Enterprise Development Holdings Limited - Proxy Solicitation & Information Statement 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Tai-I International Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

TAI-I INTERNATIONAL HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1808)

MAJOR TRANSACTION ACQUISITION OF 100% INTEREST IN LIANG HUI HOLDINGS LIMITED

A notice convening an extraordinary general meeting of the Company to be held at 35th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on 14 July 2010 at 3:00 p.m. is set out on pages 167 to 168 of this circular. A form of proxy for use thereat is also enclosed.

Whether or not you are able to attend and vote at the extraordinary general meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the office of the Company’s branch registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Ltd. at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

28 June 2010

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
APPENDIX 1 –	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . .	18
APPENDIX 2 –	FINANCIAL INFORMATION OF BEIJING OLM . . . . . . . . . . .	82
APPENDIX 3 –	FINANCIAL INFORMATION OF CHENGDU OLM . . . . . . . . .	119
APPENDIX 4 –	UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . .	155
APPENDIX 5 –	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	162
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		167

– i –

DEFINITIONS

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

“Acquisition” the proposed acquisition of the Sale Share by the Purchaser, and the assignment of the Sale Loan, pursuant to the Sale and Purchase Agreement
“Announcement” the announcement of the Company dated 7 June 2010 in relation to the Acquisition
“associates” has the meaning ascribed to this term under the Listing Rules
“Beijing OLM” (Beijing Oriental LegendMaker Software Development Company Limited*), a domestic company established in PRC on 20 August 1998, and became a wholly foreign owned enterprise on 8 June 2010 with limited liability, which is wholly owned by OLM
“Board” the board of Directors
“Business Day”
a day (excluding Saturday and other general holidays in Hong Kong and any day on which a tropical cyclone warning no.8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a “black” rainstorm warning is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are generally open for business
“Chengdu OLM”
(Chengdu Oriental
LegendMaker Information Industry Company Limited*), a domestic company established in the PRC on 28 December 2001 with limited liability which is wholly-owned by Beijing OLM
“Company”
Tai-I International Holdings Limited, a company incorporated in the Cayman Islands whose shares are listed on the main board of the Stock Exchange
“Completion”

the completion of the Acquisition

– 1 –

DEFINITIONS

“Completion Date” the fifth Business Day after the fulfillment of all the conditions precedent of the Sale and Pursuant Agreement or such other date as the Vendor and the Purchaser may agree in writing on which Completion shall take place
“Consideration” HK$96,000,000, being the purchase price for the Sale Share and the Sale Loan, subject to the downward adjustment in accordance with the profit guarantee given by the Vendor and the Vendor’s Guarantor to the Purchaser pursuant to the Sale and Purchase Agreement
“Deed of Assignment” the deed to be entered into between the Vendor and the Purchaser on or prior to the Completion Date in relation to the assignment of the Sale Loan
“Directors” the directors of the Company
“Domestic Acquisition” the acquisition of the entire equity interest in Beijing OLM by OLM pursuant to an equity transfer agreement dated 26 April 2010 entered into between OLM and the existing equity holders of Beijing OLM
“EGM” an extraordinary general meeting of the Company to be convened to consider and, if thought fit, to approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder
“Enlarged Group” the enlarged Group immediately following Completion
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)” person(s) who (i) is/are not connected person(s) (defined under the Listing Rules) of the Company and (ii) is/are independent of and not connected with the Company, any of the directors, chief executive and substantial shareholders of the Company or any of its subsidiaries, or any of their respective associates
“Latest Practicable Date” 23 June 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular
“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

– 2 –

DEFINITIONS

“Long Stop Date”

15 August 2010 or such other date as the Vendor and the Purchaser may agree in writing

“Management Agreement” the agreement to be entered into between the Vendor and the Purchaser on or prior to the Completion Date in relation to the appointment of the Vendor as management consultant of the Purchaser to oversee and operate the business activities, that is, development of computer software and related matters, of Beijing OLM, Chengdu OLM and Shanghai OLM
“OLM” Oriental LegendMaker Technology Limited, a company incorporated under the laws of Hong Kong with limited liability and a wholly-owned subsidiary of the Target Company
“Option Loan” the Sale Loan assigned or agreed to be assigned to the Purchaser under the Sale and Purchase Agreement
“Option Period” exercise period of the Put Option, being any time on or before the expiry of a period of 18 months from the date of the Put Option Deed
“Option Price” equivalent to the Consideration which is subject to the downward adjustment in accordance with the profit guarantee given by the Vendor and the Vendor’s Guarantor to the Purchaser pursuant to the Sale and Purchase Agreement
“Option Share” the Sale Share to be sold and transferred to the Purchaser (or its nominee) under the Sale and Purchase Agreement
“PRC” the People’s Republic of China excluding for this purpose, Hong Kong, the Macau Special Administrative Region and Taiwan
“Promissory Note”
the promissory note in the principal amount equivalent to the Consideration (subject to downward adjustment under the Sale and Purchase Agreement) to be issued by the Purchaser, with guarantee to be given by the Company, upon Completion in full settlement of the Consideration
“Purchaser”

Winsino Investments Limited, a company incorporated under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company

– 3 –

DEFINITIONS

“Put Option” an option as granted by the Vendor to the Purchaser under the Put Option Deed pursuant to which the Purchaser has the right to transfer to the Vendor all (but not part of the) Option Share and the Option Loan at the Option Price within the Option Period upon and subject to the terms and conditions contained in the Put Option Deed

“Put Option Deed” the deed to be entered into between the Vendor and the Purchaser in relation to the Put Option
“Sale and Purchase Agreement” the agreement dated 7 June 2010 entered into between the Purchaser, the Vendor and the Vendor’s Guarantor in relation to the Acquisition
“Sale Loan” the entire amount of the shareholder loan of RMB60,000,000 to be advanced by the Vendor to the Target Company as shareholder’s loan to OLM prior to Completion in satisfaction of the consideration in relation to the Domestic Acquisition
“Sale Share” one ordinary share of par value of US$1.00 each in the share capital of the Target Company beneficially owned by the Vendor, representing the entire issued share capital of the Target Company
“SFO” the Securities and Futures Ordnance, Chapter 571 of the Laws of Hong Kong
“Shanghai OLM” (Shanghai Oriental LegendMaker Software Technique Company Limited*), a domestic company established in the PRC on 10 August 1998 with limited liability which was owned as to 90% by Chengdu OLM and 10% by an Independent Third Party as at the date of the Sale and Purchase Agreement, and has become a wholly-owned subsidiary of Chengdu OLM since 11 June 2010
“Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholders” holder(s) of Share(s) from time to time
“Stock Exchange” The Stock Exchange of Hong Kong Limited

– 4 –

DEFINITIONS

“Target Company” Liang Hui Holdings Limited ( ), a company incorporated under the laws of the British Virgin Islands with limited liability and is wholly-owned by the Vendor “Target Group” the Target Company and its subsidiaries upon completion of the Domestic Acquisition “Vendor” Advance Mode Limited, a company incorporated under the laws of the British Virgin Islands with limited liability and wholly-owned by the Vendor’s Guarantor “Vendor’s Guarantor” or Mr. Lo Kai Bong “Mr. Lo” “HK$” Hong Kong dollars, the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC

* For identification purpose

For the purpose of this circular, unless otherwise indicated, conversion of RMB into HK$ is calculated at the approximate exchange rate of HK$1 to RMB0.88. This exchange rate is for illustration purpose only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at this or any other rate or at all.

– 5 –

LETTER FROM THE BOARD

TAI-I INTERNATIONAL HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1808)

Executive Directors: Huang Cheng-Roang (Chairman) Lin Chi-Ta (Chief Executive Officer) Huang Kuo-Feng Du Chi-Ting

Independent non-executive Directors: Kang Jung-Pao Cheng Yang-Yi Tsay Yang-Tzong Yan Minghe Atsushi Kanayama

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Principal place of business in Hong Kong: Room 1502, 15th Floor The Chinese Bank Building 61-65 Des Voeux Road Central Hong Kong

Principal place of business in the PRC: No. 77 Dongpeng Avenue Eastern District of Guangzhou Economic and Technological Development Zone Guangzhou Guangdong Province The PRC

28 June 2010

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION ACQUISITION OF 100% INTEREST IN LIANG HUI HOLDINGS LIMITED

INTRODUCTION

Reference is made to the Announcement. On 7 June 2010, the Purchaser, the Vendor and the Vendor’s Guarantor entered into the Sale and Purchase Agreement pursuant to which the Purchaser has conditionally agreed to purchase, and the Vendor has conditionally agreed to sell, the Sale Share, together with the assignment of the Sale Loan, at the Consideration.

– 6 –

LETTER FROM THE BOARD

THE ACQUISITION

(a) Date

7 June 2010

(b) Parties

Purchaser: Winsino Investments Limited, a wholly-owned subsidiary of the Company Vendor: Advance Mode Limited Vendor’s Guarantor: Mr. Lo Kai Bong

The Vendor’s Guarantor is the sole ultimate beneficial owner of the Vendor and has agreed to guarantee the performance and observance of the obligations of the Vendor under the Sale and Purchase Agreement and to indemnify the Purchaser for all loss and damages suffered as a result of any failure of the Vendor to do so.

To the best knowledge, information and belief of the Directors after having made all reasonable enquiries, the Vendor and its ultimate beneficial owner, the Vendor’s Guarantor, are Independent Third Parties.

(c) Assets to be acquired

(i) The Sale Share, representing the entire issued share capital of the Target Company. The Target Company, an investment holding company incorporated under the laws of the British Virgin Islands with limited liability, is wholly-owned by the Vendor; and
(ii) the Sale Loan of RMB60,000,000 to be advanced by the Vendor to the Target Company as shareholder’s loan to OLM prior to Completion in satisfaction of the consideration in relation to the Domestic Acquisition.

The Purchaser shall not be obliged to complete the purchase of the Sale Share and the assignment of the Sale Loan unless the purchase of the Sale Share and the assignment of the Sale Loan are completed simultaneously.

(d) Consideration and adjustment

The Consideration is HK$96,000,000, which shall be satisfied by the Purchaser by the issue of the Promissory Note to the Vendor upon Completion which will be held in escrow, subject to the downward adjustment based on the profit guarantee as stated below.

The Vendor and the Vendor’s Guarantor have unconditionally and irrevocably warranted to and undertaken with the Purchaser that the audited consolidated net profit after tax and extraordinary items of Beijing OLM (in the ordinary course of business and excluding profits arising from merger and acquisition) for the year ending 31 December 2010 in accordance with International Financial Reporting Standards or Hong Kong Financial

– 7 –

LETTER FROM THE BOARD

Reporting Standards shall not be less than HK$16,000,000. Should there be any shortfall, both the Consideration and the principal of the Promissory Note shall be reduced by the amount equivalent to six times the amount of such shortfall. For the avoidance of doubt, if the consolidated net profit mentioned above shall be equal to or exceed HK$16,000,000, both the Consideration and the principal amount of the Promissory Note shall not be adjusted. If consolidated net loss is recorded by Beijing OLM in 2010, the Purchaser may exercise the Put Option and no arrangement or agreement has been made between the Vendor and the Purchaser that the Vendor will compensate the Purchaser in such event.

The Consideration was arrived at after arm’s length negotiations between the Purchaser and the Vendor, with reference to, among other things, the unaudited consolidated net profit after tax of Beijing OLM for the year ended 31 December 2009 and that of Chengdu OLM for the period from 1 January 2009 to 19 October 2009, multiplied by a price-to-earnings ratio of six times. Such price-to-earnings ratio is determined with reference to the range of price-to-earnings ratio of approximately 12 to 22 times among certain companies listed in Hong Kong and of which the principal business are similar with that of Beijing OLM and Chengdu OLM. Taking into account that (i) the price-to-earnings ratio of the aforesaid companies are higher than six times, (ii) Beijing OLM and its subsidiaries are private companies and thus their liquidity are lower than listed companies and (iii) the operating performance of Beijing OLM and its subsidiaries, the Directors consider that the use of the price-to-earnings ratio of six times and the Consideration is fair and reasonable.

The Purchaser undertakes to the Vendor to procure the Company to act as primary obligor under the Promissory Note to guarantee to the Vendor the due observance and performance by the Purchaser of all the obligations contained in the Promissory Note on the part of the Purchaser to be observed and performed.

(e) Put Option

The Vendor and the Purchaser will enter into the Put Option Deed on or prior to the Completion Date, pursuant to which the Vendor will grant the Put Option to the Purchaser to transfer the Option Share and the Option Loan to the Vendor at the Option Price within the Option Period.

In the event that the Put Option is exercised, the Vendor shall pay the Option Price to the Purchaser by way of returning the Promissory Note to the Purchaser for cancellation. The Put Option, if not exercised on or before the expiry of the Option Period, shall automatically lapse.

(f) Management Agreement

The Vendor and the Purchaser will enter into the Management Agreement on or prior to the Completion Date pursuant to which the Purchaser will appoint the Vendor as its management consultant to oversee and operate the business activities, that is, development of computer software and related matters, of Beijing OLM, Chengdu OLM and Shanghai OLM. The Management Agreement shall take effect from the date of signing and remain in force until the earlier of (i) the expiry of the period of 18 months from the date of signing or (ii) the date of completion of the exercise of the Put Option. Pursuant to the Management Agreement, the Vendor shall procure the senior management of Beijing OLM, Chengdu

– 8 –

LETTER FROM THE BOARD

OLM and Shanghai OLM to execute undertakings upon Completion that they will enter into the respective service agreements, adopting terms of their existing service agreements, for a term of at least 18 calendar months upon Completion such that the senior management will continue to operate the business activities of Beijing OLM and its subsidiaries.

Provided that audited consolidated net profit after tax and extraordinary items of Beijing OLM (in the ordinary course of business and excluding profits arising from merger and acquisition) for the year ending 31 December 2011 shall exceed HK$20,000,000, the Purchaser shall pay the Vendor a consultancy fee calculated as follows:

Consultancy fee = (A −HK$20,000,000)/3

whereas A = audited consolidated net profit after tax and extraordinary items of Beijing OLM (in the ordinary course of business and excluding profits arising from merger and acquisition) for the financial year ending on 31 December 2011

provided that the consultancy fee shall not in any event exceed HK$1,000,000 and provided also that if the Put Option shall be exercised by the Purchaser, no consultancy fee shall be payable by the Purchaser to the Vendor. The consultancy fee is arrived at after arm’s length negotiations between the Purchaser and the Vendor with reference to the profit guarantee of HK$16 million of Beijing OLM for the year ending 31 December 2010 given by the Vendor and the Vendor’s Guarantor.

(g) Conditions Precedent

Completion shall be conditional upon:–

i. the passing of an ordinary resolution by the Shareholders at a general meeting of the Company approving, inter alia, the entering into of the Sale and Purchase Agreement and all transactions contemplated thereunder;
ii. the Purchaser notifying the Vendor in writing that it is satisfied with the due diligence review and investigation on the Target Group;
iii. the Vendor’s warranties given under the Sale and Purchase Agreement remaining true, accurate and not misleading in any respect;
iv. completion of the Domestic Acquisition in accordance with the relevant agreement and in compliance with the applicable laws and regulations including but not limited to the approval and registration requirements under the PRC law to the satisfaction of the Purchaser; and
v. all necessary consents, approvals and permits required for consummation of the transactions contemplated under the Sale and Purchase Agreement having been obtained by the Vendor, the Purchaser and the Company and not revoked.

– 9 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, condition iv above has been satisfied and there is no occurrence of any events which would give rise to any breach, claims or demands as stated in condition iii above. The Purchaser may in its absolute discretion at any time before Completion waive the condition precedent set out in condition ii above by notice in writing to the Vendor, and such waiver may be subject to such terms and conditions as determined by the Purchaser.

(h) Completion

Subject to all the conditions precedent to the Sales and Purchase Agreement being fulfilled (or waived by the Purchaser), Completion shall take place at or before 5:00 p.m. on the Completion Date.

(i) Termination

If any of the conditions precedent above (other than condition iv) has not been fulfilled (or waived by the Purchaser in respect of condition ii above) on or before the Long Stop Date, the Purchaser shall be entitled to rescind the Sale and Purchase Agreement by giving written notice to the Vendor.

If any of the conditions precedent set out in condition i and v above (in so far as obtaining consents and approvals by the Purchaser and/or the Company is concerned) has not been fulfilled on or before the Long Stop Date, the Vendor shall be entitled to rescind the Sale and Purchase Agreement by giving written notice to the Purchaser.

Should the Sale and Purchase Agreement be rescinded, the provisions of the Sale and Purchase Agreement (other than all rights and liabilities of the parties which have accrued before termination shall continue to exist) shall from such date have no further force and effect and no party shall have any liability under them (without prejudice to the rights of the parties in respect of any antecedent breaches).

SUMMARY OF TERMS OF PROMISSORY NOTE

The principal of the Promissory Note shall be payable by the Purchaser with guarantee to be given by the Company to the Vendor upon the expiry of a period of 18 months from the date of issue of the Promissory Note provided that if the Put Option is exercised by the Purchaser, the Promissory Note shall be returned on completion of the exercise of the Put Option to the Purchaser for cancellation. The principal terms of the Promissory Note are as follows:

(a) Aggregate principal amount

HK$96,000,000, subject to downward adjustment based on the profit guarantee given by the Vendor and the Vendor’s Guarantor under the Sale and Purchase Agreement as mentioned in the paragraphs headed “(d) Consideration and adjustment” above.

– 10 –

LETTER FROM THE BOARD

(b) Interest

No interest shall be payable on all or any portion of the principal outstanding at any time during the continuance of the Promissory Note.

(c) Transferability

The Promissory Note is not negotiable, and shall not be assigned or transferred by the Vendor or the Purchaser in whole or in part.

SHAREHOLDING STRUCTURE

Set out below are the group chart of the Company and the Target Group immediately before and after Completion :

Immediately before Completion

The Group (simplified)

The Target Group

==> picture [250 x 293] intentionally omitted <==

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

The Company The Vendor
100% 100%
The Purchaser The Target Company
100%
OLM
100%
Beijing OLM
100%
Chengdu OLM
100%
Shanghai OLM
----- End of picture text -----

– 11 –

LETTER FROM THE BOARD

Immediately after Completion

The Enlarged Group

==> picture [103 x 399] intentionally omitted <==

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

The Company
100%
The Purchaser
100%
The Target Company
100%
OLM
100%
Beijing OLM
100%
Chengdu OLM
100%
Shanghai OLM
----- End of picture text -----

INFORMATION OF THE TARGET GROUP

The Target Company is an investment holding company incorporated under the laws of the British Virgin Islands on 6 January 2010 with limited liability which is wholly-owned by the Vendor. OLM is an investment holding company incorporated under the laws of Hong Kong on 31 March 2010 which is wholly-owned by the Target Company.

On 26 April 2010, OLM entered into an equity transfer agreement relating to the Domestic Acquisition pursuant to which OLM will acquire the entire equity interest in Beijing OLM at a consideration of RMB60 million from the existing shareholders of Beijing OLM whom are Independent Third Parties and independent from the Vendor. The Domestic Acquisition was completed on 8 June 2010 and Beijing OLM has become a direct wholly-owned subsidiary of OLM. Chengdu OLM, the direct wholly-owned subsidiary of

– 12 –

LETTER FROM THE BOARD

Beijing OLM, owned 90% equity interest in Shanghai OLM as at the date of the Sale and Purchase Agreement. The Vendor undertakes that, upon Completion, Shanghai OLM shall become a direct wholly-owned subsidiary of Chengdu OLM. Shanghai OLM has become a direct wholly-owned subsidiary of Chengdu OLM since 11 June 2010. Upon Completion, the Target Company will become a wholly-owned subsidiary of the Purchaser.

Beijing OLM, Chengdu OLM and Shanghai OLM were established in the PRC on 20 August 1998, 28 December 2001 and 10 August 1998 respectively and are principally engaged in the business of development of computer software and related matters in the PRC.

The Target Company and OLM have no material business activities since incorporation. Upon completion of the Domestic Acquisition, the Target Company and OLM have no material assets and liabilites other than Beijing OLM and the Sale Loan.

The entire equity interest of Chengdu OLM was acquired by Beijing OLM on 19 October 2009 at a consideration of RMB30 million. Hence, financial results of Chengdu OLM have been consolidated into the financial statements of Beijing OLM since then. Set out below is the financial information of Beijing OLM and Chengdu OLM extracted from their accountants’ reports set out in Appendix 2 and 3 respectively to this Circular.

Beijing OLM

Beijing OLM
	Year ended	31 December
	2008	2009
	RMB’000	RMB’000
(Loss)/profit before taxation	(1,182)	2,599
(Loss)/profit for the year	(1,226)	2,082
	As at	31 December
	2008	2009
	RMB’000	RMB’000
Net assets	24,691	41,746
Chengdu OLM
		From 1
	Year ended	January to
	31 December	19 October
	2008	2009
	RMB’000	RMB’000
Profit before taxation	4,242	9,413
Profit for the year/period	3,562	7,970

– 13 –

LETTER FROM THE BOARD

			As at	As at
		31	December	19 October
			2008	2009
			RMB’000	RMB’000
Net	assets		27,631	35,601

INFORMATION ON THE VENDOR

The Vendor is an investment holding company of which the sole director and sole shareholder is Mr. Lo who has more than 6 years of management experience in the PRC telecommunications industry. The Vendor will not be appointed or nominated as a director of the Company or the Target Group. Mr. Lo is and will remain as the director of the Target Company for the next 18 calendar months upon Completion.

Mr. Lo had been a director and major shareholder of a telecommunications company with business operation in Hong Kong and the PRC. He was also the vice president of a domestic manufacturer in the PRC which manufactures and sells mobile handsets based primarily on global system for mobile communications (GSM), time division synchronous code division multiple access (TD-SCDMA), and wideband code division multiple access (WCDMA) technologies.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in manufacturing and sales of bare copper wire and magnet wire in the PRC.

The Target Group is principally engaged in the provision of upgrade and maintenance services for Oracle’s database products distributed in the PRC. Such database products are mainly used to manage internal and external resources, including but not limited to, tangible assets, financial resources, materials, and human resources in order to facilitate the flow of information between all business functions inside the boundaries of the organisation. The Target Group also provides customized development of applications as a value-added service to customers, and sells self-developed firewall and other software products.

The major customers of the Target Group include well known international and PRC enterprises, financial institutions and government bodies. The prices of the products or services are generally determined after taking into account of, inter alia, the cost of upgrade and maintenance services, purchase cost of database products from Oracle and market demand and supply of respective services or products.

The main revenue stream of Beijing OLM and its subsidiaries was provision of software upgrade, maintenance and other services which accounted for over 90% of their total turnover for the year ended 31 December 2009. The Target Group generally enters into annual contracts with their customers pursuant to which the customers are required to pay an initial deposit and settle balance of the payment by instalments by way of telegraphic transfer or bank transfer.

– 14 –

LETTER FROM THE BOARD

The Target Group has offices in Beijing, Guangzhou, Shanghai, and Chengdu respectively. The Directors consider that the Target Group’s operation is competitive in the industry and the Target Group has an efficient business model and its management team have experience in business in the PRC.

