Elife Holdings Limited — Proxy Solicitation & Information Statement 2011

Sep 27, 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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

SINO RESOURCES GROUP LIMITED (carrying on business in Hong Kong as Sino Gp Limited) 神州資源集團有限公司[*] (Incorporated in the Cayman Islands with limited liability) (Stock Code: 223)

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF ENTIRE ISSUED SHARE CAPITAL OF WEALTHY WING LIMITED, INVOLVING PAYMENT OF CASH, ISSUE OF CONSIDERATION SHARES AND

NOTICE OF EGM

A notice convening a extraordinary general meeting of the Company to be held at Room 2502, 25/F, 9 Queen’s Road Central, Central, Hong Kong on Friday, 14 October 2011 at 2:30 p.m. is set out on pages 120 to 121 of this circular. Whether or not you are able to attend the extraordinary general meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s share registrar and transfer office, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjourned meeting. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting if you so wish.

• for identification purposes only

28 September 2011

CONTENTS

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Appendix II – Financial Information of the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	61
Appendix III – Management Discussion and Analysis of the Target Group. . . . . . . . . . . . . .	91
Appendix IV – Unaudited Pro Forma Financial Information of the Enlarged Group. . . . . .	94
Appendix V – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	101
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	120

DEFINITIONS

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

“Acquisition” the acquisition of the Sale Share by the Company from the Vendor pursuant to the Sale and Purchase Agreement

• “Announcement” the announcement dated 11 August 2011 issued by the Company in relation to the Acquisition

• “associate(s)” has the meaning ascribed thereto under the Listing Rules

• “Beijing Xinyilongda” 北京信億隆達商貿有限公司 (Beijing Xinyilongda Trading Limited*), a company incorporated in the PRC

• “Board” the board of Directors

• “Business Day” a day (other than a Saturday and Sunday) on which banks in Hong Kong are open for business

• “BVI” the British Virgin Islands

• “Company” Sino Resources Group Limited (carrying on business in Hong Kong as Sino Gp Limited), a company incorporated in the Cayman Islands and whose shares are listed on the main board of the Stock Exchange;

• “Completion” the completion of the Sale and Purchase Agreement in accordance with its terms

• “Completion Date” the third Business Day after the fulfillment or waiver (as the case may be) of the conditions precedent of the Sale and Purchase Agreement (or such other date as may be agreed between the parties to the Sale and Purchase Agreement)

• “Consideration” a consideration of HK$162 million for the Acquisition to be satisfied in the manner as set out in the Sale and Purchase Agreement,

• “Consideration Adjustments” the First Year Consideration Adjustment, the Second Year Consideration Adjustment and the Third Year Consideration Adjustment and shall have the same meanings as the term “Profit Guarantee” defined in the Announcement

• “Consideration Shares” 270,000,000 new Shares to be allotted and issued to the Vendor in partial settlement of the Consideration

• for identification purposes only

1

DEFINITIONS

“connected person(s)” has the meaning ascribed thereto under the Listing Rules “Dalian Xinrui” 大連信瑞商貿有限公司(Dalian Xinrui Trading Limited), a company incorporated in the PRC “Deposit” HK$20,000,000, being the refundable deposit under the Sale and Purchase Agreement “De Rong” 黑龍江德融煤業有限公司(Heilongjiang De Rong Coal Co. Limited), a company incorporated in the PRC “De Rong Joint Venture the agreement entered into among Beijing Xinyilongda, Agreement” Dalian Xinrui and Western Spark in relation to the establishment of of De Rong as a sino-foreign joint venture “Director(s)” director(s) of the Company “EGM” the extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving, among others, the Acquisition, the specific mandate for the issue and allotment of the Consideration Shares

“Enlarged Group”

the Group and the Target Group

“Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Third Party(ies)” third party(ies) independent of the Company and connected persons (as defined under the Listing Rules) of the Company and are not connected persons (as defined under the Listing Rules) of the Company

“Initial Capital Contribution” The capital contribution of RMB 4.4 million (equivalent to approximately HK$5.28 million) by Western Spark pursuant to the De Rong Joint Venture Agreement before the date of issuance of the Sino-foreign joint venture, business licence for De Rong

“Issue Price” HK$0.45 per Consideration Shares “Last Trading Day” 8 August 2011, being the last trading day of the Shares before the date of suspension of trading in the Shares pending the release of the Announcement;

“Latest Practicable Date” 26 September 2011, being the latest practicable date prior to the printing of this circular for ascertaining information in this circular

• for identification purposes only

2

	DEFINITIONS
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	the People’s Republic of China
“Sale and Purchase Agreement”	the agreement dated 8 August 2011 entered into between the
	Company and the Vendor
“Sale Shares”	the entire issued share capital of the Target Company owned by
	the Vendor
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	the shares of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Strategic Cooperation Agreement”	the agreement in relation to the coal supply dated 5 August 2011
	entered into between De Rong and a PRC business partner
“Target Company” or	Wealthy Wing Limited, a company incorporated in the
“Wealthy Wing”	BVI
“Target Group”	the Target Company and its subsidiaries
“Vendor” or “Mr. Zheng”	鄭雪峰(Zheng Xuefeng), a third party independent to the
	Company and its connected person
“Western Spark”	Western Spark Investments Limited, a company, incorporated in
	Hong Kong with limited liability, and as at the Latest Practicable
	Date, a wholly owned subsidiary of Western Spark BVI
“Western Spark BVI ”	Western Spark Investments Limited, a company incorporated in
	BVI with limited liability, which its entire shares capital is owned
	by Mr. Zheng as at the Latest Practicable Date
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	percentage

For the purpose of this circular, all amounts denominated in RMB has been converted into HK$ at the rate of RMB1.00: HK$1.20 for illustration purpose.

3

LETTER FROM THE BOARD

SINO RESOURCES GROUP LIMITED (carrying on business in Hong Kong as Sino Gp Limited) 神州資源集團有限公司[*]

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 223)

Executive Directors:

Ms. Geng Ying (Chairman) Mr. Gao Feng Mr. Chiu Sui Keung

Independent non-executive Directors:

Mr. Cheng Wing Keung Raymond Mr. Lam Williamson Mr. Wong Hoi Kuen

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

Principal place of business in Hong Kong: Suite 2502, 25th Floor No. 9 Queen’s Road Central Central, Hong Kong

28 September 2011

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF ENTIRE ISSUED SHARE CAPITAL OF WEALTHY WING LIMITED, INVOLVING PAYMENT OF CASH, ISSUE OF CONSIDERATION SHARES AND NOTICE OF EGM

INTRODUCTION

Reference is made to the announcement dated 11 August 2011 in relation to the Acquisition. The purpose of this circular is to provide you with (i) further details of the Acquisition; (ii) financial information of the Group; (iii) a notice of the EGM.

On 8 August 2011, after trading hours of the Stock Exchange, the Company and the Vendor entered into the Sale and Purchase Agreement pursuant to which, among other things, the Vendor has conditionally agreed to sell and the Company has conditionally agreed to acquire the entire issued share capital of the Target Company at the Consideration of HK$162 million.

• for identification purposes only

4

LETTER FROM THE BOARD

THE ACQUISITION

The Sale and Purchase Agreement

Date: 8 August 2011

Parties:

• 1) The Vendor; and

• 2) The Company

To the best knowledge, information and belief of the Directors having made all reasonable enquiries, the Vendor is a third party independent to the Company and its connected person(s) (as defined under the Listing Rules).

Subject matter

Pursuant to the Sale and Purchase Agreement, the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares, representing the entire issued share capital of Wealthy Wing, free from encumbrance and together with all rights now or hereinafter attached thereto including but not limited to all dividends and distribution declared, paid or made in respect thereof on or after the Completion Date. As at Latest Practicable Date, Mr. Zheng owns the entire issued share capital of Wealthy Wing and Western Spark. Western Spark is wholly owned by Western Spark BVI, which is wholly owned by Mr. Zheng. Immediately prior to the Completion and following the completion of the Initial Capital Contribution by Western Spark, Wealthy Wing will indirectly own 55% equity interests in De Rong, while the rest of the 45% equity interest in De Rong will be held by two other Independent Third Parties, Beijing Xinyilongda and Dalian Xinrui.

Upon Completion, Wealthy Wing will become a wholly-owned subsidiary of the Company and will hold the entire share capital of Western Spark, which will hold 55% equity interests in De Rong. Please refer to the section headed “Shareholding Structure of the Target Group as at Latest Practicable Date, immediately prior to and upon the Completion” for further details. The results of the Target Group will be consolidated into the accounts of the Group upon Completion.

Consideration

The aggregate consideration for the Acquisition payable by the Company to the Vendor shall be HK$162 million, which will be satisfied in the following manner:

• (i) HK$20,000,000 was paid in cash by the Company to the Vendor upon signing of the Sale and Purchase Agreement as a refundable deposit;

• (ii) HK$121,500,000 shall be paid by the issuance and allotment of 270,000,000 Consideration Shares at the Issue Price of HK$0.45 per share of the Company to the Vendor at the Completion subject to the terms and conditions of the Sale and Purchase Agreement in relation to Consideration Adjustments (details of which are set out in the paragraph headed “Material Terms and Conditions of the Sale and Purchase Agreement” below); and

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LETTER FROM THE BOARD

• (iii) the remaining balance of the consideration in the sum of HK$20,500,000 shall be paid by the Company to the Vendor after the subject to the terms and conditions of the Sale and Purchase Agreement in relation to Consideration Adjustments. Pursuant to the Sale and Purchase Agreement, the Company does not have to settle such balance if the net profits of De Rong fail to meet the respective targets in association with the Consideration Adjustments and the Remaining Consideration Shares (defined below) are sold by the Company.

The refundable deposit of HK$20,000,000 was funded by the Company’s internal resources. The rest of Consideration will be settled partly by the internal resources of the Company and partly by the issue and allotment of the Consideration Shares.

The Consideration for the Acquisition was determined after arm’s length negotiations between the Company and the Vendor with reference to, among other things, historical financial performance of the De Rong, the growth potential of the coal trading business of De Rong after taking into account the strategic partnership with a PRC business partner under a Strategic Cooperation Agreement in relation to the coal supply and the future prospects of the coal industry, the Consideration Adjustments, which is in aggregate approximately RMB135 million (equivalent to HK$162 million), the consolidation of De Rong’s results into the Group’s accounts upon Completion and the potential synergy generated between the Group’s vision and existing business on the resources and energy sector and the coal trading business of De Rong.

The Directors (including independent non-executive Directors) consider the consideration for the Acquisition is fair and reasonable and that the terms and conditions of the Sale and Purchase Agreement and the entering into of the Sale and Purchase Agreement are in the interests of the Company and the Shareholders as a whole.

Funding for increasing the registered capital of De Rong

Pursuant to the Sale and Purchase Agreement, the Company will provide funding of RMB22 million (equivalent to approximately of HK$26.40 million) for capital injection into De Rong, so that Western Spark will be able to subscribe the incremental registered capital of De Rong of RMB12.22 million (equivalent to approximately HK$14.66 million), which represents 55% of the equity interest in De Rong. Please refer to the paragraph headed “De Rong Joint Venture Agreement” for further details.

With the capital injection of RMB22 million (equivalent to approximately of HK$26.40 million) into De Rong by Western Spark, all the shareholders including Beijing Xinyilongda and Dalian Xinrui shall benefit from the capital structure improvement of De Rong and enhanced cash flow position for business development.

Mr. Zheng, the vendor of the Sale and Purchase Agreement who undertakes to achieve the Consideration Adjustments, has over 10 years of experience in coal trading and other related businesses and has established extensive networks in the coal industry. Mr. Zheng participated in the coal logistics and transportation sector in the coal industry 10 years ago and subsequently changed his role to coal sales & marketing in coal trading companies. Since then, Mr. Zheng was gradually promoted to the management, in which he had been responsible in formulating business development strategies, establishing sales plans and business negotiations. He has solid experience in coal trading with and possesses liaisons with both private and state-owned coal miners, steel makers, coal chemical companies, power plants and logistics and transportation providers within the north-eastern region, Shanxi and Inner Mongolia in the PRC. The Company will propose to enter into a 3-year service contract with Mr. Zheng. Pursuant to the service contract, Mr. Zheng will be appointed as the director of De Rong and responsible for daily management and decision making of De Rong. Mr. Zheng’s expertise, network and experience in coal trading business shall benefit the future operation of De Rong and drive the formulation of optimal business strategies and effective implementation of such strategies.

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LETTER FROM THE BOARD

In addition to liaising with the original shareholders of De Rong, namely Beijing Xinyilongda and Dalian Xinrui, to structure the Acquisition, the Vendor is taking a significant role in the negotiation of this transaction and the future business development of De Rong in coming years. The Consideration that the Vendor can receive upon Completion mainly depends on how much profits the Vendor can help De Rong to deliver. Since the Vendor can only receive the full amount of the Consideration if the Consideration Adjustments is met, it provides incentives to motivate the Vendor, as the director of De Rong, to commit and contribute into the business of De Rong so as to achieve the Consideration Adjustments, which is in turn in the interest of the Company as a whole.

Consideration Shares

The Consideration Shares will be issued at the Issue Price of HK$0.450 per Consideration Share which represents:

• (i) a premium of approximately 18.42% to the closing price of HK$0.380 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (ii) a premium of approximately 12.50% to the average closing price of HK$0.400 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;

• (iii) a premium of approximately 10.84% to the average closing price of HK$0.406 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day; and

• (iv) a premium of 100% to the closing price of HK$0.225 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Consideration Shares will be issued and alloted represent approximately 20.2% of the existing issued share capital of the Company as at the Latest Practicable Date and represent approximately 16.8% of the Company’s issued share capital as enlarged by the issue of Consideration Shares. The Consideration Shares will be issued pursuant to a specific mandate to be sought from the Shareholders at the EGM. There will not be a change of control of the Company resulting from the Completion or the issuance of Consideration Share.

An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares. The Consideration Shares, when issued upon Completion, will rank pari passu in all respects with the existing Shares in issue.

Material Terms and Conditions of the Sale and Purchase Agreement

The material terms and conditions of the Sale and Purchase Agreement in relation to Consideration Adjustments, the Vendor’s undertakings and Consideration Shares are summarized as follows:

• (i) The Vendor undertakes and guarantees to the Company that:

• (a) the audited distributable profit (the “First Year Distributable Profit”) after tax of De Rong for the period commencing from the Completion Date and ending on 31 December 2011 (the “First Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Accounting Standards) will not be less than RMB15 million (equivalent to approximately HK$18 million) (the “First Year Consideration Adjustment”);

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LETTER FROM THE BOARD

• (b) the audited distributable profits (the “Second Year Distributable Profit”) after tax of De Rong for the period commencing from 1 January 2012 and ending on 31 December 2012 (the “Second Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Accounting Standards) will not be less than RMB50 million (equivalent to approximately HK$60 million) (the “Second Year Consideration Adjustment”); and

• (c) the audited distributable profits (the “Third Year Distributable Profit”) after tax of De Rong for the period commencing from 1 January 2013 and ending on 31 December 2013 (the “Third Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Accounting Standards) will not be less than RMB70 million (equivalent to approximately HK$84 million) (the “Third Year Consideration Adjustment”).

• (ii) In respect of the Consideration Adjustments, the audited consolidated accounts of De Rong for the First Year, the Second Year and the Third Year shall be prepared according to the International Financial Reporting Standards (including the Hong Kong Accounting Standards). The Vendor shall assist the auditors of the Company and any person designated by the Company for the preparation of the audited consolidated accounts of De Rong for the First Year, the Second Year and the Third Year within three months after the respective yearends of the First Year, the Second Year and the Third Year respectively.

• (iii) If De Rong is able to achieve the respective targets of audited distributable profits in association with the First Year Consideration Adjustment, the Second Year Consideration Adjustment and/or the Third Year Consideration Adjustment (as the case may be), the Company shall, though the attorney, deliver a total of 270,000,000 Shares to the Vendor in the following manner:

Number of Shares Distribution Dates to be delivered Within one month from the date of issue of the audited consolidated accounts of De Rong for the First Year (“2012 Distribution Date”) 30,000,000 Within one month from the date of issue of the audited consolidated accounts of De Rong for the Second Year (“2013 Distribution Date”) 100,000,000 Within one month from the date of issue of the audited consolidated accounts of De Rong for the Third Year (“2014 Distribution Date”) 140,000,000 Total: 270,000,000

Percentage 11.11% 37.04% 51.85%

100.00%

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LETTER FROM THE BOARD

• (iv) The Consideration Shares will be registered under the name of the Vendor on the Completion Date; whereas all original shares certificates shall be handed to the attorney of the Company in escrow, which shall only be delivered to the Vendor by the attorney of the Company under mutual instructions of the Company and the Vendor if and only if it is confirmed that De Rong can achieve the respective targets of audited distributable profits in association with the First Year Consideration Adjustment, the Second Year Consideration Adjustment and the Third Year Consideration Adjustment. The Company and the Vendor will enter into an escrow agreement on or before the Completion Date. The Vendor guarantees to the Company and confirms that before the delivery of the shares certificates of relevant Consideration Shares by the attorney of the Company to the Vendor, the Vendor shall not claim himself as the beneficial owner of the Consideration Shares, and may not exercise any rights of the Consideration Shares (including but not limited to voting rights, receipt of dividend and rights of rights issue) and may not make or allow to make encumbrance of any kind in relation to the Consideration Shares, otherwise the Vendor agrees and undertake to indemnify the Company for all losses, damages and all costs incurred by the Company.

• (v) If De Rong fails to meet the respective targets of audited distributable profits in association with the First Year Consideration Adjustment, the Second Year Consideration Adjustment and/or the Third Year Consideration Adjustment, the Vendor shall only be delivered in the same proportion of the Consideration Shares as the achievement proportion for the respective year. For instance, if the First Year Distributable Profit hits only 50% of the First Year Consideration Adjustment, the Vendor shall only be delivered 50% of the 30,000,000 Shares on the 2012 Distribution Date.

• (vi) For the portions falling short of the First Year Consideration Adjustment or the Second Year Consideration Adjustment, the Vendor can make up the shortfall in the Second Year or the Third Year (as the case may be). If such complement can be substantiated and confirmed in the audited consolidated accounts for the Second Year or the Third Year, the Vendor may be complemented such portion of Consideration Shares on the 2013 Distribution Date or the 2014 Distribution Date (as the case may be). For instance, if the First Year Distributable Profit hits only 50% of the First Year Consideration Adjustment, the Vendor can make up RMB7,500,000 (i.e. the shortfall for the First Year Consideration Adjustment), and be complemented 50% of the 30,000,000 Shares that would have been delivered in the First Year.

• (vii) If the profit of De Rong exceeds the First Year Consideration Adjustment, the Second Year Consideration Adjustment and/or the Third Year Consideration Adjustment, the Vendor (as the case may be) shall have an option either to:

• (1) in respect of the portion exceeding the said target of audited distributable profit for the respective year, receive the cash bonus additionally granted by the Company. Calculation of the cash bonus is based on 30% of 55% (representing the shareholding proportion in De Rong by the Company) of the portion exceeding the said target of audited distributable profit for the respective year; or

• (2) in respect of the portion exceeding the said target of audited distributable profit for the respective year, deem such portion as part of the respective target of audited distributable profit for the upcoming year.

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LETTER FROM THE BOARD

• (viii) The Vendor may at his discretion to collect cash bonus according to the Sale and Purchase Agreement, whereas the conditions precedent to grant of such cash bonus by the Company are as follows: (1) such portion exceeding the said target of audited distributable profit for the respective year has been audited according to the International Accounting Standards (including the Hong Kong Accounting Standards) and has been deemed as distributable profit; and (2) the Company has collected such distributable profit for the respective year.

• (ix) Notwithstanding the provisions of the Sale and Purchase Agreement, the Vendor guarantees and undertakes to the Company that, in any events, the Vendor will not hold 20% or more of the interest in the share capital of the Company, either allotted according to the Sale and Purchase Agreement or purchased from a third party on the market. If the Vendor holds 20% or more of the interest in the share capital of the Company pursuant to any provision of the Sale and Purchase Agreement, the Vendor agrees and undertakes to unconditionally give up his entitlement to the 20% or more of the interest in the share capital of the Company under the Sale and Purchase Agreement.

• (x) After the 2014 Distribution Date, if the Vendor fails to obtain all Consideration Shares because of falling short of the First Year Consideration Adjustment, the Second Year Consideration Adjustment and the Third Year Consideration Adjustment, the Company has the right to sell the remaining Consideration Shares which has not delivered to the Vendor (the “Remaining Consideration Shares”) at a nominal consideration of HK$1 to any appointee of the Company. The Vendor guarantees and undertakes to the Company that, in any event, the Vendor will abandon all rights to the Remaining Consideration Shares, and will irrevocably authorize the Company to sell the Remaining Consideration Shares to any appointee of the Company.

• (xi) For avoidance of doubt, the Vendor is not entitled to any right under the Sale and Purchase Agreement to act as or appoint any other person to act as the director of the Company.

• (xii) As agreed between the parties thereto, after the Completion, the Company shall be entitled to nominate and appoint the majority of the directors of De Rong (as well as the supervisor and legal representative of De Rong) through Western Spark.

The terms and conditions set forth above shall remain effective after the Completion of the Sale and Purchase Agreement.

The basis of issuing the Consideration Shares on Completion Date (the distribution of which is subject to the Consideration Adjustments) is arrived after arm’s length negotiation between the Company and Vendor. The Vendor believes that he shall be in a securer condition to enter into the Sale and Purchase Agreement with the Consideration Shares issued on Completion. The Directors are of the view that it is a fair term as (i) the distribution of Consideration Shares is subject to the Consideration Adjustments; (ii) it provides incentives to motivate the Vendor, as the director of De Rong, to commit and contribute into the business of De Rong; and (iii) the effect from consolidation of De Rong’s results into the Group’s accounts has been considered by the Directors when determining the Consideration and other terms of the Sale and Purchase Agreement.

In respect of the term set out in paragraph (vii)(l) above, the basis of cash bonus calculation was arrived by the arm’s length negotiation between the Vendor and the Company.

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LETTER FROM THE BOARD

In respect of the term set out in paragraph (x) above, it is of the Directors’ current intention that the Company will appoint an independent agent and the Company will use its best endeavour to procure the said independent agent of the Company to dispose or place the Remaining Consideration Shares to independent third parties or placces for and on behalf of the Company at prices taking into account the prevailing market price of the Shares and shall the Company proceed with the placing of the Remaining Consideration Shares, the Company will observe and ensure full compliance of all applicable Listing Rules. In relation to determining the disposal price of Remaining Consideration Shares, the Company will use its best endeavor to identify the demand on such shares, including but not limited to seek for a number of potential placing agents and underwriters, comprising financial institutions, brokerage houses and high net worth individuals to arrive at the most favourable terms for such disposal after due and careful negotiations. Furthermore, the Company would make a further announcement which would provide details, including but not limited to, the placing price and the number of shares to be placed at the material time accordingly.

In respect of the term set out in paragraph (xii) above, the Company is of the view that it shall be able to control the board of directors of De Rong and hence to exercise due care in operating the Target Group with an aim to achieve the respective targets of audited distributable profits under the Consideration Adjustments. The Company considers that the Vendor has no control or significant influence in the board of directors of De Rong as well as the financial decisions of De Rong after completion.

The Consideration Adjustment shall not subject to any specific conditions save and except as disclosed above, including but not limited to the audited financial statements of De Rong for the First Year, Second Year and Third Year shall be prepared in accordance with the International Accounting Standards (including Hong Kong Accounting Standards) and the Vendor shall procure the preparation of the financial statements of De Rong.

Conditions precedent

Completion of the Acquisition under the Sale and Purchase Agreement, among other things, is conditional upon the fulfilment or waiver (where applicable) of the following conditions:

• (i) the Company has completed the due diligence on the Target Group and the Company is satisfied with the results.

• (ii) in respect of De Rong:

• (a) Western Spark, Beijing Xinyilongda and Dalian Xinrui have entered into the De Rong Joint Venture Agreement and a new memorandum and articles of De Rong (in the form and content as satisfied by the Company) has been adopted;

• (b) all necessary approvals from relevant authorities in the PRC regarding the holding of 55% interest in De Rong by Western Spark by way of subscription (or partial subscriptions) of the incremental registered capital of De Rong have been obtained;

• (c) all necessary licenses and approvals regarding De Rong’s transformation into a sinoforeign joint venture and operation of business, including but not limited to obtaining of the permit for establishment of a foreign-invested enterprise, the qualification certificate and formalities in relation to the business license for coal mining (if applicable) have been obtained, and the formalities in relation to the registration with relevant tax, custom, land management and foreign exchange control authorities have been completed;

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LETTER FROM THE BOARD

• (d) the Vendor has provided the Company with documentary evidence under the laws and regulations of the PRC in relation to Western Spark’s equity interests in De Rong and its capacity as the ultimate legal and beneficial owner of its respective shareholding De Rong;

• (e) the appointment of the legal representatives, directors and supervisors of De Rong nominated by the Company have been approved by the relevant commerce authorities of the PRC and filing procedures with the relevant authorities of industry and commerce of the PRC have been completed;

• (f) PRC legal opinion (in the form and content as satisfied by the Company) in relation to, including but not limited to, the incorporation and establishment of De Rong and its valid existence and the Acquisition has been obtained by the Company;

• (g) all employees of De Rong has been fully covered by social insurances;

• (h) De Rong has entered into memorandums of understanding (in the form and content as satisfied by the Company) with coal suppliers in the PRC to ensure coal supply of De Rong after the Completion.

