which is supplemented by the supplemental agreement dated 7 July 2010 entered into between the Company and Fordjoy to reduce the placing price to HK$0.22 per placing share);
(j) the memorandum dated 7 May 2010 entered into between Core Medical Technology Limited (a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company) and Town Health Food and Beverage Culture Company Limited for the sale and purchase of the property located at Unit 1210A, 12th Floor, Champion Building, 301-309 Nathan Road, Kowloon, Hong Kong at a consideration of HK$11,500,000;
(k) the provisional sale and purchase agreement dated 13 May 2010 entered into between Talent Vision Limited (a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company) and On Champion Investment Limited for the sale and purchase of the properties located at Shop Nos. G27 and G28, Ground Floor, Commercial Podium, Sincere House, No. 83 Argyle Street, Kowloon, Hong Kong at a consideration of HK$30,000,000;

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APPENDIX IV

GENERAL INFORMATION

(l) the Agreement; and
(m) the provisional sale and purchase agreement dated 24 September 2010 entered into between Talent Vision Limited (a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company) and Well Ascent Properties Limited for the sale and purchase of the properties, being public carpark nos. P101-P150 together with shroff’s office on 1st Floor, Citimark, No.28 Yuen Shun Circuit, Shatin, New Territories, Hong Kong at a consideration of HK$17,300,000.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation).

6. EXPERT AND CONSENT

The following is the qualification of the expert who has been named in this circular or has given opinions, letter or advice contained in this circular:

Name Qualification HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants

HLB Hodgson Impey Cheng has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its reports and/or reference to its name, in the form and context in which they appear.

As at the Latest Practicable Date, HLB Hodgson Impey Cheng was not beneficially interested in the share capital of any member of the Group nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did it have any interest, either directly or indirectly, in the assets which have been acquired or disposed of by or leased to any member of the Group since 30 June 2010, being the date to which the latest published audited consolidated financial statements of the Group were made up.

7. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

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APPENDIX IV

GENERAL INFORMATION

8. DIRECTORS’ COMPETING INTERESTS

To the best knowledge of the Directors, as at the Latest Practicable Date, none of the Directors or their respective associates had any interests in a business, which competes or is likely to compete either directly or indirectly with the business of the Group which would be required to be disclosed under Rule 11.04 of the GEM Listing Rules, if the Directors were controlling Shareholders.

9. DIRECTORS’ INTERESTS IN CONTRACTS

Save as disclosed herein, the Directors confirm that there was no contract or arrangement subsisting as at the Latest Practicable Date in which a Director was materially interested which was significant in relation to the business of the Enlarged Group.

10. DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which had been, since 30 June 2010, being the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

11. GENERAL

(a) The registered office of the Company is at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
(b) The head office and principal place of business of the Company in Hong Kong is at Unit 1210A, 12th Floor, Champion Building, 301-309 Nathan Road, Kowloon, Hong Kong.
(c) The company secretary of the Company is Ms. Chan Lai Yee. Ms. Chan is a fellow member of the Association of Chartered Certified Accountants and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants.
(d) The compliance officer of the Company is Mr. Chow Kai Wah, Gary.
(e) As at the Latest Practicable Date, the audit committee of the Company consisted of the following members: (i) Mr. Chan Yip Man, Norman (as chairman); (ii) Mr. Hui Sin Kwong; and (iii) Mr. Leung Chi Kin.

Mr. Chan Yip Man, Norman is a fellow member of the Association of Chartered Certified Accountants and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants. Mr. Chan has extensive experience in accounting, auditing and financial management in a number of

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APPENDIX IV

GENERAL INFORMATION

listed and unlisted companies. He is currently the sole proprietor of a firm of Certified Public Accountants and is an appointed member of the Shatin District Council.

Mr. Hui Sin Kwong has almost 20 years of experience in the building and construction industry in Hong Kong. Mr. Hui has not held any directorship in other listed companies in the past three years.

Mr. Leung Chi Kin is currently an elected district council member of Shatin. He is devoted to community welfare work and has been the committee member or chairman of various social groups. Mr. Leung was also awarded a Medal of Honour by the Hong Kong Special Administrative Region. He was an independent non-executive director of RBI Holdings Limited (now known as Apollo Solar Energy Technology Holdings Limited) (stock code: 566) during the period from 1 May 2008 to 25 November 2009.

The audit committee of the Company reviews the Company’s annual report and accounts, interim reports and quarterly reports and to provide advice and comments thereon to the Board. The audit committee is also responsible for reviewing and supervising the Group’s financial reporting and internal control procedures.

(f) The Company’s branch share registrar and transfer office in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(g) The English text of this circular shall prevail over the Chinese text in the event of inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 5:00 p.m. on any weekday (except Saturdays and public holidays) at the head office and principal place of business of the Company in Hong Kong at Unit 1210A, 12th Floor, Champion Building, 301-309 Nathan Road, Kowloon, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the letter from the Board, the text of which is set out on pages 5 to 14 of this circular;
(c) the material contracts referred to in the section headed “Material contracts” in this Appendix;
(d) the written consent of the expert referred to in the section headed “Expert and consent” in this Appendix;

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APPENDIX IV

GENERAL INFORMATION

(e) the accountants’ report on Island Kingdom from 28 September 2009 (date of incorporation) to 31 May 2010, the text of which is set out in Appendix IIA to this circular;
(f) the accountants’ report on the Kingston Group for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 and the five months ended 31 May 2010, the text of which is set out in Appendix IIB to this circular;
(g) the accountants’ report on the Vida Group for the financial years ended 31 March 2008, 31 March 2009 and 31 December 2009 and the five months ended 31 May 2010, the text of which is set out in Appendix IIC to this circular;
(h) the report from HLB Hodgson Impey Cheng in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(i) the annual reports of the Company for the two years ended 30 June 2010; and
(j) this circular.