Beijing OLM and its subsidiaries in the Target Group have been operating in the information technology industry in the PRC for more than a decade and have gone through the ups and downs of the industry. With various business arms in the industry from the provision of software maintenance and other services to the development and distribution of its own products, Beijing OLM and its subsidiaries continued to record turnover growth.

Having developed into the current stage through years of business restructuring and integration of resources, Beijing OLM and its subsidiaries have developed themselves to be professional service providers of database software. They have a large client base in the PRC who use Oracle’s databases and an experienced technical team which can provide prompt and effective services.

Since 2000, Beijing OLM and its subsidiaries have been investing in the research and development for network security technology. After almost a decade of development, Beijing OLM and its subsidiaries were able to develop a full set of network security products from firewall products at their beginning and become well known security service provider in the industry.

As demand in the information technology industry in the PRC continues to grow rapidly, the Target Group will continue to focus on the development of software maintenance and value-added services in the next two to three years, and intends to set up offices in other big cities in the PRC, for example, Nanjing, Xian and Hangzhou. Moreover, the Target Group will continue to explore other markets that have significant need in data management, for example, health, education, energy and manufacturing industries.

The Directors have been looking for diversified investment opportunities in order to increase the profitability of the Group and maximize the returns for the Shareholders in long term. The Directors believe that the Acquisition allows the Group to leverage the expertise and experience of the management team of the Target Group and get a foothold in the business software solutions industry. Taking into account of the above, the Directors consider that the terms of the Acquisition are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FUND RAISING EXERCISE OF THE COMPANY IN THE PAST 12 MONTHS

The Company has not effected any equity fund raising exercise in the 12 months immediately preceding the Latest Practicable Date.

FINANCIAL IMPACT OF THE ACQUISITION

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and the financial results of which will be consolidated into the Group’s consolidated financial statements.

– 15 –

LETTER FROM THE BOARD

As at 31 December 2009, the audited total assets of the Group was approximately RMB2,625 million. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix 4 to this circular, the unaudited total assets of the Enlarged Group would be increased by approximately RMB163 million to approximately RMB2,788 million upon completion of the Acquisition. The increase in unaudited total assets was mainly attributable to (i) the consolidation of total assets of Beijing OLM and (ii) goodwill resulting from the Acquisition.

The Group recorded audited consolidated total liabilities of approximately RMB1,992 million as at 31 December 2009. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix 4 to this circular, the unaudited pro forma total liabilities of the Enlarged Group would be increased by approximately RMB157 million to approximately RMB2,149 million. The increase is mainly attributable to (i) the consolidation of total liabilities of Beijing OLM, and (ii) the issue of the Promissory Note to satisfy the Consideration.

The Group’s net gearing ratio calculated as a percentage of total interest-bearing borrowings less cash and cash equivalent, time deposits and pledged deposits over total assets was approximately 6.99% as at 31 December 2009. The gearing ratio of the Enlarged Group upon Completion would increase to approximately 8.05%.

Details of the unaudited pro forma financial information of the Enlarged Group are set out in Appendix 4 to this circular.

LISTING RULES IMPLICATIONS

As one of the applicable percentage ratios in respect of the Acquisition is greater than 25% and less than 100%, as calculated under Rule 14.07 of the Listing Rules, the Acquisition constitutes a major transaction for the Company and is therefore subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The EGM will be convened as soon as practicable at which resolution will be proposed to consider and, if thought fit, approve, among other things, the Sale and Purchase Agreement and the transactions contemplated thereunder. No Shareholder will abstain from voting at the EGM.

– 16 –

LETTER FROM THE BOARD

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of the Acquisition are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolution in relation to the Acquisition as set out in the notice of the EGM.

EGM

A notice convening the EGM to be held at 35th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on 14 July 2010 at 3:00 p.m. is set out on pages 167 to 168 of this circular. Ordinary resolution will be proposed at the EGM to approve, among others the Sale and Purchase Agreement and all transactions contemplated thereunder.

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

Completion of the Acquisition is subject to various conditions and may or may not proceed to completion. Shareholders and potential investors of the Company should exercise caution when dealing in the Shares.

Yours faithfully, By order of the Board Tai-I International Holdings Limited Huang Cheng-Roang Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the consolidated financial information of the Group for the three years ended 31 December 2009, as extracted and summarised from the relevant annual reports of the Company.

Consolidated Statements of Comprehensive Income

(Expressed in Renminbi Yuan)

Year ended 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 4,369,621 6,491,053 6,488,376 (4,238,205) (6,481,800) (6,357,954) 131,416 9,253 130,422 17,541 42,786 23,664 (2,810) (69,924) 156,362 (18,628) (21,023) (22,455) (40,666) (60,402) (46,321) (5,725) (15,015) (3,787) 81,128 (114,325) 237,885 (48,626) (101,566) (112,283) 1,206 (10,865) (1,260) 33,708 (226,756) 124,342 5,637 18,330 (12,837) 39,345 (208,426) 111,505 0.07 (0.35) 0.19	Year ended 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 4,369,621 6,491,053 6,488,376 (4,238,205) (6,481,800) (6,357,954) 131,416 9,253 130,422 17,541 42,786 23,664 (2,810) (69,924) 156,362 (18,628) (21,023) (22,455) (40,666) (60,402) (46,321) (5,725) (15,015) (3,787) 81,128 (114,325) 237,885 (48,626) (101,566) (112,283) 1,206 (10,865) (1,260) 33,708 (226,756) 124,342 5,637 18,330 (12,837) 39,345 (208,426) 111,505 0.07 (0.35) 0.19	Year ended 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 4,369,621 6,491,053 6,488,376 (4,238,205) (6,481,800) (6,357,954) 131,416 9,253 130,422 17,541 42,786 23,664 (2,810) (69,924) 156,362 (18,628) (21,023) (22,455) (40,666) (60,402) (46,321) (5,725) (15,015) (3,787) 81,128 (114,325) 237,885 (48,626) (101,566) (112,283) 1,206 (10,865) (1,260) 33,708 (226,756) 124,342 5,637 18,330 (12,837) 39,345 (208,426) 111,505 0.07 (0.35) 0.19
131,416 17,541 (2,810) (18,628) (40,666) (5,725) 81,128 (48,626) 1,206 33,708 5,637	9,253 42,786 (69,924) (21,023) (60,402) (15,015) (114,325) (101,566) (10,865) (226,756) 18,330	130,422 23,664 156,362 (22,455 (46,321 (3,787
		237,885 (112,283 (1,260
		124,342 (12,837
39,345 0.07	(208,426) (0.35)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Consolidated Balance Sheets

(Expressed in Renminbi Yuan)

As at 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 428,014 437,767 464,875 31,346 32,183 33,020 18,750 17,544 38,779 26,081 24,411 –	As at 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 428,014 437,767 464,875 31,346 32,183 33,020 18,750 17,544 38,779 26,081 24,411 –	As at 31 December 2009 2008 2007 RMB’000 RMB’000 RMB’000 428,014 437,767 464,875 31,346 32,183 33,020 18,750 17,544 38,779 26,081 24,411 –
504,191 ------------ 211,477 1,085,762 5,712 284,494 245,780 287,268 2,120,493 ------------ 1,000,977 986,302 6,387 (1,284) 1,992,382 ------------ ----------------------- 128,111 ------------ ----------------------- 632,302 ------------ –	511,905 ------------ 230,525 977,698 16,171 788,258 289,100 291,016 2,592,768 ------------ 1,422,303 1,019,727 107,971 (2,757) 2,547,244 ------------ ----------------------- 45,524 ------------ ----------------------- 557,429 ------------ –	536,674 ------------ 345,551 1,338,989 87,803 875,178 209,907 340,295
		3,197,723 ------------ 1,395,899 1,457,997 38,844 1,714
		2,894,454 ------------ ----------------------- 303,269 ------------ ----------------------- 839,943 ------------ 6,598
– ------------ ----------------------- 632,302	– ------------ ----------------------- 557,429	6,598 ------------ ----------------------- 833,345

5,962 626,340	5,966 551,463	6,000 827,345
632,302	557,429	833,345

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

2. AUDITED FINANCIAL STATEMENTS

The following is the audited financial statements of the Company for the year ended 31 December 2009, together with comparative figures and relevant notes, as extracted from the annual report of the Company for the year ended 31 December 2009.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009 (Expressed in Renminbi Yuan)

Notes Turnover 4 Cost of sales Gross profit Other revenue 5 Other net loss 6 Distribution expenses General and administrative expenses Other operating expenses 7 Profit/(loss) from operations Finance costs 8(i) Share of profit/(loss) of associate 18 Profit/(loss) before taxation Income tax credit 9(i) Profit/(loss) for the year attributable to equity holders of the Company 12 Other comprehensive income for the year (after tax) Foreign currency translation differences for foreign operations Cash flow hedge: net movement in hedging reserve Total comprehensive income for the year attributable to equity holders of the Company Basic and diluted earnings/(loss) per share (RMB) 14	2009 RMB’000 4,369,621 (4,238,205) 131,416 17,541 (2,810) (18,628) (40,666) (5,725)	2008 RMB’000 6,491,053 (6,481,800) 9,253 42,786 (69,924) (21,023) (60,402) (15,015) (114,325) (101,566) (10,865) (226,756) 18,330 (208,426) 1,623 (35,056) (241,859) (0.35)
	81,128 (48,626) 1,206 33,708 5,637	(114,325 (101,566 (10,865
		(226,756 18,330
	39,345
	110 35,496	1,623 (35,056
	74,951 0.07

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Consolidated Balance Sheet

At 31 December 2009 (Expressed in Renminbi Yuan)

Notes Non-current assets Property, plant and equipment 15 Lease prepayments 16 Interest in an associate 18 Deferred tax assets 26 Current assets Inventories 19 Trade and other receivables 20 Derivative financial instruments 21 Pledged deposits 22 Time deposits 23 Cash and cash equivalents 23 Current liabilities Bank loans 24 Trade and other payables 25 Derivative financial instruments 21 Income tax recoverable 9(iii) Net current assets Total assets less current liabilities NET ASSETS Capital and reserves Share capital 27(a) Reserves 27(a) Total equity	2009 RMB’000 428,014 31,346 18,750 26,081	2008 RMB’000 437,767 32,183 17,544 24,411 511,905 ------------ 230,525 977,698 16,171 788,258 289,100 291,016 2,592,768 ------------ 1,422,303 1,019,727 107,971 (2,757) 2,547,244 ------------ ----------------------- 45,524 ------------ ----------------------- 557,429 ------------ 557,429 5,966 551,463 557,429
	504,191 ------------ 211,477 1,085,762 5,712 284,494 245,780 287,268 2,120,493 ------------ 1,000,977 986,302 6,387 (1,284)	511,905 ------------ 230,525 977,698 16,171 788,258 289,100 291,016
		2,592,768 ------------ 1,422,303 1,019,727 107,971 (2,757
	1,992,382 ------------ ----------------------- 128,111 ------------ ----------------------- 632,302 ------------ 632,302
	5,962 626,340	5,966 551,463
	632,302

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Company Level Balance Sheet

At 31 December 2009 (Expressed in Renminbi Yuan)

Note Non-current assets Property, plant and equipment 15 Investments in subsidiaries 17 Current assets Trade and other receivables 20 Cash and cash equivalents 23 Current liabilities Trade and other payables 25 Amount due to a subsidiary 17 Net current liabilities NET ASSETS Capital and reserves Share capital 27(b) Reserves 27(b) Total equity	2009 RMB’000 23 659,630	2008 RMB’000 97 659,630 659,727 ------------ 494 438 932 ------------ 256 29,856 30,112 ------------ ----------------------- (29,180) ------------ ----------------------- 630,547 5,966 624,581 630,547
	659,653 ------------ 202 688 890 ------------ 38 35,287	659,727 ------------ 494 438
		932 ------------ 256 29,856
	35,325 ------------ ----------------------- (34,435) ------------ ----------------------- 625,218
	5,962 619,256	5,966 624,581
	625,218

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009 (Expressed in Renminbi Yuan)

Note Total equity at 1 January Changes in equity: Total comprehensive income for the year Dividends declared in respect of previous year Purchase of own shares 27(a) – par value paid – premium paid Total equity at 31 December 27(a)	Attributable to equity holders of the Company 2009 2008 RMB’000 RMB’000 RMB’000 RMB’000 557,429 833,345 ------------ ------------ 74,951 (241,859) – (32,338) (4) (34) (74) (1,685) (78) (1,719) ------------ ----------------------- ------------ ----------------------- 632,302 557,429

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Consolidated Cash Flow Statement

For the year ended 31 December 2009 (Expressed in Renminbi Yuan)

Note Operating activities Profit/(loss) before tax Adjustments for: – Impairment losses for doubtful debts – Depreciation – Share of (gain)/loss of associate – Impairment loss on interest in an associate – Amortisation of lease prepayments – Interest income – Loss on disposal of property, plant and equipment – Finance costs – Unrealised loss on derivative financial instruments – Foreign exchange loss Operating profit before changes in working capital Decrease in inventories (Increase)/decrease in trade and other receivables Decrease in trade and other payables Decrease in bank advances under discounted bills Cash (used in)/generated from operating activities PRC income tax paid PRC income tax refund received Net cash (used in)/generated from operating activities	2009 RMB’000 33,708 – 29,173 (1,206) – 837 (13,291) 164 48,626 675 10,455	2008 RMB’000 (226,756) 22,769 29,426 10,865 10,370 837 (34,667) 106 101,566 91,800 85,227 91,543 115,027 339,904 (434,126) (48,481) 63,867 (13,307) 7,109 57,669 ------------
	109,141 19,048 (80,680) (149,699) (54,736) (156,926) (4,414) 5,887	91,543 115,027 339,904 (434,126 (48,481
		63,867 (13,307 7,109
	(155,453) ------------

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Note Cash flow from investing activities Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from foreign exchange forward contracts Payments in respect of foreign exchange forward contracts Decrease/(increase) in time deposits Interest received Net cash generated from/(used in) investing activities Cash flow from financing activities Proceeds from interest-bearing loans and borrowings Repayment of interest-bearing loans and borrowings Finance costs paid Decrease in pledged deposits Dividends paid Payment for repurchase of shares Net cash generated from financing activities Effect of foreign exchange rate changes on cash Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at the end of year 23	2009 RMB’000 (19,584) – 30,251 (8,392) 43,320 24,950	2008 RMB’000 (11,316) 6 9,865 (77,881) (79,193) 33,285 (125,234) ------------ 5,105,947 (5,031,062) (111,311) 86,920 (32,338) (1,719) 16,437 ------------ 1,849 ------------ ----------------------- (49,279) 340,295 291,016
	70,545 ------------ 2,221,354 (2,587,944) (56,046) 503,764 – (78) 81,050 ------------ 110 ------------ ----------------------- (3,748) 291,016	(125,234 ------------ 5,105,947 (5,031,062 (111,311 86,920 (32,338 (1,719
		16,437 ------------ 1,849 ------------ ----------------------- (49,279 340,295
	287,268

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Notes to the Financial Statements

(Expressed in Renminbi Yuan)

1. Significant accounting policies

Tai-I International Holdings Limited (“the Company”) is a Company incorporated in the Cayman Islands as an exempted company with limited liability on 20 April 2006 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited since 11 January 2007.

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the IASB. These financial statements also comply with the applicable disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Company and its subsidiaries (together referred to as “the Group”) is set out below.

The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 2 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 34).

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended 31 December 2009 comprise the Company and its subsidiaries and the Group’s interest in an associate.

The measurement basis used in the preparation of the financial statements is the historical cost basis, except for the derivative financial instruments which are stated at their fair value as explained in the accounting policies set out below.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and 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.

Information about judgements made by management in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements and major sources of estimation uncertainty is included in note 33.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(c) Subsidiaries

Subsidiaries are those entities controlled by the Group. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses arising from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Company’s balance sheet, investments in subsidiaries are stated at cost less impairment losses (see note 1(j)(ii)).

(d) Associate

An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. An interest in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the associate’s net assets. The consolidated statement of comprehensive income includes the Group’s share of the post-acquisition, post-tax results of the associate for the year.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

(e) Goodwill

Goodwill represents the excess of the cost of an interest in an associate over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The carrying amount of goodwill is included in the carrying amount of the interest in the associate.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is tested annually for impairment. The carrying amount of goodwill is included in the carrying amount of the interest in the associate and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (see note 1(j)(ii)).

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of an investment in an associate is recognised immediately in profit or loss.

(f) Derivative financial instruments and hedging

The Group uses derivative financial instruments such as copper futures contracts and foreign exchange forward contracts to hedge its risks associated with copper price and foreign currency fluctuations. The use of derivative financial instruments is governed by the Group’s policies, which provide written principles on the use of derivative financial instruments consistent with the Group’s risk management strategy. Such derivative instruments are initially recognised at fair value on the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value of derivatives that do not qualify for hedge accounting are taken directly to profit or loss.

The fair value of copper futures and forward foreign currency contracts is calculated by reference to current commodity prices and forward foreign exchange rates for contracts with similar maturity profiles.

For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability, or an unrecognised firm commitment (except for foreign currency risk); or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the criteria for hedge accounting are accounted for as follows:

Fair value hedges

The change in the fair value of a hedging derivative is recognised in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying amount of the hedged item and is also recognised in profit or loss.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flow of a highly probable forecast transaction, the effective portion of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognised in other comprehensive income and accumulated separately in equity in the hedging reserve. The ineffective portion of any gain or loss is recognised immediately in profit or loss.

If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability.

If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is removed from equity and recognised in profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is removed from equity and recognised in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss.

When a hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in profit or loss.

(g) Property, plant and equipment

The following items of property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 1(j)(ii)):

buildings held for own use which are situated on leasehold land, where the fair value of the building could be measured separately from the fair value of the leasehold land at the inception of the lease (see note 1(h)); and
other items of plant and equipment.

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of borrowing costs (see note 1(t)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 50 years after the date of completion. The estimated useful lives are 40 years.

–	Machinery, equipment and tools	20 years
–	Dies and moulds	1-2 years
–	Motor vehicles and other fixed assets	5 years

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (see note 1(j)(ii)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges during the construction period.

Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(h) Lease prepayments

Leases of land under which the lessor has not transferred all the risks and benefits of ownership are classified as operating leases. Lease prepayments for land use rights are stated at cost less accumulated amortisation and impairment losses (see note 1(j)(ii)). Amortisation is charged to profit or loss on a straight-line basis over the terms of the respective leases.

(i) Operating lease charges

Where the Group has the use of assets under operating leases, payments made under the leases are charged to profit or loss in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(j) Impairment of assets

(i) Impairment of trade and other receivables

Current receivables that are stated at cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, impairment loss is determined and recognised as follows:

For current receivables carried at amortised cost, the impairment loss is measured as the difference between the carrying amount of the financial assets and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset, where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the carrying amount of the financial assets exceeding that which would have been determined had no impairment loss been recognised in prior years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
pre-paid interests in leasehold land classified as being held under an operating lease;
investments in subsidiaries;
interest in an associate; and
goodwill

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(k) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated cost necessary to make the sale.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(l) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 1(j)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 1(j)(i)).

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(n) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(o) Income tax

Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case they are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable/recoverable on the taxable income/loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exception to recognition of deferred tax assets and liabilities is the temporary difference arising from goodwill not deductible for tax purposes.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if, and only if, the Group has the legally enforceable right to set off current tax assets against current tax liabilities.

(p) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(q) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised in the consolidated statement of comprehensive income when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value added tax and is after deduction of any trade discounts.

(ii) Service income

Service income is recognised when the related service is rendered.

(iii) Interest income

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

(iv) Government grants

Unconditional government grants are recognised in profit or loss when the grants become receivable. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised.

(r) Employee benefits

(i) Salaries, annual bonuses and staff welfare are accrued in the period in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(ii) Contributions to appropriate local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in the statement of comprehensive income as incurred, except to the extent that they are included in the cost of inventories not yet recognised as an expense.

(s) Translation of foreign currencies

The functional currency of the Company and its subsidiaries in the PRC are Hong Kong dollars and Renminbi (“RMB”) respectively. For the purposes of presenting the consolidated financial statements, the Group adopted RMB as its presentation currency.

Foreign currency transactions during the year are translated into functional currencies at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into functional currencies at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates.

The results of operations outside the PRC are translated into RMB at the exchange rates approximating to the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into RMB at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity.

(t) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use of sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(u) Related parties

For the purposes of these financial statements, a party is considered to be related to the Group

if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a jointly controlled entity in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in 1(u)(i) or is an entity under the control, joint control or significant influence of such individuals; or

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

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

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(v) 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 the Board of Directors (“BOD”) for the purposes of allocating resources to, and assessing the performance of, the group’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 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.

2. Changes in accounting policies

The IASB has issued one new IFRS, a number of amendments to IFRSs and new Interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s financial statements:

IFRS 8, Operating segments
Revised IAS 1, Presentation of financial statements
Amendment to IFRS 7, Financial instruments: Disclosures – improving disclosures about financial instruments
Improvements to IFRSs (2008)
Amendment to IAS 27, Consolidated and separate financial statements – cost of an investment in a subsidiary, jointly, controlled entity or associate
Amendment to IAS 39, Financial instruments – Recognition and measurement
Amendment to IAS 32, Financial instruments – Presentation
Revised IAS 23, Borrowing costs

The amendments to IAS 23, IAS 27, IAS 39 and IAS 32 have had no material impact on the Group’s financial statements as the amendments and improvements were consistent with the policies already adopted by the Group. The impact of the remainder of these developments is as follows:

IFRS 8 requires segment disclosure to be based on the way that the Group’s chief operating decision maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Group’s chief operating decision maker for the purpose of assessing segment performance and making decisions about operating matters. This contrasts with the presentation of segment information in prior years which was based on a disaggregation of the Group’s financial statements into segments based on related products and services on geographical areas. The adoption of IFRS 8 has resulted in the presentation of segment information in a manner that is more consistent with internal reporting provided to the Board (see note 3). As this is the first period in which the Group has presented segment

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

information in accordance with IFRS 8, additional explanation has been included in the annual report which explains the basis of preparation of the information. Corresponding amounts have also been provided on a basis consistent with the revised segment information.

As a result of the adoption of Revised IAS 1, details of changes in equity during the year arising from transactions with equity holders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated income statement, if they are recognised as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income and the consolidated statement of changes in equity has been adopted in this annual report and corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.
As a result of the adoption of the amendments to IFRS 7, the financial statements include expanded disclosures in note 31(f) about the fair value measurement of the Group’s financial instruments, categorising these fair value measurements into a three-level fair value hierarchy according to the extent to which they are based on observable market data. Corresponding amounts have also been provided on the same basis.
The “Improvements to IFRSs (2008)” comprise a number of minor and non-urgent amendments to a range of IFRSs which the IASB has issued as an omnibus batch of amendments. Of these, the following amendment has resulted in changes to the Group’s accounting policies:
As a result of amendments to IAS 28, Investments in associates, impairment losses recognised in respect of the associates and jointly controlled entities carried under the equity method are no longer allocated to the goodwill inherent in that carrying value. As a result, when there has been a favourable change in the estimates used to determine the recoverable amount, the impairment loss will be reversed. Previously, the Group allocated impairment losses to goodwill and, in accordance with the accounting policy for goodwill, did not consider the loss to be reversible. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any impairment losses that arise in the current or future periods and previous periods have not been restated.