• (iii) compliance with all applicable requirements under the Listing Rules in respect of the issuance and allotment of the Sale Shares by the Company.

• (iv) there being no major adverse change on the Target Group (including but not limited to changes of major adverse effects on its financial status, business or operation) for the period commencing on the date of the Sale and Purchase Agreement and ending on the Completion Date.

• (v) all such guarantees made by the Vendor to the Company under the Sale and Purchase Agreement are true and accurate and will continue to be valid in all aspects.

• (vi) the Vendor has provided documentary evidence demonstrating that all liabilities of the Target Group and all amounts due to and due from other parties by it (whether shown in latest audited accounts of the Target Group) have been fully repaid on time.

• (vii) the Vendor has delivered a guarantee letter on the Completion Date to the Company, which contains the Vendor’s confirmation on the fulfillment of all conditions of the Sale and Purchase Agreement.

• (viii) other conditions precedent deemed necessary by the Company have been fulfilled.

As at the Latest Practicable Date, conditions (ii)(a) and (ii)(h) listed above have been fulfilled. Regarding condition (ii)(h), it was fulfilled by the entering into of the Strategic Cooperation Agreement between De Rong and a PRC business partner.

If there is a precedent condition yet to be fulfilled on or before the fulfillment date of the conditions, the Company may at its discretion to notify the Vendor in writing on the day (with no prejudice to all other rights or rights of relief it may have) to:

• (a) waive those precedent conditions yet to be fulfilled (if applicable);

• (b) request the Vendor to proceed with performance of the Sale and Purchase Agreement; or

• (c) terminate the Sale and Purchase Agreement.

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LETTER FROM THE BOARD

The parties to the Sale and Purchase Agreement may alter or waive any of the above conditions by mutual consent in writing. It is of the Directors’ current intention that none of the conditions set forth above which are significant to the control and operation of De Rong shall be altered or waived.

Completion

Completion will take place on the third Business Days after the fulfilment or waiver (as the case may be) of the conditions precedents above, or such other date agreed in writing between the parties to the Sale and Purchase Agreement.

De Rong Joint Venture Agreement

Registered capital and capital contribution of De Rong

Beijing Xinyilongda, Dalian Xinrui and Western Spark have entered into the De Rong Joint Venture Agreement. Pursuant to the De Rong Joint Venture Agreement, following the capital injection by Western Spark, the registered capital and total investment amount of De Rong shall be RMB22.22 million (equivalent to approximately HK$26.66 million) and RMB32 million (equivalent to approximately HK$38.40 million) respectively. Each of the parties to the De Rong Joint Venture Agreement shall pay up their respective contributions to the registered capital of De Rong as follows:

			Equity interest
			in De Rong after
			the Initial Capital
	Form of		Contribution by
Party	contribution	Contribution amount	Western Spark
Beijing Xinyilongda	Cash	RMB 3 million (equivalent to
		approximately
		HK$3.60 million)
		for registered capital
		of RMB 3 million	13.5%
Dalian Xinrui	Cash	RMB 7 million (equivalent to
		approximately
		HK$8.40 million)
		for registered capital
		of RMB 7 million	31.5%
Western Spark	Cash	RMB 22 million (equivalent to
		approximately
		HK$26.40 million)
		for registered capital
		of RMB 12.22 million	55.0%
			100.0%

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LETTER FROM THE BOARD

Pursuant to the De Rong Joint Venture Agreement, Beijing Xinyilongda and Dalian Xinrui shall pay up and have paid up their contributions of RMB 10 million (equivalent to approximately HK$12 million) in total (within which RMB5 million (equivalent to approximately HK$6 million) was paid up in 2007 and RMB5 million (equivalent to approximately HK$6 million) was paid up in the 2nd quarter of 2011) while the capital contribution of Western Spark shall be payable by cash installments in the following manner by Western Spark:

Date of payment

Aggregated amount of capital contribution

Before the date of issuance of the sino-foreign joint venture business licence for De Rong

20% of the incremental registered capital of De Rong, being RMB4.4 million (equivalent to approximately HK$5.28 million)

Within six months from the date of issuance of the sino-foreign joint venture business licence for De Rong

Remaining balance of the incremental registered capital of De Rong, being RMB 17.60 million (equivalent to approximately HK$21.12 million)

The capital contribution of RMB 22 million (equivalent to approximately HK$26.40 million) by Western Spark will be financed by the Company by way of fund raising and/or borrowings.

INFORMATION ON THE TARGET GROUP

Wealthy Wing was incorporated in the BVI with limited liability on 8 July 2011 and is an investment holding company. As at the Latest Practicable Date, Wealthy Wing is 100% owned by the Vendor.

Western Spark was incorporated in Hong Kong with limited liability on 8 July 2011 and is an investment holding company. Western Spark has entered into the De Rong Joint Venture Agreement to acquire 55% of equity interest in De Rong by way of capital injection on 31 July 2011. Save for the interest of 55% equity interest in De Rong under the De Rong Joint Venture Agreement, Western Spark does not have any other investments as at the Latest Practicable Date.

Western Spark is currently a wholly owned subsidiary of Western Spark BVI. The 100% equity interest of Western Spark will be transferred from Western Spark BVI to Wealthy Wing by Mr. Zheng before the Completion. After the said share transfer, Western Spark will be 100% owned by Wealth Wing.

The Target Company and Western Spark have been incorporated recently with no assets and liabilities other than shareholder’s loan advanced from the Vendor for the expenses incurred for the transaction, including incorporation fees and professional fees as at the Latest Practicable Date.

Information on De Rong

De Rong was established in the PRC with limited liability on 24 April 2007 and is principally engaged in trading and sale of coal and will be held as to 55% by Western Sparks immediately prior to the Completion.

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LETTER FROM THE BOARD

The types of coal traded by De Rong depend on the individual requests from the customers specified in their orders. Based on the historical customer orders, De Rong has engaged 99% of the trading in raw coal (原煤) and coal gangue (煤矸石) and only 1% of the trading in thermal coal (動力煤) and refined coking coal (煉焦精煤).

Business Model of De Rong

As opposed to an indent sales model, De Rong provides other value-added services to increase its competitive edge and market share, and according to De Rong, its competitive portion will be further strengthed offer the cooperation with the PRC business partner under the Strategic Cooperation Agreement and with the capital injection from the Company. The following outlines the key components of the business model of De Rong.

(i) Stable sources of supply of coal

Leveraging its already established relationship with coal suppliers as described in the “Suppliers” section of this circular, coupled with the strategic cooperation with the PRC business partner under the Strategic Cooperation Agreement, the depth and breath of the coal sourcing capability of De Rong is the key component of its business model. As the abilities to procure stable and continuous supply of coal to meet customers’ demand is the foremost important factor to gain customer confidence and loyalty, De Rong is well-positioned in the coal trading industry, and is able to satisfy customers’ demands with sufficient supply of coal from different markets without helping on limited sources of supply.

(ii) Coal examination and quality assurance

Considering the vast volume and mass of coal and the distances the coal travels before the coal finally delivered to the end-user, quality assurance is one of the key values that a coal operator could provide to its customer as the risk of under-grade coal transported through great distance are unacceptable to clients. De Rong’s management team believe that their services, including the on site coal inspection and examination on the coal heat value, and quality assurance and control, provided clients with confidence and increase enormous values to its supply. It is achieved by the extensive experience and the know-hows in coal sourcing and trading of the management team of De Rong, and also with the well-established relationships with its suppliers.

(iii) Value-added services

As geographical disparity and a transportation bottleneck usually exist between the locations of the coal resources and production and the principal end-users in the PRC, a reliable coal transportation system is crucial to the coal operation business. De Rong, in addition to its sale and trading of coal business, it provides services such as logistic support and making all the necessary transportation arrangements, on site coal inspection and examination services, quality assurance services, as value-added services provided to the customers of De Rong. The Strategic Cooperation Agreement also strengthen the ability of De Rong on the logistics and transportation arrangements.

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Customers

De Rong’s customers are mainly small-scale power plants and coking coal processing plants located in the three north-eastern provinces, i.e. Heilongjiang, Jilin and Liaoning provinces, and nearby regions in the PRC with the two largest customers, whose purchase comprised around 95% turnover of De Rong for the last three years ended 31 December 2010.

Since its operations commenced in 2007, De Rong has traded with over 6 customers and the majority of these customers have close business relationships with De Rong since 2007. The largest two customers have entered into contracts with De Rong for their coal purchases, with annual purchase of coal gaugue and raw coal, ranging from 310,000 tonnes to 420,000 tonnes annually from 2010 to 2012 according to the said latest contracts (which are contracts with specified intended quantity to purchase from De Rong, with no guarantee or penalty imposed, however, if the actual purchasing amount were different from the intended amount). However, the actual purchase quantity in each year depends on the monthly demand from customers based on the monthly demand plan in which De Rong will source the coal accordingly in each month.

With regards to the pricing policy, as the coal markets tend to be cyclical in nature, the pricing terms with its usually are based on arm’s length negotiation between De Rong and and its customers with reference to the prevailing market prices at the time the purchase order was made.

Transportation costs are borne by the customers; De Rong usually requires its customers to settle all outstanding amounts within 15 days upon delivery. Generally, there were no commitment clause as contained in the contract of De Rong with its customers.

Suppliers

Since the inception of its operations in 2007, De Rong has been sourcing coals of different quality and grades from over 22 different suppliers, with an annual supply of coal up to 103,070 tonnes. These suppliers are mainly coal mine operators located in Heilongjiang province and nearby areas in the PRC. These stable and established relationships with suppliers have enabled the continuous and reliable supply of different quantity of coal for its operations. The management of De Rong believe that it has established stable cooperative relationships with its key coal suppliers since De Rong has developed business relationships with the majority of its suppliers over a period of not less than three years.

The purchase price of coal sourced in the PRC is determined by factors such as market demand and supply, specification of the coal, purchase volume, and length and stability of relationships with suppliers. In general, the credit terms granted to De Rong by its suppliers ranged from 0 to 180 days. Occasionally, some suppliers may demand up to 50% cash deposit on the time the contract is signed. Usually, there were no commitment clauses under the contracts between De Rong and its suppliers.

The Strategic Cooperation Agreement

On 5 August 2011, De Rong and a PRC business partner entered into the Strategic Cooperation Agreement in relation to the coal supply for the period until 31 December 2014. Pursuant to the Strategic Cooperation Agreement, the PRC business partner has agreed to coordinate and assist in the sale of coal of De Rong and supply De Rong with coal products, including but not limited to, brown coal, refined coking coal and prime coking coal. Subject to sale and purchase contracts to be entered into between the parties

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LETTER FROM THE BOARD

separately, in accordance with the Strategic Cooperation Agreement, the tentative supply volume from the PRC business partner is set at 1.3 million tonnes for the five months ending December 2011, 5.0 million tonnes for 2012, 6.0 million tonnes for 2013 and 7.5 million tonnes for 2014. These intended volumes of supply are tentative figures and represent the intention of both parties to enter into further contracts in relation to the exact coal supply volumes. There would not be any penalty to the PRC business partner if it could not fulfil the tentative supply volumes.

Having considered the terms of the Strategic Cooperation Agreement and the background of the PRC business partner, De Rong would be able to secure a stable supply of coal, increase the bargaining power on selling price to power plants, obtain different types of the coal to help De Rong to attract new customers like state-owned steel makers, coal chemical companies and state-owned power plants, leverage on the large-scale transportation and logistics network of the PRC business partner and establish a widespread network of selling and distribution channels so as to promote and develop its coal sale and trading business in the PRC.

Certain information (prepared under the PRC Generally Accepted Accounting Principles) extracted from De Rong audited financial results for the two years ended 31 December 2010 is set out below:

Turnover Net loss before tax for the year Net loss after tax for the year Net Asset Value	For the year ended 31 December 2010 2009 RMB’000 RMB’000 (audited) (audited) 46,875 1,289 478 129 478 129 3,401 3,879	For the year ended 31 December 2010 2009 RMB’000 RMB’000 (audited) (audited) 46,875 1,289 478 129 478 129 3,401 3,879
		129
		129
		3,879

The Coal Trading Industry Overview

Industry overview

Being the world’s largest coal consuming country, the demand for coal in China, particularly in the prosperous regions, has grown significantly. Coal resources and production in China are primarily located at the Western and Northern regions. A geographical disparity and a transportation bottleneck sometimes exist between the locations of the coal resources and production and the principal end-users, which make a reliable coal trader with resourceful transportation networks and system to be crucial to the coal trading business.

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LETTER FROM THE BOARD

According to the estimation provided by the management of De Rong with reference to information from different sources, including but not limited to, market research reports (such as a research report dated 29 September 2010 published by a Chinese investment bank) and data in relation to PRC coal consumption extracted from its suppliers and other public domains (e.g. www.statecoal.com), the PRC coal consumption in 2010 was approximately 3,300 million tonnes, represently an increase of approximately 5.3% when compared to 2009. The management of De Rong estimated that approximately 60%-70% of the total volume of consumption was sourced through state-owned coal enterprises. Among the coal enterprises, it is estimated approximately 80% of those are involved in mining operations. It is also estimated by De Rong that, among the coal sourced from intermediaries, approximately 65%-70% of the total volume of coal trading in the PRC were traded by state-owned coal traders with the remaining being traded by non-state-owned coal traders.

The PRC coal trading industry relies on the bridge linking coal production and coal consumption, and coal traders have gradually become an important and integrated part of the coal logistics system in the PRC. A typical coal operator/trader would provide services including sourcing, filtering storage, blending, on site coal examination, quality assurance and logistics and transportation arrangements of coal. According to the management of De Rong, it is the value-added services that contributed to the fact that most customers do not directly enter into supply contract with coal mining/processing company directly.

While the Directors noted the above-mentioned market trends and competitive environment as discussed below, the Directors considered that, as De Rong has numerous competitive strengths over its rivals, which is discussed below under the section headed “Competitive Strengths” in this circular, it is capable to be competitive in the coal trading market.

Competition

In order to support the rapid economic growth, the demand for electricity remains strong in recent years in the PRC. According to the information provided by De Rong, the inventories of coal in power plants in the PRC can normally support the use for power generation for 15 days in average due to shortage of coal supply. In light of the above, power plants are more willing to purchase coal from reliable coal traders to secure stable coal supply, which results in a short cash conversion cycle of around 15-20 days for such traders.

The players in the coal trading industry can be divided into state-owned coal traders and non-stateowned coal traders, the category in which De Rong falls. The market for non-state-owned coal traders in the PRC involves intense competition, there are more than 1,000 traders of a wide range of operating sizes in Heilongjiang province and they compete on the basis of sourcing ability and bargaining power towards coal suppliers. Due to strict state control over coal resources, for a long time the coal trading industry has not been fully market-oriented, with only a small number of large scale non-state-owned coal traders.

The current market where De Rong operates could be generally described as consolidating, where incapable small players are being faded out of the market and competitive players are taking up the market share. Under the Twelfth Five-Year Plan, the PRC government supports the structural change of the coal industry with a focus to develop large and established organizations as well as to curb excessive coal production by unorganized small players. Notwithstanding this, the market is principally demand-driven. As demands from power plants for thermal coal and from steel makers for coking coal are expected to

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LETTER FROM THE BOARD

keep rising in future years, the general business prospects for coal traders remain favourable despite the fact that market consolidation, intense competition and government policies may adversely impact small players. De Rong is able to provide a stable and high quality of coal with value added services to potential customers.

Competitive Strengths

De Rong has numerous competitive strengths over its rivals, which are summarized below:

• Long-term and stable relationships with its customers and suppliers:

De Rong maintains stable relationships with its customers and suppliers and has entered into longterm contracts with its customers and a PRC business partner. Leveraging its already established relationship with coal suppliers as described in the “Suppliers” section of this circular, coupled with the strategic cooperation with the PRC business partner under the Strategic Cooperation Agreement, the depth and breath of the coal sourcing capability of De Rong is the key component of its business model. As the abilities to procure stable and continuous supply of coal to meet customers’ demand is the foremost important factor to gain customer confidence and loyalty, De Rong is wellpositioned among the coal operators in the industry, and is able to satisfy customers’ demands with sufficient supply of coal from different markets without helping on limited sources of supply.

• Solid coal trading experience in the north-eastern region of the PRC:

Since commencement of its operation, De Rong has been conducting coal trading business in Heilongjiang province and the nearby areas, it has established extensive business connections with both customers and suppliers. De Rong’s coal trading experience and network in the north-eastern region shall continue to help sustain its current market position and facilitate its geographical expansion into other parts of the PRC.

• Strong background of and the value-added services available by the new PRC business partner:

As discussed above, it is the business model of De Rong to provide value-added services, such as logistic support and transportation arrangements to customers. De Rong has strategic cooperation with a PRC business partner until 31 December 2014. The PRC business partner is wholly owned by a PRC state-owned resources conglomerate which has extensive networks in various regions with abundant coal resources, including Heilongjiang, Inner Mongolia and Qinghai and possesses largescale transportation and logistics networks in the PRC. It is believed that De Rong shall benefit from its network and expand its business beyond the Heilongjiang province.

• Coal examination and quality assurance:

As discussed in the “Business model of De Rong” above, the provision of services by De Rong, including the on site coal inspection and examination on the coal heat value, and quality assurance and control, provided clients with confidence and increase enormous value to its supply.

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• Flexible inventory management cycle:

Regarding the inventory management cycle, De Rong currently does not own any coal storage facilities but it has a leased property contract for coal storage. According to the management of De Rong, De Rong is not required to pay such rental unless it uses the coal storage facilities. As at the Latest Practicable Date, De Rong has not used the leased property for coal storage due to the nature of its business model as described as follows. Generally, customers can also provide a coal storage facility for De Rong without cost or signed contract due to long term business relationship, cost saving on transportation and higher efficiency to deliver the coal to customers. According to the management of De Rong, existing customers with which De Rong has traded requested De Rong to transport the coal directly from suppliers and subsequently stored the coal at customers’s place separately. After that, De Rong’s staff will perform on site inspection on coal heat value and quantity. After the completion of coal inspection and examination, De Rong will recognise the sales. All transportation and storage costs in relation to those transactions were borne by the customers. After taking into account the frequency of the use of coal storage facilities, business models and the customers needs, the existing inventory turnover days of De Rong is approximately 29 days for the period ended 30 June 2011, which is relatively longer than the average in the industry. The stock turnover days can be improved after capital injection and increase the staff for coal inspection.

• First-mover advantage in obtaining requisite license:

According to the management of De Rong, the relevant PRC authorities have recently restricted the grant of 煤炭經營資格證 (“Coal Operation Qualification License”, which is a requisite license to operate coal trading business in the PRC) to new players as measures for stricter regulation of the coal trading industry. With higher entry barriers for potential competitors, De Rong enjoys the firstmover advantage with its license obtained in May 2010.

• Improving cash flow and liquidity positions:

Strong liquidity and cash flow positions are crucial to all kinds of trading businesses. With the forthcoming capital injection of RMB22 million and the improvement of the financing facilities, De Rong’s cash flow position will be improved. This will enhance De Rong’s bargaining power to source coal at relatively low price which in turn maximize its profit margin.

Future Business Strategies and Development of De Rong

Product upgrade and diversification

The existing types of coal that De Rong is trading include raw coal, and coal gangue which are regarded as low graded coal types as they contain more moistures, pollutants and impurities, resulting a very low profit margin at the present.

With the capital injection into De Rong by the Company, new management team and strategic Cooperation Agreement, De Rong aims to shift its existing trading coal types to brown coal, high-quality refined coking coal and prime coking coal, which are regarded as high graded coal types, which have a higher energy content, less pollutants and impurities with a higher profit margin.

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Securing reliable suppliers

De Rong’s existing suppliers are mainly small scale coal mine operators located in Heilongjing province and nearby areas in the PRC as the scale of De Rong is not large enough to establish a stable relationship with well-established coal suppliers. De Rong could only commence in sourcing coal upon receiving customers’ orders, due to the insufficiency of working capital. Therefore, De Rong has a lower bargaining power over them.

With regard to the above, De Rong entered into the Strategic Cooperation Agreement to secure the stable coal supply. Not only to secure a stable coal supply from and leverage on the transportation and logistics networks of the PRC business partners, the Strategic Coorperation Agreement will enhance the bargaining power of De Rong to the suppliers significantly, such that De Rong will be able to obtain more stable coal supplies and higher quality of coal from its suppliers, and also in addition to facilitate De Rong to derive more favorable terms while negotiating with customers.

More details of the Strategic Cooperation Agreement are set out in the paragraph “The Strategic Cooperation Agreement” under section “INFORMATION ON THE TARGET GROUP” in “Letter from the board” of this circular.

Targeting to diversify the customer base

With the Strategic Cooperation Agreement securing the stable supply of vast quantity of coal of different quality and grades and also the potential injection of new capital from the Company, De Rong targets to diversity its customer base and to broaden its revenue sources through introducing and cooperating with new higher-end coal consumers. As at the Latest Practicable Date, De Rong has started its marketing efforts to reach out for more than 10 high-end coal consumers, including but not limited to state-owned steel makers, state-owned power plants and coal chemical companies. Some of these potential customers have already indicated their intention to deal with the De Rong, according to the management of De Rong. With a view to establish a stable income stream and better business development, the management of De Rong believes that the long term and stable relationships with customers are essential.

Based on De Rong’s understanding of the market, the demand of these potential customers are highly related with the overall coal consumption in the PRC and the overall coal consumption has been on an increasing trend over the past 10 years. The management of De Rong are of the view that the shortage of supply in some areas in the PRC, coupled with the increasing demand of these high-end coal consumers, has created an opportunity for De Rong to further expand its business.

Generally, these potential customers of De Rong have their own existing suppliers of the coal they consumed. It is difficult to assess the enormity and the degree of how close the already established relationships between these potential customers with their current suppliers. However, as mentioned above, the increasing demand of these potential customers implies that they might have to broaches their supply channels and to increase their sources of coal supply. The management of De Rong believe that, in general, these potential customers would select their supplier on the basis of quality of coal, customer services, realizable and timely delivery, price and other value-added services such as transportation network. Taking into account the competitive strengths as set out in “competitive edge of De Rong” above, the Directors believe that De Rong, although facing competition in the industry, will be able to benefit from the growth of the coal consumption in the PRC.

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Price

According to the information which is extracted from different sources, including prevailing coal trading market prices in July 2011 provided by main coal suppliers in the Heilongjiang province of the PRC and the coal trading record of De Rong provided by the management of De Rong, most of the price of coal that has been sold since its commencement of business was within the range from approximately RMB15 per tonne to RMB470 per tonne with an average gross profit margin of approximately 1-3%. However, with the sales strategies shifting the prime products from low graded to high graded coal with relatively higher heat value and lower moisture, the price range of products of De Rong in the future will be adjusted upward to a range from approximately RMB30 per tonne to RMB1,800 per tonne with an average gross profit margin of approximately 4-6%. In the meantime, the sources of coal will also come from Heilongjiang, Inner Mongolia and Qinghai according to the Strategic Cooperation Agreement. The average gross profit margin for brown coal, which is a type of raw coal, is relatively high as the brown coal comes from Inner Mongolia with lower purchase price and De Rong’s management expect the brown coal can be sold at higher gross profit margin as compared to selling various types of raw coal before Completion. It is expected that the expected turnover and expected sales volume will be significantly uplifted through the implementation of such new sale strategies. The scale of the coal trading business of De Rong will also be upgraded to a higher tier compared to its main competitors in the region.

Information of each major coal type

Major Coal Types before Completion		Raw Coal	Coal Gangue
Average Coal Trading Price Per Tonne (in	RMB)	260	30
Average Gross Profit Margin (%)		1	3.4
		Refined	Prime
Major Coal Types after Completion	Brown Coal	Coking Coal	Coking Coal
Average Coal Trading Price Per Tonne
(in RMB) traded	100	1,400	640
Average Gross Profit Margin (%)	11.2	3.7	3.2

Tentative sale plan

Year	2011 (Oct - Dec)	2012		2013
Major Coal Types	Brown Coal Refined Coking Coal Prime Coking Coal	Brown Coal Refined Coking Coal Prime Coking Coal	Brown Coal	Refined Coking Coal Prime Coking Coal
Expected Sales Volumes (in 1,000 tonnes)	450 300 –	600 600 1,800	1,500	1,000 3,500
Expected Total Turnover (in RMB million)	470	2,050		3,790

The expected sales volume of major types of coal in the table above are derived from existing sales figures, estimated coal supplies from other potential suppliers and the tentative supply volume in the Strategic Cooperation Agreement.

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For the major types of coal and distribution of major types of coal to be traded, it is assumed that the Company would be able to sell existing major coal products continuously, the tentative supply volume in the Strategic Cooperation Agreement and estimated coal supplies from other potential suppliers to the potential high-end coal consumers, including but not limited to, state-owned steel makers, coal chemical companies and state-owned power plants, with which De Rong is in negotiations.

According to the management of De Rong, the additional operating expenses to be incurred after the RMB22million capital injection will be mainly attributable to the staff costs and other related expenses, with expected increases of approximately 102%, 220% and 7% in 2011, 2012 and 2013 respectively.

