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 licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Kenfair International (Holdings) Limited (the “Company”), you should at once hand this circular and the enclosed form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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

KENFAIR INTERNATIONAL (HOLDINGS) LIMITED 建發國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 223)

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE ENTIRE EQUITY INTERESTS IN WEALTH GAIN GLOBAL INVESTMENT LTD. INVOLVING PAYMENT OF CASH AND ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE NOTE; AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

Independent Compliance Adviser to the Company

Optima Capital Limited

A notice convening an extraordinary general meeting of the Company (the “EGM”) to be held at the 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong on Friday, 29 February 2008 at 10:00 a.m. is set out on pages 267 to 268 of this circular. A form of proxy for use at the EGM is enclosed herewith. Whether or not you are able to attend and vote at the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar in Hong Kong, Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

13 February 2008

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from Optima Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
Appendix II – Financial information of the Target Company. . . . . . . . . . . . . . . . . . . . . . . . . . . .	145
Appendix III – Financial information of the Coal Mine Company . . . . . . . . . . . . . . . . . . . . . . . .	155
Appendix IV – Unaudited pro forma financial information of the Enlarged Group. . . . . . . . .	191
Appendix V – Valuation report of the Coal Mine Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	205
Appendix VI – Reports on forecasts underlying the valuation of the
Coal Mine Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Appendix VII – Technical report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	214
Appendix VIII – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	258
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	267

DEFINITIONS

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

“Acquisition” the proposed acquisition by the Company of the Sale Share pursuant to the Sale and Purchase Agreement
“Announcement” the announcement of the Company in relation to, among other things, the Acquisition
“Announcement Date” 26 October 2007, being the date of the Announcement “associates” has the meaning ascribed to it under the Listing Rules “Baron Capital” Baron Capital Limited, a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and the financial adviser to the Company in respect of the Acquisition
“Baron Investment” Baron International Investment Holdings Limited, a company incorporated in the British Virgin Islands with limited liability
“Board” the board of Directors “Business Day(s)” a day (other than a Saturday or Sunday) on which banks are open for business in Hong Kong
“Capital Builder” Capital Builder Investments Limited, a company incorporated in the British Virgin Islands with limited liability and wholly beneficially owned by Ms. Mak
“Capital Concord” Capital Concord Profits Limited, a limited liability company incorporated in the British Virgin Islands and a controlling Shareholder of the Company
“Coal Mine” the coal mine situated at 黑龍江雙鴨山市集賢縣 (Jixian County, Shuangyashan City, Heilongjiang Province), the PRC
“Coal Mine Company” 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited), previously known as 佳木斯升平煤礦 (Jiamusi Sheng Ping Coal Mine)
“Company” Kenfair International (Holdings) Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Stock Exchange
“Completion” completion of the Acquisition in accordance with the terms and conditions of the Sale and Purchase Agreement

DEFINITIONS

“connected person”
has the meaning ascribed to it under the Listing Rules
“Consideration” the consideration payable by the Company to the Vendor for the Acquisition, the particulars of which are set out in the paragraph headed “Consideration” under the section headed “Letter from the Board” in this circular
“Consideration Shares” 70 million Shares to be issued and allotted to the Vendor at the Issue Price in part satisfaction of the Consideration pursuant to the terms of the Sale and Purchase Agreement
“Conversion Date” the date on which the conversion rights are exercised in accordance with the terms and conditions of the Convertible Note
“Conversion Price” the initial conversion price of the Convertible Note, being HK$0.50 (subject to adjustment)
“Conversion Shares” new Shares issuable upon exercise of conversion rights attaching to the Convertible Note
“Convertible Note” a non-interest bearing convertible redeemable note to be issued by the Company in part satisfaction of the Consideration in the principal amount of HK$345 million
“Director(s)” the directors of the Company
“EGM”
an extraordinary general meeting of the Company to be held on Friday, 29 February 2008 at 10:00 a.m. at 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong for the purpose of considering and, if thought fit, approving the Sale and Purchase Agreement and the transactions contemplated thereunder, including the issue of the Consideration Shares, the Conversion Shares and the Convertible Note
“Enlarged Group” the Group immediately after Completion
“First Supplemental Agreement”
the agreement entered into on 26 October 2007 between the Company and the Vendor to amend certain terms in the Sale and Purchase Agreement as set out in the paragraph headed “Sale and Purchase Agreement (as amended by the Supplemental Agreements)” under the section headed “Letter from the Board” in this circular
“Framework Agreement”
a non-binding agreement dated 18 July 2007 entered into between the Mine Seller and the Target Company in relation to the sale and purchase of the Coal Mine Company
“Group”

the Company and its subsidiaries

DEFINITIONS

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“IFRS”

International Financial Reporting Standards

“Independent Shareholders” shareholders of the Company other than those who are required under the Listing Rules to abstain from voting on the ordinary resolution to be proposed at the EGM to approve the Sale and Purchase Agreement, the Acquisition and the transactions contemplated thereunder
“Issue Price”
HK$0.50 per Share, being the issue price for the Consideration Shares
“Jingtian & Gongcheng” Jingtian & Gongcheng Attorneys at Law, the PRC legal adviser
“kt”
kilotonne(s)
“Last Trading Day”
24 September 2007, being the last trading day prior to the date of the Sale and Purchase Agreement and the issue of the Announcement
“Latest Practicable Date”
11 February 2008, being the latest practicable date for ascertaining certain information for inclusion in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Maturity Date”

the fifth anniversary of the issue date of the Convertible Note

“Mine Acquisition Agreement”
an agreement entered into on 30 October 2007 between the Mine Seller as the vendor and the Target Company as the purchaser in respect of the sale and purchase of the Coal Mine Company (as amended by the Supplemental Mine Acquisition Agreement)
“Mine Seller”
黑龍江北方企業集團有限責任公司 (Heilongjiang Northern Enterprises Group Co. Ltd.), a company incorporated in the PRC with limited liability
“Minimum Placing Price” HK$0.99 per Placing Share
“Mining Rights Fee”

採礦權價款(the mining rights fee), being the fee paid and payable by the Coal Mine Company to the PRC government for the right to operate the Coal Mine

DEFINITIONS

“Mr. Wan” Mr. Wan Chuen Chung, Joseph, the beneficial owner of Baron Investment and Baron Capital and the spouse of Ms. Mak
“Ms. Mak” Ms. Mak Wai Chun, the beneficial owner of Capital Builder and the spouse of Mr. Wan
“Mt” million tonne(s) “Open Offer” the open offer of 117,726,000 new Shares at HK$0.10 per Share, the details of which were set out in the announcement of the Company dated 27 June 2007
“Optima Capital” Optima Capital Limited, a corporation licensed to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent compliance adviser appointed to prepare a letter of advice to the Shareholders on the terms of the Acquisition for inclusion in this circular
“Option” the call option granted by the Company to Capital Builder entitling Capital Builder to subscribe for up to 47,090,400 new Shares at a subscription price of HK$0.83 per Share (subject to adjustments)
“Placing” the placing of the Placing Shares at the Placing Price pursuant to the Placing Agreement
“Placing Agreement” an agreement entered into between the Company and Baron Capital on 6 November 2007 in relation to the Placing

“Placing Price”

the price per Placing Share (being not less than the Minimum Placing Price at which Baron Capital offered the Placing Shares to and accepted by each subscriber of Placing Shares in accordance with the terms of the Placing Agreement)
“Placing Shares” up to a maximum of 250,000,000 new Shares to be allotted and issued pursuant to the Placing
“PRC”

the People’s Republic of China, which for the purposes of this circular, excludes Hong Kong, Macao Special Administrative Region of the PRC and Taiwan

“PRC GAAP”

accounting principles generally accepted in the PRC

“Qualified Technical Adviser” and “MMC”
Minarco-MineConsult, a technical consulting firm and the qualified technical adviser appointed to advise the Company in respect of the Coal Mine and being a person with experience in the mining industry in the PRC

DEFINITIONS

“RMB” Renminbi yuan, the lawful currency of the PRC “ROM” run-of-mine, being material as mined before beneficiation “Sale and Purchase Agreement” the conditional agreement entered into on 25 September 2007 between the Company and the Vendor in relation to the Acquisition (as amended by the Supplemental Agreements) “Sale Share” one share of US$1 in the Target Company, representing the entire issued share capital of the Target Company immediately before Completion “Savills” Savills Valuation and Professional Service Limited, an independent professional valuation firm appointed for performing a valuation on the Coal Mine Company “Second Supplemental Agreement” the agreement entered into on 20 December 2007 between the Company and the Vendor to extend the long stop date for satisfaction of the conditions precedent to the Sale and Purchase Agreement to 31 March 2008 as set out in the paragraph headed “Sale and Purchase Agreement (as amended by the Supplemental Agreements)” under the section headed “Letter from the Board” in this circular

“SFO” Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong “Shareholder(s)” holder(s) of Shares “Share(s)” ordinary shares of HK$0.01 each in the share capital of the Company “sq.km” square kilometre(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited

“Supplemental Agreements” the First Supplemental Agreement and the Second Supplemental Agreement

“Supplemental Mine Acquisition the agreement entered into on 31 December 2007 between the Agreement” Mine Seller and the Target Company to extend the long stop date under the Mine Acquisition Agreement to 29 February 2008 as set out in the paragraph headed “The Mine Acquisition Agreement (as amended by the Supplemental Mine Acquisition Agreement)” under the section headed “Letter from the Board” in this circular

the Hong Kong Code on Takeovers and Mergers

“Takeovers Code”

DEFINITIONS

“Target Company”

Wealth Gain Global Investment Ltd., a company incorporated in the British Virgin Islands with limited liability and the entire issued share capital of which was held by the Vendor as at the Latest Practicable Date and will be so held by the Vendor before Completion

“ton(s)” also known as imperial ton or the United Kingdom long ton. 1 ton approximates to 1.0161 tonne “Transfer” (1) satisfaction of the conditions precedent under the Mine Acquisition Agreement; (2) completion of the transfer of registered capital of the Coal Mine Company to the Target Company under the Mine Acquisition Agreement (save for payment of the consideration); and (3) registration of the name of the Target Company as shareholder of the Coal Mine Company by 黑龍江省工商行政管理局 (Heilongjiang Administration for Industry and Commerce)

“Transfer Consideration” the consideration for the Transfer, being RMB140 million “US$” United State dollars, the lawful currency of the United States of America
“Vendor” Mr. Hung Chen, Richael “%” per cent.

For illustration in this circular, figures denominated in RMB are translated into HK$ at the approximate exchange rates of RMB1.0 to HK$1.03.

Certain English translations of Chinese names or words in this circular are included for information purpose only and should not be regarded as the official English translation of such Chinese names or words.

LETTER FROM THE BOARD

KENFAIR INTERNATIONAL (HOLDINGS) LIMITED 建發國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 223)

Executive Directors: Ip Ki Cheung (Chairman) Cheung Shui Kwai (Managing Director) Chan Siu Chung

Independent non-executive Directors: Chan Wing Yau, George Law Sung Ching, Gavin Cheng Wing Keung, Raymond

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

Head office and principal place of business in Hong Kong: 30/F. One Kowloon No.1 Wang Yuen Street Kowloon Bay Kowloon, Hong Kong 13 February 2008

To the Shareholders, and for the information only, the holders of share options

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE ENTIRE EQUITY INTERESTS IN WEALTH GAIN GLOBAL INVESTMENT LTD.

INVOLVING PAYMENT OF CASH

AND ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE NOTE; AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The Company made an announcement on 26 October 2007 to announce that, the Company had entered into a conditional Sale and Purchase Agreement with the Vendor on 25 September 2007, pursuant to which, amongst other things, the Vendor has agreed to sell and the Company agreed to acquire the entire issued share capital of the Target Company at the consideration of HK$700 million. The Company also made an announcement on 31 October 2007 to announce the signing of the Mine Acquisition Agreement.

LETTER FROM THE BOARD

The Consideration is to be satisfied as to (i) HK$320 million in cash; (ii) HK$35 million by the issue of the Consideration Shares to the Vendor at the Issue Price; and (iii) HK$345 million by the issue of the Convertible Note by the Company to the Vendor.

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. It is also subject to the approval of the Independent Shareholders.

The purpose of this circular is to give you information regarding (i) further details of the Acquisition, the Consideration Shares and the Convertible Note; (ii) the advice of Optima Capital on the terms of the Acquisition; and (iii) a notice of the EGM, at which a resolution will be proposed to the Independent Shareholders to consider and, if thought fit, to approve the Acquisition.

BACKGROUND

The Target Company entered into the non-binding Framework Agreement on 18 July 2007. The Target Company entered into the Mine Acquisition Agreement with the Mine Seller on 30 October 2007 and the Supplemental Mine Acquisition Agreement on 31 December 2007, pursuant to which the Target Company will, upon completion of the Transfer, acquire the entire equity interest of the Coal Mine Company from the Mine Seller, subject to the terms and conditions of the Mine Acquisition Agreement and the Supplemental Mine Acquisition Agreement.

SALE AND PURCHASE AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AGREEMENTS)

Date of the Sale and Purchase Agreement

25 September 2007

Dates of the Supplemental Agreements

26 October 2007 and 20 December 2007

Parties

1) Vendor; and
2) The Company

The main terms of the First Supplemental Agreement are (i) to include completion of the Transfer as a condition precedent to the Sale and Purchase Agreement; (ii) to include approval of the Sale and Purchase Agreement by Independent Shareholders as a condition precedent to the Sale and Purchase Agreement; and (iii) to change the time for payment of the balance of the cash consideration of HK$300 million to a day falling 3 months (or such other date as the parties may agree) after Completion. The First Supplemental Agreement also includes consequential changes to the Sale and Purchase Agreement as a result of the changes to the condition precedent described in (i) above. The Second Supplemental Agreement extends the long stop date for satisfaction of the conditions precedent under the Sale and Purchase Agreement to 31 March 2008.

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor is a third party independent of the Company and its subsidiaries and connected persons of the Company and its subsidiaries and any of their respective associates. The Vendor is also independent of and not connected with Baron Investment and/or its ultimate beneficial owners and/or its/his associates.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Company had no prior transactions with the Vendor and its associates in the past 24 months before the date of the Sale and Purchase Agreement.

Assets to be acquired

The Sale Share represents the entire issued share capital of the Target Company. The Sale Share will be acquired by the Company free from all pre-emption, options, liens, claims, equities, charges, encumbrances or third-party rights of any nature, together with all rights as at the date of the Sale and Purchase Agreement or thereafter attaching to it, including all rights to any dividends or other distribution declared, made or paid on or after the date of the Sale and Purchase Agreement.

The Target Company is an investment holding company which was wholly-owned by the Vendor as at the Latest Practicable Date and which will, upon completion of the Transfer, hold 100% of the equity interest in the Coal Mine Company. Upon completion of the Sale and Purchase Agreement and the Mine Acquisition Agreement (details of which are set out under the paragraph headed “The Mine Acquisition Agreement (as amended by the Supplemental Mine Acquisition Agreement)” below), the Company, through the Target Company, will acquire full ownership and control of the Coal Mine Company.

Consideration

The Consideration of HK$700 million in aggregate is to be satisfied in the following manner:

HK$20 million was paid in cash by the Company to the Vendor upon signing of the Sale and Purchase Agreement as a refundable deposit;
HK$35 million is to be satisfied by the issue of Consideration Shares to the Vendor at an issue price of HK$0.50 per Consideration Share on Completion;
HK$345 million is to be satisfied by the issue of Convertible Note to the Vendor on Completion; and
HK$300 million in cash is to be paid to the Vendor or as it may direct in writing on the day falling 3 months (or such other date as the parties may agree) after Completion. The Vendor has directed the Company to pay part of the amount as may be notified by him to the Company for the purposes of settlement of liabilities of the Coal Mine Company due to creditors of the Coal Mine Company directly to such creditors, and as to the balance thereof to the Vendor, the payment of which shall constitute full and final settlement of the Company’s obligation to pay HK$300 million of the Consideration.

LETTER FROM THE BOARD

Completion of the Transfer is a condition precedent to Completion. The Convertible Note and Consideration Shares will be issued only on Completion.

The Directors have considered settling the consideration for the Acquisition entirely in cash. However, the Directors are concerned that fund raising exercises of such magnitude may be difficult. The Directors consider settling the Consideration by using a mixture of cash, Consideration Shares and Convertible Note is to the benefit of the Company and the Shareholders as a whole because this will lessen the working capital burden on the Company. Besides, the Directors consider that the issue of Convertible Note will not have an immediate dilution effect on the existing Shareholders.

In the Sale and Purchase Agreement, the Vendor acknowledges that no further funding will be advanced or made by the Company for the purpose of the completion of the Transfer, other than the Consideration.

The cash portion of the Consideration (being HK$320 million) will be financed by a mixture of internal financial resources and receipts from the proposed equity fund raising exercises of the Group. Upon signing of the Sale and Purchase Agreement, HK$20 million, which is financed by internal resources of the Group, had been paid as a refundable deposit by the Company. The Company entered into the Placing Agreement with Baron Capital on 6 November 2007, pursuant to which the Company appointed Baron Capital as the placing agent to procure not less than six independent placees to subscribe for up to a maximum of 250,000,000 new Shares at the Minimum Placing Price on a best effort basis subject to the terms and conditions set out in the Placing Agreement. Assuming all the Placing Shares were subscribed at the Minimum Placing Price, the gross proceeds of the Placing will amount to HK$247.5 million and the net proceeds are estimated to be approximately HK$241.1 million after deducting the relevant expenses in relation to the Placing. As at the Latest Practicable Date, the Placing had not been completed. The Company would seek alternative financing plans, including bank financing, if the Placing is less favourable than expected. The remaining cash portion of the Consideration (i.e. HK$58.9 million) will be financed by the internal resources of the Group.

Details of the Consideration Shares and the Convertible Note are set out under the paragraphs headed “Consideration Shares” and “Convertible Note” below.

Basis of the Consideration

The Consideration was determined after arm’s length negotiation with reference to, among other things, (i) the potential prospects of the coal mining industry in the PRC; (ii) the current revenues and net profits generated by the Coal Mine Company as shown in the financial statements prepared under the PRC GAAP; (iii) the estimated reserves and resources of the Coal Mine; (iv) a price-to-earnings ratio (“P/E ratio”) of 25.7 based on the earnings for the year ended 31 December 2006 as shown in the financial statements of the Coal Mine Company prepared in accordance with PRC GAAP and the Consideration of HK$700 million, and P/E ratios of 32.05 (assuming exercise of the Convertible Note to its maximum extent of 29.9% of the enlarged issued share capital of the Company), and 57.77 (assuming full conversion of the Convertible Note) based on the adjusted consideration at which the Consideration Shares and Conversion Shares are adjusted at the closing price of HK$1.65 per Share as quoted on the Stock Exchange on the last trading day immediately prior to the date of the Sale and Purchase Agreement; and (v) a draft valuation report on the Coal Mine Company.

LETTER FROM THE BOARD

An independent valuer, Savills, has been commissioned to prepare a valuation report on the business enterprise value of the Coal Mine Company. Savills has performed property valuations for China Coal Energy Company Limited (Stock code: 1898). In addition, Savills has substantial experience in the valuation of companies engaged in various kinds of businesses including toll road, electronic, textile, pharmacy, hotel, golf, manufacturing and water plants.

In determining the Consideration, the Board reviewed a draft report prepared by Savills which gave a value of RMB680 million to the business enterprise value of the Coal Mine Company. The final report is set out in Appendix V to this circular. The Directors are of the view that such preliminary valuation of the Coal Mine Company by Savills has been prepared after due and careful enquiry. In arriving at the assessed value, Savills has considered three accepted approaches. They are market approach, cost approach and income approach. For this valuation, the market approach is not appropriate as there are insufficient comparable transactions to form a reliable basis for the opinion of the value. The cost approach is not appropriate as it ignores the economic benefits of ownership of the business. Savills has therefore relied solely on the income approach in determining its opinion of the value.

Savills has mainly used the income approach technique known as the discounted cash flow method to assess the business enterprise value. Under the method, Savills has discounted the projected cash flow of the Coal Mine Company based on the sales, operating cost and capital expenditure forecast as disclosed in the draft technical report provided by MMC and other relevant documents, financial information and projection provided by the Coal Mine Company and the Target Company. To the best of the Directors knowledge, information and belief having made all reasonable enquiries, Savills is independent and not connected with the Company, Baron Investment, the Mine Seller, the Vendor and their respective ultimate beneficial owners. As set out in the valuation report, the value of the Coal Mine Company as at 30 June 2007 was about RMB680 million. Based on such valuation, the Directors considered that the Consideration is fair and reasonable.

Given the growth rate in the steel and energy related industries in the PRC, the Directors are of the view that the outlook of the coal mining industry in the PRC is positive. Taking into account that the Coal Mine Company can make an immediate cash flow contribution upon the Completion, the Directors consider that the P/E ratio of 57.77, which is within the range of P/E ratios of other coal mining issuers and calculated based on the adjusted consideration as stated above, is fair and reasonable.

The Directors are aware of the considerable premium when comparing the Consideration with the original cost payable by the Target Company in relation to its acquisition of the entire equity interest in the Coal Mine Company. The Directors consider the Consideration and premium payable are justifiable taking into account the following factors:

Without the connection of the Vendor, the Company would not have any information or knowledge about the Coal Mine Company or the Mine Seller and therefore it would be impossible for the Company to directly acquire the equity interest of the Coal Mine Company and conclude the transaction with the Mine Seller at a lower cost, if at all;
The valuation report prepared by Savills gives a value comparable to the Consideration for the Coal Mine Company; and

LETTER FROM THE BOARD

The P/E ratio of 25.7 based on audited accounts of the Coal Mine Company for the year ended 31 December 2006 prepared in accordance with the PRC GAAP is less than the current P/E ratios of other coal mining issuers listed on the Stock Exchange. Set out below is a summary of P/E ratios of other coal mining issuers listed on the Stock Exchange.

Closing price of	Closing price of
the respective shares
as	quoted on the
Stock Exchange		P/E ratio as
	on the Last	at the Last
Company name (Stock Code)	Trading Day	Trading Day
	HK$
China Coal Energy Co. Ltd. (1898)	21.15	52.46
China Shenhua Energy Co. Ltd. (1088)	46.15	46.38
Hidili Industry International Development Ltd. (1393)	11.78	152.35
Yanzhou Coal Mining Co. Ltd. (1171)	16.82	33.81

Notes: 1) Earnings per share figures are extracted from the respective latest published annual reports or prospectuses of the listed issuers available before the Announcement Date

2) Exchange rate being used is HK$1 = RMB0.97

The Directors had reviewed several research reports in connection with the coal mining industry including a research report dated 23 July 2007 issued by Deutsche Bank titled “China Coal Monitor”, a research report dated 27 August 2007 issued by Scotia Capital titled “China Commodities Weekly”, and an industry report titled “China Energy Weekly” issued by Interfax China from 28 June 2007 to 4 July 2007. The overall sentiment is positive and the Directors are of the view that the coal mining industry in the PRC will continue to boom in the future given the substantial gross domestic product growth rate and the increasing growth in steel and energy related industries. The Directors are of the view that given the prevailing market conditions for coal mining projects are favourable, the P/E ratio is within the range of the P/E ratios of other coal mining issuers and the business of the Coal Mine Company can make an immediate cash-flow contribution upon Completion, the P/E ratio of the Coal Mine Company is fair and reasonable.

The Company views the Coal Mine as a very promising asset since it is cash-generating. The structure of the Sale and Purchase Agreement is such that the Target Company has to, among other things, enter into the Mine Acquisition Agreement with the Mine Seller and complete the Transfer for the Sale and Purchase Agreement to become unconditional. The Directors consider that time is of the essence for this investment as it may go to other potential buyers or may cost much more if the Sale and Purchase Agreement were entered into at a later stage.

Under the Sale and Purchase Agreement, the Vendor has given warranties, among other things, that the accounts of the Coal Mine Company are true and fair and prepared in accordance with the PRC GAAP and that there is no material adverse change in the financial and trading position of the Coal Mine Company since the date of the accounts of the Coal Mine Company. Such accounts are the audited financial statements for the years ended 31 December 2004, 2005 and 2006, and the unaudited financial statements for the 6 months ended 30 June 2007. If there are any breaches of the warranties, the Company can make claims against the Vendor under the Sale and Purchase Agreement. As announced by

LETTER FROM THE BOARD

the Company on 31 October 2007, there is no material variation to the terms of the Mine Acquisition Agreement as compared with that set out in the Announcement, and the Mine Acquisition Agreement was signed on 30 October 2007 and the final consideration for the Mine Acquisition Agreement is set at RMB140 million.

Taking into account the above factors and the fact that the Directors may not be able to conclude a transaction with the Mine Seller otherwise than through the Vendor, the Directors are of the opinion that the Acquisition is in the interests of the Company and the Shareholders as a whole and the Consideration is fair and reasonable.

Conditions precedent to the Sale and Purchase Agreement

Completion of the Acquisition is subject to the following conditions precedent:

1) a due diligence investigation on the Target Company having been completed to the satisfaction of the Company in its sole discretion;
2) the issue of a legal opinion in form and substance satisfactory to the Company by a PRC lawyer approved by the Company, in relation to certain matters in relation to the Coal Mine Company and the Transfer;
3) the obtaining of a technical report on the Coal Mine in form and substance satisfactory to the Company issued by a Qualified Technical Adviser;
4) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares and the Consideration Shares;
5) a valuation report on the Coal Mine Company in form and substance satisfactory to the Company issued by a qualified independent PRC valuer;
6) the Company being satisfied that there has not been any material adverse change (being any change which has a material and adverse effect on the financial position, business or operations) of the Target Company and the Coal Mine Company;
7) the Mine Acquisition Agreement having been executed and production of evidence satisfactory to the Company (including an opinion issued by a PRC lawyer approved by the Company) that the Transfer has been completed;
8) the passing by the Independent Shareholders of a resolution to approve the Sale and Purchase Agreement and the transactions contemplated by it; and
9) the Stock Exchange not having indicated that it will treat (a) the transactions contemplated under the Sale and Purchase Agreement as a “reverse takeover” under Rule 14.06(6) of the Listing Rules and/or (b) the Company as a new listing applicant under Rule 14.54 of the Listing Rules.

LETTER FROM THE BOARD

In the event that the above conditions have not been fulfilled (or waived by the Company) on or before 31 March 2008 (or such other date as the Vendor and the Company may agree in writing) and the the Company gives notice to terminate the Sale and Purchase Agreement, the Sale and Purchase Agreement shall terminate and the Vendor shall return the Deposit without interest to the Company forthwith on demand. On the termination of the Sale and Purchase Agreement and refund of the Deposit, the parties to the Sale and Purchase Agreement shall have no further claims against each other for costs, damages, compensation or otherwise, save in respect of antecedent breaches and claims.

The Vendor has agreed with the Mine Seller that the Mine Seller will effect the Transfer before the payment of the consideration for the Mine Acquisition Agreement, details of which are included in the paragraph headed “Mine Acquisition Agreement” below. Jingtian & Gongcheng will issue the legal opinion referred to above.

Completion

Completion is to take place on the tenth business day after all conditions precedent to the Sale and Purchase Agreement have been satisfied or waived by the Company (or such other time and date as the parties to the Sale and Purchase Agreement may agree). As at the Latest Practicable Date, it was expected that the Transfer would be completed on or before 29 February 2008.

At Completion, the Company will, among other things: (i) issue to the Vendor the Convertible Note; (ii) issue and allot to the Vendor the Consideration Shares credited as fully paid; and (iii) procure that the Vendor is registered on the register of members of the Company as the registered holder of the Consideration Shares.

CONSIDERATION SHARES

The issue price of HK$0.50 per Consideration Share was determined after arm’s length negotiations between the parties with reference to the recent market price of the Shares before the date of the Sale and Purchase Agreement and the net asset value per Share as at 31 March 2007 of HK$0.195.

The Consideration Shares represent approximately 19.82% of the existing issued share capital of the Company and approximately 16.54% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares. An ordinary resolution will be proposed to the Shareholders at the EGM for the issue of the Consideration Shares. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

For a comparison of the Issue Price to the latest traded price of the Shares on the Stock Exchange, please refer to the paragraph headed “Issue Price and Conversion Price” below.

LETTER FROM THE BOARD

CONVERTIBLE NOTE

The principal terms of the Convertible Note are as follows:

Principal amount: HK$345 million.
Interest: Non interest-bearing.
Conversion Price:
HK$0.50 (subject to adjustment for standard adjusting events including sub-division or consolidation of Shares, issue of Shares by way of capitalization of profit or reserves; capital distribution, rights issues, etc. The adjustment to the Conversion Price is subject to review by approved merchant bank and/or auditor appointed by the Company)
Maturity date and repayment: Fifth anniversary from the issue date of the Convertible Note. The outstanding principal amount of the Convertible Note, unless previously converted into Shares or repaid in accordance with the conditions of the Convertible Note, shall be repaid subject to and in accordance with the terms of the Convertible Note on the fifth anniversary following the issue date of the Convertible Note at 100% of the outstanding principal amount of the Convertible Note.
Conversion:

The holder of the Convertible Note shall have the right to convert the whole or any part (in an authorised denomination) of the outstanding principal amount of the Convertible Note at any time from its date of issue at the Conversion Price (subject to adjustments as set out above) up to (and excluding) the commencement of the 7 calendar day period ending on (and including) the Maturity Date. The conversion rights attaching to the Convertible Note shall not in any event be exercisable at any time when the Conversion Price is less than the par value of the Shares. No fraction of a Share shall be issued on conversion and no amount in respect thereof shall be refunded to the holder of the Convertible Note.

In addition, the conversion rights attaching to the Convertible Note cannot be exercised, and accordingly the Company will not issue any Conversion Shares, if and to the extent that the total number of Shares with voting rights held by the holder of the Convertible Note and parties acting in concert with it within the meaning of the Takeovers Code immediately after the issue of the Conversion Shares would be more than 29.9% of the enlarged issued share capital of the Company or such other amount equal to 0.1% below the amount as may be specified in the Takeovers Code as being the level for triggering a mandatory general offer.

LETTER FROM THE BOARD

Redemption:

The Company may at any time and from time to time, by written notice to the holder of the Convertible Note to redeem the whole or part (being an authorised denomination) of the then outstanding principal amount of the Convertible Note at any amount equal to 100% of the principal amount of the Convertible Note sought to be redeemed.

Authorised denomination: HK$1 million.

Transferability:

The Convertible Note (and any part of the Convertible Note) may not be transferred without the prior written consent of the Company. The Convertible Note may not be transferred by the holder of the Convertible Note without the consent of the Company, to any connected person of the Company. Any transfer of the Convertible Note shall be in respect of the whole or any part (in an authorised amount) of the outstanding principal amount of the Convertible Note.

Ranking: The Conversion Shares issued upon conversion will rank pari passu in all respects with all other existing Shares outstanding at the date of conversion and the holder of the Conversion Shares shall be entitled to all dividends and other distributions the record date of which falls on a date on or after the date of conversion.
Voting: The holder of the Convertible Note will not be entitled to receive notices of, attend or vote at any meetings of the Company by reason only of being the holder of the Convertible Note.
Listing: No application will be made for the listing of the Convertible Note on the Stock Exchange or any other stock exchange. An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares to be issued as a result of the exercise of the conversion rights attaching to the Convertible Note.

The Company shall notify the Stock Exchange as soon as practicable when it becomes aware of any dealings in the Convertible Note by any connected persons of the Company.

ISSUE PRICE AND CONVERSION PRICE

The Issue Price and the Conversion Price represent:

(i) a discount of approximately 69.7% to the closing price of HK$1.65 per Share as quoted on the Stock Exchange on the Last Trading Day;

LETTER FROM THE BOARD

(ii) a discount of approximately 69.7% to the average closing price of HK$1.65 per Share as quoted on the Stock Exchange for the last five trading days immediately prior to the date of the Sale and Purchase Agreement;
(iii) a discount of approximately 61.8% to the average closing price of approximately HK$1.31 per Share as quoted on the Stock Exchange for the period from 1 January 2007 up to the date of the Sale and Purchase Agreement;
(iv) a discount of approximately 43.8% to the closing price of HK$0.89 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(v) a premium of approximately 156.41% over the audited consolidated net asset value per Share as at 31 March 2007 of approximately HK$0.195 (based on the audited consolidated net assets of approximately HK$45,796,000 as at 31 March 2007 and 235,452,000 Shares then in issue as shown in the latest annual report of the Company); and
(vi) a premium of approximately 900% over the unaudited consolidated net asset value per Share as at 30 September 2007 of approximately HK$0.05 (based on the unaudited consolidated net assets of approximately HK$17,721,000 as at 30 September 2007 and 353,178,000 Shares then in issue as shown in the latest interim report of the Company).

Given the Issue Price and the Conversion Price represent a premium of approximately 156.41% over the audited consolidated net asset value per Share as at 31 March 2007, and the Directors are of the view that the high historical trading price of the Company is not sustainable and the Consideration Shares and the Conversion Shares cannot be absorbed by the market at such high share price. Therefore, the Directors are of the view that, with reference to the net asset value per Share, the Issue Price and the Conversion Price of HK$0.50, which was arrived at after arm’s length negotiation with the Vendor, are fair and reasonable and in the interests of the Company and Shareholders as a whole.

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

The following chart sets out the shareholding structure of the Company, (i) as at the Latest Practicable Date; (ii) after the issue of the Placing Shares (assuming the Option has not been exercised and before the issue of the Consideration Shares and the Conversion Shares); (iii) after the issue of the Placing Shares and exercise of the Option (but before the issue of the Consideration Shares and the Conversion Shares); (iv) after the issue of the Placing Shares, exercise of the Option, and issue of the Consideration Shares (but before the issue of the Conversion Shares); and (v) after the issue of the Placing Shares, exercise of the Option, issue of the Consideration Shares and issue of the Conversion Shares (assuming the Convertible Note is converted at the initial Conversion Price so that the Vendor and parties acting in concert with him hold 29.9% of the enlarged issued share capital of the Company):

Capital Concord_(Note 1) Vendor _Public Shareholders Capital Builder_(Note 3) Baron Investment(Note 3) Placees Other public Shareholders _Sub-total Total	After the issue of the Placing Shares After the issue of the After the issue of (assuming the Option Placing Shares and the Placing Shares, has not been exercised exercise of the Option exercise of the Option, and and before the issue of the (but before the issue of the issue of the Consideration As at the Latest Consideration Shares and Consideration Shares and Shares (but before the issue Practicable Date the Conversion Shares) the Conversion Shares) of the Conversion Shares) Number of Approximate Number of Approximate Number of Approximate Number of Approximate Shares percentage Shares percentage Shares percentage Shares percentage 111,900,000 31.68% 111,900,000 18.55% 111,900,000 17.21% 111,900,000 15.54% – – – – – – 70,000,000 9.72% – – – – 47,090,400 7.24% 47,090,400 6.54% 1,347,503 0.38% 1,347,503 0.22% 1,347,503 0.21% 1,347,503 0.18% – – 250,000,000 41.45% 250,000,000 38.44% 250,000,000 34.71% 239,930,497 67.94% 239,930,497 39.78% 239,930,497 36.90% 239,930,497 33.31% 241,278,000 68.32% 491,278,000 81.45% 538,368,400 82.79% 538,368,400 74.74% 353,178,000 100.00% 603,178,000 100.00% 650,268,400 100.00% 720,268,400 100.00%	After the issue of the Placing Shares After the issue of the After the issue of (assuming the Option Placing Shares and the Placing Shares, has not been exercised exercise of the Option exercise of the Option, and and before the issue of the (but before the issue of the issue of the Consideration As at the Latest Consideration Shares and Consideration Shares and Shares (but before the issue Practicable Date the Conversion Shares) the Conversion Shares) of the Conversion Shares) Number of Approximate Number of Approximate Number of Approximate Number of Approximate Shares percentage Shares percentage Shares percentage Shares percentage 111,900,000 31.68% 111,900,000 18.55% 111,900,000 17.21% 111,900,000 15.54% – – – – – – 70,000,000 9.72% – – – – 47,090,400 7.24% 47,090,400 6.54% 1,347,503 0.38% 1,347,503 0.22% 1,347,503 0.21% 1,347,503 0.18% – – 250,000,000 41.45% 250,000,000 38.44% 250,000,000 34.71% 239,930,497 67.94% 239,930,497 39.78% 239,930,497 36.90% 239,930,497 33.31% 241,278,000 68.32% 491,278,000 81.45% 538,368,400 82.79% 538,368,400 74.74% 353,178,000 100.00% 603,178,000 100.00% 650,268,400 100.00% 720,268,400 100.00%	After the issue of the Placing Shares, exercise of the Option, issue of the Consideration Shares and issue of the Conversion Shares (assuming the Convertible Note is converted at the initial Conversion Price so that the Vendor and parties acting in concert with him hold 29.9% of the enlarged issued share capital of the Company) Number of Approximate Shares percentage 111,900,000 12.06% 277,400,000 29.90% (Note 2) 47,090,400 5.08% 1,347,503 0.15% 250,000,000 26.95% 239,930,497 25.86% 538,368,400 58.04% 927,668,400 100.00%	After the issue of the Placing Shares, exercise of the Option, issue of the Consideration Shares and issue of the Conversion Shares (assuming the Convertible Note is converted at the initial Conversion Price so that the Vendor and parties acting in concert with him hold 29.9% of the enlarged issued share capital of the Company) Number of Approximate Shares percentage 111,900,000 12.06% 277,400,000 29.90% (Note 2) 47,090,400 5.08% 1,347,503 0.15% 250,000,000 26.95% 239,930,497 25.86% 538,368,400 58.04% 927,668,400 100.00%
		74.74%		58.04%
		100.00%		100.00%

LETTER FROM THE BOARD

Notes:

1) The entire issued share capital of Capital Concord is beneficially owned as to 50% by Best Aims Finance Limited (“Best Aims”), 30% by Harbour Rich Finance Limited (“Harbour Rich”) and 20% by Pace Maker Finance Limited (“Pace Maker”). The entire issued share capital of Best Aims is beneficially owned by Mr. Ip Ki Cheung (“Mr. Ip”), an executive Director. Accordingly, Mr. Ip is deemed to be interested in 111,900,000 Shares held by Capital Concord, representing approximately 31.68% of the entire issued share capital of the Company. The entire issued share capital of Harbour Rich is beneficially owned by Mr. Cheung Shui Kwai, an executive Director. The entire issued share capital of Pace Maker is beneficially owned by Mr. Chan Siu Chung, an executive Director. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Capital Concord and its ultimate beneficial owners are not parties acting in concert with the Vendor. Also, to the best information and knowledge of the Vendor, the Vendor is not acting in concert with other existing Shareholders.
2) As stated in the announcement of the Company dated 26 October 2007, pursuant to the terms of the Convertible Note, the conversion rights attaching to the Convertible Note cannot be exercised if as to the extent that the total number of Shares with voting rights held by the holder of the Convertible Note and parties acting in concert with it within the meaning of the Takeovers Code immediately after the issue of the Conversion Shares would be more than 29.9% of the enlarged issued share capital of the Company or such other amount equal to 0.1% below the amount as may be specified in the Takeovers Code as being the level for triggering a mandatory general offer. 70,000,000 Consideration Shares and 207,400,000 Conversion Shares account for approximately 19.82% and 58.72% respectively of the issued share capital of the Company as at the Latest Practicable Date. The Directors will take reasonable steps and make all reasonable enquiries to ensure that the Vendor is independent of, not connected with and is not party acting in concert with any of the placees involved in the placing of new shares as announced by the Company on 8 November 2007.
3) Capital Builder is wholly and beneficially owned by Ms. Mak, Baron Investment is indirectly wholly owned by Mr. Wan. Being the spouse of Ms. Mak, Mr. Wan is deemed to be interested in the Shares held by Capital Builder upon exercise of the subscription right under the Option under the SFO. Ms. Mak is deemed to be interested in the Shares held by Baron Investment under the SFO.

Taking into account the restriction set out in note 2 to the above table, the Acquisition, which involves the issue of the Consideration Shares and the Conversion Shares, will not result in change of control (as defined in the Takeovers Code) of the Company.

DILUTION EFFECT ON SHAREHOLDERS

In view of the potential dilution effect on existing Shareholders on the exercise of conversion rights attaching to the Convertible Note, the Company will keep the Shareholders informed by way of an announcement of the level of dilution effect and all relevant details of any conversion of the Convertible Note in the following manner:

(a) the Company will make a monthly announcement (the “Monthly Announcement”) on the website of the Stock Exchange. Such announcement will be made on or before the fifth business day following the end of each calendar month and will include the following details in a table form:
(i) whether there is any conversion of the Convertible Note during the relevant month. If yes, details of the conversion(s), including the conversion date, number of Conversion Shares issued, conversion price for each conversion. If there is no conversion during the relevant month, a negative statement to that effect;
(ii) the outstanding principal amount of the Convertible Note after the conversion, if any;

LETTER FROM THE BOARD

(iii) the total number of Shares issued pursuant to other transactions, including Shares issued pursuant to exercise of options under any share option scheme(s) of the Company;
(iv) the total issued share capital of the Company as at the commencement and the last day of the relevant month; and
(b) in addition to the Monthly Announcement, if the cumulative amount of Conversion Shares issued pursuant to the conversion of the Convertible Note reaches 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Note (as the case may be) (and thereafter in a multiple of such 5% threshold), the Company will as soon as practicable but in any event no later than the fifth business day thereafter make an announcement on the website of the Stock Exchange including details as stated in (i) above for the period commencing from the date of the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Note (as the case may be), up to the date on which the total amount of Shares issued pursuant to the conversion amounts to 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Note (as the case may be).

THE FRAMEWORK AGREEMENT

The major terms of the non-binding Framework Agreement are as follows:

1) The Mine Seller has agreed to sell the entire equity interest of the Coal Mine Company to the Target Company pursuant to the terms and conditions of the Framework Agreement and the proposed Mine Acquisition Agreement;
2) Pursuant to the Framework Agreement, the Target Company will conduct due diligence review on the Coal Mine Company within next 3 months from the date of Framework Agreement; and
3) The consideration of the Transfer will be based on a valuation report as provided by an independent qualified PRC valuer.

THE MINE ACQUISITION AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL MINE ACQUISITION AGREEMENT)

Date of the Mine Acquisition Agreement

30 October 2007

Date of the Supplemental Mine Acquisition Agreement

31 December 2007

LETTER FROM THE BOARD

Parties

1) The Mine Seller; and
2) The Target Company

Pursuant to the Mine Acquisition Agreement, the Mine Seller agreed to sell and the Target Company agreed to acquire the entire equity interest of the Coal Mine Company, the principal assets and business of which is the holding and operation of the Coal Mine. The Supplemental Mine Acquisition Agreement extends the long stop date for satisfaction of the conditions precedent under the Mine Acquisition Agreement, including the Transfer, to 29 February 2008 (or such other date as may be agreed between the Mine Seller and the Target Company in writing).

Consideration for the Transfer

The Transfer Consideration is RMB140 million, which was determined with reference to a PRC valuation report and after arm’s length negotiation, and is payable within 3 months from the date of the completion of the Transfer under the Mine Acquisition Agreement. The valuation report is issued by Heilongjiang Hua Peng CPA Company Limited (known as 黑龍江華鵬會計師事務所有限公司 ) which gave a value of approximately RMB120 million as at 30 June 2007. The valuation is based on the net asset value of the Coal Mine Company, for which only approximately RMB10 million of the long-term liabilities out of the RMB156 million were taken into account due to the fact that the Mine Seller was previously in negotiation with the government authorities regarding such payment. In addition, the Mining Rights Fee has not been included in the net asset value calculation as such amount is not relevant for the purpose of the calculation of the net asset value of the Coal Mine Company. For the purpose of determining the Consideration, the Company has made reference to the valuation report prepared by Savills, an international valuation firm, as set out in Appendix V to this circular. The valuation method is fundamentally different between the international valuation report and the PRC valuation report. The PRC valuation report used a net asset value approach and the international valuation report used a discounted cash flow approach. Furthermore, the subject matter is different as the Coal Mine Company will not have any long-term liabilities after completion of the Transfer and payment of the consideration under the Mine Acquisition Agreement. It is intended that the Transfer Consideration payable by the Target Company will be used by the Coal Mine Company in whole or in part to settle the long term liabilities to the creditors of the Coal Mine Company plus part of its liabilities in relation to Mining Rights Fee required to be paid in 2007. However, according to the Sale and Purchase Agreement, on full settlement of the Company’s payment obligation of HK$700 million, the Vendor acknowledges that no further funding will be advanced or made by the Company for the purpose of the completion of the Transfer and payment of the consideration under the Mine Acquisition Agreement. Pursuant to the Sale and Purchase Agreement, the Vendor has given a warranty that upon completion of the Transfer and payment of the consideration under the Mine Acquisition Agreement, the Coal Mine Company will have no other liabilities other than the balance of the Mining Rights Fee payable to the PRC government of approximately RMB76.1 million as at the Latest Practicable Date and accounts payable incurred in the ordinary course of business (the “Liability Warranty”). It is one of the conditions precedent to completion of the Mine Acquisition Agreement that there is no material adverse change in the financial position, business and operations of the Coal Mine Company from 30 June 2007, up to the date of approval of the Mine Acquisition Agreement by the authorities.

LETTER FROM THE BOARD

Under the Mine Acquisition Agreement, the Mine Seller agrees that if the Transfer Consideration is not sufficient to repay the long-term liabilities of the Coal Mine Company and the liabilities disclosed in the Mine Acquisition Agreement (the “Completion Liabilities”) or causes a breach of the Liability Warranty, the Mine Seller shall pay the difference between the Completion Liabilities and the Transfer Consideration and indemnify the Coal Mine Company and the Target Company for losses caused by the breach of the Liability Warranty.

If the creditors of the Completion Liabilities accept sums less than the face value of the Completion Liabilities in full settlement of such liabilities, the Mine Seller shall retain the difference between the Transfer Consideration and the sums used to settle the Completion Liabilities.

Conditions precedent to the Mine Acquisition Agreement

Conditions precedent to the Mine Acquisition Agreement include, among other things,

1) the execution of the Mine Acquisition Agreement;
2) the Transfer being approved by the authorised persons of the Coal Mine Company (according to PRC company laws, the transfer of the Coal Mine Company has to be approved by the board of the Coal Mine Company in addition to the shareholders of the Coal Mine Company);
3) the legal due diligence on the Coal Mine Company having been completed by the PRC legal adviser and the Target Company having obtained a PRC legal opinion (in such form and substance to its satisfaction) covering matters relating to such due diligence exercise;
4) the obtaining of a technical report issued by a Qualified Technical Adviser in relation to the Coal Mine and its operating parameters, including but not limited to production, coal qualities, resources and reserves, operating costs, safety and environmental issues;
5) a valuation report on the Coal Mine Company in form and substance satisfactory to the Target Company being issued by a qualified independent PRC valuer;
6) the Mine Seller’s representation and warranties contained in the Mine Acquisition Agreement remaining true and accurate in all material respects;
7) the obtaining of the approval from the relevant authorities in the PRC in respect of the Mine Acquisition Agreement;
8) there not having been any material adverse change in the financial position, business or operations of the Coal Mine Company from 30 June 2007 up to the date of approval of the Mine Acquisition Agreement by the authorities;
9) the Coal Mine Company having completed a reorganisation from a state-owned to a limited liability company in accordance with PRC laws; and

LETTER FROM THE BOARD

10) the Coal Mine Company having obtained all necessary licences and approvals for its reorganization into a limited liability company and the operation of its business including valid business licence with exploitation of coal and coal mine operation in its business scope, 國有土地使用証 (the Land Use Rights Certificate), 房屋所有權証 (Building Ownership Certificate) for the Coal Mine Company, 採礦許可証 (the Mining Licence), 安全生產許可証 (the Safety Production Permit), 煤炭經營資格証 (the Coal Operation Permit), 煤炭生產許可証 (the Coal Production Permit), and the relevant environmental protection approvals.

Completion

The fulfillment of all conditions precedent of the Mine Acquisition Agreement, including the Transfer, is to be completed on or before 29 February 2008 (or such other date as may be agreed between the parties in writing). The Transfer Consideration is payable within 3 months from the completion of the Transfer, which is currently expected to be on or before 31 May 2008.

Representations and warranties

Set out below is a summary of certain representations and warranties given by the Mine Seller in the Mine Acquisition Agreement:

1) The equity interest to be transferred is held by the Mine Seller free from all pre-emption, options, liens, claims, equities, charges, encumbrances or third-party rights of any nature;
2) To the best knowledge of the Mine Seller, the business of the Coal Mine Company will be operated in the ordinary course of business since 30 June 2007;
3) All necessary licences and approvals for the operations of the Coal Mine Company and the execution and completion of the Mine Acquisition Agreement have been obtained;
4) Other than the information disclosed separately in the Mine Acquisition Agreement, the accounts of the Coal Mine Company give a true and fair view of the state of affairs of the Coal Mine Company as at the accounts date and have been prepared in accordance with the PRC GAAP. There has been no material adverse change in the financial position of the Coal Mine Company since 30 June 2007;
5) To the best knowledge of the Mine Seller, the information provided by the Coal Mine Company to the independent PRC valuer is true and accurate in all material respects;
6) The Coal Mine Company is not a party to any material litigation or arbitration proceedings in relation to the equity interest to be transferred and the assets and business of the Coal Mine Company which (i) would affect the validity of the Mine Acquisition Agreement and the transaction contemplated thereunder; or (ii) are not incurred in the ordinary course of business and that would have an adverse impact on the business and assets of the Coal Mine Company if there are adverse findings against the Coal Mine Company;

LETTER FROM THE BOARD

7) The Mine Seller and the Coal Mine Company are duly incorporated and validly existing;
8) The Coal Mine Company has obtained all the necessary approvals and licences for its operations and such licences are valid and in full force and effect;
9) The Coal Mine Company and its management have complied with relevant PRC laws in relation to quality control, insurance, loans, environmental protection, intellectual property, employee management and tax;
10) The Coal Mine Company has been reorganised into a limited liability company from a state owned enterprise. The reorganisation has been completed in accordance with PRC laws;
11) 採礦許可証 (the mining licence) is held by the Coal Mine Company and is validly existing under PRC laws;
12) The Coal Mine Company holds the Coal Mine free from encumbrances;
13) The Coal Mine Company has obtained all the necessary licences and permits for its incorporation and operation of the Coal Mine and such licences and permits are valid and existing;
14) The registered capital of the Coal Mine Company has been fully paid up;
15) The Coal Mine Company has the power and authority to own its assets and carry on its business according to the scope set out in its business licence. It has not conducted any business which falls out of the scope of its business licence since incorporation;
16) The long-term liabilities, bank loans and other contingent liabilities of the Coal Mine Company as at 30 June 2007 are fully disclosed in the Mine Acquisition Agreement; and
17) After payment of the Transfer Consideration, the Coal Mine Company will not have any liabilities save for Mining Rights Fee of approximately RMB76.1 million as at the Latest Practicable Date and other payables incurred in the ordinary course of business.

INFORMATION ON THE GROUP

The Group is principally engaged in the organization of trade fairs and exhibitions, publications and web portal and travel services. The Group intends to continue its current business after the Acquisition.

The Group currently has no plan to change the current composition of the board of the Company upon or after the completion of the Sale and Purchase Agreement, and the Sale and Purchase Agreement has no provision for the appointment of the Vendor or his nominees to be directors of the Company or of any of its subsidiaries. The Company plans to recruit an expert in the mining industry and/or an individual with relevant qualification and experience in mining to oversee the Group’s investment in the Target Company.

LETTER FROM THE BOARD

INFORMATION ON THE VENDOR, THE TARGET COMPANY AND THE COAL MINE COMPANY

The Vendor graduated from Peking University, the PRC and is currently a director of Wealthy Win Investment Limited, a private company engaged in business consulting, direct investment and operational management in the PRC and Hong Kong. The Vendor has over 20 years experience in management and investment in the PRC and Hong Kong. The Vendor came to know the Mine Seller and the Coal Mine Company through normal business contacts and acquaintances. The Vendor, after signing the Framework Agreement with the Mine Seller, has been sourcing potential investors to develop the project. The Company came to know the Vendor through the introduction of Baron International Consulting Services Limited.

On 18 July 2007, the Target Company, a company incorporated in the British Virgin Islands on 12 April 2007, entered into the Framework Agreement pursuant to which the Target Company agreed to acquire the entire equity interest of the Coal Mine Company from the Mine Seller subject to certain conditions therein. On 30 October 2007 the Target Company entered into the legally binding Mine Acquisition Agreement to acquire the entire equity interest of the Coal Mine Company from the Mine Seller subject to terms and conditions as referred to above. The Mine Seller is a prominent Chinese enterprise based in the northeastern PRC. The Mine Seller and its ultimate beneficial owners are independent of the Company and its subsidiaries and connected persons of the Company and its subsidiaries and any of their respective associates, Baron Investment and its ultimate beneficial owners and the Vendor. For details of the financial information of the Target Company, please refer to Appendix II to this circular.

The Mine Seller acquired the Coal Mine in June 1998 from the PRC government. Due to the decline of the coal industry and the increase in mine accidents in the PRC in the early 2000s, the Coal Mine changed back to state-owned status in 2001. The Coal Mine Company was incorporated on 17 October 2001. The principal assets and business of the Coal Mine Company are the holding and operating of the Coal Mine, which is located in Jixian County, Shuangyashan City, Heilongjiang Province, the PRC and the closest major town is Shuangyashan which is about 25 km away to the south. Geologically the Coal Mine is situated inside the Shuangyashan Coalfield, which forms part of the much larger coal occurrence of the Hejiang Coalfield in the Heilongjiang Province. The mining licence area of the Coal Mine is approximately 36.83 sq. km. The Coal Mine Company is involved in the exploitation of the Coal Mine. To enhance the production cycle of the Coal Mine and expand the production capacity, the Coal Mine Company may also be involved in related exploration activities. The Coal Mine Company is principally engaged in the exploitation and mining of coal and does not intend to change the business activity into solely exploration. For details of the financial information of the Coal Mine Company, please refer to Appendix III to this circular. For the purpose of the Acquisition, the directors of the Coal Mine Company have prepared the financial information of the Coal Mine Company for the years ended 31 December 2004, 2005, 2006 and nine months ended 30 September 2007 (the “Relevant Periods”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants, which gives rise to the differences in the reported balances of assets, liabilities and net profits of the Coal Mine Company for the Relevant Periods between the PRC audited figures and the financial information as set out in the Announcement and those in the Appendix III to this circular.

LETTER FROM THE BOARD

MMC has carried out an independent technical review on the Coal Mine and has reported a resources figure of 63,966kt as at the end of 2002. Based on the history of the Coal Mine Company, the production has reached 512kt, 493kt, 359kt, and 531kt for the year ended 2003, 2004, 2005 and 2006. It is estimated that the coal resources of the Coal Mine as at January 2007 amounts to 62,071kt as at January 2007, of which 37,929kt are economically viable, taking into account the relatively low economic viability of the resources in 332 and 333 category. As at June 2007, there are estimated resources of 26,226kt, taking into account the 70% recovery rate and the production for the first 6 months in 2007. Furthermore, based on the MMC review, the Coal Mine is currently producing close to its maximum capacity of 600kt of coal annually from its underground operations and it is now in an expansionary phase and plans to ramp up the production to 900kt per annum by 2010. Details of the technical review are set out in Appendix VII to this circular.

The Coal Mine Company held the following licences and permits (under the state-owned status) as at the date of the Announcement:

Licences/ Permits		Validity Period
《企業法人營業執照》		Not Applicable
The Business Licence
《佔有礦產資源儲量登		Not Applicable
記證》（黑佔儲證省字{2006}第576號）
The Registration of Mineral Resources Licence
(Hei Zhan Chu Zheng Sheng Zi 2006 no. 576)
《採礦許可證》(2300000040862)		From December 2000
The Mining Licence		to December 2012
《安全生產許可證》（（黑）MK 安許證字{2005}3165）		From 13 July 2005
The Safety Production Permit		to 13 July 2008
《煤炭生產許可證》(D080502001G1）		From 25 June 2004
The Coal Production Permit		to 31 December 2012
《煤炭經營資格證》(20230000010029)		From 1 April 2007
The Coal Operation Permit		to 31 May 2010
《煤礦安全生產管理人員安全資格證》（安全資證04A字第0468號）		Not Applicable
The Coal Mine Safety Management Permit
(An Quan Zi Zheng 04A Zi No. 0468)
《煤礦安全培訓機構資格證書》	Valid	till 30 December 2009

《煤礦安全培訓機構資格證書》

The Coal Mine Safety Training Organization Permit

《黑龍江省爆炸物品使用許可證》

Not Applicable

Heilongjiang Explosives Usage Licence

LETTER FROM THE BOARD

Licences/ Permits Validity Period 《黑龍江省民用爆破器材直購用戶證》 For five years Heilongjiang Explosives for Private Usage Purchase Permit 《國有土地使用證》(集福國用{2002}第072號) Not Applicable Land Use Right Certificate 《房屋所有權證》房權證字第029820號， Not Applicable 房權證字第029821號，房權證字第029819號 Building Ownership Certificates

Jingtian & Gongcheng has confirmed that the abovementioned licences and permits are all the licences, permits and approvals required by the Coal Mine Company for its operation of the Coal Mine. The validity periods of certain licences/permits are not applicable because there is no specified period for such licences either because a) the licences are subject to an annual audit; or b) such licences do not have a fixed period of time.