3. Segment reporting

The Group manages its business by divisions, which are mainly organised by business lines. On first-time adoption of IFRS 8, Operating segments and in a manner consistent with the way in which information is reported internally to the Board for the purpose of resource allocation and performance assessment, the Group has identified the following two reportable segments. No operating segments have been aggregated to form the following reportable segments.

Bare copper wires: The manufacturing and sale of bare copper wires and provision of processing services of bare copper wires.
Magnet wires: The manufacturing and sale of magnet wires.

(a) Segment results, assets and liabilities

For the purposes of assessing segment performance and allocating resources between segments, the Board monitors the results, assets and liabilities attributable to each reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets with the exception of interest in associate, deferred tax assets and other corporate assets. Segment liabilities include trade creditors, accruals and bills payable attributable to the manufacturing and sales activities of the individual segments and bank borrowings managed directly by the segments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments, or which otherwise arise from the depreciation or amortisation of assets attributable to those segments.

The measure used for reporting segment profit is the “adjusted profit before taxation”. To arrive at adjusted profit before taxation, the Group’s earnings are adjusted for items not specifically attributed to individual segments, such as share of profits less losses of an associate, directors’ and auditors’ remuneration and other head office or corporate administration costs. Inter-segment sales are priced with reference to price charged to external parties for similar orders.

Analysis of the Group’s turnover and results as well as analysis of the Group’s carrying amount of segment assets and additions to property, plant and equipment by geographical market has not been presented as over 90% of the sales are generated from the PRC market.

Information regarding the Group’s reportable segments as provided to the Board for the purpose of resources allocation and assessment of segment performance for the years ended 31 December 2009 and 2008 is set out below.

Revenue from external customers Inter-segment revenue Reportable segment revenue Reportable segment profit/(loss) (adjusted profit/(loss) before taxation) Interest income from bank deposits Interest expense Depreciation and amortisation for the year Reportable segment assets Additions to non-current segment assets during the year Reportable segment liabilities	Bare copper wires 2009 2008 RMB’000 RMB’000 3,191,245 4,456,578 989,092 1,655,091 4,180,337 6,111,669 23,755 (119,268) 7,584 23,115 20,910 51,709 11,054 9,853 2,068,623 2,453,823 18,140 451 1,840,456 2,235,318	Magnet 2009 RMB’000 1,178,376 – 1,178,376 23,550 5,675 22,363 18,881 932,914 1,444 608,992	wires 2008 RMB’000 2,034,475 – 2,034,475 (74,094) 11,126 41,468 20,262 1,353,303 1,979 1,071,846	Total 2009 2008 RMB’000 RMB’000 4,369,621 6,491,053 989,092 1,655,091 5,358,713 8,146,144 47,305 (193,362) 13,259 34,241 43,273 93,177 29,935 30,115 3,001,537 3,807,126 19,584 2,430 2,449,448 3,307,164	Total 2009 2008 RMB’000 RMB’000 4,369,621 6,491,053 989,092 1,655,091 5,358,713 8,146,144 47,305 (193,362) 13,259 34,241 43,273 93,177 29,935 30,115 3,001,537 3,807,126 19,584 2,430 2,449,448 3,307,164
					8,146,144

					(193,362)

					34,241 93,177 30,115 3,807,126 2,430 3,307,164

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1 (b) Reconciliations of reportable segment revenues, profit/(loss), assets and liabilities

Revenue Reportable segment revenue Elimination of inter-segment revenue Total Profit/(loss) before taxation Reportable segment profit/(loss) before taxation Elimination of inter-segment profits Reportable segment profit/(loss) derived from group’s external customers Share of profit/(loss) of associate Unallocated head office and corporate expenses Total Assets Reportable segment assets Elimination of inter-segment receivables Interests in associates Deferred tax assets Unallocated head office and corporate assets Total Liabilities Reportable segment liabilities Elimination of inter-segment payables Unallocated head office and corporate liabilities Total	2009 RMB’000 5,358,713 (989,092) 4,369,621	2008 RMB’000 8,146,144 (1,655,091) 6,491,053 (193,362) (4,416) (197,778) (10,865) (18,113) (226,756) 3,807,126 (764,271) 3,042,855 17,544 24,411 19,863 3,104,673 3,307,164 (764,271) 2,542,893 4,351 2,547,244
	47,305 (1,910) 45,395 1,206 (12,893)	(193,362 (4,416
		(197,778 (10,865 (18,113
	33,708
	3,001,537 (457,104) 2,544,433 18,750 26,081 35,420	3,807,126 (764,271
		3,042,855 17,544 24,411 19,863
	2,624,684
	2,449,448 (457,104) 1,992,344 38	3,307,164 (764,271
		2,542,893 4,351
	1,992,382

4. Turnover

The principal activities of the Group are the manufacturing and sale of bare copper wires and magnet wires and provision of processing services.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

The amount of each significant category of revenue recognised during the year is as follows:

Sales of bare copper wires Sales of magnet wires Processing services	2009 RMB’000 3,166,888 1,178,376 24,357 4,369,621	2008 RMB’000 4,438,671 2,034,475 17,907
		6,491,053

The Group’s operations are mostly located in the PRC. During the year, a substantial proportion of the Group’s products were sold to its customers for further processing and eventual export to overseas countries.

5. Other revenue

Interest income Government grants Income tax refund Others	2009 RMB’000 13,291 4,008 – 242 17,541	2008 RMB’000 34,667 – 7,109 1,010
		42,786

Government grants represent unconditional discretionary grants received from local Chinese government authorities in recognition of the Group’s contribution to the development of the local economy during the year.

6. Other net loss

Net exchange (loss)/gain Gain on sales of scrap materials Loss on disposal of property, plant and equipment Net gain/(loss) on derivative financial instruments – copper futures contracts – foreign exchange forward contracts Others	2009 RMB’000 (8,266) 1,730 (164) 589 3,301 – (2,810)	2008 RMB’000 32,089 1,228 (106) (34,702) (68,619) 186
		(69,924)

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APPENDIX 1 FINANCIAL INFORMATION OF THE GROUP

7. Other operating expenses

Impairment loss on interest in an associate (note 18) Bank charges Others	2009 RMB’000 – 1,706 4,019 5,725	2008 RMB’000 10,370 3,729 916
		15,015

8. Profit/(loss) before taxation

Profit/(loss) before taxation is arrived at after charging:

(i) Finance costs

Interest expenses Letter of credit charges *(ii)* *Staff costs* Salaries, wages and other benefits Contributions to defined contribution retirement schemes (note 29) *(iii)* *Other items* Cost of inventories # (note 19) Auditors’ remuneration – audit services Depreciation # Amortisation of lease prepayments # Impairment losses for doubtful debts Impairment loss on associate Operating leases charges in respect of properties	2009 RMB’000 43,273 5,353 48,626 2009 RMB’000 43,828 3,078 46,906 2009 RMB’000 4,238,205 1,814 29,173 837 – – 631	2008 RMB’000 93,177 8,389
		101,566

		2008 RMB’000 46,916 3,952
		50,868

		2008 RMB’000 6,481,800 2,212 29,426 837 22,769 10,370 995

Cost of inventories includes RMB59,181,000 for the year ended 31 December 2009 (2008: RMB66,987,000), relating to staff costs, depreciation and amortisation of lease prepayments, which are included in the respective total amounts disclosed separately above and in note 8(ii) for each of these types of expenses.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

9. Income tax credit

(i) Income tax credit in the consolidated statement of comprehensive income represents:

Current tax – PRC Provision for the year Deferred tax Origination of temporary differences (note 26)	2009 RMB’000 – 5,637 5,637	2008 RMB’000 (8,836) 27,166 18,330

Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in the Cayman Islands and the British Virgin Islands.

No provision for Hong Kong profits tax has been made for the year as the Group does not have assessable profits subject to Hong Kong Profits Tax during the year.

The provision for PRC income tax is based on the respective corporate income tax rates applicable to the subsidiaries located in the PRC as determined in accordance with the relevant income tax rules and regulations of the PRC.

According to the new tax law and Circular Guoshuifa [2007] No. 39 “Notice on Corporate Income Tax Rate for the Transitional Period”, the income tax rates applicable to Tai-I Jiang Corp (Guangzhou) Co., Ltd. (“Tai-I Jiang Corp”), and Tai-I Copper (Guangzhou) Co., Ltd. (“Tai-I Copper”) increase from 15% to 25% over a five year transitional period, being 18% for 2008, 20% for 2009, 22% for 2010, 24% for 2011 and 25% from 2012.

These tax rates were used to calculate the Group’s deferred tax assets and liabilities as at 31 December 2009.

Pursuant to the approvals obtained from the relevant PRC tax authorities, being production oriented enterprises established in an Economic and Technological Zone, Tai-I Jiang Corp and Tai-I Copper are entitled to a preferential income tax rate of 15% and are entitled to a tax concession period in which they are fully exempted from PRC income tax for two years commencing from their first profit-making year (after the offset of tax losses brought forward), followed by a 50% reduction in PRC income tax for the next three years. The tax holidays expired in 2009.

As a result of the completion of a reassessment by the tax authorities during 2008 of the annual PRC income tax filings from 2002 to 2007, the first profit-making year of Tai-I Copper was changed from 2004 to 2005. The first profit-making year of Tai-I Jiang Corp is 2005. Consequently, these subsidiaries were exempted from PRC income tax for 2005 and 2006, and are entitled to a 50% income tax reduction from 2007 to 2009. Therefore the applicable PRC income tax rates in 2007, 2008 and 2009 are 7.5%, 9% and 10% respectively.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(ii) Reconciliation between income tax credit and accounting profit/(loss) at applicable tax rates:

Profit/(loss) before taxation Notional tax on profit/(loss) before tax, calculated at the rate applicable to the Group’s profit/(loss) in the tax jurisdiction concerned (2009: 20%, 2008: 18%) Effect of tax on profit/(loss) in holding companies Effect of share of profit/(loss) of associate and impairment loss on interest in associate Effect of non-deductible expenses Effect of non-taxable income Effect of change on tax rate Others Effect of PRC tax holidays granted to subsidiaries	2009 RMB’000 33,708 (6,742) 862 241 (639) – 11,915 – – 5,637	2008 RMB’000 (226,756) 40,816 (5,244) (3,822) (67) 640 – 104 (14,097) 18,330

(iii) Taxation in the consolidated balance sheet represents:

At 1 January Provision for income tax for the year Amounts received/(paid) At 31 December	2009 RMB’000 (2,757) – 1,473 (1,284)	2008 RMB’000 1,714 8,836 (13,307) (2,757)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

10. Directors’ remuneration

Details of directors’ remuneration are as follows:

Year ended 31 December 2009

Name of directors Executive directors Mr. Huang Cheng Roang Mr. Lin Chi Ta Mr. Huang Kuo Feng Mr. Du Chi Ting Independent non-executive directors Mr. Kang Jung Pao Mr. Cheng Yang Yi Mr. Tsay Yang Tzong Mr. Yan Ming He Mr. Atsushi Kanayama Total	Fee RMB’000 29 14 29 14 211 211 211 211 211 1,141	Basic salaries, allowances and other benefits RMB’000 455 649 352 390 – – – – – 1,846	Bonus RMB’000 28 37 26 21 – – – – – 112	Total RMB’000 512 700 407 425 211 211 211 211 211
				3,099

Year ended 31 December 2008

Name of directors Executive directors Mr. Huang Cheng Roang Mr. Lin Chi Ta Mr. Huang Kuo Feng Mr. Du Chi Ting Independent non-executive directors Mr. Kang Jung Pao Mr. Cheng Yang Yi Mr. Tsay Yang Tzong Mr. Yan Ming He Mr. Atsushi Kanayama Total	Fee RMB’000 17 17 17 7 212 212 212 212 212 1,118	Basic salaries, allowances and other benefits RMB’000 610 931 472 546 – – – – – 2,559	Bonus RMB’000 – – – – – – – – – –	Total RMB’000 627 948 489 553 212 212 212 212 212
				3,677

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

An analysis of directors’ remuneration by the number of directors and remuneration range is as follows:

			2009	2008
Nil	to	RMB1,000,000	9	9

There were no amounts paid during the year (2008: Nil) to the directors in connection with their retirement from employment with the Group, or inducement to join. There was no arrangement under which a director waived or agreed to waive any remuneration during the year (2008: Nil).

11. Individuals with highest emoluments

The five highest paid individuals of the Group include 2 directors of the Company during the year ended 31 December 2009 (2008: 2), whose remuneration are reflected in the analysis presented above. Details of remuneration paid to the remaining highest paid individuals of the Group are as follows:

Basic salaries, allowances and other benefits Bonus Number of senior management	2009 RMB’000 2,259 17 2,276 3	2008 RMB’000 2,157 –
		2,157

		3

The above individuals’ emoluments are within the band of Nil to RMB1,000,000.

There were no amounts paid during the year to the five highest paid employees in connection with their retirement from employment with the Group, or inducement to join (2008: Nil).

12. Profit/(loss) for the year attributable to equity holders of the Company

The consolidated profit for the year attributable to equity holders of the Company includes a loss of RMB5,294,000 (2008: RMB22,556,000) which has been dealt with in the financial statements of the Company.

Reconciliation of the above amount to the Company’s (loss)/profit for the years:

Amount of consolidated loss attributable to equity holders dealt with in the Company’s financial statements Dividends from a subsidiary attributable to the profit of the previous financial year, approved and paid during the year Company’s (loss)/profit for the year (note 27(b))	2009 RMB’000 (5,294) – (5,294)	2008 RMB’000 (22,556) 32,338
		9,782

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

13. Dividends

	2009	2008
	RMB’000	RMB’000
Final dividend in respect of the previous financial year, approved and
paid during the year	–	32,338

No dividend has been declared or paid by the Company for the year ended 31 December 2009.

14. Basic and diluted earnings/(loss) per share

The calculation of basic and diluted earnings per share for the year ended 31 December 2009 is based on the profit attributable to equity holders of the Company of RMB39,345,000 (2008: the loss of RMB208,426,000) and the weighted average of 596,246,806 (2008: 598,963,167) shares in issue during the year, calculated as follows:

Ordinary shares issued at 1 January Effect of shares repurchased (note 27(c)(i)) Weighted average number of shares at 31 December	2009 Number of shares 596,618,000 (371,194) 596,246,806	2008 Number of shares 600,000,000 (1,036,833)
		598,963,167

There were no dilutive potential ordinary shares in issue as at 31 December 2009 (2008: Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

15. Property, plant and equipment

The Group

Buildings RMB’000 186,608 13 –	Machinery, equipment and tools RMB’000 444,346 410 (579)	Dies and moulds RMB’000 6,945 1,438 (4,017)	Motor vehicles and other fixed assets RMB’000 15,617 346 (190)	Construction in progress RMB’000 – 223 –	Total RMB’000 653,516 2,430 (4,786)
186,621 - - - - - - - - - ---------------------------------- 186,621 – – – 186,621 - - - - - - - - - ---------------------------------- (32,136) (4,212) – (36,348) - - - - - - - - - ---------------------------------- (4,229) –	444,177 - - - - - - - - - ---------------------------------- 444,177 1,450 16,834 (463) 461,998 - - - - - - - - - ---------------------------------- (143,508) (20,499) 489 (163,518) - - - - - - - - - ---------------------------------- (21,750) 310	4,366 - - - - - - - - - ---------------------------------- 4,366 1,020 – (3,162) 2,224 - - - - - - - - - ---------------------------------- (3,749) (2,962) 4,017 (2,694) - - - - - - - - - ---------------------------------- (1,652) 3,162	15,773 - - - - - - - - - ---------------------------------- 15,773 403 – (113) 16,063 - - - - - - - - - ---------------------------------- (9,248) (1,753) 168 (10,833) - - - - - - - - - ---------------------------------- (1,542) 102	223 - - - - - - - - - ---------------------------------- 223 16,711 (16,834) – 100 - - - - - - - - - ---------------------------------- – – – – - - - - - - - - - ---------------------------------- – –	651,160 - - - - - - - - - ---------------------------------- 651,160 19,584 – (3,738)
					667,006 - - - - - - - - - ---------------------------------- (188,641) (29,426) 4,674
					(213,393) - - - - - - - - - ---------------------------------- (29,173) 3,574
(40,577) - - - - - - - - - ---------------------------------- 146,044 150,273	(184,958) - - - - - - - - - ---------------------------------- 277,040 280,659	(1,184) - - - - - - - - - ---------------------------------- 1,040 1,672	(12,273) - - - - - - - - - ---------------------------------- 3,790 4,940	– - - - - - - - - - ---------------------------------- 100 223	(238,992) - - - - - - - - - ---------------------------------- 428,014

					437,767

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

The Company

Cost: At 1 January, 31 December 2008 and 2009 Accumulated depreciation: At 1 January 2008 Charge for the year At 31 December 2008 Charge for the year At 31 December 2009 Net book value: At 31 December 2009 At 31 December 2008	Motor vehicles and other fixed assets RMB’000 358 ------------ --------------------------------------------- (113) (148) (261) - - - - - - - - - - - - (74) (335) ------------ --------------------------------------------- 23 97

(i) All of the Group’s buildings are located in the PRC.
(ii) As at 31 December 2009, buildings with a carrying amount of RMB86,485,000 (2008: RMB89,059,000), were pledged to a bank for certain banking facilities and bank loans (see note 24).
(iii) As at 31 December 2009, machinery, equipment and tools with carrying amounts of RMB157,977,000 (2008: RMB170,546,000), were pledged to a bank for letters of credit and commercial bills issued which were subsequently converted to short-term bank loans (see note 24).

16. Lease prepayments

At 1 January Less: Amortisation At 31 December	The Group 2009 2008 RMB’000 RMB’000 32,183 33,020 (837) (837) 31,346 32,183

Lease prepayments represent payments for land use rights of two pieces of land situated in the PRC on which the Group’s buildings are erected. The two leases run for an initial period of 50 years commencing on 23 May 1997.

– 47 –

APPENDIX 1 FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2009 land use rights with a carrying amount of RMB31,346,000 (2008: RMB32,183,000) were pledged to a bank for certain banking facilities and bank loans (see note 24).

17. Investments in subsidiaries

				The Company	The Company
				2009	2008
				RMB’000	RMB’000
Unlisted	shares,	at	cost	659,630	659,630

Details of the principal subsidiaries at 31 December 2009 are as follows:

	Place of	Percentage of	Percentage of	Issued and
	incorporation/	equity attributable		fully paid up/
	establishment	to the	Company	registered	Principal
Name of subsidiary	and operation	Direct	Indirect	capital	activities
		%	%	(in thousands)
					Investment
Tai-I Copper (BVI) Limited	BVI	100%	–	US$25,150	holding
					Investment
Tai-I International (HK) Limited	HK	–	100%	HK$ 6,000	holding
					Manufacture and
					sale of bare
Tai-I Jiang Corp	PRC	–	100%	US$44,720	copper wires
					Manufacture and
					sale of magnet
Tai-I Copper	PRC	–	100%	US$50,760	wires

Note:

(i) All the subsidiaries incorporated in the PRC are wholly foreign-owned enterprises.

The amount due to a subsidiary is unsecured, non-interest bearing and repayable on demand.

18. Interest in an associate

Share of net assets Goodwill arising on acquisition Less: Impairment on goodwill	The Group 2009 2008 RMB’000 RMB’000 18,750 17,544 10,370 10,370	The Group 2009 2008 RMB’000 RMB’000 18,750 17,544 10,370 10,370
	29,120 (10,370)	27,914 (10,370
	18,750	17,544

Interest in an associate represents investment in the equity interest of JCC-Taiyi Special Electric Material Co., Ltd. (“JCC-Taiyi”), an entity established in the PRC. The principal activities of JCC-Taiyi are the manufacturing and sales of bare copper wires and magnet wires. The Group, through its wholly owned subsidiary, Tai-I Copper, held 30% equity interest in JCC-Taiyi as at 31 December 2009.

– 48 –

APPENDIX 1 FINANCIAL INFORMATION OF THE GROUP

The summary of financial information based on the audited management accounts of the associate is shown as follows:

2009

100 percent The Group’s effective interest 2008 100 percent The Group’s effective interest	Assets RMB’000 345,646 103,694 Assets RMB’000 311,479 93,444	Liabilities RMB’000 (283,147) (84,944) Liabilities RMB’000 (253,000) (75,900)	Revenue RMB’000 325,782 97,735 Revenue RMB’000 461,390 138,417	Profit after tax RMB’000 4,020 1,206

				Loss after tax RMB’000 (36,217) (10,865)

19. Inventories

Inventories comprise:

Raw materials Work in progress Finished goods Low value consumables	The Group 2009 2008 RMB’000 RMB’000 66,968 31,056 33,740 25,145 103,949 168,408 6,820 5,916 211,477 230,525	The Group 2009 2008 RMB’000 RMB’000 66,968 31,056 33,740 25,145 103,949 168,408 6,820 5,916 211,477 230,525
		230,525

The net realisable value of the majority of the inventories is closely related to the commodity market price for copper. The commodity price risk in this regard is discussed in note 31(e).

The analysis of the amount of inventories recognised as an expense is as follows:

Carrying amount of inventories sold Realised (gain)/loss on derivative financial instruments	The Group 2009 2008 RMB’000 RMB’000 4,263,138 6,457,618 (24,933) 24,182 4,238,205 6,481,800	The Group 2009 2008 RMB’000 RMB’000 4,263,138 6,457,618 (24,933) 24,182 4,238,205 6,481,800
		6,481,800

As at 31 December 2008, inventories with a carrying amount of RMB100,000,000 were pledged to a bank for bank loans (see note 24).

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

20. Trade and other receivables

Trade receivables (i) Bills receivable (note 24 (ii)) (i) Deposits and prepayments made to suppliers (ii) Other receivables Deposits for derivative financial instruments (iii)	The Group 2009 2008 RMB’000 RMB’000 525,526 325,732 120,849 151,384	The Group 2009 2008 RMB’000 RMB’000 525,526 325,732 120,849 151,384	The Company 2009 2008 RMB’000 RMB’000 – – – –	The Company 2009 2008 RMB’000 RMB’000 – – – –
	646,375 373,488 33,565 32,334	477,116 376,681 61,343 62,558	– – 202 –	– – 494 –
	1,085,762	977,698	202	494

All of the trade and other receivables are expected to be recovered within one year.