The increases of staff costs and other related expenses were primarily due to the expansion of the on-site and in-house coal examination, quality assurance and sales & marketing teams to cope with the substantial increase of the expected turnover of De Rong as stated above. The costs for leasing a coal storage facilities will be very limited due to low cost of leasing and it will not contributed to the increase in operating costs of De Rong.

In compliance with Rule 13.09 of the Listing Rules, the Company will update the market for any significant deviation of the expected sales volume and turnover as and when appropriate.

Maintaining strong working capital sufficiency

Upon receiving customers’ orders (in some cases advance payments will be received from customers), De Rong starts sourcing coal (which meets the customers’ specifications in the contracts) from suppliers within the region. Once suitable suppliers are identified, De Rong will sign purchase contracts with suppliers and coal will be delivered directly to customers after deposits are paid by De Rong to the suppliers.

De Rong usually requires its customers to settle all outstanding amounts within 15 days upon delivery. Generally, there were no commitment clause as contained in the contract of De Rong with its customers. On the other hand, in general, the credit terms granted to De Rong by its suppliers ranged from 0 to 180 days. Occasionally, some suppliers may demand up to 50% cash deposit on the time the purchase order is placed.

With the RMB22 million capital injection, De Rong will be able to increase its bargaining power among its competitors in the market and therefore will be able to approach and attract high-end coal consumers which are large in scale in the industry with better financial capabilities. The management of De Rong believes that the payment and credit terms with the potential suppliers and customers would remain the same as aforesaid.

Furthermore, due to the financially viable status of the Company, through the Acquisition, De Rong would be able to obtain more financing facilities, such as discount bills with customers and suppliers to enhance cash flows. The Company could also facilitate De Rong to have better terms in negotiation with PRC bank for banking facilities.

In light of the above, the management of De Rong believes that the RMB22 million capital injections would be sufficient for De Rong to operate and achieve the target profit for the respective year in accordance with the Consideration Adjustments.

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Geographical presence

According to the information provided by De Rong, most of the existing customers of De Rong are located in Heilongjiang province of the PRC. Since both the coal types and quality will be improved as stated above, the management of De Rong intends to increase its geographical presence in the northeastern regions of the PRC and spread its business into new regions including Inner Mongolia province and Qinghai province in order to seek for high quality suppliers and high ended customers.

Experienced sales and operation team

A new management team of De Rong will be formed through the introduction of and referrals by Mr. Zheng after Completion. Through combining the capabilities and specialties of the existing and new members, the new management team will possess extensive experience in the coal industry which was mainly gained from working in large scale power plants, coal processing plants, coal mines and other coal trading enterprises. Besides, the new management will be familiar with the business operation, product cycle and logistic and transportation arrangements of the sales and trading of coal business with the assistance of the network built by the members throughout their career in the industry.

A new sales team will also be established with the introduction of Mr. Zheng. The team will comprise several experienced sales experts in the coal trading industry. Some of the new members have well-established relationships with state-owned and private high-end coal consumers and coal suppliers, including the PRC business partner. Their networks could also facilitate De Rong to strengthen its logistics and transportation related value-added services.

With regard to the above, it is believed both the operational performance and financial results of De Rong will be greatly improved as compared to the current status. Amid the improvement in the sales volume, profit margin, De Rong will be able to have a substantial increase of profits and more cash flow compared to the two proceeding financial years ended 31 December 2010 with the capital injection, introduction of new experienced management members, the more stable and diversified coal supply, new customers and the synergy created in the Strategic Cooperation Agreement as new driving factors.

Risk factors

The Directors consider that there are certain risks involved in De Rong’s business, including but not limited to:

• Risks relating to coal trading operation:

• De Rong relies on its Coal Operation Qualification License, which is effective until 31 May 2013, to operate its coal trading business in the PRC; if this certificate is not renewed by the relevant PRC authorities upon expiry, De Rong’s business operation will be adversely affected or may have to be suspended

• If the customers refuse to renew or negotiate for another new sale contracts with De Rong upon expiry by end of 2012, and at the same time De Rong fails to strengthen its customer base by introducing new customers, it may have negative impact on De Rong’s profitability

• If the customers fail to purchase the coal quantity according to the annual purchase quantity as stated in the sale contracts, the profitability of De Rong may be affected.

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• De Rong relies on the Strategic Cooperation Agreement for sustainting stable coal supply and hence pursuing its development plans, should the supply volumes and other terms of the Strategic Cooperation Agreement are not met, De Rong’s business operation and future development may be adversely affected

• In light of the highly dynamic and competitive nature of the PRC coal trading industry, there is no guarantee for De Rong to procure coal supplies at acceptable prices and quality to meet all requirements from its customers in a timely manner

• Risks relating to the economy and coal trading industry:

• If the global financial crisis and economic slowdown continue, De Rong’s business operation and implementation of its future plans may be adversely affected

• De Rong’s business is highly influenced by the fluctuation in coal price and coal demand, the historical rise in coal prices and huge demand for coal in the PRC were key factors which led to De Rong’s past performance, nevertheless there is no guarantee as to whether the trends for coal prices and coal demand will change in the future which shall impose negative impact to De Rong’s business operation and profitability

• The PRC coal trading business involves intense competition, it is uncertain whether De Rong will be able to sustain its market position in the future and achieve business growth as expected

• Risks relating to policies and regulations:

• The PRC government imposes extensive regulations on coal trading industry, future changes in policies and regulations may have negative impact on De Rong’s business

• Changes in certain PRC laws and regulations may adversely affect De Rong’s profitability, for instance change in tax laws and labour laws may increase De Rong’s tax burdens and labour costs

• Interpretation of PRC laws and regulations involves uncertainty

• Risks relating to the issue of Consideration Shares:

• The prevailing market price at the time the Remaining Consideration Shares are sold maybe of a large difference from the Issue Price, resulting in a large discrepancy between the prevailing market value and cost of issuance of the Consideration Shares.

• If the Vendor far falls short of the Consideration Adjustments and a considerable amount of Remaining Consideration Shares have to be sold after the 2014 Distributable Date, extra placing cost maybe incurred if a large block of shares to be placed at once.

25

LETTER FROM THE BOARD

• The demand of the Remaining Consideration Shares is highly unpredictable, which may subject to a number of factors, including, but not limited to, the macroeconomic environment, prevailing market sentiment and analysts’ view on the prospect of the coal industry.

• Risk in relation to the required licenses to conduct business:

For the domestic trading of coal, pursuant to 煤炭經營監管辦法 (The Measures for the Regulation of Coal Operations) promulgated by the NDRC on 27 December 2004, coal operators engaging in the trade of coal that is not self-produced are required to obtain a Coal Operation Qualification License. Accordingly, De Rong is required to obtain Coal Operation Qualification License for coal trading in China. In order to obtain a Coal Operation Qualification License, an enterprise must have:

• appropriate registered capital for the scale of its operation;

• fixed place of operation;

• appropriate facilities and coal storage for the scale of its operation;

• coal quantity measure and quality examination facilities that adhere to standards;

• reasonable compliance with national requirements in relation to the overall business arrangement and environmental protection of coal operation enterprises;

• order conditions as stipulated under relevant laws and administrative requlations.

De Rong currently does not own any coal storage facilities, but it has a leased property contract for coal storage which has not been used due to the nature of its business model. It may affect the renewal of the Coal Operation Qualification License since De Rong may be regarded as not having appropriate coal storage facilities at a fixed location. In regard of this issue, De Rong will carry out annual review on the facilities and coal storage so as to comply with the requirements above mentioned.

The current Coal Operation Qualification License held by De Rong remains effective until 31 May 2013 for the operation of its coal trading business in the PRC. If this certificate is not renewed by the relevant PRC authorities upon expiry, De Rong’s business operation will be adversely affected or may have to be suspended. The management of De Rong considered that this risk has not taken into account (i) the relevant department of the local government is continuously monitoring the business affairs of De Rong and is satisfied of its operations being in compliance with the regulatory standards; and (ii) De Rong will be able to meet the conditions and requirements for the renewal as listed above.

26

LETTER FROM THE BOARD

• Risk in relation to dependence on Mr. Zheng

The performance of De Rong and the implementation of De Rong’s business strategies depend on, to a significant extent, the expertise, networks and experience in the coal industry. If Mr. Zheng does not join De Rong or resign from the De Rong as an employee, it may result in a material adverse effect on operations and financial position of De Rong.

However, the Directors consider the risk listed above is low as Mr. Zheng, the vendor of the Sale and Purchase Agreement, who undertakes to achieve the Consideration Adjustments would not easily leave De Rong due to the fact that the Consideration he will receive is subject to the performance and financial positions of De Rong.

• Risk relating to the estimation and information provided by De Rong, its main coal suppliers and other third parties

This circular includes estimation on PRC coal comsumption that was provided by the management of De Rong, the information about the coal trading market prices and expected sales volume provided by its coal suppliers under the paragraph headed “Tentative sale plan” and the percentage of coal traded through intermediaries extracted from a research report dated 29 September 2010 published by a Chinese investment bank under the paragraph headed “Industry overview” in “Letter from the board” of this circular. After reviewing the sources on which the estimation and information were based and having discussed with the management of De Rong, the Directors believes the estimation and information are reasonable. However, the Directors would like to draw the attention of Shareholders and potential investors to the fact that no independent due diligence and verifications (save as and except for the above disclosures) have been performed and accordingly, Shareholders and potential investors are advised to exercise caution when dealing in the aforementioned estimations.

• Risk in relation to the Strategic Cooperation Agreement

As the intended volumes of supply in the Strategic Cooperation Agreement are tentative figures, there is an uncertainty that variations in supply volumes occur, which may affect De Rong’s business performance and profitability and result in the need for adjustments in the De Rong’s future business strategies.

FINANCIAL EFFECTS ON THE GROUP OF THE ACQUISITION

Net assets

The audited consolidated net liabilities of the Group as at 31 March 2011, as extracted from the annual report 2011 of the Company, was approximately HK$261,214,000.

As set out in Appendix IV to this circular, assuming completion had taken place on 31 March 2011, the pro forma net liabilities of the Enlarged Group would have been approximately HK$124,480,000. As stated on the unaudited pro forma financial information on the Enlarged Group in Appendix IV to this circular, the total assets and total liabilities are expected to change by an increase of approximately HK$196,973,000 and an increase of approximately HK$60,239,000 respectively. Therefore, the Acquisition will enhance the Group’s net assets position.

27

LETTER FROM THE BOARD

Working capital

The audited consolidated net current liabilities of the Group as at 31 March 2011, as extracted from the annual report 2011 of the Company, was approximately HK$118,430,000.

As set out in Appendix IV to this circular, assuming completion had taken place on 31 March 2011, the pro forma net current liabilities of the Enlarged Group would have been approximately HK$155,119,000. Therefore, the Acquisition will decrease the Group’s working capital.

Earnings

The audited net loss of the Group as at 31 March 2011, as extracted from the annual report 2011 of the Company, was approximately HK$35,184,000.

Assuming completion had taken place on 31 March 2011, the pro forma net loss of the Enlarged Group would have been approximately HK$35,644,000 which the earnings of the Enlarged Group would deteriorate by approximately HK$460,000. Therefore, the Acquisition will decrease the Group’s earnings immediately upon Completion.

REASONS AND BENEFIT FOR THE ACQUISITION

The Company is an investment holding company and its subsidiaries are principally engaged as shows manager of exhibitions and trade shows and providing related ancillary services, as well as investment in the resources and energy sector. With the Acquisition, the Company will be able to participate in the fast-growing energy and resources sector, which is in line with the Company’s current strategy and business expansion plan. It also provides a solid platform for the Company’s further business development in the energy and resources sector in the PRC.

The Directors believe that there is a good growth potential in the coal industry in the PRC where coal is the main power generation resources. Since the beginning of this financial year, the Group has been exploring business development and investment opportunities in the coal business in the PRC. The Directors consider that the Acquisition will broaden the revenue bases and enhance the Group’s profits and cash flows in the long run.

Having considered the Consideration Adjustment and other terms as stipulated under the Sale and Purchase Agreement, the Directors are of the view that the terms of the Acquisition are fair and reasonable and are in the interest of the Company and the Shareholders as a whole.

28

LETTER FROM THE BOARD

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

The following illustrates the Company’s shareholding structure, assuming there is no further change to the share capital of the Company: (i) as at the Latest Practicable Date; and (ii) immediately upon the issue and allotment of the Consideration Shares:

Immediately before completion of the Acquisition Number of Shares % Mr. Hung Chen, Richael (“Mr. Hung”) 274,640,000(1) 20.55 ACE Channel Limited 178,000,000 13.32 Mr. Zheng – – Public 883,880,440 66.13 Total 1,336,520,400 100.00	Immediately after completion of the Acquisition Number of Shares % 274,640,000(1) 17.10 178,000,000 11.08 270,000,000 16.81 883,880,400 55.01 1,606,520,400 100.00	Immediately after completion of the Acquisition Number of Shares % 274,640,000(1) 17.10 178,000,000 11.08 270,000,000 16.81 883,880,400 55.01 1,606,520,400 100.00
		100.00

Note:

(1) Mr. Hung is the beneficial owner of 76,640,000 Shares. He is also interested in the entire issued share capital of Mega Wealth Capital Limited (“Mega Wealth”) and Webright Limited (“Webright”). Mr. Hung is therefore deemed to be also interested in the 100,000,000 Shares held by Mega Wealth, and the 98,000,000 Shares held by Webright. Pursuant to an injunction order applied for by the Company, and granted by the High Court of Hong Kong against Mr. Hung, Mr. Hung is not permitted to, either by himself, his servants or agents or otherwise howsoever in any way dispose of or deal with the diminish the value of, amongst other things, any of the 76,640,000 Shares issued in his name, the 100,000,000 Shares held by Mega Wealth, and the 98,000,000 Shares held by Webright.

29

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE TARGET GROUP AS AT LATEST PRACTICABLE DATE, IMMEDIATELY PRIOR TO AND UPON THE COMPLETION

The shareholding structure of the Target Group as at the Latest Practicable Date is set out below:

==> picture [455 x 218] intentionally omitted <==

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

Beijing Xinyilongda Dalian Xinrui The Vendor
100.0%
30.0%
70.0% Target Company 100%
De Rong
Western Spark BVI
100.0%
Western Spark
(note)
----- End of picture text -----

Notes: (1) Western Spark, Beijing Xinyilongda and Dalian Xinrui have entered into the De Rong Joint Venture Agreement. (2) Western Spark shall be entitled to nominate and appoint the majority of the directors of De Rong.

The shareholding structure of the Target Group immediately prior to completion of the Acquisition is set out below:

==> picture [395 x 216] intentionally omitted <==

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

The Vendor
100.0%
Target Company
100.0%
Beijing Xinyilongda Dalian Xinrui Western Spark
55.0%
13.5% 31.5%
De Rong
----- End of picture text -----

30

LETTER FROM THE BOARD

Upon the Completion, the shareholding structure of the Target Group is set out below:

==> picture [395 x 216] intentionally omitted <==

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

The Company
100.0%
Target Company
100.0%
Beijing Xinyilongda Dalian Xinrui Western Spark
55.0%
13.5% 31.5%
De Rong
----- End of picture text -----

IMPLICATIONS UNDER THE LISTING RULES

As one or more of the applicable percentage ratios as defined in the Listing Rules exceed 25% but none of them exceeds 100%, the Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. The Acquisition is therefore subject to the reporting, announcement, and shareholders’ approval at general meeting requirements under the Listing Rules.

As no Shareholder has any material interest in the Acquisition, no Shareholder is required to abstain from voting in respect of the resolutions to be proposed at the EGM to approve the Acquisition.

EGM

The EGM will be held at Room 2502, 25/F, 9 Queen’s Road Central, Central, Hong Kong on Friday, 14 October 2011 at 2:30 p.m. to consider and, if through fit, approve the ordinary resolutions by way of poll in respect of the terms of the Agreement and the transactions contemplated thereunder. A notice of the EGM is set out on pages 120 to 121 of this circular.

A form of proxy for use by the Shareholders at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) should you so wish.

31

LETTER FROM THE BOARD

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the Acquisition is in the interest of the Company and the Shareholders as a whole. The Directors therefore recommend the Shareholder to vote in favour of the resolutions to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

You attention is drawn to the additional information set out in Appendix I, Appendix II, Appendix III and Appendix IV of this circular.

By Order of the Board

Sino Resources Group Limited (carrying on business in Hong Kong as Sino Gp Limited) Geng Ying Chairman

32

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three years ended 31 March 2009, 2010 and 2011 are set out in the audited consolidated financial statements of the Group for the year ended 31 March 2011 in the 2011 annual report at http://www.hkexnews.hk/listedco/listconews/sehk/20110704/ LTN201107041014.pdf; the year ended 31 March 2010 in the 2010 annual report at http://www.hkexnews. hk/listedco/listconews/sehk/20100729/LTN20100729227.pdf; and the year ended 31 March 2009 in the 2009 annual report at http://www.hkexnews.hk/listedco/listconews/sehk/20100105/LTN20100105617. pdf, respectively and the Company’s official website for the publication of Stock Exchange documents at http://www.capitalfp.com.hk/eng/index.jsp?co=223.

33

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The auditors’ of the Company have issued qualified opinions on the Group’s financial statements for the financial years ended 31 March 2009, 2010 and 2011 which are extracted as follows:

INDEPENDENT AUDITOR’S REPORT (Extracted from the Company’s 2009 annual report) TO THE SHAREHOLDERS OF

SINO RESOURCES GROUP LIMITED (FORMERLY KNOWN AS KENFAIR INTERNATIONAL (HOLDINGS) LIMITED)

(incorporated in the Cayman Islands with limited liability)

We were engaged to audit the consolidated financial statements of Sino Resources Group Limited (formerly known as Kenfair International (Holdings) Limited) (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 42 to 123, which comprise the consolidated and company balance sheets as at 31 March 2009, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other persons for the contents of this report. Except for the limitation in the scope of our work as explained below, we conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. However, because of the matters described in the basis for disclaimer of opinion paragraph, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

34

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BASIS FOR DISCLAIMER OF OPINION

• (a) 黑龍江北方企業集團有限責任公司 (transliterated as “Heilongjiang Northern Enterprises Group Co., Ltd”) (the “Mine Seller”) and Wealth Gain Global Investment Limited, a wholly owned subsidiary of the Group (the “Subsidiary”) (collectively referred to as the “Parties”) entered into an agreement dated 30 October 2007 (as supplemented by a supplemental agreement dated 31 December 2007) (the “Mine Acquisition Agreement”) in respect of the transfer of Shuangyashan Northern Sheng Ping Mining Limited (the “Coal Mine Company”) from the Mine Seller to the Subsidiary (the “Transfer”). The Parties also entered into an agreement dated 31 October 2008 (the “Mine Acquisition Extension Agreement”), pursuant to which the Parties agreed to extend the time of payment of the consideration for the Transfer to 16 April 2009, with an option to extend such time for a further three months to 16 July 2009. However, during the financial year ended 31 March 2009 and subsequently, the Mine Seller alleged that the Mine Acquisition Agreement did not comply with the relevant laws and regulations of the People’s Republic of China (the “PRC”) and was therefore invalid. The Mine Seller also alleged that the Mine Acquisition Extension Agreement was filed and registered with the relevant PRC authorities without the knowledge of the Mine Seller, and the Mine Seller proceeded to apply for the cancellation of the registration of the Mine Acquisition Extension Agreement.

On the other hand, the Mine Seller claimed that the only valid agreement in respect of the Transfer was an agreement dated 25 March 2008 which was allegedly entered into between the Parties and which was filed and registered with the relevant PRC authorities.

On 17 January 2009, the Mine Seller filed a statement of claim against the Subsidiary (the “Statement of Claim”) with the High Court of the Heilongjiang Province of the PRC (the “Court”) seeking, among other things, (1) a rescission of the relevant agreements in respect of the Transfer; (2) the return of the entire equity interest in the Coal Mine Company to the Mine Seller; and (3) costs and other relief. On 20 April 2009, the Company received a summons from the Court (attaching the Statement of Claim) as official notice of proceedings against the Subsidiary (the “Litigation”). Court hearings were held on 22 July 2009 and 13 November 2009 and up to the date of this report, no judgment has been made by the Court.

On 21 January 2009, the board of directors of the Company (the “Board”) formed a special committee (comprising all independent non-executive directors of the Company and a director of the Company) to review the Transfer (the “Special Committee”). Based on the Special Committee’s report dated 9 December 2009, the Special Committee formed a preliminary conclusion that the Mine Acquisition Agreement was legally binding. Accordingly the Board considered that it was appropriate to consolidate the financial information of the Coal Mine Company into the Group’s consolidated financial statements for the year ended 31 March 2009 in accordance with the terms of the Mine Acquisition Agreement and the Mine Acquisition Extension Agreement.

On 15 December 2009, the Company issued proceedings against Mr. Hung Chen Richael (“Mr. Hung”), a former executive director of the Company and a substantial shareholders of the Company, at the High Court of Hong Kong with regards to a breach of contract by Mr. Hung in connection with a sale and purchase agreement dated 25 September 2007 made between the Company and Mr. Hung in relation to the sale and purchase and subscription of shares in the Subsidiary.

35

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (b) Notwithstanding the preliminary conclusion reached by the Special Committee in its report dated 9 December 2009 that the Mine Acquisition Agreement was legally binding and therefore considered it was appropriate to consolidate the financial statements of the Coal Mine Company into the Group’s consolidated financial statements for the year ended 31 March 2009 as explained in (a) above, we consider that the circumstances surrounding the Litigation indicate that there are uncertainties as to the validity of the Mine Acquisition Agreement and the Mine Acquisition Extension Agreement which may cast significant doubt as to the appropriateness of the accounting treatment adopted by the Group in accounting for the Transfer and the related disclosures thereof. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009, the profit and cash flows of the Group for the year then ended and the related disclosures thereof. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

• (c) As explained in (a) above, the Mine Seller has initiated legal proceedings against the Subsidiary in the PRC. The directors of the Company are of the opinion, after obtaining legal advice from the Company’s legal advisors, that the Litigation can be defended and may not result in a loss of control of the Coal Mine Company. However, there is uncertainty as to whether the Litigation can be successfully defended. In the event that the outcome of the Litigation was unfavorable to the Group, this might result in a possible loss of control of the Coal Mine Company from the effective date of the rescission of the relevant agreements in respect of the Transfer, and the consolidated financial statements for the year ended 31 March 2009 could be affected. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

• (d) Due to the Litigation as explained in (a) above, we were denied full access to the accounting records and management of the Coal Mine Company. Consequently, we were unable to carry out auditing procedures that we consider necessary to satisfy ourselves as to the nature, completeness, accuracy, existence, valuation, classification and disclosures in respect of all the transactions undertaken by the Coal Mine Company during the year ended 31 March 2009 and the related balances as at 31 March 2009. The financial information of the Coal Mine Company which has been included in the consolidated financial statements of the Group for the year ended 31 March 2009 is summarised below:

Income and expenses of the Coal Mine Company as included in the consolidated income statement of the Group for the year ended 31 March 2009

	HK$’000
Turnover	395,793
Cost of sales	147,885
Other income	212
Selling expenses	1,727
Other operating expenses	86,656
Finance cost	7,563
Taxation	45,369
Profit for the year	106,805

36

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Assets and liabilities of the Coal Mine Company as included in the consolidated balance sheet of the Group as at 31 March 2009

	HK$’000
Property, plant and equipment	146,242
Intangible assets	741,357
Inventories	25,185
Deposits, prepayments and other receivables	28,625
Trade receivables	33,616
Cash and bank balances	13,395
Trade payables	23,097
Tax payable	40,436
Deposits received in advance	473
Deferred income	2,719
Accrued liabilities and other payables	83,627
Other borrowings	15,681
Other long term liabilities	76,713

We were unable to determine whether any adjustments to the financial information of the Coal Mine Company as set out above were necessary. We were also unable to carry out auditing procedures that we consider necessary to satisfy ourselves as to the completeness and existence of any significant contingent liabilities, commitments and post balance sheet events relating to the Coal Mine Company. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009 and the profit and cash flows of the Group for the year ended 31 March 2009 and may have resulted in additional information being disclosed in the financial statements as to the nature of the transactions and any significant non-adjusting post balance sheet events relating to the Coal Mine Company.

• (e) Included in “goodwill” as shown on the consolidated balance sheet of the Group as at 31 March 2009 was goodwill with carrying amount of approximately HK$341,062,000 arising from the acquisition of the Coal Mine Company. As stated in note 20 to the financial statements, the directors of the Company have carried out an impairment testing on goodwill as at 31 March 2009. However, for reasons as explained in (d) above, we were unable to perform auditing procedures that we consider necessary to satisfy ourselves that the recoverable amount of the goodwill exceeded its carrying amount as at 31 March 2009 and whether any impairment loss should be recognised in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets”. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009 and the profit of the Group for the year ended 31 March 2009.

37

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (f) Included in “Interests in subsidiaries” as shown on the Company’s balance sheet as at 31 March 2009 was the Company’s investment in the Subsidiary with a carrying amount of approximately HK$689,928,000. As explained in (a) and (c) above, there is uncertainty as to whether the Litigation can be successfully defended. In the event that the outcome of the Litigation was unfavorable to the Group, this might result in a possible loss of control of the Coal Mine Company from the effective date of the rescission of the relevant agreements in respect of the Transfer, and the Company’s financial statements for the year ended 31 March 2009 could be affected. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the financial statements as to whether they give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2009 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work as described in the basis for disclaimer of opinion paragraph above:

• we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and

• we were unable to determine whether proper books of account had been kept.