Following the signing of the Mine Acquisition Agreement, the Coal Mine Company had changed its status from a stated-owned enterprise to a privately-owned limited liability company and had obtained the following licences as at the Latest Practicable Date:

Licences/ Permits	Validity Period
《企業法人營業執照》	Not Applicable
The Business Licence
《採礦許可證》(2300000720441)	From 30 November, 2007
The Mining Licence	to 30 December, 2012
《安全生產許可證》（（黑）MK 安許證字{2005}3165）	From 24 December, 2007
The Safety Production Permit	to 24 December, 2010

The Coal Mine Company is in the process of applying for the Coal Production Permit and the Coal Operation Permit, which is also required for the operation of the Coal Mine under the limited liability status and is expected to receive such permit in mid-February 2008.

The current Mining Licence is granted to the Coal Mine Company under the limited liability status and for a term of five years and one month (i.e. from 30 November 2007 to 30 December 2012) and can be renewed under the normal circumstances in accordance with the rules and regulations of the PRC. The Coal Mine Company is currently in the process of applying for the revision of the Mining Licence to produce up to 600kt per annum. According to the management of the Coal Mine Company, approval is expected to be granted by mid-2008. The Coal Mine Company is the sole owner of the Coal Mine which is not subject to any other third parties’ claims.

LETTER FROM THE BOARD

The Coal Mine Company may need to pay a 土地出讓金 (land transfer fee) for the issue of land use right certificate for the Coal Mine Company (in the name of the limited liability company) at an amount to be negotiated with the PRC authorities. Currently the Coal Mine Company is paying approximately RMB2.8 million annually for the use of land for coal mining purpose, and the Company intends to continue with such arrangement after the restructuring of the Coal Mine Company. However, such arrangement has not been formally agreed by the local government because the restructuring is still in progress. The Coal Mine Company will also need to pay on an ongoing basis various taxes and fees (including資源稅 (resource tax), 資源補償費 (resource compensation fee), and 採礦權使用費 (mining rights usage fee)), which are in its ordinary course of business as determined according to fee scales set out in applicable PRC regulations. The Company understands that it is a common practice for mining companies to pay the Mining Rights Fee attached to the mining licences over a 10 year period. The amount of Mining Rights Fee was negotiated and incurred in the historical period and recognized in the accountants’ report of the Coal Mine Company for the nine months ended 30 September 2007. As at the Latest Practicable Date, RMB20.3 million had been paid and the balance of approximately RMB76.1 million will be paid by the Coal Mine Company over the next 9 years after the change of its status from state-held to privately-held. After the full payment of the Mining Rights Fee, the Coal Mine Company is not required to pay any additional mining rights fee for the future period. The basis of the calculation is based on the resource calculation in accordance with the Chinese resource classification and the fee is determined by the Land and Resources Department of the PRC.

The Coal Mine was built in 1970 and has been operating since then. According to the technical report issued by MMC (a prominent mining and energy industry adviser in the Asia Pacific region) as set out in Appendix VII to this circular, the Coal Mine had an estimated resource of coal of approximately 63,966kt as at the end of 2002. According to the Coal Mine Company operating history, a total of 1,895kt was mined from 2003 to 2006. Therefore, at the beginning of 2007, the Coal Mine is estimated to have a total resource and reserve of 62,071kt. The production of the Coal Mine reached 531kt in 2006 and it had increased its production to 600kt per annum by the end of 2007. The Coal Mine has 4 different coal products, namely ROM, clean, middling and fines and the products are mainly sold to local industrial consumers, including power plants, metallurgical plants and petrochemical factories. According to the figures in the first half of 2007 provided by the Coal Mine Company, the prices of ROM, clean, middling and fines are RMB264, RMB472, RMB151 and RMB34 per ton respectively.

Financial information of the Target Company and the Coal Mine Company

Immediately upon completion of the Acquisition, the Target Company and the Coal Mine Company will become wholly owned subsidiaries of the Company and their consolidated financial results will be consolidated with those of the Group. Please refer to Appendix II and Appendix III to this circular for details of the financial information of the Target Company and the Coal Mine Company.

The Mine Seller has undertaken that the long-term liabilities, bank loans and other contingent liabilities of the Coal Mine Company as at 30 June 2007 are fully disclosed in the Mine Acquisition Agreement. Accordingly, the Company is of the view that there are no other contingent liabilities in this respect. Therefore, it is considered that the long-term liabilities will not have material adverse effect on the financial position or operating results of the Coal Mine Company. In addition, the Acquisition is

LETTER FROM THE BOARD

structured such that part of the Consideration will be used to settle the long-term liabilities and the related interest expenses, and the Vendor has given a warranty that as soon as practicable after the completion of the Acquisition, the Coal Mine Company will have no other long-term liabilities other than the balance of the Mining Rights Fee of RMB76.1 million as at the Latest Practicable Date and accounts payable incurred in the ordinary course of business.

REASONS FOR THE ACQUISITION

The Board considers that the Company will broaden its source of income by diversifying into the energy sector. The purpose of the Acquisition is to explore the opportunities and diversify the Company’s income to include the sales of the coal extracted from the Coal Mine. The Coal Mine Company will contribute to the consolidated cash flow and income of the Group immediately following the completion of the Acquisition.

The price of coal has been rising over the past years, and the Directors believe that the demand for and the price of coal will continue to rise in the expectation that the economy of the PRC will keep on growing. The Directors believe that the Acquisition enables the Company to diversify into the energy sector which has good future prospect.

The Directors, including the independent non-executive Directors, consider that the terms of the Acquisition (including the Consideration and the payment structure thereof) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Company and the Coal Mine Company will become wholly-owned subsidiaries of the Company and the financial results of the Target Company and the Coal Mine Company will be consolidated with those of the Group.

Set out in Appendix IV to this circular is the unaudited pro forma financial information of the Enlarged Group illustrating the effect of the Acquisition on the financial position of the Enlarged Group as at 31 March 2007 and the results and cash flows of the Enlarged Group for the year ended 31 March 2007.

Net Assets

As set out in Appendix IV to this circular, assuming completion of the Acquisition had taken place on 31 March 2007, the Acquisition would increase the pro forma net assets of the Enlarged Group by approximately HK$165.9 million, comprising of an increase of total assets of approximately HK$586.2 million and an increase of total liabilities of approximately HK$420.3 million.

The net liabilities of the Target Company as at 30 September 2007, being the financial period preceding the Acquisition, are HK$4,477.

The net liabilities of the Coal Mine Company as at 31 December 2005 and 2006, being the two financial years preceding the Acquisition, are RMB102,570,000 and RMB80,846,000 respectively.

LETTER FROM THE BOARD

Earnings

As set out in Appendix IV to this circular, assuming the completion of the Acquisition had taken place on 1 April 2006, the Acquisition would decrease the pro forma net loss of the Enlarged Group by approximately HK$1.2 million.

The net loss before and after tax and extraordinary items of the Target Company for the period from 12 April 2007 (date of incorporation) to 30 September 2007, being the financial period preceding the Acquisition, are HK$4,485.

The net profit before and after tax of the Coal Mine Company for the years ended 31 December 2005 and 2006, being the two financial years preceding the Acquisition, are as follows:

Profit before tax Profit after tax	Year ended 31 December 2006 2005 RMB’000 RMB’000 35,339 6,114 21,724 3,662	Year ended 31 December 2006 2005 RMB’000 RMB’000 35,339 6,114 21,724 3,662

		3,662

Based on the unaudited pro forma consolidated balance sheet in Appendix IV to this circular, the total assets of the Group would increase by approximately 485.3% from HK$120.8 million to HK$707.1 million; and its total liabilities would increase by approximately 559.5% from HK$75.1 million to HK$495.3 million, as a result of the Acquisition. The Directors consider that the Acquisition will contribute to the earnings base of the Enlarged Group but the extent of such will depend on the future performance of the Target Company and the Coal Mine Company.

There is no variation to the remuneration payable to and benefits in kind receivable by the Directors as a result of the Acquisition.

RISKS ASSOCIATED WITH THE ACQUISITION

Risks associated with the Acquisition include those summarised below:

1) The renewal of the mining rights of the Coal Mine held by the Coal Mine Company is subject to the approval of the relevant government authorities.
2) The revenue generated from the Coal Mine is subject to the cyclical nature of the domestic and international coal markets which are affected by numerous factors beyond the Company’s control, for example, general economic conditions in the PRC and elsewhere in the world, weather conditions, and fluctuations in the development and growth of industries with high demand of coal. The selling price and the profit margin will depend on market supply and demand forces in the domestic and international markets.

LETTER FROM THE BOARD

3) The coal resources and reserves mentioned in this circular are estimated and the estimates may be inaccurate and hence actual future production volumes and turnover, which are based on these estimates, may differ materially from actual figures.
4) Mining and processing operations are subject to a number of operating risks and hazards, some beyond the Company’s control, which could delay the production and delivery of coal and coal-related products or increase the cost of coal mining and processing.
5) The Coal Mine Company relies on major customers, the businesses of which are beyond the Company’s control.
6) The Coal Mine Company may suffer losses resulting from property damage (including, but not limited to, environmental damage) and personal injuries sustained from industry-related accidents.
7) The Company assumes that the annual production capacity of the Coal Mine will be successfully increased to 900kt in 2010. Such expansion plan is still subject to a number of uncertainties, such as the approval of the expansion by relevant authorities in the PRC, which are not within the control of the Company nor the Coal Mine Company.
8) The future results of operations of the Coal Mine Company may be affected by a number of factors which are beyond the control of the Group or the management of the Coal Mine Company, such as the global and domestic coal markets, as well as fluctuations in coal prices and operating costs such as electricity prices in the PRC.
9) Although the coal market at present is not regulated by the PRC government, the operations of the Coal Mine is nonetheless subject to stringent administrative measures and scrutiny of the relevant authorities. Any changes in the current measures or implementation of new regulations by the PRC government concerning the coal industry may have an impact on the operation and business of the Coal Mine in future.
10) The Company intends to finance a substantial portion of the cash payment for the Consideration by way of the Placing. Neither the Placing is completed as at the Latest Practicable Date nor is the Acquisition conditional on the Placing. In the even Completion takes place while the result of the Placing is less favourable than expected, the Company would have to seek for alternative financing for the Acquisition or negotiate with the Vendor on the payment terms, the results and consequential effects of which are uncertain.

LETTER FROM THE BOARD

EQUITY FUND RAISING ACTIVITIES OF THE COMPANY IN THE PAST TWELVE MONTHS

The Group has conducted the following fund raising activities in the 12 months before the Latest Practicable Date:

Date of		Approximate	Intended use	Actual use
announcement	Event	net proceeds	of proceeds	of proceeds
8 November 2007	the Placing	HK$241.1 million	For the Acquisition	The Company intends
		(assuming the		to use the net
		Placing Shares are		proceeds as planned
		placed at the Minimum
		Placing Price)
17 August 2007	the grant of the Option	HK$39 million	For future development	The Company intends
		(assuming full	of its core exhibitions	to use the net
		exercise of the	business in Hong Kong	proceeds as planned
		Option)	and overseas
27 June 2007	the Open Offer	HK$10.18 million	For future development	The Company intends
			of its core exhibitions	to use the net
			business in Hong Kong	proceeds as planned
			and overseas

Save as disclosed above, the Company has not conducted any fund raising activities during the past 12 months immediately prior to the Latest Practicable Date.

WAIVER APPLICATION OF RULE 4.06 OF THE LISTING RULES

Pursuant to Rule 4.06 of the Listing Rules, the Company is required to include in this circular the accountants’ reports of the Target Company and the Coal Mine Company, which are the companies to be acquired in the Acquisition, for the relevant period comprising each of the three financial years immediately preceding the issue of this circular (or, if less, the period since commencement of such business or the incorporation or establishment of such company as the case may be).

The accountants’ report on the Target Company for the period between 12 April 2007 and 30 September 2007 and the accountants’ report on the Coal Mine Company for the three years ended 31 December 2006 and the nine months ended 30 September 2007 have been prepared and are set out in Appendix II and Appendix III to this circular respectively. However, as this circular is to be issued within a short period of time after 31 December 2007, the accountants’ reports on the Target Company and the Coal Mine Company have not been prepared for the full year ended 31 December 2007 as it would be unduly burdensome for the Company to do so. If the accountants’ reports on the Target Company and the Coal Mine Company are to be prepared up to 31 December 2007, additional time will be required for the reporting accountants to perform an audit on the financial information of the Target Company and the Coal Mine Company for the year ended 31 December 2007, the date of the despatch of this circular will be further delayed and additional costs will have to be incurred by the Company, both of which will not

LETTER FROM THE BOARD

be in the interests of the Company and the Shareholders as a whole. In addition, the accountants’ report on the Target Company and the Coal Mine Company have been prepared up to 30 September 2007 have been included in Appendix II and Appendix III to this circular in accordance with the requirements of Rule 14.69 of the Listing Rules which relate to a financial period ended six months or less before this circular is issued. Accordingly, the Directors consider that there should be sufficient information for the Independent Shareholders to consider whether to vote for or against the Acquisition at the EGM.

For the reasons mentioned above, the Company has applied to the Stock Exchange for a waiver from the strict compliance with the requirements under Rule 4.06 of the Listing Rules on the basis that the Directors have confirmed that they have performed sufficient due diligence on the Target Company and the Coal Mine Company to ensure that there has been no material adverse change in the financial and trading position or prospects of the Target Company and the Coal Mine Company since 30 September 2007 up to the Latest Practicable Date and that no event has occurred since 30 September 2007 up to the Latest Practicable Date which would materially affect the information shown in the accountants’ reports.

EGM

The EGM will be held at 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong on Friday, 29 February 2008 at 10:00 a.m. to consider and, if thought fit, approve by way of poll, among other things, the Acquisition, the Sale and Purchase Agreement and the transactions contemplated thereunder.

A notice convening the EGM is set out on pages 267 to 268 of this circular. Whether or not you are able to attend and/or vote at the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar in Hong Kong, Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment thereof (as the case may be) should you so wish.

To the best knowledge and belief of the Directors, as at the Latest Practicable Date, Baron Investment held 1,347,503 Shares, representing approximately 0.38% of the Company’s total issued share capital. Baron International Consulting Services Limited, a company under the same control as Baron Investment, is the introducer of the transaction to the Company and will receive an introduction fee from the Company upon successful Completion. Therefore, Baron Investment and its ultimate beneficial owner, being Mr. Wan and his associates including Ms. Mak and/or her associates will abstain from voting at the EGM to approve the Acquisition. Saved as disclosed above, to the best knowledge and belief of the Directors, no other Shareholder is materially interested in the Acquisition and no other Shareholder is required to abstain from voting at the EGM under the Listing Rules.

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

The following sets out the procedures by which the Shareholders may demand a poll at the EGM. According to article 66 of the articles of association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

by the chairman of such meeting; or
by at least three Shareholders present in person or in the case of a Shareholder being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation, by its duly authorised representative or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or
if required by the Listing Rules, by any Directors who, individuals or collectively, hold proxies in respect of Shares representing five percent (5%) or more of the total voting rights at such meeting.

RECOMMENDATION

The Directors consider that the terms of the Sale and Purchase Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolution at the EGM.

Your attention is drawn to the letter of advice from Optima Capital as contained under the section headed “Letter from Optima Capital” in this circular, which contains its advice to the Shareholders in respect of the Acquisition.

ADDITIONAL INFORMATION

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

By Order of the Board Kenfair International (Holdings) Limited Ip Ki Cheung

Chairman

LETTER FROM OPTIMA CAPITAL

The following is the text of the letter of advice prepared by Optima Capital for the purpose of inclusion in this circular:

Unit 3618, 36th Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong

13 February 2008

To: the Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE ENTIRE EQUITY INTERESTS IN WEALTH GAIN GLOBAL INVESTMENT LTD. INVOLVING PAYMENT OF CASH, ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE NOTE

INTRODUCTION

We refer to our appointment as the independent compliance adviser to advise the Shareholders on the Acquisition, for which the Independent Shareholders’ approval is being sought. Details of the Acquisition are set out in the letter from the Board contained in the circular of the Company to the Shareholders dated 13 February 2008 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise defined.

To the best knowledge of the Directors, at the Latest Practicable Date, Baron Investment held 1,347,503 Shares, representing approximately 0.38% of the Company’s total issued Shares. Baron International Consulting Services Limited, a company under the same control as Baron Investment, introduced the transaction to the Company and will receive an introduction fee from the Company upon successful Completion. In light of its interest in the Acquisition, Baron Investment and its ultimate beneficial owner, being Mr. Wan, and his associates including Ms. Mak and her associates will abstain from voting at the EGM to approve the Acquisition.

In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Circular and the information provided by, and opinions and representations expressed by, the executive Directors and management of the Company. We have assumed that all statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or the Directors and/or its senior management staff, for which they are solely responsible, are true and accurate and valid at the time they were made and given and continue to be true up to and including the date of the EGM. We have also sought and obtained

LETTER FROM OPTIMA CAPITAL

confirmation from the executive Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company and/or its Directors and/or its senior management staff and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents.

We have reviewed, among other things, (i) the accountants’ reports on the Target Company and the Coal Mine Company and the unaudited pro forma financial information of the Enlarged Group prepared by Grant Thornton as contained in Appendices II, III and IV to the Circular; (ii) the report on the valuation of the Coal Mine Company as at 30 June 2007 (the “Valuation”) and its underlying calculation prepared by Savills as contained in Appendix V to the Circular; (iii) the technical assessment report in respect of the Coal Mine Company (the “Technical Report”) as contained in Appendix VII to the Circular prepared by MMC, an independent technical consulting firm specialised in the mining industry; and (iv) the PRC legal opinion issued by Jingtian & Gongcheng. In the course of our review, we have interviewed the abovementioned experts and discussed with them the basis of their respective opinions. We have also undertaken a site visit to the Coal Mine Company and interviewed the management and certain major customers of the Coal Mine Company as well as the Vendor. We consider that we have reviewed sufficient available information and documents to enable us to reach an informed view with a reasonable basis for our opinions. We also consider that we have performed all reasonable steps as required under Rule 13.80 of the Listing Rules (including the notes thereto) in formulating our opinion and recommendation. We have not, however, conducted any independent investigation into the business, operations, or financial condition of the Group, the Target Company or the Coal Mine Company, nor have we carried out any independent verification of the information supplied.

SUMMARY OF THE TERMS OF THE ACQUISITION

1. Assets to be acquired

On 25 September 2007, the Company entered into the Sale and Purchase Agreement with the Vendor, pursuant to which the Vendor agreed to sell and the Company agreed to acquire the entire issued share capital of the Target Company for the Consideration of HK$700 million. The Target Company has previously in July 2007 entered into the Framework Agreement and further entered into the Mine Acquisition Agreement in October 2007 with the Mine Seller to acquire the entire equity interest in the Coal Mine Company. The Target Company is currently not the legal owner of the Coal Mine Company. Regorganisation is being undertaken to, among other things, transfer the registered capital of the Coal Mine Company to the Target Company and register the Target Company as the shareholder of the Coal Mine Company. It is one of the conditions precedent to completion of the Acquisition that the Transfer be completed. Accordingly, upon completion of the Acquisition, the Company will, through the Target Company, own the entire equity interest in the Coal Mine Company, the principal asset of which is the Coal Mine situated in the Heilongjiang Province, the PRC.

LETTER FROM OPTIMA CAPITAL

2. Consideration

Pursuant to the Sale and Purchase Agreement, the Consideration for the Acquisition amounts to HK$700 million in aggregate and is to be satisfied by the Company as to:

HK$20 million in cash to the Vendor upon signing of the Sale and Purchase Agreement as a refundable deposit;
HK$35 million by the issue of the Consideration Shares to the Vendor on Completion;
HK$345 million by the issue of the Convertible Note to the Vendor on Completion; and
HK$300 million in cash to the Vendor or such other party as it may direct in writing on the day falling 3 months (or such other date as the parties may agree) after Completion. The Vendor has directed the Company to pay part of this cash payment as may be notified by him directly to certain creditors of the Coal Mine Company for the purpose of settlement of liabilities of the Coal Mine Company due to such creditors.

3. Conditions precedent

Completion of the Acquisition is conditional upon certain conditions being fulfilled or waived by the Company on or before 31 March 2008, or such other date as the Company and the Vendor may agree. The more significant conditions from the Shareholders’ perspective are highlighted as follows:

the issue of a legal opinion in form and substance satisfactory to the Company by a PRC lawyer approved by the Company on certain matters in relation to the Coal Mine Company and the Transfer;
the Company being satisfied that there has not been any material adverse change (being any change which has a material and adverse effect on the financial position, business or operations) of the Target Company and the Coal Mine Company;
the Mine Acquisition Agreement having been executed and production of evidence satisfactory to the Company (including an opinion issued by a PRC lawyer approved by the Company) that the Transfer has been completed; and
the passing of a resolution to approve the Sale and Purchase Agreement and any transactions contemplated thereunder by the Independent Shareholders.

LETTER FROM OPTIMA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms of the Acquisition are fair and reasonable in so far as the Shareholders are concerned, we have taken into account the principal factors and reasons set out below:

1. Background to and reasons for the Acquisition

The Group is principally engaged in the organisation of trade fairs and exhibitions, publications, and web portal and travel services.

Due to the increasing competition posed by local and overseas competitors and the substantial costs incurred in exploring new business opportunities for the exhibition organisation business, the Group failed to have satisfactory operating results for the latest two financial years ended 31 March 2006 and 2007 and the interim period ended 30 September 2007. As discussed in more detail in the paragraph headed “Existing business of the Group” below, losses attributable to Shareholders of over HK$32 million were recorded for both the 2006 and 2007 financial years and HK$45 million for the six-month period ended 30 September 2007 respectively. In view of the loss making performance of the Group’s existing exhibition business in recent years, the Company has looked into new areas of businesses to substantiate its future in addition to exploring new locations and themes for the exhibition business. Given that the Coal Mining Company has a profitable mine operation, the Directors consider that the Acquisition would provide an immediate contribution to the Group’s revenue and cash flow after Completion and are of the view that the Acquisition would be in the interests of the Company and its shareholders as a whole. We concur with the Directors’ view in this regard.

2. Existing business of the Group

Overview of exhibition industry in Hong Kong

Hong Kong has long been highly regarded as one of Asia’s top picks for trade fair sites. According to commentaries made by The Hong Kong Exhibition and Convention Industry Association (“HKECIA”) and Hong Kong Trade Development Council (“TDC”), the competitive advantages of the exhibition industry of Hong Kong includes (i) cuttingedge convention and exhibition facilities and audio-visual equipment; (ii) the wide range of professional services available; and (iii) the proximity to Mainland China, where there are plentiful supplies of manufacturing capacity and an affluent population with enormous consuming power. There is a wide spectrum of service companies involved in the exhibition industry, such as venue managers, booth constructors, insurance companies and freight forwarders. The central role played by trade fair organisers is to bring together all these services and provide a platform for manufacturers and buyers to forge business contacts and identify sales leads.

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According to the HKECIA annual exhibition survey 2006, the number of exhibiting companies in 2006 grew to almost 62,000, representing an approximately 50% increase on the previous year. One of the major forces driving such increase was Mainland exhibitors who flocked to trade fairs in Hong Kong, taking Hong Kong as a springboard to international quality buyers. Besides, following the opening of the AsiaWorld-Expo located in the Hong Kong International Airport in 2005, additional space for new exhibitions is available allowing a number of new exhibitions with new themes to be held in Hong Kong.

Core business of the Group

The Group has a strong foothold in Hong Kong and has been the organiser of one of the largest trade fairs for toys, gifts, premium and household products in Asia – Hong Kong International Toys & Gifts Show and Asian Gifts Premium & Household Products Show (collectively known as Mega Show Part I) since 1992. The exhibitions organised by the Group focus on accommodating exhibitors principally from Hong Kong. Since 2001, the Group has attempted to expand its business into other markets such as Europe, the United States of America and Macau, and has undertaken feasibility studies on other markets in the Middle East, Southeast Asia and China.

To complement its exhibition organisation business, the Group also has, as ancillary services, other related services including travel services, trade magazine publication and e- commerce, which together in general contribute to around 10% of the total revenue of the Group.

Financial results of the Group

Set out below is a summary of the audited consolidated income statement and cash flow statement of the Group for the three years ended 31 March 2005, 2006 and 2007 and the six months ended 30 September 2007:

				Six months	ended
	Year	ended 31 March		30 September
	2007	2006	2005	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	236,319	261,650	228,678	5,540	34,393
(Loss)/Profit from
operating activities	(29,988)	(28,683)	42,964	(45,783)	(49,130)
(Loss)/Profit attributable
to Shareholders	(34,411)	(33,191)	34,775	(45,894)	(49,130)
Net cash (outflow)/inflow
from operating activities	(17,279)	18,449	43,564	(14,965)	14,274

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The Group’s turnover had been stable, achieving over HK$220 million for each of the three years from 2005 to 2007. However, the Group had made net losses of over HK$32 million during the two years ended 31 March 2006 and 2007. According to the annual reports of the Company, the operating loss of approximately HK$28.7 million in 2006 was mainly resulted from the substantial amount of market research and promotional costs incurred in developing new locations and new themes for shows and exhibitions in overseas markets. During 2007, operating loss increased to approximately HK$30.0 million which was mainly resulted from the decrease in turnover, increase in operating lease rental expenses, loss on disposal of financial assets and impairment loss recognised in respect of the Group’s e- commerce platform and licence rights.

The loss continued into the six months ended 30 September 2007. During the period, revenue of the Group decreased from approximately HK$34.4 million in the corresponding period in 2006 to HK$5.5 million, representing a substantial drop of about 84.0%. This was mainly due to the suspension of two exhibitions held in Poland and the United States of America in previous year. As a result of the worsening operating results, the Group had net cash outflow from its operating activities for the year ended 31 March 2007 and the six months ended 30 September 2007. Since the major exhibitions organised by the Group (being the “Mega Shows Part I and Part II”) are held in October each year, to more clearly reflect the Group’s business performance, it was disclosed in the interim report of the Company that for the seven months ended 31 October 2007, the Group recorded turnover of approximately HK$179 million (2006: approximately HK$208 million) and profit attributable to equity holders of approximately HK$31 million (2006: approximately HK$27 million). The lower turnover against the same period last year was mainly due to the Group contracting out for the first time some of the exhibition services and the less exhibition space available at the Hong Kong Convention and Exhibition Centre which was undergoing expansion works during the period.

Prospects and challenges for the Group

The Directors acknowledge that given its strategic location and role as a gateway to Mainland China, Hong Kong has distinct advantages to sustain its position in the world exhibition arena. Nonetheless, the Group’s exhibition business still faces the following challenges:

intensified competition being posed by nearby countries and regions such as Singapore, Macau and major cities in China which have developed their exhibition industry rapidly, swaying exhibitors and buyers away from Hong Kong;
fierce competition being experienced by the Group from other major local and overseas competitors who are prepared to commit significant budgets to bid for prime time slots of the limited spaces at the exhibition venues in Wanchai and the Hong Kong International Airport and to offer them to customers at highly competitive prices;
escalating operating costs in recent years which have been exerting pressure on the Group’s profit margin.

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In order for the Group to maintain its market share, the Group had to sink a substantial amount of expenses to promote its shows, maintain its client base and explore new themes and locations in recent years. In spite of such efforts, the Group has not been able to establish new anchoring events in addition to the Mega Show Part I, which has been organised by the Group in October every year since 1992. Certain events organised by the Group in recent years in overseas venues in Europe and the United States of America failed to attract sufficient interest to create a critical mass and generate positive returns to the Group.

The Directors expect that competition in the sector will continue to be keen in the near future. Whilst the Group will continue to explore new markets for the exhibition business, particularly in major cities in China, such move is not expected to generate immediate return, if any, during the early set-up period without the Group incurring substantial market development and promotional expenses. This would, in our view, inevitably dampen the profitability and bottom line of the Group, let alone the investment and business risk that may be associated with such move. The Directors are of the view that the Group’s exhibition business will continue to operate in a difficult environment.

3. Information of the Target Company

The Target Company is an investment holding company incorporated in the British Virgin Islands on 12 April 2007. Apart from the entering into of the Framework Agreement and the Mine Acquisition Agreement, the Target Company has not conducted any other business activities since its incorporation. According to the accountants’ report of the Target Company as set out in Appendix II to the Circular, the Target Company did not have any material assets or liabilities as at 30 September 2007. We are advised that there has been no material change to the financial position of the Target Company since then up to the Latest Practicable Date.

The Target Company has on 18 July 2007 entered into the Framework Agreement and on 30 October 2007 entered into the Mine Acquisition Agreement with the Mine Seller, pursuant to which the Target Company has conditionally agreed to acquire the entire equity interest of the Coal Mine Company from the Mine Seller. We note that the Transfer Consideration payable by the Vendor to the Mine Seller for the Transfer pursuant to the Coal Mine Acquisition Agreement is RMB140 million, which was determined with reference to a valuation conducted by a qualified PRC valuer (the “PRC Valuation”). Whilst we note that the Transfer Consideration is significantly lower than the Consideration under the Sale and Purchase Agreement, we are not in a position to ascertain the circumstances relating to the negotiation of the Transfer between the Vendor and the Mine Seller and other commercial considerations given by the parties to the Transfer. In addition, we understand that the basis of the Valuation is different from that of the PRC Valuation which is principally based on the net asset value of the Coal Mine Company as shown in its financial statements and has not taken into account the future profit generating capability of the Coal Mine. On this premise, we consider that the Transfer Consideration is of less relevance to the Company and we have therefore focused on analysing the terms of the Sale and Purchase Agreement from the perspective of the Company.

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The Coal Mine Company has a registered capital of RMB20 million (equivalent to approximately HK$20.6 million) which has been fully paid up and verified. The principal businesses of the Coal Mine Company, as stated in its business licence, are the exploitation and mining of coal. The Mine Seller acquired the Coal Mine Company in June 1998 from the PRC government but the Coal Mine Company was changed back to state-owned status in 2001. In July 2007, the Coal Mine Company changed from a state-owned enterprise to a privately-owned limited liability company. As a result of the change of status, the Coal Mine Company has to obtain all relevant approvals, licences and permits in relation to the Coal Mine Company before the completion of the Transfer on or before 29 February 2008. It is one of the conditions precedent to completion of the Sale and Purchase Agreement that the Transfer having been completed. Accordingly, upon completion of the Sale and Purchase Agreement, the Company will, through the Target Company, hold the entire equity interest in the Coal Mine Company which in turn owns the Coal Mine.

According to the PRC legal opinion prepared by Jingtian & Gongcheng, the Coal Mine Company is required to renew all the relevant permits and licences in relation to the operation of the Coal Mine in conjunction with its reorganisation from a state-owned enterprise to a privately owned corporation. As at the Latest Practicable Date, only two of the requisite licences, being 《煤礦生產許可證》 (the “Coal Production Permit”) and 《煤炭經營資格證》(the “Coal Operation Permit”), remain outstanding and the management of the Coal Mine Company expects that such licences will be obtained in mid-February 2008. Upon receipt of the Coal Production Permit, all the reoganisation procedures for the Coal Mine Company would have been completed and the Coal Mine Company together with its underlying assets would become privately owned. The Transfer being contemplated under the Mine Acquisition Agreement, which would involve the acquisition of privately owned assets in the PRC by the Target Company (being a foreign entity under the laws of the PRC), would be subject to the approval of the Ministry of Commerce of the PRC (商務部). We understand from Jingtian & Gongcheng that it is uncertain as to whether and when such approval from the Ministry of Commerce of the PRC could be obtained. We also understand from Jingtian & Gongcheng that the acquisition by the Company from the Vendor of the entire issued share capital of the Target Company under the Sale and Purchase Agreement, which will be effected after the Transfer has been completed and therefore relates to a transaction between overseas persons involving overseas assets, is not subject to PRC laws and regulations.

4. Information of the Coal Mine Company

Overview

The Coal Mine, known as Shengping coal mine, is located in Heilongjiang Province, the PRC. The closest major town is Shuangyashan City which is about 25 km away to the south of the Coal Mine. The mining licence area of the Coal Mine is 36.83 sq. km.

The Coal Mine facilities were built in 1970 and coal production commenced in 1972. Currently, the Coal Mine has a designed capacity of 600 kt per annum. As stated in the Technical Report, actual production of the Coal Mine in 2006 was approximately 531 kt.

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Coal production reached 310 kt in the first half of 2007 and the management of the Coal Mine Company estimates that coal production might reach its designed capacity of 600 kt by the end of 2007. The management of the Coal Mine Company is planning for an expansion to increase the annual designed capacity to 700 kt in year 2009 and further to 900 kt in 2010. Total capital expenditures for such expansion are estimated to be RMB20 million in 2007, RMB60.0 million in 2008 and RMB48.8 million in 2009, which are mainly incurred for the construction of necessary infrastructures as well as purchases of equipment. The existing mining licence of the Coal Mine allows coal production of 540 kt per annum. According to the management of the Coal Mine Company, the Coal Mine Company is in the process of applying for a revision in the mining licence to increase production capacity to 600 kt per annum. Since the production of the Coal Mine Company may have reached the amount provided on the existing minging licence, the Coal Mine Company expects that, with the proven production level, there would not be significant impediments in the application process.

The Coal Mine Company also has a coal washery within the Coal Mine area with an annual coal washing capacity of 900 kt. The facilities are used for the further processing of the ROM extracted from the Coal Mine.

Resource of the Coal Mine

According to the Technical Report, there are a total 7 coal seams in the Coal Mine (being seams #5, 8, 9, 11, 12, 16 and 17) with depth up to 600 meters. The resources of the Coal Mine is categorised under the “New Chinese Resources/Reserve Categories (1999)” mainly based on the economic viability, feasibility assessment stage and geological confidence level of the resources. Set out below is a summary of the estimated category of the resources of the Coal Mine and their respective quantities as extracted from the Technical Report:

Table 1: Resources estimation of the Coal Mine as at end of 2002

Category	122b	2M22	2S11	2S22	332	333	Total
Characteristics
Economic			Sub-	Sub-
viability	Economically	Marginally	marginally	marginally	Intrinsically	Intrinsically
	viable	economic	economic	economic	economic	economic
Feasibility	Pre-	Pre-		Pre-	Preliminary	Preliminary
assessment	feasibility	feasibility	Feasibility	feasibility	geological	geological
stage	study done	study done	study done	study done	study done	study done
Geological
confidence	Indicated	Indicated	Measured	Indicated	Indicated	Inferred
Resource (kt)	17,082	885	1,980	19,878	16,076	8,065	63,966
% to total	26.7	1.4	3.1	31.1	25.1	12.6	100.0

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As noted in Table 1 above, total resources in the Coal Mine as at end of 2002 was estimated to be approximately 63,966 kt, of which 17,082 kt (representing approximately 26.7% of the total estimated resources) is categorised as economically viable, with prefeasibility study done and an indicated resource by geological confidence (i.e. class 122b). We also note that approximately 37.7% of the resources is categorised as intrinsically economically viable (i.e. class 332 and 333) with less geological confidence.

We understand from MMC that it is not a common industry practice to re-estimate the coal resources every year as it would involve substantial costs in drilling and examination. We also understand from the management of the Coal Mine Company that based on the production records of the Coal Mine, 1,895 kt of coal had been extracted from the Coal Mine during 2003 to 2006. Based on the estimated resources as at end of 2002 as described in the Technical Report and the production records of the Coal Mine for 2003 to 2006, it is estimated that the coal resources of the Coal Mine as at January 2007 would amount to around 62,071 kt, of which 15,430 kt would be categorised as class 122b in the Technical Report.

Product mix of the Coal Mine Company and selling price of products

As stated in the letter from the Board contained in the Circular, the Coal Mine Company sells four major coal products, namely ROM, clean, middling and fines. ROM is the unprocessed coal extracted from the Coal Mine sold in its raw form. It is usually sold to coking plants for coking purpose. Clean coal is produced after processing the ROM extracted from the Coal Mine to “1/3 coking coal” by coal washing. “1/3 coking coal” is a type of bituminous coal widely used in coking to produce coke. The coke produced is mainly used in iron and steel refineries. Middling and fines are by-products of the coal washing process. Middling are usually used by power plant for electricity generation while fines are mainly for small-scale industrial and household uses. As advised by MMC, the “1/3 coking coal” produced by the Coal Mine Company is ranked within the higher end of the spectrum of energy content of various types of coking coal and is therefore normally able to demand a higher price than those with lower energy content.

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Set out below is the product mix of the Coal Mine Company for the first nine months ended 30 September 2007 provided to us by the Coal Mine Company:

Chart 2: Analysis of revenue for the nine months ended 30 September 2007 by types of products

Chart 3: Analysis of sales quantity for the nine months ended 30 September 2007 by types of products

==> picture [361 x 164] intentionally omitted <==

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

Clean
Clean
57%
80%
Fines1% 11%Raw Middlings Fines7% Middlings20%
8% Raw
16%
Clean Middlings Raw Fines Clean Middlings Raw Fines
----- End of picture text -----

As shown in Chart 2 above, about 80% of the revenue of the Coal Mine Company for the nine months ended 30 September 2007 was derived from the sale of clean coal. As advised by the management of the Coal Mine Company, there has been continuous strong demand for clean coal in China. In view of the better profit margin for clean coal as compared to other products of the Coal Mine Company, the Coal Mine Company has shifted its product mix to clean coal with a view to generating better return. More ROM extracted from the Coal Mine are washed at the coal washery of the Coal Mine Company and sold as clean coal.

According to the Coal Mine Company, during the first half of 2007, the average selling prices of ROM, clean coal, middling and fines of the Coal Mine Company were approximately RMB264, RMB472, RMB151 and RMB34 per ton respectively. Set out below is the historical trend of average selling price of the products of Coal Mine Company:

Table 4: Selling price of the products of the Coal Mine Company (net of value added tax)

RMB/ton	2004	2005	2006		CAGR
				(2004	to 2006)
Clean	305	509	487		26.4%
ROM	126	241	250		40.9%
Middling	91	132	150		28.4%
Fines	18	15	35		39.4%

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According to the Coal Mine Company, coal prices increased sharply during 2005. This was possibly due to the compulsory nation-wide suspension of coal mine operations imposed by the government in late August 2005 for the remaining months in 2005. This led to a shortage in supply and resulted in a sharp increase in the selling price of coal. During 2006, coal mine operations resumed to normal and price of clean coal dropped slightly from the exceptionally high level in 2005 by approximately 4.3%. From 2004 to 2006, the average selling price of the products of the Coal Mine Company demonstrated a compounded annual growth rate (“CAGR”) of approximately 26.4% (for clean coal) and 40.9% (for ROM).

Major customers of the Coal Mine Company

The “1/3 coking coal” produced from the Coal Mine is mainly used for coking to produce coke which is in turn used for production of iron and steel. We have obtained the list of major customers of the Coal Mine Company and noted that the major customers of the Coal Mine Company are mainly coking plants and steel and iron refineries in Heilongjiang Province, whose products are then sold to their customers in three major northern provinces of China, namely Heilongjiang, Niaoning and Jilin. For the year ended 31 December 2006, sales to coking plants and steel and iron refineries accounted for about 67% and 16% respectively of the total revenue of the Coal Mine Company. During our interviews with some of the major customers of the Coal Mine Company, we were given to understand that these customers are in general satisfied with the stable quality of the products and the services of the Coal Mine Company. They also expect that their demand for coal from the Coal Mine Company will continue to be strong in the coming years. We are informed that most of the major customers have already placed their purchase orders for the full year 2008 with the Coal Mine Company, which are sufficient to utilise in full the production capacity of the Coal Mine Company.

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Historical financial performance of the Coal Mine Company

Set out below is a summary of the results and cash flow position of the Coal Mine Company for the three years ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2006 and 2007 as extracted from the accountants’ report set out in Appendix III to the Circular:

Revenue Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Other operating expenses Operating profit Finance costs (Loss)/Profit before income tax Income tax expense (Loss)/Profit for the year/period Gross profit margin Net profit margin Quantity of coal sold (000’ ton) Average selling price per ton_(RMB) Net cash generated from operating activities (RMB’ 000)_	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 114,168 106,256 170,317 (83,382) (73,930) (109,600) 30,786 32,326 60,717 96 247 3,432 (538) (272) (626) (21,008) (15,481) (21,636) (8,776) (5,932) (1,908) 560 10,888 39,979 (5,587) (4,774) (4,640) (5,027) 6,114 35,339 (9,629) (2,452) (13,615) (14,656) 3,662 21,724 27.0% 30.4% 35.6% N.A. 3.4% 12.8% 485 313 498 235 339 342 3,701 10,753 20,488	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 119,819 173,607 (75,176) (97,200) 44,643 76,407 589 385 (383) (803) (13,478) (24,392) (1,594) (1,631) 29,777 49,966 (2,947) (4,514) 26,830 45,452 (7,397) (17,899) 19,433 27,553 37.3% 44.0% 16.2% 15.9% 343 451 349 385 8,528 12,534

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(a) Year ended 31 December 2005 compared to year ended 31 December 2004

As there were frequent accidents and serious casualties involving coal mine operations in the PRC during 2005, the PRC authorities imposed compulsory nationwide suspension of coal mine operations in late August 2005 for the remaining months in 2005 in order for coal mines to implement safety improvements. Due to the suspension, business of the Coal Mine Company during the year was adversely affected and revenue dropped by approximately 6.9% from RMB114.2 million in 2004 to RMB106.3 million in 2005. Despite the decrease in revenue, both gross profit and gross profit margin were improved. Gross profit margin increased from 27.0% in 2004 to 30.4% in 2005, mainly due to the increase in market price of coal resulting from a shortage in supply of coal in the market due to the suspension.

The major components of cost of sales were salaries for the mine workers, materials used in mining such as explosives and steel bars for building supporting facilities inside the coal mine, and electricity consumption.

Selling and distribution costs accounted for an immaterial portion of the total operating expenses of the Coal Mine Company, as the transportation costs for the products are normally borne by the customers. Administrative costs incurred in 2005 amounted to RMB15.5 million, representing a drop of approximately 26.3% from 2004. The decrease was mainly due to the savings in local statutory welfare provision payable to relevant authorities.

As a result of the above factors, the Coal Mine Company recorded net profit of approximately RMB3.7 million for the year ended 31 December 2005.

(b) Year ended 31 December 2006 compared to year ended 31 December 2005

Revenue generated in 2006 amounted to RMB170.3 million, representing a substantial increase of 60.3% from that of 2005. The increase in revenue was mainly due to the strong demand for coal. Total quantity of coal sold increased from 313,000 tons in 2005 to 498,000 tons in 2006. Gross profit also increased significantly from RMB32.3 million in 2005 to RMB60.7 million, with gross profit margin improved from 30.4% to 35.6% in 2006. The increase in gross profit margin was mainly because clean coal and ROM, the two types of products with higher selling prices, accounted for a greater portion of the total sales of the Coal Mine during the year 2006. The management of the Coal Mine Company believed that the increase in demand for these two types of products was mainly driven by the increasing demand for steel and electricity prompted by the rapid economic development in the PRC during the year.

The Coal Mine Company recorded other income of approximately RMB3.4 million in 2006, which represented largely a one-off waiver of value added tax liabilities of RMB2.7 million.

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As a result of the increase in the volume of products sold, particularly for products with higher margin, the Coal Mine Company achieved net profit of RMB21.7 million, representing a great improvement of approximately six times from that of 2005.

(c) Nine months ended 30 September 2007 compared to nine months ended 30 September 2006

During the first nine months of 2007, revenue of the Coal Mine Company reached RMB173.6 million, which already exceeded revenue generated during the full year of 2006 and represented a significant growth of 44.9% as compared to the corresponding period in the previous year. Gross profit also reached RMB76.4 million, exceeding the gross profit generated during the full year of 2006 by 25.8% and that of the corresponding period of 2006 by 71.2%. Gross profit margin increased from 35.6% in 2006 to 44.0%. This was mainly due to the significant increase in sale of clean coal, which is the highest margin product of the Coal Mine Company. During the nine months ended 30 September 2007, clean coal accounted for about 81% of the total revenue of the Coal Mine Company, as compared to about 60% in 2006.

Administrative expenses increased by 81.0% as compared to the same period of 2006. This was mainly because more staff costs were incurred along with the growth in business development and in compensation for the hard work of the staff. Finance costs also increased by 53.2% as compared to the same period of 2006. This was mainly due to the loans from staff (amounting to RMB18.3 million as at 30 September 2007) which were borrowed for the purpose of paying part of the Mining Rights Fee and were interest-bearing at a monthly rate of 2%.

Despite the increase in administrative expenses and finance costs, due to the significant increase in revenue and gross profit, net profit of the Coal Mine Company for the nine months ended 30 September 2007 reached RMB27.6 million, exceeding the net profit for the full year of 2006 by 26.8% and representing a growth of 41.8% as compared to the corresponding period of 2006.

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Financial position of the Coal Mine Company

Set out below is a summary of the financial position of the Coal Mine Company as at 31 December 2004, 2005, 2006 and 30 September 2007:

ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Mining rights
Deferred tax assets
Current assets
Inventories
Trade receivables
Bills receivables
Deposits, prepayments and
other receivables
Amount due from holding company
Cash and cash equivalents
Current liabilities
Trade payables
Accrued expenses and other payables
Amount due to holding company
Unsecured bank and other borrowings
Taxes payable
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Deferred income
Other long term liabilities
Net liabilities
EQUITY
Equity attributable to equity holders
of the Coal Mine Company
Paid-in capital
Reserves
Capital deficiency

As at
As at 31 December
30 September
2004
2005
2006
2007
RMB’000
RMB’000
RMB’000
RMB’000
57,483
61,350
63,052
65,396
–
–
–
96,418
2,654
2,654
–
–
60,137
64,004
63,052
161,814
6,735
9,510
5,979
7,658
11,158
21,515
28,837
55,170
4,800
–
1,980
–
8,153
4,766
12,373
15,981
–
–
–
16,102
2,585
384
611
16,008
33,431
36,175
49,780
110,919
11,626
13,346
10,566
4,860
110,494
109,388
111,035
154,775
4,916
5,681
1,178
–
72,764
69,434
60,523
74,523
–
1,810
7,595
13,201
199,800
199,659
190,897
247,359
(166,369)
(163,484)
(141,117)
(136,440)
(106,232)
(99,480)
(78,065)
25,374
–
3,090
2,781
2,549
–
–
–
76,118
(106,232)
(102,570)
(80,846)
(53,293)
20,000
20,000
20,000
20,000
(126,232)
(122,570)
(100,846)
(73,293)
(106,232)
(102,570)
(80,846)
(53,293)

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				As at
		As at 31 December		30 September
	2004	2005	2006	2007
Ratio analysis
Turnover days of trade receivables(1)	36	74	62	87
Turnover days of inventories(2)	29	47	20	22
Turnover days of trade payables(3)	51	66	35	14

Notes:

(1) Turnover days of trade receivables for a year/period is derived by dividing the balances of trade receivables by turnover for the relevant year/period and then multiplied by 365 days for the years ended 31 December 2004, 2005, 2006 and 273 days for the nine months ended 30 September 2007.
(2) Turnover days of inventories for a year/period is derived by dividing the balances of inventory by cost of sales for the relevant year/period and then multiplied by 365 days for the years ended 31 December 2004, 2005, 2006 and 273 days for the nine months ended 30 September 2007.
(3) Turnover days of trade payables for a year/period is derived by dividing the trade payables, by cost of sales for the relevant year/period and then multiplied by 365 days for the years ended 31 December 2004, 2005, 2006 and 273 days for the nine months ended 30 September 2007.

(a) Assets

Property, plant and equipment and mining rights are the two largest asset items of the Coal Mine Company. The book value of the property, plant and equipment mainly represents the coal washery facilities of the Coal Mine Company. As at 30 September 2007, the Coal Mine Company recorded mining rights of RMB96.4 million. As mentioned in the letter from the Board contained in the Circular, following the signing of the Mine Acquisition Agreement, as the status of the Coal Mine Company has been changed from a state-owned enterprise to a privately-owned corporation, the Coal Mine Company is required to obtain a new mining rights certificate with its status as a privately-owned enterprise and pay the Mining Rights Fee of RMB96.4 million in total over the next 9 years. According to the accounting policy of the Coal Mine Company as set out in its accountants’ report contained in Appendix III to the Circular, mining rights are stated at cost less accumulated amortisation and are amortised on a straight line basis over the shorter of the their useful life estimated based on the total proven and probable resources of the coal mine or contractual period from the date of commencement of commercial production, which is the date from which they are available for use.

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Trade receivables are another major asset item of the Coal Mine Company. As at 30 September 2007, trade receivables amounted to RMB55.2 million and was 91.3% higher than that as at 31 December 2006. We understand from the management of the Coal Mine Company that the relatively higher level of trade receivables as at 30 September 2007 was mainly due to the fact that customers of the Coal Mine Company generally settle a larger part of their purchases near end of the year and towards the Chinese New Year. As noted in the ratio analysis above, number of turnover days of trade receivables was relatively stable in the past two years, around 74 days for the year 2005 and 62 days for the year 2006.

Turnover days of inventories are maintained at a relatively low level. This is because the products are usually delivered to the customers as soon as the processing procedures are completed to minimise the level of stock and hence the holding cost and risks to the Coal Mine Company associated with the stock.

(b) Liabilities

Accrued expenses, deposits and other payables are the major liabilities of the Coal Mine Company. They mainly comprised interest expenses accrued on bank and other borrowings, payables to government authorities for various fees and staff welfare contribution, and payables to suppliers for purchases of plant and equipment. As at 30 September 2007, the Coal Mine Company had outstanding unsecured other borrowings of approximately RMB74.5 million. Trade payables amounted to approximately RMB4.8 million as at 30 September 2007. They comprised payables for the purchases of materials.

As a result of the change of status of the Coal Mine Company from a stateowned enterprise to a privately-owned limited liability company, it has to pay Mining Rights Fee of RMB96.4 million to the PRC government for the new mining licence. As stated in the letter from the Board contained in the Circular, as at the Latest Practicable Date, RMB20.3 million had been paid and the balance of approximately RMB76.1 million will be paid by the Coal Mine Company over the next 9 years.

(c) Net liabilities and net current liabilities

The Coal Mine Company recorded net liabilities and net current liabilities on each of the balance sheet dates set out in the accountants’ report.

In the past, the Coal Mine Company mainly relied on bank and other borrowings to support its working capital. These bank and other borrowings gave rise to substantial amount of accruals for interest expenses. According to the Mine Acquisition Agreement, certain bank and other borrowings should be paid off by the Transfer Consideration of RMB140 million. In addition, pursuant to the Sale and Purchase Agreement, the Vendor has warranted that upon completion of the Transfer and payment of the Transfer Consideration, the Coal Mine Company will have no other liabilities other than the

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balance of the Mining Rights Fee payable to the PRC government of approximately RMB76.1 million and accounts payables incurred in the ordinary course of business. As such, the financial position of the Coal Mine Company is expected to be improved upon Completion.

Prospects of the Coal Mine

According to the National Bureau of Statistic of China, the PRC economy continues to be one of the fastest growing nations in the world, with a gross domestic product (“GDP”) of approximately RMB21,087.1 billion for 2006, representing an increase of approximately 14.7% over that of 2005 and a CAGR of approximately 11.5% from 1996 to 2006. According to the preliminary statistic figures announced by the National Bureau of Statistic of China, GDP for 2007 was approximately RMB24,661.9 billion, representing a growth of approximately 11.4% over that of 2006.

According to China Statistical Year Book 2007, coal accounted for approximately 69% of the total energy consumption in the PRC in 2006. Coal is widely used for electricity generation and industrial use. As observed in Chart 5 below, consumption of coal in the PRC has been increasing continuously, from 1.32 billion tons in 2000 to 2.39 billion tons in 2006, recording a CAGR of 10.4%. According to the China National Coal Association, coal is expected to continue to account for the majority of total primary energy production in China for at least the next 20 years.

Chart 5: Consumption of Coal in the PRC

==> picture [369 x 174] intentionally omitted <==

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

Million tons
3,000
2,392
2,500
2,166
1,936
2,000
1,692
1,500 1,320 1,262 1,366
1,000
500
-
2000 2001 2002 2003 2004 2005 2006
----- End of picture text -----

Source: China Statistical Year Book 2007

The strong national demand for coal is further underlined by the fact that China, once a major coal exporter, recorded net coal imports in the first quarter of 2007, with imports exceeding exports by 2.89 million tons. It is expected that the demand of coal in the PRC will continue to be driven by the growth in demand for steel and electricity supported by:

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the escalation in the scale of manufacturing activities such as automobile manufacturing and other heavy industries;
the increasingly affluent population as a result of the fast growing economy, leading to higher consumer spending and household consumption; and
the infrastructure development relating to the 2008 Beijing Olympic Games and the 2010 World Expo to be held in Shanghai.

According to data from the National Bureau of Statistics of China, GDP of the Heilongjiang Province for 2006 amounted to RMB618.9 billion, representing an increase of 12.8% over that of 2005. As shown in Chart 6 below, GDP of each of the three major northern provinces of China, namely Heilongjiang, Niaoning and Jilin, had demonstrated GDP growth rate of 12% to 16% in the past two years.

Chart 6 : GDP of 3 major northern provinces in the PRC

==> picture [368 x 259] intentionally omitted <==

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

RMB' billion
1,000
900
800
700
600
500
400
300
200
100
-
2001 2002 2003 2004 2005 2006
Heilongjiang Jilin Liaoning
----- End of picture text -----

Source : National Bureau of Statistics of China

In light of the above and taking into account the fact that most of the products of the Group are sold to major coking plants and steel and iron refineries in Heilongjiang Province, whose products are mainly sold to customers in Heilongjiang, Liaoning and Jilin, we consider the Coal Mine Company will be able to capture the growth momentum and benefit from the economic growth of the PRC, particularly in northern China.

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As regards competition, due to frequent accidents and serious casualties relating to coal mine operations in recent years, the PRC government implemented series of reform measures with a view to improving the safety standard of the industry. Such measures include tightened requirements for safety standards in coal mine operations and frequent onsite inspections. These reforms call for the closure of small-scale coal mines which either have poor safety records or lack of the financial capability to upgrade their facilities. It is noted that The State Administration of Work Safety (國家安全生產監督管理總局) will no longer approve the opening of new coal mines with annual production capacity below 300 kt. As a result of these measures, the number of small-scale coal mines is expected to reduce significantly and a consolidation is expected in the industry. The reduced number of players and less intensive competition in the market is expected to benefit the Coal Mine which has a scalable production capacity and has established safety standard as evidenced by the fact that no casualty was recorded in the Coal Mine in the last five years.

4. Evaluation of the Consideration

The Consideration for the Acquisition is HK$700 million, which was determined between the parties after arm’s length negotiations with reference to, among other things, (i) the prospects of the coal mining industry in the PRC; (ii) the revenue and net profits generated by the Coal Mine Company; (iii) the estimated resources of the Coal Mine; and (iv) the valuation of the Coal Mine Company by Savills.

Since the Target Company is an investment holding company newly set up for the sole purpose of the acquisition of the Coal Mine Company and has no other assets or liabilities, for the purpose of our evaluation of the Consideration, we have focused on the analysis of the value of the Coal Mine Company.

Valuation by Savills

In assessing the Consideration, we have considered the Valuation of the Coal Mine Company prepared by Savills. According to the valuation report prepared by Savills contained in Appendix V to the Circular, the Coal Mine Company is valued at RMB680 million (equivalent to approximately HK$700.4 million) as at 30 June 2007. The Consideration under the Sale and Purchase Agreement is approximately the same as the Valuation. We have reviewed the underlying calculation of the Valuation and have discussed with Savills and Baron Capital the assumptions underlying the projections and used in the Valuation.

(a) Valuation approach

Savills has adopted the income valuation approach, utilising the discounted cash flow valuation method, to assess the business enterprise value of the Coal Mine Company. The valuation considered the present value of all cash flow expected to be derived from the Coal Mine Company, based on a series of forecasts of revenue and cost stream, over the operational period.

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The future cash flow stream expected to be generated by the Coal Mine Company is then discounted to arrive at a present value using a discount rate determined using the Capital Assets Pricing Model (the “CAPM”). Under the CAPM, the appropriate expected rate of return is the sum of the risk-free return and the equity risk premium required by investors to compensate for the market risk and specific risk of the Coal Mine Company.