(i) Included in trade and other receivables are trade receivables and bills receivable with the following ageing analysis as of the balance sheet date:

Invoice date: Within 1 month Over 1 month but less than 3 months Over 3 months but less than 1 year Over 1 year but less than 2 years Over 2 years Less: Impairment losses for doubtful debts	The Group 2009 2008 RMB’000 RMB’000 357,559 357,773 213,799 55,646 55,316 58,467 23,793 26,475 33,162 16,009	The Group 2009 2008 RMB’000 RMB’000 357,559 357,773 213,799 55,646 55,316 58,467 23,793 26,475 33,162 16,009
	683,629 (37,254)	514,370 (37,254)
	646,375	477,116

The movement in the allowance for doubtful debts during the year is as follows:

At 1 January Impairment loss recognised during the year Reversed during the year At 31 December	The Group 2009 2008 RMB’000 RMB’000 37,254 14,485 3,624 27,024 (3,624) (4,255) 37,254 37,254	The Group 2009 2008 RMB’000 RMB’000 37,254 14,485 3,624 27,024 (3,624) (4,255) 37,254 37,254
		37,254

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

During the year, credit terms granted to customers of bare copper wire were different from those granted to customers of magnet wire. Customers of bare copper wire were usually required to settle the payment in full prior to delivery or at each month end. For customers of magnet wire, credit terms granted ranged from 30 days to 60 days. The credit terms granted to each customer vary depending on the customers’ relationship with the Group, its creditworthiness and settlement record.

(ii) According to the terms of purchase of copper plate entered into with the Group’s suppliers, the Group is usually required to place certain deposits and/or make prepayment prior to delivery. Those deposits are generally refundable upon termination of the respective purchase contracts. The prepayments made are to offset with the invoiced amount of the copper plate delivered.
(iii) The Group has placed deposits with futures agents for copper futures contracts entered into in the normal course of business.

21. Derivative financial instruments

Unrealised copper futures contracts – under cash flow hedge accounting – under fair value hedge accounting – not qualifying for hedge accounting Unrealised foreign exchange forward contracts – not qualifying for hedge accounting	The Group 2009 2008 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 121 – – (26,980) – (6,387) – (109) 2,157 – – (10,430) 2,278 (6,387) – (37,519) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,434 – 16,171 (70,452) 3,434 – 16,171 (70,452) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,712 (6,387) 16,171 (107,971)	The Group 2009 2008 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 121 – – (26,980) – (6,387) – (109) 2,157 – – (10,430) 2,278 (6,387) – (37,519) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,434 – 16,171 (70,452) 3,434 – 16,171 (70,452) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,712 (6,387) 16,171 (107,971)	The Group 2009 2008 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 121 – – (26,980) – (6,387) – (109) 2,157 – – (10,430) 2,278 (6,387) – (37,519) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,434 – 16,171 (70,452) 3,434 – 16,171 (70,452) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,712 (6,387) 16,171 (107,971)	The Group 2009 2008 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 121 – – (26,980) – (6,387) – (109) 2,157 – – (10,430) 2,278 (6,387) – (37,519) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,434 – 16,171 (70,452) 3,434 – 16,171 (70,452) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,712 (6,387) 16,171 (107,971)
	2,278 - - - - - - - - - - - - 3,434	(6,387) - - - - - - - - - - - - –	– - - - - - - - - - - - - 16,171	(37,519 - - - - - - - - - - - - (70,452
	3,434 - - - - - - - - - - - - 5,712	– - - - - - - - - - - - - (6,387)	16,171 - - - - - - - - - - - - 16,171

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(a) Copper futures contracts

The Group enters into copper futures contracts traded on the Shanghai Futures Exchange and London Metal Exchange. For copper futures contracts that meet the requirements for hedge accounting (see note 1(f)), the Group’s policy is to designate the related derivative as a fair value hedge or cash flow hedge. The notional contract value and the related terms are summarised as follows:

			The Group
		2009		2008
		RMB’000		RMB’000
Sales contracts
Volume (tonne)		2,515		75
Notional contract value		125,690		1,469
Market value		132,077		1,575
Fair value		(6,387)		(106)
		- - - - - - - - - - - -		- - - - - - - - - - - -
Purchase contracts
Volume (tonne)		1,065		4,165
Notional contract value		61,155		133,939
Market value		63,433		96,526
Fair value		2,278 ------------		(37,413) ------------
		---------------------------------------------		---------------------------------------------
		(4,109)		(37,519)

Contract maturity months	January, February,		January, February,
		March, April	March, April,
	and May 2010		May, June, July
			and November 2009

The market value of futures contracts is based on quoted market prices at the balance sheet date. The commodity price risk related to the price of copper is discussed in note 31(e).

As at 31 December 2009, copper futures contracts designated as fair value hedges to inventories with unrealised losses of RMB6,387,000 (2008: RMB109,000) arising from the changes in fair value of these derivative instruments are recognised in the profit or loss account for the year.

As at 31 December 2009, certain copper futures contracts designated as cash flow hedges to highly probable forecast transactions were assessed to be highly effective and the unrealised gains of RMB121,000 (2008: a loss of RMB26,980,000) arising from the changes in fair value of these derivative instruments are included in equity. Such unrealised gains/(losses) are expected to be transferred to profit or loss when the designated forecast transactions occur. The portion assessed as ineffective of unrealised gains of RMB2,157,000 (2008: a loss of RMB10,430,000) is recognised in the profit or loss for the year.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(b) Foreign exchange forward contracts

For foreign exchange forward contracts that meet the requirements for hedge accounting (see note 1(f)), the Group’s policy is to designate the related derivative as a fair value hedge or cash flow hedge. The notional contract value and the related terms are summarised as follows:

At 31 December 2009

The Group Weighted average contracted rate Weighted average market rate Notional amount US$’000 Buy RMB/Sell US$ Less than 3 months 6.8114 6.8061 (28,300) 3 to 6 months 6.8197 6.7988 (39,442) 6 months to 1 year 6.7215 6.7669 (21,000) (88,742) - - - - - - - - - - - - Sell RMB/Buy US$ Less than 3 months – – – 3 to 6 months – – – 6 months to 1 year 6.5966 6.7863 18,000 18,000 ------------ --------------------------------------------- (70,742)	The Group Weighted average contracted rate Weighted average market rate Notional amount US$’000 Buy RMB/Sell US$ Less than 3 months 6.8114 6.8061 (28,300) 3 to 6 months 6.8197 6.7988 (39,442) 6 months to 1 year 6.7215 6.7669 (21,000) (88,742) - - - - - - - - - - - - Sell RMB/Buy US$ Less than 3 months – – – 3 to 6 months – – – 6 months to 1 year 6.5966 6.7863 18,000 18,000 ------------ --------------------------------------------- (70,742)	Fair value RMB’000 150 823 (953) 20 - - - - - - - - - - - - – – 3,414 3,414 ------------ --------------------------------------------- 3,434
	(88,742) - - - - - - - - - - - - – – 18,000	20 - - - - - - - - - - - - – – 3,414
	18,000 ------------ --------------------------------------------- (70,742)

At 31 December 2008

The Group Weighted average contracted rate Weighted average market rate Notional amount US$’000 Buy RMB/Sell US$ Less than 3 months 6.6953 6.8343 (188,800) 3 to 6 months 6.6675 6.8394 (159,000) 6 months to 1 year 6.7805 6.8745 (216,000) (563,800) - - - - - - - - - - - - Sell RMB/Buy US$ Less than 3 months 6.5231 6.8460 9,000 3 to 6 months 6.6031 6.8626 21,000 6 months to 1 year 6.6780 6.8823 55,000 85,000 ------------ --------------------------------------------- (478,800)	The Group Weighted average contracted rate Weighted average market rate Notional amount US$’000 Buy RMB/Sell US$ Less than 3 months 6.6953 6.8343 (188,800) 3 to 6 months 6.6675 6.8394 (159,000) 6 months to 1 year 6.7805 6.8745 (216,000) (563,800) - - - - - - - - - - - - Sell RMB/Buy US$ Less than 3 months 6.5231 6.8460 9,000 3 to 6 months 6.6031 6.8626 21,000 6 months to 1 year 6.6780 6.8823 55,000 85,000 ------------ --------------------------------------------- (478,800)	Fair value RMB’000 (26,234) (27,332) (20,307) (73,873) - - - - - - - - - - - - 2,906 5,450 11,236 19,592 ------------ --------------------------------------------- (54,281)
	(563,800) - - - - - - - - - - - - 9,000 21,000 55,000	(73,873 - - - - - - - - - - - - 2,906 5,450 11,236
	85,000 ------------ --------------------------------------------- (478,800)

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

The above derivatives are measured at fair value based on the valuation provided by banks at the balance sheet date. As none of the foreign exchange forward contracts met the requirements for cash flow hedge accounting (see note 1(f)), the net gains/(losses) arising from changes in the fair value were all recognised in the profit or loss account for the year. The foreign currency risk related to these contracts is discussed in note 31(d).

22. Pledged deposits

Pledged deposits can be analysed as follows:

==> picture [379 x 63] intentionally omitted <==

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

The Group
2009 2008
RMB’000 RMB’000
Guarantee deposits for issuance of commercial bills and letters of
credit (notes 24 and 25) 284,494 788,258
----- End of picture text -----

Pledged deposits earn interest at a rate ranging from 0.36% to 1.98% per annum (2008: 0.36% to 4.14%).

23. Cash and cash equivalents

An analysis of the balance of cash and cash equivalents is set out below:

The Group 2009 2008 RMB’000 RMB’000 94 155 287,174 290,861 245,780 289,100 533,048 580,116 245,780 289,100	The Group 2009 2008 RMB’000 RMB’000 94 155 287,174 290,861 245,780 289,100 533,048 580,116 245,780 289,100	The Company 2009 2008 RMB’000 RMB’000 2 2 686 436 – – 688 438
		438

	289,100
287,268	291,016

24. Bank loans

Current Bank loans and borrowings – Secured (i) – Bank advances under discounted bills (ii)	The Group 2009 2008 RMB’000 RMB’000 914,615 1,281,205 86,362 141,098 1,000,977 1,422,303	The Group 2009 2008 RMB’000 RMB’000 914,615 1,281,205 86,362 141,098 1,000,977 1,422,303
		1,422,303

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

All bank loans during the year are interest-bearing, with fixed rates that ranged from 0.24% to 5.31% during the year ended 31 December 2009 (2008: 1.96% to 8.96%).

(i) Current secured bank loans as at 31 December 2009 were secured by the Group’s buildings with a carrying amount of RMB86,485,000 (2008: RMB89,059,000) and land use rights with carrying amounts of RMB31,346,000 (2008: RMB32,183,000). As at 31 December 2008, current secured bank loans were also secured by inventories with a carrying amount of RMB100,000,000.

Certain letters of credit and commercial bills issued and subsequently converted to short-term trust receipt loans as at 31 December 2009 and 2008 were secured by the Group’s pledged deposits (see note 22) and certain machinery, equipment and tools with carrying amounts of RMB157,977,000 (2008: RMB170,546,000).

(ii) The Group’s discounted bills with recourse have been accounted for as collateralised bank advances. The discounted bills receivable and the related proceeds of the same amount are included in the Group’s “Bills receivable” and “Bank advances under discounted bills” as at the balance sheet date.

25. Trade and other payables

Trade creditors (i) Bills payable (ii) Non-trade payables and accrued expenses Other taxes (recoverable)/ payable	The Group 2009 2008 RMB’000 RMB’000 542,603 621,772 400,109 302,956	The Group 2009 2008 RMB’000 RMB’000 542,603 621,772 400,109 302,956	The Company 2009 2008 RMB’000 RMB’000 – – – –	The Company 2009 2008 RMB’000 RMB’000 – – – –
	942,712 48,715 (5,125)	924,728 93,593 1,406	– 38 –	– 256 –
	986,302	1,019,727	38	256

All of the trade and other payables are expected to be settled within one year.

Included in trade and other payables are trade creditors and bills payable with the following ageing analysis as of the balance sheet date:

Due within 3 months or on demand Due after 3 months but within 6 months Due after 6 months but within 1 year Due after 1 year but within 2 years Due after 2 years	The Group 2009 2008 RMB’000 RMB’000 796,643 692,118 145,225 231,996 111 219 127 229 606 166 942,712 924,728	The Group 2009 2008 RMB’000 RMB’000 796,643 692,118 145,225 231,996 111 219 127 229 606 166 942,712 924,728
		924,728

(i) Certain letters of credit issued for the settlement of trade creditors were secured by pledged deposits (see note 22). As at 31 December 2009, outstanding letters of credit included in trade creditors amounted to RMB676,358,000 (2008: RMB614,196,000).

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(ii) Certain bills payable outstanding as at 31 December 2009 were secured by the Group’s machinery, equipment and tools with carrying amounts of RMB157,977,000 (2008: RMB170,546,000).

26. Deferred tax assets/(liabilities)

The components of deferred tax assets/(liabilities) recognised in the consolidated balance sheet and the movements during the year are shown as follows:

The Group

Unrealised (gain)/loss on derivative financial instruments RMB’000 (7,902) 15,763 – 7,861	Impairment losses for doubtful debt RMB’000 1,304 2,421 – 3,725	Unutilised tax losses under PRC statutory report RMB’000 – 1,778 – 1,778	Cash flow hedges RMB’000 – – 3,843 3,843	Others RMB’000 – 7,204 – 7,204	Total RMB’000 (6,598) 27,166 3,843
					24,411

7,861 (7,999) –	3,725 4,471 –	1,778 13,683 –	3,843 – (3,967)	7,204 (4,518) –	24,411 5,637 (3,967)
(138)	8,196	15,461	(124)	2,686	26,081

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is considered probable.

Net deferred tax assets recognised on the balance sheet	The Group 2009 2008 RMB’000 RMB’000 26,081 24,411

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

27. Share capital and reserves

(a) The Group

Share capital RMB’000 6,000 – – – – – – – (34) 5,966	Share premium RMB’000 d(i) 214,762 – – – – – – – (1,685) 213,077	Attribut Merger reserve RMB’000 d(ii) 418,938 (32,338) – – – – – – – 386,600	able to equity h PRC Statutory reserve RMB’000 d(iii) 26,259 – – – – – – – – 26,259	olders of the Company Exchange reserve Hedging reserve RMB’000 RMB’000 d(iv) d(v) (2,478) – – – – – – (35,992) – (26,980) – 3,843 – 24,073 1,623 – – – (855) (35,056)	olders of the Company Exchange reserve Hedging reserve RMB’000 RMB’000 d(iv) d(v) (2,478) – – – – – – (35,992) – (26,980) – 3,843 – 24,073 1,623 – – – (855) (35,056)	Retained earnings/ (accumulated losses) RMB’000 169,864 – (208,426) – – – – – – (38,562)	Total RMB’000 833,345 (32,338) (208,426) (35,992) (26,980) 3,843 24,073 1,623 (1,719)
							557,429

5,966 – – – – – – (4)	213,077 – – – – – – (74)	386,600 – – – – – – –	26,259 – – – – – – –	(855) – – – – – 110 –	(35,056) – 7,837 121 (124) 27,662 – –	(38,562) 39,345 – – – – – –	557,429 39,345 7,837 121 (124) 27,662 110 (78)
5,962	213,003	386,600	26,259	(745)	440	783	632,302

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(b) The Company

Share capital RMB’000 6,000 – – – (34) 5,966	Attributable to equity holders of the Company Share premium Contributed surplus Exchange reserve Accumulated losses RMB’000 RMB’000 RMB’000 RMB’000 214,762 464,996 (43,371) (28,818) – – – 9,782 – (32,338) – – – – 41,253 – (1,685) – – – 213,077 432,658 (2,118) (19,036)	Attributable to equity holders of the Company Share premium Contributed surplus Exchange reserve Accumulated losses RMB’000 RMB’000 RMB’000 RMB’000 214,762 464,996 (43,371) (28,818) – – – 9,782 – (32,338) – – – – 41,253 – (1,685) – – – 213,077 432,658 (2,118) (19,036)	Attributable to equity holders of the Company Share premium Contributed surplus Exchange reserve Accumulated losses RMB’000 RMB’000 RMB’000 RMB’000 214,762 464,996 (43,371) (28,818) – – – 9,782 – (32,338) – – – – 41,253 – (1,685) – – – 213,077 432,658 (2,118) (19,036)	Attributable to equity holders of the Company Share premium Contributed surplus Exchange reserve Accumulated losses RMB’000 RMB’000 RMB’000 RMB’000 214,762 464,996 (43,371) (28,818) – – – 9,782 – (32,338) – – – – 41,253 – (1,685) – – – 213,077 432,658 (2,118) (19,036)	Total RMB’000 613,569 9,782 (32,338) 41,253 (1,719)
					630,547

– – – (4)	– – – (74)	– – – –	– – 43 –	– (5,294) – –	– (5,294) 43 (78)
5,962	213,003	432,658	(2,075)	(24,330)	625,218

(c) Share capital

2009 Number of shares Amount HK$ 1,000,000,000 10,000,000	2009 Number of shares Amount HK$ 1,000,000,000 10,000,000	2008 Number of shares Amount HK$ 1,000,000,000 10,000,000	2008 Number of shares Amount HK$ 1,000,000,000 10,000,000

596,618,000 (460,000)	5,966,180 (4,600)	600,000,000 (3,382,000)	6,000,000 (33,820)
596,158,000	5,961,580 RMB equivalent 5,961,580	596,618,000	5,966,180

			RMB equivalent 5,966,180

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(i) Purchase of own shares

During the year, the Company repurchased its own ordinary shares through the Stock Exchange of Hong Kong Limited as follows:

Month/year of the repurchases March 2009	Number of shares repurchased Highest price paid per share Lowest price paid per share HK$ HK$ 460,000 0.196 0.185	Aggregate price paid HK$’000 88

		RMB equivalent 78

The repurchased shares were cancelled and accordingly the issued share capital of the Company was reduced by the nominal value of these shares. The premium paid on the repurchase of the shares was charged to share premium.

(d) Nature and purpose of reserves

(i) Share premium

The application of the share premium account is governed by the Companies Law of the Cayman Islands.

(ii) Merger reserve

The merger reserve represents the difference between the nominal value of shares of the subsidiaries acquired over the nominal value of the shares used by the Company in exchange thereafter. This reserve is distributable.

(iii) PRC statutory reserve

Transfers from retained earnings to general reserve fund were made in accordance with the relevant PRC rules and regulations and the articles of association of the Company’s subsidiaries established in the PRC and were approved by the respective boards of directors.

The general reserve fund can be used to make good previous year’s losses, if any, and may be converted into paid-up capital provided that the balance of the general reserve fund after such conversion is not less than 25% of the PRC subsidiary’s registered capital.

Each PRC wholly-owned subsidiary is required to transfer a minimum of 10% of its net profit, as determined in accordance with the PRC accounting rules and regulations, to the general reserve fund until the reserve balance reaches 50% of its registered capital. The transfer to this fund must be made before distribution of dividends to equity holders.

(iv) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of companies outside of the PRC. The reserve is dealt with in accordance with the accounting policy set out in note 1(s).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(v) Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges of forecast copper purchase transactions matched to confirmed sales orders pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedges in note 1(f).

(e) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, the Group monitors its capital structure on the basis of a net debt-to-adjusted capital ratio. For this purpose, the Group defines net debt as bank loans (net of pledged deposits) plus unaccrued proposed dividends, less cash and cash equivalents. Adjusted capital comprises all components of total equity less unaccrued proposed dividends.

During 2009, the Group’s strategy was to maintain the net debt-to-adjusted capital ratio within the range of 20% to 70%.

The net debt-to-adjusted capital ratio at 31 December 2009 and 2008 is as follows:

The Group 2009 2008 RMB’000 RMB’000 1,000,977 1,422,303	The Group 2009 2008 RMB’000 RMB’000 1,000,977 1,422,303	The Company 2009 2008 RMB’000 RMB’000 – – – – (687) (438) – – (687) (438) 625,218 630,547 625,218 630,547 0% 0%	The Company 2009 2008 RMB’000 RMB’000 – – – – (687) (438) – – (687) (438) 625,218 630,547 625,218 630,547 0% 0%
1,000,977 (287,268) (284,494)	1,422,303 (291,016) (788,258)	– (687) –	– (438 –
429,215	343,029	(687)
632,302	557,429	625,218	630,547
632,302 68%	557,429 62%	625,218 0%

Neither the Company nor any subsidiaries are subject to externally imposed capital requirements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

28. Commitments

(i) Capital commitments

Outstanding capital commitments at 31 December 2009 not provided for in the financial statements were as follows:

	The	Group
	As at	As at
	31.12.2009	31.12.2008
	RMB’000	RMB’000
Contracted	–	16,582

(ii) Lease commitments

At 31 December 2009, the total future minimum lease payments under non-cancellable operating leases in respect of properties are payable as follows:

Less than one year Between one and two years Between two and three years	The Group 2009 2008 RMB’000 RMB’000 620 858 9 128 2 9 631 995	The Group 2009 2008 RMB’000 RMB’000 620 858 9 128 2 9 631 995
		995

The Group leased a number of properties under operating leases during the year. None of the leases includes contingent rentals.

29. Retirement benefits

As stipulated by the regulations of the PRC, the Group’s subsidiaries in the PRC participate in basic defined contribution retirement schemes organised by the respective municipal governments under which they are governed. Details of the schemes of the subsidiaries, Tai-I Jiang Corp and Tai-I Copper, are as follows:

Administrator	Beneficiary	Contribution rate
Guangzhou Municipal Government,	Employees of Tai-I Jiang Corp	12%-20%
Guangdong Province	and Tai-I Copper

All employees are entitled to retirement benefits equal to a fixed proportion of their salaries and benefits in kind prevailing at their normal retirement ages.

The Group has no other material obligation for the payment of retirement benefits associated with this scheme beyond the contributions described above.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

30. Related party transactions

(a) No related party transactions were identified during the years ended 31 December 2009 and 2008.

(b) Remuneration to key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The compensation of key management personnel is as follows:

			The	Group
			2009	2008
			RMB’000	RMB’000
Short-term	employee	benefits	7,384	7,873

(c) Contributions to defined contribution retirement plans

The Group participates in defined contribution retirement plans organised by municipal government for its employees. The details of the Group’s employee benefits plan are disclosed in note 29. As at 31 December 2009, there was no material outstanding contribution to post-employment benefit plans (2008: Nil).

31. Financial risk management and fair values

Exposure to credit, liquidity, interest rate, currency and commodity price risks arises in the normal course of the Group’s business.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and bills receivables, deposits and prepayments made to suppliers, cash and cash equivalents, pledged and time deposits. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Customers of bare copper wire are usually required to settle the payment in full prior to delivery or at each month end. For customers of magnet wire, credit terms granted range from 30 days to 60 days. Customers with balances overdue are normally requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not collect collateral from its customers.

At the balance sheet dates, the Group has no significant concentrations of credit risk with any of its customers.

The Group’s bills receivable are guaranteed by banks and the risk for default in payment is minimal.

In respect of deposits and prepayments made to suppliers, individual credit evaluations are performed on all suppliers requiring deposit and prepayments over a certain amount. These evaluations focus on the supplier’s past history and take into account information specific to the supplier as well as pertaining to the economic environment in which the supplier operates.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each supplier. The default risk of the industry and country in which suppliers operate also has an influence on credit risk but to a lesser extent. At the balance sheet date, the Group has a certain concentrations of credit risk as 6% (2008: 14%) and 41% (2008: 32%) of the total deposits and prepayments made to suppliers (included in trade and other receivables) were due from the Group’s largest supplier and the five largest suppliers respectively.

Further quantitive disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables is set out in note 20.