MATERIAL UNCERTAINTY CONCERNING GOING CONCERN BASIS OF ACCOUNTING

Without qualifying our opinion, we draw attention to note 3(a) to the financial statements which indicates that the Group had net current liabilities of approximately HK$422,413,000 as at 31 March 2009. These conditions, along with other matters as set forth in note 3(a) to the financial statements, indicate that existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants

Hong Kong, 31 December 2009

38

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF SINO RESOURCES GROUP LIMITED

(incorporated in the Cayman Islands with limited liability)

We were engaged to audit the consolidated financial statements of Sino Resources Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 42 to 127, which comprise the consolidated and company statement of financial positions as at 31 March 2010, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other persons for the contents of this report. Except for the limitation in the scope of our work as explained below, we conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. However, because of the matters described in the basis for disclaimer of opinion paragraph, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

39

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BASIS FOR DISCLAIMER OF OPINION

• (a) As detailed in various announcements of the Company throughout the years ended 31 March 2008, 2009 and 2010 and up to the date of this report, 黑龍江北方企業集團有限責任公司 (transliterated as “Heilongjiang Northern Enterprises Group Co., Ltd”) (the “Mine Seller”) and Wealth Gain Global Investment Limited, a wholly owned subsidiary of the Group (the “Subsidiary”) (collectively referred to as the “Parties”) entered into an agreement dated 30 October 2007 (as supplemented by a supplemental agreement dated 31 December 2007) (the “Mine Acquisition Agreement”) in respect of the transfer of Shuangyashan Northern Sheng Ping Mining Limited (the “Coal Mine Company”) from the Mine Seller to the Subsidiary (the “Transfer”). The Parties also entered into an agreement dated 31 October 2008 (the “Mine Acquisition Extension Agreement”), pursuant to which the Parties agreed to extend the time of payment of the consideration for the Transfer to 16 April 2009, with an option to extend such time for a further three months to 16 July 2009. However, during the financial year ended 31 March 2009 and subsequently, the Mine Seller alleged that the Mine Acquisition Agreement did not comply with the relevant laws and regulations of the People’s Republic of China (the “PRC”) and was therefore invalid. The Mine Seller also alleged that the Mine Acquisition Extension Agreement was filed and registered with the relevant PRC authorities without the knowledge of the Mine Seller, and the Mine Seller proceeded to apply for the cancellation of the registration of the Mine Acquisition Extension Agreement.

On the other hand, the Mine Seller claimed that the only valid agreement in respect of the Transfer was an agreement dated 25 March 2008 (the “2008 Agreement”) which was allegedly entered into between the Parties and which was filed and registered with the relevant PRC authorities.

On 17 January 2009, the Mine Seller filed a statement of claim against the Subsidiary (the “Statement of Claim”) with the High Court of the Heilongjiang Province of the PRC (the “Court”) seeking, among other things, (1) a rescission of the relevant agreements in respect of the Transfer; (2) the return of the entire equity interest in the Coal Mine Company to the Mine Seller; and (3) costs and other relief. On 20 April 2009, the Company received a summons from the Court (attaching the Statement of Claim) as official notice of proceedings against the Subsidiary (the “Litigation”). Court hearings were held on 22 July 2009 and 13 November 2009. The abovementioned events were disclosed in our auditors’ report dated 31 December 2009.

On 11 February 2010, the Company received through its PRC legal advisers the judgment dated 5 February 2010 made by the Count, (the “Judgment”) which ordered that (1) the 2008 Agreement made between the Mine Seller and the Subsidiary be dissolved; (2) the Subsidiary should return its entire equity interest in the Coal Mine Company to the Mine Seller; and (3) the costs of the action in the amount of RMB741,000 (equivalent to approximately HK$843,000) be borne by the Subsidiary. At a meeting held on 12 March 2010, the board of directors of the Company (the “Board”) was of the view that there were no sufficient grounds to appeal, having considered the reasonable efforts made to search for additional evidence, the legal opinions, the Group’s financial condition and resources currently available to the Company. On the basis of the legal opinions, the Board decided not to appeal against the Judgment. On 16 March 2010, the Judgment became effective and the Group lost its ownership of the Coal Mine Company.

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FINANCIAL INFORMATION OF THE GROUP

• (b) Due to the Litigation as explained in (a) above, despite the Group’s continuous efforts in restoring effective control of the Coal Mine Company up to the effective date of the Judgment, the Group was unable to obtain the financial information of the Coal Mine Company for the period from 1 April 2009 to 16 March 2010 (effective date of the Judgment). The directors of the Company considered that the Group had lost its power to govern the financial and operating policies of the Coal Mine Company so as to obtain benefit from its activities with effect from 1 April 2009. Accordingly, in preparing the consolidated financial statements of the Group for the year ended 31 March 2010, the Coal Mine Company was deconsolidated with effect from 1 April 2009, and the loss arising from loss of control of the Coal Mine Company of approximately HK$797,129,000 was arrived at based on the latest available unaudited financial information of the Coal Mine Company as at 31 March 2009.

However, we have been unable to obtain sufficient reliable evidence to satisfy ourselves as to the reasonableness of the bases used by the directors in determining the effective date of loss of control of the Coal Mine Company, and therefore as to whether the Coal Mine Company should be deconsolidated with effect from 1 April 2009. Furthermore, we have been unable to carry out auditing procedures that we consider necessary to satisfy ourselves as to whether the loss arising from loss of control of the Coal Mine Company of approximately HK$797,129,000 included in the consolidated financial statements of the Group for the year ended 31 March 2010, as well as the related disclosures set out in the notes to the consolidated financial statements, are free from material misstatements. We have also been unable to determine whether any adjustments to the financial information of the Coal Mine Company were necessary. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2010 and the loss and cash flows of the Group for the year ended 31 March 2010 and may have resulted in additional information being disclosed in the financial statements as to the nature of the transactions relating to the Coal Mine Company.

• (c) The corresponding figures in the current year’s financial statements are derived from the financial statements for the year ended 31 March 2009 which contained a disclaimer audit opinion of which details of qualifications were set out in our auditors’ report dated 31 December 2009 for the Group’s financial statements for the year ended 31 March 2009. Therefore, the comparative figures may not be comparable and any adjustment to these figures that might have been found necessary in respect would have had a consequential impact on the opening balances of net assets of the Group as at 1 April 2009, the opening balances of the accumulated losses of the Group at 1 April 2009, the Group’s result for the years ended 31 March 2010 and the related disclosures thereof in the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the financial statements as to whether they give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2010 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work as described in the basis for disclaimer of opinion paragraph above:

• we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and

• we were unable to determine whether proper books of account had been kept.

MATERIAL UNCERTAINTY CONCERNING GOING CONCERN BASIS OF ACCOUNTING

Without qualifying our opinion, we draw attention to note 3(a) to the financial statements which indicates that the Group had net current liabilities of approximately HK$169,504,000 and net liabilities of approximately HK$303,620,000 as at 31 March 2010. These conditions, along with other matters as set forth in note 3(a) to the financial statements, indicate that existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants

Hong Kong, 23 July 2010

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INDEPENDENT AUDITOR’S REPORT (Extracted from the Company’s 2011 annual report) TO THE SHAREHOLDERS OF

SINO RESOURCES GROUP LIMITED

(incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Sino Resources Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 41 to 143, which comprise the consolidated and company statements of financial position as at 31 March 2011, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

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

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

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APPENDIX I

BASIS FOR QUALIFIED OPINION

Our audit opinion on the consolidated financial statements of the Group for the year ended 31 March 2010 (the “2010 Financial Statements”), which form the basis for the corresponding figures presented in the current year’s consolidated financial statements, was disclaimed because of the significance of the possible effects of the inability to obtain sufficient audit evidence of our audit, details of which are set out in our audit report dated 23 July 2010. We are unable to obtain sufficient reliable evidence to satisfy ourselves as to whether the net liabilities of the Group as at 31 March 2010 and the results and cash flows and the related disclosures in the notes to the consolidated financial statements of the Company and of the Group for the year ended 31 March 2010 were fairly stated. Any adjustment found to be necessary may affect the net liabilities of the Company and of the Group as at 31 March 2010 and the results and cash flows and the related disclosures in the notes to the consolidated financial statements of the Company and the Group for the year ended 31 March 2010.

QUALIFIED OPINION

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2011, and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

MATERIAL UNCERTAINTY CONCERNING GOING CONCERN BASIS OF ACCOUNTING

Without qualifying our opinion, we draw attention to Note 3(a) in the consolidated financial statements which indicates that the Group incurred a net loss of approximately HK$35,184,000 during the year ended 31 March 2011 and, as of that date, the Group had net current liabilities of approximately HK$118,430,000 and net liabilities of approximately HK$261,214,000. These conditions, along with other matters as set forth in Note 3(a) in the consolidated financial statements, indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants

Hong Kong, 28 June 2011

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. INDEBTEDNESS

Borrowings

As at the close of the business on 31 July 2011, being the Latest Practicable Date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding borrowings of approximately HK$161,879,000 which include (1) loans from a shareholder, and (2) outstanding convertible notes with a principal amount of HK$173,500,000.

The convertible notes with a principal amount of HK$173,500,000 were issued on 31 March 2008. The convertible notes are interest-free. The maturity date of the convertible notes is 30 March 2013.

The loans from a shareholder comprised of (1) a principal amount of HK$3,000,000 loan which is unsecured, bearing interest at a fixed rate of 8% per annum due on 3 December 2009; (2) a principal amount of HK$8,000,000 loan which is unsecured, bearing interest at a fixed rate of 8% per annum due on 8 March 2010; and (3) HK$1,600,000 advance which is unsecured, non-interest bearing and repayable on demand.

Securities and guarantees

No assets of the Enlarged Group have been pledged nor no guarantees were provided for the aforesaid borrowings as at the close of the business on 31 July 2011.

Contingent liabilities

The contingent liabilities of the Enlarged Group as at 31 July 2011 are as follows:

• (a) Claim made by the Company against Hung Chen, Richael (Mr. Hung) (the “Action”)

As disclosed in the Company’s announcements dated 16 December 2009 and 8 January 2010, the Company commenced proceedings against Mr. Hung at the High Court of Hong Kong (the “High Court”) with regards to a breach of contract by Mr. Hung, in connection with a sale and purchase agreement dated 25 September 2007 made between the Company and Mr. Hung (the “Agreement”). The Company sought advice from its legal advisers and formed the view that Mr. Hung had failed to perform one or more of the terms of the Agreement and is of the view that Mr. Hung is in breach of numerous representations and warranties under the Agreement. The Company claims against Mr. Hung, among other things, for all payments made by the Company to Mr. Hung under the Agreement and/or damages arising from the breach of the Agreement.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 1 February 2010, the Company filed a statement of claim at the High Court against Mr. Hung, Mega Wealth Capital Limited (“Mega Wealth”) and Webright Limited (“Webright”) (together as “Defendents”) in connection with the Agreement, for, inter alia, rescission of the Agreement. Particulars of the Statement of Claim are summarised as follows:

1. The Company claims against Mr. Hung for:

2. (i) rescission of the Agreement;

3. (ii) the 76,640,000 shares of the Company (“Shares”) at an issue price of HK$0.5 per share;

4. (iii) the convertible note, issued to Mr. Hung pursuant to the Agreement, in the principal amount of HK$173,500,000 convertible into ordinary shares of the Company at a conversion price of HK$0.5 per share (the “Convertible Note”);

5. (iv) further or alternatively, all payments made by the Company to Mr. Hung and/or damages arising from the breach of the Agreement;

6. (v) a declaration that Mr. Hung holds the 70,000,000 Shares and the Convertible Note and their traceable equivalent on trust for the Company and that all necessary tracing orders accounts and inquiries be taken as to what had happened to the said Shares and Convertible Note and to ascertain the traceable equivalent thereof;

7. (vi) an order for payment after having the above accounts and inquiries;

8. (vii) payment of the legal costs incurred by the Company arising from the investigation and report arising from the matters in connection with the Agreement; and

9. (viii) payment of the costs incurred by the Company for the preparation and execution of the Agreement and supplemental agreements.

10. (2) The Company also claims against Mega Wealth, inter alia, for the 100,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Mega Wealth at an issue price of HK$0.5 per Share.

11. (3) The Company also claims against Webright, inter alia, for the 98,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Webright at an issue price of HK$0.5 per Share.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at the date of this circular, no judgment has been made by the High Court. The Board of the Company, based on legal advice, is of the view that the Company has a good arguable case against Mr. Hung to have the Agreement rescinded.

(b) Injunction Order

On 22 January 2010, the High Court granted an ex parte injunction order (the “Injunction Order”) against Mr. Hung and Mega Wealth and Webright. The Injunction Order provides, among other things, that: unless with the approval of the High Court, Mr. Hung must not, either by himself, his servants or agents or otherwise howsoever in any way dispose of or deal with or diminish the value of any of the following assets:

• (i) the 76,640,000 Shares issued to Mr. Hung at an issue price of HK$0.5 per Share;

• (ii) the Convertible Note issued by the Company to Mr. Hung;

• (iii) the 100,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Mega Wealth at an issue price of HK$0.5 per Share; and

• (iv) the 98,000,000 of the Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Webright at an issue price of HK$0.5 per Share;

all being part of the considerations given to Mr. Hung by the Company in respect of the Agreement.

On 29 January 2010, at the return date hearing in relation to the Injunction Order, it was ordered, inter alia, that the Injunction Order will continue subject to a fortification in the amount of HK$10,000,000 being paid by the Company to the Registrar of the High Court on or before 12 February 2010, failing which the Injunction Order shall be discharged. The Company paid HK$10,000,000 into the High Court on 10 February 2010 in compliance with the Injunction Order. Following a hearing held at the High Court on 18 March 2010, the High Court delivered its decision on 30 March 2010 to discharge and at the same time regrant the Injunction Order obtained by the Company on 22 January 2010 against the Defendants. Furthermore, the Court made a cost order nisi that the Company should pay the Defendants’ costs related to the discharge of the Injunction Order, which the Court has assessed to be four-fifths of the costs of the hearing. On 13 April 2010, the Defendants took out two summonses respectively for (i) an application for an order to vary the costs order nisi made in the said decision delivered on 30 March 2010, and (ii) an application for an order to have leave to appeal the said decision delivered on 30 March 2010, that the decision to regrant the Injunction Order was wrong. On 14 May 2010, the Company and Mr. Hung, through their lawyers, entered into a consent summons whereby the hearing of the two summonses returnable on 26 May 2010 was adjourned without a further date of hearing, with liberty to restore.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Board of the Company takes the view that the costs order nisi has no material impact on the Enlarged Group’s finances.

On 3 September 2010, Mr. Hung through his solicitors applied by way of a Summons to vary the Injunction Order (the “Application”). The Court dismissed the Application on 20 September 2010 and ordered costs of the Summons be paid by the Defendants to the Company in any event.

Mr. Hung through his lawyers also applied to the Court for leave to appeal to the Court of Appeal on 20 September 2010. The Court dismissed the Application for leave to appeal and ordered costs of this Application for leave be paid by the Defendants to the Company in any event.

On 22 September 2010, the Court of Appeal granted the Defendants leave to appeal to the Court of Appeal and heard the Defendants’ appeal on 27 September 2010. The judgment was handed down on 6 October 2010. The Court of Appeal dismissed the appeal of the Defendants and the Injunction Order against the Defendants remained unchanged. The Court of Appeal also ordered the costs of the Appeal to be paid by the Defendants to the Company, to be taxed if noted agreed, save that the costs of preparing the Company’s own “core bundles” be deducted.

As at the date of this circular, the Action is still ongoing.

(c) Winding-up Petition

Mr. Hung served the statutory demands on the Company in respect of a total outstanding Alleged Indebtedness of HK$41,722,630 (the “Statutory Demands”). A winding-up petition (the “Winding-up Petition”) was presented to the High Court and served on the Company by Mr. Hung on 28 January 2010 in connection with the Alleged Indebtedness. The Company opposed the Winding-up Petition and appointed legal advisers to handle the matter. Upon hearing submissions by the parties on 12 April 2010, the Companies Judge made an order that, among other things, the Winding-up Petition be adjourned to the second Monday after the date of handing down of judgment in connection with the Statement of Claim by which the Company has made a claim against Mr. Hung. Pursuant to the joint application of the Company and Mr. Hung by way of Consent Summons, the Companies Judge on 24 August 2010 made the following Order that:

1. Mr. Hung do have leave to amend the Winding-up Petition (the “Amended Petition”) dated 28 January 2010;

2. The service and advertisement of the Amended Petition be dispensed with;

3. Costs of and occasioned by the amendment of the Winding-up Petition be paid by the Mr. Hung to the Company in any event.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Based on the Amended Petition, the Alleged Indebtedness is HK$9,600,000 and interests.

The Board of the Company considers that the issue of the Statutory Demands is, of itself, unlikely to have a negative impact on the Enlarged Group’s financial condition. The Alleged Indebtedness was fully recognised in the Group’s financial statements as at 31 March 2010. In addition, the Company may seek to set-off against the Alleged Indebtedness claims which the Company is asserting against Mr. Hung under the Statement of Claim. The Board of the Company is of the view that it has a bona fide claim on substantial grounds and should succeed in the proceedings by which the Company has made a claim against Mr. Hung, which shall extinguish Mr. Hung’s claim in the Winding-up Petition.

(d) Appointment of Provisional Liquidators

On 28 January 2010, by a letter to the High Court, Mr. Hung’s solicitors applied for an early date for a first hearing of the application for appointment of provisional liquidators to the Company by Mr. Hung (the “PL Application”). A hearing in respect of the PL Application took place on 2 February 2010, at which a date was set down for a further hearing on 5 May 2010. The Company and Mr. Hung, through their lawyers, entered into a consent summons whereby the hearing scheduled on 5 May 2010 for the PL Application was adjourned without a further date of hearing, with liberty to restore. The Court made an order by consent on 26 April 2010 in this regard. Notwithstanding this, the Company received a letter from Mr. Hung’s lawyers dated 15 June 2010 in which, among other things, Mr. Hung requested to set down a date for the hearing of the PL Application. In response to Mr. Hung’s request, the Company and Mr. Hung, through their lawyers, fixed with the Court a hearing date for the PL Application on 9 November 2010.

Upon the joint application of the Company and Mr. Hung by consent summons on 4 November 2010 and upon the Company undertaking to the High Court to:

• (1) deposit the sum of HK$10,658,922 into a designated interest-bearing bank account opened in the name of the Company (the “HCCW Designated Account”) as security for the petitioning debt claimed by Mr. Hung in the proceedings, by 5:00p.m. on 9 November 2010, and not to use the monies so deposited in the HCCW Designated Account until after determination of the Action, or upon such other condition as may be agreed between Mr. Hung and the Company in writing;

• (2) provide the bank statements relating to the HCCW Designated Account within 3 working days of the written request of Mr. Hung; and

• (3) secure and preserve all the shares and assets (if any) of Wealth Gain and not to dispose of such shares and assets or any part thereof unless with Mr. Hung’s written consent or until the determination of the High Court Action,

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The High Court ordered, amongst other things, that, without prejudice to the respective contentions advanced by Mr. Hung and the Company, leave be granted to Mr. Hung to withdraw the PL Application. Mr. Hung withdrew the PL Application on 5 November 2010. HK$10,658,922 was deposited into the HCCW Designated Account on 9 November 2010. This payment was financed by the Company’s internal funding.

The Board of the Company, based on legal advice, is of the view that the Company has a very good defence against the Winding-up Petition and the PL Application.

(e) Labour Action

On 5 January 2011, Mr. Hung filed a statement of claim against the Company claiming a total sum of HK$3,407,962.74 plus interest, being, inter alia, (i) arrears of wages (the “Wages Claim”) in the amount of HK$1,668,000 and (ii) reimbursement of expenses (the “Reimbursement Claim”) in the amount of HK$1,739,962.74, allegedly incurred by Mr. Hung whilst he was in the employment of the Company.

The Wages’ Claim was in relation to the same subject matter as was previously resolved and settled between the parties by Mr. Hung accepting a total sum of HK$890,000 from the Company, pursuant to the Order of the Labour Tribunal dated 25 May 2010.

The Company has been advised that re-litigating the Wages’ Claim in the High Court, the subject matter of which has already been resolved and settled, constitutes an abuse of process of the Court and is therefore liable to be struck out under the relevant Rules of Court. The Company will defend both the Wages’ Claim and the Reimbursement Claim as advised. The Company filed a defence and counterclaim whereby the Company only agreed to pay a sum of HK$74,221.20 out of Mr. Hung’s claim, and counterclaimed against Mr. Hung for repayment of a sum of HK$67,569 being, inter alia, unauthorised payments incurred by Mr. Hung on the Company’s behalf and the value of the Company assets held by Mr. Hung. Mr. Hung has subsequently filed a reply and defence to counterclaim. This case is now in the discovery stage. No hearing date has been scheduled for this case.

Save and except for part of the Reimbursement Claim in the amount of HK$74,221.20 as accepted by the Company, the Board of the Company, based on legal advice, considers that the Company has a good arguable defence to Mr. Hung’s claim, and consider that this claim will not have any material impact on the Company.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (f) Claim made by Mr. Hung against the Company

On 25 February 2011, Mr. Hung, Mega Wealth and Webright (together as the “Plaintiffs”) issued a Writ of Summons and an Indorsement of Claim against the Company as the 1st Defendant, Ms. Geng Ying as 2nd Defendant, Mr. Gao Feng as 3rd Defendant and Mr. Chiu Sui Keung as 4th Defendant, in the High Court (the “Claim”). The Plaintiffs issued and served on the Company a Writ with only an Indorsement of Claim without a full Statement of Claim. On 15 April 2011, the Plaintiffs filed and served on the Company a Statement of Claim.

Particulars of the Claim are summarised as follows:–

The Plaintiffs’ claim against the Company for:–

1. the sum of HK$214,600,000 being the unpaid sale shares consideration for the acquisition of Wealth Gain;

2. damages for the breach of agreements;

3. damages for placement of shares to the prejudice of Hung estimated to be HK$124,600,000 or alternatively;

4. redemption in full value of the remaining Convertible Note issued by the Company to Mr. Hung in the sum of HK$173,500,000;

5. damages in reputation;

6. declaration that the grant of share options of 39,000,000 shares and awards to the Ms. Geng Ying, Mr. Gao Feng and Mr. Chiu Sui Keung and the other share options of 21,000,000 shares awarded to other staff to be null and void;

7. rescission of the abovesaid grant;

8. costs;

9. interests; and

10. further and other relief as the Court may deem fit.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Plaintiffs claim against Ms. Geng Ying for:

1. damages;

2. order that Ms. Geng Ying be removed from her directorship;

3. damages in reputation;

4. declaration that the grant of the share options 13,000,000 shares and awards to Ms.Geng Ying be null and void;

5. rescission of the abovesaid grant;

6. costs;

7. further and other relief as the Court may deem fit.

The Plaintiffs claim against Mr. Gao Feng for:

1. damages;

2. damages in reputation;

3. order that Mr. Gao Feng be removed from his directorship;

4. declaration that the grant of the share options 13,000,000 shares and awards to Mr. Gao Feng be null and void;

5. rescission of the abovesaid grant;

6. costs;

7. further and other relief as the Court may deem fit.

The Plaintiffs claim against Mr. Chiu Sui Keung for:

1. damages;

2. damages in reputation;

3. order that Mr. Chiu Sui Keung be removed from his directorship;

4. declaration that the grant of the share options 13,000,000 shares and awards to Mr. Chiu Sui Keung be null and void;

5. rescission of the abovesaid grant;

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. costs;

2. further and other relief as the Court may deem fit.

The Company, Ms. Geng Ying, Mr. Gao Feng and Mr. Chiu Sui Keung together issued a summons (the “First Summons”) against the Plaintiffs in the High Court on 13 May 2011 in connection with an application, amongst other things, to:

1. strike out paragraphs 2, 4 to 13, and 16 to 33 of the Statement of Claim as –

2. (a) disclosing no reasonable cause of action;

3. (b) being scandalous, frivolous or vexatious;

4. (c) tending to prejudice, embarrass or delay the fair trial of the action; and/ or

5. (d) it is otherwise an abuse of the process of the court; and that the action therein be dismissed; and

6. alternatively, paragraphs 2, 4 to 13, and 16 to 33 of the Statement of Claim and the action therein be stayed pending the final determination or disposal by the Court of the HCA 2477/2009 and HCCW 48/2010.

The Defendants also issued a summons (the “Second Summons”) against the Plaintiffs on 13 May 2011 in connection with an application for, inter alia, an order that pending the hearing and determination of the First Summons taken out by the Defendants, all further proceedings in this action be stayed and the Defendants are not required to file and serve their Defence until further order or directions as may be made by the Court.