Grant Thornton has issued a letter stating that the forecast underlying the Valuation has been properly compiled as far as the arithmetical accuracy of the calculations is concerned. Baron Capital has also issued a letter stating that they are of the view that the underlying forecasts upon which the Valuation has been made have been made after due and careful enquiry by the Directors.

We consider that the income approach is an appropriate approach in valuing an entity of the type of the Coal Mine Company. We also concur with Savills that the income approach is appropriate in this case because the income approach (i) takes into account the estimated risk associated with the business of the Coal Mine Company through the estimation of the expected rate of return used in discounting the future stream of cash flow into present value; and (ii) captures the future growth potential of the Coal Mine Company, in particular, its plan to expand annual production capacity from 600 kt per annum in year 2007 to 900 kt per annum in year 2010.

(b) Key assumptions

In arriving at the Valuation, Savills has adopted a number of assumptions, some of which are specific to the Coal Mine Company and are discussed below.

We note that Savills has adopted the discount rate of 17.5% in determining the enterprise value of the Coal Mine Company. We are advised by Savills that such rate has been determined with reference to the prevailing interest rate on Hong Kong Exchange Fund Bills/Notes and the stock volatility of other companies which have been listed on the Stock Exchange for over one year and are engaged principally in coal mining business in the PRC, and adjusted for additional risks associated with the relative size and marketability of the Coal Mine Company.
We also note that in arriving at the Valuation, the expected future cash flow generated from the extraction and sale of the coal resources of the Coal Mine which are classified as economically viable and marginally economically viable (i.e. classes 122b, 2M22, 2S11 and 2S22 in the Technical Report) have been included, while the resources which are classified as intrinsically economically viable (i.e. classes 332 and 333) have not been assigned any value. This is based on the knowledge that some exploitation work has been successfully done on the resources in classes 122b, 2M22, 2S11 and 2S22 and that the economic viability of the resources in classes 332 and 333 are relatively lower. In arriving at the Valuation as at 30 June 2007, recovery rate of 70% has been applied to the total of 37,929 kt of estimated resources in classes 122b, 2M22, 2S11 and 2S22 as at the beginning of January 2007, and the production volume of the Coal Mine Company during the first six months of 2007 has also been taken into account.

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We further note that the growth rate of coal price is assumed to be 6% per annum in 2008 and 4% per annum after 2008 in the Valuation. Operating cost profile for 2007 to 2010 is based on the forecast by the management of the Coal Mine Company, which was also stated in the Technical Report. A growth rate of 4% per annum is also applied to operating cost after 2010. According to the information from the Coal Mine Company and as mentioned in the paragraph headed “Product mix of the Coal Mine Company and selling price of products” above, the selling price of its products demonstrated a CAGR during 2004 to 2006 ranging from 26% to 41%. In addition, according to the China Statistical Yearbook 2007, price indices of raw material, fuel and power in the PRC were around 4.8% to 11.4% for the years 2003 to 2006.

We note that at present there are no standards and guidelines in Hong Kong adopted for valuation of mineral properties or reporting of exploration results. In this regard, in considering the above key assumptions adopted in the Valuation, we have made reference to, among other things, codes and guidelines adopted in overseas market including the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports adopted in Australia, the Standards and Guidelines for Valuation of Mineral Properties (February 2003 version) adopted in Canada (the “CIMVAL Standards”) and Guide to Mining Right Valuation (2004 Revision) used in the PRC (the “PRC Guide”). We note that under the CIMVAL Standards, for valuation using the income approach methods, it is generally acceptable to use all proven mineral resources and probable mineral resources. The CIMVAL Standards provide that inferred mineral resources, however, should be used in the income approach with great care and should not be used if the inferred mineral resources account for all or are a dominant part of total mineral resources. Any use of inferred mineral resources in the income approach must be justified in the valuation report and treated appropriately for the substantially higher risk or uncertainty of inferred mineral resources compared to measured and indicated mineral resources. We also note that according to the PRC Guide, both economically viable and marginally economically viable resources shall be accounted for in valuing mining rights while submarginally economically viable resources shall not be in principle, except for designed or utilised resources which shall be converted by confidence factor.

Having considered the above overseas valuation standards and guidelines, we are of the view that the Valuation, which has disregarded entirely the resources with the lowest economic viability (i.e. all of the class 3 resources, part of which comprise resources classified as indicated and part of which classified as inferred), is generally in line with the guidelines adopted for overseas markets and is prudent.

As disclosed in the report from Savills on the Valuation, a sensitivity analysis was performed using discount rates of 16.5%, 17.5% and 18.5%. The resulted value of the Coal Mine Company based on these adjusted discount rates would fall within the range of RMB620 million (equivalent to approximately HK$638.6 million) to RMB740 million (equivalent to approximately HK$762.2 million).

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Independent Shareholders are advised to refer to the valuation report prepared by Savills contained in Appendix V to the Circular for details of the bases and assumptions of the Valuation. Independent Shareholders should also be aware that projections of revenue and profits cannot be made with complete accuracy and are dependent on the assumptions made. Based on our review and discussions with the management of the Coal Mine Company, Savills and Baron Capital, we have not identified any major factors which cause us to doubt the fairness and reasonableness of the principal bases and assumptions underlying the Valuation and we consider the Valuation to be fair and reasonable.

Comparable transactions

In evaluating the fairness and reasonableness of the Consideration, we have researched into merger and acquisition transactions (the “Comparable Transactions”) from publicly available information which involve acquisition of coal mines or companies that are principally engaged/ will be principally engaged in the coal mining business in the PRC during the period from 1 January 2005 to the Latest Practicable Date. Set out below are the Comparable Transactions that we have identified based on the aforesaid criteria:

Table 7 – Comparable Transactions

			Estimated	Consideration
Name of the acquirers	Announcement		resources	per tonne of
(Ticker)	date	Consideration	being acquired	estimated resources	Remarks
Pearl Oriental Innovation	20-Jul-06	HK$395.62 million	10.8 million tons	HK$36.6/ton	– In operation;
Limited_(Formerly_		(for 40% interest	(40% interest of the	(equivalent to	– Consideration
known as China		in the acquisition	total recoverable coal	approximately	represented historical
Merchants DiChain		target)	resource of 27 million	HK$36.0/tonne)	price-to-earnings
(Asia) Limited)			tons) (equivalent to		multiple of 25.2 times
(632 HK)			approximately 11.0 Mt)
Kiu Hung International	1-Feb-07	HK$119.46 million	106 million tons	HK$1.1/ton	– Not in operation;
Holdings Limited			(equivalent to	(equivalent to	– Coal resources are
(381 HK)			approximately 107.7 Mt)	approximately	categorised as 332
				HK$1.1/tonne)	and 333 according to
					the “New Chinese
					Resources/Reserve
					Categories (1999)”;
Kiu Hung International	4-Sep-07	HK$840 million	300 million tons	HK$2.8/ton	– Not in operation;
Holdings Limited			(estimation only)	(subject to adjustment	– General exploration
(381 HK)			(equivalent to	depending on the	to be completed;
			approximately	estimation of
			304.8 Mt)	technical adviser)
				(equivalent to
				approximately
				HK$2.8/tonne)

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			Estimated	Consideration
Name of the acquirers	Announcement		resources	per tonne of
(Ticker)	date	Consideration	being acquired	estimated resources	Remarks
Mongolia Energy	7-Feb-07	HK$1.2 billion	300 Mt	HK$4/tonne for	– Not yet commenced
Corporation Limited		plus HK$12 per	(estimated to have	the first 300Mt;	mining operations;
(Formerly known as		tonne of additional	200 Mt proved	and HK$12/tonne	– Require further
New World Cyberbase		coal resource on	resources; 100 Mt	for additional coal	exploration, drilling,
Limited)		top of 300 Mt of	probable resources)	being exploited	mine construction
(276 HK)		coal being exploited			and feasibility studies
Mongolia Energy	30-May-07	US$1 nominal value	Estimated at 1 billion	HK$12/tonne	– Not yet commenced
Corporation Limited		for the land and	tonnes to 2 billion		mining operations;
(Formerly known as		HK$12 per tonne of	tonnes		– Subject to exploration
New World Cyberbase		coal resource to be			before commercial
Limited)		paid as demonstrated			exploitation
(276 HK)		and used
Everbest Energy	27-Aug-07	RMB450 million	18.04 Mt	HK$25.69/tonne	– Mining operation
Holdings Limited		(HK$463.5 million)			had been suspended;
(578 HK)					– To recommence
					operation by first half
					of 2009 after
					technological reform
Greenfield Chemical	9-Nov-07	HK$600 million	107 Mt	HK$5.6/tonne	– Loss making history
Holdings Limited			(estimation only)
(582 HK)
Yanzhou Coal Mining	4-Dec-07	RMB747.3 million	254.1 Mt	HK$3.0/tonne	– Not yet commenced
Company Limited		(HK$786.4 million)	(mineable resource)	(mineable resource)	mining operations
(1171 HK)
Hidili Industry	31-Dec-07	RMB355.0 million	75.6 Mt	HK$5.0/tonne	– Not yet commenced
International Development		(HK$377.7 million)			mining operations
Limited (1393 HK)
Hubei Shuanghuan	6-Jul-07	RMB90 million	12.75 million tons	RMB7.06/ton	– Not yet commenced
Science & Technology		(HK$92.7 million)	(51% interest of the	(equivalent to	mining operations
Co. Ltd.		(for 51% interest	total recoverable coal	approximately
(湖北雙環科技股份		in the acquisition	resource of 25	HK$7.1/tonne)
有限公司)		target)	million tons)
(000707 CN)			(equivalent to
			approximately 13.0 Mt)

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			Estimated	Consideration
Name of the acquirers	Announcement		resources	per tonne of
(Ticker)	date	Consideration	being acquired	estimated resources	Remarks
Henan Shenhuo Coal	30-Jun-05	RMB408.12 million	171.12 million tons	RMB2.38/ton	– Historical results
Industry And Electricity		(HK$420.4 million)	(92% interest of the	(equivalent to	not disclosed
Power Co. Ltd.		(for 92% interest	total recoverable coal	approximately	– Consideration based
(河南神火煤電股份		in the acquisition	resource of 186	HK$2.4/tonne)	on value of net
有限公司)		target)	million tons)		assets of the acquiree
(000933 CN)			(equivalent to
			approximately 173.9 Mt)
Mean				HK$9.7/tonne
Median				HK$5/tonne
The Acquisition	25-Oct-07	HK$700 million	61,748 kt	HK$11.3/tonne
			(estimated as at
			30 June 2007)

Source: Bloomberg and other public announcements/circulars issued by the relevant companies

We have analysed the acquisition consideration of the Comparable Transactions against the estimated quantity of resources of the targets and note that the consideration of the Comparable Transactions represent price per tonne of coal resources ranging from approximately HK$1.1 per tonne to HK$36.6 per tonne. Based on the estimated coal resources of the Coal Mine of 61,748 kt as at 30 June 2007, the Consideration for the Acquisition represents approximately HK$11.3 per tonne of coal resources, which is within the range of that of the Comparable Transactions.

As noted from Table 7 above, other than the coal mines being acquired by Pearl Oriental Innovation Limited (“Pearl Oriental”) and Henan Shenhuo Coal Industry And Electricity Power Co. Ltd., operations at most of the other coal mines being acquired in the Comparable Transactions were either not commenced or with uncertainties. We believe this explains the relatively lower price per tonne of estimated resources for most of the Comparable Transactions, and the relatively low figures for the mean and median of all the Comparable Transactions. As the Coal Mine has been in operation for many years and has been generating profit, we consider that the coal mine being acquired by Pearl Oriental is the closest comparable to the Acquisition among the Comparable Transactions. In this regard, we note that the price per tonne of estimated resource of the Acquisition is lower than that of Pearl Oriental’s acquisition, though the historical price-earnings multiple for the Acquisition of around 31 times is higher than that of the Pearl Oriental acquisition.

Shareholders should note that in the analysis above, we primarily consider the quantity of estimated coal resources. Various qualitative aspects of the subject coal mines under the Comparable Transactions, such as the quality and type of coal produced, the estimated recovery level of coal resources, the economic viability, feasibility and geological confidence level of the coal resources, cannot be ascertained and may not be directly comparable to those of the Coal Mine. Nevertheless, we believe the price per tonne of coal resources as analysed above would serve as a useful reference in assessing the fairness of the Consideration.

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Comparable Companies

We have also researched into the market ratings of companies listed on the Hong Kong, Shenzhen and Shanghai stock exchanges which are engaged in businesses similar to the Coal Mine Company. For this purpose, we have identified all the companies which (i) are listed on the three stock exchanges as listed above; (ii) have mining rights to carry out coal mining operations in the PRC; and (iii) have a substantial portion (over 70%) of their revenue in the last financial year being generated from coal mining and sales. Based on the aforesaid criteria, we have identified three companies listed on the Stock Exchange and seven companies listed on either the Shenzhen or Shanghai stock exchanges (the “Comparable Companies”). Set out below is a table comparing the price-to-earnings, price-to-revenue and price-to-operating cash flow multiples of the Coal Mine Company represented by the Consideration against those of the Comparable Companies:

Table 8 – Comparable Companies

		Closing price		Price-to-
Company	Market	as at the Latest	Price-to-	operating	Price-to-
(ticker)	capitalisation	Practicable Date	earnings	cash flow	revenue
Listed on the Stock Exchange
China Coal Energy	HK$299.7 billion	HK$17.46	41.1	25.0	4.3
Company Limited
(1898 HK)(Note)
China Shenhua Energy	HK$1,199.6 billion	HK$39.40	37.6	27.8	10.2
Company Limited
(1088 HK)(Note)
Yanzhou Coal Mining	HK$90.0 billion	HK$12.78	24.4	15.4	4.5
Company Limited
(1171 HK)(Note)
Mean			34.4	22.7	6.3
Median			37.6	25.0	4.5
The Coal Mine Company			31.3	33.2	4.0

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		Closing price		Price-to-
Company	Market	as at the Latest	Price-to-	operating	Price-to-
(ticker)	capitalisation	Practicable Date	earnings	cash flow	revenue
Listed in the PRC
*Shanghai Stock Exchange:*
Anhui Hengyuan Coal	RMB10.3 billion	RMB54.7	52.5	22.3	8.7
Industry and Electricity	(HK$10.6 billion)
Power Co., Ltd.
(600971)
DaTong Coal Industry	RMB33.4 billion	RMB39.87	59.7	22.7	7.3
Co., Ltd. (601001)	(HK$34.4 billion)
Guizhou Panjiang	RMB7.1 billion	RMB19.22	85.9	47.0	2.9
Refined Coal	(HK$7.4 billion)
Co., Ltd. (600395)
Pingdingshan Tianan	RMB55.0 billion	RMB51.19	43.6	16.2	5.0
Coal. Mining Co.,	(HK$56.7 billion)
Ltd. (601666)
Shanxi Guoyang New	RMB26.7 billion	RMB55.48	38.2	21.7	3.1
Energy Co., Ltd.	(HK$27.5 billion)
(600348)
Shanxi Lu’an	RMB42.2 billion	RMB66.0	39.9	18.3	4.6
Environmental	(HK$43.5 billion)
Energy Development
Co., Ltd. (601699)
*Shenzhen Stock Exchange:*
Shanxi Xishan Coal and	RMB59.6 billion	RMB49.18	61.2	58.4	8.6
Electricity Power Co.,	(HK$61.4 billion)
Ltd. (000983)
Mean			54.4	29.5	5.7
Median			52.5	22.3	5.0
The Coal Mine Company			31.3	33.2	4.0

Source: Bloomberg and public financial information of the relevant companies.

Note: These companies have their shares listed on both the Stock Exchange and the Shanghai Stock Exchange. For the purpose of our analysis, prices of their shares listed on the Stock Exchange are used.

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Based on the audited net profit, revenue and operating cash flow of the Coal Mine Company for the year ended 31 December 2006 as extracted from the accountants’ report of the Coal Mine Company contained in Appendix II to the Circular, the Consideration of HK$700 million represents price-to-earnings ratio of approximately 31.3 times, price-to-revenue ratio of approximately 4.0 times, and price-to-operating cash flow multiple of approximately 33.2 times. According to the accountants’ report of the Coal Mine Company, the Coal Mine Company recorded net liabilities of RMB80.8 million as at 31 December 2006 and RMB53.3 million as at 30 September 2007. Accordingly, we have not computed the price-to-book ratio represented by the Consideration in our analysis.

As shown in Table 8 above, the price-to-earnings of the Coal Mine Company represented by the Consideration is within the lower end of the range of the corresponding ratio for the Hong Kong-listed Comparable Companies. The price-to-revenue ratio for the Coal Mine Company is lower than the corresponding ratio of all the Hong Kong-listed Comparable Companies while the price-to-operating cash flow ratio is higher than those of the Hong Kong-listed Comparable Companies. The price-to-earnings and price-to-revenue ratios for the Coal Mine Company are also lower than the corresponding mean and median for the Hong Kong-listed Comparable Companies. We believe the lower price-to-earnings and price-to-revenue ratios for the Coal Mine Company perhaps explain the relatively smaller size of the operations and the non-listing status of the Coal Mine Company when compared to these Comparable Companies.

The price-to-earnings and price-to-revenue ratios for the Coal Mine Company represented by the Consideration, as noted from Table 8 above, are in general lower than those of the PRClisted Comparable Companies. We consider this comparison is less relevant, as we believe the different characteristics of the underlying stock markets may attach dissimilar valuation multiples to companies listed thereon.

5. Settlement of the Consideration

Pursuant to the Sale and Purchase Agreement, the Consideration for the Acquisition amounting to HK$700 million in aggregate is to be satisfied by the Company as to:

HK$20 million in cash to the Vendor upon signing of the Sale and Purchase Agreement as a refundable deposit;
HK$35 million by the issue of Consideration Shares to the Vendor on Completion;
HK$345 million by the issue of Convertible Note to the Vendor on Completion; and
HK$300 million in cash to the Vendor or other party as it may direct in writing on the day falling 3 months (or such other date as the parties may agree) after Completion. The Vendor has directed the Company to pay part of this cash payment as may be notified by him directly to creditors of the Coal Mine Company for the purpose of settlement of liabilities of the Coal Mine Company due to such creditors.

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Principal terms of the Convertible Note

The Convertible Note, with a principal amount of HK$345 million, is non-interest bearing and convertible into the Conversion Shares at the initial conversion price of HK$0.50 per Share (subject to usual anti-dilution adjustments) any time from the date of its issue up to (and excluding) the commencement of the 7-calendar day period ending on (and including) the Maturity Date. The conversion right attaching to the Convertible Note cannot be exercised if the total number of Shares held by the holder of the Convertible Note and parties acting in concert with it immediately after the issue of the Conversion Shares is more than 29.9% of the enlarged issued share capital of the Company or any other amount equal to 0.1% below the amount as may be specified from time to time in the Takeovers Code as being the level for triggering a mandatory general offer. The Convertible Note may not be transferred without the prior written consent of the Company. The Company may at any time redeem the whole or part of the then outstanding principal amount of the Convertible Note at 100% of the principal amount thereof. Further details of the terms of the Convertible Note are set out in the letter from the Board contained in the Circular.

As shown above, approximately half of the Consideration for the Acquisition will be settled by the issue of the Convertible Note. The issue of the Convertible Note, which is non-interest bearing and subject to early redemption at the option of the Company, enables the Company to defer the settlement of a substantial portion of the Consideration up to a period of 5 years and reduces the immediate cash outlay required for the Acquisition. Upon conversion of the Convertible Note by the holder thereof, the equity base of the Company would be enlarged. We are of the view that the issue of the Convertible Note for partial settlement of the Consideration is in the interest of the Company. Assuming the Convertible Note is redeemed in full at maturity (i.e. 5 years from the date of issue), the present value of the Convertible Note, calculated by discounting the cash flow stream relating to the repayment of the Convertible Note with the same discount rate adopted in the Valuation of 17.5% p.a., is approximately HK$154 million which is substantially lower than its face value.

Analysis of past performance of the Shares

Chart 9 below shows the closing price and volume of the Shares traded on the Stock Exchange since 3 April 2006 (approximately 18 months prior to the Sale and Purchase Agreement) up to and including the Latest Practicable Date (the “Period”):

LETTER FROM OPTIMA CAPITAL

Chart 9: Historical Share price and trading volume

==> picture [395 x 244] intentionally omitted <==

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

Trading Volume (Shares)
Closing Price (HK$)
80,000,000 3
Volume Traded Closing Price
Issue Price and Conversion Price (HK$0.5)
70,000,000 d) Last Trading Day
2.5
60,000,000 c) Announcement for the
issue of the Option
e) Announcement 2
50,000,000 for the Placing
b) Announcement for the
Open Offer
40,000,000 1.5
30,000,000
a) Announcement for profit warning of
1
the 2007 annual results
20,000,000
0.5
10,000,000
- 0
Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb-
06 06 06 06 06 06 06 06 06 07 07 07 07 07 07 07 07 07 07 07 07 08 08
----- End of picture text -----

Source: Bloomberg

(a) Share price performance

As shown in Chart 9 above, the Shares traded within a relatively narrow range between HK$0.412 to HK$0.728 during April 2006 to June 2007. On 11 July 2007, the Company issued a profit warning announcement stating that an operating loss was expected for the year ended 31 March 2007. Despite such profit warning, the Share price surged from HK$0.728 on 14 June 2007 to HK$1.23 on 17 July 2007. On 19 July 2007, the Company announced the Open Offer of 117,726,000 new Shares at HK$0.10 per Share to raise approximately HK$10 million for the development of the exhibition business. The Open Offer was not supported by the Shareholders and was under-subscribed, resulting in Baron Investment, the underwriter to the Open Offer, taking up the unsubscribed offer shares. The Company announced its annual results on 25 July 2007 which reported increased operating loss from HK$32.2 million for the year ended 31 March 2006 to HK$34.4 million for the year ended 31 March 2007. The Share price continued to rise after the release of the results announcement and soared to HK$2.4 on 1 August 2007. On 31 July 2007 and 3 August 2007, the Company stated that it was not aware of any reasons for the increases in the Share price. Such exceptionally high level of Share price did not last for long and the Share price dropped sharply to HK$0.93 on 14 August 2007.

On 19 August 2007, the Company announced that it entered into an agreement with a company controlled by Ms. Mak, pursuant to which the Company has agreed to grant an option which is exercisable within 12 months to subscribe for up to a maximum of 47,090,400 new Shares at the subscription price of HK$0.83 per Share. This grant of option is expected to raise net proceeds of approximately HK$39.0 million for the future development of the

LETTER FROM OPTIMA CAPITAL

Group’s core exhibition business. Since then, the Share price fluctuated within the range of HK$0.93 and HK$1.2 until 10 September 2007 when Share price surged again and reached HK$1.75. The Company had announced that it was not aware of any reasons for the increase in price and trading volume. On the Last Trading Day, Shares closed at HK$1.65. Following the resumption of trading of the Shares after the publication of the Announcement, Share price dropped gradually to close at HK$0.89 on the Latest Practicable Date.

(b) Analysis of trading volume of the Shares

Set out below is the monthly trading volume of the Shares on the Stock Exchange during the Period:

			Average	% of average
			trading volume	daily trading	% of
			of the Shares	volume of the	average daily
		Total monthly	per trading	Shares to the	trading volume
	trading volume		day during	total issued	of the Shares
		of the Shares	the month	Shares	to public float
		(Note 1)		(Note 2)	(Note 3)
2006
April		6,522,865	383,698	0.16%	0.33%
May		5,409,987	270,499	0.11%	0.23%
June		5,442,034	247,365	0.11%	0.21%
July		20,439,675	973,318	0.41%	0.83%
August		4,763,236	207,097	0.09%	0.18%
September		3,268,718	163,436	0.07%	0.14%
October		13,028,251	651,413	0.28%	0.55%
November		6,484,993	294,772	0.13%	0.25%
December		8,588,390	452,021	0.19%	0.38%
2007
January		8,431,075	383,231	0.16%	0.33%
February		5,634,313	313,017	0.13%	0.27%
March		9,060,348	411,834	0.17%	0.35%
April		12,742,750	707,931	0.30%	0.60%
May		10,604,393	504,971	0.21%	0.43%
June		45,278,424	2,263,921	0.96%	1.93%
July		131,580,093	6,265,719	2.66%	5.33%
August		107,868,000	4,689,913	1.33%	2.66%
September		146,439,000	7,707,316	2.18%	4.37%
October		38,515,000	1,834,048	0.52%	1.04%
November		52,589,000	2,390,409	0.68%	1.36%
December		54,901,000	2,889,526	0.82%	1.64%
2008
January		47,936,000	2,178,909	0.62%	0.90%
1 February to the Latest		1,012,000	202,400	0.06%	0.08%
Practicable Date

LETTER FROM OPTIMA CAPITAL

Notes:

1) Source: Bloomberg
2) Calculated based on the number of issued Shares as at each month end during the Period.
3) Public float is calculated as the number of issued Shares less the number of Shares held by Capital Concord (being the controlling Shareholder of the Company) and its associates at the end of each month during the Period.

Trading volume of the Shares during most of the months of the Period shown above was thin, representing less than 1% of the total issued Shares per month, except during July to September 2007 when there had been exceptional price volatility.

We note that during the period from April 2006 (being about 18 months before the date of the Sale and Purchase Agreement) up to end of June 2007, the Shares traded within a narrow range of HK$0.43 to HK$0.61 consistently. We believe the drastic volatility in the Share price and trading volume during July and August 2007 was likely to be speculative, as the sudden surge in Share price was incongruent with the unsatisfactory financial performance reported by the Company and not supported by signs of any positive development in the existing or future business of the Group.

(c) Relative performance compared to peers and market

For the purpose of our analysis of the historical performance of the Shares, we have also sought to compare the market rating of the Shares against companies listed on the Stock Exchange which are engaged in similar exhibition organisation business as the Company, as well as against the Hang Seng Index (“HSI”). We have identified one company listed on the Main Board of the Stock Exchange, Pico Far East Holdings Limited (stock code: 752) (“Pico”), whose principal business is directly comparable to that of the Company. As depicted in Chart 10 below, during most of the Period prior to the Sale and Purchase Agreement, the Shares have been performing generally in line with Pico and the HSI, except since July 2007 when the Share price increased drastically and significantly outperformed Pico and HSI. We note that Pico is more sizeable than the Company in terms of revenue and asset base, and has a much stronger profitability as compared to the Company. We do not consider the market price of the Shares since July 2007 justifiable or necessarily represent fairly the then underlying value of the Company, as such price level was neither supported by the fundamentals of the Company nor congruent with the performance of its peer and the market as a whole.

LETTER FROM OPTIMA CAPITAL

Chart 10: Comparison of Share price performance against HSI and Pico

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

300.0%
250.0%
200.0%
150.0%
100.0%
50.0%
0.0%
-50.0%
-100.0%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
-06 -06 -06 -06 -06 -06 -06 -06 -06 -07 -07 -07 -07 -07 -07 -07 -07 -07 -07 -07 -07 -08 -08
Kenfair International (Holdings) Ltd. Pico Far East Holdings Limited Hang Seng Index
----- End of picture text -----

Source: Bloomberg

Analysis of the Issue Price and the C on version Price

The Issue Price and the Conversion Price of HK$0.5 represent:

(i) a discount of approximately 69.7% to the closing price of HK$1.65 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 69.7% to the average closing price of HK$1.65 per Share as quoted on the Stock Exchange for the last five trading days immediately prior to the date of the Sale and Purchase Agreement;
(iii) a discount of approximately 43.8% to the closing price of HK$0.89 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(iv) a premium of approximately 156.41% over the audited net asset value per Share of HK$0.195 as at 31 March 2007 (based on the audited consolidated net assets of approximately HK$45,796,000 as at 31 March 2007 and 235,452,000 Shares then in issue as shown in the latest annual report of the Company); and
(v) a premium of approximately 900.0% over the unaudited net asset value per Share of HK$0.05 as at 30 September 2007 (based on the unaudited consolidated net assets of approximately HK$17,721,000 and 353,178,000 Shares in issue as at 30 September 2007 as shown in the interim report of the Company).

LETTER FROM OPTIMA CAPITAL

We note from the above that the Issue Price and Conversion Price represent significant discounts of over 69% to the closing Share prices immediately before the signing of the Sale and Purchase Agreement and the average closing price shortly prior thereto. The unfavourable comparative values, however, may not necessarily be reflective of the reasonableness of the Issue Price and the Conversion Price, as we consider that such comparative values may have been distorted by the sudden surge in Share prices since July 2007 that could not be substantiated by the then fundamentals of the Company. We have therefore sought to compare the Issue Price and the Conversion Price with the average closing price of the Shares over a longer period before and after the Sale and Purchase Agreement. We note that the Issue Price and the Conversion Price represent a discount of 23.1% to the average closing price of HK$0.65 per Share during the period from 3 April 2006 to the Last Trading Day. The Issue Price and the Conversion Price also lie within the narrow range of Share price traded during April 2006 to June 2007 of HK$0.43 and HK$0.61 as discussed above. In addition, they represent significant premiums of approximately 156.41% and 900.0% over the net asset value per Share as at 31 March 2007 and 30 September 2007 respectively.

Our view on the payment terms of the Consideration

In light of the above analysis, in particular,

the price per tonne of estimated coal resources represented by the Consideration is in the low end of the range of those of the Comparable Transactions involving operating coal mines;
the Coal Mine has been in operation for more than 30 years and has generated profits and positive operating cash flows;
the price-to-earnings and price-to-revenue multiples represented by the Consideration are lower than the mean and median for the Comparable Companies which are listed on the Stock Exchange;
the Consideration is approximately equal to the Valuation of the Coal Mine Company appraised by Savills;
a substantial portion of the Consideration is to be satisfied by the issue of the Consideration Shares and the Convertible Note;
the restriction imposed on the noteholder to fully convert the Convertible Note;
the Convertible Note is redeemable at any time from the date of issue up to the maturity date which is 5 years from the date of issue. Assuming redemption in full of the Convertible Note at maturity, the present value of the Convertible Note, estimated by discounting the cash flow stream relating to the repayment of the Convertible Note using the same discount rate adopted for the Valuation, is approximately HK$154 million which is significantly lower than its face value; and

LETTER FROM OPTIMA CAPITAL

the Issue Price and the Conversion Price of HK$0.5 per Share is within the narrow range of the historical Share price of HK$0.43 to HK$0.61 that have been maintained in the past 18 months before certain unexplainable surges in Share price in the second half of year 2007. The Issue Price and the Conversion Price also represent substantial premium over the net asset value per Share although they represent deep discounts to the exceptionally high Share price immediately before the Sale and Purchase Agreement,

we are of the view that the Consideration for the Acquisition (including the terms of the Convertible Note and the Issue Price) is fair and reasonable.

6. Other material terms of the Acquisition

The Mine Acquisition Agreement provides that the Transfer Consideration (being RMB140 million) will be paid into an escrow account set up by the Target Company and the Mine Seller. The amount will be used to pay off all long-term liabilities (including bank and other borrowings) of the Coal Mine Company and the balance, if any, will be paid to the Mine Seller. It is also a term of the Sale and Purchase Agreement that out of the HK$320 million cash payment to the Vendor, RMB140 million (equivalent to approximately HK$144.2 million) will be paid into the aforesaid escrow account directly to facilitate the settlement by the Mine Seller of the liabilities of the Coal Mine Company.

Furthermore, under the Mine Acquisition Agreement, the Mine Seller agrees that if the Transfer Consideration is not sufficient to repay the long-term liabilities of the Coal Mine Company and the liabilities disclosed in the Mine Acquisition Agreement (the “Completion Liabilities”) causing a breach of the warranty by the Mine Seller, it shall pay the difference between the Completion Liabilities and the Transfer Consideration and indemnify the Coal Mine Company and the Target Company for losses caused by the such breach of warranty.

The above terms under the Mine Acquisition Agreement serve to ensure that the Coal Mine Company will be free from bank and other borrowings and the Group will not bear such liabilities of the Coal Mine after Completion.

7. Funding for the Acquisition

Out of the total Consideration of HK$700 million, HK$320 million is to be satisfied in cash. As disclosed in the letter from the Board contained in the Circular, the Company intends to fund such cash payment by a mixture of internal resources and the proceeds to be raised from the Placing. In this regard, the Company entered into the Placing Agreement with Baron Capital on 6 November 2007, pursuant to which the Company has appointed Baron Capital as placing agent to procure placees, on a best effort basis, to subscribe for up to a maximum of 250,000,000 new Shares at the Minimum Placing Price. Assuming all the 250,000,000 new Shares are subscribed by the placees, net proceeds of approximately HK$241.1 million are expected to be raised from the Placing.

LETTER FROM OPTIMA CAPITAL

We understand from the Company and Baron Capital that roadshows are being planned for in February 2008 to solicit interests from overseas investors in the Placing. Based on the preliminary responses obtained so far, the Company and Baron Capital are positive about the result of the Placing.

Shareholders should note that the Acquisition is not conditional on the successful completion of the Placing which is on a best effort basis. Accordingly, if the Placing cannot be completed or sufficient interest cannot be secured from potential placees to raise the aforesaid expected amount of proceeds within the three-month period after Completion, the Company will have to seek for alternative source of funding for the final payment of the Consideration. At present, the Directors have not decided on the alternative course to take if the result of the Placing is less favourable than expected, but are optimistic that other financing arrangements such as banking facilities would be feasible in light of the debt-free position of the Group’s existing exhibition business, and the profitability, positive cash flow and prospects of the Coal Mine Company.

8. Financial effects of the Acquisition on the Group

Earnings

Upon Completion, the Target Company and the Coal Mine Company will be wholly-owned subsidiaries of the Company and their results will be consolidated into the financial statements of the Group. In view of the profitable track record of the Coal Mine Company in the last two financial years and the nine months ended 30 September 2007, the Coal Mine Company is expected to contribute positively to the revenue and earnings base of the Enlarged Group after Completion.

As disclosed in the unaudited pro forma financial information of the Enlarged Group contained in Appendix IV to the Circular, assuming Completion took place on 1 April 2006, the Convertible Note will incur imputed interest expenses for the year ended 31 March 2007 of approximately HK$20.2 million, assuming an effective interest rate of 9% per annum. Such imputed interest is, nevertheless, notional and does not incur any cash outlay for the Group.

Taking into account the results of the Group for the year ended 31 March 2007, the results of the Coal Mine Company for the year ended 31 December 2006 and the imputed interest of the Convertible Note as discussed above, and assuming Completion has taken place on 1 April 2006 and the Convertible Note has not been converted into Shares, the loss per Share attributable to equity holders of the Company would be reduced from HK$0.15 to HK$0.11 as disclosed in the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV of the Circular.

LETTER FROM OPTIMA CAPITAL

Net asset value

According to the unaudited pro forma financial information of the Enlarged Group contained in Appendix IV to the Circular, net asset attributable to the Shareholders would be increased significantly from approximately HK$45.8 million to approximately HK$211.8 million assuming Completion had taken place on 31 March 2007 but before taking into account the effects of the Placing. This is mainly due to the increase in capital base as a result of the issue of the Consideration Shares and the inclusion of the estimated fair value of equity portion the Convertible Note. In addition, given the significant premium of the Issue Price, the Conversion Price and the Minimum Placing Price over the net asset value per Share at present, the net asset value per Share is expected to be enhanced by the issue of the Consideration Shares and the Placing Shares as a result of Completion and the issue of the Conversion Shares upon conversion of the Convertible Note.

Shareholders should note that the Acquisition will result in the Group recording a goodwill, representing the excess of the Consideration over the fair value of the identifiable assets and liabilities of the Target Company and the Coal Mine Company as at the date of Completion. As shown in the unaudited pro forma financial information of the Enlarged Group contained in Appendix IV to the Circular, such goodwill for accounting purposes is estimated to be approximately HK$781.8 million. According to the Hong Kong Financial Reporting Standards (“HKFRSs”), goodwill is subject to assessment for impairment at least annually. Impairment loss would be recognised as an expense for the amount by which the asset’s carrying amount exceeds its recoverable or revalued amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Accordingly, it is possible that impairment losses would be incurred by the Group after Completion if the operating environment of the coal mining industry experiences material or adverse changes.

Gearing

The Group did not have any borrowings as at 30 September 2007 according to the interim report of the Company. The issue of the Convertible Note will increase the liabilities of the Group.

We note from the pro forma consolidated balance sheet of the Enlarged Group contained in Appendix IV to the Circular that, without taking into account the effects of the Placing, the Acquisition would result in a shortfall in cash and cash equivalents of approximately HK$282.1 million (the “Shortfall”), which represents largely the final installment of the Consideration of HK$300 million to be settled three months after Completion. The Shortfall has been included as a reduction to current assets in the aforesaid pro forma consolidated balance sheet of the Enlarged Group. For the purpose of our analysis of the effect of the Acquisition on the gearing of the Group, we have instead treated the Shortfall as a borrowing for the Enlarged Group. On this basis, the gearing ratio of the Enlarged Group, represented by total borrowings to total assets, would be approximately 0.57.

As discussed in the paragraph headed “Funding for the Acquisition” above, the Company intends to fund the final installment of the Consideration by a mixture of internal resources and the proceeds to be raised from the Placing. If the Placing is successfully completed within three months after Completion, the Shortfall would be substantially reduced or made up, and the gearing ratio of the Enlarged Group would be improved.

LETTER FROM OPTIMA CAPITAL

Future working Capital and liquidity

It is expected that the Coal Mine Company will be able to finance its operations and expansion independently from the Company. According to the cash flow projections prepared by the executive Directors on the Enlarged Group, the Acquisition is not expected to adversely affect the overall cash flow and liquidity position of the Group. Nevertheless, whether or not the Target Company and the Coal Mine Company are able to generate additional working capital to enhance the cash flow position of the Company and the rest of the Enlarged Group will depend on the working capital requirement of the Coal Mine Company as well as the ability of the Target Company in declaring and repatriating dividends and/ or remitting capital to the Company. In this regard, the Coal Mine Company will have to comply with the relevant PRC laws and regulations on foreign exchange as well as its own articles in order to pay dividends to the Target Company.

Your attention is drawn to the paragraph headed “Working capital statement” in Appendix I to the Circular which states that the Directors are of the opinion that, in the absence of unforeseeable circumstances and after taking into account the Enlarged Group’s financial resources, including internally generated funds, net proceeds from the Placing and/or other fund raising activities of the Company, the Enlarged Group has sufficient working capital for its present requirements for the coming two years from the date of the Circular.

LETTER FROM OPTIMA CAPITAL

9. Dilution effect on Shareholders’ holdings

The following table illustrates the Company’s shareholding changes as a result of the Acquisition, taking into account the issue of the Consideration Shares and the Conversion Shares and assuming the issue of 250,000,000 Placing Shares to finance the Acquisition:

Capital Concord_(Note 1) Vendor _Public Shareholders Baron International Independent placees under the Placing Other existing public Shareholders Sub-total Total	Capital Concord_(Note 1) Vendor _Public Shareholders Baron International Independent placees under the Placing Other existing public Shareholders Sub-total Total	As at the Latest Practicable Date Number of Approximate Shares percentage 111,900,000 31.68% – –	As at the Latest Practicable Date Number of Approximate Shares percentage 111,900,000 31.68% – –	After Completion, the issue of the Placing Shares, the Consideration Shares and the Conversion Shares (assuming After Completion, (i) 250,000,000 new Shares are the issue of allotted under the Placing; the Placing Shares and (ii) the Convertible and the Consideration Note is converted at the Shares, but initial Conversion Price up before the issue of to the extent that the Vendor the Conversion Shares and the parties acting in (assuming 250,000,000 concert with him hold 29.9% new Shares are allotted of the enlarged issued share under the Placing) capital of the Company) Number of Approximate Number of Approximate Shares percentage Shares percentage 111,900,000 16.62% 111,900,000 13.00% 70,000,000 10.40% 257,276,000 29.90%	After Completion, the issue of the Placing Shares, the Consideration Shares and the Conversion Shares (assuming After Completion, (i) 250,000,000 new Shares are the issue of allotted under the Placing; the Placing Shares and (ii) the Convertible and the Consideration Note is converted at the Shares, but initial Conversion Price up before the issue of to the extent that the Vendor the Conversion Shares and the parties acting in (assuming 250,000,000 concert with him hold 29.9% new Shares are allotted of the enlarged issued share under the Placing) capital of the Company) Number of Approximate Number of Approximate Shares percentage Shares percentage 111,900,000 16.62% 111,900,000 13.00% 70,000,000 10.40% 257,276,000 29.90%	After Completion, the issue of the Placing Shares, the Consideration Shares and the Conversion Shares (assuming After Completion, (i) 250,000,000 new Shares are the issue of allotted under the Placing; the Placing Shares and (ii) the Convertible and the Consideration Note is converted at the Shares, but initial Conversion Price up before the issue of to the extent that the Vendor the Conversion Shares and the parties acting in (assuming 250,000,000 concert with him hold 29.9% new Shares are allotted of the enlarged issued share under the Placing) capital of the Company) Number of Approximate Number of Approximate Shares percentage Shares percentage 111,900,000 16.62% 111,900,000 13.00% 70,000,000 10.40% 257,276,000 29.90%	After Completion, the issue of the Placing Shares, the Consideration Shares and the Conversion Shares (assuming After Completion, (i) 250,000,000 new Shares are the issue of allotted under the Placing; the Placing Shares and (ii) the Convertible and the Consideration Note is converted at the Shares, but initial Conversion Price up before the issue of to the extent that the Vendor the Conversion Shares and the parties acting in (assuming 250,000,000 concert with him hold 29.9% new Shares are allotted of the enlarged issued share under the Placing) capital of the Company) Number of Approximate Number of Approximate Shares percentage Shares percentage 111,900,000 16.62% 111,900,000 13.00% 70,000,000 10.40% 257,276,000 29.90%
		1,347,503 – 239,930,497	0.38% – 67.94%	1,347,503 250,000,000 239,930,497	0.20% 37.14% 35.64%	1,347,503 250,000,000 239,930,497	0.16% 29.05% 27.89%
		241,278,000 353,178,000	68.32% 100.00%	491,278,000 673,178,000	72.98% 100.00%	491,278,000 860,454,000	57.10% 100.00%

As shown in the table above, the aggregate shareholding interest of the existing public Shareholders will decrease from approximately 68.32% as at the Latest Practicable Date to approximately 35.84% immediately upon Completion, assuming that 250,000,000 Placing Shares are issued on or before Completion to finance the payment of the Consideration. It is a term of the Convertible Note that the conversion right attaching to the Convertible Note cannot be exercised if and to the extent that the total number of Shares with voting rights held by the holder of the Convertible Note and parties acting in concert with it would be more than 29.9% of the enlarged issued share capital of the Company or such other amount equal to 0.1% below the amount as may from time to be specified in the Takeovers Code as

LETTER FROM OPTIMA CAPITAL

being the level for triggering a mandatory general offer. Based on the existing shareholding structure of the Company and assuming the Vendor converts the Convertible Note such that it holds 29.9% of the enlarged issued share capital of the Company after Completion, the shareholding percentage of the public Shareholders will be further diluted to 28.05%.

The aforesaid dilution is in our view acceptable, taking into account that the issue of the Consideration Shares and the Convertible Note will enable the Company to complete the Acquisition without substantial and immediate cash outlay, and the other benefits expected to be accrued to the Group in terms of earnings contribution from the Coal Mine operation and the enhancement in net asset value.

10. Risk factors

As with investments in any other industries or assets, the Acquisition involves risks. Certain risks have been described in the letter from the Board contained in the Circular and are highlighted as follows:

Risks associated with the PRC coal mining industry

Although coal market at present is not regulated by the PRC government, the operations of the Coal Mine is nonetheless subject to stringent administrative measures and scrutiny of the relevant authorities. Any changes in the current measures or implementation of new regulations by the PRC government concerning the coal industry may have an impact on the operation and business of the Coal Mine in future.
Mining and processing operations are subject to a number of operating risks and hazards which are beyond the Company’s control and are substantially different from those of the Group’s existing exhibition business. Possible property damage and personal injuries may be caused by hazards and industry-related accidents at the Coal Mine.
The products of the Coal Mine are principally sold to coking plant and steel and iron refineries. Any macro-economic measures or policies of the PRC government having significant impact on the steel and iron industry may in turn affect the business of the Coal Mine Company.

Risks relating to the Coal Mine Company and the Coal Mine

The mining rights of the Coal Mine is subject to renewal and approval by relevant government authorities in the PRC. The current mining licence held by the Coal Mine Company will expire in 2012. Any problem, delay or failure in renewing the mining licence may result in disruption or prohibition in carrying out the mining operations by the Coal Mine Company.
The Valuation assumes that the annual production capacity of the Coal Mine will be successfully increased to 900 kt in 2010. Whilst we notice that the Coal Mine is expected to be able to finance the capital requirement for the expansion on its own, such expansion plan is still subject to a number of uncertainties, such as the approval of the expansion by relevant authorities in the PRC, which are not within the control of the Coal Mine Company.

LETTER FROM OPTIMA CAPITAL

Coal mining, in particular underground coal mining, is carried out in an environment where not all events are predictable. While the experienced management of the Coal Mine Company can identify and mitigate certain known risks, there is still the possibility for unexpected and unpredictable events to occur, particularly in relation to the geological structure of the Coal Mine and the underground mining operation. It is also not possible to predict or estimate with high degree of accuracy without further drilling having been done the amount of resources of the Coal Mine and the likelihood that the resources can be realised as actual sales of the Coal Mine Company. The data in relation to coal resources mentioned in the Circular are estimates only and may be inaccurate.
The future results of operations of the Coal Mine Company may be affected by a number of factors which are beyond the control of the Group or the management of the Coal Mine Company, such as the global and domestic coal markets, as well as fluctuations in coal prices and operating costs such as electricity prices in the PRC.

Risks relating to the Acquisition

The Company intends to finance a substantial portion of the cash payment for the Consideration by way of the Placing. Neither is the Placing completed as at the Latest Practicable Date nor is the Acquisition conditional on the Placing. In the event Completion takes place while the result of the Placing is less favourable than expected, the Company will have to seek for alternative financing for the Acquisition or re-negotiate with the Vendor on the payment terms, the results and consequential effects of which are uncertain.

We consider that the aforesaid risks are inherent in the mining industry and are normally associated with transactions similar to the Acquisition. Shareholders should be aware of such risks and the possibility that the value of their existing investment in the Company may be eroded in the event of unsatisfactory future performance of the Coal Mine Company. By voting for the resolution approving the Acquisition, Shareholders are implicitly accepting the above-mentioned inherent risks of the operating environment of the coal mining industry and surrounding the Coal Mine Company.

DISCUSSION AND CONCLUSION

The existing exhibition business of the Group has been operating under a difficult environment, as reflected by its loss-making results in the past two years and the disappointing 2007 interim results. Although the Group has drawn up a business plan to explore new markets in China and Macau, there are many challenges lying ahead, such as the escalation in operating costs and the competition for exhibition venues from local and overseas players.

The Coal Mine Company has a profitable coal mining business which has an established operating track record and an experienced management team. The Acquisition enables the Group to diversify into the energy sector in the PRC which is generally considered as a fast growing industry, and is expected to broaden the source of revenue and contribute to the earnings capability of the Group.

LETTER FROM OPTIMA CAPITAL

The principal activity of the Company is investment holding. The Acquisition is therefore made in its ordinary and usual course of business.

The Consideration for the Acquisition is approximately equal to the Valuation of the Coal Mine Company. It also compares favourably to most of the Comparable Transactions and Comparable Companies in terms of a number of parameters such as price per tonne of resources, price-to-earnings and price-to-revenue ratios.

The Consideration will be satisfied as to approximately 45.7% by cash and as to the remaining 54.3% by the issue of the Consideration Shares and the non-interest bearing Convertible Note. Such settlement method enables the Group to complete the Acquisition without incurring substantial and immediate cash outlay. The issue of the Consideration Shares and the Convertible Note would also enable the Company to enlarge its capital base. The Issue Price and the Conversion Price are at substantial discount to the closing Share price immediately and shortly before the signing of the Sale and Purchase Agreement. Nevertheless, we do not consider such comparison necessarily appropriate, as we believe the recent Share price may be speculative and may not fairly reflect the value of the Company. Having considered the unsatisfactory financial performance of the Group in recent years, the challenges and competitions expected to be faced by the Group’s core exhibition business, the historical Share price performance over the previous 2-year period and the relative performance of the Shares against the Company’s listed peers, we consider the Issue Price and the Conversion Price to be fair and reasonable.

Existing public Shareholders would suffer dilution in shareholding percentage from 68.32% to 28.05% immediately upon Completion assuming successful completion of the Placing of 250,000,000 Placing Shares to finance the Acquisition. We consider such dilution to be acceptable given the enhancement in net asset value per Share and the benefits expected to be accrued to the Acquisition in terms of prospects and earnings.

OPINION AND ADVICE

Having taken into account the above principal factors and reasons, we consider that the Acquisition, being made in the ordinary and usual course of business of the Company, is in the interests of the Company and the Shareholders as a whole, and the terms of the Acquisition are on normal commercial terms and fair and reasonable.

Accordingly, we advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Acquisition.