It is expected that there is no significant credit risk associated with the cash and cash equivalents, pledged and time deposits as they are placed with major banks which are located in the PRC and Hong Kong, which the management believes are of high credit quality.

The maximum exposure to credit risk without taking account of any collateral held is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance. The Group does not provide any guarantees which would expose the Group to credit risk.

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The individual subsidiaries within the Group are responsible for their own cash management, including raising loans to cover the expected cash demands, subject to approval by the board of directors of the respective subsidiaries. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that the Group maintains sufficient reserves of cash and adequate committed lines of funding from authorised financial institutions to meet its liquidity requirements in the short and longer term.

Contractual maturities of financial liabilities

The following table details the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities including estimated interest payments:

The Group

Non-derivative financial liabilities Secured loans and borrowings Bank advances under discounted bills Trade and other payables excluding advance from customers Derivative financial liabilities Copper futures contracts (note 21(a))	2009 Carrying amount Contractual undiscounted cash flow 6 months or less or on demand RMB’000 RMB’000 RMB’000 914,615 (917,960) (868,468) 86,362 (86,362) (86,362) 979,583 (979,583) (979,583) 6,387 (6,387) (6,387) 1,986,947 (1,990,292) (1,940,800)	6-12 months RMB’000 (49,492) – – – (49,492)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Non-derivative financial liabilities Secured loans and borrowings Bank advances under discounted bills Trade and other payables excluding advance from customers Derivative financial liabilities Foreign exchange forward contracts held as cash flow hedging instruments – outflow – inflow Copper futures contracts (note 21(a))	Carrying amount RMB’000 1,281,205 141,098 985,397 70,663 (211) 37,519 2,515,671	2008 Contractual undiscounted cash flow 6 months or less or on demand RMB’000 RMB’000 (1,285,660) (1,265,871) (141,098) (141,098) (985,397) (985,397) (2,871,156) (1,980,993) 2,797,556 1,924,787 (37,519) (36,445) (2,523,274) (2,485,017)	6-12 months RMB’000 (19,789) – – (890,163) 872,769 (1,074)
			(38,257)

The Company

Non-derivative financial liabilities Amount due to a subsidiary Trade and other payables excluding advance from customers	Carrying amount RMB’000 35,287 38 35,325	2009 Contractual undiscounted cash flow 6 months or less or on demand RMB’000 RMB’000 (35,287) (35,287) (38) (38) (35,325) (35,325)	6-12 months RMB’000 – –
			–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Non-derivative financial liabilities Amount due to a subsidiary Trade and other payables excluding advance from customers	2008 Carrying amount Contractual undiscounted cash flow 6 months or less or on demand RMB’000 RMB’000 RMB’000 29,856 (29,856) (29,856) 256 (256) (256) 30,112 (30,112) (30,112)	6-12 months RMB’000 – –
		–

Forecast cash flow

The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur. The cash flows are expected to impact the profit or loss in the same periods.

The Group

Copper futures contracts assets Copper futures contracts liabilities	Carrying amount RMB’000 121 Carrying amount RMB’000 (26,980)	2009 Expected cash flow 6 months or less RMB’000 RMB’000 (1,073) (1,073) 2008 Expected cash flow 6 months or less RMB’000 RMB’000 (68,566) (63,521)	6-12 months RMB’000 –

			6-12 months RMB’000 (5,045)

In addition to copper futures contracts, the Group also utilise foreign exchange forward contracts to hedge forecast sales. These arrangements are entered into to hedge significant fluctuations in foreign currency. However, as these arrangements do not meet the criteria for hedge accounting described in the Group’s accounting policies, the unrealised gains or losses arising from the change in fair value of these derivative instruments are recognised immediately in the profit or loss. As at the balance sheet date, the expected delivery period of the forecast sales is from January 2010 to May 2010.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(c) Interest rate risk

The Group’s interest rate risk arises primarily from cash and cash equivalents, time deposits, pledged deposits and bank loans, issued at variable rates and at fixed rates which expose the Group to cash flow interest rate risk and fair value interest rate risk respectively.

(i) Interest rate profile

The interest rate profile of the Group’s interest-bearing financial instruments at the balance sheet date is as follows:

	2009	2009	2008	2008
	Effective		Effective
	weighted		weighted
	average		average
	interest		interest
	rates		rates
	% (annual)	RMB’000	% (annual)	RMB’000
Fixed rate instruments
Time deposits	1.98	245,779	2.65	289,100
Pledged deposits	1.85	104,209	3.84	471,498
Bank loans	2.29	(1,000,977)	4.48	(1,422,303)
		(650,989)		(661,705)

Variable rate
instruments
Pledged deposits	0.36	180,285	0.36	316,760
Cash and cash equivalents	0.36	287,268	0.36	291,016
		467,553		607,776

(ii) Sensitivity analysis

At the balance sheet date, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group’s profit after tax and retained profits by approximately RMB4,208,000 (2008: RMB5,531,000). Other components of consolidated equity would not be affected by changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and retained profits that would arise assuming that the change in interest rates had occurred at the balance sheet date and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the balance sheet date. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the balance sheet date, the impact on the Group’s profit after tax and retained profits is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

(d) Foreign currency risk

Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place through the People’s Bank of China or other institutions authorised to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the People’s Bank of China.

The Group is exposed to currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily United States Dollars and Hong Kong Dollars. The Group manages this risk as follows:

(i) Recognised assets and liabilities

In respect of recognised assets and liabilities, including trade and other receivables, cash and cash equivalents, trade and other payables, bank loans and derivative financial instruments denominated in foreign currencies, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

(ii) Forecast transactions

The Group hedges part of its estimated foreign currency exposure in respect of highly probable forecast sales transactions. The Group uses foreign exchange forward contracts to hedge part of its currency risk and classifies these contracts as cash flow hedges in accordance with accounting policy as set out in note 1(f). All of these foreign exchange forward contracts have maturities of less than one year after the balance sheet date.

At 31 December 2009, the Group had foreign exchange forward contracts hedging forecast transactions with a net gain on fair value change of RMB3,434,000 (2008: a loss of RMB54,281,000) recognised as derivative financial instruments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1 (iii) Exposure to currency risk

The Group’s exposure to foreign currency risk was as follows based on notional amounts:

Trade and other receivables Copper futures contracts held as fair value hedging instruments Other copper futures contracts Time deposits Cash and cash equivalents Bank loans Trade and other payables Gross balance sheet exposure Deliverable foreign exchange forward contracts (note 21(b)) – sell foreign currency – buy foreign currency Non-deliverable foreign exchange forward contracts (note 21(b)) – sell foreign currency – buy foreign currency Net exposure	At 31 December 2009 2008 US$’000 HK$’000 US$’000 HK$’000 65,790 53,371 54,888 50,559 (708) – (81) – – – (333) – 1,551 – – – 25,083 9,867 7,987 17,763 (50,346) – (76,651) – (75,845) (43) (91,747) (290)	At 31 December 2009 2008 US$’000 HK$’000 US$’000 HK$’000 65,790 53,371 54,888 50,559 (708) – (81) – – – (333) – 1,551 – – – 25,083 9,867 7,987 17,763 (50,346) – (76,651) – (75,845) (43) (91,747) (290)	At 31 December 2009 2008 US$’000 HK$’000 US$’000 HK$’000 65,790 53,371 54,888 50,559 (708) – (81) – – – (333) – 1,551 – – – 25,083 9,867 7,987 17,763 (50,346) – (76,651) – (75,845) (43) (91,747) (290)	At 31 December 2009 2008 US$’000 HK$’000 US$’000 HK$’000 65,790 53,371 54,888 50,559 (708) – (81) – – – (333) – 1,551 – – – 25,083 9,867 7,987 17,763 (50,346) – (76,651) – (75,845) (43) (91,747) (290)
	(34,475) (88,742) – – 18,000	63,195 – – – –	(105,937) (383,800) 36,000 (180,000) 49,000	68,032 – – – –
	(105,217)	63,195	(584,737)	68,032

(iv) Sensitivity analysis

The following table indicates the approximate change in the Group’s result after tax that would have arisen if foreign exchange rates to which the Group had significant exposure at the balance sheet date had changed at that date, assuming all other risk variables remained constant.

	At 31 December	At 31 December	At 31 December
	2009		2008
	Increase/		Increase/
	(decrease)		(decrease)
	in profit after	in loss after
	tax and		tax and
	retained	accumulated
	profits		losses
	RMB’000		RMB’000
USD
– 1% strengthening of RMB (2008: 6%)	6,323		(223,403)
– 1% weakening of RMB (2008: 6%)	(6,323)		223,403
HKD
– 1% strengthening of RMB (2008: 6%)	(501)		3,178
– 1% weakening of RMB (2008: 6%)	501		(3,178)

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group entities’ profit after tax and retained profits measured in the respective functional currencies, translated into RMB at the exchange rate ruling at the balance sheet date for presentation purposes.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the balance sheet date. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group’s presentation currency. The analysis for 2009 has been changed to conform with the requirements of the financial reporting standards adopted in the current year.

(e) Commodity price risk

The Group’s exposure to commodity price risk relates principally to the market price fluctuation in copper on copper futures contracts and inventories held without fixed sales orders and commitments to buy or sell amounts of copper at contracted future. To partially offset the risk of fluctuation in copper prices on copper inventories held, the Group enters into sales orders with certain customers to deliver goods in future periods at fixed future prices. In addition, the Group enters into purchase orders with suppliers to purchase copper raw materials in future periods at corresponding fixed prices.

(i) Exposure to commodity price risk

The Group’s exposure to copper commodity price risk (including copper inventories and open copper futures contracts) at balance sheet dates was as follows:

Copper inventory excluding inventory with sales orders at fixed contracted prices Notional amounts of copper futures contracts to: – buy copper (note 21(a)) – sell copper (note 21(a)) Net exposure	2009 RMB’000 84,575 61,155 (125,690) 20,040	2008 RMB’000 34,746 133,939 (1,469) 167,216

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1 (ii) Sensitivity analysis

The following table indicates the approximate change in the Group’s profit after tax that would have arisen if commodity price to which the Group had significant exposure at the balance sheet date had changed at that date, assuming all other risk variables remained constant.

Copper inventory excluding inventory with sales orders at fixed contracted prices Copper futures contracts	At 31 December 2009 2008 Increase/ (decrease) in commodity price Effect on profit after tax and retained profits Effect on other components of equity Increase/ (decrease) in commodity price Effect on loss after tax and accumulated losses Effect on other components of equity RMB’000 RMB’000 RMB’000 RMB’000 10% – – 10% – – (10)% (5,328) – (10)% (3,162) – 10% 6,481 263 10% 2,305 6,265 (10)% (6,481) (263) (10)% (2,305) (6,265)	At 31 December 2009 2008 Increase/ (decrease) in commodity price Effect on profit after tax and retained profits Effect on other components of equity Increase/ (decrease) in commodity price Effect on loss after tax and accumulated losses Effect on other components of equity RMB’000 RMB’000 RMB’000 RMB’000 10% – – 10% – – (10)% (5,328) – (10)% (3,162) – 10% 6,481 263 10% 2,305 6,265 (10)% (6,481) (263) (10)% (2,305) (6,265)
		Increase/ (decrease) in commodity price Effect on loss after tax and accumulated losses Effect on other components of equity RMB’000 RMB’000 10% – – (10)% (3,162) – 10% 2,305 6,265 (10)% (2,305) (6,265)

The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and retained profits and other components of consolidated equity that would arise assuming that the change in copper price had occurred at the balance sheet date and had been applied to re-measure those inventories held at net realisable value and copper futures contracts held by the Group which expose the Group to commodity price risk at the balance sheet date. The analysis is performed on the same basis for 2008.

(f) Fair values

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.
Level 3 (lowest level): fair value measured using valuation techniques in which any significant input is not based on observable market data.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

2009

Assets Derivative financial instruments: – Copper futures contracts – Forward exchange contracts Liabilities Derivative financial instruments: – Copper futures contracts 2008 Assets Derivative financial instruments: – Forward exchange contracts Liabilities Derivative financial instruments: – Copper futures contracts – Forward exchange contracts	Level 1 RMB’000 2,278 – 2,278 (6,387) Level 1 RMB’000 –	The Group Level 2 Level 3 RMB’000 RMB’000 – – 3,434 – 3,434 – – – The Group Level 2 Level 3 RMB’000 RMB’000 16,171 –	The Group Level 2 Level 3 RMB’000 RMB’000 – – 3,434 – 3,434 – – – The Group Level 2 Level 3 RMB’000 RMB’000 16,171 –	Total RMB’000 2,278 3,434 5,712 (6,387) Total RMB’000 16,171 (37,519) (70,452) (107,971)
	(37,519) –	– (70,452)	– –	(37,519 (70,452
	(37,519)	(70,452)	–

During the year there were no significant transfers between instruments in Level 1 and Level 2.

(ii) Fair values of financial instruments carried at other than fair value

The carrying amounts of the Group’s and the Company’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2009 and 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

32. Immediate and ultimate holding company

As at 31 December 2009, the directors consider the immediate parent and ultimate controlling party of the Group to be Tai-I Electric Wire & Cable Co., Ltd., which is incorporated in Taiwan.

33. Accounting estimates and judgements

The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements.

(a) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market conditions and the historical experience of distributing and selling products of similar nature. Net realisable value could change significantly as a result of market conditions. Management reassess the estimation on net realisable value at each balance sheet date.

(b) Impairment of property, plant and equipment

In considering the impairment losses that may be required for certain of the Group’s property, plant and equipment, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available.

In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to items such as level of sale volume, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volume, selling price and amount of operating costs.

Changes in these estimates could have a significant impact on the carrying value of the assets and could result in impairment charge in future periods.

(c) Impairment losses on trade and other receivables

Impairment losses on trade and other receivables are assessed and provided based on the directors’ regular review and evaluation of collectibility. A considerable level of judgment is exercised by the directors when assessing the credit worthiness and past collection history of each individual customer. Any increase or decrease in the impairment losses for bad and doubtful debts would have a significant impact in profit or loss.

(d) Deferred tax assets

Deferred tax assets are recognised for all temporary deductible provisions to the extent that it is considered probable that taxable profit will be available in future against which the temporary deductible provisions can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that should be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

34. Possible impact of amendments, new standards and interpretations issued but not yet effective for the accounting period ended 31 December 2009

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2009 and which have not been adopted in these financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

	Effective for
	accounting period
	beginning on or after
Improvements to IFRS 2008
(Amendments to IFRS 5, Non-current assets held for sales
and discontinued operations)	1 July 2009
Revised IFRS 1, First-time adoption of International Financial
Reporting Standards	1 July 2009
Revised IFRS 3, Business combinations	Applied to business
	combinations for
	which the acquisition
	date is on or after the
	beginning of the first
	annual reporting
	period beginning on
	or after 1 July 2009
Amended IAS 27, Consolidated and separate financial
statements	1 July 2009
Amendment to IAS 39, Financial instruments:
Recognition and measurement – Eligible hedged items	1 July 2009
IFRIC 17, Distributions of non-cash assets to owners	1 July 2009
	1 July 2009 or 1
Improvements to IFRS 2009	January 2010
Amendments to IFRS 1, First-time adoption of International
Financial Reporting Standards – Additional exemptions for
first-time adopters	1 January 2010
Amendments to IFRS 2, Share-based payment – Group
cash-settled share-based payment transactions	1 January 2010
Amendment to IAS 32, Financial instruments:
Presentation – Classification of rights issues	1 February 2010
IFRIC 19, Extinguishing financial liabilities with equity
instruments	1 July 2010
Amendment to IFRS 1, First-time adoption of International
Financial Reporting Standards – limited exemption from
comparative IFRS 7 disclosures for first-time adopters	1 July 2010
Revised IAS 24, Related party disclosures	1 January 2011
Amendments to IFRIC 14, IAS 19 – The limit on a defined
benefit asset, minimum funding requirements and their
interaction – Prepayments of a minimum funding
requirement	1 January 2011
IFRS 9, Financial instruments Basis for conclusions on IFRS 9
Amendments to other IFRSs and guidance on IFRS 9	1 January 2013

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. Up to the date of issuance of the consolidated financial statements, the Group believes that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

35. Comparative figures

As a result of the application of IAS 1 (revised 2007), Presentation of financial statements, and IFRS 8, Operating segments, certain comparative figures have been adjusted to conform to the current year’s presentation and to provide comparative amounts in respect of items disclosed for the first time in 2009. Further details of these developments are disclosed in note 2.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

3. FINANCIAL AND TRADING PROSPECTS

Financial review

Turnover

For the year ended 31 December 2009, the revenue of the Group amounted to approximately RMB4,369,621,000 (2008: RMB6,491,053,000), representing a decrease of 32.68% from last year. Sales volume of bare copper wires and processing services of the Group rose while that of magnet wires fell, and the total sales volume increased by 2,650 tonnes. However, the turnover of the Group still dropped by approximately RMB2,121,432,000 as a result of the fall in international average copper prices (LME annual average copper price fell 26% to USD5,149.71/tonne in 2009 from USD6,955.88/tonne in 2008).

Sales volume of bare copper wires of the Group amounted to 86,756 tonnes of 2009, increasing by 2,365 tonnes (or a growth rate of 2.80%) as compared with 84,391 tonnes of 2008; sales volume of magnet wires amounted to 26,489 tonnes of 2009, decreasing by 7,066 tonnes (or a decrease of approximately 21.06%) as compared with 33,555 tonnes of 2008; volume of processing services amounted to 35,584 tonnes of 2009, increasing by 7,351 tonnes (or a growth rate of 26.04%) as compared with 28,233 tonnes of 2008.

Revenue of bare copper wires for 2009 recorded at RMB3,166,888,000 (2008: RMB4,438,671,000), reducing by RMB1,271,783,000. Revenue of magnet wires for 2009 recorded at RMB1,178,376,000 (2008: RMB2,034,475,000), representing a drop of RMB856,099,000. However, revenue of processing services of bare copper wires recorded at RMB24,357,000 in 2009 (2008: RMB17,907,000), increasing by approximately RMB6,450,000.

Gross Profit

For the year ended 31 December 2009, gross profit was RMB131,416,000 (2008: RMB9,253,000), increasing by approximately RMB122,163,000.

The growth of gross profit for 2009 was due to the effective management of purchase price of copper plates and sales price and the cost reduction measures implemented by the Company. Gross profit of magnet wires increased by RMB16,394,000 compared with that of 2008; gross profit of bare copper wires increased by RMB101,057,000 compared with that of 2008; gross profit of processing services increased by RMB4,712,000 compared with that of 2008.

Other Revenue

For the year ended 31 December 2009, other revenue of the Group was approximately RMB17,541,000 (2008: RMB42,786,000). Other revenue mainly represented interest income of RMB13,291,000 for the year ended 31 December 2009 (2008: RMB34,667,000), the decrease in interest income was mainly due to the

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APPENDIX 1

decrease of time deposits and pledged deposits of 2009 as well as the weighted average interest rate of 2009 was significantly lower than that of 2008; and government grants of RMB4,008,000 for the year ended 31 December 2009 (2008: Nil).

Other Net Loss

Other net loss of the Group was approximately RMB2,810,000 for the year ended 31 December 2009 (2008: RMB69,924,000), which was mainly attributable to net loss on exchange of RMB8,266,000 (net gain on exchange for 2008: RMB32,089,000), net gain on derivative financial instruments-copper futures contracts of approximately RMB589,000 (net loss for 2008: RMB34,702,000), net gain on derivative financial instruments-foreign exchange forward contracts of approximately RMB3,301,000 (net loss for 2008: approximately RMB68,619,000) and other income such as the sale of scrap copper of RMB1,730,000 (2008: RMB1,228,000).

Finance Costs

Finance costs of the Group for the year ended 31 December 2009 was approximately RMB48,626,000 (2008: RMB101,566,000), representing a decrease of approximately RMB52,940,000. The decrease in finance costs was mainly due to interest expenses of approximately RMB43,273,000 (2008: RMB93,177,000) which represented a decrease of approximately RMB49,904,000. The finance costs of the Group were mainly arising from letters of credit for copper purchase from the international market and short term financing facilities for copper purchase within China. The finance costs of the Group was far less than that of 2008 due to: (1) the financing amount of 2009 was lower than that of 2008 because international copper prices were lower than those in 2008 thereby requiring lower borrowings to finance working capital; and (2) the average interest rate of 2009 was also lower than that of 2008. Besides, the issuance fees of letters of credit was recorded at approximately RMB5,353,000 (2008: RMB8,389,000), representing a decrease of approximately RMB3,036,000.

Profit/(Loss) for the year

The Group recorded a profit of approximately RMB39,345,000 for the year ended 31 December 2009 versus a loss of RMB208,426,000 in 2008.

Return on Shareholder’s Equity

For the year ended 31 December 2009, the Group achieved a profit of RMB39,345,000 (2008: a loss of RMB208,426,000) and a return on shareholders’ equity of 6.61% (2008: -29.97%), shareholders’ return on shareholders’ equity increased by 36.58 percent from last year.

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APPENDIX 1

Business review

Industry Overview

The global economy in the first half of 2009 was still under the impact of the global financial crisis of 2008 and the momentum of market recovery was still weak. However, in order to maintain a drive for economic growth, the Chinese government continued to launch domestic demand expansion policies to stimulate the domestic consumption market so as to offset the blow to its export trade brought by the global recession. Since the beginning of the second half of 2009, China’s domestic demand expansion policies started taking effect. Driven by the robust domestic consumption, the production of industries continued to develop steadily, posting China’s GDP growth for 2009 at 8.7%, thereby succeeding to achieve the goal of 8% for the macro economic fine tuning. In addition, the global economy stabilized gradually and the international consumption market recovered gradually.

Moreover, international copper prices reversed the decline in the second quarter of 2009. According to a research report of the International Copper Study Group (the “ICSG”), the global consumption of refined copper in 2009 doubled compared to that of 2008, and China’s consumption of refined copper during 2009 accounted for approximately 40% of the world. The Group is located in China-a market with steady growth, and enjoys geographical advantages, enabling it to adjust the sales strategy according to market demand and supply.

Continuous growth of sales of bare copper wires

Due to the expansion of bare copper wire of the Group in 2009 and the effects of the growth of China’s domestic demand and the economic incentive schemes put forward by the Chinese government to expand domestic demand, the sales volume of bare copper wires of the Group rose by 2,365 tonnes to 86,756 tonnes of 2009 from 84,391 tonnes of 2008, representing an increase of 2.80% over 2008. However, as a consequence of the fall in international copper prices (LME annual average copper price fell 26% to USD5,149.71/tonne in 2009 from USD6,955.88/tonne in 2008), the turnover of bare copper wires reduced to RMB3,166,888,000 of 2009 from RMB4,438,671,000 of 2008, representing a decrease of 28.65% over last year.