The Court on 20 May 2011 made the following Order in relation to the First Summons:

1. Leave be granted to the Defendants to file and serve supplemental affirmation(s) to the Summons taken out by the Defendants on 13 May 2011 (the “Defendants’ Striking-out Summons”) on or before 10 June 2011;

2. Leave be granted to the Plaintiffs to file and serve affirmation(s) in opposition to the Defendants’ Striking-Out Summons on or before 8 July 2011;

3. Leave be granted to the Defendants to file and serve affirmation(s) in reply (if any) to the Defendants’ Striking-Out Summons on or before 29 July 2011;

4. There be no further affirmation to be filed or served without leave of the Court;

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. Any application for leave for filing and serving further affirmation evidence shall be made no less than 14 days before the substantive hearing;

2. The hearing of the Defendants’ Striking-Out Summons be adjourned and fixed before a judge in consultation with Counsel’s diary with one day reserved;

3. Costs of this application be reserved.

The Court made the following Order in relation to the Second Summons on 20 May 2011:

1. Pending the hearing and determination of the Defendants’ Striking-out Summons, all further proceedings in the action therein be stayed and the Defendants are not required to file and serve their Defence until further order or directions as may be made by the Court;

2. The costs of the application be in the cause of the Defendants’ Striking-out Summons.

The Plaintiffs issued a summons returnable on 22nd September 2011 and the Court made the following Order on 22nd September 2011:

1. the date fixed for hearing of the First Summons on 7th November 2011 before Deputy High Court Judge L. Chan be vacated;

2. time for the Plaintiffs to file and serve Affirmation in opposition to the First Summons be extended to 19th October 2011;

3. time for the Defendants do have leave to file and serve the Affirmation in reply by 9th November 2011;

4. the hearing of the First Summons be adjourned to a date to be fixed in consultation of Counsel’s diary before the Honoruable Mr. Justice A. Chung with 1 day reserved;

5. costs of the summons summarily assessed at $1,500 be paid by the Defendants to the Plaintiffs.

The Board of the Company, based on legal advice is of the view that the Company has a very good defence against the Plaintiffs’ claim.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (g) Litigation between Mr. Wong Ching Ping Alex and the Company

Mr. Wong Ching Ping Alex (Mr. Wong) issued a writ of summons and an indorsement of claim dated 10 December 2010 against the Company in connection with an assignment of debt on 19 July 2010, whereby Mr. Hung allegedly assigned to Mr. Wong a loan of HK$31,500,000 (forming part of the Alleged Indebtedness) previously advanced by Mr. Hung to the Company (“Wong’s Action”).

Mr. Wong further applied for an ex parte injunction order against the Company which, amongst other things, restricted the Company from removing from Hong Kong, disposing of, dealing with or diminishing the value of any of its assets which are within Hong Kong up to the value of HK$31,500,000. This injunction was granted by the High Court on 9 December 2010, but was subsequently discharged on 16 December 2010 on the undertaking of the Company (the “Undertaking”) to:

1. without prejudice to the Company’s contention that it has a defence to the claim by Mr. Wong and without prejudice to Mr. Wong’s right to challenge the Company’s case that there has been partial repayment, deposit the sum of HK$28,500,000 (the “Sum”) into a designated interest-bearing bank account opened in the name of the Company (the “HCA Designated Account”) as security for the money claimed by the Mr. Wong by 21 December 2010, and not in any way use or pledge for credit (whether for the Company or any person) or allow any lien to be created on the monies so deposited in the HCA Designated Account until further order made by the High Court or unless in accordance with the agreement in writing between Mr. Wong and the Company;

2. provide full bank statements (without any redaction) relating to the HCA Designated Account within 3 working days of the written request of Mr. Wong.

The Sum was deposited into the HCA Designated Account on 21 December 2010. This payment was financed by the Company’s internal funding.

The High Court further ordered on 16 December 2010 that the application filed by Mr. Wong on 14 December 2010 for the continuation of the injunction order was to be effectively treated as an application for an order that the Sum deposited into the HCA Designated Account be continued to be kept, held and preserved pursuant to the Company’s undertakings, until the final determination by the High Court of the Wong’s Action.

Mr. Wong issued a summons against the Company in the High Court of Hong Kong under the Claim on 27 April 2011 (the “Order 14 Summons”) in connection with an application for summary judgment for the sum of HK$28,500,000, being the amount claimed in the statement of claim filed on 14 April 2011 less the alleged partial repayment of HK$3,000,000 made by the Company to Mr. Hung, together with interest and costs.

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APPENDIX I

On 5 May 2011, after hearing the Counsel for Mr. Wong and the Solicitors for the Company, the Court made the following Order:

1. The hearing of the Plaintiff’s Summons for the continuation of the Defendant’s undertaking fixed for 9 May 2011 at 10 a.m. (the “Undertaking Summons”) be vacated;

2. The hearing of the Order 14 Summons be adjourned and fixed on a date not earlier than the expiry of 49 days from 5 May 2011 with one day reserved in consultation with Counsel’s diary;

3. The hearing of the Undertaking Summons be adjourned to such time immediately after the hearing of the Order 14 Summons;

4. Leave be granted to the Defendant to file and serve affirmation(s) in opposition to the Order 14 Summons within 28 days from 5 May 2011;

5. Leave be granted to the Plaintiff to file and serve affirmation(s) in reply (if any) to the Order 14 Summons within 21 days thereafter;

6. Costs of this application be in the cause of the Order 14 Summons.

The Company obtained written legal opinion on the Claim from its legal advisers and after having considered the legal opinion, the Board passed a resolution to settle the Claim with Mr. Wong. By a Consent Order dated 3 June 2011, the Company reached a settlement of the Claim with Mr. Wong in the following terms:

1. Mr. Wong warrants and declares that he, whether by himself, his servants or agents or principals does not hold any interest (whether legal or beneficial) or have any dealings in any convertible notes or shares of the Company, either with or acquired from Mr. Hung apart from the assignment of the loan agreement dated 16 July 2009 in the amount of HK$31,500,000.

2. Upon the giving by Mr. Wong of the above warranty and declaration, the Company do on an entirely without admission of liability basis pay to Mr. Wong the sum of HK$28,500,000 within 3 business days of the Order in full and final settlement of the Mr. Wong’s claims against the Company in the Claim.

3. Upon payment to Mr. Wong of the said sum of HK$28,500,000, the parties shall jointly apply to the Court for the Claim to be dismissed and shall sign a Consent Order to the same effect.

4. The parties agree for the avoidance of doubt that Mr. Wong’s warranty and declaration in paragraph 1 above shall be enforceable and survive the dismissal of the Claim.

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Upon the Company and Mr. Wong having agreed to the above terms of settlement, the Court by consent made an order on the 3 June 2011 that:

1. The Undertaking be discharged;

2. This Action be stayed except for the purpose of carrying the Order and the said terms into effect;

3. Liberty to apply; and

4. Each party do pay their own costs of this Action and the Consent Order notwithstanding any previous costs order(s) that state otherwise.

The Company has incurred approximately HK$5,800,000 up to 8 June 2011 in accrued interest expenses arising from the Claim, which after this settlement will be written back to the Company for the current financial year ending 31 March 2012. Having considered the legal opinion from its legal advisors and in view of the savings of the aforementioned interest costs; the saving of expected legal costs of the Company of over HK$4,000,000; the saving of time and other resources to be incurred in defending the Claim, and the fact that if the Company were to be unsuccessful in its defence it would have to pay the legal costs of Mr. Wong, the Board is of the view that the settlement is in the interests of the Company. The Company set aside a sum of HK$28,500,000 into a designated account to pay Mr. Wong and the Company still has sufficient working capital on hand.

On 8 June 2011, the Company paid the amount of HK$28,500,000 to Mr.Wong and upon the joint application on the part of the Company and Mr. Wong and by consent the Court is ordered that the Wong’s Action be dismissed and no order as to costs.

• (h) Labour action between Mr. Hung Hoi Ming Raymond and the Company and Sino Talent Holdings Limited

On 2 July 2010, Mr. Hung Hoi Ming Raymond (“Mr. Raymond Hung”), brought an action at the Labour Tribunal against the Company and Sino Talent Holdings Limited (“Sino Talent”), a wholly-owned subsidiary of the Enlarged Group for payment of a sum of approximately HK$389,000, being the amount allegedly owned by the Enlarged Group on termination of his employment contract on 10 December 2009. The action was transferred to the District Court. Mr. Raymond Hung filed a Statement of Claim on 29 December 2010 and subsequently an Amended Statement of Claim on 11 January 2011 claiming against Sino Talent for payment of a sum of approximately HK$389,000.

The Company and Sino Talent filed a Defence and Counterclaim at the District Court on 2 February 2011 which the Group only agreed to pay to Mr. Raymond Hung a sum of approximately HK$95,000 and counterclaimed against him for repayment of a sum of approximately HK$128,000 being the amount of education subsidiary received by Mr. Raymond Hung; a sum of approximately HK$33,600 being compensation for

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APPENDIX I

unauthorized absence from work; and company assets. The parties have completed exchange of pleadings and no date for hearing of of this action has yet been fixed.

The Board of the Company, based on legal advice, is of the view the Enlarged Group has a good defence to Mr. Raymond Hung’s claim and a good chance of success in respect of the respective counterclaims.

• (i) Car action between Sino Talent and Mr. Raymond Hung

On 20 August 2010, Sino Talent filed a Statement of Claim at the District Court and claimed against Mr. Raymond Hung for the followings:–

1. Possession of vehicle with vehicle identification number WP1ZZZPZ9LA81368 bearing a registration number of NP5059 (“the Vehicle”);

2. Rent for the Vehicle between 11 December 2009 to the date of judgment;

3. Insurance premium for the Vehicle for the period between 11 December 2009 and 12 July 2010;

4. Vehicle licence fee for the Vehicle for the period between 11 December 2009 and the date of judgment or 28 October 2010 being the date of expiry of the current vehicle licence, whenever is earlier;

5. HK$6,980 being the amount reimbursed to the Defendant for car restoration coupons for the Vehicle;

6. Further or alternatively, damages for tort of conversion of the Vehicle;

7. interest;

8. further and other relief; and

9. costs.

Mr. Raymond Hung filed his Defence and Counterclaim at the District Court on 8 October 2010 denying possession of the Vehicle and claimed damages. Sino Talent filed a Reply and Defence to Counterclaim on 22 October 2010. On 11 January 2011, Mr. Raymond Hung filed an Amended Defence and Counterclaim alleging that the Vehicle was pledged to Mr. Hung and that Mr. Hung is allegedly entitled to possession and use of the Vehicle, Mr. Hung then allowed Mr. Raymond Hung to use the Vehicle.

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The parties have exchanged their pleadings, their respective list of documents and witnesses statement. An expert has been jointly appointed by both parties to prepare a valuation report on the value of the Vehicle. Mr. Chiu Sui Keung and Mr. Chow Chi-fai made witnesses statements for Plaintiff while Mr. Raymond Hung made a witness statement for the Defendant. Mr. Raymond Hung has denied the claim and made a counterclaim against the Company for damages suffered as a result of the commencement and conduct of this action.

The next hearing is a third Case Management Conference scheduled on 29th September 2011.

The Board of the Company, based on legal advice, is of the view the Enlarged Group has a good chance of success in respect of the case and a good defence to Mr. Raymond Hung’s counterclaim.

Disclaimer

Save as referred to as above and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have, as at 31 July 2011, any mortgages, charges, debentures or other loan capital or bank overdrafts, loan or other similar indebtedness or liabilities under acceptances (other than normal trade bills) or acceptance credit or hire purchase commitments or any guarantees or any material contingent liabilities.

3. WORKING CAPITAL

The directors are satisfied after due and careful enquiry that after taking into account the existing other borrowing facilities available and the existing cash and bank balances, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of publication of this circular, in the absence of unforeseeable circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2011, the date to which the latest published audited financial information of the Group were made up.

5. FINANCIAL AND TRADING PROSPECTS

Although the signs of recovery were seen globally in the second half of 2011, there is still uncertainty as whether such recovery is sustainable. Hence the Group will remain cautiously optimistic in its business’s development and further improve its financial strength.

The Group will continue to focus its business on the resources and energy related sector as well as on being the show manager of exhibitions, trade fairs and provision of ancillary service. The Board believed that the performance of the Group’s exhibition business will continue to improve despite of the strong competition and will keep contributing stable revenue to the Group in the coming financial year.

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FINANCIAL INFORMATION OF THE GROUP

The Company completed the acquisition of Sino Giants Group on 9 February 2011. On 20 April 2011, Multi Century (BJ) and Heilongjiang Coal Geology Bureau (黑龍江省煤田地質局) (“Heilongjiang CG Bureau”) entered into a memorandum of agreement (the “Memorandum”) on the Heilongjiang Unconventional Gas Research and Development Centre Project (黑龍江省非常規氣工程研發中心 項目備忘錄) pursuant to which the parties agreed to develop a strategic cooperation relationship to establish an unconventional gas research and development centre (黑龍江省非常規氣工程研發中心) (the “Heilongjiang Unconventional Gas R&D Centre”) for the purposes of developing technologies for and providing services in the exploration and development of unconventional gas in Heilongjiang Province.

On 5 June 2011, Multi Century (BJ) signed a coalbed methane stimulation technology services contract with Heilongjiang CG Bureau. Multi Century (BJ) will provide coalbed methane (“CBM”) stimulation technology services for a large-scale CBM exploration project over a three-years period, from 2011 to 2013. The Company believes that the partnership between the Group and Heilongjiang CG Bureau is a significant step for the Group’s entrance into the China unconventional gas market and it is confident that the Group will, in the near future, secure revenue by provision of services in connection with unconventional gas and import of technical equipment for the unconventional gas industry.

On 14 June 2011, Bright Top Investment Holdings Limited, a wholly owned subsidiary of the Company entered into an subscription agreement to subscribe 68% equity interest of Concord Billion Limited. The Company believes the subscription agreement will enable the Company to leverage on the advanced LiMax[TM] Coal Process Technologies to create investment potential and provide a solid platform for the Company’s business development in the coal industry.

Following the completion of the abovementioned acquisitions and the Completion, the Group will use its best endeavors to improve its operating results in the next financial year. It will consider expanding into resources related business, specializing in the unconventional gas and coal industries. It will also continue to adopt cost reduction strategies with a particular focus on cutting overheads and legal expenses. The Group will continue to explore investment opportunities in the resources and energy related sector in an attempt to diversify the Group’s business into areas with higher growth potential and achieve inorganic growth.

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

28 September 2011

The Board of Directors Sino Resources Group Limited Room 2502, 25/F, 9 Queen’s Road Central, Central Hong Kong

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information of Heilongjiang De Rong Coal Co. Limited (黑龍江德融煤業有限公司) (“De Rong”) for the years ended 31 December 2008, 2009 and 2010 and the period from 1 January 2011 to 30 June 2011 (the “Relevant Periods”) and the notes thereto (the “Financial Information”) for inclusion in the circular of Sino Resources Group Limited dated 28 September 2011 (the “Circular”) in connection with the sale and purchase agreement dated 8 August 2011 (the “Sale and Purchase Agreement”) entered into between the Company and Mr. Zheng Xuefeng (the “Vendor”). Pursuant to the Sale and Purchase Agreement, the Company has conditionally agreed to acquire the entire issued share capital of Wealthy Wing Limited at a total consideration of HK$162,000,000 (the “Consideration”)(the “Acquisition”).

The consideration shall be satisfied by: (i) as to HK$20,000,000 in cash by the Company to the Vendor upon signing of the Sale and Purchase Agreement as a refundable deposit; (ii) as to HK$121,500,000 by alloting and issuing 270,000,000 new shares of the Company (“Consideration Shares”) at HK$0.45 per share of the Company to the Vendor at the completion of the Acquisition subject to the terms and conditions of the Sale and Purchase Agreement in relation to Consideration Adjustment; and (iii) as to HK$20,500,000 in cash by the Company to the Vendor subject to the terms and conditions of the Sale and Purchase Agreement in relation to Consideration Adjustment.

De Rong is principally engaged in trading and sale of the coal in Heilongjiang province, the People’s Republic of China (the “PRC”) and established in the PRC with limited liability on 24 April 2007. Its registered office and principal place of business is No. 6 Hengshan Road, Xiangfang District, Harbin, Heilongjiang Province. As at 30 June 2011, De Rong is 70% owned by Dalian Xinrui Trading Limited (大連信瑞商貿有限公司), 30% owned by Beijing Xinyilongda Trading Limited (北京信億隆達 商貿有限責任公司).

The statutory financial statements of De Rong for the financial years ended 31 December 2008 and 2010 were prepared in accordance with the Accounting Standards for Business Enterprises issued by Ministry of Finance, and were audited by Harbin Longbo CPA Limited (哈爾濱龍博會計師事務所有限公 司). The statutory financial statements of De Rong for the financial year ended 31 December 2009 were prepared in accordance with the Accounting Standards for Business Enterprises issued by Ministry of Finance, and were audited by Heilongjiang Tianyue CPA Limited (黑龍江天越會計師事務所有限公司).

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BASIS OF PREPARATION

The Financial Information has been prepared by the directors of De Rong based on the financial statements of De Rong for the Relevant Periods, on the basis as set out in Note 3 below. The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards which also include Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong, and applicable disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of De Rong are responsible for the preparation of the Financial Information that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and for such internal control as the directors determine is necessary to enable the preparation of the Financial Information that are free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the contents of the Circular in which this report is included.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

It is our responsibility is to form an independent opinion on the Financial Information based on our audit. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement. We have also carried out additional procedures as necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

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

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

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OPINION

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the state of affairs of De Rong as at 31 December 2008, 2009, 2010 and 30 June 2011 and of the results and cash flows of De Rong for the Relevant Periods then ended in accordance with Hong Kong Financial Reporting Standards.

COMPARATIVE FINANCIAL INFORMATION

Respective responsibilities of directors and reporting accountants

The directors of De Rong are responsible for the preparation of the unaudited financial information of De Rong including the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the period from 1 January 2010 to 30 June 2010, together with the notes thereto (the “Unaudited Comparative Financial Information of De Rong”).

For the purpose of this report, we have reviewed the Unaudited Comparative Financial Information of De Rong, for which the directors of De Rong are responsible, in accordance with Hong Kong Standard on Review Engagement 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review consists principally of making enquiries of De Rong’s management and applying analytical procedures to the Unaudited Comparative Financial Information of De Rong and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Unaudited Comparative Financial Information of De Rong.

Conclusion

On the basis of our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the Unaudited Comparative Financial Information of De Rong is not prepared, in all material respects, in accordance with Hong Kong Financial Reporting Standards.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

A. FINANCIAL INFORMATION OF DE RONG

Statement of Comprehensive Income

Notes Turnover 7 Cost of sales Gross profit/(loss) Other revenue 7 Administrative expenses Loss from operating activities 8 Finance costs 9 Loss before taxation Taxation 12 Loss for the year/period Other comprehensive income, net of tax Total comprehensive loss for the year Loss and total comprehensive loss attributable to owners of De Rong	For the year ended 31 December 2008 RMB’000 2,675 (2,623) 52 2 (2,282) (2,228) (1) (2,229) – (2,229) – (2,229) (2,229)	For the year ended 31 December 2009 RMB’000 1,289 (1,299) (10) 2 (118) (126) (3) (129) – (129) – (129) (129)	For the year ended 31 December 2010 RMB’000 46,874 (46,475) 399 6 (1,490) (1,085) (2) (1,087) – (1,087) – (1,087) (1,087)	For the period from 1 January 2010 to 30 June 2010 RMB’000 (Unaudited) 28,472 (28,324) 148 4 (865) (713) (1) (714) – (714) – (714) (714)	For the period from 1 January 2011 to 30 June 2011 RMB’000 26,948 (26,831) 117 – (497) (380) (1) (381) – (381) – (381) (381)

The accompanying notes form an integral part of the Financial Information.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Statement of Financial Position

Notes Non-current assets Property, plant and equipment 15 Current assets Inventories 16 Trade receivables 17 Prepayments, deposits and other receivables 18 Amounts due from directors 19 Amount due from an immediate holding company 20 Cash and cash equivalents 21 Current liabilities Trade and other payables 22 Receipt in advance Amount due to a director 23 Amounts due to immediate holding companies 24 Net current (liabilities)/assets Total assets less current liabilities Net (liabilities)/assets Capital and reserves Share capital 25 Reserves 26 Equity attributable to owners of De Rong	At 31 December 2008 RMB’000 22 1,294 373 1,340 234 1,814 64 5,119 4,269 1,081 – – 5,350 (231) (209) (209) 5,000 (5,209) (209)	At 31 December 2009 RMB’000 19 20,136 – 29,664 268 1,814 456 52,338 22,124 30,571 – – 52,695 (357) (338) (338) 5,000 (5,338) (338)	At 31 December 2010 RMB’000 40 6,165 1,577 40,382 225 – 105 48,454 17,514 29,219 – 3,186 49,919 (1,465) (1,425) (1,425) 5,000 (6,425) (1,425)	At 30 June 2011 RMB’000 36 4,477 1,733 29,650 225 – 1 36,086 8,763 22,472 7 1,686 32,928 3,158 3,194 3,194 10,000 (6,806) 3,194

The accompanying notes form an integral part of the Financial Information.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Statement of Changes in Equity

At 1 January 2008 Loss for the year At 31 December 2008 and 1 January 2009 Loss for the year At 31 December 2009 and 1 January 2010 Loss for the year At 31 December 2010 and 1 January 2011 Loss for the period Additional paid-in capital during the period At 30 June 2011 For the period from 1 January 2010 to 30 June 2010 (Unaudited): At 1 January 2010 Loss for the period At 30 June 2010	Share capital RMB’000 5,000 – 5,000 – 5,000 – 5,000 – 5,000 10,000 5,000 – 5,000	Capital reserve RMB’000 – – – – – – – – – – – – –	Statutory Accumulated reserve losses RMB’000 RMB’000 – (2,980) – (2,229) – (5,209) – (129) – (5,338) – (1,087) – (6,425) – (381) – – – (6,806) – (5,338) – (714) – (6,052)	Total RMB’000 2,020 (2,229)
				(209) (129)
				(338) (1,087)
				(1,425) (381) 5,000
				3,194
				(338) (714)
				(1,052)

The accompanying notes form an integral part of the Financial Information.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Statement of Cash Flows

Operating activities Loss before taxation Adjustments for: Interest income Impairment loss on trade receivables Impairment loss on other receivable Depreciation Operating cash flows before movements in working capital (Increase)/decrease in trade receivables Decrease in bill receivables (Increase)/decrease in prepayments, deposits and other receivables (Increase)/decrease in inventories Decrease in amount due from an immediate holding company Increase/(decrease) in amounts due to immediate holding companies (Increase)/decrease in amounts due from directors Increase in amount due to a director Increase/(decrease) in trade and other payables Increase/(decrease) in receipt in advance	For the year ended 31 December 2008 RMB’000 (2,229) (2) 708 474 4 (1,045) (1,051) 300 (563) (1,280) – – (140) – 2,153 1,080	For the year ended 31 December 2009 RMB’000 (129) (2) – – 3 (128) 373 – (28,324) (18,842) – – (34) – 17,855 29,490	For the year ended 31 December 2010 RMB’000 (1,087) (6) – 49 7 (1,037) (1,577) – (10,767) 13,971 1,814 3,186 43 – (4,610) (1,352)	For the period from 1 January 2010 to 30 June 2010 RMB’000 (Unaudited) (714) (4) – – 2 (716) – – 3,608 18,801 – – 42 – (9,304) (12,476)	For the period from 1 January 2011 to 30 June 2011 RMB’000 (381) – – – 4 (377) (156) – 10,732 1,688 – (1,500) – 7 (8,751) (6,747)

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FINANCIAL INFORMATION OF THE TARGET GROUP

Net cash (used in)/generated from operating activities Investing activities Interest received Purchase of property, plant and equipment Net cash generated from/(used in) investing activities Financing activities Proceeds from capital injection Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period Cash and cash equivalents at the end of the year/period Analysis of balances of cash and cash equivalents Cash and bank balances	For the year ended 31 December 2008 RMB’000 (546) 2 – 2 – – (544) 608 64 64	For the year ended 31 December 2009 RMB’000 390 2 – 2 – – 392 64 456 456	For the year ended 31 December 2010 RMB’000 (329) 6 (28) (22) – – (351) 456 105 105	For the period from 1 January 2010 to 30 June 2010 RMB’000 (Unaudited) (45) 4 (10) (6) – – (51) 456 405 405	For the period from 1 January 2011 to 30 June 2011 RMB’000 (5,104) – – – 5,000 5,000 (104) 105 1 1

The accompanying notes form an integral part of the Financial Information.

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Notes to Financial Information

1. GENERAL INFORMATION

De Rong was established in the PRC with limited liability on 24 April 2007 and is principally engaged in trading and sale of coal. The address of the registered office of De Rong is No. 6 Hengshan Road, Xiangfang District, Harbin, Heilongjiang Province.

The Financial Information is presented in Renminbi (“RMB”), which is the functional currency of De Rong.

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

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

For the purpose of preparing the Financial Information, De Rong has adopted all new and revised HKFRSs consistently throughout the Relevant Periods except for those new and revised HKFRSs that are not yet effective for any of the Relevant Periods as explained below.