Yours faithfully, For and on behalf of

Optima Capital Limited Mei H. Leung Chairman

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

A summary of the published consolidated financial results, assets and liabilities of the Group as extracted from the respective annual reports and interim reports of the Company is set out below:

(i) Consolidated income statement

For the three years ended 31 March 2007 and six months ended 30 September 2006 and 2007

	Six months	ended	ended
	30 September			Year	ended 31 March
	2007		2006	2007	2006	2005
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)		(Audited)	(Audited)	(Audited)
						(Restated)
Turnover	5,540		34,393	236,319	261,650	228,678
Other revenue	1,029		1,178	3,097	1,112	511
Other income	9,075		–	290	1,503	15,201
Fair value losses on
financial assets at fair value
through profit or loss	–		(5,104)	–	(15,126)	–
Loss on disposal of financial
assets at fair value through
profit or loss	–		–	(8,500)	–	–
Advertising and promotion
expenses	(10,695)	(18,379)		(39,532)	(44,716)	(29,585)
Agency commission	(7)		(2,625)	(15,948)	(15,473)	(13,006)
Amortisation and depreciation	(3,073)		(4,267)	(8,467)	(8,234)	(8,752)
Hotel and travel package
expenses	(95)		(7,213)	(12,122)	(14,537)	(12,133)
Loss on disposal of property,
plant and equipment	(526)		–	–	–	–
Impairment loss recognised
in respect of intangible assets	–		–	(7,425)	–	–
Operating lease rentals	(9,035)		(6,400)	(49,336)	(39,026)	(32,382)
Staff costs	(17,171)	(19,267)		(50,693)	(55,087)	(43,129)
Other operating expenses	(20,825)	(21,446)		(77,671)	(100,749)	(62,439)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Six months ended

Six months ended
30 September 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (Loss)/Profit from operating activities (45,783) (49,130) Finance costs – – (Loss)/Profit before tax (45,783) (49,130) Taxation (111) – (Loss)/Profit for the period/year (45,894) (49,130) Attributable to – Minority interests – – – Equity holders of the Company (45,894) (49,130) (45,894) (49,130) Dividends Interim dividend – – Proposed final dividend – – – – (Loss)/Earning per share attributable to equity holders of the Company – Basic – original reported N/A (20.9) cents – including effects of open offer (restated for 2006) (16.7) cents (17.4) cents – Diluted N/A N/A	Year 2007 HK$’000 (Audited) (29,988) – (29,988) (4,423) (34,411) – (34,411) (34,411) 11,773 – 11,773 (15) cents N/A (15) cents	ended 31 March 2006 2005 HK$’000 HK$’000 (Audited) (Audited) (Restated) (28,683) 42,964 (67) (189) (28,750) 42,775 (3,474) (8,000) (32,224) 34,775 967 – (33,191) 34,775 (32,224) 34,775 11,773 19,423 – 17,273 11,773 36,696 (15) cents 16 cents N/A N/A (15) cents 15 cents
			42,775 (8,000)
			34,775

			– 34,775
			34,775

			19,423 17,273
			36,696

			16 cents

			N/A

			15 cents

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Consolidated Balance Sheet

As at 31 March 2005, 2006, 2007 and 30 September 2006 and 2007

As at 30 September 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) Non-current assets Property, plant and equipment 2,239 4,311 Prepaid land premium – 359 Intangible assets 21,870 34,473 Goodwill 920 920 Development costs for shows and exhibitions – – Available-for-sale financial assets 32,879 16,866 Option to acquire an equity interest of a company – – Prepayments for acquisition of a subsidiary – – Prepayments – – 57,908 56,929 Current assets Development costs for shows and exhibitions – – Prepayments, deposits and other receivables 94,790 52,134 Financial assets at fair value through profit or loss – 10,858 Cash and cash equivalents 54,502 77,490 Pledged bank deposits – – Tax prepayment 545 6,034 149,837 146,516	As at 31 March 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 4,399 5,410 355 364 24,000 37,521 920 920 – – 34,690 18,867 – – 814 – – – 65,178 63,082 – – 14,713 9,902 – 15,962 37,237 60,465 3,175 2,866 545 4,080 55,670 93,275	2005 HK$’000 (Audited) (Restated) 7,794 373 30,851 5,604 17,352 6,332 – 285
		68,591
		5,961 31,582 36,608 60,296 2,652 –
		137,099

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 30 September 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) Less: Current liabilities Tax payable 7,229 4,240 Deferred revenue 1,161 1,049 Deposits received in advance 167,833 165,103 Other payables and accrued liabilities 11,085 4,881 Interest-bearing bank borrowings – due within one year – – 187,308 175,273 Net current (liabilities)/assets (37,471) (28,757) Total assets less current liabilities 20,437 28,172 Less: Non-current liabilities Interest-bearing bank borrowings – due after one year – – Deposits received in advance 2,716 4,311 2,716 4,311 Minority interests – – Net Assets 17,721 23,861 Equity Issued share capital 3,532 2,355 Reserves 14,189 21,506 Total equity attributable to equity holders of the Company 17,721 23,861	As at 31 March 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 7,118 4,240 4,035 4,392 55,961 63,504 6,908 7,015 – – 74,022 79,151 (18,352) 14,124 46,826 77,206 – – 1,030 3,702 1,030 3,702 – – 45,796 73,504 2,355 2,355 43,441 71,149 45,796 73,504	2005 HK$’000 (Audited) (Restated) 3,612 3,840 70,908 2,252 303
		80,915
		56,184
		124,775
		1,996 6,968
		8,964 1,388
		114,423

		2,159 112,264
		114,423

Note: To conform with the presentation of year 2007, certain items in the consolidated income statement and consolidated balance sheet have been restated in 2005. For details, please refer to the audited financial statements for the year ended 31 March 2006.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Consolidated statement of change in equity

For the three years ended 31 March 2007 and six months ended 30 September 2007

Equity attributable to equity holders of the Company

At 1 April 2004, as previously reported Prior year adjustments arising from changes in accounting policies – HKAS 17 As restated, before opening adjustments Net profit for the year (restated) Issue of shares from exercise of warrants Payment of 2004 final dividend 2005 interim dividend 2005 proposed final dividend Minority interests – business combination, previously separately reported as minority interests At 31 March 2005 (audited) (restated) At 1 April 2005 as per above Opening adjustments arising from changes in accounting policies – HKAS 39 At 1 April 2005, as restated At 1 April 2005, as restated Fair value gains in respect of available-for-sale financial assets Exchange differences on translation of overseas subsidiaries not recognised in the income statement Net income recognised directly in equity Net loss for the year Total recognised income and expense for the year Issue of shares from exercise of warrants Payment of 2005 final dividend 2006 interim dividend Warrant reserve transferred to retained profits upon expiry of warrants Fair value adjustments arising from consolidation of a wholly-owned subsidiary At 31 March 2006 (audited) At 1 April 2006, as per above Exchange differences on translation of overseas subsidiaries not recognised in the income statement Fair value gains in respect of available-for-sale financial assets Net income and expense recognised directly in equity Net loss for the year Total recognised income and expense for the year Share premium transferred to accumulated losses 2007 interim dividend At 31 March 2007 (audited) At 1 April 2007, as per above Fair value adjustment for available-for-sale financial assets Share-based payment expenses Currency translation difference Net expenses recognised directly in equity Loss for the period Net income and expense recognised for the period Open offer Grant of Option At 30 September 2007 (unaudited)	Share capital HK$’000 2,158 – 2,158 – 2,158 1 – – – 2,159 – 2,159 2,159 – 2,159 2,159 – – – – – 196 – – – – 2,355 2,355 – – – – – – – 2,355 2,355 – – – – – – 1,177 – 3,532	Share premium account HK$’000 64,756 – 64,756 – 64,756 146 – – – 64,902 – 64,902 64,902 – 64,902 64,902 – – – – – 24,615 – – – – 89,517 89,517 – – – – – (66,000) – 23,517 23,517 – – – – – – 10,443 – 33,960	Other reserves HK$’000 23,063 – 23,063 – 23,063 (67) – – – 22,996 – 22,996 22,996 (1,427) 21,569 21,569 127 163 290 – 290 (11,331) – – (11,665) 8,975 7,838 7,838 (163) 18,639 18,476 – 18,476 – – 26,314 26,314 503 65 631 1,199 – 1,199 – 5,000 32,513	Retained profits/ (Accumulated losses) HK$’000 9,624 (610) 9,014 34,775 43,789 – – (19,423) (17,273) 7,093 – 7,093 7,093 – 7,093 7,093 – – – (33,191) (33,191) – – (11,773) 11,665 – (26,206) (26,206) – – – (34,411) (34,411) 66,000 (11,773) (6,390) (6,390) – – – – (45,894) (45,894) – – (52,284)	Proposed final dividend HK$’000 17,264 – 17,264 – 17,264 – (17,264) – 17,273 17,273 – 17,273 17,273 – 17,273 17,273 – – – – – – (17,273) – – – – – – – – – – – – – – – – – – – – – – –	Total HK$’000 116,865 (610) 116,255 34,775 151,030 80 (17,264) (19,423) – 114,423 – 114,423 114,423 (1,427) 112,996 112,996 127 163 290 (33,191) (32,901) 13,480 (17,273) (11,773) – 8,975 73,504 73,504 (163) 18,639 18,476 (34,411) (15,935) – (11,773) 45,796 45,796 503 65 631 1,199 (45,894) (44,695) 11,620 5,000 17,721	Minority interests HK$’000 – – – – – – – – – – 1,388 1,388 1,388 – 1,388 1,388 – – – 967 967 – – – – (2,355) – – – – – – – – – – – – – – – – – – – –	Total equity HK$’000 116,865 (610)
								116,255 34,775
								151,030 80 (17,264) (19,423) –
								114,423 1,388
								115,811
								115,811 (1,427)
								114,384

								114,384
								127 163
								290 (32,224)
								(31,934) 13,480 (17,273) (11,773) – 6,620
								73,504

								73,504
								(163) 18,639
								18,476 (34,411)
								(15,935) – (11,773)
								45,796

								45,796
								503 65 631
								1,199 (45,894)
								(44,695)
								11,620 5,000
								17,721

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Consolidated cash flow statement

For the three years ended 31 March 2007 and six months ended 30 September 2007

Six months ended
30 September
2007
HK$’000
(Unaudited)
Cash flows from operating activities
(Loss)/profit before tax
(45,783)
Adjustment for:
Finance costs
–
Interest income
(752)
Amortisation of intangible assets
2,130
Amortisation of development costs for
shows and exhibitions
–
Amortisation of prepaid land premium
3
Development costs expensed for shows
and exhibitions held during the year
–
Depreciation of property, plant and equipment
940
Gain on partial disposal of a subsidiary
–
Gain on disposal of property, plant and equipment
(6,899)
Loss on disposal of property, plant and equipment
526
Gain on disposal of available-for-sales
financial assets
(2,176)
Unrealised gain on other investments
–
Net exchange gains
–
Fair value losses in respect of financial
assets at fair value through profit or loss
–
Loss on disposal of financial assets at fair
value through profit or loss
–
Impairment of goodwill
148
Impairment loss recognised in respect of the
intangible assets
–
Impairment of interest in an option to
acquire an equity interest of a company
–
Share-based payment expenses
65
Currency translation difference
483
Operating (loss)/profit before working capital
changes
(51,315)
Increase in development costs for shows
and exhibitions
–
Decrease in available-for-sale financial assets
–
Decrease/(increase) in prepayments for
acquisition of a subsidiary
814
(Increase)/decrease in prepayments,
deposits and other receivables
(80,077)
(Decrease)/increase in deferred revenue
(2,874)
Increase/(decrease) in deposits received in advance
113,558
Increase/(decrease) in other payables and
accrued liabilities
4,177
Cash (used in)/generated from operations
(15,717)
Interest received
752
Hong Kong profits tax refund/(paid)
–
Overseas tax refund/(paid)
–
Net cash (outflow)/inflow from operating activities
(14,965)

Year ended 31 March
2007
2006
2005
HK$’000
HK$’000
HK$’000
(Audited)
(Audited)
(Audited)
(Restated)
(29,988)
(28,750)
42,775
–
67
189
(1,675)
(1,112)
(108)
6,096
4,549
4,549
–
1,105
701
9
9
9
–
10,460
2,889
2,362
2,571
3,493
–
–
(4,852)
–
(44)
(2,253)
–
–
–
–
–
–
–
–
(8,096)
(326)
–
–
–
15,126
–
8,500
–
–
–
–
–
7,425
–
–
2,358
3,604
3,102
–
–
–
–
–
–
(5,239)
7,585
42,398
–
–
(5,961)
600
–
–
(814)
–
–
(4,811)
22,033
(4,385)
(357)
552
(171)
(10,215)
(10,670)
17,888
(107)
4,763
341
(20,943)
24,263
50,110
1,675
1,112
108
1,820
(6,730)
(6,654)
169
(196)
–
(17,279)
18,449
43,564

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended
30 September
2007
HK$’000
(Unaudited)
Cash flows from investing activities
Purchase of property, plant and equipment
(1,041)
Proceeds from disposal of property, plant
and equipment
8,986
Purchase of investment securities
–
Proceeds from disposal of financial assets
at fair value through profit or loss
–
Proceeds from disposal of available-for-sales
financial assets
4,490
Decrease/(increase) in pledged bank deposits
3,175
Net cash inflow/(outflow) from investing activities
15,610
Cash flows from financing activities
Proceeds from open offer
11,773
Open offer expenses
(153)
Deposit received for option to be granted
5,000
Issue of shares from exercise of warrants
–
Repayment of bank loans
–
Interest paid
–
Dividends paid
–
Net cash inflow/(outflow) from financing activities
16,620
Increase/(decrease) in cash and cash equivalents
17,265
Cash and cash equivalents at the beginning
of the period/year
37,237
Cash and cash equivalents at the end
of the period/year
54,502
Analysis of balances of cash and cash equivalents
Cash and bank balances
54,502

Year ended 31 March
2007
2006
2005
HK$’000
HK$’000
HK$’000
(Audited)
(Audited)
(Audited)
(Restated)
(1,328)
(312)
(5,258)
–
178
16,300
–
–
(9,663)
7,461
–
–
–
–
–
(309)
(214)
(2,652)
5,824
(348)
(1,273)
–
–
–
–
–
–
–
–
–
–
13,480
80
–
(2,299)
(6,477)
–
(67)
(189)
(11,773)
(29,046)
(36,687)
(11,773)
(17,932)
(43,273)
(23,228)
169
(982)
60,465
60,296
61,278
37,237
60,465
60,296
37,237
60,465
60,296

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

Set out below are the audited financial statements of the Group as extracted from page 46 to 99 of the annual report of the Company for the year ended 31 March 2007.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2007

Notes Turnover 6 Other revenue 6 Other income 7 Fair value losses on financial assets at fair value through profit or loss Loss on disposal of financial assets at fair value through profit or loss Advertising and promotion expenses Agency commission Amortisation and depreciation Hotel and travel package expenses Impairment loss recognised in respect of intangible assets Operating lease rentals Staff costs Other operating expenses Loss from operating activities 7 Finance costs 8 Loss before tax Taxation 11 Loss for the year Attributable to – Minority interests – Equity holders of the Company Dividends Interim dividend 13 Loss per share attributable to equity holders of the Company 14 – Basic and diluted	2007 HK$’000 236,319 3,097 290 – (8,500) (39,532) (15,948) (8,467) (12,122) (7,425) (49,336) (50,693) (77,671) (29,988) – (29,988) (4,423) (34,411) – (34,411) (34,411) 11,773 15 cents	2006 HK$’000 261,650 1,112 1,503 (15,126) – (44,716) (15,473) (8,234) (14,537) – (39,026) (55,087) (100,749) (28,683) (67) (28,750) (3,474) (32,224) 967 (33,191) (32,224) 11,773 15 cents

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31 March 2007

Notes Non-current assets Property, plant and equipment 15 Prepaid land premium 16 Intangible assets 18 Goodwill 19 Available-for-sale financial assets 20 Prepayments for acquisition of a subsidiary 21 Current assets Prepayments, deposits and other receivables Financial assets at fair value through profit or loss 22 Cash and cash equivalents 23 Pledged bank deposits 24 Tax prepayment Less: Current liabilities Tax payable Deferred revenue Deposits received in advance Other payables and accrued liabilities Net current (liabilities)/assets Total assets less current liabilities Less: Non-current liabilities Deposits received in advance Net assets Equity Issued share capital 25 Reserves Total equity attributable to equity holders of the Company	2007 HK$’000 4,399 355 24,000 920 34,690 814 65,178 14,713 – 37,237 3,175 545 55,670 7,118 4,035 55,961 6,908 74,022 (18,352) 46,826 1,030 45,796 2,355 43,441 45,796	2006 HK$’000 5,410 364 37,521 920 18,867 –
		63,082
		9,902 15,962 60,465 2,866 4,080
		93,275
		4,240 4,392 63,504 7,015
		79,151
		14,124
		77,206
		3,702
		73,504

		2,355 71,149
		73,504

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2007

Equity attributable to equity holders of the Company

Notes At 1 April 2005 Fair value gains in respect of available-for-sale financial assets Exchange differences on translation of overseas subsidiaries not recognised in the income statement Net income recognised directly in equity Net loss for the year Total recognised income and expense for the year Issue of shares from exercise of warrants Payment of 2005 final dividend 2006 interim dividend Warrant reserve transferred to retained profits upon expiry of warrants Fair value adjustments arising from consolidation of a wholly-owned subsidiary At 31 March 2006	Share capital HK$’000 2,159 – – – – – 196 – – – – 2,355	Share premium Other account reserves (Note 26(a)) HK$’000 HK$’000 64,902 21,569 – 127 – 163 – 290 – – – 290 24,615 (11,331) – – – – – (11,665) – 8,975 89,517 7,838	Retained profits/ (Accum- ulated losses) HK$’000 7,093 – – – (33,191) (33,191) – – (11,773) 11,665 – (26,206)	Proposed final dividend HK$’000 17,273 – – – – – – (17,273) – – – –	Total HK$’000 112,996 127 163 290 (33,191) (32,901) 13,480 (17,273) (11,773) – 8,975 73,504	Minority interests HK$’000 1,388 – – – 967 967 – – – – (2,355) –	Total equity HK$’000 114,384 127 163 290 (32,224) (31,934) 13,480 (17,273) (11,773) – 6,620 73,504

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

For the year ended 31 March 2007

Equity attributable to equity holders of the Company

Notes At 1 April 2006, as per above Exchange differences on translation of overseas subsidiaries not recognised in the income statement Fair value gains in respect of available-for-sale financial assets Net income and expense recognised directly in equity Net loss for the year Total recognised income and expense for the year Share premium transferred to accumulated losses 2007 interim dividend 13 At 31 March 2007	Share capital HK$’000 2,355 – – – – – – – 2,355	Share premium Other account reserves (Note 26(a)) HK$’000 HK$’000 89,517 7,838 – (163) – 18,639 – 18,476 – – – 18,476 (66,000) – – – 23,517 26,314	Retained profits/ (Accum- ulated losses) HK$’000 (26,206) – – – (34,411) (34,411) 66,000 (11,773) (6,390)	Proposed final dividend HK$’000 – – – – – – – – –	Total HK$’000 73,504 (163) 18,639 18,476 (34,411) (15,935) – (11,773) 45,796	Minority interests HK$’000 – – – – – – – – –	Total equity HK$’000 73,504 (163) 18,639 18,476 (34,411) (15,935) – (11,773) 45,796

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 March 2007

Note Cash flows from operating activities Loss before tax Adjustment for: Finance costs Interest income Amortisation of intangible assets Amortisation of development costs for shows and exhibitions Amortisation of prepaid land premium Development costs expensed for shows and exhibitions held during the year Depreciation of property, plant and equipment 15 Gain on disposal of property, plant and equipment Net exchange gains Fair value losses in respect of financial assets at fair value through profit or loss Loss on disposal of financial assets at fair value through profit or loss Impairment loss recognised in respect of the intangible assets Impairment of interest in an option to acquire an equity interest of a company Operating (loss)/profit before working capital changes Decrease in available-for-sale financial assets Increase in prepayments for acquisition of a subsidiary (Increase)/decrease in prepayments, deposits and other receivables (Decrease)/increase in deferred revenue Decrease in deposits received in advance (Decrease)/increase in other payables and accrued liabilities Cash (used in)/generated from operations Interest received Hong Kong profits tax refund/(paid) Overseas tax refund/(paid) Net cash (outflow)/inflow from operating activities	2007 HK$’000 (29,988) – (1,675) 6,096 – 9 – 2,362 – (326) – 8,500 7,425 2,358 (5,239) 600 (814) (4,811) (357) (10,215) (107) (20,943) 1,675 1,820 169 (17,279)	2006 HK$’000 (28,750) 67 (1,112) 4,549 1,105 9 10,460 2,571 (44) – 15,126 – – 3,604 7,585 – – 22,033 552 (10,670) 4,763 24,263 1,112 (6,730) (196) 18,449

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT (Continued)

For the year ended 31 March 2007

Cash flows from investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of financial assets at fair value through profit or loss Increase in pledged bank deposits Net cash inflow/(outflow) from investing activities Cash flows from financing activities Issue of shares from exercise of warrants Repayment of bank loans Interest paid Dividends paid Net cash outflow from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of balances of cash and cash equivalents Cash and bank balances	2007 HK$’000 (1,328) – 7,461 (309) 5,824 – – – (11,773) (11,773) (23,228) 60,465 37,237 37,237	2006 HK$’000 (312) 178 – (214) (348) 13,480 (2,299) (67) (29,046) (17,932) 169 60,296 60,465 60,465

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

At 31 March 2007

Notes Non-current assets Interests in subsidiaries 17 Available-for-sale financial assets 20 Current assets Prepayments, deposits and other receivables Financial assets at fair value through profit or loss 22 Cash and cash equivalents 23 Less: Current liabilities Other payables and accruals Net current (liabilities)/assets Net assets Equity: Issued share capital 25 Reserves 26(b) Total equity attributable to equity holders of the Company	2007 HK$’000 2,735 30,100 32,835 130 – 25 155 222 (67) 32,768 2,355 30,413 32,768	2006 HK$’000 50,635 13,892 64,527 130 9,426 25
		9,581
		215
		9,366
		73,893

		2,355 71,538
		73,893

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2007

1. CORPORATE INFORMATION

The Company is a limited liability company incorporated in the Cayman Islands. The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal place of business of the Company is located at 28/F, Tower 6, The Gateway, Harbour City, 9 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong.

During the year, the Group was involved in the organisation of exhibitions and trade shows and providing ancillary services.

In the opinion of the directors, the ultimate holding company is Capital Concord Profits Limited (“Capital Concord”), which was incorporated in the British Virgin Islands.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance and applicable disclosure provisions of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

The preparation of financial statements in conformity with HKFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in Note 3 to the financial statements.

Impact of new and revised HKFRSs

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. The adoption of these new and revised standards and interpretations has had no material impact on these financial statements.

HKAS 19 Amendment Actuarial Gains and Losses, Group Plans and Disclosures HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HKAS 39 & HKFRS 4 Financial Guarantee Contracts Amendments HK(IFRIC) – Int 4 Determining whether an Arrangement contain a Lease HK(IFRIC) – Int 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds HK(IFRIC) – Int 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment HK(IFRIC) – Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HKFRS 6 Exploration for and Evaluation of Mineral Resources

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impact of new and revised HKFRSs not yet effective

The Group has not early adopted the following standards or interpretations that have been issued but are not effective.

	Effective for
	accounting period
	beginning on
	or after
HKAS 1 (Amendment) Capital Disclosures	1 January 2007
HKFRS 7, Financial Instruments: Disclosures	1 January 2007
HKFRS 8, Operating Segments	1 January 2009
HK(IFRIC) – Int 8, Scope of HKFRS 2	1 May 2006
HK(IFRIC) – Int 9, Reassessment of Embedded Derivatives	1 June 2006
HK(IFRIC) – Int 10, Interim Financial Reporting and Impairment	1 November 2006
HK(IFRIC) – Int 11, HKFRS 2 – Group and Treasury Share Transactions	1 March 2007
HK(IFRIC) – Int 12, Service Concession Arrangements	1 January 2008

The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosure about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for annual period beginning on or after 1 January 2007. The standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments and also incorporates many of the disclosures requirements of HKAS 32.

The management is in the process of making an assessment of the impact of these new standards, amendments and interpretations to existing standards. The directors of the Company so far has concluded that the application of these new standards, amendments or interpretations will have no material impact of the results and the financial position of the Group.

A summary of the significant accounting policies followed by the Group in the preparation of the financial statements is set out below:

(a) Basis of preparation

The measurement basis used in the preparation of the financial statements is historical cost except for available-for-sale financial assets and financial assets at fair value through profit or loss which are carried at fair value.

In preparing the consolidated financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group in light of the Group’s net current liabilities of approximately HK$18,352,000 at 31 March 2007. The directors of the Company have been taking steps to improve the liquidity of the Group. As set out in note 33 to the financial statements, subsequent to the balance sheet date, the Group entered into a sale and purchase agreement to dispose a property for a consideration of HK$8,986,250 on 25 April 2007. The Company has also carried out an open offer of 117,726,000 new shares of HK$0.10 each for an aggregate consideration, net of expenses, of approximately HK$10,180,000. In addition, Capital Concord, a substantial shareholder of the Company has agreed to provide continuing financial support to the Group. As such, the directors are satisfied that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 March 2007. The results of the subsidiaries acquired or disposed of during the year are consolidated from their effective dates of acquisition or disposal, respectively.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

When the business combination involves more than one exchange transaction, the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities at the acquisition date of each transaction are compared to those carrying value relating to previously held interest of the Group. Any adjustment shall be accounted for as a revaluation arising on initial recognition of business combination.

Intra-group transactions and balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Subsidiaries

A subsidiary is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company control another entity.

In the Company’s financial statements, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(d) Revenue recognition

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

(i) Participation fee income is derived from the letting of exhibition booths and the provision of decoration facilities for the exhibition booths, and is recognised when the decoration facilities are provided and when the shows are held;
(ii) Entrance fee income is recognised on a cash receipt basis;
(iii) Revenue from hotel and travel package services provided is recognised when the services are rendered;
(iv) Advertising fee income earned from the publication of trade show and exhibition booklets is recognised when the trade show and exhibition booklets are published;
(v) Internet advertising revenue and portal income is recognised ratably in the period in which the advertisement and information is displayed on the website of the Group; and
(vi) Interest income is recognised as it accrues using the effective interest method.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Property, plant and equipment

Building held for own use which are situated on leasehold land, where the fair value of the building could be measured separately from the fair value of the leasehold land at the inception of the lease, and all other items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is calculated on the straight-line basis to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings	5%
Leasehold improvements	Over the lease terms
Furniture and equipment	20%
Fixtures and fittings	331/3%
Computer equipment	25%
Motor vehicles	331/3%

The residual values and useful lives of items of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date.

The gain or loss on disposal or retirement of an item of property, plant and equipment is the difference between the net sale proceeds and the carrying amount of the relevant asset, and is recognised in the income statement.

(f) Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment is determined by assessing the recovering amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

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

An impairment loss recognised for goodwill is not reversed in a subsequent period.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g)

Intangible assets

(i) License rights

Purchased license rights are stated at cost less any impairment losses and are amortised on a straight-line basis over their estimated useful lives.

(ii) e-Commerce platform

Acquisition costs of purchasing an e-Commerce platform are stated at cost less any impairment losses and are amortised on a straight-line basis over their estimated useful lives.

Intangible assets with finite life are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.

(h) Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investment not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivatives when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

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

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

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on investments held for trading are recognised in the income statement.

Loans and receivables

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

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives financial assets in listed and unlisted equity securities that are designated in this category or not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. They are included in non-current assets unless management intends to dispose of the investment within twelve months of the balance sheet date.

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value

The fair values of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to the market value of other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

Impairment of financial assets

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

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying value and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate (i.e. that is, the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the provision of allowance. The amount of the impairment loss is recognised in the income statement.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial assets, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment.

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

Assets carried at cost

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

Available-for-sale financial assets

If an available-for-sale financial asset is impaired, the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement, is transferred from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

Derecognition of financial assets

A financial asset is derecognised when the rights to receive cash flow from the asset have expired; the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them full without material delay to a third party under a “pass-through” arrangement; or the Group has transferred its rights to receive cash flows from the asset and either has (i) transferred substantially all the risks and rewards of the asset, or (ii) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Financial liabilities and equity

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

An equity instrument is an contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at amortised costs.

Financial liabilities at amortised cost

Financial liabilities including other payables and accrued liabilities which are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Derecognition of financial liabilities

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

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

(i) Impairment of non-financial assets

Assets that have an indefinite useful life are at least tested annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

(j) Deferred revenue

Deferred revenue represents amounts received in advance for services to be rendered.

(k) Taxation

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary difference can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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

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

(l)

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligations.

(m) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(n) Dividends distribution

Final dividend proposed by the directors are classified as a separate allocation of retained profits within the equity section of the balance sheet, until they have been approved by shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability in the Group’s financial statements.

Interim dividends are recognised as a liability when they are proposed and declared.

(o) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at the balance sheet date. Foreign exchange gains and losses are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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

(p) Employee benefits

i) Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. No accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward as the amount is immaterial.

ii) Pension scheme

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

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

iii) Share options scheme

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the income statement for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognised in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

100

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(q) Related parties

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

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

(r) Cash and cash equivalents

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

(s) Borrowing costs

Borrowing costs are interests and other costs incurred in connection with the borrowing of funds. All borrowing costs are charged to the income statement in the period in which they are incurred.

(t) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straightline basis over the lease terms.

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

(u) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one year.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

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

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Income taxes

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

(ii) Estimate of fair value of available-for-sale financial assets

If information on current or recent prices of available-for-sale financial assets is not available, the fair values of available-for-sale financial assets are determined using valuation techniques (including discounted cash flow model or price/earnings multiple model). The Group uses assumptions that are mainly based on market conditions existing at each balance date.

(iii) Useful lives and residual values of property, plant and equipment and intangible assets

The Group’s management determines the estimated useful lives, residual values and consequently related depreciation charges for its property, plant and equipment and intangible assets. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment and intangible assets of similar nature and functions. The Group assesses annually whether property, plant and equipment, leasehold land, land use rights and intangible assets have any indication of impairment. The recoverable amounts have been determined based on value-in-use calculations or market valuations. These calculations require the use of judgement and estimates.

(iv) Estimated impairment of intangible assets and goodwill

The Group tests annually whether the intangible assets and goodwill have suffered any impairment in accordance with the accounting policy stated in Note 2(g) and Note 2(f) to the financial statements respectively. The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations require the use of estimates and assumptions made by management on the future operation of the business, pre-tax discount rates, and other assumptions underlying the value-inuse calculations.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Financial risk factors

The Group’s principal financial instruments include equity investments, pledged bank deposits and bank balances. 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.

102

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Market risk

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Hong Kong dollars. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Price risk

The Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated balance sheet either as available-for-sale financial assets or as financial assets at fair value through profit or loss which are measured at fair value at each balance sheet date. The Group manages the price risk exposure by maintaining a portfolio of investments with different risk profiles.

(b) Credit risk

The carrying amounts of bank balances and cash and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets.

There is no concentration of credit risk with respect to exhibitions as the Group has a large number of diversified customers.

The credit risk of the Group’s other financial assets, which mainly comprise cash and cash equivalents and other receivables, the Group’s exposure to credit risk arises from default of the other party, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Group in relation to the other financial assets.

(c) Liquidity risk

Internally generated cash flow is the general source of funds to finance the operation of the Group. The Company had net current liabilities of approximately HK$18,352,000 as at 31 March 2007. The Group regularly reviews its major funding positions to ensure it has adequate financial resources in meeting its financial obligations. As set out in note 33 to the financial statements, subsequent to the balance sheet date, the Group entered into a sale and purchase agreement to dispose a property for a consideration of HK$8,986,250 on 25 April 2007. The Company has also carried out an open offer of 117,726,000 new shares of HK$0.10 each for an aggregate consideration, net of expenses, of approximately HK$10,180,000. In addition, Capital Concord, a substantial shareholder of the Company has agreed to provide continuing financial support to the Group.

(d) Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets or liabilities, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

5. SEGMENT INFORMATION

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

The Group’s turnover, results, assets and liabilities are determined solely from one business segment, the organising of trade shows and exhibitions and providing ancillary services and accordingly, no further analysis of the Group’s segment revenue, segment results, segment assets, segment liabilities, capital expenditure, depreciation and amortisation by principal activities is provided.

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

The following table presents revenue and certain asset and expenditure information for the Group’s geographical segments, including Hong Kong, the People’s Republic of China (the “PRC”), the United Kingdom (“UK”), the United States of America (“USA”) and the Republic of Poland (“Poland”).

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APPENDIX I

Geographical segments

Segment revenue: Turnover from shows and exhibitions and providing ancillary services: Hong Kong PRC UK USA Poland Other segment information: Segment assets: Hong Kong PRC Capital expenditure: Hong Kong PRC	2007 HK$’000 197,091 – 17,394 11,688 10,146 236,319 116,657 4,191 120,848 1,226 102 1,328	2006 HK$’000 217,641 2,779 17,432 13,930 9,868
		261,650

		146,410 9,947
		156,357

		243 69
		312

6. TURNOVER AND OTHER REVENUE

Turnover represents the aggregate of participation fee income, entrance fee income, hotel and travel package income, advertising fee income and portal income from exhibitions and trade shows. It is stated net of output value added tax of approximately HK$5,276,000 (2006: HK$4,664,000) accrued at 17.5% or 22% of the gross income generated from the exhibition and shows held in the United Kingdom and Poland respectively.

An analysis of the Group’s turnover and other revenue is as follow:

Turnover Participation fee income Entrance fee income Hotel and travel package income Advertising fee income Portal income Other revenue Interest income Forfeited deposit received Total revenue	2007 HK$’000 212,976 762 11,833 8,105 2,643 236,319 1,675 1,422 3,097 239,416	2006 HK$’000 233,819 918 14,632 9,576 2,705
		261,650
		1,112 –
		1,112
		262,762

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. LOSS FROM OPERATING ACTIVITIES

The Group’s loss from operating activities is arrived at after charging:

Amortisation of intangible assets Amortisation of development costs for shows and exhibitions Amortisation of prepaid land premium Depreciation of property, plant and equipment Staff costs (including directors’ remuneration_(note 9)) – wages and salaries – retirement benefits scheme contributions Auditors’ remuneration Development costs expensed for shows and exhibitions held during the year Impairment of interest in an option to acquire an equity interest of a company Minimum lease payments under operating lease rentals of land and buildings (note (i)_) Fair value losses of financial assets at fair value through profit or loss Loss on disposal of financial assets at fair value through profit or loss and after crediting: Other income: Exchange differences, net Gain on disposal of property, plant and equipment Other income	2007 HK$’000 6,096 – 9 2,362 8,467 49,591 1,102 50,693 500 – 2,358 49,336 – 8,500 – – 290 290	2006 HK$’000 4,549 1,105 9 2,571
		8,234

		54,000 1,087
		55,087

		425 10,460 3,604 39,026 15,126 –

		700 44 759
		1,503

Note:

(i) The amount includes rentals paid for the venues of exhibitions and trade shows held in the United Kingdom and Poland, net of input value added tax of approximately HK$2,544,000 (2006: HK$1,373,000) accrued respectively at 17.5% or 22% of the gross rental expenses for the year.

8. FINANCE COSTS

		Group
	2007	2006
	HK$’000	HK$’000
Interests on bank loan wholly repayable within five year	–	67

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. DIRECTORS’ REMUNERATION

Directors’ remuneration, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follow:

Name of Directors 2007: Executive directors Mr. Ip Ki Cheung Mr. Cheung Shui Kwai Mr. Chan Siu Chung Independent non-executive directors Mr. Chan Wing Yau, George Mr. Lai Yang Chau, Eugene Mr. Law Sung Ching, Gavin 2006: Executive directors Mr. Ip Ki Cheung Mr. Cheung Shui Kwai Mr. Chan Siu Chung Independent non-executive directors Mr. Chan Wing Yau, George Mr. Lai Yang Chau, Eugene Mr. Law Sung Ching, Gavin	Fees HK$’000 – – – 105 105 105 315 – – – 60 60 60 180	Basic salaries HK$’000 1,556 1,556 1,556 – – – 4,668 1,488 1,488 1,488 – – – 4,464	The Group and the Company Provident Housing fund allowances Bonuses contributions HK$’000 HK$’000 HK$’000 840 256 12 840 256 12 840 256 12 – – – – – – – – – 2,520 768 36 840 2,300 12 840 1,380 12 840 920 12 – – – – – – – – – 2,520 4,600 36	Total HK$’000 2,664 2,664 2,664 105 105 105
				8,307

				4,640 3,720 3,260 60 60 60
				11,800

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

During the year, no share options were granted to directors in respect of their services to the Group under the Company’s share option scheme and the Company had no options outstanding as at 31 March 2007 and up to the date of approval of these financial statements.

The emolument policy of the directors is determined by reference to the individual performance of the directors and approved by the Remuneration Committee and the Board. For executive directors, any adjustment to their remuneration packages will be subjected to the director’s service agreements.

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2006: three) directors. Details of whose remuneration are set out in note 9 to the financial statements.

The details of the remuneration of the remaining two (2006: two) non-directors, highest paid employees are as follow:

Basic salaries and allowances Bonus Retirement benefits scheme contributions	Group 2007 2006 HK$’000 HK$’000 1,416 1,305 383 366 24 24 1,823 1,695	Group 2007 2006 HK$’000 HK$’000 1,416 1,305 383 366 24 24 1,823 1,695
		1,695

106

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The number of employees whose remuneration fell within the following band is as follow:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Number of 2007 1 1 2	employees 2006 2 –
		2

11. TAXATION

Hong Kong profits tax has been provided at the rate of 17.5% (2006: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the respective jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

The amount of taxation charged to the income statement represents:

Hong Kong profits tax Provided for the year Over-provision in previous years Overseas income tax Provided for the year (Over)/under-provision in previous years	2007 HK$’000 4,592 – 4,592 – (169) (169) 4,423	2006 HK$’000 3,443 (125)
		3,318
		85 71
		156
		3,474

The Group has tax losses arising in Hong Kong of approximately HK$44,902,000 (2006: HK$25,933,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised due to the unpredictability of the future profit streams.

Reconciliation between tax expense and accounting loss at applicable tax rate:

Loss before tax Tax at applicable tax rate Estimated tax effect of expenses not deductible in determining taxable profit Estimated tax effect of income not taxable in determining taxable profit Over-provision in previous year Estimated tax effect of unrecognised tax losses Tax charge/(credit) at the Group’s effective rate for the year	Hong Kong HK$’000 % (18,131) (3,172) (17.5) 3,966 21.9 (366) (2.0) – – 4,164 22.9 4,592 25.3	2007 The PRC United States HK$’000 % HK$’000 % (9,964) (1,893) (3,288) (33.0) (284) (15) 778 7.8 284 15 – – – – – – (169) (8.9) 2,510 25.2 – – – – (169) (8.9)	Total HK$’000 % (29,988) (6,744) (22.5) 5,028 16.7 (366) (1.2) (169) (0.6) 6,674 22.3 4,423 14.7	Total HK$’000 % (29,988) (6,744) (22.5) 5,028 16.7 (366) (1.2) (169) (0.6) 6,674 22.3 4,423 14.7
				14.7

107

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Loss before tax Tax at applicable tax rate Estimated tax effect of expenses not deductible in determining taxable profit Estimated tax effect of income not taxable in determining taxable profit (Over)/under-provision in previous year Estimated tax effect of unrecognised tax losses Tax charge at the Group’s effective rate for the year	Hong Kong HK$’000 % (15,901) (2,783) (17.5) 3,656 23.0 (187) (1.2) (125) (0.8) 2,757 17.3 3,318 20.8	2006 The PRC United States HK$’000 % HK$’000 % (9,768) (3,081) (3,223) (33.0) (462) (15.0) 1,227 12.6 – – – – – – – – 71 2.3 1,996 20.4 547 17.7 – – 156 5.0	Total HK$’000 % (28,750) (6,468) (22.5 4,883 16.9 (187) (0.6 (54) (0.2 5,300 18.4 3,474 12.0	Total HK$’000 % (28,750) (6,468) (22.5 4,883 16.9 (187) (0.6 (54) (0.2 5,300 18.4 3,474 12.0
				12.0

12. LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The loss attributable to equity holders of the Company for the year ended 31 March 2007 which has been dealt with in the financial statements of the Company amounted to approximately HK$45,560,000 (2006: HK$29,290,000).

13. DIVIDENDS

		2007	2006
		HK$’000	HK$’000
Dividend	recognised as distribution during the year:
Interim	dividend paid of HK$0.05 (2006: HK$0.05) per ordinary share	11,773	11,773

14. LOSS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The calculation of the basic loss per share is based on the loss attributable to the ordinary equity holders of the Company of HK$34,411,000 (2006: HK$33,191,000) and the weight average number of 235,452,000 (2006: 222,277,000) ordinary shares in issue during the year.

Diluted loss per share for the year ended 31 March 2007 is the same as the basic loss per share as there was no dilutive events during the year. For the year ended 31 March 2006, the diluted loss per share was the same as the basic loss per share as the warrants outstanding during the year had anti-dilutive effect on the basic loss per share.

108

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. PROPERTY, PLANT AND EQUIPMENT

The Group

Cost: At 1 April 2005 Additions Disposals Exchange alignment At 31 March 2006 and at 1 April 2006 Additions Disposals Exchange alignment At 31 March 2007 Accumulated depreciation and impairment: At 1 April 2005 Provided during the year Written back on disposals Exchange alignment At 31 March 2006 and at 1 April 2006 Provided during the year Written back on disposals Exchange alignment At 31 March 2007 Net book value: At 31 March 2007 At 31 March 2006	Leasehold Furniture and Fixtures and Computer Buildings improvements equipment fittings equipment HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 3,294 3,779 6,124 2,897 5,981 – 52 9 – 251 – – – – (178) – – 1 – 9 3,294 3,831 6,134 2,897 6,063 – 800 67 – 461 – – – – – – 2 4 – 26 3,294 4,633 6,205 2,897 6,550 1,107 3,134 4,733 2,780 4,680 201 412 655 93 376 – – – – (44) – – – – 1 1,308 3,546 5,388 2,873 5,013 201 334 534 24 436 – – – – – – 1 1 – 7 1,509 3,881 5,923 2,897 5,456 1,785 752 282 – 1,094 1,986 285 746 24 1,050	Motor vehicles HK$’000 2,500 – – – 2,500 – – – 2,500 347 834 – – 1,181 833 – – 2,014 486 1,319	Total HK$’000 24,575 312 (178) 10 24,719 1,328 – 32 26,079 16,781 2,571 (44) 1 19,309 2,362 – 9 21,680 4,399 5,410

At 31 March 2007, the Group’s buildings are situated in Hong Kong and held under medium term lease.

109

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. PREPAID LAND PREMIUM

The Group’s interest in leasehold land represents prepaid operating lease payment and its net book value is analysed as follow:

Carrying amount at 1 April 2006/2005 Recognised during the year Carrying amount at 31 March 2007/2006	The Group 2007 2006 HK$’000 HK$’000 364 373 (9) (9) 355 364

The leasehold land is held under medium term lease in Hong Kong.

17. INTERESTS IN SUBSIDIARIES

Unlisted investments, at cost Less: Impairment loss in respect of investment cost Due from subsidiaries Add: Reversal of impairment loss in respect of amount due from subsidiaries Less: Impairment loss in respect of amount due from subsidiaries	The Company 2007 2006 HK$’000 HK$’000 7,676 7,676 (6,493) (6,493) 1,183 1,183 64,521 80,989 529 – (63,498) (31,537) 2,735 50,635

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the Company will not demand repayment within one year from the balance sheet date and are therefore considered as non-current. The directors of the Company consider that the carrying amount of the amounts due from subsidiaries approximate to their fair values.

The following is a list of the principal subsidiaries as at 31 March 2007:

			Percentage of	Percentage of
	Place of	Nominal value	equity attributable
	incorporation	of issued	to the Company
Name	and operations	share capital	Direct	Indirect	Principal activities
Pro-Capital Investments Limited	British Virgin Islands	US$50	100	–	Investment holding
Kenfair International Limited	Hong Kong	HK$100	–	100	Organisation of
					exhibitions and trade
					shows in Hong Kong
					and Macau
Kenfair Publications Limited	Hong Kong	HK$10	–	100	Provision of
					advertising services
					and publication of
					trade show and
					exhibition booklets
Capital Harvest Assets Limited	British Virgin Islands	US$20	–	100	Investment holding
Polonius Company Limited	Hong Kong	HK$10	–	100	Property holding

110

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Percentage of	Percentage of
	Place of	Nominal value	equity attributable
	incorporation	of issued	to the Company
Name	and operations	share capital	Direct	Indirect	Principal activities
Kenfair International (Overseas)	Hong Kong	HK$10	–	100	Organisation of
Limited					overseas exhibitions
					and trade shows
Kenfair (U.S.A.) Limited	The United States	US$1	–	100	Organisation of
	of America				overseas exhibitions
					and trade shows
Kenfair Travel Limited	Hong Kong	HK$500,000	–	100	Arrangement of hotel
					accommodation and
					travel package
Kenfair Technology Limited	British Virgin Islands	US$10	–	100	Domain name holding
Octopus Enterprises Limited	British Virgin Islands	US$1	–	100	Investment holding
Astonishing Profits Limited	British Virgin Islands	US$50,000	–	100	Licence rights holding
Asian Online Limited	British Virgin Islands	US$1	–	100	Holding an
					e-Commerce platform
Kenfair (Beijing) Exhibition	The PRC	US$1,450,000	–	100	Organisation of
Company Limited					exhibitions and trade
					shows in the PRC and
					provision of
					consultancy services
					for exhibition
Kenfair International (Shanghai)	The PRC	US$1,500,000	–	100	Organisation of
Limited					exhibitions and trade
					shows in the PRC
Kenfair (Sichuan) Exhibition Limited	The PRC	US$350,000	–	100	Organisation of
					exhibitions and trade
					shows in the PRC
Superachieve International Limited	British Virgin Islands	US$1	–	100	Investment holding
Lucky Healthy Management Limited	British Virgin Islands	US$1	–	100	Investment holding
Group Idea International Limited	British Virgin Islands	US$1	–	100	Investment holding
Kenfair Macau Exhibition Limited	Macau	MOP 25,000	–	100	Organisation of
					exhibitions and trade
					shows in Macau

111

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) Kenfair (Beijing) Exhibition Company Limited, Kenfair International (Shanghai) Limited and Kenfair (Sichuan) Exhibition Limited were formed as wholly-owned foreign enterprises in the PRC.
(ii) In accordance with the board minute of the Kenfair (Sichuan) Exhibition Limited dated 20 March 2007, due to the operating losses of the Kenfair (Sichuan) Exhibition Limited, it was resolved that, Kenfair (Sichuan) Exhibition Limited would be deregistered in PRC. The deregistration was completed on 16 April 2007.
(iii) Pro-Capital Investments Limited established a wholly-owned subsidiary, Superachieve International Limited, Lucky Healthy Management Limited and Group Idea International Limited on 23 May 2006, 21 April 2006 and 22 June 2006 respectively.
(iv) On 25 September 2006, Lucky Healthy Management Limited and Group Idea International Limited have established a wholly owned subsidiary, Kenfair Macau Exhibition Limited.

18. INTANGIBLE ASSETS

THE GROUP

e-Commerce platform HK$’000 Cost: At 1 April 2005 23,000 Fair value adjustment on consolidation of a wholly-owned subsidiary 11,219 At 31 March 2006, 1 April 2006 and 31 March 2007 34,219 Accumulated amortisation: At 1 April 2005 4,359 Amortisation provided for the year 2,260 At 31 March 2006 and 1 April 2006 6,619 Amortisation provided for the year 3,807 Impairment loss recognised 2,793 At 31 March 2007 13,219 Net book value: At 31 March 2007 21,000 At 31 March 2006 27,600	License rights HK$’000 17,632 – 17,632 5,422 2,289 7,711 2,289 4,632 14,632 3,000 9,921	Total HK$’000 40,632 11,219
		51,851
		9,781 4,549
		14,330 6,096 7,425
		27,851
		24,000

		37,521

The e-commerce platform represents “Kenfair.com” held by the Group. Kenfair.com is widely used in the Group’s operation and generates income through membership fee, advertising fee and on-line application from its users. It acts as a virtual exhibition-sourcing platform for the suppliers to search for the target buyers. Members receive the latest information related to trade shows and exhibitions held by the Group. The cost of the e-commerce platform is amortised on a straight-line basis over the estimated remaining useful life of seven years.

License rights represents the non-executive right to use the data contained in the annual edition of a business directory which contains the contact details of the enterprises in Beijing, the PRC. The use of such data facilitates the development of exhibition business, and allows the Group to immediately and directly approach the potential customers. The cost of license rights is amortised on a straight-line basis over ninety months.

112

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the financial year, the Group reassessed the recoverable amount of the intangible assets with reference to the valuation performed by BMI Appraisals Limited, an independent professional valuers, and determined that the carrying amounts of the intangible assets exceed their recoverable amounts. Impairment loss of approximately HK$7,425,000 has been recognised in respect of the intangible assets. The recoverable amount of the e-commerce platform and license rights are determined based on a value-in-use calculation. The calculation used cash flow projections based on the financial budgets approved by management covering a 5-year period and a discount rate of 15.7% and 14.3% for e-commerce platform and license right respectively per annum with reference to Risk Premia over Time Report: 2006 published by Ibbotson Associates (2005: 23%) adjusted by market risk premiums. Cash flows beyond the five-year period have been extrapolated using a steady 2% and 3% per annum growth rate for e-commerce platform and license right respectively. This growth rate does not exceed the long term average growth rate for the market in which the intangible assets operates. The management believes that this growth is justified, given the Company’s past experience in the integration and solutions services industry. Management also believes that any reasonably possible future changes in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of these intangible assets.

19. GOODWILL

THE GROUP

	HK$’000
Carrying values:
At 31 March 2006 and 31 March 2007	920

On 31 March 2006, the Group acquired 20% equity interest of Kenfair Technology Limited from its minority shareholders at a consideration of HK$5,520,000.

IMPAIRMENT TEST FOR GOODWILL

Goodwill is allocated to the group’s intangible assets, the e-commerce platform. During the year under review, the directors of the Company reassessed the recoverable amount of the goodwill with reference to the valuation performed by BMI Appraisals Limited, an independent professional valuers and determined that no impairment loss on goodwill associated with the e-commerce platform was identified.

The recoverable amount of the goodwill is determined based on a value-in-use calculation. The calculation used cash flow projections based on the financial budgets approved by management covering a 5-year period and a discount rate of 15.7% per annum with reference to Risk Premia over Time Report: 2006 published by Ibbotson Associates (2005: 23%) adjusted by market risk premiums. Cash flows beyond the five-year period have been extrapolated using a steady 2% per annum growth rate. This growth rate does not exceed the long term average growth rate for the market in which the e-commerce platform operates. Management believes that any reasonably possible future changes in the key assumptions on which recoverable amount are based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of this Goodwill.

113

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Equity securities listed in Hong Kong At fair value_(Note a) Unlisted financial assets outside Hong Kong(Note b) At cost Exchange realignment Less: Provision for impairment Exercise of the option(Note 21)_	The 2007 HK$’000 34,690 9,434 230 (9,064) (600) – 34,690	Group 2006 HK$’000 16,052 9,434 87 (6,706) – 2,815 18,867	The Company 2007 2006 HK$’000 HK$’000 30,100 13,892 – – – – – – – – – – 30,100 13,892	The Company 2007 2006 HK$’000 HK$’000 30,100 13,892 – – – – – – – – – – 30,100 13,892
				– – – –
				–
				13,892

Notes:

(a) The fair value is based on the market price at year end as quoted by the Stock Exchange of Hong Kong Limited.
(b) The unlisted financial asset represents the cost paid by the Group for an option to acquire an equity interest of a private company incorporated in the PRC. On 24 June 2003, the Company entered into an agreement (the “Option Agreement”) with a limited company (the “Independent Third Party”) incorporated in the PRC which, together with its beneficial owner, are independent of and not connected with the directors, chief executive or substantial shareholder of the Company or any of its subsidiaries or an associate of any of them, pursuant to which the Independent Third Party has agreed to grant an option (the “Option”) to the Company for the Company to acquire up to but not exceeding 90% equity interest in 北京建發京城會展有限公司 (“Beijing Kenfair Capital Exhibition Company Limited”, for identification purpose only), a PRC company subsequently set up on 29 September 2003 in the PRC with limited liability and commenced its business on 12 November 2003. On 24 June 2003, the Company also entered into an agreement (the “Undertaking Agreement”, together with the Option Agreement, the “Agreements”) with the Independent Third Party pursuant to which the Independent Third Party has given warranties and undertakings to the Company. Pursuant to the Agreements, the Company paid an amount of HK$9,434,000 which was equivalent to RMB10,000,000 as consideration to the Independent Third Party for the grant of Option. The identity of the Independent Third Party is disclosed as CITIC Trust & Investment Co., Ltd. (“CITIC Trust”), which is a wholly-owned subsidiary of China International Trust and Investment Corporation (“CITIC”), a state-owned enterprise.

The cost paid for the option is measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that the fair value cannot be measured reliably.

During the financial year, the Group reassessed the recoverable amount of the option by using the discounted cash flow valuation, and determined that the option was impaired by approximately HK$2,358,000 (2006: HK$3,604,000), the Company served a written notice to CITIC Trust to exercise the Option in whole and on 16 March 2007, Kenfair (Beijing) Exhibition Company Limited, a whollyowned subsidiary of the Company, entered into the transfer agreement with CITIC Trust and Beijing Green Pioneer to transfer their respective 70% and 20% equity interest in Beijing Kenfair Capital Exhibition Company Limited to Kenfair (Beijing) Exhibition Company Limited (the “Transfer Agreement”) of which the completion shall take place upon obtaining approval from relevant regulatory authorities in the PRC and internal approval of the parties to the Transfer Agreement. Details of the exercise of the Option are set out in the Company’s announcement dated 20 March 2007.

114

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. PREPAYMENTS FOR ACQUISITION OF A SUBSIDIARY

The Company served a written notice to CITIC Trust to exercise the Option in whole and on 16 March 2007, Kenfair (Beijing) Exhibition Company Limited, a wholly-owned subsidiary of the Company, entered into the Transfer Agreement with CITIC Trust and Beijing Green Pioneer to transfer their respective 70% and 20% equity interest in Beijing Kenfair Capital Exhibition Company Limited to Kenfair (Beijing) Exhibition Company Limited. The completion date of the Transfer Agreement shall take place upon obtaining approval from relevant regulatory authorities in the PRC and internal approval of the parties to the Transfer Agreement. Details of the exercise of the Option are set out in the Company’s announcement dated 20 March 2007.

On 16 March 2007, Kenfair (Beijing) Exhibition Company Limited also entered into the sale and purchase agreement with CITIC Trust to acquire the remaining 10% equity interest in Beijing Kenfair Capital Exhibition Company Limited with a consideration of RMB212,447 which is equivalent to approximately HK$214,593 which has been determined with reference to the net asset value of Beijing Kenfair Capital Exhibition Company Limited as at 31 July 2006. Details of the acquisition are set out in the Company’s announcement dated 20 March 2007.

22. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	The Group	The Group	The Company	The Company
	2007	2006	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Equity securities:
Listed in Hong Kong at market value	–	15,962	–	9,426

At 31 March 2007, the Group has not had any financial assets at fair value through profit or loss of which the carrying amount exceeds 10% of the total assets of the Group (2006: 17.44% ordinary shares of Cosmopolitan International Holdings Limited (SEHK: stock code: 120).

23. CASH AND CASH EQUIVALENTS

Cash at banks and on hand Time deposit Cash and cash equivalents	The 2007 HK$’000 15,442 21,795 37,237	Group 2006 HK$’000 39,493 20,972 60,465	The Company 2007 2006 HK$’000 HK$’000 25 25 – – 25 25	The Company 2007 2006 HK$’000 HK$’000 25 25 – – 25 25
				25

The time deposit of the Group carries interest rate of 4.15% (2006: 3.8%) per annum and these deposits has an average maturity of 15 days (2006: from 8 days).

The directors of the Company consider that the carrying amount of the Group’s and the Company’s cash and cash equivalents approximates to their fair values.

24. PLEDGED BANK DEPOSITS

At 31 March 2007, the Group’s bank deposits amounted to USD407,000 which is approximately equivalent to HK$3,175,000 (2006: HK$2,866,000) have been pledged to a bank for general banking facility of EUR245,000 (2006: EUR245,000) relating to the lease of an overseas exhibition venue.

The Company did not pledge any of its assets as at year end (2006: Nil).

115

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. SHARE CAPITAL

2007 Number of shares Amount ’000 HK$’000 Authorised: Ordinary shares of HK$0.01 each 1,000,000 10,000 Issued: Ordinary shares of HK$0.01 each 235,452 2,355 A summary of the movements in the Company’s issued share capital is as follow: Number Issued of shares share in issue capital Note ’000 HK$’000 At 1 April 2005 (i) 215,916 2,159 Issue of share from exercise of warrants 19,536 196 At 31 March 2006, 1 April 2006 and at 31 March 2007 235,452 2,355	2006 Number of shares Amount ’000 HK$’000 1,000,000 10,000 235,452 2,355 Share premium account Total HK$’000 HK$’000 64,902 67,061 24,615 24,811 89,517 91,872	2006 Number of shares Amount ’000 HK$’000 1,000,000 10,000 235,452 2,355 Share premium account Total HK$’000 HK$’000 64,902 67,061 24,615 24,811 89,517 91,872

		2,355

		Total HK$’000 67,061 24,811
		91,872

Note:

(i) During the year ended 31 March 2006, 19,536,000 warrants were exercised for 19,536,000 shares of HK$0.01 each at a subscription price of HK$0.69.

(ii) During the year ended 31 March 2007, no warrants of the Group had been issued. No warrants were outstanding as at 31 March 2007 and 2006.

116

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. RESERVES

(A) THE GROUP

The amounts of the Group’s reserves and the movements therein for the current and prior year are presented in the consolidated statements of changes in equity on page 48 of the financial statements.

Consolidation reserve HK$’000 At 1 April 2005 – Fair value gains in respect of available-for-sale financial assets – Exchange differences on translation of overseas subsidiaries not recognised in the income statement – Net income recognised directly in equity – Fair value adjustment of e-commerce platform arising from consolidation of a wholly- owned subsidiary 8,975 Issue of shares from exercise of warrants – Warrant reserve transferred to retained profits upon expiry of warrants – At 31 March 2006 and 1 April 2006 8,975 Exchange differences on translation of overseas subsidiaries not recognised in the income statement – Fair value gains in respect of available-for-sale financial assets – At 31 March 2007 8,975	Warrant reserve HK$’000 22,996 – – – – (11,331) (11,665) – – – –	Available- for-sale financial assets Exchange fair value reserve reserve HK$’000 HK$’000 – (1,427) – 127 163 – 163 127 – – – – – – 163 (1,300) (163) – – 18,639 – 17,339	Total HK$’000 21,569 127 163 290 8,975 (11,331) (11,665) 7,838 (163) 18,639 26,314

117

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(B) THE COMPANY

At 1 April 2005 Issue of shares from exercise of warrants Net loss for the year Fair value gains in respect of available-for-sale financial assets 2006 interim dividend Warrant reserve transferred to retained profits upon expiry of warrant At 31 March 2006 and 1 April 2006 Share premium transferred to retained profits Net loss for the year Fair value gains in respect of available-for-sale financial assets 2007 interim dividend At 31 March 2007	Share premium Contributed account surplus HK$’000 HK$’000 64,902 7,076 24,615 – – – – – – – – – 89,517 7,076 (66,000) – – – – – – – 23,517 7,076	Retained profits/ Warrant (Accumulated reserve losses) HK$’000 HK$’000 22,996 5,488 (11,331) – – (29,290) – – – (11,773) (11,665) 11,665 – (23,910) – 66,000 – (45,560) – – – (11,773) – (15,243)	Available- for-sale financial assets fair value reserve HK$’000 (1,237) – – 92 – – (1,145) – – 16,208 – 15,063	Total HK$’000 99,225 13,284 (29,290) 92 (11,773) – 71,538 – (45,560) 16,208 (11,773) 30,413

i) Contributed surplus

The Company’s contributed surplus represents the excess of the fair value of the shares of the subsidiaries acquired pursuant to the Group reorganisation during the year ended 31 March 2002, over the nominal value of the Company’s shares issued in exchange therefore and the capitalisation of the 30,000,000 shares allotted and issued nil paid. Under the Companies Law (2001 Second Revision) of the Cayman Islands, the contributed surplus account is distributable to the shareholders of the Company under certain circumstances.

ii) Warrant reserve

On 17 October 2003, the Company entered into a conditional placing and underwriting agreement with Ping An Securities Limited to issue 43,160,000 warrants at a price of HK$0.58 per warrant for cash consideration by way of a private placement. Each warrant entitles the holder to subscribe for one ordinary share of the Company at an initial subscription price of HK$0.69 per share (subject to adjustment) from the date of issue to 2 December 2005. Any ordinary shares falling to be issued upon the exercise of the subscription right to the warrants will rank pari passu in all respects with the existing fully paid ordinary shares in issue of the Company on the relevant subscription date. During the year Ended 31 March 2006, 19,536,000 warrants were exercised for 19,536,000,000 share of HK$0.01 each at HK$0.69 per share. The remaining warrants of 23,508,000 were expired on 2 December 2005. As such, the balance of warrant reserve of approximately HK$11,665,000 was transferred to retained profits upon the expiry of warrants.

118

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and/or rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include any executives and full time employees of the Company, including all executive directors of the Company and its subsidiaries. The Scheme became effective on 10 April 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share option in excess of this limit is subject to shareholders’ approval in a general meeting.

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

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted would be determined by the directors, and commences after a certain vesting period and ends on a date which is not later than five years from the date of the offer of the share options or the expiry date of the Scheme, if earlier.

The exercise price of the share options would be determined by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options, which must be a business day; and (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer, provided that the subscription price shall not be lower than the nominal value of the shares.

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

During the year, there was no option granted by the Company and the Company had no options outstanding as at 31 March 2007 and up to the date of approval of these financial statements.

28. CONTINGENT LIABILITIES

The Group and the Company had no significant contingent liabilities at the balance sheet date (2006: Nil).

119

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. MAJOR NON-CASH TRANSACTIONS

For the year ended 31 March 2007, the Group had the following major non-cash transactions:

(i) On 16 September 2006, the Company has reduced the share premium account by an amount of HK$66,000,000 be transferred to the retained earnings account of the Company to eliminate the accumulated losses of the Company as at 31 March 2006.

For the year ended 31 March 2006, the Group had the following major non-cash transactions:

(i) On 31 March 2006, the Group acquired 20% equity interest of Kenfair Technology Limited from its minority shareholders at a consideration of HK$5,520,000. The purchase consideration was satisfied by certain of the Group’s financial assets at fair value through profit or loss with a carrying amount of HK$5,520,000.

30. BUSINESS COMBINATIONS

On 31 March 2006, the Group acquired 20% equity interest of Kenfair Technology Limited from its minority shareholders at a consideration of HK$5,520,000. Kenfair Technology Limited was a 80% owned subsidiary of the Group prior to the acquisition.

Details of net assets acquired and goodwill are as follows:

Purchase consideration Fair value of net assets acquired: Intangible assets Cash and bank balances Amounts due to group companies Tax payable Deferred revenue Goodwill	2007 HK$’000 – – – – – – – –	2006 HK$’000 5,520
		5,520 529 (343) (826) (280)
		4,600
		920

31. OPERATING LEASE ARRANGEMENTS

The Group leases certain of its office properties and exhibition venues under operating lease arrangements. Leases for office properties are negotiated for terms ranging from one to three years and the leases for exhibition venues are negotiated according to the exhibition periods, normally less than one week.

At 31 March 2007, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

Within one year In the second to fifth years, inclusive	The Group 2007 2006 HK$’000 HK$’000 23,030 14,849 23,923 3,255 46,953 18,104	The Company 2007 2006 HK$’000 HK$’000 4,145 7,633 – – 4,145 7,633	The Company 2007 2006 HK$’000 HK$’000 4,145 7,633 – – 4,145 7,633
			7,633

The Company did not have significant operating lease arrangements at the balance sheet date (2006: Nil).

120

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in these financial statements, during the year ended 31 March 2007, the Group had entered into the following material related party transactions.