Drop in sales of magnet copper wires and increase in the proportion of domestic sales

In contrast with bare copper wires, magnet copper wires of the Group are relatively downstream products, and the demand of which in the international and China markets was recovering at a slower pace. The sales volume of magnet copper wires reduced by 7,066 tonnes to 26,489 tonnes of 2009 from 33,555 tonnes of 2008, representing a fall of approximately 21.06%. The turnover also fell to RMB1,178,376,000 of 2009 from RMB2,034,475,000 of 2008, representing a decrease of approximately 42.08%. However, in response to the growth of China’s domestic sales in 2009, the Group adjusted the proportion of its domestic sales. In 2008, the ratio of domestic sales to export sales was 30.13%: 69.87% while in 2009 the ratio was 33.10%: 66.90%.

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Modifying facilities to increase capacity

The plan for the modification of facilities to increase production capacity of Tai-I Jiang Corp, a subsidiary of the Company, was completed in March 2009. As a result, the Group owned a worldwide patented SCR continuous casting and rolling production system with an annual capacity of 180,000 tonnes (annual capacity of 150,000 tonnes in 2008), and enjoyed the competitive advantages of having facilities featuring excellent functions, high capacity, sophisticated production techniques, prime quality products and low costs. This effectively increased the proportion of the Group’s sales and processing activities in China, which in turn enhanced the Group’s profitability, enabled the Group to capture the opportunity brought by the growth of the domestic demand in China and to achieve the goal of sales of all volume produced.

Striving for the best quality to minimize complaints from clients

The technical and quality control departments of the Group have been relentless in improving the quality of magnet wires, which was effective in reducing complaints about axis damages and oxidation. Consequently, complaints from clients of magnet wires were minimized in the second half of 2009.

Quality control system implementation

In 2009, all product categories of magnet wire products of the Group obtained the certification of ISO/TS16949 auto components supplier quality control system from a certification organization. Previously, only part of these products obtained this certification. The full implementation of this quality control system implied that there was a further enhancement in the quality control standard of magnet wire products of the Group, which served to safeguard and further improve the competitive edge of products of the Group.

Outlook for 2010 and Improvement Strategies

Marketing enhancement plan

The Group will fully leverage on the growth of domestic sales in China and the recovery of the international market to capture emerging market opportunities, enhance marketing management, identify new clients and boost the sales volume for the sake of enhancing the competitiveness of the Group. The Group will work more closely with clients of automobile magnet wires and internationally-renowned major clients of high frequency resistant magnet wires.

Production management and man power quality enhancement plans

The Group will enhance its production management and the quality of manpower in 2010 to upgrade the production management efficiency and decrease the unit labour cost in order to strengthen the profitability of the Group. The Group plans to devote

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX 1

efforts to refined production plans. At the same time, the Group will devote further efforts to its safety management, energy saving, consumption reduction and environmental friendly production to enhance the overall competitiveness of the Group.

New product development plan

In order to enhance the profitability of the Group, we will actively develop high value-added downstream bare copper wire products. We will also develop green products with our high quality bare copper wires and sophisticated processing technologies to meet market demand in the future.

Energy saving and consumption reduction intensification

Tai-I Copper, a subsidiary of the Group, will continue to carry out equipment modification projects mainly on the heated wind conduit after the shift of heat from furnaces and the recovery of residual heat. It is expected that the savings in energy consumption will reach 908 tonnes per year and the annual energy costs of Tai-I Copper will be reduced by RMB5,500,000. In addition, we have been working hard to implement energy saving and consumption reduction measures in the hope that we can further initiate projects in these areas.

Liquidity and Financial Resources

The Group’s working capital is funded by the cash generated by internal operating activities or short term bank borrowings. As at 31 December 2009, the Group maintained cash and cash equivalents amounted to RMB287,268,000 (2008: RMB291,016,000). The short term bank borrowings as at 31 December 2009 amounted to RMB1,000,977,000 (2008: RMB1,422,303,000). As at 31 December 2009, the Group’s current ratio was 106.43% (31 December 2008: 101.79%), and the Group’s net gearing ratio (balance of total borrowings less cash and cash equivalent, time deposits and pledged deposits divided by total assets and multiplied by 100%) was 6.99% (2008: 1.74%).

Pledged deposits placed for the issuance of letters of credit and commercial bills in relation to the purchases of copper plates amounted to RMB284,494,000 as at 31 December 2009 (2008: RMB788,258,000), decreased by 63.91%. During 2009, pledged deposits were required by the banks for the issuance of letters of credit and commercial bills.

Capital Structure

The Group adopts a prudent treasury policy, and its net debt-to-adjusted capital ratio (calculated as bank loans less pledged deposits and cash and cash equivalent plus unaccrued proposed dividend then divided by adjusted capital) as at 31 December 2009 was 67.88% (2008: 61.54%). The current ratio (calculated as current assets divided by current liabilities) as at 31 December 2009 was 106.43% (2008: 101.79%). The Group continued to monitor stringent debt collection policy so as to minimise the risks of sales on credit and to ensure that funds are timely collected.

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Foreign exchange

The Group’s revenue is mainly denominated in US dollar, Hong Kong dollar and Renminbi while it pays US dollar and Renminbi for raw materials purchase. For the year ended 31 December 2009, 61%, 3% and 36% of the Group’s revenue were denominated in US dollar, Hong Kong dollar and Renminbi, while 66% and 34% of its payments were denominated in US dollar and Renminbi. For the year ended 31 December 2009, the Group has a net foreign exchange loss of RMB8,266,000 (2008: a net gain of RMB32,089,000).

Pledge of assets

As at 31 December 2009, the banking facilities of the Group are secured by buildings, land use rights, pledged deposits and machinery, equipment and tools. The aggregate net book value of the assets pledged amounted to approximately RMB560,302,000.

The capital expenditure as at 31 December 2009 was approximately RMB19.6 million, comprising machinery, equipment and tools, dies and moulds, motor vehicles and other fixed assets and construction in progress.

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

Significant investments held

The Group had no significant investments held during the year ended 31 December 2009.

Material acquisition and disposals

The Group had no material acquisitions and disposals of subsidiaries and associates during the year ended 31 December 2009.

Employees

As at 31 December 2009, the Group employed 922 full-time employees in the PRC (2008: 986). The Group’s salaries and remuneration policies are to determine the remuneration package of employees by reference to their performance, experience and prevailing market conditions, and their positions, duties and responsibilities in the Group. The Group continued to provide retirement, medical, employment injury, unemployment and maternity benefits which are governed by the state-managed social welfare scheme operated by the local government of the PRC.

Contingent liabilities

As at 31 December 2009, the Group did not have any significant contingent liabilities (2008: Nil).

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APPENDIX 1

4. INDEBTEDNESS STATEMENT

Borrowings

At the close of business on 30 April 2010, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding current bank loans and borrowings of approximately RMB 1,273,905,000. As at 30 April 2010, current bank loans and borrowings amounting to approximately RMB 431,989,000 were secured by the Enlarged Group’s buildings, land use right, machinery, equipment and tools and pledged deposits with an aggregate carrying value of approximately RMB 660,665,000. The current bank loan amounting to approximately RMB 25,000,000 was guaranteed by Sichuan Jiguang Trading Co., Ltd.

Banking facilities

At the close of business on 30 April 2010, being the latest practical date for this statement of indebtedness prior to the date of this circular, the Enlarged Group had banking facilities amounting to approximately RMB 3,988,557,000. Of the total banking facilities, except for that utilised as bank loans and borrowings as stated above, approximately RMB 1,506,165,000 was utilised as issuance of letters of credit and commercial bills.

Contingent liabilities

Beijing OLM, Fujian Start Group Co., Ltd. and Beijing Sheng Bang Investment Co., Ltd. had issued joint guarantees to banks in respect of the bank loans granted to Beijing Start Technology Development Co., Ltd. on 14 October 2004. As at 30 April 2010, the amounts of unreleased guarantees were approximately RMB 7,300,000. The Directors consider that in accordance with debt settlement agreements entered between the banks, Fujian Start Group Co., Ltd. and Beijing Start Technology Development Co., Ltd. on 25 March 2008, the joint guarantees will be fully released when the outstanding bank loans are due be fully repaid in June 2010 and therefore no material liability existed on 30 April 2010.

Disclaimer

Save as disclosed above, at the close of business on 30 April 2010, the Enlarged Group did not have any other outstanding liabilities or any mortgages, charges, debentures, loan capital, bank overdrafts or loans, liabilities under acceptance or other similar indebtedness, hire purchase or finance lease obligations or any guarantees or other material contingent liabilities.

The Directors confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 30 April 2010 up to the Latest Practicable Date.

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5. WORKING CAPITAL

The Directors are of the opinion that taking into account the internal resources and financing facilities available to the Enlarged Group and barring any unforeseen circumstances, the Enlarged Group, which takes into account the effect of the Acquisition, will have sufficient working capital for at least twelve months from the date of this circular.

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APPENDIX 2

1. ACCOUNTANT’S REPORT OF BEIJING OLM

The following is the text of a report on the financial information of Beijing Orient LegendMaker Software Development Co., Ltd., prepared for the purpose of incorporation in this circular, received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

28 June 2010

The Directors Tai-I International Holdings Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Beijing Orient LegendMaker Software Development Co., Ltd. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) including the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of the Group, for each of the years ended 31 December 2007, 2008 and 2009 (the “Relevant Period”), and the consolidated balance sheets of the Group as at 31 December 2007, 2008 and 2009, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Tai-I International Holdings Limited dated 28 June 2010 (the “Circular”). The Company was established in the People’s Republic of China (the “PRC”) on 20 August 1998 as a limited liability company under the Company Law of the PRC. The Company is principally engaged in provision of integrated business software solutions in the PRC. Pursuant to a domestic acquisition completed on 8 June 2010 (the “Domestic Acquisition”) as detailed in the section headed “Letter from the Board” in the Circular, the Company became a wholly-owned subsidiary of Liang Hui Holdings Limited.

The audited financial statements of the Company for the years ended 31 December 2007 and 2008 prepared in accordance with the relevant accounting rules and regulations applicable to enterprises established in the People’s Republic of China (the “PRC”), were audited by Zhong Ding Certified Public Accountants Co., Ltd., certified public accountants registered in the PRC. No audited financial statements of the Company have been prepared for the year ended 31 December 2009.

All companies comprising the Group have adopted 31 December as their financial year end date. Details of the companies comprising the Group that are subject to audit during the Relevant Period are set out in note 9 of Section B.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

The directors of the Company have prepared the consolidated financial statements of the Group for the Relevant Period (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). We have audited the Underlying Financial Statements for each of the years ended 31 December 2007, 2008 and 2009 in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The Financial Information has been prepared by the directors of the Company based on the Underlying Financial Statements, with no adjustments made thereon and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of the Company are responsible for the preparation and true and fair presentation of the Financial Information in accordance with IFRSs issued by the IASB, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Financial Information that is 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.

Our responsibility is to form an opinion on the Financial Information based on our audit procedures.

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have examined the Underlying Financial Statements and have carried out such appropriate procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA.

We have not audited any financial statements of the Company, its subsidiaries or the Group in respect of any period subsequent to 31 December 2009.

OPINION

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the Group’s consolidated results and cash flows for the Relevant Period, and the state of affairs of the Group as at 31 December 2007, 2008 and 2009.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

A FINANCIAL INFORMATION

A1 Consolidated Statements of Comprehensive Income For the years ended 31 December 2007, 2008 and 2009

(Expressed in Renminbi Yuan)

2009 RMB’000 133,073 (116,062)	2008 RMB’000 90,789 (80,870)	2007 RMB’000 63,630 (55,605) 8,025 (5,808) (6,445) (22) (4,250) 675 (3,575) – (3,575) (3,575) – (3,575)
17,011 (6,374) (7,954) (84) 2,599 (517)	9,919 (5,758) (5,417) 74 (1,182) (44)	8,025 (5,808 (6,445 (22
		(4,250 675
2,082	(1,226)
–	–	–
2,082	(1,226)
2,030 52	(1,226) –	(3,575 –
2,082	(1,226)

The notes on pages 89 to 114 form part of these Financial Information.

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APPENDIX 2

A2 Consolidated Balance Sheets At 31 December 2007, 2008 and 2009

(Expressed in Renminbi Yuan)

2009 RMB’000 2,394 10,468 1,347	2008 RMB’000 2,234 3,887 1,481	2007 RMB’000 2,330 5,185 1,516 9,031 ------------ 6,629 25,660 42,795 1,980 77,064 ------------ – 9,097 51,081 – 60,178 ------------ ----------------------- 16,886 ------------ ----------------------- 25,917 ------------ 25,917 60,000 (34,083) 25,917 – ------------ 25,917
14,209 ------------ 4,879 34,628 52,841 8,864 101,212 ------------ 50,000 18,337 4,082 1,256	7,602 ------------ 3,928 28,312 42,624 1,000 75,864 ------------ – 10,829 47,946 –	9,031 ------------ 6,629 25,660 42,795 1,980
		77,064 ------------ – 9,097 51,081 –
73,675 ------------ ----------------------- 27,537 ------------ ----------------------- 41,746 ------------ 41,746	58,775 ------------ ----------------------- 17,089 ------------ ----------------------- 24,691 ------------ 24,691
60,000 (18,425)	60,000 (35,309)	60,000 (34,083
41,575 171 ------------ 41,746	24,691 – ------------ 24,691

The notes on pages 89 to 114 form part of these Financial Information.

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APPENDIX 2

A3 Consolidated Statements of Changes in Equity For the years ended 31 December 2007, 2008 and 2009
(Expressed in Renminbi Yuan)

Attributable to the	Attributable to the	equity holders of the Company PRC statutory reserve Accumulated losses Total RMB’000 RMB’000 RMB’000 18(b) – (30,508) 29,492 – (3,575) (3,575) – (34,083) 25,917 – (1,226) (1,226) – (35,309) 24,691	equity holders of the Company PRC statutory reserve Accumulated losses Total RMB’000 RMB’000 RMB’000 18(b) – (30,508) 29,492 – (3,575) (3,575) – (34,083) 25,917 – (1,226) (1,226) – (35,309) 24,691	equity holders of the Company PRC statutory reserve Accumulated losses Total RMB’000 RMB’000 RMB’000 18(b) – (30,508) 29,492 – (3,575) (3,575) – (34,083) 25,917 – (1,226) (1,226) – (35,309) 24,691	Minority interest RMB’000 18(c) – – – – –	Total equity RMB’000 29,492 (3,575)
Paid-in capital RMB’000 18(a) 60,000 – 60,000 – 60,000	Capital reserve RMB’000 – – – – –	PRC statutory reserve Accumulated losses RMB’000 RMB’000 18(b) – (30,508) – (3,575) – (34,083) – (1,226) – (35,309)
						25,917

						(1,226)
						24,691

– – –	14,854 – –	– – 398	– 2,030 (398)	14,854 2,030 –	119 52 –	14,973 2,082 –
60,000	14,854	398	(33,677)	41,575	171	41,746

The notes on pages 89 to 114 form part of these Financial Information.

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APPENDIX 2

A4 Consolidated Cash Flow Statements For the years ended 31 December 2007, 2008 and 2009

(Expressed in Renminbi Yuan)

2009 RMB’000 2,599 1,123 358 2,370 4	2008 RMB’000 (1,182) 1,123 234 1,298 (17)	2007 RMB’000 (4,250) 1,123 279 1,297 167 (1,384) 1,324 (5,348) 8,309 (875) 2,026 – 2,026 ------------ – (792) 83
6,454 1,224 1,556 – (2,998) 6,236 (53) 6,183 ------------ 1,845 (164) –	1,456 1,578 (2,652) (2,964) 1,732 (850) (9) (859) ------------ – (225) 104	(1,384 1,324 (5,348 8,309 (875
		2,026 –
		2,026 ------------ – (792 83

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

A4 Consolidated Cash Flow Statements (continued) For the years ended 31 December 2007, 2008 and 2009

(Expressed in Renminbi Yuan)

Note Net cash generated from/(used in) investing activities Cash flow from financing activities Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at the end of year 14	2009 RMB’000 1,681 ------------ – ------------ 7,864 1,000 8,864	2008 RMB’000 (121) ------------ – ------------ (980) 1,980 1,000	2007 RMB’000 (709) ------------ – ------------ 1,317 663 1,980

The notes on pages 89 to 114 form part of these Financial Information.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

B NOTES TO FINANCIAL INFORMATION

1. Significant accounting policies

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) which collective term includes International Accounting Standards and related interpretations, promulgated by the International Accounting Standards Board. Further details of the significant accounting policies adopted are set out in the remainder of this section.

The following standards have been early adopted as at the beginning of the Relevant Period:

IFRS 7,	Financial instruments: disclosures
Amendments to IAS 1,	Presentation of financial statements:	capital disclosures
Amendments to IAS 39,	Financial instruments: Recognition and		measurement
IFRS 8,	Operating segments
Revised IAS 1,	Presentation of financial statements
Revised IAS 23,	Borrowing costs
Amendments to IAS 32,	Financial instruments: Presentation
Amendments to IFRS 1,	First-time adoption of International Financial Reporting Standards,
Amendments to IAS 27,	Consolidated and separate financial	statements – cost of an investment
	in a subsidiary, jointly-controlled entity or associate
Amendments to IFRS 7,	Financial instruments: Disclosures	–	Improving	disclosures	about
	financial instruments

These are the Group’s first financial statements and IFRS 1 has been applied. The accounting policies set out below have been applied consistently to all periods presented in the Financial Information and in the preparation of an opening IFRSs balance sheet at 1 January 2007 (the date of transition).

In preparing its opening IFRSs balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in its old basis of accounting, being accounting principles generally accepted in the PRC (“PRC GAAP”).

The Financial Information also complies with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The IASB has issued a number of new and revised IFRSs. For the purpose of preparing this Financial Information, the Group has adopted all these new and revised IFRSs to the Relevant Period, except for any new standards or interpretations that are not yet effective for the accounting period ended 31 December 2009. The revised and new accounting standards and interpretations issued but not yet effective for the accounting year beginning on 1 January 2009 are set out in note 25.

(b) Basis of measurement

The Financial Information is presented in Renminbi (“RMB”), rounded to the nearest thousand. The measurement basis used in the preparation of the Financial Information is historical cost basis.

(c) Use of estimates and judgements

The preparation of Financial Information in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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APPENDIX 2

(c) Use of estimates and judgements (continued)

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.

Judgements made by management in the application of IFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 24.

(d) Subsidiaries

Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the Financial Information from the date that control commences until the date that control ceases.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheets within equity, separately from equity attributable to the equity holders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated statements of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between minority interests and the equity holders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated Financial Information. Unrealised losses arising from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

(e) Property, plant and equipment

Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 1(h)(ii)):

–	Motor	vehicles	3-8	years
–	Office	equipment	5	years

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(f) Intangible assets

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses (see note 1(h)(ii)).

Other development expenditure is recognised as an expense in the period in which it is incurred. Other intangible assets that are acquired by the group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite and impairment losses (see note 1(h)(ii)).

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives, except the customer contracts, which is amortised when the economic benefits of the assets are expected to be consumed. The following intangible asset with finite useful life is amortised from the date it is available for use and its estimated useful life is as follows:

– Firewall patents 10 years – Customer relationship 4 years

(g) Operating lease charges

(h) Impairment of assets

(i) Impairment of trade and other receivables

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, impairment loss is determined and recognised as follows:

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(h) Impairment of assets (continued)

(i) Impairment of trade and other receivables (continued)

(ii) Impairment of other assets

property, plant and equipment;
goodwill; and
intangible assets;

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Reversals of impairment losses

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated cost necessary to make the sale.

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(j) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 1(h)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 1(h)(i)).

(k) Cash and cash equivalents

(l) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(m) Income tax

All deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

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(n) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

(o) Revenue recognition

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

Provided it is probable that the future economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Software maintenance services and other services

Software maintenance services and other services are provided in the form of fixed-price contracts. Sales of these services are recognised in the period the services are provided, using a straight-line basis over the term of contract.

(ii) Sales of standard software and hardware

Sales of standard software and hardware are recognised when the Group has delivered the products to customer; the customer has accepted the products and collectibility of the related receivables is reasonably assured.

(iii) Multiple element arrangements

The Group offers certain arrangements whereby a customer can purchase software together with certain of the related maintenance and other services. When such multiple element arrangements exist, the total arrangement consideration is allocated to each element based on their relative fair values, as determined based on the current market price of each of the elements when sold separately. The revenue relating to the service elements, which represent their relative fair value in relation to the fair value of each of the elements in the arrangement, are recognised on a straight-line basis over the service period.

(iv) Interest income

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

(p) Borrowing costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

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(q) Employee benefits

(i) Salaries, annual bonuses and staff welfare are accrued in the period in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
(ii) Contributions to appropriate local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in the statement of comprehensive income as incurred, except to the extent that they are included in the cost of inventories not yet recognised as an expense.

(r) Related parties

For the purposes of the Financial Information, a party is considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a jointly controlled entity in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in 1(r)(i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(s) Segment reporting

The Group operates in a single business segment, provision of integrated business software solutions in the PRC. Accordingly, no segment analysis is presented.

2. Turnover

The principal activities of the Group are the provision of integrated business software solutions in the PRC.

The amount of each significant category of turnover recognised during the Relevant Period is as follows:

Software maintenance and other services Sale of software products and others	2009 RMB’000 131,211 1,862 133,073	2008 RMB’000 85,726 5,063 90,789	2007 RMB’000 59,833 3,797
			63,630

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3. Profit/(loss) before taxation

Profit/(loss) before taxation is arrived at after charging:

(i) Staff costs

Salaries, wages and other benefits Contributions to defined contribution retirement schemes (note 20)	2009 RMB’000 4,597 957 5,554	2008 RMB’000 3,781 819 4,600	2007 RMB’000 3,834 749
			4,583

(ii) Other items

	2009	2008	2007
	RMB’000	RMB’000	RMB’000
Depreciation	358	234	279
Amortisation	2,370	1,298	1,297
Write-down of inventories to net book value	1,123	1,123	1,123
Operating leases charges in respect of properties	1,260	869	883

4. Income tax (expenses)/credit

(i) Income tax (expenses)/credit in the consolidated statements of comprehensive income represents:

Current tax – PRC Provision for the year Deferred tax Origination and reversal of temporary differences	2009 RMB’000 (383) (134) (517)	2008 RMB’000 (9) (35) (44)	2007 RMB’000 – 675
			675

The provision for PRC income tax is based on the respective corporate income tax rates applicable to the companies located in the PRC as determined in accordance with the relevant income tax rules and regulations of the PRC. The applicable income tax rate to domestic enterprises in the PRC was 33% in 2007.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (“new tax law”) which takes effect on 1 January 2008. As a result of the new tax law, the income tax rate applicable to the PRC companies was reduced from 33% to 25% from 1 January 2008.

Pursuant to the approvals obtained from the relevant PRC tax authorities, being high-tech enterprises in the PRC, the Company is entitled to a preferential income tax rate of 15% for 2008 and 2009, Chengdu Orient LegendMaker Information Industry Co., Ltd. (“Chengdu OLM”) is entitled to a preferential income tax rate of 15% for 2009.

These tax rates were used to calculate the Group’s deferred tax assets and liabilities as at 31 December 2007, 2008 and 2009.