– IV-7 –

NOTICE OF THE EGM

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China Natural Investment Company Limited 中國天然投資有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8250)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting of China Natural Investment Company Limited (“ Company ”) will be held at 9:30 a.m. on Monday, 1 November 2010 at Chairman Room II, Level 2, Royal Park Hotel, 8 Pak Hok Ting Street, Shatin, New Territories, Hong Kong to consider and, if thought fit, pass the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“THAT:

(a) the conditional sale and purchase agreement dated 9 September 2010 entered into between Chemosino International Limited and Mr. Ling Wai Hoi in relation to the Acquisition (as defined in the circular of the Company dated 15 October 2010, a copy of which is marked “A” and signed by the chairman of the meeting for identification purpose has been tabled at the meeting) (“ Agreement ”) (a copy of the Agreement is marked “B” and signed by the chairman of the meeting for identification purpose has been tabled at the meeting) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one of the directors of the Company be and is authorised to do all such acts and things, to sign and execute such documents or agreements or deeds on behalf of the Company and to do such other things and to take all such actions as he considers necessary, appropriate, desirable and expedient for the purposes of giving effect to or in connection with the Agreement and the transactions contemplated thereunder.”

By order of the Board China Natural Investment Company Limited Chow Kai Wah, Gary Executive Director

Hong Kong, 15 October 2010

– EGM-1 –

NOTICE OF THE EGM

Registered office Head office and principal place of PO Box 309 business in Hong Kong: Ugland House Unit 1210A Grand Cayman 12th Floor KY1-1104 Champion Building Cayman Islands 301-309 Nathan Road Kowloon, Hong Kong

Notes:

(1) A member of the Company entitled to attend and vote at the extraordinary general meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, to vote on his/her behalf. A proxy need not be a member of the Company but must be present in person at the extraordinary general meeting to represent the member. 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 so appointed.
(2) In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the office of the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude a member of the Company from attending in person and voting at the extraordinary general meeting or any adjournment thereof should he/she so wish.
(3) Completion and return of an instrument appointing a proxy should not preclude a member of the Company from attending and voting in person at the meeting and/or any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.
(4) As required under the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, the above resolution will be decided by way of poll.

As at the date hereof, the executive directors of the Company are Mr. U Man Iong, Mr. Li Wai Hung and Mr. Chow Kai Wah, Gary; and the independent non-executive directors of the Company are Mr. Chan Yip Man, Norman, Mr. Hui Sin Kwong and Mr. Leung Chi Kin.

This notice will remain on the “Latest Company Announcements” page of the GEM website at http://www.hkgem.com for at least seven (7) days from the date of publication and on the website of the Company at http://www.chinanatural.com.hk.

– EGM-2 –

AI assistant

Du Du Holdings Limited — Proxy Solicitation & Information Statement 2010

51353_rns_2010-10-14_e8b58898-ec86-4a2c-8eea-6c54784fb736.pdf

China Natural Investment Company Limited 中國天然投資有限公司

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF ISLAND KINGDOM GROUP AND NOTICE OF EXTRAORDINARY GENERAL MEETING

China Natural Investment Company Limited 中國天然投資有限公司

(Stock Code: 8250)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF ISLAND KINGDOM GROUP

INTRODUCTION

THE AGREEMENT

Assets to be acquired

Consideration

Conditions precedent

Completion

Financial impact of the Acquisition on the Group

INFORMATION ON THE ISLAND KINGDOM GROUP

REASONS FOR AND BENEFITS OF THE ACQUISITION

IMPLICATIONS UNDER THE GEM LISTING RULES

Very substantial acquisition

Exempted connected transaction

EGM

RECOMMENDATION

ADDITIONAL INFORMATION

1. THREE-YEAR FINANCIAL INFORMATION

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE GROUP

For the year ended 30 June 2008

Financial review

Business review

Liquidity and financial resources

Capital structure

Capital commitment

Employee information

Contingent liabilities

For the year ended 30 June 2009

Financial review

Review of operations

Liquidity and financial resources

Capital structure

Capital commitment

Employee information

Contingent liabilities

For the year ended 30 June 2010

Financial review

Review of operations

Liquidity and financial resources

Capital structure

Capital commitment

Employee information

Contingent liabilities

3. WORKING CAPITAL

4. INDEBTEDNESS OF THE ENLARGED GROUP

Borrowings

Contingent liabilities

Disclaimer

5. MATERIAL ADVERSE CHANGE

6. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Pharmaceutical business

Assets investment

1. ACCOUNTANTS’ REPORT

I. FINANCIAL INFORMATION

Statement of comprehensive income

Statement of changes in equity

Statement of cash flows

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PREPARATION OF THE FINANCIAL INFORMATION

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

3. SIGNIFICANT ACCOUNTING POLICIES

Taxation

Provisions

Financial instruments

Financial assets

Effective interest method

Financial assets at FVTPL

AFS financial assets

Impairment of financial assets

Financial liabilities and equity

Financial liabilities at FVTPL

Other financial liabilities

Equity instruments

Related parties

Du Du Holdings Limited Proxy Solicitation & Information Statement 2010