(A) KEY MANAGEMENT PERSONNEL REMUNERATION

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed in note 9 to the financial statements is as follow:

Short term employee benefits MPF Contribution	The Group 2007 2006 HK$’000 HK$’000 16,600 20,304 120 120 16,720 20,424	The Group 2007 2006 HK$’000 HK$’000 16,600 20,304 120 120 16,720 20,424
		20,424

Total remuneration is included in “Staff costs” (Note 7).

33. SUBSEQUENT EVENTS

In accordance with the Company’s announcement on 26 April 2007 and the circular dated 14 May 2007, the Group entered into a sale and purchase agreement to dispose of a property for a consideration of HK$8,986,250 on 25 April 2007. The disposal of the property was completed on 19 July 2007.

On 27 June 2007, the Company announced that it proposed to raise approximately HK$11.77 million, before expenses, by issuing 117,726,000 new shares to qualifying shareholders on the basis of one offer share for every two shares held on the Record Date at a price of HK$0.10 per offer share payable in full on acceptance. The Subscription of the Offer Share is expected to be completed on the early of August 2007 and for the purpose of raising fund for future development of the core exhibition business. The Company will issue 117,726,000 shares at a price of HK$0.10 per share. The Company will receive net proceeds of approximately HK$10,180,000. Details of the open offer are set out in the Company’s prospectus dated 19 July 2007.

34. AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 25 July 2007.

121

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007

Set out below are the unaudited condensed consolidated interim results of the Group as extracted from pages 17 to 36 of the interim report of the Group for the six months ended 30 September 2007.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2007

Notes
Turnover
5
Other revenue
5
Other income
6
Fair value losses on financial assets at
fair value through profit or loss
Advertising and promotion expenses
Agency commission
Amortisation and depreciation
Hotel and travel package expenses
Loss on disposal of property, plant and
equipment
Operating lease rentals
Staff costs
Other operating expenses
Loss from operating activities
6
Finance costs
Loss before tax
Taxation
7
Loss for the period
Attributable to:
– Equity holders of the Company
Dividends
8
Loss per share attributable to
equity holders of the Company
9
– Basic – original reported
– including effects of open offer
(restated for 2006)
– Diluted

Six months ended 30 September
2007
2006
HK$’000
HK$’000
(Unaudited)
(Unaudited)
5,540
34,393
1,029
1,178
9,075
–
–
(5,104)
(10,695)
(18,379)
(7)
(2,625)
(3,073)
(4,267)
(95)
(7,213)
(526)
–
(9,035)
(6,400)
(17,171)
(19,267)
(20,825)
(21,446)
(45,783)
(49,130)
–
–
(45,783)
(49,130)
(111)
–
(45,894)
(49,130)
(45,894)
(49,130)
–
–
N/A
HK(20.9)cents
HK(16.7)cents
HK(17.4)cents
N/A
N/A

122

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 September 2007

Notes Non-current assets Property, plant and equipment 10 Prepaid land premium 11 Intangible assets 12 Goodwill 13 Available-for-sale financial assets 14 Prepayments for acquisition of a subsidiary Current assets Prepayments, deposits and other receivables Cash and cash equivalents Pledged bank deposits 15 Tax prepayment Less: Current liabilities Tax payable Deferred revenue Deposits received in advance Other payables and accrued liabilities Net current liabilities Total assets less current liabilities Less: Non-current liabilities Deposits received in advance Net assets Equity Issued share capital 16 Reserves 17 Total equity attributable to equity holders of the Company	As at 30 September 2007 HK$’000 (Unaudited) 2,239 – 21,870 920 32,879 – 57,908 94,790 54,502 – 545 149,837 7,229 1,161 167,833 11,085 187,308 (37,471) 20,437 2,716 17,721 3,532 14,189 17,721	As at 31 March 2007 HK$’000 (Audited) 4,399 355 24,000 920 34,690 814 65,178 14,713 37,237 3,175 545 55,670 7,118 4,035 55,961 6,908 74,022 (18,352) 46,826 1,030 45,796 2,355 43,441 45,796

123

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2007

Equity attributable to equity holders of the Company Share Other Proposed Share premium reserves Accumulated final capital account (Note) losses dividend HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1 April 2007 (Audited) 2,355 23,517 26,314 (6,390) – Fair value adjustment for available-for-sale financial assets – – 503 – – Share-based payment expenses – – 65 – – Currency translation difference – – 631 – – Net expenses recognised directly in equity – – 1,199 – – Loss for the period – – – (45,894) – Net income and expense recognised for the period – – 1,199 (45,894) – Open offer 1,177 10,443 – – – Grant of Option – – 5,000 – – At 30 September 2007 (Unaudited) 3,532 33,960 32,513 (52,284) –	Equity attributable to equity holders of the Company	Equity attributable to equity holders of the Company	Equity attributable to equity holders of the Company	Equity attributable to equity holders of the Company	Total HK$’000 45,796 503 65 631 1,199 (45,894) (44,695) 11,620 5,000 17,721	Minority interests HK$’000 – – – – – – – – – –	Total equity HK$’000 45,796 503 65 631 1,199 (45,894) (44,695) 11,620 5,000 17,721
		Share premium account HK$’000 23,517 – – – – – – 10,443 – 33,960	Other reserves Accumulated (Note) losses HK$’000 HK$’000 26,314 (6,390) 503 – 65 – 631 – 1,199 – – (45,894) 1,199 (45,894) – – 5,000 – 32,513 (52,284)	Proposed final dividend HK$’000 – – – – – – – – – –

124

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the six months ended 30 September 2006

E quity attributable to equity holders of the Company

Share capital HK$’000 At 1 April 2006 (Audited) 2,355 Fair value adjustment for available-for-sale financial assets – Currency translation difference – Net expenses recognised directly in equity – Loss for the period – Net income and expense recognised for the period – Share premium account transferred to retained profits – At 30 September 2006 (Unaudited) 2,355 Note:	Share premium account HK$’000 89,517 – – – – – (66,000) 23,517	Retained Other profits/ reserves (Accumulated (Note) losses) HK$’000 HK$’000 7,838 (26,206) (706) – 193 – (513) – – (49,130) (513) (49,130) – 66,000 7,325 (9,336)	Proposed final dividend HK$’000 – – – – – – – –	Total HK$’000 73,504 (706) 193 (513) (49,130) (49,643) – 23,861	Minority interests HK$’000 – – – – – – – –	Total equity HK$’000 73,504 (706) 193 (513) (49,130) (49,643) – 23,861

Other reserves comprised of consolidation reserve, warrant reserve, exchange fluctuation reserve, available-for-sale financial assets fair value reserve, option reserve and share-based payment reserve.

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

125

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 September 2007

Cash flows from operating activities
Loss before tax
Adjustments for:
Interest income
Amortisation of intangible assets
Amortisation of prepaid land premium
Depreciation of property, plant and equipment
Gain on disposal of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on disposal of available-for-sales financial assets
Impairment of goodwill
Share-based payment expenses
Fair value losses on financial assets at
fair value through profit or loss
Impairment of interest in an option to
acquire an equity interest of a company
Currency translation difference
Operating loss before working capital changes
Decrease in prepayments for acquisition
of a subsidiary
Increase in prepayments, deposits and
other receivables
Decrease in deferred revenue
Increase in deposits received in advance
Increase/(decrease) in other payables
and accrued liabilities
Cash (used in)/generated from operations
Interest received
Hong Kong profits tax paid
Net cash (outflow)/inflow from
operating activities

Six months ended 30 September
2007
2006
HK$’000
HK$’000
(Unaudited)
(Unaudited)
(45,783)
(49,130)
(752)
(915)
2,130
3,048
3
5
940
1,214
(6,899)
–
526
–
(2,176)
148
–
65
–
–
5,104
–
1,365
483
123
(51,315)
(39,186)
814
–
(80,077)
(42,232)
(2,874)
(3,343)
113,558
102,208
4,177
(2,134)
(15,717)
15,313
752
915
–
(1,954)
(14,965)
14,274

126

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (Continued)

For the six months ended 30 September 2007

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant
and equipment
Proceeds from disposal of
available-for-sales financial assets
Decrease in pledged bank deposits
Net cash inflow from investing activities
Cash flows from financing activities
Proceeds from open offer
Open offer expenses
Deposit received for option to be granted
Net cash inflow from financing activities
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
Analysis of balances of cash and cash equivalents
Cash and bank balances
Non-pledged time deposits with original
maturities of less than three months
when acquired

Six months ended 30 September
2007
2006
HK$’000
HK$’000
(Unaudited)
(Unaudited)
(1,041)
(115)
8,986
–
4,490
–
3,175
2,866
15,610
2,751
11,773
–
(153)
–
5,000
–
16,620
–
17,265
17,025
37,237
60,465
54,502
77,490
32,236
56,118
22,266
21,372
54,502
77,490

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

127

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 September 2007

1. CORPORATE INFORMATION

The Company is a limited liability company incorporated in the Cayman Islands. The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal place of business of the Company is located at 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong.

During the Review Period, the Group was involved in the organisation of exhibitions and trade shows and providing ancillary services.

In the opinion of the directors, the ultimate holding company is Capital Concord Profits Limited, which was incorporated in the British Virgin Islands.

2. BASIS OF PREPARATION

The unaudited condensed consolidated interim financial statements have been prepared in accordance with the Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (“Stock Exchange”). These condensed consolidated interim financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand (HK$’000) except otherwise indicated.

These condensed consolidated interim financial statements should be read in conjunction with the Group’s audited annual financial statements for the year ended 31 March 2007.

The accounting policies and method of computation adopted in the preparation of these condensed consolidated interim financial statements are consistent with those used in the Group’s annual financial statements for the year ended 31 March 2007 except that the Group has adopted certain new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) as disclosed in Note 3 below.

3. CHANGE IN ACCOUNTING POLICIES

(i) The Group adopted the following new and revised HKFRSs for the first time which are effective for the Group’s financial year beginning 1 April 2007.

HKAS 1 (Amendment)	Capital Disclosures
HKFRS 7	Financial Instruments: Disclosures
HK (IFRIC) – Int 7	Applying the Restatement Approach under HKAS 29 Financial Reporting
	in Hyperinflationary Economics
HK (IFRIC) – Int 8	Scope of HKFRS 2
HK (IFRIC) – Int 9	Reassessment of Embedded Derivatives
HK (IFRIC) – Int 10	Interim Financial Reporting and Impairment
HK (IFRIC) – Int 11	HKFRS 2 – Group and Treasury Share Transactions

The adoption of these new and revised standards and interpretations has had no material impact on the accounting policies and the results or financial position of the Group for the current and prior accounting periods. Accordingly, no prior period adjustment has been recognised.

128

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The Group has not early adopted the following new standards and interpretations that have been issued but are not yet effective.

HKAS 23 (Revised)	Borrowing Costs
HKFRS 8	Operating Segments
HK (IFRIC) – Int 12	Service Concession Arrangements
HK (IFRIC) – Int 13	Customer Loyalty Programmes
HK (IFRIC) – Int 14	HKAS 19 – The Limit on a Deferred Benefit Asset, Minimum Funding
	Requirements and their Interaction

The management is in the possess of making an assessment of the impact of these new standards and interpretations to existing standards. The directors of the Company so far has concluded that the application of these new standards and interpretations will have no material impact on the results and the financial position of the Group.

4. SEGMENT INFORMATION

The Group’s turnover and operating results are attributable solely to one business segment, the organising of trade shows and exhibitions and providing ancillary services and accordingly, no further analysis of the Group’s turnover and operating results by principal activities is provided.

The following table presents revenue and certain asset and expenditure information for the Group’s geographical segments including Hong Kong, the People’s Republic of China (the “PRC”), the United Kingdom (“UK”), the Republic of Poland (“Poland”) and the United States of America (“USA”).

GEOGRAPHICAL SEGMENTS

	Six months ended 30 September	Six months ended 30 September
	2007	2006
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Segment revenue:
Turnover from shows and exhibitions and providing ancillary services:
Hong Kong	5,011	12,670
UK	529	–
Poland	–	10,034
USA	–	11,689
Consolidated	5,540	34,393
Other segment information:
Segment assets:
Hong Kong	201,251	197,560
PRC	6,494	5,885
Consolidated	207,745	203,445
Capital expenditure:
Hong Kong	903	90
PRC	138	25
Consolidated	1,041	115

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5. TURNOVER AND REVENUE

Turnover represents the aggregate of participation fee income, hotel and travel package income, advertising fee income and portal income from exhibitions and trade shows. It is stated net of output value added tax of approximately HK$93,000 (for the six months ended 30 September 2006: HK$2,220,000) accrued at 17.5% (for the six months ended 30 September 2006: 22.5%) of the gross income generated from the exhibition and shows held in UK (for the six months ended 30 September 2006: Poland).

An analysis of the Group’s turnover and other revenue is as follows:

		Six months ended 30 September	Six months ended 30 September
		2007	2006
		HK$’000	HK$’000
		(Unaudited)	(Unaudited)
	Turnover
	Participation fee income	529	21,722
	Hotel and travel package income	70	7,142
	Advertising fee income	3,739	4,320
	Portal income	1,202	1,209
		5,540	34,393
	Other revenue
	Interest income	752	915
	Sundry income	277	263
		1,029	1,178
	Total revenue	6,569	35,571
6.	LOSS FROM OPERATING ACTIVITIES
		Six months ended 30 September
		2007	2006
		HK$’000	HK$’000
		(Unaudited)	(Unaudited)
	The Group’s loss from operating activities is arrived at after charging:
	Amortisation of intangible assets	2,130	3,048
	Amortisation of prepaid land premium	3	5
	Depreciation of property, plant and equipment	940	1,214
	Impairment of interest in an option to acquire
	an equity interest of a company	–	1,365
	Minimum lease payments under operating
	lease rentals of land and buildings_(Note)_	9,035	6,400
	Staff costs (including directors’ remuneration)
	– salaries and wages	16,703	18,726
	– retirement benefits scheme contributions	468	541
	Loss on disposal of property, plant and equipment	526	–
	Fair value losses on financial assets at fair value through profit or loss	–	5,104
	And after crediting:
	Other income:
	Gain on disposal of property, plant and equipment	6,899	–
	Gain on disposal of available-for-sales financial assets	2,176	–
		9,075	–

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Note:

The amount includes rental paid for the venue of an exhibition and trade show held in Poland, net of input value added tax of approximately HK$Nil (for the six months ended 30 September 2006: HK$480,000) accrued at 22.5% of the gross rental expenses for the period.

7. TAXATION

The amount of taxation charged to the condensed consolidated income statement represents:

	Six months ended 30 September	Six months ended 30 September	Six months ended 30 September
		2007	2006
		HK$’000	HK$’000
	(Unaudited)		(Unaudited)
Hong Kong profits tax
Provided for the period		–	–
Under-provision in previous years		111	–
		111	–
Overseas income tax
Provided for the period		–	–
(Over)/under-provision in previous years		–	–
		111	–

At 30 September 2007, the Group had no significant unrecognised deferred tax.

8. DIVIDENDS

The Board of the Company did not recommend payment of an interim dividend for the six months ended 30 September 2007 (for the six months ended 30 September 2006: Nil).

9. LOSS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The calculation of the basic loss per share for the six months ended 30 September 2007 is based on the loss attributable to the ordinary equity holders of the Company of approximately HK$45,894,000, and the weighted average number of approximately 274,051,000 ordinary shares in issue during the Review Period.

The calculation of the basic loss per share for the six months ended 30 September 2006 is based on the loss attributable to the ordinary equity holders of the Company of approximately HK$49,130,000, and the weighted average number of approximately 282,542,000 (restated) ordinary shares in issue during the period.

No diluted loss per share was presented for the six months ended 30 September 2007 as the effect of the Company’s outstanding share options are anti-dilutive.

There was no dilutive shares in existence for the six months ended 30 September 2006 and accordingly, no diluted losses per share has been presented.

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10. PROPERTY, PLANT AND EQUIPMENT

Cost: At 1 April 2007 Additions Disposals 30 September 2007 Accumulated depreciation and impairment: At 1 April 2007 Provided for the period Written back on disposals 30 September 2007 Net book value: At 30 September 2007 (Unaudited) At 31 March 2007 (Audited)	Leasehold Furniture and Fixtures and Buildings improvements equipment fittings HK$’000 HK$’000 HK$’000 HK$’000 3,294 4,633 6,205 2,897 – 675 182 – (3,294) (556 ) – – – 4,752 6,387 2,897 1,509 3,881 5,923 2,897 50 146 79 – (1,559) (30 ) – – – 3,997 6,002 2,897 – 755 385 – 1,785 752 282 –	Computer equipment HK$’000 6,550 184 – 6,734 5,456 248 – 5,704 1,030 1,094	Motor vehicles HK$’000 2,500 – – 2,500 2,014 417 – 2,431 69 486	Total HK$’000 26,079 1,041 (3,850 ) 23,270 21,680 940 (1,589 ) 21,031 2,239 4,399

11. PREPAID LAND PREMIUM

The Group’s interest in leasehold land represents prepaid operating lease payment and its net book value is analysed as follow:

As at 30 September 2007 (Unaudited) HK$’000 Carrying amount at 1 April 2007/2006 355 Recognised during the period/year (3) Disposals (352) Carrying amount at 30 September 2007/31 March 2007 –	As at 31 March 2007 (Audited) HK$’000 364 (9) – 355

The leasehold land was held under medium term lease in Hong Kong.

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12. INTANGIBLE ASSETS

e-Commerce Licence platform rights HK$’000 HK$’000 Cost: At 1 April 2007 and at 30 September 2007 34,219 17,632 Accumulated amortisation: At 1 April 2007 13,219 14,632 Amortisation provided for the period 1,680 450 At 30 September 2007 14,899 15,082 Net book value At 30 September 2007 (Unaudited) 19,320 2,550 At 31 March 2007 (Audited) 21,000 3,000 13. GOODWILL As at 30 September 2007 (Unaudited) HK$’000 Carrying values: At 1 April 2007/2006 920 Add: acquisition of minority shareholders of a subsidiary during the period 148 1,068 Less: impairment (148) At 30 September 2007/31 March 2007 920		Total HK$’000 51,851
		27,851 2,130
		29,981
		21,870

		24,000

		As at 31 March 2007 (Audited) HK$’000 920 –
		920 –
		920

At the end of July 2007, the Group has completed the acquisition of 10% equity interest of Beijing Kenfair Capital Exhibition Company Limited (“Kenfair China”) from its shareholders at a consideration of HK$214,593.

Impairment test for goodwill

Goodwill is allocated to the Group’s intangible assets, the e-commerce platform. The recoverable amount of the goodwill is determined based on a value-in-use calculation. The calculation used cash flow projection based on the financial budgets approved by management covering a 5-year period. Cash flows are extrapolated using the estimated growth rates stated below.

Key assumptions used for value-in-use calculations:

Growth rate 2.0% Discount rate 15.7%

This growth rate does not exceed the long term average rate for the market in which the e-commerce platform operates. Management believes that any reasonably possible future changes in the key assumptions on which recoverable amount are based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of this Goodwill. A pre-tax discount rate is used.

In the opinion of the directors, goodwill allocated to the e-commerce platform does not have any impairment as at 30 September 2007.

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For goodwill arises on the acquisition of 10% of equity interest of Kenfair China, in the opinion of the directors, full impairment is provided as result of Kenfair China’s deregistration in progress for merger of the Group’s operations in Beijing.

14. AVAILABLE-FOR-SALE FINANCIAL ASSETS

As at 30 September 2007 (Unaudited) HK$’000 Equity securities listed in Hong Kong At fair value 32,879 Unlisted financial assets outside Hong Kong At cost – Exchange realignment – Less: Provision for impairment – Exercise of the option – – 32,879	As at 31 March 2007 (Audited) HK$’000 34,690 9,434 230 (9,064) (600) –
	34,690

15. PLEDGED BANK DEPOSITS

At 30 September 2007, no bank deposits (As at 31 March 2007: HK$3,175,000) have been pledged for any banking facility (As at 31 March 2007: EUR245,000).

16. SHARE CAPITAL

	30 September 2007	30 September 2007	31 March 2007	31 March 2007	31 March 2007
	(Unaudited)		(Audited)
	No. of shares	Amount	No. of Shares	Amount
	’000	HK$’000	’000	HK$’000
Authorised:
Ordinary shares of HK$0.01 each	1,000,000	10,000	1,000,000		10,000

Issued and fully paid:
Ordinary shares of HK$0.01 each	353,178	3,532	235,452		2,355

A summary of the movements in the Company’s issued share capital is as follows:

At 31 March 2007 and 1 April 2007 Issue of shares from open offer_(Note)_ At 30 September 2007	Number of shares in issue ’000 235,452 117,726 353,178	Issued share capital HK$’000 2,355 1,177 3,532	Share premium account HK$’000 23,517 10,443 33,960	Total HK$’000 25,872 11,620
				37,492

Note:

During the Review Period, 117,726,000 shares were issued to qualifying shareholders on the basis of one offer share for every two shares held on Record Date at a price of HK$0.10 per offer share.

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17. RESERVES

The amounts of the Group reserves and the movements therein for the current and prior period are presented in the condensed consolidated statement of changes in equity on page 19 of the unaudited condensed consolidated interim financial statements.

18. SHARE OPTION SCHEME

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

On 22 August 2007, total of 4,400,000 options at an exercise price of HK$1.066 have been granted to 9 employees. Each option gives the holders the right to subscribe for one ordinary share in the Company. The option period is 1 year from 22 August 2007 to 21 August 2008. The closing price of the shares of the Company on the date of grant was HK$1.06.

No share options were exercised, lapsed or cancelled under the Scheme during the Review Period.

The fair value of the options granted under the Scheme on 22 August 2007, determined using the Black-ScholesMerton Option Pricing Model (the “Model”), was approximately HK$596,000. The significant inputs into the Model were the exercise price of HK$1.066, the spot price of HK$1.06, the risk free rate of 3.94%, the expected life of 6 months, the expected volatility of 52.02% and the expected dividend yield of 8.2%.

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19. CONTINGENT LIABILITIES

The Group had no significant contingent liabilities at 30 September 2007 (As at 31 March 2007: Nil).

20. OPERATING LEASE ARRANGEMENTS

At 30 September 2007, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

	Six months ended 30 September	Six months ended 30 September
	2007	2006
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Within one year	12,326	16,460
In the second to fifth years, inclusive	20,638	13,137
	32,964	29,597

21. MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in these condensed consolidated interim financial statements, during the Review Period, the Group had entered into the following material related party transactions.

(a) Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors is as follows:

		Six months ended	30 September
		2007	2006
		HK$’000	HK$’000
		(Unaudited)	(Unaudited)
Short	term employee benefits	7,532	7,578
MPF	contributions	60	60
		7,592	7,638

Total remuneration is included in “Staff costs” (Note 6) .

(b) During the Review Period, the Group had not entered into other material related party transactions.

22. SUBSEQUENT EVENTS

The Company has the following material subsequent events after the balance sheet date:

(a) According to HKAS 18, revenue from the receipt of participation fee is recognized when the event takes place. As “Mega Show Part 1” and “Mega Show Part 2” organized by the Group are held and completed in October every year and the turnover of the Group is principally from the participation fee received from these shows, disclosing the unaudited turnover and net profit for the period from 1 April to 31 October every year in the interim report will give a better understanding of the business operations of the Group.

The unaudited turnover and the net profit for the period from 1 April 2007 to 31 October 2007 were approximately HK$179,000,000 and HK$31,000,000 respectively (for the period from 1 April 2006 to 31 October 2006: approximately HK$208,000,000 and HK$27,000,000 respectively). No interim dividend was recommended by the Board for the period from 1 April 2007 to 31 October 2007 (for the period from 1 April 2006 to 31 October 2006: interim dividend of HK$0.05 per share).

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(b) The Company has entered the option agreement (the “Option Agreement”) and the supplemental agreement (the “Supplemental Agreement”) with Capital Builder Investments Limited (the “Subscriber”), an independent third party, not connected with the Company or any connected persons of the Company on 16 August 2007 and 18 September 2007 respectively. Pursuant to the Option Agreement and Supplemental Agreement, the Company has agreed to grant the option to the Subscriber in the consideration of HK$1, exercisable within 12 months commencing from the date of fulfillment of conditions precedent as set out in the Option Agreement (as amended by the Supplemental Agreement), such that the Subscriber shall be entitled to require the Company to allot and issue up to a maximum of 47,090,400 shares at the subscription price of HK$0.83 each upon and subject to the terms of the Option Agreement (as amended by the Supplemental Agreement). Upon signing of the Option Agreement (as amended by the the Supplemental Agreement), the Company has received total of HK$5,000,000 as deposits. On 21 November 2007, all the conditions precedent as set out in the Option Agreement (as amended by the Supplemental Agreement) had been fulfilled and the option was granted to the Subscriber on the same date. The option period will be for a period of 12 months commencing from the date of fulfillment of conditions precedent as set out in the Option Agreement (as amended by the Supplemental Agreement), being 21 November 2007 to 20 November 2008. No option has been exercised, lapsed or cancelled up to the date of this report.
(c) On 26 October 2007, the Company announced that it has entered into a conditional sale and purchase agreement (the “S&P Agreement”) and the supplemental agreement (the “Supplemental Agreement”) with Mr. Hung Chen, Richael (the “Vendor”), an independent third party, not connected with the Company or any connected persons of the Company on 25 September 2007 and 26 October 2007 respectively. Pursuant to the S&P Agreement and Supplemental Agreement, the Vendor has agreed to sell and the Company has agreed to acquire the entire issued share capital of Wealth Gain Global Investment Limited (the “Target Company”) at a consideration of HK$700 million (the “Acquisition”). The consideration is to be satisfied as to (i) HK$320 million in cash; (ii) HK$35 million by the issue of 70 million consideration shares to the Vendor at an issue price of HK$0.5 per consideration share; and (iii) HK$345 million by the issue of the convertible note by the Company to the Vendor. The Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules and is therefore subject to the reporting, announcement and shareholders’ approval requirements pursuant to the Listing Rules.

The Target Company entered into the non-binding agreement (the “Framework Agreement”) on 18 July 2007 and proposed to enter into a mine acquisition agreement (the “Mine Acquisition Agreement”) with Heilongjiang Northern Enterprises Group Company Limited (the “Mine Seller”), pursuant to which the Target Company will, upon completion, acquire the entire equity interest of Jiamusi Sheng Ping Coal Mine (to be renamed as Shuangyashan Northern Sheng Ping Mining Limited) (the “Coal Mine Company”) from the Mine Seller, subject to the terms and conditions of the Framework Agreement and the Mine Acquisition Agreement. Upon completion, the Target Company will hold 100% of the equity interest of the Coal Mine Company. Upon completion and subject to fulfillment of all conditions precedent as set out in the S&P Agreement, Supplemental Agreement and Mine Acquisition Agreement, the Company, through the Target Company, will acquire full ownership and control of the Coal Mine Company.

On 31 October 2007, the Company announced that the Mine Acquisition Agreement was signed by the Target Company and the Mine Seller on 30 October 2007.

(d) On 8 November 2007, the Company announced that it has entered into the placing agreement (the “Placing Agreement”) with Baron Capital Limited (the “Placing Agent”), an independent third party, not connected with the Company or any connected persons of the Company on 6 November 2007, pursuant to which the Company appointed the Placing Agent to procure not less than six independent placees to subscribe for up to a maximum of 250,000,000 new shares (the “Placing Shares”) at the placing price of being not less than the minimum placing price of HK$0.99 per placing share (the “Minimum Placing Price”) on a best effort basis (the “Placing”) subject to the terms and conditions set out in the Placing Agreement. Depending on the prevailing market conditions, the Placing Shares will be issued under the general mandate granted to the directors of the Company at the annual general meeting of the Company held on 25 August 2007 and/or the specific mandate to be granted to the directors of the Company (the “Specific Mandate”) subject to the terms and conditions set out in the Placing Agreement. Assuming all the Placing Shares were subscribed at the Minimum Placing Price, the gross proceeds of the Placing will amount to HK$247.5 million and the net proceeds are estimated to be approximately HK$241.1 million after deducting the relevant expenses to be incurred in relation to the Placing. The Company intends to apply the net proceed of the Placing towards the Acquisition as mentioned in (c) above. In the event that the Acquisition does not proceed, the Company intends to apply the net proceeds of the Placing on future investment opportunities which are expected to improve the profitability and/or broaden the revenue streams of the Group.

The Placing Agreement and the Specific Mandate have been approved by poll at the extraordinary general meeting held on 15 December 2007.

23. AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS

The unaudited condensed consolidated interim financial statements had been reviewed by the Audit Committee of the Company and were approved and authorised for issue by the Board on 31 December 2007.

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4. MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007

Financial review

For the six months ended 30 September 2007, the Group recorded an unaudited turnover and net loss of approximately HK$5.54 million and HK$45.89 million respectively. The turnover of the Group was substantially decreased by approximately 83.89% as compared to the corresponding period in year 2006, which was mainly due to suspension of two overseas exhibitions in year 2007 which were held in Poland and USA respectively as in the corresponding period in year 2006. For the seven months ended 31 October 2007, the Group recorded turnover of approximately HK$179 million (2006: approximately HK$208 million) and profit attributable to equity holders of approximately HK$31 million (2006: approximately HK$27 million). The lower turnover against the same period last year was mainly due to the result of the Group contracting out for the first time some of the exhibition services and the lesser exhibition space available at the Hong Kong Convention and Exhibition Centre undergoing expansion works.

Dividend

The Board did not recommend payment of any interim dividend for the six months period ended 30 September 2007.

Business review

During the seven months ended 31 October 2007, the Group presented a total of four trade exhibitions including the two parts of its internationally recognized Mega Show series, the second edition of The Hong Kong International Furniture Fair in Hong Kong and the new trade exhibition Mega Macao at the Venetian Macao Convention and Exhibition Center in Macao. The Group also maintains an essential strategic partnership with Cathay Pacific, the official carrier for Mega Show Part 1 & 2. This partnership has enabled the Group to provide quality flight services, including exclusive packages for exhibitors and buyers.

Liquidity and financial resources

The Group’s operations are financed with internally generated cash flows. As at 30 September 2007, the Group had bank balances and fixed deposits of approximately HK$55 million (30 September 2006: approximately HK$77 million). As at 30 September 2007, the Group’s total investment in listed securities amounted to approximately HK$33 million (30 September 2006: approximately HK$26 million), split between long-term holdings for capital growth and short-term holdings for profit. The Group did not have any bank borrowings (30 September 2006: Nil) and was in a satisfactory financial position as at 30 September 2007. Its current ratio was 80% (30 September 2006: 84%) and gearing ratio (total debts to total assets) was nil (30 September 2006: Nil). The Group had no significant contingent liabilities as at 30 September 2007. The Group’s cash balances are mainly denominated in Hong Kong and United States dollars. As such, the Group does not have any significant exposure to foreign exchange fluctuations.

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Contingent liabilities

As at 30 September 2007, the Group had no significant contingent liabilities.

Number and remuneration of employees

As at 30 September 2007, the Group had a total of 158 employees in Hong Kong and the PRC. All employees are remunerated according to their performance, experience and prevailing industry practices. The Group also participates in relevant retirement benefit schemes for its staff in Hong Kong and the PRC. The Group introduced a share option scheme on 10 April 2002, with options to be granted to employees at the discretion of the Board. A total of 4,400,000 options at an exercise price of HK$1.066 per Share have been granted to 9 employees on 22 August 2007.

FOR THE YEAR ENDED 31 MARCH 2007

Financial review

The Group recorded an audited turnover of approximately HK$236.32 million, which represents a decrease of approximately 9.68% over the previous year. The Group also incurred a net loss of approximately HK$34.41 million due to the decrease in revenue, re-valuation of other investments and the increase in lease rentals as compared with those in the financial year 2006.

Dividend

An interim dividend of HK$0.05 per Share was paid during the period. The Directors do not recommend the payment of any dividend for the year ended 31 March 2007.

Business review

The Group staged a total of seven trade exhibitions, including the “Mega Show” series, the “Asia Expo” series and the Hong Kong Spring Fair, in Hong Kong and overseas. The Group also continued to provide a comprehensive range of exhibition-related services, including a trade magazine, a trade portal and travel services to add value to its core trade fair business. To facilitate business growth and extend international market reach, the Group established partnership with the world-famous airline Cathay Pacific Airways Limited, who is the sole official carrier for the Group’s flagship trade fairs in Hong Kong, including Mega Show Part 1, Mega Show Part 2, and the Hong Kong Spring Fair. In addition, the Group continued the strategic partnership with the trade media Alibaba.com, a leading e-commerce platform in the PRC with millions of registered users from over 200 countries and territories, serving as one of the promotion platform for “Mega Show” series.

Liquidity and financial resources

The Group finances its operations with internally generated cash flows. As at 31 March 2007, the bank balances and pledged bank deposits of the Group was approximately HK$40 million.

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As at 31 March, 2007, the Group’s total investment in shares amounted to approximately HK$35 million and was classified into long-term holding for capital growth and short-term holding for profit.

The Group had no bank borrowings as at 31 March 2007. The Group’s financial position as at 31 March 2007 was satisfactory with a current ratio of approximately 0.75 and a gearing ratio (total debts to total assets) of 0%. The Group had no significant contingent liabilities as at 31 March 2007. The Group’s cash balances are mainly in Hong Kong and United States dollars. As such, the Group does not have any significant exposure to foreign exchange fluctuations.

The Group had raised approximately HK$11.77 million, before expenses, by the Open Offer. The net proceeds of approximately HK$10.18 million from the Open Offer will be used for future development of the core exhibition business.

Future prospect

The expansion of the Hong Kong Convention and Exhibition Centre which is scheduled to be completed in early 2009 and the opening of the Asia World-Expo will provide more exhibition space to exhibition organizers in Hong Kong for staging bigger shows. With the determination of the Macao SAR Government to transform Macao into an important exhibition and convention city in the Pearl River Delta, the Group has launched its first-ever trade fair “Mega Macao” in Macao in October 2007 at the Venetian Macao Convention & Exhibition Center. The Group will continue to look into the possibility of launching new trade exhibitions in other parts of the PRC such as Guangzhou. In overseas, preparation is underway for a brand new trade fair, the “Asian Jewellery expo” has been scheduled to be launched in London in 2008. As one of the leading trade fair organizers in Hong Kong, the Group will continue to stage and launch world-class trade fairs in Hong Kong and overseas and will explore every opportunity for introducing new exhibition themes and tapping into new overseas markets. Furthermore, the Group will keep exploring new partnership with potential international corporations or organizations to grow its business and global network.

Contingent liabilities

As at 31 March 2007, the Group did not have any significant contingent liabilities.

Number and remuneration of employees

As at 31 March 2007, the Group employed a total of 160 staff in Hong Kong and the PRC. All employees are remunerated in accordance with their performance, experience and prevailing industry practices. The Group participates in retirement benefit schemes for its staffs in Hong Kong and the PRC. The Group has also adopted a share option scheme since 10 April 2002, with options to be granted to employees at the discretion of the Board.

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FOR THE YEAR ENDED 31 MARCH 2006

Financial review

For the year ended 31 March 2006, the Group recorded an audited turnover of approximately HK$261.65 million, which represents an increase of approximately 14.42% over the previous year. Despite the increase in turnover, the Group incurred a net loss of approximately HK$32.22 million as compared to a restated net profit of approximately HK$34.78 million in the financial year 2005, which was mainly due to the expense of previously capitalised development costs for shows and exhibitions, the increase in development costs for shows and exhibitions to be launched in the near future, the fair value losses on financial assets at fair value through profit or loss and the lack of substantial gains on disposal of property, plant and equipment, partial disposal of a subsidiary and unrealised gain on other investments as compared with the financial year 2005.

Dividend

An interim dividend of HK$0.05 per Share was paid during the period. The Directors do not recommend the payment of any dividend for the year ended 31 March 2006.

Business review

For the year ended 31 March 2006, the Group staged a total of seven trade exhibitions, including the “Mega Show” series, the “Asia Expo” series and the Hong Kong Spring Fair, in Hong Kong and overseas. The Group hosted five trade exhibitions in the seven month period from 1 April 2006 to 31 October 2006 which included Mega Show Part 1 & 2, two exhibitions of the “Asia Expo” series and a brand new trade exhibition named “Hong Kong International Furniture Fair” co-organized with the Hong Kong Trade Development Council. The Group also continued to provide a comprehensive range of exhibition-related services, including a trade magazine, a trade portal and travel services to add value to its core trade fair business.

Liquidity and financial resources

The Group finances its operations with internally generated cash flows. As at 31 March 2006, the Group had bank balances and fixed deposits of approximately HK$63 million (2005: approximately HK$63 million). As at 31 March 2006, the Group’s total investment in shares amounted to approximately HK$32 million (2005: approximately HK$54 million), split between long-term holding for capital growth and short-term holding for profit. The Group had no bank borrowings as at 31 March 2006 (2005: approximately HK$2.3 million of which were secured mainly by legal charges on certain fixed assets owned by the Group). The Group’s financial position as at 31 March 2006 was satisfactory with a current ratio of approximately 1.18 (2005: approximately 1.69) and a gearing ratio (total debts to total assets) of zero % (2005: approximately 1.1%). The Group had no significant contingent liabilities as at the balance sheet date (2005: Nil). The Group’s cash balances are mainly in Hong Kong and United States dollars. As such, the group does not have any significant exposure to foreign exchange fluctuations.

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Contingent liabilities

As at 31 March 2006, the Group did not have any significant contingent liabilities.

Number and remuneration of employees

As at 31 March 2006, the Group employed a total of 174 staff in Hong Kong and the PRC. All employees are remunerated in accordance with their performance, experience and prevailing industry practices. The Group participates in retirement benefit schemes for its staff in Hong Kong and the PRC. The Group has also adopted a share option scheme since 10 April 2002, with options to be granted to employees at the discretion of the Board.

FOR THE YEAR ENDED 31 MARCH 2005

Financial review

For the year ended 31 March 2005, the Group recorded an audited turnover of approximately HK$228.68 million, which represents an increase of approximately 0.15% over the previous year of approximately HK$228.35 million. The Group reported profit from operations of approximately HK$45.13 million, representing an increase of approximately 4.72% from that of previous year of approximately HK$43.10 million. The net profit attributable to the Shareholders was approximately HK$36.94 million, representing an increase of approximately 14.57% from approximately HK$32.25 million for the year ended 31 March 2005. The Group recorded a gain on partial disposal of a subsidiary and unrealized gain on other investments of approximately HK$12.95 million for the year ended 31 March 2005. During the year, the Group disposed of one of its medium term leasehold land and buildings for a cash consideration of approximately HK$14.5 million and recorded gain on disposal of approximately HK$0.67 million.

Dividend

An interim dividend of HK$0.09 per Share was paid during the period. The Directors recommended the payment of a final dividend of HK$0.08 for the year ended 31 March 2005.

Business review

During the year ended 31 March 2005, the Company consolidated its leading position as a prominent exhibitions organizer in Hong Kong and acted as a gateway to achieve business opportunities for Asian manufacturers and buyers from around the world. The Company also focused on enhancing its valueadded services and rebrand its trade fairs into the “Mega Show” series in Hong Kong and “Asia Expo” series in overseas. On 21 February 2005, the Group signed a share exchange agreement with Macau Asia Investment, Limited (“Macau Asia”) to acquire approximately 9.09% of the issued share capital of Macau Asia for 20% equity in the website of Kenfair (www.kenfair.com). Taking into account the experience and world-class expertise in the information technology field of Macau Asia, the joint venture marked a strategic move to further enhance the strengths of the website of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

The Group finances its operations with internally generated cash flows. As at 31 March 2005, the Group had cash, bank balances and fixed deposits of approximately HK$63 million (2004: approximately HK$61 million). As at 31 March 2005, the Group’s total listed investment in shares amounted to approximately HK$54 million (2004: approximately HK$30 million), split between long-term holding for capital growth and short-term holding for profit. The Group had bank borrowings of approximately HK$2.3 million as at 31 March 2005 (2004: approximately HK$8.8 million), which were secured mainly by legal charges on certain fixed assets owned by the Group. The Group’s financial position as at 31 March 2005 was satisfactory with a current ratio of approximately 1.69 (2004: approximately 1.51) and a gearing ratio (total debts to total assets) of approximately 1.1% (2004: approximately 4.5%). The Group had no significant contingent liabilities as at the balance sheet date (2004: Nil). The Group’s cash balances are mainly in Hong Kong and United States dollars, while borrowings are mainly in Hong Kong dollars. As such, the Group does not have any significant exposure to foreign exchange fluctuations.

Contingent liabilities

As at 31 March 2005, the Group did not have any significant contingent liabilities.

Number and remuneration of employees

As at 31 March 2005, the Group employed a total of 168 staff in Hong Kong and the PRC. All employees are remunerated in accordance with their performance, experience and prevailing industry practices. The Group participates in retirement benefit schemes for its staff in Hong Kong and the PRC. The Group has also adopted a share option scheme since 10 April 2002, with options to be granted to employees at the discretion of the Board.

5. INDEBTEDNESS AND CONTINGENT LIABILITIES

As at 31 December 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding indebtedness comprising unsecured interest-bearing borrowings of approximately HK$74,620,000. Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any other outstanding bank or other borrowings, mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness, guarantee, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase or other finance lease commitments or other contingent liabilities.

For the purpose of the above statement of indebtedness, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 31 December 2007.

Saved as disclosed above, the Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 December 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. WORKING CAPITAL STATEMENT

The Enlarged Group will require a total additional funds of approximately HK$447 million for the two year period following the issue of this circular. Such funding requirement include approximately HK$112 million for the production capacity upgraded from 600kt to 900kt per annum, approximately HK$300 million for the payment of the remaining balance of the cash portion of the Consideration, approximately HK$18 million for the payment of the mining rights fee and HK$17 million for the maintenance of the existing mining facilities. The Group’s exhibition business will not have any material additional funding requirement for the two-year period following the issue of this circular.

The Directors estimated that, for the two years following the issue of this circular, the Enlarged Group will have cash inflows of approximately HK$766 million from the exhibition business, coal mine operation, and the financing activities and cash outflows of approximately HK$540 million for the operation of the exhibition business, the Coal Mine, capital expenditure incurred for the maintenance of existing production facility and the production capacity upgraded from 600kt to 900kt per annum and payment for the remaining balance of the cash portion of the Consideration. Accordingly, the Enlarged Group will have net cash inflow of approximately HK$226 million for the two years following the issue of this circular.

The Directors, after due and careful enquiry, are of the opinion that, in the absence of unforeseeable circumstances and after taking into account the Enlarged Group’s financial resources, including internally generated funds, net proceeds from the Placing and/ or other fund raising activities of the Company but without taking into account any facility made available by any person or institution to the Enlarged Group, the Enlarged Group has sufficient working capital for the two years from the date of this circular.

7. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2007, being the date of which the latest published audited financial statements of the Group were made up.

8. TRADING AND FINANCIAL PROSPECTS OF THE ENLARGED GROUP

The Company views the Coal Mine as a very promising asset since it is cash-generating.

The Coal Mine is in an expansionary phase and has plans to increase the production from 600kt up to 900kt per annum by 2010. This involves a total investment in capital expenditure of approximately RMB128.78 million from 2007 to 2009.

In view of the increasingly competitive operating envirnonment for its exhibition business, the Directors consider that the Group may broaden its source of income by diversifying into the exploration and mining of coal. The Directors believe that the demand for coal will be considerable given the fact that the economy of the PRC will grow rapidly, and therefore the national consumption of coal will rise in the near future. Further, the prices of coal have been rising over the past years. Since the Coal Mine contains substantial reserves of coal, the Directors believe that the Acquisition will bring satisfactory returns to the Group.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

The following is the text of an accountants’ report on the Target Company received from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, for inclusion in this circular.

ACCOUNTANTS’ REPORT

==> picture [149 x 36] intentionally omitted <==

13 February 2008

The Board of Directors Kenfair International (Holdings) Limited 30/F., One Kowloon No.1 Wang Yuen Street Kowloon Bay, Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Wealth Gain Global Investment Limited (“WGGI”) including the balance sheet as at 30 September 2007, and income statement, cash flow statement and statement of changes in equity for the period from 12 April 2007 (being date of incorporation of WGGI) to 30 September 2007 (the “Relevant Period”) and notes thereto prepared for inclusion in the circular (the “Circular”) dated 13 February 2008 issued by Kenfair International (Holdings) Limited (the “Company”) in connection with the proposed acquisition of the entire issued share capital of WGGI (the “Acquisition”).

WGGI is a limited liability company incorporated in the British Virgin Islands (the “BVI”) on 12 April 2007 under the International Business Companies Act (Cap. 291) of the BVI. The authorised share capital of WGGI is US$50,000 divided into 50,000 ordinary shares of US$1 each. The registered office is located at 30 DeCastro Street, Wickhams Cay 1, P.O. Box 4519, Road Town, Tortola, the BVI. WGGI have not carried on any business since the date of its incorporation. WGGI has entered into a nonbinding framework agreement, a mine acquisition agreement and a supplement mine acquisition agreement (collectively known as the “Mine Acquisition Agreements”) with a mine seller on 18 July 2007, 30 October 2007 and 31 December 2007 respectively, pursuant to which WGGI will acquire the entire equity interest of 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited) (“SPML”), formerly known as 佳木斯市升平煤礦 (Jiamusi Sheng Ping Coal Mine), from the mine seller, subject to the terms and conditions of the Mine Acquisition Agreements.

No audited financial statements have been prepared for WGGI since its date of incorporation as there are no statutory requirements for it to prepare audited financial statements. The director of WGGI has adopted 31 March as WGGI’s financial year ended date. For the purpose of this report, the director of WGGI has prepared the management accounts of WGGI for the Relevant Period (the “Underlying Financial Statements”), in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). We have, for the purpose of this

145

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information for the Relevant Period set out in Section I to III below has been prepared by the director of WGGI based on the Underlying Financial Statements in accordance with HKFRSs and is presented on the basis set out in note 1 of Section II below. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

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

For the purpose of this report, without qualifying our opinion, we draw attention to note 1.2 of Section II below which discloses that as at 30 September 2007, WGGI had a net liability of HK$4,477. This condition as set out in note 1.2 of Section II below, indicates the existence of a material uncertainty which may cast significant doubt about WGGI’s ability to continue as a going concern.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of WGGI as at 30 September 2007 and of the result and cash flow for the Relevant Period.

I. FINANCIAL INFORMATION

(a) Income statement

		Period from
		12 April 2007
		(date of incorporation)
		to 30 September 2007
	Notes	HK$
Administrative expenses		(4,485)
Loss before income tax	5	(4,485)
Income tax expense	6	–
Loss for the period		(4,485)

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

(b)	Balance sheet
				As at
			30 September 2007
			Notes	HK$
	ASSETS AND LIABILITIES
	Current asset
	Cash and cash equivalents			8
	Current liability
	Other payables			4,485
	Net liability			(4,477)

	EQUITY
	Equity attributable to equity holder of WGGI
	Share capital		7	8
	Reserves			(4,485)
	Capital deficiency			(4,477)

(c)	Statement of changes in equity
		Equity attributable to equity holder of WGGI
		Share	Accumulated	Total
		capital	loss	equity
		HK$	HK$	HK$
	Issue of new share	8	–	8
	Loss for the period	–	(4,485)	(4,485)
	Total recognised income and
	expense for the period	–	(4,485)	(4,485)
	Balance at 30 September 2007	8	(4,485)	(4,477)

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

(d) Cash Flow Statement

	Period from
	12 April 2007
	(date of incorporation)
	to 30 September 2007
	HK$
Cash flows from operating activities
Loss for the period before income tax	(4,485)
Operating loss before working capital changes	(4,485)
Increase in other payables	4,485
Net cash generated from operating activities	–
Cash flows from financing activities
Proceeds from issuance of share capital	8
Net cash generated from financing activities	8
Net increase in cash and cash equivalents	8
Cash and cash equivalents at 30 September 2007	8

II. NOTES TO THE FINANCIAL INFORMATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.1 Statement of compliance

The Financial Information set out in this report has been prepared in accordance with HKFRSs which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the HKICPA, which have been consistently applied throughout the Relevant Period.

The Financial Information also comply with the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

1.2 Basis of preparation of Financial Information

WGGI has not early adopted the following HKFRSs that have been issued but are not yet effective. The director of WGGI anticipates that the adoption of such HKFRSs will not result in material financial impact on the Financial Information for the Relevant Period.

HKAS 1 (Revised) Presentation of Financial Statements[1] HKAS 23 (Revised) Borrowing Costs[1] HKFRS 8 Operating Segments[1] HK(IFRIC) – Interpretation 12 Service Concession Arrangements[2] HK(IFRIC) – Interpretation 13 Customer Loyalty Programmes[3] HK(IFRIC) – Interpretation 14 HKAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction[2]

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

2 Effective for annual periods beginning on or after 1 January 2008

3 Effective for annual periods beginning on or after 1 July 2008

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

The Financial Information for the Relevant Period has been prepared on the historical cost basis. The measurement bases are fully described in the accounting policies below.

At 30 September 2007, WGGI had a net liability of HK$4,477. In view of the liquidity problem faced by WGGI and the subsequent event mentioned in note 11, the director of WGGI has adopted the following measures with a view to improve WGGI’s financial position and to maintain WGGI’s existence on a going concern basis:

(i) Attainment of profitable operations

WGGI has entered into the Mine Acquisition Agreements with a mine seller to acquire a coal mine company, SPML, as disclosed in note 11. The director of WGGI considers that the acquisition of SPML can strengthen the profitability of WGGI.

(ii) Ongoing financial support by the shareholder of WGGI

The shareholder of WGGI has undertaken to provide continuous financial support to WGGI so as to maintain its day-to-day operations as a viable going concern notwithstanding any present or future financial difficulties experienced by WGGI.

In the opinion of the director of WGGI, in light of all the measures adopted and arrangements implemented, WGGI will have sufficient cash resources to satisfy its future working capital and other financial requirements and it is reasonable to expect WGGI to remain a commercially viable concern. Accordingly, the director of WGGI is satisfied that it is appropriate to prepare the Financial Information on a going concern basis, notwithstanding WGGI’s financial and liquidity position as at 30 September 2007.

Should WGGI be unable to continue to operate as a going concern, adjustments would have to be made to reduce the value of assets to recoverable amount and to provide for any further liabilities which might arise.

It should be noted that accounting estimates and assumptions are used in preparation of the Financial Information for the Relevant Period. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates.

1.3 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand. For the purpose of cash flow statement presentation, cash and cash equivalents include bank overdrafts which are repayable on demand and form an integral part of WGGI’s cash management.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

1.4 Share capital

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

1.5 Related parties

A party is considered to be related to WGGI if:

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

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. WGGI did not adopt any critical accounting estimates and judgements in the preparation of the Financial Information and the estimates and judgements used did not have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

3. REVENUE

WGGI is principally engaged in investment holding. No revenue arose from WGGI’s principal activity during the Relevant Period as it has not yet commenced its business.

4. SEGMENT INFORMATION

WGGI is principally engaged in investment holding. No separate business and geographical segment information is prepared as it has not yet commenced its business.

5. LOSS BEFORE INCOME TAX

Period from 12 April 2007 (date of incorporation) to 30 September 2007 HK$

Loss before income tax is arrived at after charging : Auditors’ remuneration – Preliminary incorporating expenses 4,485

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

6. INCOME TAX EXPENSE

No provision for Hong Kong profits tax has been made as WGGI had no assessable profits arising in Hong Kong during the Relevant Period.

No provision for deferred taxation has been made as there were no temporary differences at the balance sheet date.

Reconciliation between tax expense and accounting loss at applicable tax rate is as follows:

Loss before income tax Tax on loss before income tax, calculated at the tax rate of 17.5% Tax effect of non-deductible expenses Income tax expense SHARE CAPITAL Authorised : 50,000 ordinary shares of US$1 each Issued and fully paid : 1 ordinary share of US$1	Period from 12 April 2007 (date of incorporation) to 30 September 2007 HK$ (4,485) (785) 785 – Number As at of shares 30 September 2007 HK$ 50,000 391,000 1 8

7. SHARE CAPITAL

WGGI was incorporated in the BVI on 12 April 2007 with an authorised share capital of US$50,000 divided into 50,000 ordinary shares of US$1 each. 1 subscriber share of US$1 was allotted and issued in cash on 12 April 2007.

8. DIRECTOR REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

During the Relevant Period, no emoluments were paid by WGGI to the director or employees for services rendered or as an inducement to join or upon joining or as a compensation for loss of office. There was no arrangement under which a director of WGGI waived or agreed to waive any remuneration during the Relevant Period.

9. RISK MANAGEMENT OBJECTIVES AND POLICIES

WGGI is not exposed to a variety of financial risks as WGGI has not commenced its business. WGGI has not used any derivatives or other instruments for hedging purposes. WGGI does not hold or issue derivative financial instruments for trading purposes. As at the balance sheet date, WGGI’s financial instrument mainly consisted of cash and cash equivalents and other payables.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

(a) Interest rate risk

WGGI has no interest-bearing assets and liabilities. Hence, WGGI’s exposure to cash flow and fair value interest rate risk is minimal.

(b) Credit risk

WGGI has no concentrations of credit risk. The carrying amount of cash and cash equivalents included in the balance sheet represents WGGI’s maximum exposure to credit risk in relation to its financial asset. WGGI’s exposure to bad debts is minimal as WGGI has not yet commenced its business.

(c) Foreign currency risk

Foreign currency risk is the risk of loss due to adverse movements in foreign exchange rates relating to investments denominated in foreign currencies. WGGI’s exposure to foreign currency risk resulting from changes in foreign currency exchange rates is minimal as its’ assets and liabilities are primarily denominated in Hong Kong dollars.

(d) Liquidity risk

WGGI’s financial liabilities have no contractual maturities. WGGI’s policy is to maintain sufficient cash and cash equivalents and have available funding to meet its working capital requirements. As mentioned in note 1.2, WGGI’s liquidity is dependent upon the continuing financial support from its shareholder, provided that the shareholder is able to meet his commitment to provide financial support to WGGI. The director of WGGI is satisfied that WGGI will be able to meet in full its financial obligations as and when they fall due in the foreseeable future.

(e) Fair values

The fair values of WGGI’s current financial assets and liabilities are not materially different from their carrying amounts because of the immediate or short term maturity.

No changes were made in the objectives, policies or process during the Relevant Period.

10. CAPITAL MANAGEMENT

WGGI’s objectives of managing capital are to safeguard WGGI’s ability to continue as a going concern in order to provide adequate returns for shareholder in the long term and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, WGGI may adjust the amount of dividends paid to shareholder, return capital to shareholder, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies or process during the Relevant Period. Management regards total equity as capital, for capital management purpose.

WGGI is not subject to externally imposed capital requirements.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

11. SUBSEQUENT EVENTS

WGGI has entered into a mine acquisition agreement and a supplement mine acquisition agreement with a mine seller on 30 October 2007 and 31 December 2007 respectively, to acquire 100% of equity interest in a coal mine company, SPML, for a cash consideration of RMB140 million. According to the supplement mine acquisition agreement, the completion date of the acquisition will be extended from 31 December 2007 to 29 February 2008.

Save as disclosed above, no other significant events have taken place subsequent to 30 September 2007.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of WGGI have been prepared in respect of any period subsequent to 30 September 2007.

Yours faithfully,

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

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

The Target Company is a limited liability company incorporated in the British Virgin Islands on 12 April 2007. The Target Company entered into the non-binding Framework Agreement on 18 July 2007. The Target Company further entered into the Mine Acquisition Agreement with the Mine Seller on 30 October 2007 and the Supplement Mine Acquisition Agreement on 31 December 2007, pursuant to which the Target Company will, upon completion of the Transfer, acquire the entire equity interest of the Coal Mine Company from the Mine Seller, subject to the terms and conditions of the Mine Acquisition Agreement and the Supplemental Mine Acquisition Agreement. Save as disclosed above, the Target Company has not carried on any business since the date of its incorporation.

Financial summary

	Period from
	12 April 2007
	(date of incorporation)
	to 30 September 2007
	HK$
Loss before income tax	4,485
Loss for the period after income tax	4,485
	As at
	30 September 2007
Net liability	4,477

154

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

The following is the text of an accountants’ report on the Coal Mine Company received from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, for inclusion in this circular.

ACCOUNTANTS’ REPORT

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13 February 2008

The Board of Directors Kenfair International (Holdings) Limited 30/F., One Kowloon No.1 Wang Yuen Street Kowloon Bay, Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited) (“SPML”), formerly known as 佳木斯市升平煤礦 (Jiamusi Sheng Ping Coal Mine), including the balance sheets as at 31 December 2004, 2005, 2006 and 30 September 2007, and income statements, cash flow statements and statements of changes in equity for the three years ended 31 December 2004, 2005, 2006 and nine months ended 30 September 2007 (the “Relevant Periods”) and notes thereto prepared for inclusion in the circular (the “Circular”) dated 13 February 2008 issued by Kenfair International (Holdings) Limited (the “Company”) in connection with the proposed acquisition of the entire issued share capital of Wealth Gain Global Investment Limited (“WGGI”) (the “Acquisition”).