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4. Income tax (expenses)/credit (continued)

(ii) Reconciliation between income tax (expenses)/credit and accounting profit/(loss) at applicable tax rates:

Profit/(loss) before taxation Notional tax on profit/(loss) before tax, calculated at the rate applicable to the Group’s profit/(loss) in the tax jurisdiction concerned (2009:25%, 2008:25%, 2007:33%) Effect of non-deductible expenses Effect of tax concessions	2009 RMB’000 2,599	2008 RMB’000 (1,182)	2007 RMB’000 (4,250
	(650) (269) 402	296 – (340)	1,403 – (728
	(517)	(44)	675

(iii) Taxation in the consolidated balance sheets represents:

At 1 January Provision for income tax for the year Acquisition of subsidiary Amounts paid At 31 December	2009 RMB’000 – 383 926 (53) 1,256	2008 RMB’000 – 9 – (9) –	2007 RMB’000 – – – –
			–

5. Directors’ remuneration

Details of directors’ remuneration are as follows:

Year ended 31 December 2009

Name of directors Executive directors Miss Lin Yan Hua Mr. Wu Wen Jie Mr. Liu Jin Song Total	Fee RMB’000 – – – –	Basic salaries, allowances and other benefits RMB’000 – – 300 300	Bonus RMB’000 – – 120 120	Total RMB’000 – – 420
				420

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APPENDIX 2

5. Directors’ remuneration (continued)

Year ended 31 December 2008

Name of directors Executive directors Mr. Ju Zheng Yi Mr. Huang Kai Mr. Liu Jin Song Total Year ended 31 December 2007 Name of directors Executive directors Mr. Ju Zheng Yi Mr. Huang Kai Mr. Liu Jin Song Total	Fee RMB’000 – – – – Fee RMB’000 – – – –	Basic salaries, allowances and other benefits RMB’000 – – 240 240 Basic salaries, allowances and other benefits RMB’000 – – 240 240	Bonus RMB’000 – – 120 120 Bonus RMB’000 – – 120 120	Total RMB’000 – – 360
				360

				Total RMB’000 – – 360
				360

An analysis of directors’ remuneration by the number of directors and remuneration range is as follows:

			2009	2008	2007
Nil	to	RMB1,000,000	1	1	1

There were no amounts paid during the Relevant Period to the directors in connection with their retirement from employment with the Group, or inducement to join. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Period.

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APPENDIX 2

6. Individuals with highest emoluments

The five highest paid individuals of the Group include 1 director of the Company during the Relevant Period, whose remuneration are reflected in the analysis presented above. Details of remuneration paid to the remaining 4 highest paid individuals of the Group are as follows:

Basic salaries, allowances and other benefits Bonus Number of senior management	2009 RMB’000 984 390 1,374 4	2008 RMB’000 780 410 1,190 4	2007 RMB’000 768 380
			1,148

			4

The above individuals’ emoluments are within the band of Nil to RMB 1,000,000.

There were no amounts paid during the Relevant Period to the five highest paid employees in connection with their retirement from employment with the Group, or inducement to join.

7. Dividends

No dividends were declared by the Group during the Relevant Period.

8. Earnings per share

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

9. Acquisition of subsidiaries

Pursuant to the Completion of the Domestic Acquisition, the Company became a wholly-owned subsidiary of Liang Hui Holdings Limited. As part of the Domestic Acquisition, Miss Lin Yan Hua and Mr. Wu Wen Jie transferred their entire equity interests in Chengdu OLM to the Company on 19 October 2009 for a consideration of RMB 30,000,000. Upon the completion of the share transfer, Chengdu OLM became a wholly-owned subsidiary of the Company.

As of 31 December 2009, the Company has direct or indirect interests in the following subsidiaries, all of which are private companies, particulars of which are set out below:

			Attributable	Attributable
	Place and date of	Registered	equity	interest
Name of company	establishment	capital	Direct	Indirect	Principal activities
Chengdu OLM	The PRC	RMB30,000,000	100%	–	Provision of integrated
	28 December 2001				business software solution
Shanghai Orient LegendMaker	The PRC	RMB 1,000,000	–	90%	Provision of integrated
Technology Co., Ltd. (“Shanghai	10 August 1998				business software solution
OLM”)

Note:

(i) The type of legal entity of Chengdu OLM and Shanghai OLM is domestic Chinese enterprise.
(ii) The Company did not have any interests in other companies as of 31 December 2007 or 2008.

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9. Acquisition of subsidiaries (continued)

This acquisition has been accounted for using the purchase method. Chengdu OLM has contributed profit before taxation of approximately RMB 2,449,000 to the Group for the period from the acquisition date to 31 December 2009. As the Company and Chengdu OLM were owned by the same group of equity holders before the business combination, the amount of negative goodwill arising as a result of the acquisition amounting to RMB 14,854,000 was recognised in capital reserve as contribution from the equity holders. The net assets acquired and the goodwill arising accordingly are as follows:

Property, plant and equipment
Intangible assets (note 11)
Inventories
Trade and other receivables
Amounts due from related parties
Cash and cash equivalents
Bank loans
Trade and other payables
Amounts due to related parties
Income tax payables
Minority interest
Negative goodwill
Satisfied by:
Amounts due from related parties (note)
Net inflow of cash and cash equivalents in respect of the acquisition of Chengdu OLM

Identifiable
assets
acquired
and
liabilities
assumed
RMB’000
315
8,951
3,298
7,872
106,712
1,845
(50,000)
(31,137)
(1,957)
(926)
(119)
44,854
(14,854)
30,000
1,845

Note: The consideration of RMB 30,000,000 for the acquisition of Chengdu OLM was satisfied by the transfer of the balance of amounts due from related parties with a carrying amount of RMB 30,000,000 to Miss Lin Yan Hua and Mr. Wu Wen Jie.

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APPENDIX 2

10. Property, plant and equipment

Motor vehicles RMB’000 1,846 825 (1,195)	Office equipment RMB’000 3,692 129 (162)	Total RMB’000 5,538 954 (1,357) 5,135 ------------ --------------------------------------------- 225 (578) 4,782 ------------ --------------------------------------------- 164 1,738 (37) 6,647 ------------ --------------------------------------------- (3,633) (279) 1,107 (2,805) ------------ --------------------------------------------- (234) 491 (2,548) ------------ --------------------------------------------- (358) (1,380) 33 (4,253) ------------ --------------------------------------------- 2,394 2,234 2,330
1,476 ------------ --------------------------------------------- 117 (418) 1,175 ------------ --------------------------------------------- – 318 – 1,493 ------------ --------------------------------------------- (1,393) (71) 956 (508) ------------ --------------------------------------------- (111) 400 (219) ------------ --------------------------------------------- (159) (196) –	3,659 ------------ --------------------------------------------- 108 (160) 3,607 ------------ --------------------------------------------- 164 1,420 (37) 5,154 ------------ --------------------------------------------- (2,240) (208) 151 (2,297) ------------ --------------------------------------------- (123) 91 (2,329) ------------ --------------------------------------------- (199) (1,184) 33	5,135 ------------ --------------------------------------------- 225 (578
		4,782 ------------ --------------------------------------------- 164 1,738 (37
		6,647 ------------ --------------------------------------------- (3,633 (279 1,107
		(2,805 ------------ --------------------------------------------- (234 491
		(2,548 ------------ --------------------------------------------- (358 (1,380 33
(574) ------------ --------------------------------------------- 919 956 968	(3,679) ------------ --------------------------------------------- 1,475 1,278 1,362

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APPENDIX 2

11. Intangible assets

Customer relationship RMB’000 – 6,668	Customer contracts RMB’000 – 2,283	Firewall patents RMB’000 12,972 –	Total RMB’000 12,972 8,951 21,923 ------------ --------------------------------------------- (6,490) (1,297) (7,787) ------------ --------------------------------------------- (1,298) (9,085) ------------ --------------------------------------------- (2,370) (11,455) ------------ --------------------------------------------- 10,468 3,887 5,185 2007 RMB’000 13,365 (6,736) 6,629
6,668 ------------ --------------------------------------------- – – – ------------ --------------------------------------------- – – ------------ --------------------------------------------- (174)	2,283 ------------ --------------------------------------------- – – – ------------ --------------------------------------------- – – ------------ --------------------------------------------- (899)	12,972 ------------ --------------------------------------------- (6,490) (1,297) (7,787) ------------ --------------------------------------------- (1,298) (9,085) ------------ --------------------------------------------- (1,297)	21,923 ------------ --------------------------------------------- (6,490 (1,297
			(7,787 ------------ --------------------------------------------- (1,298
			(9,085 ------------ --------------------------------------------- (2,370
(174) ------------ --------------------------------------------- 6,494 – –	(899) ------------ --------------------------------------------- 1,384 – – 2009 RMB’000 13,861 (8,982) 4,879	(10,382) ------------ --------------------------------------------- 2,590 3,887 5,185 2008 RMB’000 11,787 (7,859) 3,928

12. Inventories Inventories comprise:

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APPENDIX 2

13. Trade and other receivables

Trade receivables Other receivables Prepayments made to suppliers	2009 RMB’000 11,445 5,156 18,027 34,628	2008 RMB’000 7,805 5,211 15,296 28,312	2007 RMB’000 9,588 2,873 13,199
			25,660

All of the trade and other receivables are expected to be recovered within one year.

(i) Included in trade and other receivables are trade receivables with the following ageing analysis as of the balance sheet date:

Invoice date: Within 1 month Over 1 month but less than 3 months Over 3 months but less than 1 year Over 1 year but less than 2 years Over 2 years Less: Impairment losses for doubtful debts	2009 RMB’000 8,987 921 772 729 3,422	2008 RMB’000 2,017 3,449 2,339 – 3,386	2007 RMB’000 5,616 901 2,811 507 3,139
	14,831 (3,386)	11,191 (3,386)	12,974 (3,386
	11,445	7,805	9,588

Credit terms granted to customers ranged from 30 days to 60 days. The credit terms granted to each customer vary depending on the customers’ creditworthiness and settlement record.

14. Cash and cash equivalents

An analysis of the balance of cash and cash equivalents is set out below:

Cash on hand Deposits on demand Cash and cash equivalents in the consolidated cash flow statements	2009 RMB’000 48 8,816 8,864	2008 RMB’000 55 945 1,000	2007 RMB’000 56 1,924
			1,980

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APPENDIX 2

15. Bank loans

	2009	2008	2007
	RMB’000	RMB’000	RMB’000
Current
Bank loans	50,000	–	–

The bank loans are interest-bearing, with a fixed rate of 5.31% and guaranteed by Sichuan Jiguang Trading Co., Ltd., (“Sichuan Jiguang”), a related party, of which RMB 25,000,000 is repayable in January 2010 and the remaining balance of RMB 25,000,000 is repayable in June 2010.

16. Trade and other payables

Trade payables Non-trade payables and accrued expenses Other taxes payables	2009 RMB’000 12,681 4,433 1,223 18,337	2008 RMB’000 8,034 2,499 296 10,829	2007 RMB’000 6,233 2,619 245
			9,097

All of the trade and other payables are expected to be settled within one year.

Included in trade and other payables are trade payables with the following ageing analysis as of the balance sheet date:

							2009	2008	2007
							RMB’000	RMB’000	RMB’000
Due	within	3	months	or	on	demand	12,681	8,034	6,233

17. Deferred tax assets

The components of deferred tax assets recognised in the consolidated balance sheets and the movements during the Relevant Period are shown as follows:

Deductible tax losses RMB’000 – 507 507 (204) 303	Stock provision RMB’000 841 168 1,009 169 1,178	Total RMB’000 841 675
		1,516

		(35
		1,481

(303)	169	(134
–	1,347	1,347

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APPENDIX 2

17. Deferred tax assets (continued)

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is considered probable. As at 31 December 2007 and 2008, the Group has unused tax losses of approximately RMB 3,379,000 and RMB 2,021,000 available for offset against future profits. The Group has no unused tax losses as at 31 December 2009.

									2009	2008	2007
									RMB’000	RMB’000	RMB’000
Net	deferred	tax	assets	recognised	on	the	balance	sheet	1,347	1,481	1,516

18. Capital and reserves

(a) Paid-in capital

Registered and paid-in capital is set out below:

Miss Lin Yan Hua Mr. Wu Wen Jie Mr. Ju Zheng Yi Mr. Gao Nan	31 December 2009 Percentage of ownership RMB’000 80% 48,000 20% 12,000 100% 60,000 31 December 2008 and 2007 Percentage of ownership RMB’000 80% 48,000 20% 12,000 100% 60,000	31 December 2009 Percentage of ownership RMB’000 80% 48,000 20% 12,000 100% 60,000 31 December 2008 and 2007 Percentage of ownership RMB’000 80% 48,000 20% 12,000 100% 60,000
		60,000

(b) PRC statutory reserve

The general reserve fund can be used to make good previous year’s losses, if any, and may be converted into paid-in capital provided that the balance of the general reserve fund after such conversion is not less than 25% of the PRC subsidiary’s registered capital.

Each PRC subsidiary is required to transfer a minimum of 10% of its net profit, as determined in accordance with the PRC accounting rules and regulations, to the general reserve fund until the reserve balance reaches 50% of its registered capital. The transfer to this fund must be made before distribution of dividends to equity holders.

(c) Minority interest

The minority interest represents the 10% equity interest in SH OLM, which was held by Mr. Liu Jinsong.

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APPENDIX 2

18. Capital and reserves (continued)

(d) Distributability of reserves

At 31 December 2007, 2008 and 2009, no reserve was distributable to the equity holders of the Company as the Company had accumulated losses.

(e) Capital management

19. Commitments

(i) Capital commitments

Outstanding capital commitments at 31 December 2007, 2008 and 2009 not provided for in the Financial Information were as follows:

					2009	2008	2007
					RMB’000	RMB’000	RMB’000
Authorised	but	not	contracted	for	518	–	–

(ii) Lease commitments

At 31 December 2007, 2008 and 2009 the total future minimum lease payments under non-cancellable operating leases in respect of properties were payable as follows:

Less than one year Between one and two years	2009 RMB’000 374 16 390	2008 RMB’000 518 – 518	2007 RMB’000 376 –
			376

The Group leased office buildings under operating leases during the Relevant Period. None of the leases includes contingent rentals.

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APPENDIX 2

20. Retirement benefits

		Contribution
Administrator	Beneficiary	rate
Beijing Municipal Government,	Employees of the Company	20%
Shanghai Municipal Government,	Employees of Shanghai OLM	22%
Chengdu Municipal Government, Sichuan	Employees of Chengdu OLM	20%
Province
Hangzhou Municipal Government, Zhejiang	Employees of the Company, Hangzhou	14%
Province	Branch
Guangzhou Municipal Government, Guangdong	Employees of the Company,	12%
Province	Guangzhou Branch

All employees are entitled to retirement benefits equal to a fixed proportion of their salaries and benefits in kind prevailing at their normal retirement ages.

The Group has no other material obligation for the payment of retirement benefits associated with these schemes beyond the contributions described above.

21. Related party transactions

During the Relevant Period, transactions with the following parties are considered as related party transactions. The following is a summary of principal related party transactions carried out by the Group with its related parties for the Relevant Period.

Name of party Relationship Miss Lin Yan Hua Equity holder of the Company Mr. Wu Wen Jie Equity holder of the Company Chengdu OLM Company controlled by a director of the Company Shanghai OLM Company controlled by a director of the Company Sichuan Jiguang Company under the significant influence of the key management of the Company Fujian Start Group Co., Ltd. and its group Previous equity holder of Chengdu OLM

Fujian Start Group Co., Ltd. and its group companies

(a) Transactions

Particulars of significant transactions between the Group and the above related parties during the Relevant Period are as follows:

Sales to related parties Purchase from related parties	2009 RMB’000 9,744 40,665	2008 RMB’000 1,761 60,029	2007 RMB’000 349

			43,071

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APPENDIX 2

21. Related party transactions (continued)

(a) Transactions (continued)

The directors of the Company are of the opinion that the above transactions with related parties were conducted on normal commercial terms and in the ordinary course of business.

Acquisition of subsidiaries from related parties (note 9) *Amounts due from/to related parties* Amounts due from related parties (i) Amounts due to related parties (ii)	2009 RMB’000 30,000 2009 RMB’000 52,841 (4,082)	2008 RMB’000 – 2008 RMB’000 42,624 (47,946)	2007 RMB’000 –

			2007 RMB’000 42,795

			(51,081)

(b) Amounts due from/to related parties
(i) Included in the amounts due from related parties as at 31 December 2009 were advances to Fujian Start Group Co., Ltd. and its group companies and Sichuan Jiguang amounting to RMB 25,000,000 and RMB 25,000,000 respectively. The amounts were interest-bearing, with a fixed rate of 5.31%, of which RMB 25,000,000 due from Fujian Start Group Co., Ltd. and its group companies was repaid in January 2010, and the balance of RMB 25,000,000 due from Sichuan Jiguang is repayable in June 2010. The remaining balance of amounts due from related parties are unsecured, interest free and have no fixed terms of repayment.
(ii) The amounts due to related parties are unsecured, interest free and have no fixed terms of repayment.
(iii) Guarantees from or to related parties are disclosed in notes 14 and 23 to this Financial Information.

(c) Remuneration to key management personnel

			2009	2008	2007
			RMB’000	RMB’000	RMB’000
Short-term	employee	benefits	2,204	1,790	1,508

(d) Contributions to defined contribution retirement plans

The Group participates in defined contribution retirement plans organised by municipal government for its employees. The details of the Group’s employee benefits plan are disclosed in note 20. As at 31 December 2007, 2008 and 2009, there was no material outstanding contribution to post-employment benefit plans.

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APPENDIX 2

22. Financial risk management and fair values

Exposure to credit, liquidity and interest rate risks arises in the normal course of the Group’s business.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade receivables, prepayments made to suppliers and cash and cash equivalents. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In relation to trade receivables, the Group has policies in place to ensure that a certain percentage of the contracted sales amounts have been received as deposits upon agreeing the related sales contracts with customers. The credit quality of the counterparties is assessed by taking into account their financial position, credit history and other factors.

In respect of prepayments made to suppliers, individual credit evaluations are performed on all suppliers requiring prepayments over a certain amount. These evaluations focus on the supplier’s past history and take into account information specific to the supplier as well as pertaining to the economic environment in which the supplier operates. As at the balance sheet dates, the Group has a certain concentrations of credit risk as 93%, 98% and 98% of the prepayments made to suppliers (included in trade and other receivables) were due from the Group’s largest supplier for the years ended 31 December 2007, 2008 and 2009.

Individual credit limits are set based on the assessment of credit quality. The Group also undertakes certain monitoring procedures on an individual customer basis to ensure that proper follow-up action is taken to recover overdue debts. Nevertheless, certain amounts of trade receivables cannot be recovered due to default and unexpected financial difficulties suffered by customers from time to time. At the balance sheet dates, the Group has no significant concentrations of credit risk with any of its customers.

Further quantitive disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 13.

It is expected that there is no significant credit risk associated with the cash and cash equivalents as they are placed with well-known Chinese banks, which the management believes are of high credit quality.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

22. Financial risk management and fair values (continued)

(b) Liquidity risk

Contractual maturities of financial liabilities

The following table details the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities including estimated interest payments:

Carrying amount Contractual undiscounted cash flow RMB’000 RMB’000 50,000 50,686 16,497 16,497 4,082 4,082 70,579 71,265	Carrying amount Contractual undiscounted cash flow RMB’000 RMB’000 50,000 50,686 16,497 16,497 4,082 4,082 70,579 71,265	6 months or less or on demand RMB’000 – – –
		–

9,981 47,946	9,981 47,946	– –
57,927	57,927	–

7,823 51,081	7,823 51,081	– –
58,904	58,904	–

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

22. Financial risk management and fair values (continued)

(c) Interest rate risk

The Group’s interest rate risk arises primarily from cash and cash equivalents, issued at variable rates which expose the Group to fair value interest rate risk.

(i) Interest rate profile

The interest rate profiles of the Group’s interest-bearing financial instruments at the balance sheet dates are as follows:

==> picture [356 x 220] intentionally omitted <==

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

2009 2008 2007
Effective Effective Effective
weighted weighted weighted
average average average
interest interest interest
rates rates rates
% (annual) RMB’000 % (annual) RMB’000 % (annual) RMB’000
Fixed rate instruments
Amounts due from
related parties 5.31 50,000 – – – –
Bank loans 5.31 (50,000) – – – –
– – –
Variable rate
instruments
Cash and cash
equivalents 0.36 8,864 0.36 1,000 0.72 1,980
----- End of picture text -----

(ii) Sensitivity analysis

At the balance sheet date, it is estimated that a general increase/decrease of 36 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group’s profit/(loss) after tax and accumulated losses by approximately RMB 6,000, RMB 3,000 and RMB 27,000 for the year ended 31 December 2007, 2008 and 2009. Other components of consolidated equity would not be affected by changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit/(loss) after tax and accumulated losses that would arise assuming that the change in interest rates had occurred at the balance sheet date and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the balance sheet date. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the balance sheet date, the impact on the Group’s profit after tax and retained profits is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed consistently in 2007, 2008 and 2009.

(d) Foreign currency risk

The Group is not exposed to foreign currency risk as the Group does not have transactions denominated in currencies other than RMB.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

22. Financial risk management and fair values (continued)

(f) Fair values

The three levels of the fair value hierarchy defined in IFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.
Level 3 (lowest level): fair value measured using valuation techniques in which any significant input is not based on observable market data.

The Group does not have any financial instruments that are measured at fair value as at 31 December 2007, 2008 and 2009.

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2007, 2008 and 2009.

23. Contingent liabilities

The Company, Fujian Start Group Co., Ltd. and Beijing Sheng Bang Investment Co., Ltd., a shareholder of Fujian Start Group Co., Ltd., issued joint guarantees to banks in respect of the bank loans granted to Beijing Start Technology Development Co., Ltd., a subsidiary of Fujian Start Group Co., Ltd., on 6 January 2004 and 14 October 2004 respectively. As at 31 December 2007, 2008 and 2009, the amounts of unreleased guarantees were approximately RMB 17,000,000, RMB 23,000,000 and RMB 7,300,000 respectively. The directors of the Company consider that in accordance with debt settlement agreements entered between the banks, Fujian Start Group Co., Ltd. and Beijing Start Technology Development Co., Ltd. on 25 March 2008, the joint guarantees will be fully released when the outstanding bank loans are due to be fully repaid in June 2010 and therefore no material liability existed at the respective balance sheet dates.

24. Accounting estimates and judgements

The most significant sources of estimation uncertainty used in the preparation of the Financial Information are as follows.

(a) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market conditions and the historical experience of distributing and selling products of a similar nature. Net realisable value could change significantly as a result of market conditions. Management reassess the estimation of net realisable value at each balance sheet date.

(b) Impairment losses on trade and other receivables

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

24. Accounting estimates and judgements (continued)

(c) Deferred tax assets

25. Possible impact of amendments, new standards and interpretations issued but not yet effective for the accounting period ended 31 December 2009

Up to the date of issue of the Financial Information, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2009 and which have not been adopted in the Financial Information.