HKFRS 1 (Amendment)	Severe Hyperinflation and Removal of Fixed Dates for
	First-time Adopters1
HKFRS 7 (Amendments)	Disclosure - Transfer of Financial Assets1
HKFRS 9	Financial Instruments4
HKFRS 10	Consolidated Financial Statements4
HKFRS 11	Joint Arrangements4
HKFRS 12	Disclosure of Interests in Other Entities4
HKFRS 13	Fair Value Measurement4
Amendments to HKAS 1 (Revised)	Presentation of Financial Statements – Presentation of Items
	of Other Comprehensive income3
HKAS 12 (Amendments)	Deferred Tax: Recovery of Underlying Assets2
HKAS 19 (2011)	Employee Benefits4
HKAS 27 (2011)	Separate Financial Statements4
HKAS 28 (2011)	Investments in Associates and Joint Ventures4

1 Effective for annual periods beginning on or after 1 July 2011

2 Effective for annual periods beginning on or after 1 January 2012

3 Effective for annual periods beginning on or after 1 July 2012

4 Effective for annual periods beginning on or after 1 January 2013

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

Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss.

HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The directors anticipate that HKFRS 9 that will be adopted in De Rong’s financial statements for the annual period beginning 1 April 2013 and that the application of the new standard may have a significant impact on amounts reported in respect of De Rong’s financial assets. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

The amendments to HKFRS 7 Disclosures – Transfer of Financial Assets interest the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level continuing exposure in the asset. The amendments also require disclosures when transfers of financial assets are not evenly distributed throughout the period.

The directors of De Rong anticipate that the application of the other new and revised standards, amendments and interpretations will have no material impact on the results and the financial position of De Rong.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared under the historical cost convention, as explained in the accounting policies set out below. The accounting policies set out below have been consistently applied throughout the Relevant Periods. The Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise stated.

The Financial Information has been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) and by the Hong Kong Companies Ordinance.

(a) Revenue recognition

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

• (i) De Rong has transferred to the buyer the significant risks and rewards of ownership of the goods;

• (ii) De Rong retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• (iii) the amount of revenue can be measured reliably;

• (iv) it is probable that the economic benefits associated with the transaction will flow to De Rong; and

• (v) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income is recognised as it accrues using the effective interest method.

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(b) Property, plant and equipment

All 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:

Furniture and equipment

10% to 30%

The residual values and useful lives of items of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period.

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 statement of comprehensive income.

(c) Financial instruments

Financial assets and financial liabilities are recognised on the statement of financial position when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the statement of comprehensive income.

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i. Financial assets

De Rong’s financial assets are classified into loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales of financial assets that requires delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Effective interest method

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

Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at fair value through profit or loss, of which interest income is included in net gains or losses.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At the end of each reporting period subsequent to initial recognition, loans and receivables including trade receivables, other receivables, amounts due from directors, amount due from an immediate holding company, deposits with banks and cash and cash equivalents are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

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

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

• (i) significant financial difficulty of the issuer or counterparty; or

• (ii) default or delinquency in interest or principal payments; or

• (iii) it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include De Rong’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 365 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

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

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

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

ii.

Financial liabilities and equity

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

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

Effective interest method

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

Interest expense is recognised on an effective interest basis other than those financial liabilities designated as at fair value through profit or loss, of which the interest expense is included in net gains or losses.

Other financial liabilities

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

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iii. Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and De Rong has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in the statement of comprehensive income.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in the statement of comprehensive income.

(d) 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 statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of the statement of comprehensive income that are never taxable or deductible.

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 recognized 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 De Rong 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 the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax 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 statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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(e) Provisions

Provisions are recognised when De Rong 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 the end of each reporting period 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.

(f) 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 De Rong. 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 nonoccurrence of one or more uncertain future events not wholly within the control of De Rong. 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.

(g)

Dividends distribution

Final dividend proposed by the directors are classified as a separate allocation of retained profits within the equity section of the statement of financial position, 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 De Rong’s financial statements.

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

(h) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of De Rong’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

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(i) Employee benefits

• i. Paid leave carried forward

De Rong 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 end of the reporting period is permitted to be carried forward and utilised by the respective employees in the following year. No accrual is made at the end of the reporting period 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 employees of De Rong 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 statement of comprehensive income as they become payable in accordance with the rules of the central pension scheme.

(j) Related party transactions

A party is considered to be related to De Rong if:

• (i) the party, directly or indirectly through one or more intermediaries, (a) controls, is controlled by, or is under common control with, De Rong; (b) has an interest in De Rong that gives it significant influence over De Rong; or (c) has joint control over De Rong;

• (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 De Rong 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 De Rong, or of any entity that is a related party of De Rong.

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(k) 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 De Rong’s cash management.

(l) Borrowing costs

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

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(m) Leasing

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

De Rong as lessee

Rentals payable under operating leases are charged to the statement of comprehensive income on a straightline basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight line basis.

(n) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to De Rong’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, De Rong’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type of class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are 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.

Critical judgments in applying accounting policies

The following are the critical judgments, apart from those involving estimations, that management has made in the process of applying De Rong’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

• (i) Income taxes

De Rong is subject to income taxes in the People’s Republic of China (the “PRC”). Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. De Rong recognizes 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) Impairment of assets

De Rong tests annually whether the assets have suffered any impairment. The recoverable amount of an asset or a cash generating unit is determined based on value-in-use calculations which require the use of assumptions and estimates.

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• (iii) Estimated impairment of trade receivables

When there is objective evidence of impairment loss, De Rong takes into consideration the estimation of future cash flows. The amount of the impairment 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). Where the actual future cash flows are less than expected, impairment loss may arise. As at 30 June 2011, the carrying amount of trade receivables is approximately HK$1,733,000.

(iv) Property, plant and equipment

In accordance with HKAS 16, De Rong estimates the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. De Rong also perform annual reviews on whether the assumptions made on useful lives continue to be valid.

5. FINANCIAL RISK MANAGEMENT

Financial risk management objectives and policies

De Rong’s major financial instruments include borrowings and cash and cash equivalents. 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.

Market risk

• (i) Price risk

At the end of the reporting period, De Rong did not have any financial assets which are measured at fair value. De Rong does not have significant exposure to price risk.

Credit risk

In order to minimise the credit risk, the management of De Rong has credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In this regards, the directors of De Rong consider that De Rong’s credit risk is significantly reduced.

De Rong’s credit risk is primarily attributable to trade or other receivables. De Rong has no significant concentrations of credit risk. The exposures to these credit risks are monitored on an ongoing basis.

Liquidity risk

De Rong manages liquidity risk by maintaining adequate cash and cash equivalents, monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The liquidity risk is under continuous monitoring by management. Reports with maturity dates of other borrowings and thus the liquidity requirement are provided to management for review periodically. Management will raise or refinance bank borrowings whenever necessary.

The table below analyses De Rong’s financial liabilities that will be settled into relevant maturity based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are based on the contractual undiscounted payments, as follows:

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Weighted average interest rate Trade and other payables – Amount due to a director – Amounts due to immediate holding companies – Weighted average interest rate Trade and other payables – Amounts due to immediate holding companies – Weighted average interest rate Trade and other payables – Weighted average interest rate % Trade and other payables – Fair value of financial instruments	At 30 June 2011 Carrying On amount demand RMB’000 RMB’000 8,763 8,430 7 7 1,686 1,686 10,456 10,123 At 31 December 2010 Carrying On amount demand RMB’000 RMB’000 17,514 6,358 3,186 3,186 20,700 9,544 At 31 December 2009 Carrying On amount demand RMB’000 RMB’000 22,124 1,993 At 31 December 2008 Carrying On amount demand RMB’000 RMB’000 4,269 1,959	Less than 1 year RMB’000 333 – – 333 Less than 1 year RMB’000 11,156 – 11,156 Less than 1 year RMB’000 20,131 Less than 1 year RMB’000 2,310	Total RMB’000 8,763 7 1,686
			10,456
			Total RMB’000 17,514 3,186
			20,700
			Total RMB’000 22,124
			Total RMB’000 4,269

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

• the fair value of financial assets and financial liabilities (including derivative instruments) with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices and ask prices respectively; and

• the fair value of other financial assets and financial liabilities (including derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices or rates from observable current market transaction as input. For an option-based derivative, the fair value is estimated using option pricing model.

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

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Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

No analysis is disclosed since De Rong has no financial instruments that are measured subsequent to initial recognition at fair value at the end of the reporting period.

Capital risk management

De Rong manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. De Rong’s overall strategy remains unchanged during the Relevant Periods.

The directors of De Rong review the capital structure regularly. As part of this review, the directors consider the cost and the risks associates with each class of the capital. Based on the recommendations of the directors, De Rong will balance its overall capital structure through the payment of dividends and new share issues as well as raising and repayment of bank borrowings.

6. SEGMENT INFORMATION

De Rong currently operates in one business and geographical segment in trading and sale of coal in the PRC. De Rong purchased coal from external coal enterprises for resale to customers. A single management team reports to the chief operating decision makers who comprehensively manage the entire business. Accordingly De Rong does not have separately reportable segments.

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7. TURNOVER AND OTHER REVENUE

De Rong’s turnover during the Relevant Periods is all derived from trading and sale of coal.

An analysis of De Rong’s turnover and other revenue is as follows:

Turnover: Trading and sale of coal Other revenue: Bank interest income 8. LOSS FROM OPERATING Depreciation of property, plant and equipment Staff costs (including directors’ remuneration (Note 10)) – wages and salaries Auditors’ remuneration Minimum lease payments under operating lease rentals of office premises Impairment loss on trade receivables Impairment loss on other receivable 9. FINANCE COSTS Bank charge	For the year ended 31 December 2008 RMB’000 2,675 2 ACTIVITIES For the year ended 31 December 2008 RMB’000 4 227 2 – 708 474 For the year ended 31 December 2008 RMB’000 1	For the year ended 31 December 2009 RMB’000 1,289 2 For the year ended 31 December 2009 RMB’000 3 28 1 – – – For the year ended 31 December 2009 RMB’000 3	For the For the period For the period year from 1 January from 1 January ended 2010 to 30 2011 to 30 31 December June June 2010 2010 2011 RMB’000 RMB’000 RMB’000 (Unaudited) 46,874 28,472 26,948 6 4 – For the For the period For the period year from 1 January from 1 January ended 2010 to 30 2011 to 30 31 December June June 2010 2010 2011 RMB’000 RMB’000 RMB’000 (Unaudited) 7 2 4 456 242 202 1 1 1 450 548 342 – – – 49 – – For the For the period For the period year from 1 January from 1 January ended 2010 to 30 2011 to 30 31 December June June 2010 2010 2011 RMB’000 RMB’000 RMB’000 (Unaudited) 2 1 1

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10. DIRECTORS’ REMUNERATION

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

Basic salaries RMB’000 For the period from 1 January 2011 to 30 June 2011 Li Yong Zhang 30 Hou Ming Chen – Sun Bing Yu – 30 For the period from 1 January 2010 to 30 June 2010 (Unaudited) Li Yong Zhang 24 Hou Ming Chen – Sun Bing Yu – 24 Year ended 31 December 2010 Li Yong Zhang 50 Hou Ming Chen – Sun Bing Yu – 50 Year ended 31 December 2009 Sun Li Qing 6 Li Yong Zhang – Hou Ming Chen – Sun Bing Yu 4 10 Year ended 31 December 2008 Sun Li Qing 36 Hou Ming Chen – Sun Bing Yu 24 60	Director’s fee RMB’000 – – – – – – – – – – – – – – – – – – – – –	Pension scheme Bonuses contributions RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –	Total RMB’000 30 – –
			30
			24 – –
			24
			50 – –
			50
			6 – – 4
			10
			36 – 24
			60

Sun Li Qing was appointed as director on 22 March 2007 and resigned on 20 November 2009. Li Yong Zhang was appointed as director on 20 November 2009. Hou Ming Chen was appointed as director on 22 March 2007. Sun Bing Yu was appointed as director on 22 March 2007.

During the Relevant Periods, no emoluments were paid by De Rong to any of the directors as an inducement to join or upon joining De Rong or as compensation for loss of office. None of the directors has waived any emoluments during the Relevant Periods.

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11. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during Relevant Periods included one director during the year ended 31 December 2010 and the six months ended 30 June 2011 and 2010, and included two directors during the years ended 31 December 2009 and 2008. Details of whose remuneration are set out in Note 10 to the financial statements.

The details of the remuneration of the remaining non-directors, highest paid employees are as follows:

	For the		For the		For the	For the period	For the period
	year		year		year	from 1 January	from 1 January
	ended		ended		ended	2010 to 30	2011 to 30
	31 December		31 December		31 December	June	June
	2008		2009		2010	2010	2011
	RMB’000		RMB’000		RMB’000	RMB’000	RMB’000
						(Unaudited)
Basic salaries and
allowances	64		11		182	87	96
Share-based payment	–		–		–	–	–
Retirement benefits
scheme contributions	–		–		–	–	–
	64		11		182	87	96
The number of employees whose remuneration fell within the				following band is		as follows:
	For the		For the		For the	For the period	For the period
	year		year		year	from 1 January	from 1 January
	ended		ended		ended	2010 to 30	2011 to 30
	31 December		31 December		31 December	June	June
	2008		2009		2010	2010	2011
						(Unaudited)
Nil to RMB828,638
(HK$ 1,000,000)	3		3		4	4	4

During the Relevant Periods, no emoluments were paid by De Rong to any of the employees as an inducement to join or upon joining De Rong or as compensation for loss of office.

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12.

TAXATION

No provision for Hong Kong profits tax has been made as De Rong had no assessable profits arising in Hong Kong for the Relevant Periods.

Taxation for other jurisdiction is calculated at the rates prevailing in the respective jurisdictions.

	For the	For the	For the	For the period	For the period
	year	year	year	from 1 January	from 1 January
	ended	ended	ended	2010 to 30	2011 to 30
	31 December	31 December	31 December	June	June
	2008	2009	2010	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Current tax
– PRC	–	–	–	–	–

A reconciliation of the tax expense applicable to loss before taxation using the statutory rate to the tax charge at the effective tax rate is as follows:

Loss before taxation Taxation at the PRC enterprise income tax of 25% Estimated tax effect of expenses and income not deductible or taxable for tax purpose Estimated tax effect of unrecognised tax losses	For the year ended 31 December 2008 RMB’000 (2,229) (557) 395 162 –	For the year ended 31 December 2009 RMB’000 (129) (32) – 32 –	For the For the period For the period year from 1 January from 1 January ended 2010 to 30 2011 to 30 31 December June June 2010 2010 2011 RMB’000 RMB’000 RMB’000 (Unaudited) (1,087) (714) (381) (271) (179) (95) 152 118 32 119 61 63 – – –	For the For the period For the period year from 1 January from 1 January ended 2010 to 30 2011 to 30 31 December June June 2010 2010 2011 RMB’000 RMB’000 RMB’000 (Unaudited) (1,087) (714) (381) (271) (179) (95) 152 118 32 119 61 63 – – –
				(95) 32 63
				–

13. DIVIDENDS

No dividend was paid or proposed during the Relevant Periods nor has any dividend been proposed since the end of reporting period.

14. LOSS PER SHARE

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

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FINANCIAL INFORMATION OF THE TARGET GROUP

15. PROPERTY, PLANT AND EQUIPMENT

Cost At 1 January 2008 At 31 December 2008 and 1 January 2009 At 31 December 2009 and 1 January 2010 Additions At 31 December 2010 and 1 January 2011 At 30 June 2011 Accumulated depreciation At 1 January 2008 Charged for the year At 31 December 2008 and 1 January 2009 Charged for the year At 31 December 2009 and 1 January 2010 Charged for the year At 31 December 2010 and 1 January 2011 Charged for the period At 30 June 2011 Net book value At 30 June 2011 At 31 December 2010 At 31 December 2009 At 31 December 2008	Furniture and equipment RMB’000 27
	27
	27 28
	55
	55
	1 4
	5 3
	8 7
	15 4
	19
	36
	40
	19
	22

85

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

16. INVENTORIES

Finished goods 17. TRADE RECEIVABLES Trade receivables Less: Provision for impairment loss on trade receivables The aged analysis of trade receivables is With 1 year 1 – 2 years 2 – 3 years Over 3 years Less: Provision for impairment loss on trade receivables	At 31 December 2008 RMB’000 1,294 At 31 December 2008 RMB’000 1,631 (1,258) 373 as follows: At 31 December 2008 RMB’000 1,081 550 – – 1,631 (1,258) 373	At 31 December 2009 RMB’000 20,136 At 31 December 2009 RMB’000 1,258 (1,258) – At 31 December 2009 RMB’000 – – 1,258 – 1,258 (1,258) –	At 31 December 2010 RMB’000 6,165 At 31 December 2010 RMB’000 2,835 (1,258) 1,577 At 31 December 2010 RMB’000 1,577 – – 1,258 2,835 (1,258) 1,577	At 30 June 2011 RMB’000 4,477
				At 30 June 2011 RMB’000 2,991 (1,258)
				1,733
				At 30 June 2011 RMB’000 156 1,577 – 1,258
				2,991 (1,258)
				1,733

The movements in provision for impairment loss on trade receivables were as follows:

At the beginning of the year/period Provision for impairment loss on trade receivables At the end of the year/period	At 31 December 2008 RMB’000 550 708 1,258	At 31 December 2009 RMB’000 1,258 – 1,258	At 31 December 2010 RMB’000 1,258 – 1,258	At 30 June 2011 RMB’000 1,258 –
				1,258

86

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

In determining the recoverability of trade receivables, De Rong considers any change in the credit quality of the trade receivables. Included in the provision for impairment loss on trade receivables are individually impaired trade receivables with a balance of approximately RMB1,258,000, RMB1,258,000, RMB1,258,000 and RMB1,258,000 which have been in financial difficulty for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2011 respectively. The impairment recognised represents the difference between the carrying amounts of these trade receivables and the present value of the expected recoverable amounts. De Rong does not hold any collateral over these balances.

18. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

At At At 31 December 31 December 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 Prepayments 750 22,672 20,064 Other receivables 3,152 9,554 22,929 3,902 32,226 42,993 Less: Provision for impairment loss on other receivables (2,562) (2,562) (2,611) 1,340 29,664 40,382 Movements in the provision for impairment loss on other receivables are as follows: At At At 31 December 31 December 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 At the beginning of the year/period 2,088 2,562 2,562 Provision for impairment loss on other receivables 474 – 49 At the end of the year/period 2,562 2,562 2,611

At 30 June 2011 RMB’000 9,860 22,401 32,261 (2,611) 29,650 At 30 June 2011 RMB’000 2,611 – 2,611

In determining the recoverability of other receivables, De Rong considers any change in the credit quality of the other receivables. Included in the provision for impairment loss on other receivables are individually impaired other receivables with a balance of approximately RMB2,562,000, RMB2,562,000, RMB2,611,000 and RMB2,611,000 which have been in financial difficulty for the years ended 31 December 2008, 2009 and 2010 and six months ended 30 June 2011 respectively. The impairment recognised represents the difference between the carrying amount of these other receivables and the present value of the expected recoverable amounts. De Rong does not hold any collateral over these balances.

87

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

19. AMOUNTS DUE FROM DIRECTORS

Sun Li Qing Sun Bing Yu	At 31 December 2008 RMB’000 18 216 234	At 31 December 2009 RMB’000 43 225 268	At 31 December 2010 RMB’000 – 225 225	At 30 June 2011 RMB’000 – 225
				225

The amounts due from directors are unsecured, interest-free and recoverable on demand.

20. AMOUNT DUE FROM AN IMMEDIATE HOLDING COMPANY

		At		At		At	At
	31	December	31	December	31	December	30 June
		2008		2009		2010	2011
		RMB’000		RMB’000		RMB’000	RMB’000
Dalian Xinrai Trading Limited		1,814		1,814		–	–

The maximum amount outstanding during the years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 is as follows:

				For the period
				from 1 January
	Year ended	Year ended	Year ended	2011 to
	31 December	31 December	31 December	30 June
	2008	2009	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000
Dalian Xinrai Trading Limited	1,814	1,814	–	–

The amount due from an immediate holding company is unsecured, interest-free and recoverable on demand.

21. CASH AND CASH EQUIVALENTS

		At		At		At	At
	31	December	31	December	31	December	30 June
		2008		2009		2010	2011
		RMB’000		RMB’000		RMB’000	RMB’000
Cash and cash equivalents		64		456		105	1

Majority of cash at bank and in hand are denominated in RMB. Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The remittance of these funds out of the PRC is subject to the exchange control restrictions imposed by the PRC government.

88

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

22. TRADE AND OTHER PAYABLES

Trade payables Other payables Accruals The aged analysis of trade payables is as Within 1 year 1 – 2 years 2 – 3 years Over 3 years	At 31 December 2008 RMB’000 4,070 158 41 4,269 follows: At 31 December 2008 RMB’000 2,186 1,884 – – 4,070	At 31 December 2009 RMB’000 21,942 146 36 22,124 At 31 December 2009 RMB’000 20,131 1,811 – – 21,942	At 31 December 2010 RMB’000 17,032 296 186 17,514 At 31 December 2010 RMB’000 11,907 3,314 1,811 – 17,032	At 30 June 2011 RMB’000 8,241 304 218
				8,763
				At 30 June 2011 RMB’000 1,085 3,972 1,373 1,811
				8,241

The trade payables are interest-free and are normally settled on or before the delivery and may allow to settle within 365 days.

23. AMOUNT DUE TO A DIRECTOR

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

24. AMOUNTS DUE TO IMMEDIATE HOLDING COMPANIES

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

25. SHARE CAPITAL

Registered capital At 1 January Capital injection At 30 June/31 December Paid up capital At 1 January Capital injection At 30 June/31 December	At 31 December 2008 RMB’000 5,000 – 5,000 5,000 – 5,000	At 31 December 2009 RMB’000 5,000 – 5,000 5,000 – 5,000	At 31 December 2010 RMB’000 5,000 – 5,000 5,000 – 5,000	At 30 June 2011 RMB’000 5,000 5,000
				10,000
				5,000 5,000
				10,000

89

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

26. RESERVES

At 1 January 2008 Loss for the year At 31 December 2008 and 1 January 2009 Loss for the year At 31 December 2009 and 1 January 2010 Loss for the year At 31 December 2010 and 1 January 2011 Loss for the period At 30 June 2011	Accumulated losses RMB’000 (2,980) (2,229)
	(5,209) (129)
	(5,338) (1,087)
	(6,425) (381)
	(6,806)

27. OPERATING LEASE ARRANGEMENTS

De Rong leases certain of its office properties under operating lease arrangements. Leases for office properties are negotiated for terms ranging from one to two years.

During the Relevant Periods, De Rong had total future minimum lease payments under non-cancellable operating leases in respect of office premises falling due as follows:

Within one year In the second to fifth years, inclusive	At 31 December 2008 RMB’000 – – –	At 31 December 2009 RMB’000 – – –	At 31 December 2010 RMB’000 216 234 450	At 30 June 2011 RMB’000 225 117
				342

28. CONTINGENT LIABILITIES

De Rong had no material contingent liabilities as at 31 December 2008, 2009, 2010 and 30 June 2011.

29. EVENTS AFTER THE REPORTING PERIOD

No significant events took place subsequent to 30 June 2011.

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for De Rong in respect of any period subsequent to 30 June 2011 and no dividends or other distributions have been declared by De Rong in respect of any period subsequent to 30 June 2011.

Yours faithfully

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

90

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Both of the Target Company and Western Spark are of investment holding nature, they have no material financial interest other than the investment in De Rong and have not commenced any business operation since inception. Set out below is the management discussion and analysis on De Rong for the three financial years ended 31 December 2010 and the six months ended 30 June 2011 (the “ Relevant Periods ”).

Financial and business review

De Rong had been engaged in trading and sale of coal in Heilongjiang province in the PRC during the Relevant Periods.

De Rong recorded turnover of approximately RMB2.68 million, RMB1.29 million and RMB46.87 million respectively for the three financial years ended 31 December 2010. The drop in turnover by 51.87% for the year ended 31 December 2009 was attributable to the change of the management team, whilst the surge in turnover in the next financial year was due to the customers and suppliers relationship built up by the new management team. Turnover of De Rong decreased slightly from approximately RMB28.47 million for the six months ended 30 June 2010 to approximately RMB26.98 million for the same period in 2011.

The costs of sales of De Rong primarily comprises the costs of coal purchase from suppliers, which were approximately RMB2.62 million, RMB1.30 million and RMB46.48 million for the three financial years ended 31 December 2010.

Loss for the year ended 31 December 2008 of around RMB2.23 million was comparatively high, as a result of low sales revenue and high administrative expenses. De Rong continued to record losses of approximately RMB0.13 million and RMB1.09 million respectively for the next two financial years.

Capital structure, financial resources and liquidity

De Rong recorded net liabilities of approximately RMB0.21 million, RMB0.34 million and RMB1.43 million respectively as at 31 December 2008, 2009 and 2010. As at 30 June 2011, De Rong recorded net assets of RMB3.19 million due to the capital injection of RMB5 million during the six months ended 30 June 2011.

De Rong generally financed its operations by cash generated from its business and capital injection from shareholders of De Rong. The use of proceeds from the capital injection will be mainly utilized as the general working capital for coal purchase, coal supply source diversification and business development. During the Relevant Periods, De Rong had not obtained any debt or bank borrowing.

During the six months ended 30 June 2011, De Rong’s share capital increased to RMB10 million following capital injection of RMB5 million, contributed by Dalian Xinrui and Beijing Xinyilongda in accordance with their respective shareholding percentages.

91

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Business strategies and future prospects

The Target Group aims at expanding the size of its coal trading business as well as extending its geographical presence in the PRC.