WGGI has entered into a non-binding framework agreement, a mine acquisition agreement and a supplement mine acquisition agreement (collectively known as the “Mine Acquisition Agreements”) with a mine seller on 18 July 2007, 30 October 2007 and 31 December 2007 respectively, pursuant to which WGGI will acquire the entire equity interest of SPML from the mine seller, subject to the terms and conditions of the Mine Acquisition Agreements.

SPML was a state-owned enterprise established in the People’s Republic of China (the “PRC”) with a registered capital of Reminbi (“RMB”) 20,000,000. On 25 July 2007, the legal form of SPML was officially changed from a state-owned enterprise to a privately-owned limited liability company. The legal ownership of SPML was transferred to the mine seller on that date.

The principal activities of SPML are production and sales of coal and related products in the PRC. The registered office is located at Jixian County, Shuangyashan City, Heilongjiang Province, the PRC.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

The financial statements of SPML were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises in the PRC. The financial statements of SPML for the years ended 31 December 2004, 2005 and 2006 were audited by PRC registered certified public accountants, 黑龍江華鵬會計師事務所有限公司. For the purpose of this report, the directors of SPML have prepared the financial statements of SPML for the Relevant Periods (the “Underlying Financial Statements”), in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). We have, for the purpose of this report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information for the Relevant Periods as set out in Section I to III below has been prepared by the directors of SPML based on the Underlying Financial Statements in accordance with HKFRSs and is presented on the basis set out in note 1 of Section II below. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

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

For the purpose of this report, without qualifying our opinion, we draw attention to note 1.2 of Section II below which discloses that as at 31 December 2004, 2005, 2006 and 30 September 2007, SPML had respective net liabilities of RMB106,232,000, RMB102,570,000, RMB80,846,000 and RMB53,293,000. These conditions, along with the default repayment of unsecured bank and other borrowings as set out in note 1.2 of Section II below, indicate the existence of a material uncertainty which may cast significant doubt about SPML’s ability to continue as a going concern.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of SPML as at 31 December 2004, 2005, 2006 and 30 September 2007 and of the results and cash flows for each of the Relevant Periods.

The comparative income statement, statement of changes in equity and cash flow statement of SPML for the nine months ended 30 September 2006 together with the notes thereon (the “30 September 2006 Financial Information”) have been extracted from SPML’s financial information for the same period which were prepared by the directors of SPML solely for the purpose of this report.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

We have, for the purpose of this report, performed a review of the 30 September 2006 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. A review consists of making inquiries, 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 would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 30 September 2006 Financial Information. On the basis of our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the 30 September 2006 Financial Information is not prepared, in all material respects, in accordance with HKFRSs.

I. FINANCIAL INFORMATION AND THE 30 SEPTEMBER 2006 FINANCIAL INFORMATION

(a) Income statements

Notes
Revenue
3
Cost of sales
Gross profit
Other income
3
Selling and
distribution costs
Administrative expenses
Other operating expenses
Operating profit
Finance costs
5
(Loss)/Profit
before income tax
6
Income tax expense
7
(Loss)/Profit for
the year/period

Nine months
Year ended 31 December
ended 30 September
2004
2005
2006
2006
2007
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
114,168
106,256
170,317
119,819
173,607
(83,382)
(73,930)
(109,600)
(75,176)
(97,200)
30,786
32,326
60,717
44,643
76,407
96
247
3,432
589
385
(538)
(272)
(626)
(383)
(803)
(21,008)
(15,481)
(21,636)
(13,478)
(24,392)
(8,776)
(5,932)
(1,908)
(1,594)
(1,631)
560
10,888
39,979
29,777
49,966
(5,587)
(4,774)
(4,640)
(2,947)
(4,514)
(5,027)
6,114
35,339
26,830
45,452
(9,629)
(2,452)
(13,615)
(7,397)
(17,899)
(14,656)
3,662
21,724
19,433
27,553

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(b) Balance sheets

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 8 Mining rights 9 Deferred tax assets 20 Current assets Inventories 10 Trade receivables 11 Bills receivables Deposits, prepayments and other receivables 12 Amount due from holding company 13 Cash and cash equivalents 14 Current liabilities Trade payables 15 Accrued expenses and other payables Amount due to holding company 13 Unsecured bank and other borrowings 16 Taxes payable Net current liabilities Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 57,483 61,350 63,052 – – – 2,654 2,654 – 60,137 64,004 63,052 6,735 9,510 5,979 11,158 21,515 28,837 4,800 – 1,980 8,153 4,766 12,373 – – – 2,585 384 611 33,431 36,175 49,780 11,626 13,346 10,566 110,494 109,388 111,035 4,916 5,681 1,178 72,764 69,434 60,523 – 1,810 7,595 199,800 199,659 190,897 (166,369) (163,484) (141,117) (106,232) (99,480) (78,065)	As at 30 September 2007 RMB’000 65,396 96,418 – 161,814 7,658 55,170 – 15,981 16,102 16,008 110,919 4,860 154,775 – 74,523 13,201 247,359 (136,440) 25,374

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Notes Non-current liabilities Deferred income Other long term liabilities 17 Net liabilities EQUITY Equity attributable to equity holders of SPML Paid in capital 18 Reserves 19 Capital deficiency	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – 3,090 2,781 – – – – 3,090 2,781 (106,232) (102,570) (80,846) 20,000 20,000 20,000 (126,232) (122,570) (100,846) (106,232) (102,570) (80,846)	As at 30 September 2007 RMB’000 2,549 76,118 78,667 (53,293) 20,000 (73,293) (53,293)

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(c) Statements of changes in equity

Balance at 1 January 2004 Loss for the year Total recognised income and expense for the year Balance at 31 December 2004 and at 1 January 2005 Profit for the year Total recognised income and expense for the year Balance at 31 December 2005 and at 1 January 2006 Profit for the year Total recognised income and expense for the year Balance at 31 December 2006 and at 1 January 2007 Profit for the period Total recognised income and expense for the period Balance at 30 September 2007	Paid in Accumulated capital losses RMB’000 RMB’000 20,000 (111,576) – (14,656) – (14,656) 20,000 (126,232) – 3,662 – 3,662 20,000 (122,570) – 21,724 – 21,724 20,000 (100,846) – 27,553 – 27,553 20,000 (73,293)	Total equity RMB’000 (91,576) (14,656) (14,656) (106,232) 3,662 3,662 (102,570) 21,724 21,724 (80,846) 27,553 27,553 (53,293)

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

For the nine months ended 30 September 2006 (Unaudited) Balance at 1 January 2006 Profit for the period Total recognised income and expense for the period Balance at 30 September 2006	Paid in Accumulated capital losses RMB’000 RMB’000 20,000 (122,570) – 19,433 – 19,433 20,000 (103,137)	Total equity RMB’000 (102,570) 19,433 19,433 (83,137)

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(d) Cash flow statements

Cash flows from operating
activities
(Loss)/Profit before income tax
Adjustments for:
Depreciation of property,
plant and equipment
Amortisation of deferred
income on government
grants
Interest income
(Gain)/Loss on disposal of
property, plant and equipment
Interest expense
Provision for obsolete
inventories
Bad debts written off
Operating profit before
working capital changes
(Increase)/Decrease in
inventories
Decrease/(Increase) in
trade receivables
(Increase)/Decrease in
bills receivables
(Increase)/Decrease in
deposits, prepayments and
other receivables
Increase in amount due
from holding company
(Decrease)/Increase in
trade payables
Increase/(Decrease) in
accrued expenses
and other payables
Increase/(Decrease) in amount
due to holding company

Nine months
Year ended 31 December
ended 30 September
2004
2005
2006
2006
2007
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
(5,027)
6,114
35,339
26,830
45,452
3,562
3,999
4,986
3,328
4,269
–
(200)
(309)
(232)
(232)
(6)
(5)
(14)
(6)
(9)
(70)
279
36
9
19
5,587
4,774
4,640
2,947
4,514
2,753
–
–
–
–
–
521
587
–
–
6,799
15,482
45,265
32,876
54,013
(2,710)
(2,775)
3,531
3,899
(1,679)
198
(10,878)
(7,909)
(17,106)
(26,333)
(4,800)
4,800
(1,980)
–
1,980
(6,569)
3,387
(7,607)
(13,969)
(3,608)
–
–
–
–
(17,280)
(8,327)
1,720
(2,780)
(4,898)
(5,706)
14,194
(1,106)
1,647
13,533
23,440
4,916
765
(4,503)
(3,632)
–

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Cash generated from operations
Income tax paid
Net cash generated from
operating activities
Cash flows from investing
activities
Purchases of property,
plant and equipment
Proceeds from disposal of
property, plant and equipment
Payment for construction
in progress
Government grants received
Interest received
Net cash used in investing
activities
Cash flows from financing
activities
Interest paid
New bank and other
borrowings raised
Repayment of bank
and other borrowings
Net cash (used in)/generated
from financing activities

Nine months
Year ended 31 December
ended 30 September
2004
2005
2006
2006
2007
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
3,701
11,395
25,664
10,703
24,827
–
(642)
(5,176)
(2,175)
(12,293)
3,701
10,753
20,488
8,528
12,534
(6,119)
(3,531)
(7,319)
(4,020)
(6,632)
2,611
532
644
644
–
(2,341)
(5,146)
(49)
(49)
–
–
3,290
–
–
–
6
5
14
6
9
(5,843)
(4,850)
(6,710)
(3,419)
(6,623)
(5,587)
(4,774)
(4,640)
(2,947)
(4,514)
9,614
–
49
49
19,111
(5,050)
(3,330)
(8,960)
(1,786)
(5,111)
(1,023)
(8,104)
(13,551)
(4,684)
9,486

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period	Nine months Year ended 31 December ended 30 September 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (3,165) (2,201) 227 425 15,397 5,750 2,585 384 384 611 2,585 384 611 809 16,008	Nine months Year ended 31 December ended 30 September 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (3,165) (2,201) 227 425 15,397 5,750 2,585 384 384 611 2,585 384 611 809 16,008
		16,008

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

II. NOTES TO THE FINANCIAL INFORMATION AND THE 30 SEPTEMBER 2006 FINANCIAL INFORMATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.1 Statement of compliance

The Financial Information and the 30 September 2006 Financial Information set out in this report have been prepared in accordance with HKFRSs which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the HKICPA, which have been consistently applied throughout the Relevant Periods.

The Financial Information and the 30 September 2006 Financial Information also comply with the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

1.2 Basis of preparation of Financial Information

For the purpose of preparing and presenting the Financial Information and the 30 September 2006 Financial Information, SPML has adopted all the new and revised HKFRSs issued by the HKICPA that are effective.

SPML has not early adopted the following HKFRSs that have been issued but are not yet effective. The directors of SPML anticipate that the adoption of such HKFRSs will not result in material financial impact on the Financial Information and the 30 September 2006 Financial Information.

HKAS 1 (Revised)	Presentation of Financial Statements1
HKAS 23 (Revised)	Borrowing Costs1
HKFRS 8	Operating Segments1
HK(IFRIC)-Interpretation 11	HKFRS 2 – Group and Treasury Share Transactions2
HK(IFRIC)-Interpretation 12	Service Concession Arrangements3
HK(IFRIC)-Interpretation 13	Customer Loyalty Programmes4
HK(IFRIC)-Interpretation 14	HKAS 19 – The Limit on a Defined Benefit Asset, Minimum
	Funding Requirements and their Interaction3

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

2 Effective for annual periods beginning on or after 1 March 2007

3 Effective for annual periods beginning on or after 1 January 2008

4 Effective for annual periods beginning on or after 1 July 2008

The significant accounting policies that have been used in the preparation of the Financial Information and the 30 September 2006 Financial Information are summarised below. These policies have been consistently applied to all the Relevant Periods and nine months ended 30 September 2006 presented unless otherwise stated.

The Financial Information and the 30 September 2006 Financial Information have been prepared on the historical cost basis. The measurement bases are fully described in the accounting policies below.

HKFRS 1 “First-time Adoption of Hong Kong Financial Reporting Standards” has been applied in preparing these Financial Information of SPML. These Financial Information are the first set of financial statements prepared in accordance with HKFRSs by SPML.

An explanation of how the transition to HKFRSs has affected the reported financial position and financial performance of SPML’s beginning balances for the year ended 31 December 2004 is provided in note 29.

At 31 December 2004, 2005, 2006 and 30 September 2007, SPML had respective net liabilities of RMB106,232,000, RMB102,570,000, RMB80,846,000 and RMB53,293,000.

SPML experienced financial difficulties and has defaulted the repayments of unsecured bank and other borrowings. As at 31 December 2004, 2005, 2006 and 30 September 2007, the unsecured bank and other borrowings of approximately RMB69,950,000, RMB66,851,000, RMB59,557,000 and RMB56,216,000 are immediately due for repayment in full on demand as disclosed in notes 16(a) and 16(b). Various lawsuits have been taken against SPML from a banker and a number of creditors for the repayment of the indebtedness due by SPML. In view of the liquidity problems faced by SPML, the directors have adopted the following measures with a view to improve SPML’s overall financial position and to maintain SPML’s existence on a going concern basis:

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(i) Attainment of positive cash flow operations

The directors of SPML continue to implement cost control measures over overheads and various general and administrative expenses, with an aim to attain positive cash flow operations.

(ii) Ongoing financial support by the shareholder of SPML

黑龍江北方企業集團有限責任公司 (Heilongjiang Northern Enterprise Group Company Limited) (“Northern Group”), the holding company of SPML, has undertaken to provide continuous financial support to SPML so as to maintain its day-to-day operations as a viable going concern notwithstanding any present or future financial difficulties experienced by SPML.

(iii) Additional external funding

The directors of SPML have undertaken alternatives to strengthen the capital base of SPML through fund raising exercise. Northern Group has entered into the Mine Acquisition Agreements with a buyer. According to the Mine Acquisition Agreements, the consideration for the acquisition of RMB140 million will be used solely for the purpose of liabilities settlement for SPML.

In the opinion of the directors of SPML, in light of all the measures adopted and arrangements implemented, SPML will have sufficient cash resources to satisfy its future working capital and other financial requirements and it is reasonable to expect SPML to remain a commercially viable concern. Accordingly, the directors of SPML are satisfied that it is appropriate to prepare the Financial Information on a going concern basis, notwithstanding SPML’s financial and liquidity position as at 31 December 2004, 2005, 2006 and 30 September 2007.

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

It should be noted that accounting estimates and assumptions are used in preparation of the Financial Information and the 30 September 2006 Financial Information. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are made and disclosed in note 2.

1.3 Foreign currency translation

The Financial Information and the 30 September 2006 Financial Information are presented in RMB, which is also the functional currency of SPML.

Foreign currency transactions are translated into the functional currency of SPML using the exchange rates prevailing at the dates of the transactions. At balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statement.

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

1.4 Revenue

Revenue comprises the fair value of the consideration received or receivable for the sale of goods. Revenue is shown net of rebates, discounts and sales related taxes. Provided it is probable that the economic benefits will flow to SPML and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

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

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

1.5 Borrowing costs

All borrowing costs are expensed as incurred.

1.6 Mining rights

Mining rights are stated at cost less accumulated amortisation and are amortised on a straight line basis over the shorter of their useful lives estimated based on the total proven and probable reserves of the coal mine or contractual period from the date of commencement of commercial production which approximates the date from which they are available for use.

1.7 Property, plant and equipment

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

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to SPML and the cost of the item can be measured reliably. All other costs such as repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

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

Buildings	2% to 10% per annum
Plant, machinery and equipment	2% to 25% per annum
Motor vehicles	5% to 12.5% per annum

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

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

1.8 Impairment of assets

Property, plant and equipment are subject to impairment testing and are tested for impairment whenever there are indications that the assets’ carrying amount may not be recoverable.

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Individual assets or cash-generating units with an indefinite useful life or those not yet available for use are tested for impairment at least annually, irrespective of whether there is any indication that they are impaired. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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

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

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

1.9 Financial assets

Financial assets of SPML include trade receivables, bills receivables, other receivables and amount due from holding company. Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

All financial assets are recognised when, and only when, SPML becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, in case of investments not at fair value through profit or loss, directly attributable transaction costs.

Trade receivables, bills receivables, other receivables and amount due from holding company are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

Impairment of financial assets

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

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

1.10 Inventories

Inventories of coal are physically measured and are carried at the lower of cost and net realisable value. Cost, which comprises direct materials and, where applicable, direct labour and overheads that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business less all further costs to completion and costs to be incurred in selling, marketing and distribution.

Inventories of auxiliary materials, spare parts and small tools expected to be used in production are stated at weighted average cost less allowance, if necessary, for obsolescence.

1.11 Accounting for income taxes

Income tax comprises current tax and deferred tax.

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

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

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

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

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

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

1.12 Cash and cash equivalents

1.13 Paid in capital

Paid in capital is classified as equity.

1.14 Employee benefits

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

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

1.15 Financial liabilities

Financial liabilities of SPML include trade payables, accrued expenses and other payables, amount due to holding company and unsecured bank and other borrowings.

All financial liabilities are recognised when, and only when SPML becomes a party to the contractual provisions of the instrument. All interest related charges are recognised as an expense in finance costs in the income statement.

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

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

(i) Trade payables, accrued expenses and other payables and amount due to holding company

These are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest rate method.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(ii) Unsecured bank and other borrowings

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

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

1.16 Provisions

Provisions are recognised when SPML has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

1.17 Related parties

A party is considered to be related to SPML if:

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

1.18 Government grants

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

1.19 Segment reporting

In accordance with SPML’s internal financial reporting, SPML has determined that business segments be presented as primary reporting format and geographical segments as the secondary reporting format.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

SPML makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(i) Depreciation

SPML depreciates the property, plant and equipment in accordance with the accounting policies stated in note 1.7. The estimated useful lives reflect the directors’ estimate of the periods that SPML intends to derive future economic benefits from the use of these assets.

(ii) Mining rights

Mining rights are amortised on a straight line basis over the shorter of the contractual period or their useful lives. The useful lives are estimated based on the total proven and probable reserves of the coal mine. The management exercises their judgement in estimating the total proven and probable reserves of the coal mine.

(iii) Impairment of receivables

The management of SPML determines impairment of its receivables on a regular basis. This estimate is based on the credit history of its customers and current market conditions. Management reassesses the impairment of receivables at the balance sheet date.

(iv) Income tax

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

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

3. REVENUE AND OTHER INCOME

Revenue arising from SPML’s principal activities and other income recognised during the Relevant Periods and the nine months period ended 30 September 2006 are as follows:

Revenue – Turnover Sales of coals Other income Interest income Recovery of bad debts Waiver of value added tax liabilities Unsecured bank borrowing written back Amortisation of deferred income on government grants * Gain on disposal of property, plant and equipment Sundry income	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 114,168 106,256 170,317 6 5 14 – – 10 – – 2,685 – – 69 – 200 309 70 – – 20 42 345 96 247 3,432	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 119,819 173,607 6 9 – – – – 69 – 232 232 – – 282 144 589 385	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 119,819 173,607 6 9 – – – – 69 – 232 232 – – 282 144 589 385

			9 – – – 232 – 144
			385

Government grants represent the monetary subsidies receivable from the relevant authorities in the PRC in respect of SPML’s contribution in safety construction. The amount is recognised in the income statement on a straight line basis over the expected lives of the related assets.

4. SEGMENT INFORMATION

No separate analysis of segment information by business or geographical segments is presented as SPML’s sole business is coal mining and SPML’s revenue, assets and capital expenditure are principally attributable to a single geographical region, which is the PRC.

5. FINANCE COSTS

Interest charges on: Bank and other borrowings wholly repayable within five years Bills receivables discounted	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 5,587 4,710 3,567 – 64 1,073 5,587 4,774 4,640	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 2,389 3,069 558 1,445 2,947 4,514	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 2,389 3,069 558 1,445 2,947 4,514
			4,514

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

6. (LOSS)/PROFIT BEFORE INCOME TAX

						Nine months	Nine months
		Year ended 31	December			ended 30 September
	2004	2005			2006	2006	2007
	RMB’000	RMB’000		RMB’000		RMB’000	RMB’000
						(Unaudited)
(Loss)/Profit before income tax is
arrived at after charging:
Auditors’ remuneration	–	–			–	–	–
Bad debts written off	–	521			587	–	–
Cost of inventories sold
recognised as expenses	21,130	22,708		22,718		20,638	24,125
Depreciation of property,
plant and equipment included in:
– costs of sales	2,954	2,792			3,623	2,690	3,169
– administrative expenses	608	297			1,363	638	1,100
– other operating expenses	–	910			–	–	–
Loss on disposal of property,
plant and equipment	–	279			36	9	19
Mineral resources compensation fee	1,249	1,146			1,680	991	1,828
Provision for obsolete inventories	2,753	–			–	–	–
Staff costs (including directors’
remuneration):
– Salaries, wages and
other allowances	30,142	31,799		50,755		37,230	43,426
– Contribution to
retirement scheme	3,120	3,480			4,127	3,219	4,683

7. INCOME TAX EXPENSE

The provision for PRC income tax during the Relevant Periods and the nine months period ended 30 September 2006 are based on a statutory rate of 33% of the estimated assessable profits of SPML as determined in accordance with the relevant income tax rules and regulations of the PRC.

Current tax – PRC enterprise income tax Deferred tax_(note 20)_ – Current year/period Total income tax expense	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – 2,452 10,961 9,629 – 2,654 9,629 2,452 13,615	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 4,743 17,899 2,654 – 7,397 17,899	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 4,743 17,899 2,654 – 7,397 17,899
			17,899

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

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

(Loss)/Profit before income tax Tax on (loss)/profit before income tax, calculated at the tax rate of 33% Tax effect of non-taxable income Tax effect of non-deductible expenses Income tax expense	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (5,027) 6,114 35,339 (1,659) 2,018 11,662 (3,533) (3,700) (4,844) 14,821 4,134 6,797 9,629 2,452 13,615	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 26,830 45,452 8,854 14,999 (4,388) (2,128) 2,931 5,028 7,397 17,899

During the 5th session of the 10th National People’s Congress, which was concluded on 31 March 2007, the PRC Corporate Income Tax Law was approved and will become effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unification of the income tax rates for domestic-invested and foreign-invested enterprises at 25%.

8. PROPERTY, PLANT AND EQUIPMENT

At 1 January 2004 Cost Accumulated depreciation Net book amount Year ended 31 December 2004 Opening net book amount Additions Disposals Depreciation Closing net book amount At 31 December 2004 Cost Accumulated depreciation Net book amount	Buildings RMB’000 94,564 (55,285) 39,279 39,279 – – (1,598) 37,681 94,564 (56,883) 37,681	Plant, machinery and equipment RMB’000 34,833 (19,783) 15,050 15,050 3,047 – (1,884) 16,213 37,880 (21,667) 16,213	Motor Construction vehicles in progress RMB’000 RMB’000 1,121 44 (368) – 753 44 753 44 3,072 2,341 (2,541) – (80) – 1,204 2,385 1,565 2,385 (361) – 1,204 2,385	Total RMB’000 130,562 (75,436) 55,126 55,126 8,460 (2,541) (3,562) 57,483 136,394 (78,911) 57,483

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Year ended 31 December 2005 Opening net book amount Additions Disposals Transfers Depreciation Closing net book amount At 31 December 2005 Cost Accumulated depreciation Net book amount Year ended 31 December 2006 Opening net book amount Additions Disposals Transfers Depreciation Closing net book amount At 31 December 2006 Cost Accumulated depreciation Net book amount Nine months period ended 30 September 2007 Opening net book amount Additions Disposals Depreciation Closing net book amount At 30 September 2007 Cost Accumulated depreciation Net book amount	Buildings RMB’000 37,681 – (324) 2,972 (1,659) 38,670 91,055 (52,385) 38,670 38,670 207 – – (1,853) 37,024 91,262 (54,238) 37,024 37,024 788 – (1,607) 36,205 92,050 (55,845) 36,205	Plant, machinery and equipment RMB’000 16,213 3,041 (39) – (2,281) 16,934 40,832 (23,898) 16,934 16,934 4,225 – 4,559 (2,980) 22,738 49,616 (26,878) 22,738 22,738 3,528 (19) (2,380) 23,867 53,114 (29,247) 23,867	Motor Construction vehicles in progress RMB’000 RMB’000 1,204 2,385 490 5,146 (448) – – (2,972) (59) – 1,187 4,559 1,543 4,559 (356) – 1,187 4,559 1,187 4,559 2,887 49 (680) – – (4,559) (153) – 3,241 49 3,750 49 (509) – 3,241 49 3,241 49 2,316 – – – (282) – 5,275 49 6,066 49 (791) – 5,275 49	Total RMB’000 57,483 8,677 (811) – (3,999) 61,350 137,989 (76,639) 61,350 61,350 7,368 (680) – (4,986) 63,052 144,677 (81,625) 63,052 63,052 6,632 (19) (4,269) 65,396 151,279 (85,883) 65,396

Up to the date of this report, SPML was in the process of obtaining the title certificates of certain buildings with carrying amounts of RMB30,469,000, RMB31,699,000, RMB30,296,000 and RMB29,573,000 as at 31 December 2004, 2005, 2006 and 30 September 2007 respectively. According to the legal opinion obtained from 黑龍江省雙鴨山市正大法律事務所 , SPML is entitled to lawfully and validly use the buildings during the Relevant Periods.

For the nine months ended 30 September 2006 (Unaudited)

During the nine months ended 30 September 2006, SPML acquired items of machineries and motor vehicles of approximately RMB2,316,000 and RMB1,704,000 respectively. Items of motor vehicles with net book values of approximately RMB653,000 were disposed to third parties during the nine months ended 30 September 2006, resulting a loss on disposal of approximately RMB9,000.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

9. MINING RIGHTS

The legal form of SMPL was changed from a state-owned enterprise to a privately-owned limited liability company on 25 July 2007. SPML had negotiated with the Ministry of Land and Resources of Heilongjiang Province for the transformation of mining rights for the coal mine situated at Jixian County, Shuangyashan City, Heilongjiang Province, the PRC. The transformation cost of mining rights is RMB96,418,400.

10. INVENTORIES

Raw materials Finished goods	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 5,619 4,815 5,582 7,300 1,116 4,695 397 358 6,735 9,510 5,979 7,658	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 5,619 4,815 5,582 7,300 1,116 4,695 397 358 6,735 9,510 5,979 7,658
		7,658

11. TRADE RECEIVABLES

Based on the invoice dates, the ageing analysis of trade receivables at the respective balance sheet dates are as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 6,689 5,702 10,821 13,076 2,016 9,943 2,593 23,927 1,579 627 5,095 9,817 874 5,243 10,328 8,350 11,158 21,515 28,837 55,170	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 6,689 5,702 10,821 13,076 2,016 9,943 2,593 23,927 1,579 627 5,095 9,817 874 5,243 10,328 8,350 11,158 21,515 28,837 55,170
		55,170

According to the credit rating of different customers, SPML allows a range of credit periods not exceeding 180 days to its trade customers. Trade receivables are all denominated in RMB.

12. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

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

13. AMOUNT DUE FROM/(TO) HOLDING COMPANY

Amount due from/(to) holding company is unsecured, interest-free and repayable on demand.

14. CASH AND CASH EQUIVALENTS

As at 31 December 2004, 2005, 2006 and 30 September 2007, all of SPML’s cash and bank balances were denominated in RMB, which were deposited with banks in the PRC and held in hand. RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, SPML is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

15. TRADE PAYABLES

Based on the invoice dates, the ageing analysis of trade payables at the respective balance sheet dates are as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days Trade payables are all denominated in RMB.	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 5,651 6,973 6,780 2,875 831 505 1,975 143 967 1,369 483 1,193 4,177 4,499 1,328 649 11,626 13,346 10,566 4,860	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 5,651 6,973 6,780 2,875 831 505 1,975 143 967 1,369 483 1,193 4,177 4,499 1,328 649 11,626 13,346 10,566 4,860
		4,860

16. UNSECURED BANK AND OTHER BORROWINGS

Notes Bank borrowings (a) Other borrowings (b) Loans from staff (c) Unsecured bank and other borrowings were classified as follows: Within 1 year or on demand	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 4,560 2,661 2,141 – 65,390 64,190 57,416 56,216 2,814 2,583 966 18,307 72,764 69,434 60,523 74,523 72,764 69,434 60,523 74,523	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 4,560 2,661 2,141 – 65,390 64,190 57,416 56,216 2,814 2,583 966 18,307 72,764 69,434 60,523 74,523 72,764 69,434 60,523 74,523
		74,523

		74,523

All borrowings are denominated in RMB and their carrying amounts approximate to their fair values.

(a) Bank borrowings were unsecured, with a fixed interest rate of 8.4% per annum.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(b)

Notes 黑龍江省地方煤炭工業（集團）總公司 (i) 中國地方煤炭總公司 (ii) 黑龍江省投資總公司 (iii) 黑龍江省佳木斯市中級人民法院 (iv)	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 10,060 10,060 10,060 10,060 25,240 24,740 20,240 19,240 23,290 23,290 23,290 23,290 6,800 6,100 3,826 3,626 65,390 64,190 57,416 56,216	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 10,060 10,060 10,060 10,060 25,240 24,740 20,240 19,240 23,290 23,290 23,290 23,290 6,800 6,100 3,826 3,626 65,390 64,190 57,416 56,216
		56,216

(i) According to 民事判決書 issued by 黑龍江省高級人民法院 on 13 October 2006, SPML is obligated to repay the loan and accumulated interest to 黑龍江省地方煤炭工業（集團）總公司 in the amount of RMB10,060,000 and RMB14,584,000 respectively on or before 23 October 2006.
(ii) According to 民事判決書 issued by 黑龍江省高級人民法院 on 7 July 2004, SPML is obligated to repay the loan to 中國地方煤炭總公司 in the amount of RMB25,240,000. The loan is bearing interest from 5.76 % to 7.83% per annum.
(iii) According to document issued by 黑龍江省財政廳 on 17 October 2001, SPML is obligated to repay the initial investment from the Government and accumulated interest in the amount of RMB23,290,000 and RMB9,000,000 respectively.
(iv) According to 民事調解書 issued by 黑龍江省佳木斯市中級人民法院 on 14 July 2004, SPML is obligated to repay the loan and accumulated interest on behalf of a fellow subsidiary, 佳木斯北方煤化工有限責任公司, to 黑龍江省佳木斯市中級人民法院 in the amount of RMB6,800,000 and RMB521,000 respectively.

All of the above loan interests were accrued and recorded as other payables as at the respective balance sheet dates. Up to the date of this report, none of the above borrowings had been fully settled.

17. OTHER LONG TERM LIABILITIES

Other long term liabilities represented government assistance granted by the Ministry of Land and Resources of Heilongjiang Province, the PRC, in relation to the transformation cost of the mining rights. The amount is recognised in the balance sheet at initial amount granted and subsequently stated at carrying value with reference to the agreed terms. According to the agreement, the government assistance is unsecured, non-interest bearing and repayable by nine annual instalments, commencing in the second year from the date of issuance of the mining rights certificate.

18. PAID IN CAPITAL

SPML was established in the PRC on 17 October 2001 with a registered capital of RMB20,000,000.

19. RESERVES

The amounts of SPML’s reserves and the movements therein during the Relevant Periods are presented in the statements of changes in equity set out in note (c) of Section I.

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

20. DEFERRED TAX

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 33% during the Relevant Periods.

The movement on the deferred tax assets is as follows:

Tax losses At beginning of the year/period Charged to income statement_(note 7)_ At end of the year/period	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 12,283 2,654 2,654 – (9,629) – (2,654) – 2,654 2,654 – –	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 12,283 2,654 2,654 – (9,629) – (2,654) – 2,654 2,654 – –
		–

Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through taxable profits is probable. SPML has tax losses of approximately RMB8,042,000 for the two years ended 31 December 2004 and 2005, these tax losses may be carried forward for maximum of five years.

There were no other material unrecognised deferred tax liabilities as at the respective balance sheet dates.

21. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

Details of directors’ emoluments of SPML for the Relevant Periods and the nine months period ended 30 September 2006 are as follows:

Salaries, allowances and other benefits RMB’000 For the year ended 31 December 2004 韓永海 66 孫禮清 43 盧丙喜 43 李興友 43 蘇古坤 66 261 For the year ended 31 December 2005 韓永海 72 孫禮清 48 盧丙喜 48 李興友 48 蘇古坤* 72 288	Retirement scheme contribution RMB’000 1 – – – 1 2 1 – 1 1 1 4	Total RMB’000 67 43 43 43 67
		263

		73 48 49 49 73
		292

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FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Salaries, allowances and other benefits RMB’000 For the year ended 31 December 2006 王連武^ 107 韓永海 107 孫禮清 94 姜小軍^ – 邢仲^# – 張慶祥^ – 308 For the nine months ended 30 September 2006 (Unaudited) 王連武^ 76 韓永海 76 孫禮清 73 姜小軍^ – 邢仲^# – 225 For the nine months ended 30 September 2007 王連武 536 韓永海 536 孫禮清 156 姜小軍 – 張慶祥 – 1,228	Retirement scheme contribution RMB’000 – 1 – – – – 1 – 1 – – – 1 – 3 – – – 3	Total RMB’000 107 108 94 – – –
		309

		76 77 73 – –
		226

		536 539 156 – –
		1,231

^ Appointed during the year ended 31 December 2006 * Resigned during the year ended 31 December 2005 # Resigned during the year ended 31 December 2006

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in SPML for the Relevant Periods and nine months ended 30 September 2006 included five directors for the years ended 31 December 2004 and 31 December 2005, and three directors for the year ended 31 December 2006, nine months ended 30 September 2006 and 30 September 2007 respectively, whose emoluments are reflected in the analysis presented in note 21(a) above. The emoluments payable to the remaining individuals during the Relevant Periods and nine months ended 30 September 2006 are as follows:

Salaries and other benefits Retirement scheme contribution	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – – 188 – – 1 – – 189	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 151 349 1 3 152 352	Nine months ended 30 September 2006 2007 RMB’000 RMB’000 (Unaudited) 151 349 1 3 152 352
			352

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Number of the remaining individuals fell within the following bands:

				Nine months	Nine months
		Year ended 31 December		ended 30 September
	2004	2005	2006	2006	2007
				(Unaudited)
Emolument bands
Nil – RMB1,000,000	–	–	2	2	2

During the Relevant Periods and the nine months ended 30 September 2006, no emoluments were paid by SPML to the directors or to the highest paid individuals as an inducement to join or upon joining SPML or as compensation for loss of office and no directors of SPML waived or agreed to waive any remuneration.

22. OPERATING LEASE COMMITMENTS

SPML did not have any material lease commitments as at the respective balance sheet dates.

23. CAPITAL COMMITMENTS

At 30 September 2007, SPML had capital expenditure commitments in relation to the purchase of property, plant and equipment contracted but not provided for, net of deposit paid, amounted to approximately RMB617,000.

SPML did not have any material capital commitments as at 31 December 2004, 2005 and 2006 and 30 September 2006.

24. CONTINGENT LIABILITIES

Lawsuits and other proceedings

SPML was a defendant in certain lawsuits and other proceedings arising in the ordinary course of business, the relative amounts and latest progress were disclosed in note 16(b). All of the loan interests were accrued and recorded as other payables as at the respective balance sheet dates. According to the legal opinion obtained from 黑龍江省雙鴨山市正大法律事務所 , any resulting liabilities will not have a material adverse effect on the financial position or operating results of SPML.

25. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the Financial Information and the 30 September 2006 Financial Information, SPML had the following material related party transactions:

					Nine months	Nine months
		Year ended 31	December		ended 30 September
	2004	2005		2006	2006	2007
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
					(Unaudited)
Management fees paid to
holding company (i)	4,200	4,350		6,000	2,847	9,000

Notes:

(i) Management fees paid to holding company were made in the normal course of business and based on mutual agreed terms.

(ii) The directors are of the opinion that the key management personnel were solely the directors of SPML, details of whose remunerations during the Relevant Periods and the nine months period ended 30 September 2006 are set out in note 21(a).

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

26. RISK MANAGEMENT OBJECTIVES AND POLICIES

SPML is exposed to a variety of financial risks which result from its operating activities. SPML does not have written risk management policies and guidelines. However, the directors of SPML periodically analyse and formulate measures to manage SPML’s exposure to market risk (i.e. interest rate and foreign currency risk) and credit risk. Generally, SPML employs a conservative strategy regarding its risk management. As SPML’s exposure to market risk and credit risk are kept at a minimum level, SPML has not used any derivatives or other instruments for hedging purposes. SPML does not hold or issue derivative financial instruments for trading purposes. The most significant financial risks to which SPML is exposed to are discussed below.

As at the respective balance sheet dates, SPML’s financial instruments mainly consisted of trade receivables, bills receivables, other receivables, amounts due from/(to) holding company, bank and cash balances, trade payables, accrued expenses and other payables and unsecured bank and other borrowings.

(a) Interest rate risk

As SPML has no significant interest-bearing assets, SPML’s income and operating cash flows are substantially independent of changes in market interest rates.

SPML’s fair value interest-rate risk mainly arises from unsecured bank and other borrowings as detailed in note 16. Unsecured bank and other borrowings were issued at fixed rates which expose SPML to fair value interest-rate risk. SPML has no cash flow interest-rate risk as there are no borrowings which bear floating interest rates. SPML historically has not used any financial instruments to hedge potential fluctuations in interest rates.

(b) Credit risk

Credit risk arises from the possibility that the counterparty to a transaction is unwilling or unable to fulfil its obligation which results in SPML suffering financial loss. The carrying amounts of cash and cash equivalents, trade receivables and other current assets except for deposits and prepayments included in the balance sheet represent SPML’s maximum exposure to credit risk in relation to its financial assets.

SPML’s sales are made to metallurgical companies, construction material producers and railway companies. SPML has policies in place to ensure that sales of products are made to customers with an appropriate credit history. SPML allows a range of credit periods not exceeding 180 days to its trade customers, the historical experience in collection of trade and other receivables falls within the recorded allowance and the directors are of the opinion that adequate provision for uncollectible receivables has been made in the financial statements. SPML has no significant concentrations of credit risk. No amounts in relation to the trade receivables are past due.

(c) Foreign currency risk

SPML mainly operated in the PRC with most of the transactions settled in RMB and did not have significant exposure to risk resulting from changes in foreign currency exchange rates.

(d) Liquidity risk

SPML’s policy is to maintain sufficient cash and cash equivalents and have available funding to meet its working capital requirements. As mentioned in note 1.2, SPML’s liquidity is dependent upon the continuing financial support from its holding company, Northern Group, provided that Northern Group is able to meet its commitment to provide financial support to SPML. The directors of SPML are satisfied that SPML will be able to meet in full its financial obligations as and when they fall due in the foreseeable future.

The following table details the remaining contractual maturities at each of the balance sheet date of SPML’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payment computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date SPML can be required to pay:

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FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Trade payables Accrued expenses and other payables Amount due to holding company Unsecured bank and other borrowings Total Trade payables Accrued expenses and other payables Amount due to holding company Unsecured bank and other borrowings Total Trade payables Accrued expenses and other payables Amount due to holding company Unsecured bank and other borrowings Total Trade payables Accrued expenses and other payables Unsecured bank and other borrowings Total	As at 31 December 2004 Total contractual Within one Carrying undiscounted year or amount cash flow on demand RMB’000 RMB’000 RMB’000 11,626 (11,626) (11,626) 110,494 (110,494) (110,494) 4,916 (4,916) (4,916) 72,764 (72,764) (72,764) 199,800 (199,800) (199,800) As at 31 December 2005 Total contractual Within one Carrying undiscounted year or amount cash flow on demand RMB’000 RMB’000 RMB’000 13,346 (13,346) (13,346) 109,388 (109,388) (109,388) 5,681 (5,681) (5,681) 69,434 (69,434) (69,434) 197,849 (197,849) (197,849) As at 31 December 2006 Total contractual Within one Carrying undiscounted year or amount cash flow on demand RMB’000 RMB’000 RMB’000 10,566 (10,566) (10,566) 111,035 (111,035) (111,035) 1,178 (1,178) (1,178) 60,523 (60,523) (60,523) 183,302 (183,302) (183,302) As at 30 September 2007 Total contractual Within one Carrying undiscounted year or amount cash flow on demand RMB’000 RMB’000 RMB’000 4,860 (4,860) (4,860) 154,775 (154,775) (154,775) 74,523 (74,523) (74,523) 234,158 (234,158) (234,158)	More than one year but less than two years RMB’000 – – – –
		–

		More than one year but less than two years RMB’000 – – – –
		–

		More than one year but less than two years RMB’000 – – – –
		–

		More than one year but less than two years RMB’000 – – –
		–

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APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

(e) Sensitivity analysis

In managing interest rate and foreign currency risks, SPML aims to reduce the impact of short-term fluctuations and long-term permanent changes on SPML’s profit or loss. As at 31 December 2004, 2005, 2006 and 30 September 2007, it is estimated that a general increase of one percentage point in interest rates would increase SPML’s loss after income tax by approximately RMB485,336, RMB463,125, RMB403,688 and RMB497,068 respectively, so far as the effect on interest-bearing unsecured bank and other borrowings are concerned.

(f) Fair values

The fair values of SPML’s current financial assets and liabilities are not materially different from their carrying amounts because of the immediate or short term maturity.

(g) Summary of financial assets and liabilities by category

The carrying amounts of SPML’s financial assets and liabilities as recognised at the balance sheet date of the Relevant Periods under review may also be categorised as follows. See notes 1.9 and 1.15 for explanations about how the categorisation of financial instruments affects their subsequent measurement.

Loans and receivables Financial liabilities: Financial liabilities measured at amortised cost	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 20,084 24,179 32,921 72,502 199,800 197,849 183,302 234,158	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 20,084 24,179 32,921 72,502 199,800 197,849 183,302 234,158

		234,158

No changes were made in the objectives, policies or processes during the three years ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2007.

27. CAPITAL MANAGEMENT

SPML’s objectives of managing capital are to safeguard SPML’s ability to continue as a going concern in order to provide adequate returns for shareholders in the long term and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, SPML may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies or processes during the three years ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2007.

Management regards total equity and unsecured bank and other borrowings presented on the face of the balance sheet as capital, for capital management purpose. The amount of capital deficiency as at 31 December 2004, 2005 and 2006 were RMB33,468,000, RMB33,136,000 and RMB20,323,000 respectively. The amount of capital as at 30 September 2007 was RMB21,230,000.

SPML is not subject to externally imposed capital requirements.

28. SUBSEQUENT EVENTS

The legal form of SPML was changed from a state-owned enterprise to a privately-owned limited liability company on 25 July 2007. SPML had negotiated with the Ministry of Land and Resources of Heilongjiang Province for the transformation of mining rights for the coal mine situated at Jixian County, Shuangyashan City, Heilongjiang Province, the PRC. The certificate of mining rights was issued to SPML on 30 November 2007.

Save as disclosed above, no other significant events have taken place subsequent to 30 September 2007.

184

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

29. EXPLANATION OF TRANSITION OF HKFRSS

As stated in note 1.2, these are SPML’s first Financial Information prepared in accordance with HKFRSs. The accounting policies set out in note 1 have been applied in preparing the Financial Information for the years ended 31 December 2004, 2005 and 2006, and nine months ended 30 September 2007 and in the preparation of an opening HKFRSs balance sheet at 1 January 2004. In preparing its opening HKFRSs balance sheet, SPML has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting, the PRC GAAP, an explanation of how the transition from previous GAAP to HKFRSs has affected SPML’s financial position and financial performance is set out in the following and the notes that accompany the tables.

Balance sheet as at 1 January 2004

Note ASSETS AND LIABILITIES Non-current assets Property, plant and equipment Deferred expenses Deferred tax assets (a) Current assets Inventories Trade receivables Deposits, prepayments and other receivables Cash and cash equivalents Current liabilities Trade payables Accrued expenses and other payables Unsecured bank and other borrowings Taxes payable Net current liabilities Net assets/(liabilities) EQUITY Equity attributable to equity holders of SPML Paid in capital Reserves Total equity/(capital deficiency)	Effect of transition to HKFRSs Previous GAAP Other GAAP adjustment adjustments RMB’000 RMB’000 RMB’000 66,860 – (11,734) 300 – (300) – 12,283 – 67,160 12,283 (12,034) 8,833 – (2,055) 36,702 – (25,346) 7,709 – (6,125) 3,123 – 2,627 56,367 – (30,899) 27,375 – (7,422) 50,716 – 45,584 19,922 – 48,278 4,192 – (4,192) 102,205 – 82,248 (45,838) – (113,147) 21,322 12,283 (125,181) 20,000 – – 1,322 12,283 (125,181) 21,322 12,283 (125,181)	HKFRSs RMB’000 55,126 – 12,283 67,409 6,778 11,356 1,584 5,750 25,468 19,953 96,300 68,200 – 184,453 (158,985) (91,576) 20,000 (111,576) (91,576)

185

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Income statement for the year ended 31 December 2006

Note Revenue Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Other operating expenses Operating profit Finance costs Loss before income tax Income tax expense (b) Loss for the year	Effect of transition to HKFRSs Previous GAAP Other GAAP adjustment adjustments RMB’000 RMB’000 RMB’000 168,037 – 2,280 (102,236) – (7,364) 65,801 – (5,084) 2,795 – 637 (626) – – (33,053) – 11,417 (1,881) – (27) 33,036 – 6,943 (1,864) – (2,776) 31,172 – 4,167 (4,743) (2,654) (6,218) 26,429 (2,654) (2,051)	HKFRSs RMB’000 170,317 (109,600) 60,717 3,432 (626) (21,636) (1,908) 39,979 (4,640) 35,339 (13,615) 21,724

(a) Under the previous GAAP, the accumulated tax losses of approximately RMB37,221,000 had not been recognised as deferred tax assets for the year ended 31 December 2003. The effect would increase deferred tax assets in relation to available tax losses by approximately RMB12,283,000, at the tax rate of 33% as at 31 December 2003 and 1 January 2004, being the date of transition of previous GAAP to HKFRSs.
(b) The effect is to ultilise deferred tax assets of RMB2,654,000 in relation to the available tax losses brought forward to offset the income tax expense for the year ended 31 December 2006.
(c) There were no GAAP adjustments arising on the balance sheet for the year ended 31 December 2006 prepared under the previous GAAP and HKFRSs. Accordingly, there was no transition of previous GAAP to HKFRSs as at 31 December 2006, being the end of the latest period presented in SPML’s most recent annual financial statements under previous GAAP.
(d) There were no material GAAP adjustments arising on the cash flow statement for the Relevant Periods prepared under the previous GAAP and HKFRSs.

186

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of SPML have been prepared in respect of any period subsequent to 30 September 2007.

Yours faithfully,

Grant Thornton

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

187

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

MANAGEMENT DISCUSSION AND ANALYSIS ON THE COAL MINE COMPANY

Financial summary

Set out below is certain financial information extracted from in the accountants’ report on the Coal Mine Company for the three years ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2007, details of which are included in Appendix III to this circular.

				Nine months
				ended
	Year	ended 31 December		30 September
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Revenue	114,168	106,256	170,317	173,607
(Loss)/Profit before income tax	(5,027)	6,114	35,339	45,452
(Loss)/Profit for the year/period
after tax	(14,656)	3,662	21,724	27,553

Amount due to/from holding company

As at 31 December 2004, 2005, 2006 and 30 September 2007, the amount due to/from holding company is unsecured, interest-free and repayable on demand.

Treasury policies

As at 31 December 2004, 2005, 2006 and 30 September 2007, all borrowings of the Coal Mine Company were denominated in RMB, unsecured, interest-bearing and repayable within one year or on demand.

Liquidity and financial resources

Assets/liabilities

Set out below is a summary of the financial information relating to the assets and liabilities of the Coal Mine Company extracted from the accountants’ report on the Coal Mine Company as at 31 December 2004, 2005, 2006 and 30 September 2007, details of which are set out in Appendix III to this circular:

				As at
		As at 31 December		30 September
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Total assets	93,568	100,179	112,832	272,733
Total liabilities	(199,800)	(202,749)	(193,678)	(326,026)
Net liabilities	(106,232)	(102,570)	(80,846)	(53,293)
Gearing ratio	2.14	2.02	1.72	1.20

The gearing ratio is calculated on the basis of total liabilities over total assets.

188

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Liabilities

Liquidity

The Coal Mine Company had total cash and bank balances of approximately RMB2,585,000, RMB384,000, RMB611,000, and RMB16,008,000 as at 31 December 2004, 2005, 2006 and 30 September 2007 respectively, and the corresponding current ratios were approximately 0.17, 0.18, 0.26 and 0.45 (calculated as a ratio of current assets over current liabilities).

Mining rights

The legal form of the Coal Mine Company has been changed from a state-owned enterprise to a privately-owned limited liability company on 25 July 2007. SPML had negotiated with the Ministry of Land and Resources of Heilongjiang Province for the transformation of mining rights for the coal mine situated at Jixian County, Shuangyashan City, Heilongjiang Province, the PRC. The transformation cost of mining rights is RMB96,418,400. Such amounts are to be paid over a 10 year period, of which RMB20,300,000 have been paid as at the Latest Practicable Date.

Bank and other borrowings

As at 31 December 2004, 2005, 2006 and 30 September 2007, the Coal Mine Company had the following bank and other borrowings which are denominated in RMB and repayable Within 1 year or on demand:

Bank borrowings Other borrowings Loans from staff	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 4,560 2,661 2,141 – 65,390 64,190 57,416 56,216 2,814 2,583 966 18,307 72,764 69,434 60,523 74,523	As at As at 31 December 30 September 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 4,560 2,661 2,141 – 65,390 64,190 57,416 56,216 2,814 2,583 966 18,307 72,764 69,434 60,523 74,523
		74,523

Bank borrowings were unsecured and had a fixed interest rate of 8.4% per annum.

Other borrowings comprise loans from various parties. Loan interests were accrued and recorded as other payables as at the respective balance sheet dates. The Coal Mine Company management is of the view that some of the long term liabilities are invested by the government to support the Sheng Ping Coal Mine in the early 1990s. Since the Mine Seller has undertaken that the long-term liabilities, bank loans, and other contingent liabilities as at 30 June 2007 are fully disclosed in the Mine Acquisition Agreement, and that there are no further liabilities incurred by the Coal Mine Company other than the accounts payable incurred in the ordinary course of business and that the Mine Seller and the Vendor has undertaken that the Coal Mine Company will have no other long-term liabilities other than the balance of the Mining

189

APPENDIX III FINANCIAL INFORMATION OF THE COAL MINE COMPANY

Rights Fee of RMB76.1 million, the Company is of the view that the outstanding loan and accumulated interests of the Coal Mine Company would not have any material adverse impact on the Company. Please refer to the disclosure on page 28 of the Circular regarding the impact of the outstanding loan and accumulated interests to the transaction.

Loans from staff were unsecured and bearing interest at a monthly rate of 2% and repayable on demand.

Contingent liabilities

As at 30 September 2007, the Coal Mine Company did not have any contingent liabilities.

Product mix

The Coal Mine Company sells four major coal products, namely ROM, clean, middling and fines to neighboring coking plants, steel plants and iron refineries. For the year ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2007, the Coal Mine Company had produced 493kt, 359kt, 531kt and 496kt respectively. Their main product, clean coal, is produced after washing the ROM extracted from the Coal Mine to “1/3 coking coal.” This is widely used in coking to produce coke for iron and steel manufacturers. Middling and fines are by-products of the coal washing process and are mainly used for electric generation, small scale industrial and household uses.

Charges on assets

As at 31 December 2004, 2005, 2006 and 30 September 2007, all bank and other borrowings of the Coal Mine Company are unsecured.

Foreign exchange exposure

The Coal Mine Company mainly operated in the PRC with most of the transactions settled in RMB and did not have significant exposure to risk resulting from changes in foreign currency exchange rates.

Employees and remuneration

The Coal Mine Company employes 2,568 people of which 1,312 people work underground and 337 people work on the surface in direct support of mining operations. Total staff costs incurred for the nine months ended 30 September 2007 are RMB48,109,000.

Future plans for material investments

190

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

1. INTRODUCTION

The following is the unaudited pro forma financial information of the Enlarged Group prepared in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of illustrating the effect of the Acquisition on the financial position of the Enlarged Group as at 31 March 2007 and the results and cash flows of the Enlarged Group for the year ended 31 March 2007.

The accompanying unaudited pro forma financial information of the Enlarged Group is based on certain assumptions, estimates, uncertainties and other currently available financial information, and is provided for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the actual financial position and financial results of the Enlarged Group following Completion. Further, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position or results of operations.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 31 March 2007 extracted from the published annual report of the Group as of 31 March 2007 as set out in Appendix I to this circular and the audited balance sheets of WGGI and SPML as at 30 September 2007 and 31 December 2006 as extracted from the accountants’ reports as set out in Appendices II and III to this circular (translated into HK$ at an exchange rate of RMB1 = HK$1.0121) as if the Acquisition had been completed on 31 March 2007.

The unaudited pro forma consolidated income statement and cash flow statement of the Enlarged Group are prepared based on the audited consolidated income statement and cash flow statement of the Group for the year ended 31 March 2007 extracted from the published annual report of the Group as of 31 March 2007 as set out in Appendix I to this circular and the audited income statement and cash flow statement of WGGI for the period from 12 April 2007 (being the date of incorporation of WGGI) to 30 September 2007 and the audited income statement and cash flow statement of SPML for the year ended 31 December 2006 as extracted from the accountants’ reports as set out in Appendices II and III to this circular (translated into HK$ at an average exchange rate of RMB1 = HK$0.9862) as if the Acquisition had been completed on 1 April 2006. However, the financial information of WGGI presented in the unaudited pro forma income statement and cash flow statement of the Enlarged Group only covers the period from 12 April 2007 (being its date of incorporation) to 30 September 2007, as there was no financial information of WGGI for a completed financial year.

191

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The Group as at 31 March 2007 HK$’000 (Audited) Non-current assets Property, plant and equipment 4,399 Prepaid land premium 355 Intangible assets 24,000 Goodwill 920 Derivative financial instruments – Available-for-sale financial assets 34,690 Prepayments for acquisition of a subsidiary 814 65,178 Current assets Inventories – Trade receivables – Bills receivables – Deposits, prepayments and other receivables 14,713 Cash and cash equivalents 37,237 Pledged bank deposits 3,175 Tax prepayment 545 55,670	WGGI as at 30 September 2007 HK$’000 (Audited) – – – – – – – – – – – – – – – –	SPML as at 31 December Pro forma 2006 adjustment HK$’000 HK$’000 (Audited) (Note 1) 63,815 – – – 781,829 – 10,187(1iii) – – 63,815 6,051 29,186 2,004 12,523 618 (320,000)(1i) – – 50,382	Pro forma Enlarged Group HK$’000 68,214 355 24,000 782,749 10,187 34,690 814 921,009 6,051 29,186 2,004 27,236 (282,145) 3,175 545 (213,948)

192

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Current liabilities Trade payables Deposits received in advance Other payables and accrued liabilities Amount due to holding company Unsecured bank and other borrowings Deferred revenue Taxes payable Net current liabilities Total assets less current liabilities Non-current liabilities Convertible note Deferred revenue Deposits received in advance Net assets/(liabilities) EQUITY Equity attributable to equity holders of the Company Share capital Reserves Total equity	The Group as at 31 March 2007 HK$’000 (Audited) – 55,961 6,908 – – 4,035 7,118 74,022 (18,352) 46,826 – – 1,030 1,030 45,796 2,355 43,441 45,796	WGGI as at 30 September 2007 HK$’000 (Audited) – – 4 – – – – 4 (4) (4) – – – – (4) – (4) (4)	SPML as at 31 December 2006 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note 1) (Note 3) 10,694 – 112,379 1,192 1,192 (1,192) 61,255 – 7,687 193,207 (142,825) (79,010) – 224,226(1iii) 2,815 – 2,815 (81,825) 20,242 (20,242) 700(1ii) (102,067) 4 102,067 34,300(1ii) 130,961(1iii) (81,825)	Pro forma Enlarged Group HK$’000 10,694 55,961 120,483 – 61,255 4,035 14,805 267,233 (481,181) 439,828 224,226 2,815 1,030 228,071 211,757 3,055 208,702 211,757

193

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

3. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

Revenue Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Other operating expenses Operating (loss)/profit Finance costs (Loss)/Profit before tax Taxation (Loss)/Profit for the year/period Attributable to: Equity holders of the Company Loss per share for loss attributable to the equity holders of the Company (note 6) Basic (HK cents) Diluted (HK cents)	The Group WGGI SPML year ended period ended year ended 31 March 30 September 31 December Pro forma 2007 2007 2006 adjustment HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Note 2) 236,319 – 167,966 – – (95,409) 236,319 – 72,557 3,387 – 3,385 (55,480) – (618) (129,118) (4) (34,016) (85,096) – (1,881) (29,988) (4) 39,427 – – (4,576) (20,180) (29,988) (4) 34,851 (4,423) – (13,427) (34,411) (4) 21,424 (34,411) (4) 21,424 (15) N/A	Pro forma Enlarged Group HK$’000 404,285 (95,409) 308,876 6,772 (56,098) (163,138) (86,977) 9,435 (24,756) (15,321) (17,850) (33,171) (33,171) (11) N/A

194

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

4. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

	The Group	WGGI	SPML
	year ended period ended		year ended		Pro forma
	31 March 30 September		31 December	Pro forma	Enlarged
	2007	2007	2006	adjustment	Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Audited)	(Audited)	(Audited)	(Note 2)
Cash flows from operating
activities
(Loss)/Profit before tax	(29,988)	(4)	34,851	(20,180)	(15,321)
Adjustments for:
Interest expense	–	–	4,576	20,180	24,756
Interest income	(1,675)	–	(14)		(1,689)
Amortisation of intangible
assets	6,096	–	–		6,096
Amortisation of prepaid land
premium	9	–	–		9
Amortisation of deferred
income on government grants	–	–	(305)		(305)
Depreciation of property,
plant and equipment	2,362	–	4,918		7,280
Impairment loss recognised in
respect of intangible assets	7,425	–	–		7,425
Impairment of interest in an
option to acquire an equity
interest of a company	2,358	–	–		2,358
Loss on disposal of financial
assets at fair value through
profit or loss	8,500	–	–		8,500
Loss on disposal of property,
plant and equipment	–	–	35		35
Bad debts written off	–	–	579		579
Net exchange gain	(326)	–	–		(326)

195

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Operating (loss)/profit before working capital changes Decrease in inventories Increase in trade receivables Increase in bills receivables Decrease in available-for-sales financial assets Increase in prepayments for acquisition of a subsidiary Increase in deposits, prepayments and other receivables Decrease in trade payables (Decrease)/Increase in other payables and accrued liabilities Decrease in amount due to holding company Decrease in deferred revenue Decrease in deposits received in advance Cash (used in)/generated from operations Interest received Hong Kong profits tax refund Overseas tax refund/(paid) Net cash (used in)/generated from operating activities	The Group WGGI SPML year ended period ended year ended 31 March 30 September 31 December Pro forma 2007 2007 2006 adjustment HK$’000 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) (Note 3) (5,239) (4) 44,640 – – 3,482 – – (7,800) – – (1,953) 600 – – (814) – – (4,811) – (7,502) – – (2,742) (107) 4 1,625 (4,441) – – (4,441) 4,441 (357) – – (10,215) – – (20,943) – 25,309 1,675 – – 1,820 – – 169 – (5,104) (17,279) – 20,205	Pro forma Enlarged Group HK$’000 39,397 3,482 (7,800) (1,953) 600 (814) (12,313) (2,742) (2,919) – (357) (10,215) 4,366 1,675 1,820 (4,935) 2,926

196

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Cash flows from investing
activities
Purchase of property, plant and
equipment
Payment for construction in
progress
Acquisition of subsidiaries
Proceeds from disposal of
property, plant and equipment
Proceeds from disposal of
financial assets at fair value
through profit or loss
Increase in pledged bank deposits
Interest received
Net cash generated
from /(used in) investing
activities
Cash flows from financing
activities
Dividends paid to Company’s
equity holders
Interest paid
New bank and other
borrowings raised
Repayment of bank and other
borrowings
Net cash used in financing
activities

The Group
WGGI
SPML
year ended period ended
year ended
Pro forma
31 March 30 September 31 December
Pro forma
Enlarged
2007
2007
2006
adjustment
Group
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Audited)
(Audited)
(Audited)
(Note 1)
(1,328)
–
(7,218)
(8,546)
–
–
(48)
(48)
–
–
–
(319,622)(1i)
(319,622)
–
–
634
634
7,461
–
–
7,461
(309)
–
–
(309)
–
–
14
14
5,824
–
(6,618)
(320,416)
(11,773)
–
–
(11,773)
–
–
(4,576)
(4,576)
–
–
48
48
–
–
(8,835)
(8,835)
(11,773)
–
(13,363)
(25,136)

197

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Net (decrease)/increase in
cash and cash equivalents
Cash and cash equivalents
at beginning of the year
Cash and cash equivalents
at end of the year
Analysis of balances of cash
and cash equivalents
Cash and bank balances

The Group
WGGI
SPML
year ended period ended
year ended
Pro forma
31 March 30 September 31 December
Pro forma
Enlarged
2007
2007
2006
adjustment
Group
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Audited)
(Audited)
(Audited)
(Note 1)
(23,228)
–
224
(342,626)
60,465
–
378
378(1i)
60,465
37,237
–
602
(282,161)
37,237
–
602
(320,000)
(282,161)

198

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to unaudited pro forma financial information of the Enlarged Group

(1) On 25 September 2007, the Company entered into a conditional sales and purchase agreement with the Vendor to acquire the entire issued share capital of WGGI at a consideration of HK$700 million (the “Consideration”), of which (a) HK$20 million has been paid by the Company in cash as a refundable deposit; (b) HK$35 million will be satisfied by the allotment and issue of the Consideration Shares to the Vendor at an issue price of HK$0.50 per Consideration Share; (c) HK$345 million will be satisfied by the issue of the Redeemable Convertible Note, and (d) HK$300 million will be paid by the Company in cash. According to the shares transfer agreement dated 30 October 2007, part of the Consideration amounted to RMB140,000,000 will be used for the purpose of settlement of long term liabilities and borrowings of SPML. Since this pro forma financial information is prepared solely for the illustrative purpose of the effect of the aggregated financial position and the results and cash flows of the Enlarged Group on the Acquisition, the proposed adjustments for the settlement of long term liabilities and borrowings of SPML amounted to RMB140,000,000 were not reflected in the unaudited pro forma consolidated balance sheet of the Enlarged Group in this respect.

WGGI and SPML are, therefore, considered by the directors of the Company as directly and indirectly held subsidiaries of the Company because WGGI and SPML will be controlled by the Group immediately after completion of the Acquisition. The balance sheets of WGGI and SPML will be consolidated with that of the Group from the date on which control is transferred to the Group.

The pro forma adjustments are to reflect the effect of the Acquisition on the consolidated balance sheet of the Group as if the Acquisition had taken place on 31 March 2007. Goodwill was determined assuming that the Consideration for accounting purpose is HK$700,000,000 and the fair values of the identifiable assets and liabilities of WGGI and SPML acquired by the Group are equal to those balances recorded by WGGI and SPML as at 30 September 2007 and 31 December 2006 as extracted from the accountants’ reports of WGGI and SPML as set out in Appendices II and III to this circular respectively. With reference to the net liability values of WGGI and SPML attributable to the equity holders as at 30 September 2007 and 31 December 2006 of approximately HK$4,000 and HK$81,825,000 (approximately RMB80,846,000) respectively, goodwill of HK$781,829,000 arose from the Acquisition. The goodwill is stated at cost less accumulated impairment loss. The share capital of WGGI and SPML would be eliminated upon consolidation, together with the pre-acquisition reserves of approximately HK$4,000 and HK$102,067,000 (approximately RMB100,846,000) respectively.

On Completion, the fair value of the net Consideration and the net identifiable assets and liabilities of WGGI and SPML will have to be reassessed. As a result of the reassessment, the amount of goodwill may be different from that estimated based on the basis stated above for the purpose of preparation of the unaudited pro forma financial information. Accordingly, the actual goodwill at the date of completion may be different from that presented above.

(1i) The pro forma adjustment of HK$320,000,000 represented the total cash consideration settlement of the Acquisition of HK$20 million and HK$300 million. For the purpose of unaudited proforma consolidated cash flow statement presentation, the beginning balance of cash and cash equivalents of SPML for the year ended 31 December 2006 amounted to HK$378,000 has been adjusted to reflect the net cash flow effect on the Acquisition as if the Acquisition had been completed on 1 April 2006.
(1ii) The pro forma adjustment represented the issuance of 70,000,000 Consideration Shares, at an issue price of HK$0.50 each. Upon completion, the issue of new shares will increase the Company’s share capital by HK$700,000 and share premium by HK$34,300,000.
(1iii) The pro forma adjustment represented the liability, non-equity and equity components of the Redeemable Convertible Note issued for the Acquisition as if it was issued on 31 March 2007. The estimated fair value of the liability component of the Redeemable Convertible Note is HK$224,226,000 determined using the discounted cash flow method. The estimated fair values of the non-equity derivative and equity components are HK$10,187,000 and HK$130,961,000 respectively.
(2) The pro forma adjustment represented the imputed interest expenses for the year ended 31 March 2007 on the Redeemable Convertible Note as part of the Consideration for the Acquisition, assuming effective interest rate of 9% per annum, as if they were issued on 1 April 2006. This unaudited pro forma adjustment will have continuing income statement effect to the Enlarged Group, and the actual amount will vary according to the timing of the whole or any part of the Redeemable Convertible Note being converted and redeemed and the applicable effective interest rates.
(3) The pro forma adjustment represented reclassification of accounts in relation to amount due to former holding company of SPML. Upon consolidation, the amount due to former holding company of SPML will be reclassified as other payables.

199

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(4) After making the above pro forma adjustments, the pro forma consolidated balance sheet would have a shortfall of cash and cash equivalents amounting to HK$282,145,000. As mentioned in the Company’s announcement dated 26 October 2007, the shortfall will be settled by financing through internal financial resources of the Company, available banking facilities, placing of new shares and/or future debt raising exercise of the Company. According to the Company’s announcement dated 28 November 2007, the Company has entered into a placing agreement with a placing agent on 6 November 2007, to procure not less than six independent placees to subscribe for up to a maximum of 250,000,000 new shares at the placing price on a best effort basis subject to the terms and conditions set out in the placing agreement. In addition, the Company has specifically negotiated a 3-month payment term after the Completion to allow enough time for these fund raising negotiation/activities.
(5) The financial information of WGGI presented in the unaudited pro forma income statement and cash flow statement of the Enlarged Group only covers the period from 12 April 2007 (being its date of incorporation) to 30 September 2007, as there was no financial information of WGGI for a completed financial year.
(6) Loss per share

The calculation of the basic and diluted loss per share attributable to the equity holders of the Company is based on the following data:

Loss
Loss for the year attributable to the equity
holders of the Company for the purpose of
basic loss per share
Effect of dilutive potential ordinary shares:
Interest on Redeemable Convertible Note
Loss for the year attributable to the equity
holders of the Company for the purpose of
diluted loss per share
Number of shares
Weighted average number of ordinary shares
Adjustment for consideration shares issued_(note 1)
Weighted average number of ordinary shares
for the purpose of basis loss per share(note 1)
Effect of dilutive potential ordinary shares:
Redeemable Convertible Note(note 2)_
Weighted average number of ordinary shares
for the purpose of diluted loss per share

The Group
year ended
Pro forma
31 March 2007
Enlarged Group
HK$’000
HK$’000
34,411
33,171
–
(20,180)
34,411
12,991
’000
’000
235,452
235,452
–
70,000
235,452
305,452
–
130,286
235,452
435,738

Notes:

The calculation of weighted average number of ordinary shares for the purpose of basic loss per share for the Pro forma Enlarged Group is based on the assumption that 70,000,000 consideration shares of HK$0.5 each issued on 1 April 2006, as a result of the settlement of part of the Consideration of the Acquisition as mentioned in 1(ii) above.
According to the Company’s announcement dated 26 October 2007, the holders of the Redeemable Convertible Note shall have the right to convert the whole or any part of the outstanding principal amount of the Redeemable Convertible Note at any time from its date of issue at the conversion price HK$0.5, given that the total number of shares with voting rights held by the holders of the Redeemable Convertible Note and parties acting in concert immediately after the issue of the conversion shares are less than 29.9% of the enlarged issued share capital of the Company. This assumption has been adopted in arriving at the weighted average number of ordinary shares for the purpose of diluted loss per share. There was an anti-dilutive effect from the conversion of the Redeemable Convertible Note, accordingly, no diluted loss per share has been presented.

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APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(7) The legal form of SPML was changed from a state-owned enterprise to a privately-owned limited liability company on 25 July 2007. SPML had negotiated with the Ministry of Land and Resources of Heilongjiang Province for the transformation of mining rights for the coal mine situated at Jixian County, Shuangyashan City, Heilongjiang Province, the PRC, and the certificate of the mining rights was issued to SPML on 30 November 2007, at a transformation cost of RMB96,418,400. The proposed adjustment for the recognition of the mining rights amounting to RMB96,418,000 has not been reflected in the unaudited pro forma consolidated balance sheet of the Enlarged Group as SPML has entitlement to the lawful and valid use of the mining rights under the original mining rights certificate at the year ended 31 December 2006 and on 31 March 2007 as if the Acquisition had been completed on the said date.

201

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

5. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of an accountants’ report dated 13 February 2008, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Grant Thornton, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Enlarged Group.

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13 February 2008

The Board of Directors Kenfair International (Holdings) Limited 30/F., One Kowloon No.1 Wang Yuen Street Kowloon Bay, Kowloon Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Kenfair International (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), Wealth Gain Global Investment Limited (“WGGI”) and 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited) (“SPML”), formerly known as 佳木斯市升平煤礦 (Jiamusi Sheng Ping Coal Mine) (together with the Group hereinafter referred to as the “Enlarged Group”), which has been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued capital in WGGI by the Company (the “Acquisition”), might have affected the financial information presented, as set out on pages 192 to 201 of the Company’s circular dated 13 February 2008 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out in the section under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” (the “Pro Forma Financial Information”) in Appendix IV to the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the respective dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited Pro Forma Financial Information with the directors of the Company. 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 4.29(1) of the Listing Rules.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group as at 31 March 2007 or any future date; or
the results and cash flows of the Enlarged Group for the year ended 31 March 2007 or any future periods.

Opinion

In our opinion:

(a) the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and

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APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Grant Thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark

15 Queen’s Road Central Hong Kong

204

VALUATION REPORT

APPENDIX V

The following is the text of the report of the valuation of the Coal Mine Company dated 13 February 2008 prepared by Savills for the purpose of inclusion in this circular.

The Director Kenfair International (Holdings) Limited 30/F, One Kowloon No.1 Wang Yuen Street Kowloon Bay, Kowloon Hong Kong

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Wealth Gain Global Investment Ltd. Suite 2610, 26/F, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong

13 February 2008

T : (852) 2801 6100 F : (852) 2530 0756 23/F Two Exchange Square Central, Hong Kong

EA Licence: C-023750 savills.com

Dear Sirs,

VALUATION OF BUSINESS ENTERPRISE VALUE OF SHUANG YASHAN NORTHERN SHENG PING MINING LIMITED

In accordance with your instructions, we have undertaken a valuation on behalf of Wealth Gain Global Investment Ltd. (“Wealth Gain”) and Kenfair International (Holdings) Limited (“Kenfair”) to determine the Market Value (as defined below) of the business enterprise value of Shuang Yashan Northern Sheng Ping Mining Limited (hereinafter referred to as the “Company”) as at 30 June 2007 (the “Valuation Date”). Based on instruction from Wealth Gain and Kenfair, in our valuation, all the liabilities are assumed to be settled as at the Valuation Date except for the liabilities of trade creditors payable and contingent liability regarding mining rights fee.

The Company was incorporated on 17 October 2001. The principal assets and business of the Company is the holding and operating of Shengping coal mine, which is located in Jiyan County, Shuangyashan City, Heilongjiang Province, the People’s Republic of China (the “PRC”). The closest major town is Shuangyashan which is about 25 km away to the south. The mining licence area of the coal mine is 36.83 sq.km. The Company is principally engaged in the exploitation and mining of coal.

As at January 2007, the resource of the Coal Mine was approximately 62,071kt according to MMC report and Company information.

The purpose of this valuation is to express an independent opinion of the Market Value (as defined below) of the Company as at the Valuation Date for internal reference purpose.

Our valuation is our opinion of the Market Value which is defined as “the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

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VALUATION REPORT

APPENDIX V

VALUATION METHODOLOGY AND BASIS

The valuation procedures employed include the review of physical and economic conditions of the subject asset and an assessment of key assumptions, estimates, and representations made by the proprietor or the operator of the subject asset. All matters we consider essential to the proper understanding of the valuation are disclosed in our valuation report.

In arriving at our assessed value, we have considered three accepted approaches. They are market approach, cost approach and income approach. In this valuation, the market approach is not appropriate as there are insufficient comparable transactions to form reliable basis for our opinion of value. The cost approach is not appropriate as it ignores the economic benefits of ownership of the business. We have therefore relied solely on the income approach in determining opinion of the value.

It is generally acceptable to use mineral resources in the income approach if mineral reserves are also present and if, in general, mined ahead of the mineral resources in the same income approach model, provided that the mineral resources as depicted in the income approach model are likely to be economically viable.

We have adopted the income approach technique known as discounted cash flow method to assess the Market Value of business enterprise value of the Company. Under the said method, we have discounted the projected cash flow of the Company to present worth based on the sales quantities, operating cost and capital expenditure forecast provided by MMC dated 13 February 2008 and other relevant documents, financial information and projection provided by the Company and Wealth Gain.

For the purpose of our valuation, we have derived the future cash flows of the Company based on the available information and presently prevailing operating conditions of the business and by taking into consideration of other pertinent factors which basically include the followings:

the market and the business risks of the Company;
the general economic outlook as well as specific investment environment for the business;
the nature and current financial status of the Company;
the historical performance of the Company;
the market expectation and required rate of return for similar business; and
the assumptions as stated in the Specific and General Assumptions of this report.

When evaluating the appropriate rate for the Company, we have used the Capital Assets Pricing Model (the “CAPM”). Under CAPM, the appropriate expected rate of return is the sum of the risk-free return and the equity risk premium required by investors to compensate for the market risk assumed. In addition, the expected rate of return of the Company is expected to be affected by other firm specific risk factors that are independent of the general market. The discount rate of approximately 17.5% per annum was determined by risk free rate of approximately 4.5%, market return of approximately 7.5%, estimated

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VALUATION REPORT

APPENDIX V

unlevered beta of the Company of 1.3 and firm specific factors of 3%. The estimated unlevered beta of the Company was estimated by the companies (China Shenhua Energy Company, Yanzhou Coal Mine Company and China Coal Energy Company) listed in the Hong Kong Stock Exchange and principally engaged in the coal mining business in the PRC as at 30 June 2007.

A sensitivity analysis was prepared based on discount rates ranging from approximately 16.5% to 18.5%. The sensitivity result of the Company falls in the range of RMB620 million to RMB740 million.

Discount Rates	Results
	(RMB million)
16.5%	740
17.5%	680
18.5%	620

We have been provided with extracts of copies of relevant documents and financial information relating to the Company. We have relied upon the aforesaid information in forming our opinion of the Market Value. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us. We have no reason to doubt the truth and accuracy of the said information which is material to the valuation. We have also been advised by Wealth Gain, Kenfair and the Company that no material facts have been omitted from the information provided. We have also made relevant inquiries and obtained further information as considered necessary for the purpose of this valuation.

While we have exercised our professional knowledge and cautions in adopting assumptions and other relevant key factors in our valuation, those factors and assumptions are still vulnerable to the change of the business, economic environment, competitive uncertainties or any other abrupt alternations of external factors.

On-site inspections were taken, and the properties and works were found to be in a condition that could perform the required purpose. We did not carry out any structural survey or on-site measurements. We are not able to report that the relevant properties are free from rot, infestation or any other structural defect.

SPECIFIC ASSUMPTIONS

In the course of valuation, the following specific assumptions and caveats have been made. We have based on the followings to conclude the Market Value of the Company.

The mining right of the Company will expire in December 2012. We have assumed that the Company can renew the mining right continuously until all the resources have been mined;
According to MMC technical report and company information, there are resources of 62.1 mega tones as at January 2007, which is based on the estimated resources of 64.0 mega tones as at the end of 2002 and the production of the Coal Mine amounting to 1.9 mega tones for 2003 to 2006. We have assumed the resources of classes 122b, 2M22, 2S11 and 2S22 of 37.9 mega tones are likely to be economically viable;

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VALUATION REPORT

APPENDIX V

According to the Company’s management, the production of the Company during the first six months of 2007 was 323kt;
According to MMC technical report, the recovery rate of resources is 70% and has been adopted and applied to resources in our valuation.
In our valuation, we have assumed that all the liabilities of the Company of approximately RMB151.8 million had been settled as at the Valuation Date except for trade creditor payable of approximately RMB5.7 million and contingent liability of approximately RMB76.1 million regarding the mining rights fee;
We have assumed that all the operating cost and capital expenditure forecast (in accordance with table 2.8 – Capital Expenditure for 300kt Expansion by Year and table 2.10 – Shengping Coal Mine Operating Cost Profile) for the exploitation of the coal mines provided by MMC and the Company after due and careful enquiry is appropriate and adequate;
We have assumed that the growth rate of selling price of products of the Company will be in accordance with the research reports – “2007 – 2010 coking coal market research and forecast” prepared by Shanxi Fenwei Energy Consulting Co. Ltd (山西汾渭能源開發諮詢有限公司 ) and “Heilongjiang Province Shuangyashan City 1/3 Coking Coal Industry Study” prepared by Beijing Waterwood Technologies Co. Ltd. (北京佐思信息諮詢有限責任公司 ) regarding general coal market situation and selling price growth rate estimation provided by the Company. The growth rate of selling price of the product is estimated to be 6% per annum in 2008 and 4% per annum after 2008;
We have assumed that the actual Shengping coal mine production profile will be same as the projected profile in the MMC report;
We have assumed that the projected business can be achieved with the effort of the management of the Company.

GENERAL ASSUMPTIONS

Notwithstanding the incorporation of foreseeable changes in our valuation, a number of assumptions have been made in the preparation of the reported assessed figures. The assumptions are:

The financial and operational information such as management account of the Company, titles and products provided to us by the Company is accurate and relied to a considerable extent on such information in arriving at our opinion of value; and
There are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported value.
All required licenses, certificates, consents, or other legislative or administrative approvals from any local, provincial, or national government or private entity or organisation have been or can readily be obtained or renewed or replaced on which the valuation contained in our report are based;

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VALUATION REPORT

APPENDIX V

There will be no major changes in existing political, legal, fiscal or economic conditions in the country or district where the business is in operation;
There will be no major changes in the current taxation law in the areas in which the Company carries on its business, that the rate of tax payable remains unchanged and that all applicable laws and regulations will be complied with;
The Company has obtained all necessary permits and approvals to carry out mining and business operations in the coal mine;
The inflation, interest rates and currency exchange rate will not differ materially from those presently prevailing;
The Company will retain its key management and technical personnel to maintain its ongoing operations.
There will be no major business disruptions through international crisis, industrial disputes, industrial accidents or severe weather conditions that will affect the existing business;
The Company will remain free from claims and litigation against the business or its customers that will have a material impact on value;
The Company is unaffected by any statutory notice and the operation of the business gives, or will give, no rise to a contravention of any statutory requirements;
The business is not subject to any unusual or onerous restrictions or encumbrances; and
The potential bad debt of the Company will not materially affect its business operations.

LIMITING CONDITIONS

We have to a considerable extent relied on the financial data and other related information provided by the Company and MMC. We are not in a position to comment on the lawfulness of the business.

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

In accordance with our standard practice, we must state that this report and valuation is for the use only of the party to whom it is addressed and no responsibility is accepted to any third party for the whole or any part of its contents.

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VALUATION REPORT

APPENDIX V

MANAGEMENT CONFIRMATION OF FACTS

A draft of this report and our calculation has been sent to management of the Company, Wealth Gain and Kenfair. They have reviewed and orally confirmed to us that facts as stated in this report and calculation are accurate in all material respects and that they are not aware of any material matters relevant to our engagement which have been excluded.

REMARKS

Unless otherwise stated, all money amounts are stated in Renminbi.

We hereby confirm that we have neither present nor prospective interests in the Company and their respective holding companies, subsidiaries and associated companies, Wealth Gain, Kenfair and its subsidiaries, or the value reported herein.

The conclusion of value is based on accepted valuation procedures and practices that rely on substantially on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. Further, while the assumptions and other relevant factors are considered by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, Wealth Gain, Kenfair and us.

OPINION OF THE VALUE

Based on the investigation and analysis stated above and on the method employed, we are of the opinion that the Market Value of the Company as at 30 June 2007 was reasonably stated by the amount of RMB680,000,000 (RENMINBI SIX HUNDRED AND EIGHTY MILLION).

Yours faithfully,
For and on behalf of
Savills Valuation and Professional Services	Limited
Charles C K Chan	Sam K S Lo
MSc FRICS FHKIS MCIArb RPS (GP)	BBA CFA CPA
Managing Director	Associate Director

Note: Mr. Charles Chan is a Chartered Estate Surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), and a qualified valuer and has about 23 years’ experience in the valuation of properties in Hong Kong and has extensive experience in business valuation projects in Hong Kong and the PRC.

Mr. Sam Lo is a Chartered Financial Analyst and Certified Public Accountant who has assisted Mr. Charles Chan in business valuation projects in Hong Kong and the PRC.

210

APPENDIX VI REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE COAL MINE COMPANY

Set out below are the texts of the reports from Grant Thornton and Baron Capital in connection with the cash flow forecasts underlying the valuation report on the Coal Mine Company dated 13 February 2008 prepared by Savills for the purpose of inclusion in this circular.

REPORT FROM GRANT THORNTON

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13 February 2008

The Directors Kenfair International (Holdings) Limited 30th Floor, One Kowloon No.1 Wang Yuen Street Kowloon Bay, Kowloon HONG KONG

Dear Sirs,

We have examined the arithmetical accuracy of the calculations of the discounted cash flow forecast underlying the business valuation on 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited) (“SPML”), formerly known as 佳木斯市升平煤礦 (Jiamusi Sheng Ping Coal Mine), as of 30 June 2007 (hereinafter referred to as the “Underlying Forecast”) which is regarded as a profit forecast under paragraph 29(2) of Appendix 1B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The Underlying Forecast is set out in Appendix V “Valuation Report of the Coal Mine Company” to the circular of Kenfair International (Holdings) Limited (the “Company”) dated 13 February 2008 (the “Circular”).

Responsibilities

The directors of the Company (the “Directors”) are responsible for the preparation of the Underlying Forecast and the reasonableness and validity of the assumptions based on which the Underlying Forecast is prepared (the “Assumptions”).

It is our responsibility to form an opinion, based on our work on the arithmetical accuracy of the calculation of the Underlying Forecast and to report our opinion solely to you, as a body, solely for the purpose of reporting under paragraph 29(2) of Appendix 1B of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of, arising out of, or in connection with our work. Because the Underlying Forecast relates to cash flows, no accounting policies of the Company have been adopted in its preparation. The Assumptions include hypothetical assumptions about future events as detailed in Appendix V to the Circular and management actions that cannot be confirmed and verified in the same way as past results, and these assumptions may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Underlying Forecast and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express opinion whatsoever thereon.

211

REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE COAL MINE COMPANY

APPENDIX VI

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” issued by the Hong Kong Institute of Certified Public Accountants. We have examined the arithmetical accuracy of the calculations of the Underlying Forecast. Our work has been undertaken solely to assist the Directors in evaluating whether the Underlying Forecast, so far as the arithmetical accuracy of the calculations are concerned, has been properly compiled in accordance with the Assumptions made by the Directors. Our work does not constitute any valuation of SPML.

Opinion

In our opinion, so far as the arithmetical accuracy of the calculations are concerned, the Underlying Forecast has been properly compiled in accordance with the Assumptions made by the Directors.

Yours faithfully,

Grant Thornton

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

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APPENDIX VI REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE COAL MINE COMPANY

REPORT FROM BARON CAPITAL

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4/F, Aon China Building 29 Queen’s Road Central Central, Hong Kong

13 February 2008

The Directors Kenfair International (Holdings) Limited 30/F., One Kowloon No. 1 Wang Yuen Street Kowloon Bay Kowloon Hong Kong

Dear Sirs,

We refer to the valuation prepared by Savills Valuation and Professional Service Limited (“Savills”) in relation to the valuation of 雙鴨山北方升平礦業有限責任公司 (Shuangyashan Northern Sheng Ping Mining Limited) (the “Coal Mine Company”) (the “Valuation”), report of which is included in the circular of Kenfair International (Holdings) Limited (the “Company”) dated 13 February 2008 (the “Circular”).

We have reviewed the forecasts upon which the Valuation has been made, for which you as the directors of the Company (the “Directors”) are solely responsible, and discussed with the directors and management of the Company and Savills regarding the basis and assumptions of the Valuation, and have reviewed the letter issued by Grant Thornton dated 13 February 2008 as set out in Appendix VI to the Circular regarding whether the forecasts, so far as the arithmetical accuracy of the calculations are concerned, has been properly compiled in accordance with the assumptions made by the Directors.

On the basis of the foregoing, we are of the opinion that the forecasts upon which the Valuation has been made, for which you as the Directors are solely responsible, have been made after due and careful enquiry by you.

Yours faithfully, For and on behalf of

Baron Capital Limited Sheron Yau Director

213

TECHNICAL REPORT

APPENDIX VII

The following is the text of the technical assessment report in respect of the Coal Mine Company prepared by MMC for the purpose of inclusion in this circular.

1	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	219
	1.1	BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	219
	1.2	SCOPE OF WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	219
	1.3	SITE VISIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	220
	1.4	PROJECT LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	220
	1.5	LIMITATIONS AND EXCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	222
	1.6	INHERENT MINING RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	222
	1.7	INFORMATION REVIEWED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	222
2	SHENGPING COAL MINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		225
	2.1	PROJECT INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	225
		2.1.1 Regional Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	227
		2.1.2 Regional Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
		2.1.3 Life of Mine Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
		2.1.4 Mine Design Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
		2.1.5 Mining Licence and Production Quota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
	2.2	GEOLOGY MINE LEASE AREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
		2.2.1 History of Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	230
		2.2.2 Resource Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	231
	2.3	COAL QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	231
	2.4	RESOURCES AND RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	233
		2.4.1 Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	233
		2.4.2 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	239
	2.5	COAL PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	239
		2.5.1 Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	239
		2.5.2 Spontaneous Combustion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	239
		2.5.3 Coal Dust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
	2.6	ASSET DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
	2.7	MINING SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
		2.7.1 Longwall Extraction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
		2.7.2 Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	240
	2.8	CURRENT PRODUCTION CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	241
	2.9	MAJOR EQUIPMENT/SUPPORT INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . .	242
		2.9.1 Mine Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	242
		2.9.2 Underground Coal Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	242
		2.9.3 Surface Coal Handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	242
		2.9.4 Men and Materials Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	242
		2.9.5 Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243
		2.9.6 Pumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243
		2.9.7 Electrical Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243

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2.10	MANNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	243
2.11	COAL WASHING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	244
2.12	COST ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	244
	2.12.1 Capital Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	244
	2.12.2 Operating Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	245
3 MINING HAZARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		248
3.1	GEOLOGICAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	248
3.2	MULTI SEAM EXTRACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	248
3.3	UNDETECTED WORKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	248
3.4	STRATA SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	249
3.5	COAL DUST EXPLOSIVE INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	249
3.6	MINE WATER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	249
4 RISKS OPPORTUNITIES AND CRITICAL ISSUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		249
5 SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		251
ANNEXURE A – GLOSSARY OF TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		252
ANNEXURE B – QUALIFICATIONS AND EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		253
	LIST OF TABLES
TABLE 1.1	– INFORMATION REVIEWED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	223
TABLE 2.1	– AVERAGE COAL QUALITY FOR SHENGPING COAL MINE . . . . . . . . . . . . . . .	233
TABLE 2.2	– BOREHOLE SPACING FOR OLD CHINESE RESOURCE
	CLASSIFICATION CODE (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	233
TABLE 2.3	– NEW CHINESE RESOURCE/RESERVE CATEGORIES (1999) . . . . . . . . . . . . . . .	235
TABLE 2.4	– CHINESE STANDARD FOR BOREHOLE SPACING
	BASED ON STRUCTURAL COMPLEXITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	236
TABLE 2.5	– CHINESE STANDARD FOR BOREHOLE SPACING BASED
	ON STABILITY (THICKNESS VARIATION) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	236
TABLE 2.6	– RESOURCE ESTIMATION FOR SHENGPING
	COAL MINE (AS AT END 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	238
TABLE 2.7	– SHENGPING COAL MINE PRODUCTION PROFILE . . . . . . . . . . . . . . . . . . . . . . .	241
TABLE 2.8	– CAPITAL EXPENDITURE FOR 300 KT EXPANSION BY YEAR . . . . . . . . . . . . .	244
TABLE 2.9	– CAPITAL EXPENDITURE FOR 300 KT EXPANSION BY COST CENTRES . . .	245
TABLE 2.10	– SHENGPING COAL MINE OPERATING COST PROFILE . . . . . . . . . . . . . . . . . . .	246
TABLE 2.11	– SHENGPING COAL MINE OPERATING COST TOTALS PROFILE . . . . . . . . . . .	247
	LIST OF FIGURES
FIGURE 1.1	– GENERAL LOCATION OF ASSET UNDER CONSIDERATION . . . . . . . . . . . . . .	221
FIGURE 2.1	– LOCATION OF SHENGPING COAL MINE LEASE AREA . . . . . . . . . . . . . . . . . . .	226
FIGURE 2.2	– TYPICAL STRATIGRAPHIC SEQUENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	229
FIGURE 2.3	– CHINESE COAL QUALITY CLASSIFICATION SYSTEM . . . . . . . . . . . . . . . . . . .	232
FIGURE 2.4	– NEW CHINESE RESOURCE/RESERVE CLASSIFICATION MATRIX (1999) . .	234

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The Manager Board of Directors Wealth Gain Global Investment Limited Kenfair International (Holdings) Limited Suite 2610, 26/F 30/F, One Kowloon Great Eagle Centre No.1 Wang Yuen Street 23 Harbour Road Kowloon Bay Wanchai Kowloon Hong Kong Hong Kong

13 February 2008

RE: INDEPENDENT TECHNICAL REVIEW REPORT

Dear Sir,

Minarco-MineConsult (“MMC”) has been engaged by the Wealth Gain Global Investment Limited (“the Company”) to carry out an Independent Technical Review (“ITR”) of the asset of Shengping Coal Mine and associated coal washery which are wholly owned by Heilongjiang North Group Co. Ltd.

The assets reviewed (“Relevant Assets”) are both located in Jixian County region of Heilongjiang Province in the People’s Republic of China (“China”).

The following report, the Independent Technical Review Report (the “ITRR”) has been prepared by MMC in connection with the ITR conducted by MMC on the Relevant Asset. The report sets out the process and conclusions of MMC’s review.

MMC operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to the resources and financial services industries. This report was prepared on behalf of MMC by technical specialists, details of whose qualifications and experience are set out in Annexure B .

MMC has been paid, and has agreed to be paid, professional fees for its preparation of this report. However, none of MMC or its directors, staff or sub-consultants who contributed to this report has any interest in:

The Company; or
The Relevant Asset.

Drafts of this report were provided to the Company, but only for the purpose of confirming the accuracy of factual material and the reasonableness of assumptions relied upon in the report.

The review was based mainly on information provided by Heilongjiang North Group Co. Ltd., either directly from the data room or from project sites and other offices. The report is based on information made available to MMC before February 11, 2008.

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The work undertaken is a technical review of the information provided, as well as that obtained during such inspections as MMC considered appropriate to prepare the report, it specifically excludes all aspects of legal issues, commercial and financing matters, land titles and agreements, excepting such aspects as may directly influence technical, operational or cost issues.

In MMC’s opinion, the information provided by Heilongjiang North Group Co. Ltd. was reasonable and nothing discovered during the preparation of the report suggested that there was any significant error or misrepresentation in respect of that information.

MMC has independently assessed the Relevant Assets by reviewing pertinent data, including Mineral Resources, Ore Reserves, future exploration plans, development potential, capital and operating costs as well as potential mining issues. All opinions, findings and conclusions expressed in the report are those of MMC and its specialist advisors.

MMC makes the following general statements with respect to the Shengping Coal Mine:

Work on the Shengping Coal Mine commenced in 1970 with coal production commencing in 1972;
Heilongjiang North Group Co. Ltd., acquired Shengping Coal Mine in June 1998. The Coal Mine Company changed back to state-owned status in 2001 and is now in the process of changing to limited liability status;
The Shengping Coal Mine currently produces about 540 kt of raw coal from its underground operations, which are washed to produce both coking and thermal products for domestic sale;
The mine is currently in an expansionary phase and has plans to ramp production up to 900 kt per annum by 2010. This increase in production is by expansion into the southern area of the mine;
The company has prepared estimates for the planned upgrade to 900 kt capacity. The current capital estimate for this is 128.78 million RMB;
Heilongjiang North Group Co. Ltd., is seeking further opportunities to achieve growth through organic growth and acquisitions;
There is currently very little detail on the Changfa Coal Project available;
Drilling is recommended to improve geological confidence in the proposed southern expansion area;
There is 15.43 Mt of 122b Coal Resources (estimated according to Chinese standards) at Shengping Coal Mine inclusive of the proposed southern expansion area;

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Shengping Coal Mine has an estimated mine life of nearly 12 years inclusive of the proposed southern expansion area.

Yours faithfully,

David Meldrum

General Manager Minarco-MineConsult

Suite 1501 Level 15, Australia Square 264-278 George Street Sydney NSW, Australia PO Box H170 Australia Square NSW 1215

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1 INTRODUCTION

1.1 BACKGROUND

The Shengping Coal Mine, originally owned by Jiamusi City Government was acquired by the Heilongjiang North Group (“HNG”) in June 1998. The Coal Mine Company changed back to state-owned status in 2001 and is now in the process of changing to limited liability status.

A number of initiatives are documented in reports in order to facilitate the development of the assets: The most important of these reports are as follows:

A Shengping Coal Mine Resources/Reserves Verification Report by Heilongjiang Province Shuangyashan City (Jixian Mining Area) Jiamusi Mining Bureau completed in August 2004;
A Feasibility Study completed in January 2007 to assess the viability of an increase in production from the current 600 kt per annum to 900 kt per annum; and
A 5 Year Business Plan completed in August 2007 outlining the planned increase in production to 900 kt in 2010 and 1.5 Mt in 2011.

1.2 SCOPE OF WORK

The key areas on which MMC technical team focused included the following:

Mineral Resources and Ore Reserves, including quantity and quality of drilling, reliability of historic data, adequacy of resource estimation methods, calculation of cut off qualities, relevance of geospatial methods utilised;
appropriateness of mining methods and mine design;
geotechnical work and support programmes;
hydrology work and assessment;
performance and viability of the treatment process including adequacy of test work and process engineering;
infrastructure, including provision of water, power, accommodation and services;
process plant operations management including ancillary functions such as tailings disposal, reagent handling etc;
technical review, risk analysis, and audit of coal processing plant;
tailings storage design and adequacy;

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Risk Management Plan and measures to instigate or reduce these risks;
capital cost estimates;
operating cost estimates;
the proposed materials handling arrangements, specifically with respect to transportation from the Shengping Coal Mine to the proposed point of sale;

1.3 SITE VISIT

A site visit to the Shengping Coal Mine was undertaken on August 9, 10 and 11 2007 and again on September 5 and 6 2007. The site is located in Jixian County, a rural region about 30 minutes drive from the city of Jixian.

MMC’s technical team spent a total of five days in the field reviewing information, visiting sites and interviewing management.

Details of the qualification and experience of the key personnel involved in this site visit and preparation of this report are given in Annexure B .

1.4 PROJECT LOCATIONS

The Shengping Coal Mine is located in the north east region of Heilongjiang Province. The closest major town is Shuangyashan which is about 25 km away to the south. The project location is shown in Figure 1.1 .

Immediately and adjacent to the north is the neighbouring Changfa coal mine that is apparently mining the same seams as at Shengping. An undated translated report provided to MMC indicates that the Shengping and Changfa mines are separated by an east-west trending fault of unknown displacement. There is currently very little detail on the Changfa Coal Project available.

According to the Coal Mine management, the Changfa Coal Mine is not in production and do not have any material impact on the operations of Shengping Coal Mine. MMC understands that the proposed acquisition is at the very preliminary stage and not material to Shengping operations. No agreement of any sort has been reached in relation to the acquisition.

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Figure 1.1 – General Location of Asset Under Consideration

==> picture [375 x 541] intentionally omitted <==

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1.5 LIMITATIONS AND EXCLUSIONS

The review was based on various reports and tabulations, translated to English. The data reviewed include scaled maps, cross sections, geological plans or locations of “points of observation”, (drilling) or detailed sample and coal quality data.

The report is based mainly on information (scaled maps, cross sections, geological plans – drilling or sample data) provided by HNG, either directly from the mine/project sites and other offices, or from reports by other organisations whose work is the property of the mine or HNG. HNG has not advised MMC of any material change, or event likely to cause material change, to the operations or forecasts since the date of asset inspections.

The work undertaken for this report is that required for a technical review of the information coupled with such inspections as the Team considered appropriate to prepare this report. It specifically excludes all aspects of legal issues, commercial and financing matters, land titles, agreements, excepting such aspects as may directly influence technical, operational or cost issues.

1.6 INHERENT MINING RISK

Mining, and in particular underground mining, is carried out in an environment where not all events are predictable.

Whilst an effective management team can identify the known risks and take measures to manage and mitigate those risks, there is still the possibility for unexpected and unpredictable events to occur. It is not possible therefore to totally remove all risks or state with certainty that an event that may have a material impact on the operation of a mine will not occur.

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1.7 INFORMATION REVIEWED

The information and documentation reviewed by MMC as part of this review is summarised in Table 1.1 .

Table 1.1 – Information Reviewed

Mine	Electronic Documents	Date	Author
Shengping Coal Mine	Shengping 5 Year Business Plan	Aug, 2007	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Equipment Cost Table	Unknown	North Group –
			Shengping Coal Mine
Shengping Coal Mine	List of Major Contracts	Aug, 2007	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Shengping Coal Mine Resources/	Aug, 2004	Heilongjiang Province
	Reserves Verification Report		ShuangyashanCity (Jixian
			Mining Area) Jiamusi
			Mining Bureau
Shengping Coal Mine	Shengping Coal Mine Summary
Shengping Coal Mine	Various maps, diagrams and tables		North Group –
			Shengping Coal Mine
	Hardcopy Documents
Hejiang Coal Field	Hejiang Coal Field Jixian Exploration Area	Dec, 1967	Heilongjiang Coal Geology
	– Final Geology Report		Exploration Bureau
Shengping Coal Mine	300 kt Expansion Project Feasibility Report	Jan, 2007	Shuangyashan Kunyaun
			Reconnaissance Design
			Institute
Shengping Coal Mine	Brief Introduction For Jiamusi Shengping	Aug, 2007	North Group –
	Coal Mine’s Expansion Of 300kt		Shengping Coal Mine
	Production Area Project
Shengping Coal Mine	Shengping Coal Mine Resources/	Aug, 2004	Heilongjiang Province
	Reserves Verification Report		Shuangyashan City (Jixian
			Mining Area) Jiamusi
			Mining Bureau
Shengping Coal Mine	Coal Mining Industrial Flowchart	2007	North Group – Shengping
			Coal Mine
Shengping Coal Mine	Railway & Power Plant Data	Aug, 2007	North Group –
			Shengping Coal Mine

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Mine	Hardcopy Documents	Date	Author
Shengping Coal Mine	Washery Information	Aug, 2007	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Washery Flowchart	Aug, 2007	North Group –
			Shengping Coal Mine
Shengping Coal Mine	2007 Production Plan 540 kt	Dec, 2006	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Shengping Coal Mine Summary	Aug, 2007	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Environmental Data	Nov, 2006	North Group –
			Shengping Coal Mine
Shengping Coal Mine	Mining Information	Various
Shengping Coal Mine	Geological Information	Various
Shengping Coal Mine	Two Mine Expansion – Preliminary	Nov, 1984	Shuangyashan Mining
	Design Study		Design Institute
	Hardcopy Plans
Hejiang Coal Field	Exploration Line 2 Cross Section	Oct, 1967	Heilongjiang Coal Geology
			Exploration Bureau
Hejiang Coal Field	Exploration Line 9 Cross Section	Oct, 1967	Heilongjiang Coal Geology
			Exploration Bureau
Hejiang Coal Field	Regional Topographical Geology Map	May, 2007	Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 5 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 8 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 9 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 10 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 11 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 12 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 16 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Seam 17 Resource Calculation Map		Jiamusi Shengping Mining
			Office
Hejiang Coal Field	Borehole 29 Core Log	1965
Hejiang Coal Field	Borehole 65-65 Core Log	1965

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Mine Hardcopy Plans Date Author Hejiang Coal Field Borehole 6 Core Log 1964 Hejiang Coal Field Unknown Borehole 1964 Hejiang Coal Field Borehole 4 Core Log 1964 Hejiang Coal Field Borehole 33 Core Log 1964 Shengping Coal Mine 2007 540 kt Development Plan Shengping Coal Mine Seam 9 (8) Development Plan Jiamusi Shengping Mining Office Shengping Coal Mine Seam 9 Development Plan Jiamusi Shengping Mining Office Shengping Coal Mine Seam 11 Development Plan Jiamusi Shengping Mining Office Shengping Coal Mine Seam 9 Conveyor System Jiamusi Shengping Mining Office Shengping Coal Mine Seam 11 Conveyor System Jiamusi Shengping Mining Office Shengping Coal Mine Water Drainage System Jiamusi Shengping Mining Office Shengping Coal Mine Electric Power system Jiamusi Shengping Mining Office Shengping Coal Mine Ventilation System Jiamusi Shengping Mining Office Shengping Coal Mine Monitoring And Control System Jiamusi Shengping Mining Office

2 SHENGPING COAL MINE

The Shengping Coal Mine is located in Jixian County of Heilongjiang near the city of Jixian. The closest major town is Shuangyashan which is approximately 25 km to the south. See Figure 2.1. The Shengping Coal Mine lease covers an area of 36.86 km2 in Jixian County.

2.1 PROJECT INTRODUCTION

Work on the Shengping Coal Mine commenced in 1970 with coal production commencing in 1972. Originally owned by Jiamusi City Government it was acquired by the HNG in June 1998. The Coal Mine Company changed back to state-owned status in 2001 and is now in the process of changing to limited liability status.

The infrastructure includes a coal washery with a design capability of 600 kt per annum throughput. However, previous production has reached 900 kt per annum of coal. Historically part of the coal output from the mine was washed and part of the coal output was sold raw, depending on market demands. The current price for the washed product is such that all coal output from the mine is washed.

The production capacity of Shengping Coal Mine reached 540 kt per annum in 1992. Actual production in 2006 was 531 kt. Coal production reached 310 kt in the first half of 2007 and mine management expects that coal production will reach the target of 600 kt by the end of 2007.

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The mine is currently in an expansionary phase and has plans to ramp production up to 900 kt per annum by 2010. This increase in production is by expansion into the southern area of the mine.

Interviews with management indicate that Shengping Coal Mine produces approximately 30% of the “one third coking coal” in Jiamusi County.

Figure 2.1 – Location Of Shengping Coal Mine Lease Area

==> picture [361 x 522] intentionally omitted <==

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2.1.1 Regional Geology

The key sources of geological information for the Shengping Coal Mine are documented in the following reports:

Hejiang Coalfield Jixian Exploration Area (Final Geology Report) – Heilongjiang Coal Geology Exploration Bureau, dated December 1967; and
Shengping Coal Mine Resources/Reserves Verification Report – Heilongjiang Province Shuangyashan City (Jixian Mining Area) Jiamusi Mining Bureau, dated August 2004.

Shengping mine is located in the Jixian Basin which is located in the Shuangyashan coalfield in northeastern Heilongjiang Province of the Peoples Republic of China. It is approximately 490 km north-east of the provincial capital Harbin. Shuangyashan coalfield consists of two adjacent basins, the Jixian Basin (north) and the Shuangyashan Basin (south). The areas of these basins are 700 km[2] and 800 km[2] respectively. Some 670 km[2] of this is currently held under mining titles. Large scale mining in the area began in 1924. There are eight major producing mines, along with many small village mines, as well as a number of exploration areas and currently inactive mines.

Some of the supplied data referred to the name “Hejiang Coalfield”. This refers to a large area of coal occurrence of which Shuangyashan Coalfield forms part of the Hejiang Coalfield. The Shuangyashan Coalfield is made up of two basins: Jixian to the north and Shuangyashan to the south.

The coal bearing sequence overlies Proterozoic granites and metamorphosed marine sediments of the Mashan Group. Until recently, the coal sequences were considered to be of Jurassic age, but in 2001, a review of the regional correlations reclassified them as being Cretaceous as shown in Figure 2.2. Two coal sequences are present, the lower Chengzihe Group (~800 m thick), which contains between 30 (Jixian Basin) and 55 (Shuangyashan Basin) seams, and the overlying Muling Group (~800 m thick), which contains a number of sporadic minor seams, none of which are currently being mined. The interburden sediments in the Chengzihe Group are largely medium to coarse sandstones, siltstones, claystones and minor tuffs and conglomerates. The overlying Muling Group contains thick sandstone and carbonaceous siltstone sequences. These two formations are typified by relatively thin seams, complex faulting and folding and igneous intrusions.

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Some 8 to 15 of the seams within the Chengzihe Group are considered as having underground mining potential. Average thicknesses of these seams range from 0.6 m to 2.5 m with most of the seams being between 0.6 m and 1.5 m thick. Thickness can vary considerably, with some seams sometimes locally eroded by channels, and vary from 0 m to > 5 m in thickness over a short distance. Despite this, seams are consistent and correlations can be made with a high degree of confidence. The coal-bearing strata are overlain by a thick Cretaceous sequence of conglomerates, tuffs, sandstones and siltstones, which is in turn overlain by Tertiary sediments and basalts. A thin cover of Quaternary alluvium is often present. These sediments are often in direct hydrogeological contact with overlying river systems.

The Shuangyashan coalfield takes the form of a westward plunging antiform (much in the shape of a butterfly) with its northern flank (Jixian Basin) having generally shallower dips (10 to 15°). Dips in the Shuangyashan Basin vary due to local folding and faulting, but are generally higher (15 to 40°). Faulting and folding is common in both basins, with over 100 major faults identified along with a number of local anticlines, synclines and monoclines which can combine to produce complex mining conditions. In terms of the Chinese classification system the Jixian basin is considered to be of medium to high structural complexity.

Igneous intrusions, generally in the form of dykes (which often cut across the strata), are relatively common, becoming more prevalent in the eastern part of the Shuangyashan Basin. Locally these may metamorphose seams to produce coking or even anthracitic coals. These intrusions are of Late Cretaceous age.

Roof and floors of the seams are mostly medium to high strength sandstones and siltstones and are amenable to underground extraction methods as are currently practiced. Some minor tuff bands can cause local mining stability and handling issues. Hydrogeological conditions are well understood, with the major aquifers being Quaternary sediments associated with the Songhua and Anbang rivers, as well as water stored in fracture systems in Tertiary strata and water in the underlying basement rocks. Water inflows in the mines are 180 to 450 m[3] /day.

A typical stratigraphic sequence is provided in Figure 2.2 .

Gas contents in the coals vary considerably with depth, but the mines are generally categorized as having low gas contents (typically 3 to 5 m[3] of gas being released for each tonne of coal mined). Spontaneous combustion risk is considered low.

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Figure 2.2 – Typical Stratigraphic Sequence

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2.1.2 Regional Environment

The Shengping Coal Mine is located in the middle of the Jixian coalfield at the south western part of the coal bearing region of Shanjiang. The area is fairly flat lying with an average height of 85 to 90 m with some isolated hills in the surrounding area. The Erdahoe River and Anbang River flow through the area. The Erdahoe River flows across the eastern border and into the wetland to the north. The Anbang River flows subparallel to the western border and north into a swamp forming the Songhua River’s floodplain.

Information from Jixian County meteorological station reports the temperature range of the area to be from -36°C in winter to 37°C in summer. The average rainfall is approximately 550 mm. Land use in the area is mainly agricultural.

2.1.3 Life of Mine Plan

The current 5 Year Business Plan indicates a production ramp up from 600 kt per annum in 2007 to 900 kt per annum in 2010. This increase in production is by expansion into the southern area of the mine.

There is no information beyond 2011 on forecast production. Mine Management indicated that the mine plan beyond 2011 is contingent upon mining conditions and market forces.

2.1.4 Mine Design Capacity

Shengping Coal Mine’s current design capacity is 600 kt per annum. The implementation of the 300 kt Expansion Project Feasibility Report would give a total design capacity of 900 kt per annum.

2.1.5 Mining Licence and Production Quota

MMC understands that Shengping Coal Mine has a mining licence to mine 450 kt per annum from Seams 5, 8, 9, 11, 12 16, 17 up to a depth of -600m for a term from 30 November 2007 to 30 December 2012 and is not subject to any other third parties’ claims.

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2.2 GEOLOGY MINE LEASE AREA

2.2.1 History of Exploration

Exploration in the area commenced in 1959 when the Geology Commission drilled 11 holes in the Jixian area and confirmed the presence of coking coal. Over the period of 1964 to 1966 the area was explored by using 2D seismic survey and drilling an additional 28 drill holes. The seismic survey was implemented to determine the extent and character of several large scale deposit bounding faults. Drilling in the mining area, specifically, is located at approximately 500 by 1000 m spacing which is enough to include the resources in the 122b category (equivalent to Indicated Resource JORC Code). Drilling in the proposed southern extension area is, however, only at approximately 2 km spacing which is only equivalent to Inferred Resource JORC Code.

It is highly recommended that additional drilling take place in the southern extension area in order to increase the confidence level of the interpreted resources in this area. Drill spacing this far apart can only define very low confidence inferred resources.

2.2.2 Resource Description

The coal extraction area of Shengping Coal Mine is located in the shallowest part of the coal sequence on a domal high structure. Based on detailed underground mine plans which indicate ongoing mapping, the strata dips away and become deeper away from the domal structure in all directions. Underground mapping has also indicated several continuous north-northeast trending dyke structures. These dykes have been mapped over distances of 1.75 km and according to the mine plans have not presented too many mining issues.

A major lease bounding fault to the east, trending northeast, displaces the coal measure stratigraphy by 200 m. The strata are displaced up on the eastern side of this fault which is owned by Jixian Mine. In the southern extension area of Shengping the strata on the southern side of the dome dips at up to 45 degrees and the coal resources are much deeper at or near the -600 m level. Once in the southern area the seams shallow out to be very gently dipping conducive to mining and similar to current conditions. The consequence of this geological feature is that there will be extended out-of-seam stone driveage required from the existing mining area (approximately -300 m depth) into the southern area.

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2.3 COAL QUALITY

China has its own unique system for the classification of coal in terms of its quality. This is primarily based on two variables, volatile content (%) and caking properties (GRI – similar to a Roga Index). Figure 2.3 outlines the basics of this scheme and identifies the major coal types. Chinese analytical methods and indices differ from Western ones, so it is difficult to be specific about quality classifications under a Western system. There is little focus on in-situ quality as coals are variously washed and blended to make specific products (based largely on ROM qualities) for specific markets.

There is a wide range in ash across the Shengping Coal Mine and between seams (and areas within a given seam). This is largely dictated by the thickness of stone bands within each seam as the inherent coal ashes appear reasonably consistent (between ~5% and 15%). This results in a concomitant range of specific energies and volatile matters. Raw coal ash contents are between 15% and 35% (adb), volatile matter between 20% and 40% (adb) and specific energies between 18 and 28 MJ/kg (adb). Sulphur is generally low to medium (<0.5%), as is phosphorus (<0.02%). Most of the coals exhibit some swelling characteristics, caking indices between 0 and 50 (GRI) and acceptable ash fusion properties. Given the current markets, no material issues have been identified with respect to coal quality.

The Shengping coals are medium to high volatile bituminous coals, categorised under the Chinese system as gas coals (QM) and gas fat (QF).

Figure 2.3 – Chinese Coal Quality Classification System

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FAT( FM) GAS-FAT( QF)
(Y< 25MM) (Y> 25MM)
85 (B>220)
A
N COKING( JM)
T 1/3 COKING( 1/3JM)
65 H (Y< 25MM) (Y< 25MM)
60 R (WY) (B<150) (B<220) GAS (QM)
A (Y< 25MM)
50 C (B<150)
I
T LEAN( SM) 1/2 CAKING( 1/2ZN)
35 E
30
20
WEAKLY CAKING (RN) LONG FLAME (CY)
MEAGER LEAN (PS)
5
0 MEAGER (PM) NON-CAKING (BN)
0 10 20 28 37
Volatile %
Classified as Lignite (HM) if energy less than 24 MJ/kg
Y and B are Chinese coking indices
RI
CAKING INDEX G
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The average coal quality from the Shengping Coal Mine No. 9 and 11 Seam is detailed in the Final Geology Report – No 110 Exploration Team of Geologic Exploration Company, Coal Administration Bureau, Heilongjiang Province December 1967 and is summarised below in Table2.1.