De Rong has been conducting its coal trading business by sourcing coal in the Heilongjiang province. With the investment from Western Spark, De Rong’s financial and cash flow positions will be strengthened, which shall enable De Rong to expand its coal business into other provinces in the PRC. The entering into of the Strategic Cooperation Agreement between De Rong and the PRC business partner in relation to the coal supply in the future shall also enhance De Rong’s market presence in other provinces.

More details are set out in the paragraph headed “Future business strategies and development of De Rong” in “Letter from the board” of this circular.

Other financial information of the Target Group

Capital commitment

Other than Western Spark’s capital commitment of RMB22 million for injection into De Rong, the Target Group did not have any capital commitment as at 31 December 2008, 2009 and 2010 and 30 June 2011.

Significant investments

Other than the investment in De Rong pursuant to the De Rong Joint Venture Agreement, there was no significant investment held by the Target Group during the Relevant Periods.

Acquisition or disposal of subsidiary

The Target Group had no acquisition or disposal of subsidiary during the Relevant Period.

Analysis of segment information

De Rong currently operates in one business and geographical segment in trading and sale of coal in the PRC, it purchased coal from external coal enterprises for resale to customers such as power plants. Accordingly, De Rong does not have separately reportable segments.

Employees and staff policy

The Target Company and Western Spark are investment holding companies and had no employee during the Relevant Periods. As at the Latest Practicable Date, De Rong had approximately 11 employees, who were entitled to fixed salaries and other fringe benefits such as social security fund and insurance. The remuneration and package of De Rong’s employees are periodically reviewed pursuant to internal remuneration policies.

92

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Pledge of assets

As at 31 December 2008, 2009 and 2010 and 30 June 2011, the Target Group had no pledged assets.

Future plans for material investments or capital assets

As at 30 June 2011, the Target Group had no plans for material investments or capital assets.

Gearing ratio

As at 31 December 2008, 2009 and 2010 and 30 June 2011, the Target Group had no debt and thus no gearing ratio (total debts to total equity) was determined.

Foreign exchange exposure

The business operations of De Rong are in China. The Target Group has minimal exposure to foreign exchange as there are no significant amounts of foreign currency denominated monetary assets and liabilities other than RMB.

Contingent liabilities

As at 31 December 2008, 2009 and 2010 and 30 June 2011, the Target Group did not have any significant contingent liabilities.

93

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

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

==> picture [205 x 77] intentionally omitted <==

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

28 September 2011

The Board of Directors Sino Resources Group Limited Room 2502, 25/F, 9 Queen’s Road Central, Central

Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Sino Resources Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Heilongjiang De Rong Coal Co. Limited (“De Rong”) (together with the Group hereinafter referred to as the “Enlarged Group”) which has been prepared by the directors of the Company for illustrative purpose only, to provide information about how the proposed acquisition of the entire issued share capital of Wealthy Wing Limited which indirectly through its wholly owned subsidiaries to acquire 55% of issued capital of De Rong (the “Acquisition”), might have affected the financial information on the Group presented for inclusion in Appendix IV of the circular of the Company dated 28 September 2011 (the “Circular”). The basis of preparation for the unaudited pro forma financial information on the Enlarged Group (the “Unaudited Pro Forma Financial Information on the Enlarged Group”) is set out on page 96 to page 100 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 on the Enlarged Group in accordance with rules 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”).

It is our responsibility to form an opinion as required by rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information on the Enlarged Group 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 on the Enlarged Group beyond that owned to those to whom those reports were addressed by us at the dates of their issue.

94

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagement (“HKSIR”) 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 on the Enlarged Group with the directors of the Company. The 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 on the Enlarged Group 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 on the Enlarged Group as disclosed pursuant to rule 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information on the Enlarged Group is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, it 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 Enlarge Group as at 31 March 2011 or any future date.

OPINION

In our opinion:

• the Unaudited Pro Forma Financial Information on the Enlarged Group has been properly compiled by the directors of the Company on the basis stated;

• such a basis is consistent with the accounting policies of the Group; and

• the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information on the Enlarged Group as disclosed pursuant to rule 4.29(1) of the Listing Rules.

Yours faithfully

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

95

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The Unaudited Pro Forma Financial Information on the Enlarged Group has been prepared to illustrate the effect of the Acquisition.

The Unaudited Pro Forma Financial Information on the Enlarged Group has been prepared in accordance with the rules 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition as if the Acquisition took place on 31 March 2011.

The Unaudited Pro Forma Financial Information on the Enlarged Group is prepared based on the consolidated financial information of the Group as at 31 March 2011 as set out in Appendix I to the Circular, audited financial information of De Rong as set out in Appendix II to the Circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transaction; and (ii) factually supportable.

The accompanying Unaudited Pro Forma Financial Information on the Enlarged Group has been prepared by the directors of the Company for illustrative purpose only and is based on a number of assumptions, estimates, and uncertainties. Accordingly, the Unaudited Pro Forma Financial Information on the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained has the Acquisition been completed on 31 March 2011, nor purport to predict the Enlarged Group’s future financial position.

The Pro Forma Financial Information on the Enlarged Group should be read in conjunction with the historical financial information on the Group as set out in Appendix I to the Circular, historical financial information of De Rong as set out in Appendix II to the Circular and other financial information included elsewhere in the Circular.

The Unaudited Pro Forma Financial Information on the Enlarged Group has been prepared by the directors of the Company for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of financial position of the Enlarged Group following completion of the Acquisition.

96

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

For the purpose of preparing the Unaudited Pro Forma Financial Information on the Enlarged Group, the presentation currency of the financial information of the Target Group is converted from Renminbi to Hong Kong Dollars and the following exchange rate was used where appropriate:

HK$1 = RMB0.8286

The Group as at 31 March 2011 HK$’000 Non-current assets Property, plant and equipment 2,792 Goodwill 1,700 4,492 Current assets Amounts due from directors 78 Deposits, prepayments and other receivables 25,980 Inventories – Trade receivables 22 Deposits with banks 69,159 Cash and cash equivalents 21,220 116,459 Current liabilities Amounts due to shareholders and a director 14,478 Amounts due to immediate holding companies – Trade payables – Accrued liabilities and other payables 169,952 Receipt in advance – Other borrowings 33,872 Deposits received in advance 16,587 234,889 Net current (liabilities)/assets (118,430) Total assets less current liabilities (113,938) Non-current liabilities Convertible notes 142,094 Deferred tax liabilities 5,182 147,276 Net (liabilities)/assets (261,214)	De Rong as at 30 June 2011 HK$’000 43 – 43 272 35,783 5,403 2,091 – 1 43,550 8 2,035 9,946 630 27,120 – – 39,739 3,811 3,854 – – – 3,854	Pro forma adjustments for the Sub-total Acquisition HK$’000 Notes HK$’000 2,835 1,700 2 173,380 4,535 350 61,763 5,403 2,113 69,159 21,221 1(i) (20,000) 160,009 14,486 2,035 9,946 170,582 1(iii) 20,500 27,120 33,872 16,587 274,628 (114,619) (110,084) 142,094 5,182 147,276 (257,360)	Enlarged Group as at 31 March 2011 HK$’000 2,835 175,080 177,915 350 61,763 5,403 2,113 69,159 1,221 140,009 14,486 2,035 9,946 191,082 27,120 33,872 16,587 295,128 (155,119) 22,796 142,094 5,182 147,276 (124,480)

97

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The adjustments reflect the following:

1. The consideration to be satisfied by the Company is HK$175,500,000.

The consideration is to be satisfied by:

Cash consideration_(Note 1(i)) Contingent consideration shares(Note 1(ii)) Contingent cash consideration(Note 1(iii))_	HK$’000 20,000 135,000 20,500
	175,500

• (i) HK$20,000,000 was paid in cash by the Company to the Vendor upon signing of the sale and purchase agreement as a refundable deposit. The cash consideration shall be funded by the Company’s internal resources.

• (ii) Assuming the issue price of HK$0.50 was the fair value of the Company’s shares as at 31 March 2011, the amount of HK$135,000,000 would be satisfied by procuring the Company to allot and issue 270,000,000 consideration shares. Upon completion of the Acquisition, the share capital and share premium of the Company would increase by approximately HK$2,700,000 and HK$132,300,000 respectively.

The vendor undertakes Consideration Adjustments to the Company, and the issuance of 270,000,000 consideration shares was subject to the following conditions:

• 30,000,000 consideration shares would be delivered if the audited distributable profit after tax of De Rong for the period commencing from the completion date and ending on 31 December 2011 (the “First Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Financial Reporting Standards) will not be less than RMB15 million (the “First Year Consideration Adjustment”);

• 100,000,000 consideration shares would be delivered if the audited distributable profit after tax of De Rong for the period commencing from 1 January 2012 and ending on 31 December 2012 (the “Second Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Financial Reporting Standards) will not be less than RMB50 million (the “Second Year Consideration Adjustment”); and

98

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

• 140,000,000 consideration shares would be delivered if the audited distributable profit after tax of De Rong for the period commencing from 1 January 2013 and ending on 31 December 2013 (the “Third Year”) prepared in accordance with the International Financial Reporting Standards (including the Hong Kong Financial Reporting Standards) will not be less than RMB70 million (the “Third Year Consideration Adjustment”).

If De Rong fails to meet the respective targets of audited distributable profits after tax in association with the First Year Consideration Adjustment, the Second Year Consideration Adjustment and/or the Third Year Consideration Adjustment, the vendor shall only be delivered in the same proportion of the consideration shares as the achievement proportion for the respective year.

For the portions falling short of the First Year Consideration Adjustment or the Second Year Consideration Adjustment, the vendor can make up the shortfall in the Second Year or the Third Year. If such complement can be substantiated and confirmed in the audited consolidated accounts for the Second Year or the Third Year, the vendor maybe be complemented such portion of considerations shares.

If the profit of De Rong exceeds the First Year Consideration Adjustment, the Second Year Consideration Adjustment and/or the Third Year Consideration Adjustment, the vendor shall have an option either to:

• in respect of the portion exceeding the said target of audited distributable profit for the respective year, receive the cash bonus additionally granted by the Company. Calculation of the cash bonus is based on 30% of 55% of the portion exceeding the said target of audited distributable profit for the respective year; or

• in respect of the portion exceeding the said target of audited distributable profit for the respective year, deem such portion as part of the respective target of audited distributable profit for the upcoming year.

• (iii) HK$20,500,000 shall be paid subject to the terms and conditions of the sale and purchase agreement in relation to Consideration Adjustments as described above. The cash consideration shall be funded by the Company’s internal resources. The Company does not have to settle such balance if the net profits of De Rong fail to meet the respective targets in association with the Consideration Adjustments.

• (iv) In accordance with HKFRS 3, contingent consideration is recognised as part of the consideration transferred in exchange for the acquiree, measured at its acquisition-date fair value. It is assumed that the fair value of contingent consideration shares and contingent cash consideration as at 31 March 2011 are HK$135,000,000 and HK$20,500,000 respectively.

99

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Changes that are the results of the acquirer obtaining additional information about facts and circumstances the existed at the acquisition date, and that occur within the measurement period are recognised as adjustments against the original accounting for the acquisition.

1. The adjustment of HK$173,380,000 represented goodwill arising from the acquisition. It is calculated as follows:

Consideration transferred Non-controlling interests Less: Fair value of identifiable net assets acquired Goodwill	HK$’000 175,500 1,734
	177,234 3,854
	173,380

After completion of the Acquisition, De Rong will become a cash-generating unit (“CGU”) to the Group. The directors have determined that the expected cash flows in accordance with Hong Kong Accounting Standard 36 Impairment of Assets to arrive the value in use of this CGU to assess the impairment of assets in this CGU including the goodwill. The directors considered that there is no impairment loss for the CGU and the same impairment assessment will be carried out in the future accounting periods.

1. For the purpose of preparing the Unaudited Pro Forma Financial Information, the consideration for the Acquisition and the carrying values of the net asset of De Rong as per the Accountants’ Report as set out in Appendix II of the Circular are taken to be their fair values.

100

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

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

Authorised: 6,000,000,000 Shares Issued and fully paid: 1,336,520,400 Shares	HK$ 60,000,000.00
	HK$ 13,365,204.00

3. INTERESTS OF DIRECTORS

(a) Interests in securities

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which: (i) 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 in which he was deemed or taken to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

101

GENERAL INFORMATION

APPENDIX V

Long Positions in Shares and underlying Shares of the Company

	Interest in shares/		Number of shares/
Name of Directors	Underlying shares	Capacity	underlying shares held
Geng Ying	Share options	Beneficial owner	13,000,000
Gao Feng_(Note 1)_	Shares	Beneficial owner	178,000,000
	Shares	Interest of a controlled	178,000,000
		corporation
	Shares options	Beneficial owner	13,000,000
Chiu Sui Keung	Share options	Beneficial owner	13,000,000
Cheung Wing Keung,	Share options	Beneficial owner	1,300,000
Raymond
Lam Williamson	Share options	Beneficial owner	1,300,000

Notes:

1. Mr. Gao Feng, an executive Director, is beneficially interested in the entire issued share capital of ACE Channel Limited. Mr. Gao is also the director of ACE Channel Limited. Under the provision of the SFO, Mr. Gao Feng is deemed to have interest in 178,000,000 Shares.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

(b) Other interests

As at the Latest Practicable Date,

• (i) none of the Directors had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 March 2011, being the date up to which the latest audited published financial statements of the Group were made;

• (ii) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was significant in relation to the business of the Group: and

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• (iii) save as disclosed in this circular, none of the Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

(c) Directors’ interests in the Enlarged Group’s assets or contracts

As at the Latest Practicable Date,

• (i) none of the Directors had any direct or indirect interest in any assets acquired or disposed of by or leased to, any member of the Enlarged Group since the date up to which the latest published audited consolidated financial statements of the Group were made up; and

• (ii) none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date, which was significant in relation to the business of the Enlarged Group.

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to any Director or chief executive of the Company, the following persons (other than any Director or the 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 Group:

					Approximate
					percentage of
					existing
		Number of			issued ordinary
		shares	Nature of		share capital
Name of shareholders	Notes	interested	interests	Capacity	of the company
Mr. Hung Chen Richael	1	423,640,000	Long positions	Beneficial owner	31.69%
(“Mr. Hung”)		198,000,000	Long positions	Interest of a controlled	14.81%
				corporation
ACE Channel Limited	2	178,000,000	Long positions	Interest of a controlled	13.32%
(“ACE Channel”)				corporation
Mr. Gao Feng (“Mr. Gao”)	2	191,000,000	Long positions	Beneficial owner	14.29%

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Notes:

• (1) There 423,640,000 shares include the outstanding principal amount of convertible notes of HK$173,500,000, which can be converted into 347,000,000 ordinary shares at a convertible price of HK$0.5 shares. Mr. Hung is the beneficial owner of 76,640,000 Shares. He is also interested in the entire issued share capital of Mega Wealth Capital Limited (“Mega Wealth”) and Webright Limited (“Webright”). Mr. Hung is therefore deemed to be also interested in the 100,000,000 Shares held by Mega Wealth, and the 98,000,000 Shares held by Webright. Pursuant to an injunction order applied for by the Company, and granted by the High Court of Hong Kong against Mr. Hung, Mr. Hung is not permitted to, either by himself, his servants or agents or otherwise howsoever in any way dispose of or deal with the diminish the value of, amongst other things, any of the 76,640,000 Shares issued in his name, the 100,000,000 Shares held by Mega Wealth, and the 98,000,000 Shares held by Webright.

• (2) Mr. Gao, an executive Director, is the beneficially interested in the entire issued share capital of ACE Channel. Mr. Gao is also the director of ACE Channel. By virture of the SFO, he is deemed to be interested in the 178,000,000 shares beneficially owned by ACE Channel.

5. LITIGATION

The Group

(a) Claim made by the Company against Hung (the “Action”)

As disclosed in the Company’s announcements dated 16 December 2009 and 8 January 2010, the Company commenced proceedings against Mr. Hung at the High Court of Hong Kong (the “High Court”) with regards to a breach of contract by Mr. Hung, in connection with a sale and purchase agreement dated 25 September 2007 made between the Company and Mr. Hung (the “Agreement”). The Company sought advice from its legal advisers and formed the view that Mr. Hung had failed to perform one or more of the terms of the Agreement and is of the view that Mr. Hung is in breach of numerous representations and warranties under the Agreement. The Company claims against Mr. Hung, among other things, for all payments made by the Company to Mr. Hung under the Agreement and/or damages arising from the breach of the Agreement.

On 1 February 2010, the Company filed a statement of claim at the High Court against Mr. Hung, Mega Wealth Capital Limited (“Mega Wealth”) and Webright Limited (“Webright”)(together as “Defendents”) in connection with the Agreement, for, inter alia, rescission of the Agreement. Particulars of the Statement of Claim are summarised as follows:

• (1) The Company claims against Mr. Hung for:

• (i) rescission of the Agreement;

• (ii) the 76,640,000 shares of the Company (“Shares”) at an issue price of HK$0.5 per share;

• (iii) the convertible note, issued to Mr. Hung pursuant to the Agreement, in the principal amount of HK$173,500,000 convertible into ordinary shares of the Company at a conversion price of HK$0.5 per share (the “Convertible Note”);

• (iv) further or alternatively, all payments made by the Company to Mr. Hung and/or damages arising from the breach of the Agreement;

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• (v) a declaration that Mr. Hung holds the 70,000,000 Shares and the Convertible Note and their traceable equivalent on trust for the Company and that all necessary tracing orders accounts and inquiries be taken as to what had happened to the said Shares and Convertible Note and to ascertain the traceable equivalent thereof;

• (vi) an order for payment after having the above accounts and inquiries;

• (vii) payment of the legal costs incurred by the Company arising from the investigation and report arising from the matters in connection with the Agreement; and

• (viii) payment of the costs incurred by the Company for the preparation and execution of the Agreement and supplemental agreements.

• (2) The Company also claims against Mega Wealth, inter alia, for the 100,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Mega Wealth at an issue price of HK$0.5 per Share.

• (3) The Company also claims against Webright, inter alia, for the 98,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Webright at an issue price of HK$0.5 per Share.

Up to the date of approval of these financial statements, no judgment has been made by the High Court. The Board of the Company, based on legal advice, is of the view that the Company has a good arguable case against Mr. Hung to have the Agreement rescinded. The Board of the Company will follow closely on the development of the above matters and inform the shareholders of the Company on a timely basis.

(b) Injunction Order

On 22 January 2010, the High Court granted an ex parte injunction order (the “Injunction Order”) against Mr. Hung and Mega Wealth and Webright. The Injunction Order provides, among other things, that: unless with the approval of the High Court, Mr. Hung must not, either by himself, his servants or agents or otherwise howsoever in any way dispose of or deal with or diminish the value of any of the following assets:

• (i) the 76,640,000 Shares issued to Mr. Hung at an issue price of HK$0.5 per Share;

• (ii) the Convertible Note issued by the Company to Mr. Hung;

• (iii) the 100,000,000 Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Mega Wealth at an issue price of HK$0.5 per Share; and

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• (iv) the 98,000,000 of the Shares issued to Mr. Hung upon exercise of conversion rights of the Convertible Note and which were passed to Webright at an issue price of HK$0.5 per Share;

• all being part of the considerations given to Mr. Hung by the Company in respect of the Agreement.

On 29 January 2010, at the return date hearing in relation to the Injunction Order, it was ordered, inter alia, that the Injunction Order will continue subject to a fortification in the amount of HK$10,000,000 being paid by the Company to the Registrar of the High Court on or before 12 February 2010, failing which the Injunction Order shall be discharged. The Company paid HK$10,000,000 into the High Court on 10 February 2010 in compliance with the Injunction Order. Following a hearing held at the High Court on 18 March 2010, the High Court delivered its decision on 30 March 2010 to discharge and at the same time re-grant the Injunction Order obtained by the Company on 22 January 2010 against the Defendants. Furthermore, the Court made a cost order nisi that the Company should pay the Defendants’ costs related to the discharge of the Injunction Order, which the Court has assessed to be four-fifths of the costs of the hearing. On 13 April 2010, the Defendants took out two summonses respectively for (i) an application for an order to vary the costs order nisi made in the said decision delivered on 30 March 2010, and (ii) an application for an order to have leave to appeal the said decision delivered on 30 March 2010, that the decision to regrant the Injunction Order was wrong. On 14 May 2010, the Company and Mr. Hung, through their lawyers, entered into a consent summons whereby the hearing of the two summonses returnable on 26 May 2010 was adjourned without a further date of hearing, with liberty to restore.

The Board of the Company takes the view that the costs order nisi has no material impact on the Group’s finances and will make further announcement as and when appropriate.

On 3 September 2010, Mr. Hung through his solicitors applied by way of a Summons to vary the Injunction Order (the “Application”). The Court dismissed the Application on 20 September 2010 and ordered costs of the Summons be paid by the Defendants to the Company in any event.

Mr. Hung through his lawyers also applied to the Court for leave to appeal to the Court of Appeal on 20 September 2010. The Court dismissed the Application for leave to appeal and ordered costs of this Application for leave be paid by the Defendants to the Company in any event.

On 22 September 2010, the Court of Appeal granted the Defendants leave to appeal to the Court of Appeal and heard the Defendants’ appeal on 27 September 2010. The judgment was handed down on 6 October 2010. The Court of Appeal dismissed the appeal of the Defendants and the Injunction Order against the Defendants remained unchanged. The Court of Appeal also ordered the costs of the Appeal to be paid by the Defendants to the Company, to be taxed if noted agreed, save that the costs of preparing the Company’s own “core bundles” be deducted.

The Action is still ongoing and the Company will make further announcements as and when appropriate.

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(c) Winding-up Petition

Mr. Hung served the statutory demands on the Company in respect of a total outstanding Alleged Indebtedness of HK$41,722,630 (the “Statutory Demands”). A winding-up petition (the “Winding-up Petition”) was presented to the High Court and served on the Company by Mr. Hung on 28 January 2010 in connection with the Alleged Indebtedness. The Company opposed the Winding-up Petition and appointed legal advisers to handle the matter. Upon hearing submissions by the parties on 12 April 2010, the Companies Judge made an order that, among other things, the Winding-up Petition be adjourned to the second Monday after the date of handing down of judgment in connection with the Statement of Claim by which the Company has made a claim against Mr. Hung. Pursuant to the joint application of the Company and Mr. Hung by way of Consent Summons, the Companies Judge on 24 August 2010 made the following Order that:

1. Mr. Hung do have leave to amend the Winding up petition (the “Amended Petition”) dated 28 January 2010;

2. The service and advertisement of the Amended Petition be dispensed with;

3. Costs of and occasioned by the amendment of the Winding up-Petition be paid by the Mr. Hung to the Company in any event.

Based on the Amended Petition, the Alleged Indebtedness is HK$9,600,000 and interests.

The Board of the Company considers that the issue of the Statutory Demands is, of itself, unlikely to have a negative impact on the Group’s financial condition. The Alleged Indebtedness was fully recognised in the Group’s financial statements as at 31 March 2010. In addition, the Company may seek to set-off against the Alleged Indebtedness claims which the Company is asserting against Mr. Hung under the Statement of Claim. The Board of the Company is of the view that it has a bona fide claim on substantial grounds and should succeed in the proceedings by which the Company has made a claim against Mr. Hung, which shall extinguish Mr. Hung’s claim in the Winding-up Petition.

(d) Appointment of Provisional Liquidators

On 28 January 2010, by a letter to the High Court, Mr. Hung’s solicitors applied for an early date for a first hearing of the application for appointment of provisional liquidators to the Company by Mr. Hung (the “PL Application”). A hearing in respect of the PL Application took place on 2 February 2010, at which a date was set down for a further hearing on 5 May 2010. The Company and Mr. Hung, through their lawyers, entered into a consent summons whereby the hearing scheduled on 5 May 2010 for the PL Application was adjourned without a further date of hearing, with liberty to restore. The Court made an order by consent on 26 April 2010 in this regard. Notwithstanding this, the Company received a letter from Mr. Hung’s lawyers dated 15 June 2010 in which, among other things, Mr. Hung requested to set down a date for the hearing of the PL Application. In response to Mr. Hung’s request, the Company and Mr. Hung, through their lawyers, fixed with the Court a hearing date for the PL Application on 9 November 2010.

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Upon the joint application of the Company and Mr. Hung by consent summons on 4 November 2010 and upon the Company undertaking to the High Court to:

• (1) deposit the sum of HK$10,658,922 into a designated interest-bearing bank account opened in the name of the Company (the “HCCW Designated Account”) as security for the petitioning debt claimed by Mr. Hung in the proceedings, by 5:00p.m. on 9 November 2010, and not to use the monies so deposited in the HCCW Designated Account until after determination of the Action, or upon such other condition as may be agreed between Mr. Hung and the Company in writing;

• (2) provide the bank statements relating to the HCCW Designated Account within 3 working days of the written request of Mr. Hung; and

• (3) secure and preserve all the shares and assets (if any) of Wealth Gain and not to dispose of such shares and assets or any part thereof unless with Mr. Hung’s written consent or until the determination of the High Court Action,

The High Court ordered, amongst other things, that, without prejudice to the respective contentions advanced by Mr. Hung and the Company, leave be granted to Mr. Hung to withdraw the PL Application. Mr. Hung withdrew the PL Application on 5 November 2010. HK$10,658,922 was deposited into the HCCW Designated Account on 9 November 2010. This payment was financed by the Company’s internal funding.

The Board of the Company, based on legal advice, is of the view that the Company has a very good defence against the Winding-up Petition and the PL Application.