Table 2.1 – Average Coal Quality For Shengping Coal Mine

		Average				Coal quality
	Seam	Midburden	Raw
Coal	Thickness	Thickness	Ash		Total				Calorific
Seam	Range	Range	Range	Moisture	Sulphur	Phosphorus	Volatiles	Y	Value	Coal type
	(m)	(m)	(%)	(%)	(%)	(%)	(%)	(mm)	(MJ/Kg)
5	0-1.35	–	12-26	1.50	0.3-0.5	0.020	35-42	9.5-17.0	34-36	Gas-fat coal
8	0-0.9	130	6-18	–	0.2-0.5	0.012	32-41	12.5-25.0	35-36	–
9	0-2.15	6-15	9-26	1.65	0.2-0.3	0.008	29-39	12.0-22.5	34-36	Gas coal
11	0-1.1	17-26	9-35	–	0.2-0.5	0.011	33-42	13.0-19.5	34-36	Gas and gas-fat coal
12	0-0.95	6-14	10-39	–	0.2-0.5	0.021	32-40	13.0-19.0	35-36	Gas coal
16	0-1.15	45-50	21-51	1.26	0.2-0.3	0.004	33-41	13.0-23.0	33-36	Gas-fat coal
17	0-1.30	12-22	22-54	1.17	0.2-0.4	0.007	31-38	10.0-22.0	32-35	Gas-fat coal

2.4 RESOURCES AND RESERVES

2.4.1 Resources

The former Chinese standard (GB 13908-1992) divided resources into four categories (A, B, C and D) which were loosely comparable to the Australian JORC classifications of Measured (A-B), Indicated (B-C) and Inferred (D). The standard was more prescriptive than JORC, in that it specified minimum borehole spacings (see Table 2.2 ) for each category, along with implied levels of geological understanding.

Table 2.2 – Borehole spacing for Old Chinese Resource Classification Code (1992)

Classification	Minimum Borehole/Line Spacing
A	≤500 m
B	≤1000 m
C	≤2000 m
D	> 2000 m

This code was essentially a geological classification, taking little account of the deposit’s economics or the level of mining studies that had been carried out on it. The new code attempts to address this by using a three component system (EFG) that considers the deposit economics (E), the level of mining feasibility studies that have been carried out (F) and the level of geological confidence (G) using a numerical ranking. See Figure 2.4 .

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In 1999, with a view to creating a standard that was comparable with international resource reporting standards, The Chinese National Land and Resource Department introduced its own national standard for the Classification of Resources/Reserves for Solid Fuels and Mineral Commodities (GB/T 17766-1999). All new resource estimates are reported under this new code and old estimates either re-estimated or re-classified to the new system.

Figure 2.4 – New Chinese Resource/Reserve Classification Matrix (1999)

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This system produces a three digit code for a deposit that reflects three variables: level of geology understanding based on type of drill hole and spacing, level of reporting on the resource and the level of economic viability of the deposit. For example a deposit classified as a 121 is economically viable (1), has had pre-feasibility studies carried out (2) and is well understood geologically (1). Various suffixes are used to distinguish Basic Reserves – essentially JORC Resources – (121b) from Extractable Reserves (121) and to identify the assumed economic viability (S or M). Certain categories are not allowed, for example pre-feasibility or feasibility level studies cannot be conducted on Inferred Resources, so 123 and 113 are invalid classifications. Also Extractable Reserves are not estimated for marginally economic (or lesser) deposits so the (b) suffix is considered redundant. The term Intrinsically Economic indicates that while the deposit may be economic, insufficient studies have been carried out to clearly determine its status.

A tabulation of this concept is shown in Table 2.3 .

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Table 2.3 – New Chinese Resource/Reserve Categories (1999)

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

Geological Confidence
Economic
dIeeifitn dMni lareResoucr e Unsidcovere dResoucr e
Viability
Measured (1) Indicated (2) Inferred (3) Reconnaissance (4)
Basic Reserve
[Resource] - 111b
Proved Extractable
Reserve - 111
Economic (1) Basic Reserve Basic Reserve
[Resource] 121b [Resource] -122b
Probable Extractable Probable Extractable
Reserve - 121 Reserve -122
Resource
Marginally 2M11
Economic (2M) Resource Resource
2M21 2M22
Resource
Sub-marginally 2S11
Economic (2S) Resource Resource
2S21 2S22
Intrinsically
Resource 331 Resource 332 Resource 333 �Resource 334?�
Economic (3)
----- End of picture text -----

Note: First digit reflects Economic viability; 1=Economic; 2M=Marginally Economic; 2S= Sub-marginally Economic; 3=Intrinsically Economic; 4=Economic interest undefined.

Second digit reflects Feasibility assessment stage, 1=Feasibility; 2=Pre-feasibility; 3=Geological study.

Third digit reflects Geological assurance, 1=Measured, 2=Indicated, 3=Inferred, 4=Reconnaissance.

b=Basic Reserve (prior to recovery factors, mining losses and dilution) – JORC Resource.

Unlike the old code, the new code does not specify required borehole spacings for each category. In the case of coal, there is an accompanying Chinese Professional Standard (DZ/T 0215-2002) that lays out rules for determining the level of geological confidence. These are based upon the identification of a given deposit’s characteristics in terms of:

Structural complexity (termed complexity) see Table 2.4 ;
Seam thickness variability (termed stability) see Table 2.5 .

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Table 2.4 – Chinese Standard for Borehole Spacing based on Structural Complexity

	Borehole/Line	Spacing (m)
Structural Complexity	Measured (1)	Indicated (2)
Simple	500-1,000	1,000-2,000
Medium	250-500	500-1,000
Complex	–	250-500

Table 2.5 – Chinese Standard for Borehole Spacing based on Stability (Thickness Variation)

	Borehole/Line	space (m)
Stability (Seam Thickness Variability)	Measured (1)	Indicated (2)
Stable	500-1,000	1,000-2,000
Medium	250-500	500-1,000
Unstable	–	250-375*

Only applicable when seam always exceeds minimum minable thickness (0.6 metre – 0.7 metre)

These two tables are considered in unison when classifying a resource as Measured, Indicated or Inferred. All the mines in a given coalfield have been assigned a similar ranking in terms of complexity and stability.

The professional standard also specifies a number of other technical details that relate to the estimation of resources. These include:

Minimum seam thickness cut-offs for Resources – 0.6 m or 0.7 m (depending on coal type and dip);
Depth cut-offs for Resources – eg 700 m maximum depth;
Thickness limits for parting material that can be included in Resources -eg ≤0.05 m;
Coal quality limits – 40% Ash, 3% Sulphur, 17.0 MJ/kg specific energy;
Minimum spacing for seismic lines for each category of Resources;
Analytical methods and quality sampling densities; and
Requirements for geotechnical and hydrogeological data.

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The combination of all these factors results in a prescriptive resource classification code. A national committee has been established which reviews and approves Resource estimates using the new code and while there is no professional body to penalise abuse of the codes, in China the codes effectively have the status of law.

Informal guidelines exist for the re-classification of resources estimated under the old code into the new code system. This process is also influenced by exploration density, deposit complexity and the input of the resource estimators, but typically A and B resources are converted to Measured (1), C is converted to Measured or Indicated (2) and D to Inferred (3).

The calculation methodology used at Shengping Coal Mine is an area by thickness by density method using a planimeter.

The procedure used for the resource estimation can be outlined as:

Resource plans are prepared for each seam, normally at a scale of 1:5,000 or less. These include postings of boreholes that intersect the seam, seam isopachs, previous workings, faults, intrusions, seam subcrops and surface features;
Barriers zones are drawn around faults (30 m to 100 m), surface infrastructure such as towns, railways, mine facilities and lease boundaries and other relevant features;
The resources are divided up into a large number of blocks (often 40 or more for a single seam), the characteristics of which are recorded on the plans in circular tabulations. These include the seam dip and details of stone partings;
The average seam thickness is estimated from surrounding boreholes and recorded. Account is taken of stone partings, those above 0.05 m to 0.1 m generally being excluded from the seam thickness;
The area of each of the blocks is repeatedly estimated via planimeter and recorded on the plan;
A default relative density is attributed to the coal. This appears to be 1.30;
The tonnage in each block is estimated by multiplying the true seam thickness by the true area of the block (accounting for the seam dip in steeply dipping areas) and the default density;
Each block is assigned a resource classification under the older Chinese code of A,B and C Resources. The newer Chinese code has reclassified them into 111b, 122b etc based on data density and geological complexity. Resources are still estimated for blocks around faults or under infrastructure but these are classified as marginal or sub-economic (eg 2M22 or 2S22); and

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The results are summarised in a table or spreadsheet and reported on a seam basis as well as summarised by classification and/or coal type.

The resources of Seam No. 5, 8, 9, 11, 12, 16 and 17 have been estimated. The minimum minable thickness was considered to be 0.7 m and the maximum ash allowable was 40%. A relative density of 1.30 t/m[3] as determined from exploration data was used in the estimation.

The results of the resources estimation from the Shengping Coal Mine are produced in Table2.6 .

Table 2.6 – Resource Estimation For Shengping Coal Mine (as at end 2002)

Seam 5# 8# 9# 11# 12# 16# 17# Total	122b (kt) 0 0 13,403 0 0 0 3,679 17,082	2M22 (kt) 885 0 0 0 0 0 0 885	2S11 (kt) 309 0 1,671 0 0 0 0 1,980	2S22 (kt) 2,793 4,539 1,601 3,445 6,615 733 152 19,878	332 (kt) 0 0 7,375 5,359 0 2,090 1,252 16,076	333 (kt) 0 1,843 1,893 635 0 3,342 352 8,065	Total (kt) 3,987 6,382 25,943 9,439 6,615 6,165 5,435
							63,966

Note: MMC has conducted a high level review of the resources estimate contained in the table above for Seams 9 and 11. This review involved the inspection of plans indicating resources blocks and tonnages. The review found estimates to be reasonable.

The above figures were estimated and presented in the Shengping Coal Mine Resources/Reserves Verification Report dated August 2004. And this estimation is based on the current exploration status according to Resources/Reserves for Solid Fuels and Mineral Commodities (GB/T 17766-1999) guidelines designated by the Chinese code of reporting coal resources.

MMC examined possible sources of systematic estimation error in the procedures and one main issue was identified:

Density – The coal densities used are based on test results from the laboratory of samples from cores. No adjustment for in-situ moisture content is made. Data on in-situ moistures is not available, but given that they are probably in the order of 5% to 10% incorrect, the lack of an adjustment may result in an error in density (and thus tonnes) of up to 3 to 5%. The typical in-situ density of the coals varies considerably with ash content, but would appear to be higher than 1.30 used in resource estimations. Where this density has been used it is probably underestimating the resources by up to 5%.

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This error will probably be consistent but will be within the bounds of error typical of any international resource estimate. MMC considers the estimate to be reasonable.

The Chinese Ministry of Land and Resources has established a Resource Assessment Committee to review and approve resource estimates for coal mines throughout China to ensure that they comply with the national standards and the code. The resources were estimated under the old code and then converted to the new code, so they have not been reestimated since 1967. All recent resources allocated to the 122b category have been estimated by subtracting assumed mining production figures since 1967.

Based on the Feasibility Report (January 2007), of the coal resources allocated to the category of 122b, there is now 15.43 Mt remaining at Shengping Coal Mine. The difference between 15.43 Mt at end of 2006 and 17.08 Mt at end of 2002 can be accounted for by extraction of coal since end 2002.

2.4.2 Reserves

Discussions with Mine Management indicated that Shengping Coal Mine assumes a recovery factor of 70% (for the conversion of resources to reserves) for coal resources. In the absence of longer term mine plans for the calculation of reserves MMC has adopted this factor for the conversion of resources to reserves.

In reference to the January 2007 Feasibility Report, the total mineable resources remaining is 15.43 Mt (122b), according to reporting to Chinese standards. This equates to a minable reserves as at the beginning of January 2007 of 10.8 Mt.

Based on the production profile supplied by Shengping Coal Mine with a ramp up in production to 900 kt per annum and remaining stable, MMC believes that the mine life is nearly 12 years (excluding 2007). This assumes that the 70% recovery factor of resources is achievable and that there are no geological or unexpected interruptions to production.

2.5 COAL PROPERTIES

2.5.1 Gas

The Shengping Coal Mine is considered to be a low level gas mine in comparison to other mines in the area.

There is a system of gas monitoring installed in the mine where monitoring read outs are available at pit top and is linked by the internet to government systems. Any breaches are immediately registered with the appropriate government department.

2.5.2 Spontaneous Combustion

The coal is described as being low risk to spontaneous combustion. MMC recommends that this issue be assessed and managed, especially if coal is left in goaf areas.

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2.5.3 Coal Dust

It is reported in the 300 kt Expansion Project Feasibility Report that there is a risk of coal dust explosion and it needs management. The cutting of coal by mechanical means also increases the airborne dust content. No stone dusting of road-ways was observed. The application of a compound to lower the combustibility of coal dust should be investigated.

There were water barriers observed in the main transport heading and in a development roadway as part of an explosion suppression system. MMC notes that properly designed and constructed water barriers only stop the propagation of an explosion on the outside of the water barrier and does not prevent the initial explosion on the inside of the water barrier.

2.6 ASSET DEVELOPMENT

The seams currently being mined are Seam 9 which is approximately 1.2 m thick and Seam 11 (which is approximately 1 m thick). Mining in Seam 8 in the current area has ceased but there may be an opportunity to mine Seam 8 again in the future. This will be governed by market forces and the coal prices achievable at the time.

Proposed mining in the extension area is to the south of the current workings. The seams to be mined will be Seam 8 and 9. Mining will be by mechanised longwall methods.

2.7 MINING SYSTEMS

2.7.1 Longwall Extraction

Shengping Coal Mine operates a mixture of mechanised longwalls plus drill and blast longwalls for coal extraction. The longwall panels are set up such that two longwall panels operate in parallel with each other sharing the maingate road for ventilation and coal clearance.

The longwall faces are approximately 120 m to 130 m in width and the longwall panels vary from 750 m to 1000 m in length.

Longwall mining in Seam 9 is by drill and blast and is capable of producing a combined total of 30 kt per month. Whilst Seam 9 is the thicker seam, mechanised longwall mining is not utilised due to the seam containing geological structures. The longwall in Seam 11 is mechanised and is capable of producing a combined total of 25 kt per month.

2.7.2 Development

The drill and blast method is currently used for roadway development. Mine management indicated that there are 4 development sections all of which are in part coal and part stone or wholly in stone. The average advance rate achieved is 4 to 5 m per day. The maximum rate achievable is 7 m day.

Development road ways are designed to be 2.4 m wide by 2.6 m high.

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2.8 CURRENT PRODUCTION CAPACITY

In interviews with site management and the 5 Year Business Plan presented to MMC, the production profile for Shengping Coal Mine is tabulated below in Table 2.7 .

Table 2.7 – Shengping Coal Mine Production Profile

	2007	2008	2009	2010
ROM_(kt)_	600	600	700	900
Product ROM_(kt)_	127.5	0	0	0
Product Clean_(kt)_	330	420	490	630
Product Middlings_(kt)_	95	120	140	180
Product Fines_(kt)_	47.5	60	70	90

The 2007 plan is to produce 600 kt, based on recent interviews, mine management believes that the plan is achievable. In the first half of 2007 it is reported that 310 kt had already been mined.

The current plan is to replace the drill and blast longwall mining system in Seam 9 with a mechanised longwall system in 2008. The Shuangyashan Kunyuan Exploration Institute’s 2007 Report On The Feasibility Of Adding A Production Capacity Of 300,000t Per Year To Jiamusi City Shengping Coal Mine (“Feasibility Study”) states that the mine currently has a designed capacity of 600 kt. Thus if the production target of 600 kt was achieved in 2008 it would be supported by the infrastructure currently in place.

The expansion project to 900 kt as described in the Feasibility Study is projected to take 24 months to achieve. With the expansion work to begin in 2008, Shengping Coal Mine is planning to take advantage of some of the increased production capacity in 2009. This would be in line with the production profile to 2010 as shown in Table 2.7 .

MMC makes the following comments on production:

Shengping Coal Mine has a designed capacity for 600 kt production per annum. Design capacities in China are often based on limited (for example 16 hours per day) working hours and only 330 days per year. In this regard, it is often possible for mines to produce substantially more than their stated design capacity.
Mine management indicated that it was possible to achieve 700 kt in Year 2009 due to the mine expansion work being partly in place already. The conversion of mining methodology in Seam 9 from drill and blast longwall to mechanised longwall will also assist in achieving the target of 700 kt.; and
The Feasibility Study has been approved by the Government and should be followed in order to achieve the expanded production target of 900 kt by Year 2010.

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2.9 MAJOR EQUIPMENT/SUPPORT INFRASTRUCTURE

2.9.1 Mine Access

There are three drifts accessing Shengping Coal Mine plus an additional drift and vertical shaft for ventilation. The main drift is fitted with a conveyor for the haulage of coal. Men and light materials are also transported underground via the same conveyor.

There are two other drifts in use for the ingress of heavy equipment and egress of skips hauling stone from development work.

The drifts serve as fresh air intakes to the mine. Return air exits via the vertical shaft.

An extra vertical shaft and fan will be installed in the southern expansion area to accommodate mining activities in the area.

2.9.2 Underground Coal Clearance

The Seam 11 coal produced at the longwall face is transported via a 150 t/hr chain conveyor in the maingate to the end of the longwall panel. The coal is fed into an 80 t capacity underground transfer bin which then feeds onto a 350 t/hr conveyor in a coal haulage heading. The coal is then transported into a second 300 t capacity underground bin and fed onto the 880 t/hr main coal transport conveyor for transportation to the surface.

Coal from the southern expansion area will link via a series of conveyors back onto the 880 t/hr main coal transport conveyor.

2.9.3 Surface Coal Handling

Coal from the main coal transport conveyor is discharged through a grizzly into a transfer bin. All material passing through the grizzly is then either fed directly into a 2,000 t bin that feeds material directly into the coal washery or is directed towards a 10,000 t ROM stockpile.

Clean coal from the coal washery is stockpiled near the rail line in one of two areas depending on the type of coal product. Coal is loaded into rail wagons by 23 tonne class type rubber tyred front end loaders.

2.9.4 Men and Materials Transport

Men and light materials are transported underground via a drift conveyor. There is a transfer point and further access is via a rail car drift system. The miners walk into the section at the end of the transportation loop.

There are two further drifts which allow access for heavy equipment.

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2.9.5 Water Supply

Industrial water supply for the mine comes from water pumped from the mine. There are three tanks on the surface with a combined capacity of 400 m[3] that hold water for fire fighting and dust suppression.

Drinking water comes from wells located in water bearing strata.

2.9.6 Pumping

There are two main water storage areas underground each with a double redundancy pumping system set up (that is, one pump working, a second pump on standby as back up and a third pump being available for maintenance). Area 1 to the west has a storage capacity of 1260 m[3] and is able to pump 200 m[3] /hr. Area 2 to the east has a storage capacity of 2600 m[3] and is able to pump 170 m[3] /hr.

All water is pumped to a transfer/storage point with a storage capacity of 3,860 m[3] . From there water is pumped via a four pump system to the surface for agricultural use and reused within the mine.

On average there is 16 to 17 hours of pumping per day.

The normal pumping rate from the mine is 400 m[3] /hr peaking at 450 m[3] /hr. It is expected in the south area where the expansion will take place the pumping rate will reach 200 m[3] /hr peaking at 300 m[3] /hr.

2.9.7 Electrical Supply

From interviews with the Shengping Coal Mine Technical Management, MMC understands that Shengping Coal Mine has two sources of 60 kV electricity supply each capable of supplying the needs of the mine. MMC further understands that the electrical supply is able to support the mine expansion.

2.10 MANNING

Shengping Coal Mine management indicated that there are 2,568 people employed of which 1,312 people work underground. There are 337 people working on the surface in direct support of mining operations.

The coal washery employs 141 people.

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2.11 COAL WASHING

The coal washery was built in 1985 and has a designed throughput capacity of 600 kt per annum, however MMC understands that a throughput of 900 kt per annum has been achieved.

There are two main products produced: a 1/3 coking coal and a thermal coal. The ash content is quoted as 8.6% and 29% respectively at an unknown moisture basis. A third coal product, which is essentially tailings, is a high ash, fine coal colloquially known as mud coal.

The coal washery comprises a dense medium shallow bath with froth flotation in mechanical cells for the fines.

The equipment capacities and flowsheet have not been confirmed but to process 900 kt/ annum a feed rate of approximately 200 t/h would be required. The flotation and filtration circuits appear to have sufficient capacity with the capacities of the bath and the tailings dewatering to be confirmed.

The equipment used is not of the latest in process design but is fit for the purpose as the feed is split between two saleable products and any misplaced material is not lost.

The coal washery has a closed water circuit with water loss being associated with the product coal.

2.12 COST ANALYSIS

2.12.1 Capital Expenditure

The current information on the projected capital expenditure is summarised at a high level. See Table 2.8 .

There was no information sighted on the schedule of spending for particular phases of the expansion and on particular major capital items.

Table 2.8 – Capital Expenditure For 300 kt Expansion By Year

		2007	2008	2009	Total
		(million RMB)	(million RMB)	(million RMB)	(million RMB)
300	kt Expansion	20	60	48.78	128.78

The breakdown of the capital to be spent is detailed in Table 2.9 below.

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Table 2.9 – Capital Expenditure For 300 kt Expansion By Cost Centres

Cost Centre	million RMB
Mine construction	59.42
Equipment purchase	31.70
Installation	7.22
Civil works	6.00
Preparation	8.00
Other engineering	6.13
Other expenses	4.16
Interest	4.15
Current assets	2.00
Total	128.78

2.12.2 Operating Expenditure

In interviews with site management the operating cost profile for Shengping Coal Mine is tabulated below in Table 2.10 . The table is built from the individual costs and the summation lines are mathematically calculated.

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Table 2.10 – Shengping Coal Mine Operating Cost Profile

Production Cost Material RMB/t Power RMB/t Labour RMB/t Welfare RMB/t Repair Fee RMB/t Subsidence Compensation RMB/t Roadway Construction Fund RMB/t Maintenance Fund RMB/t Management RMB/t Safety Fee RMB/t Other RMB/t Total Unit Cost RMB/t Finance And Other Costs Depreciation RMB/t Overheads RMB/t Finance Costs RMB/t Amortisation RMB/t Total Expenses RMB/t Total Overall RMB/t	2007 32 24 40 5.6 5 8.7 3 43.89 162.19 12.81 68 7 87.81 250	2008 31 23 40 5.6 5 8.7 3 35.89 152.19 12.81 63.33 11.67 87.81 240	2009 31 23 40 5.6 5 8.7 3 32.7 149 11 55 10 76 225	2010 30.72 22.04 40.02 5.6 5 2.5 8.7 3 17.37
				134.95

				14.55 47.22 7.78
				69.55

				204.5

Note: Other, Depreciation, Overheads, Finance Costs and Amortisation have been reported for reference only and are subject to accounting practices of the mine. MMC have not reviewed these and they have been taken at face value.

The totals of unit cost and expenses as reported in the information received from Shengping Coal Mine differ from the mathematically calculated totals of Table 2.10 . Tabulated below in Table 2.11 are the cost totals excluding individual items as supplied by Shengping Coal Mine.

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Table 2.11 – Shengping Coal Mine Operating Cost Totals Profile

Production Cost Total Unit Cost RMB/t Finance And Other Costs Total Expenses RMB/t Total Overall RMB/t	2007 175 75 250	2008 165 75 240	2009 160 65 225	2010 149.5

				55

				204.5

When MMC sought clarification from Shengping Coal Mine regarding the totals and possible causes for the variation, the Depreciation line item was shifted from Finance And Other Costs into Production Cost thus making the costs total correctly. It is noted that the Total Overall costs in Table 2.11 are the same as that of Table 2.10 .

In general the totals look reasonable.

MMC makes the following comments on costs:

MMC is of the opinion that the various items of cost have been allocated correctly into the categories of Production Cost and Finance And Other Cost. Any differences may be due to how accounting practice wishes to treat the various cost items.
There is a significant increase in depreciation expense in 2010 presumably for the equipment installed for the expanded production;
The average labour costs appear low when reconciling labour statistics with production statistics. It may be that labour costs have been allocated elsewhere such as the other category. The reason for this is that there appears to be more than 500 people receiving welfare payments and who may not actually contribute to the workforce but are still receiving money. The forecasts look to be conservative by reference to the historic cost levels; and

Generally, MMC’s opinion is that the figures for operating costs appear reasonable. Some of the detail may not be totally clear but the total seems to be of the right order.

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3 MINING HAZARDS

The key mining hazards are discussed below:

3.1 GEOLOGICAL ISSUES

The current workings in Seam 9 and 11 are located in areas coincident with areas of closer drill hole density. Faulting and seam thickness trends are therefore reasonably well understood and able to be anticipated in mine planning and design. However, the proposed southern extension area is located in an area where there is minimal drilling. Faulting and seam thickness trends will not be well understood and unknown face stopping structures will cost the mine in unpredicted lost production as the machinery is moved around any faults.

The proposal for the extension area is to introduce mechanised longwall units which will tolerate unpredicted face stopping features even less than the more forgiving drill and blast longwall units that currently work in Seam 9.

The southern most drill hole in the southern extended area intersected Seam 9 with a thickness of 0.2m (which is unmineable). If this thickness trend extends further to the north than predicted, then anticipated mineable reserves will be severely impacted and mineable reserves significantly reduced.

Given the large proposed capital cost expenditure of new longwall equipment, some expenditure for additional drilling in the southern area is highly recommended.

3.2 MULTI SEAM EXTRACTION

In the southern extended area where the proposed seams to be mined are Seam 8 and 9 the midburden is in the order of 10 to 15m. This is based on very few drill holes, located relatively far apart. If the midburden approaches less than 10m then simultaneous extraction of both seams could cause goafing issues for the underlying Seam 9. Even if the seams were not extracted simultaneously the workings of either seam could sterilize anticipated reserves of the other seam still to be mined.

3.3 UNDETECTED WORKINGS

Changfa Coal Mine is adjacent and to the north of Shengping Coal Mine and Jixian Coal Mine is adjacent and to the east of Shengping. Jixian Coal Mine has been mining since the 1970’s and the extents of the mine are not clearly known. If there has been any “robbing of pillars” along the lease boundary then the risk of breaking into these workings if Shenping Coal Mine advances towards the east is high. As most of the mines in this area produce reasonable amounts of water any abandoned workings will become full of water and the consequences of breaking into unknown adjacent workings are serious.

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Changfa Coal Mine concession is located to the north of Shengping Coal Mine and the same risks that exist with Jixian Coal Mine will exist at the common boundary between Shengping Coal Mine and Changfa Coal Mine.

3.4 STRATA SUPPORT

Roof support in development areas was with steel bolts. In the longwall mining areas hydraulic roof supports were utilised. There was no indication of high levels of horizontal stress.

3.5 COAL DUST EXPLOSIVE INDEX

It is recognised in the 300 kt Expansion Project Feasibility Report that there is a risk of coal dust explosion. This is a hazard that is common to underground coal mining and needs to be managed.

3.6 MINE WATER

The underground water management system is designed with a reasonable factor of safety. It is common practice in China to incorporate a double redundancy system for pumping requirements thus having three pumps installed (each capable of independently handling the mine’s pumping requirements).

4 RISKS OPPORTUNITIES AND CRITICAL ISSUES

Geological Uncertainty

Drilling in the proposed southern extension area is approximately 2 km apart. It is highly recommended that additional drilling take place in the southern extension area in order to increase the confidence level of the interpreted resources in this area. Drill spacing this far apart can only define very low confidence inferred resources.

Typically Chinese coal mines lack drilling data and it can shorten mine life, not because the resource is not there but rather the resource is not known to be there.

Safety

Coal mine safety remains a critical issue within the Chinese coal mining industry, where 97% of mines are underground. Shengping Coal Mine has a significant opportunity to continue with the high safety standards that it has already implemented. This is evident with no significant incidents at the mine in the last 5 years.

In recent years Shengping Coal Mine has implemented various safety initiatives including the upgrading of the ventilation system, installation of a gas monitoring system, use of hydraulic supports at the longwall, installing more water pipes for dust suppression and the introduction of the use of self rescuers.

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Coal Quality

The coal quality of the seams being mined is generally high energy, low to medium sulphur content and low to medium phosphorous content. The coal exhibits some swelling characteristics and acceptable ash fusion properties.

Capital Costs

The capital costs for the proposed expansion to the south have been taken directly from the 300 kt Expansion Project Feasibility Report. The costs should still be reasonably current as the Feasibility Report was only completed in January 2007.

Operating Costs

The operating costs build up is somewhat uncertain however the total overall cost appears reasonable. Any uncertainty on how individual costs are treated may be due to local accounting practice procedures.

Production difficulties

Coal mining, in particular underground coal mining, is carried out in an environment where not all events are predictable.

MMC considers however that the overall production risk in the immediate term is low. The major risk is the non detection of faults with displacements of seam thickness prior to development. Such faults will require alterations to the mine plan or delayed mining in negotiating the fault with the mechanised face.

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5 SUMMARY AND CONCLUSIONS

MMC considers that the following issues are the most important in terms of value.

Further Exploration Drilling – Shengping Coal Mine will utilise mechanised longwall mining. It would be prudent to improve the geological confidence in the southern expansion area to ensure a smooth transition into production and continued operation for the longwalls.

The additional benefit of further drilling for Shengping Coal Mine would be to gain a greater understanding of the geology and possibly have a greater proportion of its resources reclassified into higher categories than 333.

Mine Plan – Every mine should have robust mine plans ranging from the long term to the short term to ensure that all issues are addressed proactively and the projected income for the mine is secured.

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ANNEXURE A – GLOSSARY OF TERMS

The key terms used in this report include:

Assets means the Shengping Coal Mine
Company means Wealth Gain Global Investment Limited
current means as at January 2008
HKEX stands for Stock Exchange of Hong Kong
ITR stands for Independent Technical Review
ITRR stands for Independent Technical Review Report
JORC stands for Joint Ore Reserves Committee
JORC Code refers to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition, which is used to determine resources and reserves, and is published by JORC of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia
km stands for kilometre
kt stands for thousand tonnes
m stands for metres
MMC refers to Minarco-MineConsult
mine production is the total raw production from any particular mine
Ml stands for mega litre which is equal to one million litres
Mt stands for million tonnes
Mtpa means million tonnes per annum
RMB stands for Chinese Renminbi Currency Unit; 103 RMB means 1,000 RMB
ROM stands for run-of-mine, being material as mined before beneficiation
t stands for tonne
tonne refers to metric tonne
¥ is the symbol for the Chinese Renminbi Currency Unit

Note: Where the terms Competent Person, Inferred Resources and Measured and Indicated Resources are used in this report, they have the same meaning as in the JORC Code.

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ANNEXURE B – QUALIFICATIONS AND EXPERIENCE

David Meldrum – Managing Director of Minarco-MineConsult – Bachelor of Engineering (Mining Hons) – Graduate Diploma in Applied Finance – First Class Mine Managers Certificate of Competency – Member of Australasian Institute of Mining and Metallurgy (Chartered Professional) – Fellow of Financial Services Institute of Australasia.

David has a First Class Mine Managers Certificate of Competency with over 25 years experience associated with the mining industry within Australia and overseas. During this period he has undertaken all levels of technical studies and audits of current and prospective operations in Australia, China, New Zealand, South Africa and Indonesia. Apart from providing advice to numerous financiers, David has finance industry experience having been an Investment Banker and having carried out studies for both lenders and investors.

David concentrates on providing technical and commercial advice to both the mining and finance industries. This work includes advising clients on the sale and/or purchase of mining projects and has involved development of business strategies to maximise the value of the opportunities. David also has extensive experience in reserve estimation.

Andrew Ryan – Manager Consulting – China (Minarco-MineConsult) – Bachelor of Engineering, Mining – University of New South Wales – Member of Australasian Institute of Mining and Metallurgy – Associate of Financial Services Institute of Australasia

Andrew has worked with MMC over the past six years and has been actively involved in all areas of mining consulting. Most recently, in 2005 Andrew moved to Beijing as Minarco’s Chinese Business Manager (Technical) responsible for the establishment and growth of Minarco’s China business. During this time Andrew has been involved with and/or project managed numerous mining related assignments in China. This work has included the project management of due diligence studies, valuation reports, opportunity assessments, conceptual development studies, and feasibility assessments for both domestic and international clients. The projects that these studies have focused on have covered a variety of minerals including coal, iron ore, gold and molybdenum.

Yin Wong – Manager Mining – China (Minarco-Mineconsult) – Bachelor of Engineering (Mining) – Member of Australasian Institute of Mining and Metallurgy

Yin has a diverse experience in mining ranging from mine planning, drilling and blasting, mining technology, mining consulting and managing exploration programs. He has worked in various resources and locations including iron ore in the Pilbara region of Australia, underground and open cut coal mining in the Hunter Valley of Australia, mine monitoring technology in Australia; open cut coal mining in East Kalimantan in Indonesia and exploration in Central Kalimantan in Indonesia. The majority of Yin’s experience has been in coal mining in Australia and Indonesia.

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Charles Parbury – Director, MBGS – Bachelor of Arts (Honours), Geology, Macquarie University – Member of Australasian Institute of Mining and Metallurgy

Charles has over 30 years experience as a geologist and has worked internationally on coal related mining operations and exploration programs in Australia, the Philippines, Thailand, New Zealand, Indonesia and China. He has completed many resource estimation programs and was a key member of the team that completed the competent persons report for Xstrata PLC for its Listing in London and the Independent Technical Review for Heilongjiang Longmay Coal Mining Group Co. Ltd.’s mines in Heilongjiang Province, China.

Graeme Rigg – Senior Engineer, Minarco-Mineconsult Bachelor of Engineering (Mining Hons), Second Class Certificate of Competency, Member of Australasian Institute of Mining and Metallurgy, Member of Mine Subsidence Technological Society

Graeme has over 20 years experience as a mining engineer, principally in underground coal mining operations, planning and management in New South Wales and Queensland. He has extensive experience in mine design, mine scheduling, feasibility studies, and optimisation for new mine development and mine expansion programmes.

Graeme has experience in reserve estimation, conducting technical audits and due diligence investigations for mine valuation purposes. He has worked on numerous technical review projects in Australia, New Zealand and China.

COMPANY’S RELEVANT EXPERIENCE

Minarco-MineConsult, part of the Runge Group, is a premier international consulting and engineering firm. It provides a full range of services from pure technical consulting through to strategic corporate advice. And undertake assignments on mining projects covering a range of commodities and countries, serving clients in most of the countries around the West Pacific Rim region.

Minarco-MineConsult maintains a full time staff of qualified specialists in the fields of mining engineering, geology, process and metallurgical engineering, environmental and geotechnical engineering, and environmental economics.

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Minarco-MineConsult typically completes over 200 assignments per year and has over 300 professionals (through its parent Runge Group) available in disciplines including:

Mining Engineering;
Minerals Processing;
Coal Handling and Preparation;
Power Generation;
Environmental Management;
Geology;
Contracts Management;
Project Management;
Finance;
Commercial Negotiations.

The roots of Minarco-MineConsult were established in the Australian mining industry. MinarcoMineConsult is committed to compliance with the codes which regulate Australian corporations and consultants and has established an International business which has continued to give its clients and those that rely on its work the confidence that can be associated by the use of the relevant Australian codes.

These codes include:

The Australian Corporation Law;
The Australian Institute of Company Directors Code of Conduct;
The Securities Institute of Australia Code of Ethics;
The Australasian Institute of Mining and Metallurgy Code of Ethics;
The Australasian Code for Reporting of Exploration Results, Mined Resources and Ore Reserves (The JORC Code).

Minarco-MineConsult has conducted numerous mining technical due diligence programs and reporting for IPO’s and capital raisings over the past six years, with involvement in projects raising a total of over $US 10 billion of capital. This and other work is summarised in Table A1 .

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TABLE A1 – MINING RELATED IPO AND CAPITAL RAISING DUE DILIGENCE EXPERIENCE

December 2007 – Ko Yo Ecological (Group) Limited – Prepration of Independent Technical Review for inclusion in a Hong Kong Stock Exchange Circular to be distributed to existing shareholders in connection with a mining project acquisition.

December 2007 China Railway Group – Capital raising for mining assets in Africa and Inner Mongolia on the Hong Kong Stock Exchange. Preparation of CPR for d IPO on the HKSE.

2007 China Primary Resources Holding Limited – Preparation of Independent Technical Review for inclusion in a Hong Kong Stock Exchange Circular to be distributed to existing shareholders in connection with a mining project acquisition.

2007 (Current) Confidential Large Chinese State Owned Corporation – Capital raising for mining assets (confidential) on the Hong Kong Stock Exchange. Preparation of CPR for planned IPO on the HKSE.

2007 Gloucester Coal Limited – Independent Technical Review for Australian Stock Exchange Scheme of Arrangement.

2007 Confidential Hong Kong Private Equity Partners – Independent Technical Review to support private equity capital raising to purchase lead/zinc mining assets in Tibet.

2007 Confidential International Investor – Independent Technical Review to support private equity capital raising to purchase Iron Ore assets in Hubei. Preparation of ITR.

2007 Whitehaven Coal Limited – Independent Technical Review for Australian Stock Exchange IPO.

2007 Confidential Privately Owned Coke Producer – Capital raising for purchase of Coal Mines and downstream coal washing, coke production and chemical production facilities. Preparation of CPR for planned IPO on the HKSE.

2007 China Molybdenum Group – Capital raising for large scale Molybdenum mine on the Hong Kong Stock Exchange. Preparation of CPR for IPO on the HKSE.

2007 Confidential International Investor – Independent Technical Review to support purchase of Gold Mine In Hubei Province.

2006 Excel Mining – Independent Technical Review for Australian Stock Exchange Scheme of Arrangement.

2006 Celadon Mining Investment Group (UK) – Capital raising for coal mine purchase in China and planned subsequent listing on AIM.

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2005 Yanzhou Coal Mining Company Limited – Independent Technical Review of coal projects to satisfy ongoing listing requirements of the HKSE and NYSE following IPO.

2004 Excel Mining – Independent Technical Review for Australian Stock Exchange IPO (current market capitalisation over $US1billion).

2004 Excel Mining – Independent Market Review for Australian Stock Exchange IPO.

2003 New Hope – Independent Market Review for Australian Stock Exchange IPO.

2003 Confidential – Independent Market Review on 50Mtpa operation in Kazakhstan for LSE listing (has not proceeded).

2003 Xstrata plc – Competent Person’s Report for London Stock Exchange Chapter 19 Report for Acquisition of MIM Assets including mines, rail and port review ($US 2.5 billion).

2002 Xstrata plc – Competent Person’s Report for London Stock Exchange IPO ($US2.3 billion).

2002 Kaltim Prima, Indonesia – Independent Technical Review for advising project financiers to acquisition ($US445 million).

2001 Enex Resources – Independent Technical Review for Australian Stock Exchange IPO.

2001 Macarthur Coal Limited – Independent Technical Report and Market Review for Australian Stock Exchange IPO.

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APPENDIX VIII

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company.

The Directors collectively and individually accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained herein, the omission of which would make any statement herein misleading.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and upon Completion are as follows (assuming no further Shares are issued or repurchased by the Company):

Authorised: 1,000,000,000 Shares as at the Latest Practicable Date Issued and fully paid or credited as fully paid: 353,178,000 Shares as at the Latest Practicable Date 70,000,000 Consideration Shares to be issued 80,642,000 Conversion Shares to be issued upon the exercise of the Convertible Note (assuming the Convertible Note is converted at the initial Conversion Price so that the Vendor and parties acting in concert with him hold approximately 29.9% of the enlarged issued share capital of the Company) 503,820,000 Shares upon Completion	HK$ 10,000,000

	3,531,780 700,000 806,420
	5,038,200

On 22 August 2007, a total of 4,400,000 Share options at an exercise price of HK$1.066 per Share exercisable from 22 August 2007 to 21 August 2008 have been granted to 9 employees under the share option scheme of the Company dated 10 April 2002. Each option gives the holder the right to subscribe for one Share in the Company.

Save as disclosed herein and the Option granted to Capital Builder entitling Capital Builder to subscribe for up to 47,090,400 new Shares at a subscription price of HK$0.83 per Share (subject to adjustments), as at the Latest Practicable Date, there were no outstanding options, warrants, derivatives or convertible securities which may confer any right to the holder thereof to subscribe for, convert or exchange into new Shares.

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GENERAL INFORMATION

APPENDIX VIII

All the Shares in issue and the Consideration Shares and Conversion Shares when issued rank pari passu in all respects with each other including as regards to dividends and voting rights.

The Shares are listed on the Stock Exchange. No part of the securities of the Company is listed or dealt in, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

There is no arrangement under which future dividends are/will be waived or agreed to be waived.

Save as disclosed herein, no share or loan capital of the Company or any members of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

DISCLOSURE OF INTERESTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had, or was deemed to have, any interests and short positions in the Shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to section 352 of the SFO to be entered into the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange:

Long position in the Shares

Approximate percentage of the issued share capital Name of Directors Capacity Number of Shares of the Company Mr. Ip Ki Cheung (Note) Interest of a 111,900,000 31.68% controlled corporation

Note:

Mr. Ip Ki Cheung, an executive Director, through Best Aims Finance Limited held 50% issued share capital of Capital Concord which in turn held 111,900,000 Shares, representing approximately 31.68% of the entire issued share capital of the Company as at the Latest Practicable Date. Accordingly, Mr. Ip Ki Cheung is deemed to be interested in these 111,900,000 Shares under the SFO.

In addition to the above interests, (1) Mr. Cheung Shui Kwai, an executive Director, who wholly owns Harbour Rich Finance Limited which in turn is interested in 30% of the issued share capital of Capital Concord, has an attributable interest in 33,570,000 Shares, and (2) Mr. Chan Siu Chung, an executive Director, wholly owns Pace Maker Finance Limited which in turn is interested in 20% of the issued share capital of Capital Concord, has an attributable interest in 22,380,000 Shares.

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APPENDIX VIII

DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

Saved as disclosed below, as at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group or had an option in respect of such capital:

(a) Long positions in the Shares

			Approximate
			percentage
			of the issued
		Number of	share capital
Name	Capacity	Shares interested	of the Company
			(Note 4)
Capital Concord	Beneficial owner	111,900,000	31.68%
(Note 1)
Best Aims Finance Limited	Interest of a	111,900,000	31.68%
(“Best Aims”)(Note 1)	controlled
	corporation
Capital Builder_(Note 2)_	Beneficial owner	47,090,400	13.33%
Ms. Mak_(Notes 2 and 3)_	Interest of a	47,090,400	13.33%
	controlled
	corporation
	Interest of spouse	2,075,503	0.59%
Mr. Wan_(Note 3)_	Interest of	47,090,400	13.33%
	spouse
	Interest of a	2,075,503	0.59%
	controlled
	corporation

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(b) Long position in the shares of the Target Company

			Percentage
			of the issued
	Number of		share capital
Name	shares interested	Capacity	of the Company
Vendor	1	Beneficial owner	100%

(c) Long position in the equity of the Coal Mine Company

			Percentage
			of the equity
	Amount of		interest of
Name	equity interested	Capacity	the Company
Mine Seller	RMB20,000,000	Beneficial owner	100%

Notes:

50% of the entire issued share capital of Capital Concord is benefically owned by Best Aims, which is beneficially owned by Mr. Ip Ki Cheung, an executive Director. Therefore, Best Aims and Mr. Ip Ki Cheung are deemed to be interested in the 111,900,000 Shares held by Capital Concord under the SFO.
Capital Builder is a company wholly and beneficially owned by Ms. Mak. On 21 November 2007, Capital Builder was granted the Option to subscribe up to a maximum of 47,090,400 Shares at the subscription price of HK$0.83 per Share (subject to adjustments).
These 49,165,903 Shares included 2,075,503 Shares held by Baron Investment and the Option granted to Capital Builder entitling Capital Builder to subscribe for up to 47,090,400 new Shares pursuant to the option agreement dated 16 August 2007 and the supplemental agreement dated 18 September 2007 entered into between Capital Builder and the Company. Capital Builder is wholly owned by Ms. Mak, Baron Investment is indirectly wholly owned by Mr. Wan. Being the spouse of Ms. Mak, Mr. Wan is deemed to be interested in the Shares to be issued upon exercise of the Option by Capital Builder. Ms. Mak is deemed to be interested in Shares held by Baron Investment.
The percentage is calculated based on the existing issued share capital of the Company as at the Latest Practicable Date.

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DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors has entered into a service agreement with the Company for an initial term of three years commencing from 1 April 2002 and which will continue thereafter until the agreement is terminated by not less than six calendar months’ notice in writing served by either party on the other. No notice of termination was received from the executive Directors nor issued by the Company up to the Latest Practicable Date. Each of the executive Directors is entitled to a monthly salary of HK$131,250 as director’s fee, a fixed sum bonus equal to one month’s fixed salary, a discretionary bonus calculated as a certain percentage of the audited consolidated net profit of the Group attributable to the Shareholders (after tax but before extraordinary items and such bonus) and a housing allowance of HK$70,000 per month.

Save as disclosed above, none of the Directors had existing or proposed service contracts with any member of the Enlarged Group, excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

INTERESTS IN CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Enlarged Group.

INTERESTS IN ASSETS OF THE ENLARGED GROUP

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by or leased to, any member of the Enlarged Group since 31 March 2007, being the date to which the latest published audited financial statements of the Group were made up.

COMPETING INTEREST

As at the Latest Practicable Date, none of the directors nor their respective associates had any direct or indirect interest in a business which competes or is likely to compete, either directly or indirectly, with any business of the Enlarged Group.

LITIGATION

Save as disclosed in note 16(b) to the accountants’ report on the Coal Mine Company as set out in Appendix III to this circular, as at the Latest Practicable Date, none of the members of the Enlarged Group was engaged in any litigation or claims of material importance and no litigation or claims of material importance was known to the Directors to be pending or threatened against any members of the Enlarged Group.

There are no claims in relation to the exploration/mining rights of the coal mine made or notified either by third parties against any member of the Enlarged Group or vice versa.

262

GENERAL INFORMATION

APPENDIX VIII

EXPERTS AND CONSENTS

(a) The following are the qualifications of the experts, who have given opinions contained in and referred to in this circular:

Name

Qualification

Baron Capital A corporation licensed to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO
Optima Capital A corporation licensed to carry on type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

Grant Thornton Certified Public Accountants Savills Professional valuation firm MMC Independent technical adviser Jingtian & Gongcheng PRC lawyers

(b) Baron Investment held 1,347,503 Shares, representing approximately 0.38% of the total issued share capital of the Company as at the Latest Practicable Date. Baron Capital is a company under the same control as Baron Investment.

Save as disclosed herein, none of Baron Capital, Optima Capital, Grant Thornton, Savills, MMC and Jingtian & Gongcheng has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

(c) Each of Baron Capital, Optima Capital, Grant Thornton, Savills, MMC and Jingtian & Gongcheng has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.
(d) None of Baron Capital, Optima Capital, Grant Thornton, Savills, MMC and Jingtian & Gongcheng has any direct or indirect interest in any assets which had been acquired, or disposed of by, or leased to any member of the Enlarged Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Enlarged Group since 31 March 2007, the date to which the latest published audited consolidated financial statements of the Group were made up.

263

GENERAL INFORMATION

APPENDIX VIII

(e) Neither MMC nor any Directors are interested in the promotion of, or in any assets which have been within the two years immediately preceding the issue of this circular, acquired or disposed of by or leased to the Group or any of its subsidiaries.

MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by members of the Enlarged Group within the two years immediately preceding the date of this circular:

the preliminary sale and purchase agreement dated 25 April 2007 entered into between Polonius Company Limited (“Polonius”), an indirect wholly-owned subsidiary of the Company (as the vendor), Mr. Chen Yingdong (“Mr. Chen”) (as purchaser) and the property agent, pursuant to which Polonius has agreed to dispose and Mr. Chen has agreed to acquire the property for the consideration of HK$8,986,250. A formal agreement for sale and purchase of the property was entered on 8 May 2007;
the underwriting agreement dated 22 June 2007 entered into between Baron Investment and the Company in relation to the open offer of 117,726,000 new Shares at HK$0.10 per Share;
the undertaking letter dated 22 June 2007 entered into by Capital Concord in favour of the Company and the Underwriter in relation to the Open Offer pursuant to Capital Concord irrevocably undertook to accept 59,000,000 Shares under the Open Offer at HK$0.1 each;
the option agreement dated 16 August 2007 and the supplemental agreement dated 18 September 2007 entered into between Capital Builder and the Company, pursuant to which the Company has agreed to grant the Option to Capital Builder in consideration of HK$1.00, exercisable within the option period of 12 months commencing from the date of fulfillment of conditions precedent set out in the option agreement. An initial deposit of HK$5 million has been paid by Capital Builder to the Company and such deposit is non-refundable but shall be set off against the subscription price of the Option on a pro-rata basis. The Option was granted on 21 November 2007 and Capital Builder shall be entitled to require the Company to allot and issue up to a maximum of 47,090,400 new Shares at the subscription price of HK$0.83 (subject to adjustments) upon and subject to the terms set out in the option agreement and the supplemental agreement;
the Sale and Purchase Agreement;
the First Supplemental Agreement;
the Second Supplemental Agreement;
the Framework Agreement;
the Mine Acquisition Agreement;
the Supplemental Mine Acquisition Agreement; and
the Placing Agreement.

264

GENERAL INFORMATION

APPENDIX VIII

Save as aforesaid, no contracts (not being contracts entered into in the ordinary course of business carried on by the Enlarged Group) have been entered into by any member of the Enlarged Group within the two years preceding the date of this circular.

MISCELLANEOUS

(a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
(b) The head office and principal place of the business of the Company in Hong Kong is at 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon.
(c) The company secretary and qualified accountant of the Company is Mr. Hung Chung Wah. He is an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants. Mr. Hung has over 8 years of experience in accounting and auditing.
(d) The share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited, 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The English text of this circular shall prevail over its Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (public holidays excepted) at the principal place of business of the Company in Hong Kong at 30/F, One Kowloon, No. 1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong from the date of this circular up to and including 29 February 2008:

(a) the memorandum and articles of association of the Company;
(b) the letter of advice from Optima Capital to the Shareholders regarding the Acquisition;
(c) the consolidated audited financial statements of the Group for the two years ended 31 March 2007;
(d) the interim report of the Company for the six months ended 30 September 2007;
(e) the accountants’ report on the Target Company, the text of which is set out in Appendix II to this circular;
(f) the accountants’ report on the Coal Mine Company, the text of which is set out in Appendix III to this circular;

265

GENERAL INFORMATION

APPENDIX VIII

(g) the letter from Grant Thornton in respect of the pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular;
(h) the summary valuation report on the Coal Mine Company prepared by Savills, the text of which is set out in Appendix V to this circular;
(i) the reports from Grant Thornton and Baron Capital in connection with the cash flow forecasts underlying the valuation of the Coal Mine Company, the text of which is set out in Appendix VI to this circular;
(j) the technical report prepared by MMC, the text of which is set out in Appendix VII to this circular;
(k) the letters of consents referred to under the paragraph headed “Experts and consents” in this appendix;
(l) the material contracts referred to under the paragraph headed “Material contracts” in this appendix;
(m) the service agreements entered into between each of the executive Directors and the Company;
(n) the circular of the Company dated 14 May 2007 in relation to a discloseable transaction for the disposal of property;
(o) the PRC legal opinion issued by Jingtian & Gongcheng; and
(p) this circular.

266

NOTICE OF EGM

KENFAIR INTERNATIONAL (HOLDINGS) LIMITED 建發國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 223)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Kenfair International (Holdings) Limited will be held at 30/F, One Kowloon, No.1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong on Friday, 29 February 2008, at 10:00 a.m. for the purpose of considering and, if thought fit, passing, the following resolution which will be proposed as an ordinary resolution:

ORDINARY RESOLUTION

1. “ THAT:

(a) the conditional agreement (“SP Agreement”) dated 25th September, 2007 (as amended by supplemental agreements dated 26th October, 2007 and 20th December, 2007) entered into by Hung Chen Richael as vendor and the Company as purchaser in relation to, inter alia, the sale and purchase of one share of US$1.00 representing the entire issued share capital of Wealth Gain Global Investment Limited for a consideration of $700,000,000 to be satisfied as to HK$320,000,000 in cash, as to HK$35,000,000 by the issue of 70,000,000 new shares in the Company (“Consideration Shares”) credited as fully paid at HK$0.50 each and as to HK$345,000,000 by the issue of a convertible note by the Company to the vendor (“Convertible Note”) (a copy of which has been produced to this meeting and marked “A” and initialed by the chairman for identification) be and is hereby confirmed, approved and ratified;
(b) the issue of the Convertible Note convertible into shares of the Company at an initial subscription price of HK$0.50 per share subject to adjustments (“Conversion Shares”) in accordance with the terms and conditions of the Convertible Note set out in the SP Agreement be and is hereby approved;
(c) the issue of (i) the Consideration Shares credited as fully paid at HK$0.50 per share to the vendor and (ii) the Conversion Shares upon exercise of conversion rights under the Convertible Note to the holder(s) of the Convertible Note by the Company be and are hereby approved;

267

NOTICE OF EGM

(d) the directors of the Company be and are hereby authorised to do all such acts and things, to sign and execute all such further documents and to take such steps as the directors may in their absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the SP Agreement, issue of the Consideration Shares, the Convertible Note and the Conversion Shares or any of the transactions contemplated thereunder.”

By Order of the Board Kenfair International (Holdings) Limited Ip Ki Cheung Chairman

Hong Kong, 13 February, 2008

Notes:

Any member entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Company’s share registrar in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote.
Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding.
A form of proxy is enclosed. Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

268

AI assistant

Elife Holdings Limited — Proxy Solicitation & Information Statement 2008

49047_rns_2008-02-12_d25f9bf3-808f-4bff-84b0-8111c18d5c15.pdf

KENFAIR INTERNATIONAL (HOLDINGS) LIMITED 建發國際（控股）有限公司

Financial Adviser to the Company

Independent Compliance Adviser to the Company

Optima Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

KENFAIR INTERNATIONAL (HOLDINGS) LIMITED 建發國際（控股）有限公司

INVOLVING PAYMENT OF CASH

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

BACKGROUND

SALE AND PURCHASE AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AGREEMENTS)

Date of the Sale and Purchase Agreement

Dates of the Supplemental Agreements

Parties

LETTER FROM THE BOARD

Assets to be acquired

Consideration

Basis of the Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions precedent to the Sale and Purchase Agreement

LETTER FROM THE BOARD

Completion

CONSIDERATION SHARES

CONVERTIBLE NOTE

LETTER FROM THE BOARD

ISSUE PRICE AND CONVERSION PRICE

SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

DILUTION EFFECT ON SHAREHOLDERS

THE FRAMEWORK AGREEMENT

THE MINE ACQUISITION AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL MINE ACQUISITION AGREEMENT)

Date of the Mine Acquisition Agreement

Date of the Supplemental Mine Acquisition Agreement

Parties

Consideration for the Transfer

LETTER FROM THE BOARD

Conditions precedent to the Mine Acquisition Agreement

LETTER FROM THE BOARD

Completion

Representations and warranties

INFORMATION ON THE GROUP

LETTER FROM THE BOARD

INFORMATION ON THE VENDOR, THE TARGET COMPANY AND THE COAL MINE COMPANY

LETTER FROM THE BOARD

《煤礦安全培訓機構資格證書》

LETTER FROM THE BOARD

Financial information of the Target Company and the Coal Mine Company

REASONS FOR THE ACQUISITION

FINANCIAL EFFECTS OF THE ACQUISITION

Net Assets

Earnings

RISKS ASSOCIATED WITH THE ACQUISITION

EQUITY FUND RAISING ACTIVITIES OF THE COMPANY IN THE PAST TWELVE MONTHS

WAIVER APPLICATION OF RULE 4.06 OF THE LISTING RULES

LETTER FROM THE BOARD

EGM

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

RECOMMENDATION

ADDITIONAL INFORMATION

To: the Shareholders

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF THE ENTIRE EQUITY INTERESTS IN WEALTH GAIN GLOBAL INVESTMENT LTD. INVOLVING PAYMENT OF CASH, ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE NOTE

INTRODUCTION

LETTER FROM OPTIMA CAPITAL

SUMMARY OF THE TERMS OF THE ACQUISITION

1. Assets to be acquired

2. Consideration

3. Conditions precedent

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background to and reasons for the Acquisition

2. Existing business of the Group

Elife Holdings Limited Proxy Solicitation & Information Statement 2008

Analysis of the Issue Price and the C on version Price