(e) Labour Action

On 5 January 2011, Mr. Hung filed a statement of claim against the Company claiming a total sum of HK$3,407,962.74 plus interest, being, inter alia, (i) arrears of wages (the “Wages Claim”) in the amount of HK$1,668,000 and (ii) reimbursement of expenses (the “Reimbursement Claim”) in the amount of HK$1,739,962.74, allegedly incurred by Mr. Hung whilst he was in the employment of the Company.

The Wages’ Claim was in relation to the same subject matter as was previously resolved and settled between the parties by Mr. Hung accepting a total sum of HK$890,000 from the Company, pursuant to the Order of the Labour Tribunal dated 25 May 2010.

The Company has been advised that re-litigating the Wages’ Claim in the High Court, the subject matter of which has already been resolved and settled, constitutes an abuse of process of the Court and is therefore liable to be struck out under the relevant Rules of Court. The Company will defend both the Wages’ Claim and the Reimbursement Claim as advised. The Company filed a defence and counterclaim whereby the Company only agreed to pay a sum of HK$74,221.20 out of Mr. Hung’s claim, and counterclaimed against Mr. Hung for repayment of a sum of HK$67,569 being, inter alia, unauthorised payments incurred by Mr. Hung on the Company’s behalf and the value of the Company assets held by Mr. Hung. Mr. Hung has subsequently filed a reply

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and defence to counterclaim. This case is now in the discovery stage. No hearing date has been scheduled for this case.

Save and except for part of the Reimbursement Claim in the amount of HK$74,221.20 as accepted by the Company, the Board of the Company, based on legal advice, considers that the Company has a good arguable defence to Mr. Hung’s claim, and consider that this claim will not have any material impact on the Company.

(f) Claim made by Hung against the Company

On 25 February 2011, Mr. Hung, Mega Wealth and Webright Limited (together as the “Plaintiffs”) issued a Writ of Summons and an Indorsement of Claim against the Company as the 1st Defendant, Ms. Geng Ying as 2nd Defendant, Mr. Gao Feng as 3rd Defendant and Mr. Chiu Sui Keung as 4th Defendant, in the High Court (the “Claim”). The Plaintiffs issued and served on the Company a Writ with only an Indorsement of Claim without a full Statement of Claim. On 15 April 2011, the Plaintiffs filed and served on the Company a Statement of Claim.

Particulars of the Claim are summarised as follows:–

The Plaintiffs’ claim against the Company for:–

1. the sum of HK$214,600,000 being the unpaid sale shares consideration for the acquisition of Wealth Gain;

2. damages for the breach of agreements;

3. damages for placement of shares to the prejudice of Hung estimated to be HK$124,600,000 or alternatively;

4. redemption in full value of the remaining Convertible Note issued by the Company to Mr. Hung in the sum of HK$173,500,000;

5. damages in reputation;

6. declaration that the grant of share options of 39,000,000 shares and awards to the Ms. Geng Ying, Mr. Gao Feng and Mr. Chiu Sui Keung and the other share options of 21,000,000 shares awarded to other staff to be null and void;

7. rescission of the abovesaid grant;

8. costs;

9. interests; and

10. further and other relief as the Court may deem fit.

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The Plaintiffs claim against Ms. Geng Ying for:

1. damages;

2. order that Ms. Geng Ying be removed from her directorship;

3. damages in reputation;

4. declaration that the grant of the share options 13,000,000 shares and awards to Ms.Geng Ying be null and void;

6. rescission of the abovesaid grant;

7. costs;

8. further and other relief as the Court may deem fit.

The Plaintiffs claim against Mr. Gao Feng for:

1. damages;

2. damages in reputation;

3. Order that Mr. Gao Feng be removed from his directorship;

4. declaration that the grant of the share options 13,000,000 shares and awards to Mr. Gao Feng be null and void;

6. rescission of the abovesaid grant;

7. costs;

8. further and other relief as the Court may deem fit.

The Plaintiffs claim against Mr. Chiu Sui Keung for:

1. damages;

2. damages in reputation;

4. Order that Mr. Chiu Sui Keung be removed from his directorship;

5. declaration that the grant of the share options 13,000,000 shares and awards to Mr. Chiu Sui Keung be null and void;

6. rescission of the abovesaid grant;

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1. costs;

2. further and other relief as the Court may deem fit.

The Company, Ms. Geng Ying, Mr. Gao Feng and Mr. Chiu Sui Keung together issued a summons (the “First Summons”) against the Plaintiffs in the High Court on 13 May 2011 in connection with an application, amongst other things, to:

1. strike out paragraphs 2, 4 to 13, and 16 to 33 of the Statement of Claim as –

2. (a) disclosing no reasonable cause of action;

3. (b) being scandalous, frivolous or vexatious;

4. (c) tending to prejudice, embarrass or delay the fair trial of the action; and/or

5. (d) it is otherwise an abuse of the process of the court;

and that the action therein be dismissed; and

1. alternatively, paragraphs 2, 4 to 13, and 16 to 33 of the Statement of Claim and the action therein be stayed pending the final determination or disposal by the Court of the HCA 2477/2009 and HCCW 48/2010.

The Defendants also issued a summons (the “Second Summons”) against the Plaintiffs on 13 May 2011 in connection with an application for, inter alia, an order that pending the hearing and determination of the First Summons taken out by the Defendants, all further proceedings in this action be stayed and the Defendants are not required to file and serve their Defence until further order or directions as may be made by the Court.

The Court on 20 May 2011 made the following Order in relation to the First Summons:

1. Leave be granted to the Defendants to file and serve supplemental affirmation(s) to the Summons taken out by the Defendants on 13 May 2011 (the “Defendants’ Striking-out Summons”) on or before 10 June 2011;

2. Leave be granted to the Plaintiffs to file and serve affirmation(s) in opposition to the Defendants’ Striking-Out Summons on or before 8 July 2011;

3. Leave be granted to the Defendants to file and serve affirmation(s) in reply (if any) to the Defendants’ Striking-Out Summons on or before 29 July 2011;

5. There be no further affirmation to be filed or served without leave of the Court;

6. Any application for leave for filing and serving further affirmation evidence shall be made no less than 14 days before the substantive hearing;

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1. The hearing of the Defendants’ Striking-Out Summons be adjourned and fixed before a judge in consultation with Counsel’s diary with one day reserved;

2. Costs of this application be reserved.

The Court made the following Order in relation to the Second Summons on 20 May 2011:

1. Pending the hearing and determination of the Defendants’ Striking-out Summons, all further proceedings in the action therein be stayed and the Defendants are not required to file and serve their Defence until further order or directions as may be made by the Court;

2. The costs of the application be in the cause of the Defendants’ Striking-out Summons.

The Plaintiffs issued a summons returnable on 22nd September 2011 and the Court made the following Order on 22nd September 2011:

1. the date fixed for hearing of the First Summons on 7th November 2011 before Deputy High Court Judge L. Chan be vacated;

2. time for the Plaintiffs to file and serve Affirmation in opposition to the First Summons be extended to 19th October 2011;

3. time for the Defendants do have leave to file and serve the Affirmation in reply by 9th November 2011;

4. the hearing of the First Summons be adjourned to a date to be fixed in consultation of Counsel’s diary before the Honoruable Mr. Justice A. Chung with 1 day reserved;

5. costs of the summons summarily assessed at $1,500 be paid by the Defendants to the Plaintiffs.

The Board of the Company, based on legal advice is of the view that the Company has a very good defence against the Plaintiffs’ claim.

(g) Litigation between Mr. Wong Ching Ping Alex and the Company

Mr. Wong Ching Ping Alex (“Mr. Wong”) issued a writ of summons and an indorsement of claim dated 10 December 2010 against the Company in connection with an assignment of debt on 19 July 2010, whereby Mr. Hung allegedly assigned to Mr. Wong a loan of HK$31,500,000 (forming part of the Alleged Indebtedness) previously advanced by Mr. Hung to the Company (“Wong’s Action”).

Mr. Wong further applied for an ex parte injunction order against the Company which, amongst other things, restricted the Company from removing from Hong Kong, disposing of, dealing with or diminishing the value of any of its assets which are within Hong Kong up to the value of HK$31,500,000. This injunction was granted by the High Court on 9 December 2010, but was subsequently discharged on 16 December 2010 on the undertaking of the Company (the “Undertaking”) to:

• (1) without prejudice to the Company’s contention that it has a defence to the claim by Mr. Wong and without prejudice to Mr. Wong’s right to challenge the Company’s case that there has been partial repayment, deposit the sum of HK$28,500,000 (the “Sum”) into a designated interest-bearing bank account opened in the name of the Company (the “HCA Designated Account”) as security for the money claimed by the Mr. Wong by 21 December 2010, and not in any way use or pledge for credit (whether for the Company or any person) or allow any lien to be created on the monies so deposited in the HCA Designated Account until further order made by the High Court or unless in accordance with the agreement in writing between Mr. Wong and the Company;

• (2) provide full bank statements (without any redaction) relating to the HCA Designated Account within 3 working days of the written request of Mr. Wong.

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The Sum was deposited into the HCA Designated Account on 21 December 2010. This payment was financed by the Company’s internal funding.

The High Court further ordered on 16 December 2010 that the application filed by Mr. Wong on 14 December 2010 for the continuation of the injunction order was to be effectively treated as an application for an order that the Sum deposited into the HCA Designated Account be continued to be kept, held and preserved pursuant to the Company’s undertakings, until the final determination by the High Court of the Wong’s Action.

Mr. Wong issued a summons against the Company in the High Court of Hong Kong under the Claim on 27 April 2011 (the “Order 14 Summons”) in connection with an application for summary judgment for the sum of HK$28,500,000, being the amount claimed in the statement of claim filed on 14 April 2011 less the alleged partial repayment of HK$3,000,000 made by the Company to Mr. Hung, together with interest and costs.

On 5 May 2011, after hearing the Counsel for Mr. Wong and the Solicitors for the Company, the Court made the following Order:

1. The hearing of the Plaintiff’s Summons for the continuation of the Defendant’s undertaking fixed for 9 May 2011 at 10 a.m. (the “Undertaking Summons“) be vacated;

2. The hearing of the Order 14 Summons be adjourned and fixed on a date not earlier than the expiry of 49 days from 5 May 2011 with one day reserved in consultation with Counsel’s diary;

3. The hearing of the Undertaking Summons be adjourned to such time immediately after the hearing of the Order 14 Summons;

4. Leave be granted to the Defendant to file and serve affirmation(s) in opposition to the Order 14 Summons within 28 days from 5 May 2011;

5. Leave be granted to the Plaintiff to file and serve affirmation(s) in reply (if any) to the Order 14 Summons within 21 days thereafter;

6. Costs of this application be in the cause of the Order 14 Summons.

The Company obtained written legal opinion on the Claim from its legal advisers and after having considered the legal opinion, the Board passed a resolution to settle the Claim with Mr. Wong. By a Consent Order dated 3 June 2011, the Company reached a settlement of the Claim with Mr. Wong in the following terms:

1. Mr. Wong warrants and declares that he, whether by himself, his servants or agents or principals does not hold any interest (whether legal or beneficial) or have any dealings in any convertible notes or shares of the Company, either with or acquired from Mr. Hung apart from the assignment of the loan agreement dated 16 July 2009 in the amount of HK$31,500,000.

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1. Upon the giving by Mr. Wong of the above warranty and declaration, the Company do on an entirely without admission of liability basis pay to Mr. Wong the sum of HK$28,500,000 within 3 business days of the Order in full and final settlement of the Mr. Wong’s claims against the Company in the Claim.

2. Upon payment to Mr. Wong of the said sum of HK$28,500,000, the parties shall jointly apply to the Court for the Claim to be dismissed and shall sign a Consent Order to the same effect.

3. The parties agree for the avoidance of doubt that Mr. Wong’s warranty and declaration in paragraph 1 above shall be enforceable and survive the dismissal of the Claim.

Upon the Company and Mr. Wong having agreed to the above terms of settlement, the Court by consent made an order on the 3 June 2011 that:

1. The Undertaking be discharged;

2. This Action be stayed except for the purpose of carrying the Order and the said terms into effect;

3. Liberty to apply; and

4. Each party do pay their own costs of this Action and the Consent Order notwithstanding any previous costs order(s) that state otherwise.

The Company has incurred approximately HK$5,800,000 up to 8 June 2011 in accrued interest expenses arising from the Claim, which after this settlement will be written back to the Company for the current financial year ending 31 March 2012. Having considered the legal opinion from its legal advisors and in view of the savings of the aforementioned interest costs; the saving of expected legal costs of the Company of over HK$4,000,000; the saving of time and other resources to be incurred in defending the Claim, and the fact that if the Company were to be unsuccessful in its defence it would have to pay the legal costs of Mr. Wong, the Board is of the view that the settlement is in the interests of the Company. The Company set aside a sum of HK$28,500,000 into a designated account to pay Mr. Wong and the Company still has sufficient working capital on hand.

On 8 June 2011, the Company paid the amount of HK$28,500,000 to Mr.Wong and upon the joint application on the part of the Company and Mr. Wong and by consent the Court is ordered that the Wong’s Action be dismissed and no order as to costs.

(h) Labour action between Mr. Hung Hoi Ming Raymond and the Company and Sino Talent Holdings Limited

On 2 July 2010, Mr. Hung Hoi Ming Raymond (“Mr. Raymond Hung”), brought an action at the Labour Tribunal against the Company and Sino Talent Holdings Limited (“Sino Talent”), a wholly-owned subsidiary of the Group for payment of a sum of approximately HK$389,000, being the amount allegedly owned by the Group on termination of his employment contract on

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10 December 2009. The action was transferred to the District Court. Mr. Raymond Hung filed a Statement of Claim on 29 December 2010 and subsequently an Amended Statement of Claim on 11 January 2011 claiming against Sino Talent for payment of a sum of approximately HK$389,000.

The Company and Sino Talent filed a Defence and Counterclaim at the District Court on 2 February 2011 which the Group only agreed to pay to Mr. Raymond Hung a sum of approximately HK$95,000 and counterclaimed against him for repayment of a sum of approximately HK$128,000 being the amount of education subsidiary received by Mr. Raymond Hung; a sum of approximately HK$33,600 being compensation for unauthorized absence from work; and company assets. The parties have completed exchange of pleadings and no date for hearing of of this action has yet been fixed.

The Board of the Company, based on legal advice, is of the view the Group has a good defence to Mr. Raymond Hung’s claim and a good chance of success in respect of the respective counterclaims.

(i) Car action between Sino Talent and Mr. Raymond Hung

On 20 August 2010, Sino Talent filed a Statement of Claim at the District Court and claimed against Mr. Raymond Hung for the followings:-

1. Possession of vehicle with vehicle identification number WP1ZZZPZ9LA81368 bearing a registration number of NP5059 (“the Vehicle”);

2. Rent for the Vehicle between 11 December 2009 to the date of judgment;

3. Insurance premium for the Vehicle for the period between 11 December 2009 and 12 July 2010;

4. Vehicle licence fee for the Vehicle for the period between 11 December 2009 and the date of judgment or 28 October 2010 being the date of expiry of the current vehicle licence, whenever is earlier;

5. HK$6,980 being the amount reimbursed to the Defendant for car restoration coupons for the Vehicle;

6. Further or alternatively, damages for tort of conversion of the Vehicle;

7. interest;

8. further and other relief; and

9. costs.

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GENERAL INFORMATION

Mr. Raymond Hung filed his Defence and Counterclaim at the District Court on 8 October 2010 denying possession of the Vehicle and claimed damages. Sino Talent filed a Reply and Defence to Counterclaim on 22 October 2010. On 11 January 2011, Mr. Raymond Hung filed an Amended Defence and Counterclaim alleging that the Vehicle was pledged to Mr. Hung and that Mr. Hung is allegedly entitled to possession and use of the Vehicle, Mr. Hung then allowed Mr. Raymond Hung to use the Vehicle.

The parties have exchanged their respective lists of documents and witnesses statements; and the District Court has fixed a Case Management Conference to be heard on 30 June 2011.

The Board of the Company, based on legal advice, is of the view the Group has a good chance of success in respect of the case and a good defence to Mr. Raymond Hung’s counterclaim.

The Target Group

No litigation or claim of material importance was known to the Directors to be pending or threatened against the Target Group.

6. DIRECTORS’ SERVICE CONTRACTS

Details relating to service agreements of the Directors as at the Latest Practicable Date may be found in the table below (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

Save as disclosed below, as at the Latest Practicable Date, there were no service agreements and/ or appointment letters with the Enlarged Group or associated companies in force for Directors (i) which (including both continuous and fixed term contracts) have been entered into or amended within the Relevant Period; (ii) which are continuous contracts with a notice period of 12 months or more; or (iii) which are fixed term contracts with more than 12 months to run irrespective of the notice period.

			Aggregate
	Date of	Service	annual
	service	contract	fixed
Director	agreement	expiry date	remuneration
			(HK$)
Mr. Geng Ying	1 August 2009	31 July 2012	1,000,000
Mr. Gao Feng	15 June 2009	14 June 2012	3,120,000
Mr. Chiu Sui Keung	20 April 2009	19 April 2012	1,536,000

Note: All INEDs have no fixed terms of appointments. No service agreement has been or will be entered into between the Company and either of the INEDs.

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7. MATERIAL CONTRACTS

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

• (1) the short term loan facility agreement dated 4 March 2009 entered into between Mr. Hung Chen, Richael (a former executive Director and a substantial shareholder who resigned on 1 August 2009) and the Company;

• (2) the subscription and shareholders’ agreement (the “Subscription and Shareholders’ Agreement”) dated 30 October 2010 entered into among Profull Int’l Holdings Limited, Excel Team Holdings Limited, Prolific View Limited, Mr. Ho Peter Tak Yuen and Multi Century Technology Development Limited in relation to the subscription of shares in Multi Century Technology Development Limited;

• (3) the conditional placing agreement (the “Placing Agreement”) dated 2 December 2010 entered into between the Company and China Everbright Securities (HK) Limited in relation to the placing of a maximum of 222,752,000 new Shares;

• (4) the amendment agreement dated 23 December 2010 entered into among the parties to the Subscription and Shareholders’ Agreement and Sino Giants Group Limited in relation to the extension of the long stop date of the Subscription and Shareholders’ Agreement;

• (5) the supplemental agreement to the Placing Agreement dated 23 December 2010 entered into between the Company and China Everbright Securities (HK) Limited in relation to the extension of the long stop date of the Placing Agreement;

• (6) the second supplemental agreement dated 24 January 2011 entered into between the Company and China Everbright Securities (HK) Limited in relation to the further extension of the long stop date of the Placing Agreement;

• (7) the loan agreement dated 9 February 2011 between Profull Int’l Holdings Limited and Sino Giants Limited in respect of the shareholder’s loan in the principal amount of HK$26,000,000 provide to Sino Giants by Profull Int’l Limited;

• (8) the subscription and shareholders agreement (the “Subscription and Shareholders Agreement”) dated 14 June 2011 entered into among (i) The Company; (ii) Bright Top Investment Holdings Limited; (iii) GB Group Holdings Limited; (iv) GB Clean Energy Limited; (v) GB Clean Energy Investment (Ximeng) Limited; (vi) Concord Billion Limited; (vii) Mr. Tan Giong Seng Johnson; and (viii) Glory Empire Group Limited in respect of the proposed subscription or investment by the Company or its subsidiary to subscribe for 68% (on customary full-diluted basis at Completion) of the equity interest of Concord Billion Limited;

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• (9) the supplemental agreement dated 8 August 2011 entered into among the Company, (i) The Company; (ii) Bright Top Investment Holdings Limited; (iii) GB Group Holdings Limited; (iv) GB Clean Energy Limited; (v) GB Clean Energy Investment (Ximeng) Limited; (vi) Concord Billion Limited; (vii) Mr. Tan Giong Seng Johnson; and (viii) Glory Empire Group Limited in relation to the extension of the long stop date of the Subscription and Shareholders Agreement;

• (10) the Sale and Purchase Agreement;

• (11) the conditional placing agreement dated 31 August 2011 entered into between the Company and Grand Vinco Capital Limited (the “Placing Agent”) in relation to the placing of nonlisted warrants of the Company constituted by the warrant instrument which entitle holders thereof to subscribe for the new Shares (which may fall to be allotted and issued upon the exercise of the subscription rights attaching to the warrants) at the initial subscription price of HK$0.39 per Share; and

• (12) the conditional placing agreement dated 31 August 2011 and entered into between the Company and the Placing Agent in relation to the placing of a maximum of 30,000,000 new Shares to be issued by the Company.

8. EXPERTS

The following are the qualification of the experts who have given opinions or advice which are contained in this circular:

Name Qualifications HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants

HLB Hodgson Impey Cheng has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and report and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, HLB Hodgson Impey Cheng does not have any interest, either direct or indirect, in any assets which have been, since 31 March 2011, the date to which the latest audited consolidated financial statements of the Company were published, acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group nor had any shareholding in any member of the Enlarged Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

9. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial position or trading position of the Group since 31 March 2011, being the date to which the latest published audited financial statements of the Group was made up.

10. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

11. GENERAL

• (a) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and the head office and the principal place of business of the Company in Hong Kong is at Room 2502, 25/F, 9 Queen’s Road Central, Central, Hong Kong.

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• (b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong.

• (c) The company secretary of the Company is Mr. Chow Chi Fai. Mr. Chow holds a bachelor’s degree in Accountancy from the University of South Australia and is a member of the Hong Kong Institute of Certified Public Accountants.

• (d) In the case of any inconsistencies, the English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of Li & Partners at 22nd Floor, World-Wide House, Central, Hong Kong during normal business hours from 9:00 a.m. to 5:00 p.m. on any business day up to and including the date of the EGM:

• (a) the letter from the Board, the text of which is set out on pages 4 to 32 of this circular;

• (b) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;

• (c) the memorandum and articles of association of the Company;

• (d) the memorandum and articles of association of the Target;

• (e) the service agreements of the Directors as set out in the paragraph headed “Directors’ service contract” in this appendix;

• (f) the annual reports of the Company for the two financial years ended 31 March 2010 and 31 March 2011;

• (g) the consent letter referred to in the paragraph headed “Expert and Consent” in this appendix;

• (h) the accountants’ report from HLB Hodgson Impey Cheng on the Target Group, the text of which is set out in Appendix II of this circular;

• (i) the accountants’ report from HLB Hodgson Impey Cheng in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV of this circular;

• (j) De Rong Joint Venture Agreement; and

• (k) this circular.

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NOTICE OF EGM

SINO RESOURCES GROUP LIMITED

(carrying on business in Hong Kong as Sino Gp Limited) 神州資源集團有限公司[*]

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 223)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting of Sino Resources Group Limited (“Company”) will be held at Room 2502, 25/F, 9 Queen’s Road Central, Central, Hong Kong at 2:30 p.m. on Friday, 14 October 2011, for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution (with or without modifications):

1. “(a) THAT the conditional sale and purchase agreement dated 8 August 2011 entered into between the Company and Mr. Zheng Xuefeng (the “Vendor”) in relation to the Acquisition (as defined in the circular of the Company dated 28 September 2011 (“Circular”), a copy of which marked “A” and signed by the chairman of the meeting for identification purpose has been tabled at the meeting) (“Agreement”) (a copy of the Agreement marked “B” and signed by the chairman of the meeting for identification purpose has been tabled at the meeting) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

2. (b) THAT subject to completion of the Acquisition, the directors of the Company (“Directors”) be and are hereby specifically authorised to allot and issue, credited as fully paid, 270,000,000 shares of HK$0.01 each of the Company (collectively, the “Consideration Shares”) to the Vendor in settlement of part of the consideration for the Acquisition in accordance with the terms and conditions of the Agreement; and

3. (c) THAT all other transactions contemplated under the Agreement be and are hereby approved and the Directors or a duly authorised committee of the board of Directors be and are/is authorised to do all such acts and things, to sign and execute such documents or agreements or deeds on behalf of the Company and to do such other things and to take all such actions as they consider necessary, appropriate, desirable and expedient for the purposes of giving effect to or in connection with the Agreement, the Acquisition, the allotment and issue of the Consideration Shares, and to agree to such variation, amendments or waiver or matters relating thereto (including any variation, amendments or waiver of such documents or any terms thereof, which

4. for identification purposes only

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NOTICE OF EGM

are not fundamentally different from those as provided in the Agreement) as are, in the opinion of the Directors or the duly authorised committee, in the interest of the Company and its shareholders as a whole.”

By Order of the Board Sino Resources Group Limited Geng Ying Chairman

Hong Kong, 28 September 2011

Notes:

1. Any member of the Company entitled to attend and vote at the EGM is entitled to appoint a proxy to attend and vote instead of him. A proxy need not be a member of the Company. A member who is the holder of two or more Shares of the Company may appoint more than one proxy to represent him to attend and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.

2. To be effective, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, must be deposited at the office of the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the EGM and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

3. The register of members of the Company will be closed from Tuesday, 11 October 2011 to Friday, 14 October 2011, both days inclusive, during which period no transfer of Shares of the Company will be registered. In order to qualify for attending and voting at the above meeting, unregistered holders of Shares of the Company should ensure that all transfers of Shares accompanied by the relevant Share certificates and appropriate transfer forms must be lodged with the office of the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, for registration not later than 4:30 p.m. on Monday, 10 October 2011.

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