	Effective for accounting
	period beginning on or after
Improvements to IFRS 2008 (Amendments to IFRS 5, Non-current assets	1 July 2009
held for sales and discontinued operations)
Revised IFRS 1, First-time adoption of International Financial	1 July 2009
Reporting Standards
Amended IAS 27, Consolidated and separate financial statements	1 July 2009
IFRIC 19, Extinguishing financial liabilities with equity instruments	1 July 2010
Revised IFRS 3, Business combinations	Applied to business
	combinations for which the
	acquisition date is on or after
	the beginning of the first
	annual reporting period
	beginning on or after 1 July
	2009
Amendment to IAS 39, Financial instruments: Recognition and	1 July 2009
measurement – Eligible hedged items
IFRIC 17, Distributions of non-cash assets to owners	1 July 2009
Improvements to IFRS 2009	1 July 2009 or 1 January 2010
Amendments to IFRS 1, First-time adoption of International Financial	1 January 2010
Reporting Standards – Additional exemptions for first-time adopters
Amendments to IFRS 2, Share-based payment – Group cash- settled	1 January 2010
share-based payment transactions
Amendment to IAS 32, Financial instruments: Presentation –	1 February 2010
Classification of rights issues
Amendment to IFRS 1, First-time adoption of International Financial	1 July 2010
Reporting Standards – limited exemption from comparative IFRS 7
disclosures for first-time adopters
Revised IAS 24, Related party disclosures	1 January 2011
Amendments to IFRIC 14, IAS 19 – The limit on a defined benefit asset,	1 January 2011
minimum funding requirements and their interaction – Prepayments of
a minimum funding requirement
IFRS 9, Financial instruments	1 January 2013
Basis for conclusions on IFRS 9 Amendments to other IFRSs
and guidance on IFRS 9
Improvements to IFRSs 2010	1 July 2010 or 1 January 2011

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. Up to the date of issuance of the Financial Information, the Group believes that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

C SUBSEQUENT FINANCIAL INFORMATION

The following significant events took place subsequent to 31 December 2009:

(a) Domestic Acquisition

On 26 April 2010, Oriental Legend Maker Technology Limited (“OLM”), a company incorporated in Hong Kong, which is a wholly-owned subsidiary of Liang Hui Holdings Limited, entered into an equity transfer agreement relating to the Domestic Acquisition pursuant to which OLM will acquire the entire equity interest in the Company at a consideration of RMB60,000,000 from Miss Lin Yan Hua and Mr. Wu Wen Jie. The Domestic Acquisition was completed on 8 June 2010 and the Company became a direct wholly-owned subsidiary of OLM.

In addition, Chengdu OLM acquired the 10% minority interest in Shanghai OLM at a cash consideration of RMB100,000 from Mr. Liu Jin Song on 11 June 2010 and Shanghai OLM became a wholly-owned subsidiary of the Group.

D SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its subsidiaries in respect of any period subsequent to 31 December 2009.

Yours faithfully KPMG

Certified Public Accountants Hong Kong

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

2. MANAGEMENT DISCUSSION AND ANALYSIS

Beijing OLM and its subsidiaries has developed into the current stage through years of business restructuring and integration of resources. Currently, Beijing OLM and its subsidiaries have become professional service providers of database software. By having a large client base who use Oracle databases and with continuing growth in the demand for software maintenance services in the PRC market in recent years, Beijing OLM and its subsidiaries recorded turnover growth from 2007 to 2009.

Financial Summary

Set out below is the management discussion and analysis on Beijing OLM and its subsidiaries for the three years ended 31 December 2009.

The turnover and (loss)/profit of Beijing OLM for the three years ended 31 December 2009 are set out below:

	For the year	ended 31 December	ended 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Turnover	63,630	90,789	133,073
(Loss)/ profit for the year	(3,575)	(1,226)	2,082

Results of operations

Software maintenance and other services Sale of software products and others	For the year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 59,833 85,726 131,211 3,797 5,063 1,862 63,630 90,789 133,073	For the year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 59,833 85,726 131,211 3,797 5,063 1,862 63,630 90,789 133,073
		133,073

Beijing OLM recorded a continuous turnover growth from 2007 to 2009 which was mainly contributed by the turnover growth in the software maintenance and other services from approximately RMB59.8 million in 2007 to approximately RMB85.7 million in 2008 and to approximately RMB131.2 million in 2009. Such continuous annual growth was mainly due to increase in number of new customers and increase in orders from existing customers. The total number of orders increased by approximately 49.2% from 2007 to 2008 and approximately 6.9% from 2008 to 2009.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

The turnover attributable to the sale of software products and others increased from approximately RMB3.8 million in 2007 to approximately RMB5.1 million in 2008, which was mainly due to increase in sales orders from new customers. Such turnover decreased to approximately RMB1.9 million in 2009 because fewer sales orders were received.

Liquidity and Financial Resources

As at 31 December 2007, 31 December 2008 and 31 December 2009, the net assets of Beijing OLM were approximately RMB25.9 million, RMB24.7 million and RMB41.8 million respectively.

There was no bank loan as at 31 December 2007 and 31 December 2008. The total bank loans was RMB50 million as at 31 December 2009 which was raised by Chengdu OLM and guaranteed by a related party. The amounts due to related parties mainly represented amounts payable to Chengdu OLM for maintenance services which were unsecured, interest free and have no fixed terms of repayment. Such amounts decreased to approximately RMB47.9 million as at 31 December 2008 from approximately RMB51.1 million as at 31 December 2007 because of the repayment by Beijing OLM. Such amounts further decreased to approximately RMB4.1 million as at 31 December 2009 because of the elimination of intercompany balances on consolidation upon acquisition of entire equity interest of Chengdu OLM by Beijing OLM in October 2009.

The gearing ratio, which was calculated as a percentage of total interest-bearing borrowings less cash and cash equivalent over total assets, was nil and nil as at 31 December 2007 and 31 December 2008. The gearing ratio was approximately 35.64% as at 31 December 2009 because of the bank loans of RMB50 million raised by Chengdu OLM.

The current ratio of Beijing OLM was 128.1%, 129.1% and 137.4% as at 31 December 2007, 31 December 2008 and 31 December 2009 respectively. The improvement in 2009 as compared to that of 2008 was mainly due to the consolidation of assets and liabilities of Chengdu OLM upon acquisition of the entire equity interest of Chengdu OLM on 19 October 2009, as the current ratio of Chengdu OLM was higher than that of Beijing OLM. The total cash and cash equivalents of Beijing OLM were approximately RMB2.0 million, RMB1.0 million and RMB8.9 million as at 31 December 2007, 31 December 2008 and 31 December 2009 respectively. The increase by approximately RMB7.9 million from 2008 to 2009 was mainly due to increase in cash generated from operating activities.

Capital Expenditure

For the three years ended 31 December 2009, total capital expenditure incurred by Beijing OLM was approximately RMB1.0 million, RMB0.2 million and RMB1.8 million which was mainly for the purchase of motor vehicles and office equipment.

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FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

Pledge of Assets

As at 31 December 2007, 31 December 2008 and 31 December 2009, Beijing OLM had no pledge over its assets.

Contingent Liabilities

Beijing OLM, Fujian Start Group Co., Ltd. and Beijing Sheng Bang Investment Co., Ltd., a shareholder of Fujian Start Group Co., Ltd., issued joint guarantees to banks in respect of the bank loans granted to Beijing Start Technology Development Co., Ltd., a subsidiary of Fujian Start Group Co., Ltd., on 6 January 2004 and 14 October 2004 respectively. As at 31 December 2007, 2008 and 2009, the amounts of unreleased guarantees were approximately RMB17,000,000, RMB23,000,000 and RMB7,300,000 respectively. The directors of Beijing OLM consider that in accordance with debt settlement agreements entered between the banks, Fujian Start Group Co., Ltd. and Beijing Start Technology Development Co., Ltd. on 25 March 2008, the joint guarantees will be fully released when the outstanding bank loans are due to be fully repaid in June 2010 and therefore no material liability existed at the respective balance sheet dates.

Commitments

As at 31 December 2009, Beijing OLM had capital commitments approved but not yet contracted of approximately RMB0.5 million for the purchases of office equipments. The lease commitments of Beijing OLM were approximately RMB0.4 million, RMB0.5 million and RMB0.4 million as at 31 December 2007, 31 December 2008 and 31 December 2009 respectively, for the lease of office buildings under operating leases.

Major Acquisition

On 19 October 2009, Beijing OLM acquired 100% equity interest in Chengdu OLM for a consideration of RMB30 million.

Foreign Exchange Risk

Beijing OLM was not exposed to foreign currency risk as Beijing OLM did not have transactions denominated in currencies other than RMB.

Employee and Remuneration Policy

As at the Latest Practicable Date, Beijing OLM employed a total of about 47 employees in the PRC. All employees are remunerated based on industry practice and in accordance with the prevailing employment laws and regulations. Other staff benefits for eligible employees include housing allowances, retirement benefits and bonuses.

– 117 –

FINANCIAL INFORMATION OF BEIJING OLM

APPENDIX 2

Business Overview and Development of Beijing OLM and its Subsidiaries

Business Overview

Beijing OLM and its subsidiaries are principally engaged in the provision of upgrade and maintenance services for Oracle’s database products distributed in the PRC. Such database products are mainly used to manage internal and external resources, including but not limited to, tangible assets, financial resources, materials, and human resources in order to facilitate the flow of information between all business functions inside the boundaries of the organisation. Beijing OLM and its subsidiaries also provide customized development of applications as a value-added service to customers, and sell self-developed firewall and other software products.

Beijing OLM and its subsidiaries have been operating in the information technology industry in the PRC for more than a decade and have gone through the ups and downs of the industry. With various business arms in the industry from the provision of software maintenance and other services to the development and distribution of its own products, Beijing OLM continued to record turnover growth.

Since 2000, Beijing OLM and its subsidiaries have been investing in the research and development for network security technology. After almost a decade of development, Beijing OLM and its subsidiaries were able to develop a full set of network security products from firewall product at their beginning and become well known security service provider in the industry.

Future prospects

As demand in the information technology industry in the PRC continues to grow rapidly, Beijing OLM and its subsidiaries will continue to focus on the development of software maintenance and value-added services in the next two to three years, and intend to set up offices in other big cities in the PRC, for example, Nanjing, Xian and Hangzhou.

Moreover, Beijing OLM and its subsidiaries will continue to explore other markets that have significant need in data management, for example, health, education, energy and manufacturing industries.

– 118 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

1. ACCOUNTANT’S REPORT OF CHENGDU OLM

The following is the text of a report on the financial information of Chengdu Orient LegendMaker Information Co., Ltd., prepared for the purpose of incorporation in this circular, received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

28 June 2010

The Directors Tai-I International Holdings Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Chengdu Orient LegendMaker Information Industry Co., Ltd. (the “Company”) and its subsidiary (hereinafter collectively referred to as the “Group”) including the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of the Group, for each of the years ended 31 December 2007 and 2008 and the period from 1 January 2009 to 19 October 2009 (the “Relevant Period”), and the consolidated balance sheets of the Group as at 31 December 2007 and 2008 and 19 October 2009, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Tai-I International Holdings Limited dated 28 June 2010 (the “Circular”).

The Company was established in the People’s Republic of China (the “PRC”) on 28 December 2001 as a limited liability company under the Company Law of the PRC. The Company is principally engaged in provision of integrated business software solutions in the PRC. Pursuant to a domestic acquisition completed on 8 June 2010 (the “Domestic Acquisition”) as detailed in the section headed “Letter from the Board” in the Circular, the Company became a wholly-owned subsidiary of Liang Hui Holdings Limited.

As at the date of this report, no audited financial statements have been prepared for the companies comprising the Group, as they are domestic companies established in the PRC and not subject to statutory audit requirements under the relevant rules and regulations in the jurisdiction of incorporation.

All companies comprising the Group have adopted 31 December as their financial year end date. Details of the company comprising the Group that are subject to audit during the Relevant Period are set out in Section A.

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

The directors of the Company have prepared the consolidated financial statements of the Group for the Relevant Period in accordance with the basis of preparation set out in Section A below and the accounting policies set out in Section C below (the “Underlying Financial Statements”), which are in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”). We have audited the Underlying Financial Statements for each of the years ended 31 December 2007, 2008 and the period from 1 January 2009 to 19 October 2009 in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

Our responsibility is to form an opinion on the Financial Information based on our procedures.

BASIS OF OPINION

OPINION

In our opinion, for the purpose of this report, the Financial Information, on the basis of preparation set out in Section A below and in accordance with the accounting policies set out in Section C below, gives a true and fair view of the Group’s consolidated results and cash flows for the Relevant Period, and the state of affairs of the Group as at 31 December 2007 and 2008 and 19 October 2009.

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

A BASIS OF PREPARATION

Before the Domestic Acquisition, Miss Lin Yan Hua and Mr. Wu Wen Jie transferred their entire equity interests in the Company to Beijing Orient LegendMaker Software Development Co., Ltd. (“Beijing OLM”) on 19 October 2009. Upon the completion of the share transfer, the Company became a wholly-owned subsidiary of Beijing OLM. For the purpose of this report, the directors of the Company have prepared the Financial Information of the Group for the period from 1 January 2007 to 19 October 2009, the acquisition date of the Group by Beijing OLM. The financial results of the Group were included in the Beijing OLM’s consolidated financial statements since then.

The results of the Group for the Relevant Period include results of the Company and its subsidiary. All material intra-group transactions and balances have been eliminated on consolidation. In the opinion of the directors, the Financial Information prepared on this basis present fairly the results of operations and state of affairs of the Group as a whole.

As of the balance sheet dates, the Company has a direct interest in the following subsidiary, which is a private company, particulars of which are set out below:

	Place and		Attributable	Attributable
	date of	Registered	equity	interest	Principal activities
Name of company	establishment	capital		Direct
Shanghai Orient	The PRC	RMB1,000,000	–	90%	Provision of integrated
LegendMaker	10 August 1998				business software
Technology Co.,					solutions
Ltd. (“Shanghai
OLM”)

Note: The type of legal entity of Shanghai OLM is domestic Chinese enterprise.

– 121 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B FINANCIAL INFORMATION

B1 Consolidated Statements of Comprehensive Income For the years ended 31 December 2007 and 2008 and the period from 1 January 2009 to 19 October 2009 (Expressed in Renminbi Yuan)

The period from 1 January 2009 to 19 October 2009 Note RMB’000 Turnover 2 88,421 Cost of sales (73,819) Gross profit 14,602 Distribution expenses (3,019) General and administrative expenses (2,149) Other net (loss)/income (21) Profit/(loss) before taxation 3 9,413 Income tax expenses 4(i) (1,443) Profit/(loss) for the period/year 7,970 Other comprehensive income for the year – Total comprehensive income for the period/year 7,970 Attributable to: Equity holders of the Company 7,851 Minority interest 16 119 Total comprehensive income for the period/year 7,970	2008 RMB’000 125,032 (113,526)	2007 RMB’000 95,939 (89,081) 6,858 (3,268) (3,784) 22 (172) (289) (461) – (461) (461) – (461)
14,602 (3,019) (2,149) (21) 9,413 (1,443)	11,506 (4,745) (2,533) 14 4,242 (680)	6,858 (3,268 (3,784 22
		(172 (289
7,970	3,562
–	–	–
7,970	3,562
7,851 119	3,562 –	(461 –
7,970	3,562

The notes on pages 128 to 151 form part of these Financial Information.

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B2 Consolidated Balance Sheets

At 31 December 2007 and 2008 and 19 October 2009

(Expressed in Renminbi Yuan)

19 October 2009 RMB’000 310 –	31 December 2008 RMB’000 353 –	31 December 2007 RMB’000 355 469 824 ------------ 4,032 5,386 37,822 5,625 52,865 ------------ – 27,115 2,275 230 29,620 ------------ ----------------------- 23,245 ------------ ----------------------- 24,069 ------------ ----------------------- 24,069 30,000 (5,931) 24,069
310 ------------ 2,882 7,872 106,712 1,845 119,311 ------------ 50,000 31,137 1,957 926	353 ------------ 2,212 6,838 59,686 9,177 77,913 ------------ – 22,846 27,105 684	824 ------------ 4,032 5,386 37,822 5,625
		52,865 ------------ – 27,115 2,275 230
84,020 ------------ ----------------------- 35,291 ------------ ----------------------- 35,601 ------------ ----------------------- 35,601	50,635 ------------ ----------------------- 27,278 ------------ ----------------------- 27,631 ------------ ----------------------- 27,631
30,000 5,482	30,000 (2,369)	30,000 (5,931
35,482	27,631

– 123 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B2 Consolidated Balance Sheets (continued)

At 31 December 2007 and 2008 and 19 October 2009

(Expressed in Renminbi Yuan)

		19	31	31
		October	December	December
		2009	2008	2007
	Note	RMB’000	RMB’000	RMB’000
Minority interest	16	119	–	–
		------------	------------	------------
Total equity		35,601	27,631	24,069

The notes on pages 128 to 151 form part of these Financial Information.

– 124 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B3 Consolidated Statements of Changes in Equity

For the years ended 31 December 2007 and 2008 and the period from 1 January 2009 to 19 October 2009
(Expressed in Renminbi Yuan)

Attributable to equity holders of the Company

Paid-in capital RMB’000 16(a) 30,000 – 30,000	PRC statutory reserve (Accumulated losses)/ retained earnings RMB’000 RMB’000 16(b) – (5.470) – (461) – (5,931)	PRC statutory reserve (Accumulated losses)/ retained earnings RMB’000 RMB’000 16(b) – (5.470) – (461) – (5,931)	Total RMB’000 24,530 (461) 24,069	Minority interest RMB’000 16(c) – – –	Total equity RMB’000 24,530 (461
					24,069

– –	– 257	3,562 (257)	3,562 –	– –	3,562 –
30,000	257	(2,626)	27,631	–	27,631

– –	– 656	7,851 (656)	7,851 –	119 –	7,970 –
30,000	913	4,569	35,482	119	35,601

The notes on pages 128 to 151 form part of these Financial Information.

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B4 Consolidated Cash Flow Statements

For the years ended 31 December 2007 and 2008 and the period from 1 January 2009 to 19 October 2009

(Expressed in Renminbi Yuan)

The period from 1 January 2009 to 19 October 2009 Note RMB’000 Operating activities Profit/(loss) before taxation 9,413 Adjustments for: – Depreciation 90 – Amortisation – – Loss on disposal of property, Plant and equipment – Operating profit before changes in working capital 9,503 (Increase)/decrease in inventories (670) Increase in trade and other receivables (1,034) (Increase)/decrease in amounts due from/to related parties (22,174) Increase/(decrease) in trade and other payables 8,291 Cash (used in)/generated from operating activities (6,084) PRC income tax paid (1,201) Net cash (used in)/generated from operating activities (7,285) ------------	2008 RMB’000 4,242 111 469 1	2007 RMB’000 (172) 101 2,462 – 2,391 1,897 (1,826) (13,172) 13,679 2,969 (174) 2,795 ------------
9,503 (670) (1,034) (22,174) 8,291 (6,084) (1,201)	4,823 1,820 (1,452) 2,966 (4,269) 3,888 (226)	2,391 1,897 (1,826 (13,172 13,679
		2,969 (174
(7,285) ------------	3,662 ------------

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

B4 Consolidated Cash Flow Statements (continued)

For the years ended 31 December 2007 and 2008 and the period from 1 January 2009 to 19 October 2009

(Expressed in Renminbi Yuan)

The period from 1 January 2009 to 19 October Note 2009 Cash flow from investing activities Acquisition of property, plant and equipment (47) Net cash used in investing activities (47) ------------ Cash flow from financing activities Proceeds from bank loans 50,000 Advances to related parties (50,000) Net cash generated from financing activities – ------------ Net (decrease)/increase in cash and cash equivalents (7,332) Cash and cash equivalents at the beginning of period/year 9,177 Cash and cash equivalents at the end of period/year 13 1,845	2008 (110)	2007 (88) (88) ------------ – – – ------------ 2,707 2,918 5,625
(47) ------------ 50,000 (50,000) – ------------ (7,332) 9,177	(110) ------------ – – – ------------ 3,552 5,625	(88 ------------ – –
		– ------------ 2,707 2,918
1,845	9,177

The notes on pages 128 to 151 form part of these Financial Information.

– 127 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

C NOTES TO FINANCIAL INFORMATION

1. Significant accounting policies

(a) Statement of compliance

The following standards have been early adopted as at the beginning of the Relevant Period:

IFRS 7,	Financial instruments: disclosures
Amendments to IAS 1,	Presentation of financial statements:	capital disclosures
Amendments to IAS 39,	Financial instruments: Recognition and		measurement
IFRS 8,	Operating segments
Revised IAS 1,	Presentation of financial statements
Revised IAS 23,	Borrowing costs
Amendments to IAS 32,	Financial instruments: Presentation
Amendments to IFRS 1,	First-time adoption of International Financial Reporting Standards,
Amendments to IAS 27,	Consolidated and separate financial	statements – cost of an investment
	in a subsidiary, jointly-controlled entity or associate
Amendments to IFRS 7,	Financial instruments: Disclosures	–	Improving	disclosures	about
	financial instruments

The Group did not prepare financial statements previously. This is the Group’s first IFRS Financial Information and IFRS 1 has been applied.

The IASB has issued a number of new and revised IFRSs. For the purpose of preparing this Financial Information, the Group has adopted all these new and revised IFRSs to the Relevant Period, except for any new standards or interpretations that are not yet effective for the accounting period ended 19 October 2009. The revised and new accounting standards and interpretations issued but not yet effective for the accounting year beginning on 1 January 2009 are set out in note 22.

The Financial Information also complies with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure practices of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The accounting policies set out below have been applied consistently to all periods presented in the Financial Information.

(b) Basis of measurement

The Financial Information is presented in Renminbi (“RMB”), rounded to the nearest thousand. The measurement basis used in the preparation of the Financial Information is historical cost basis.

(c) Use of estimates and judgements

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APPENDIX 3

(c) Use of estimates and judgements (continued)

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.

Judgements made by management in the application of IFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 21.

(d) Subsidiary

Subsidiary is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of the subsidiary are included in the Financial Information from the date that control commences until the date that control ceases.

Minority interest represents the portion of the net assets of subsidiary attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiary, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interest is presented in the consolidated balance sheets within equity, separately from equity attributable to the equity holders of the Company. Minority interest in the results of the Group are presented on the face of the consolidated statements of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the period between minority interest and the equity holders of the Company.

(e) Property, plant and equipment

Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 1(h)(ii)).

–	Motor	vehicles	3-8	years
–	Office	equipment	5	years

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APPENDIX 3

(f) Intangible assets

Intangible assets that are acquired by the Group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite and impairment losses (see note 1(h)(ii)).

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible asset with finite useful life is amortised from the date it is available for use and its estimated useful life is as follows:

Software licences

2 years

(g) Operating lease charges

(h) Impairment of assets

(i) Impairment of trade and other receivables

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.

If any such evidence exists, impairment loss is determined and recognised as follows.

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APPENDIX 3

(h) Impairment of assets (continued)

(ii) Impairment of other assets

property, plant and equipment; and
intangible assets;

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

(i) Inventories

(j) Trade and other receivables

(k) Cash and cash equivalents

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APPENDIX 3

(l) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(m) Income tax

All deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

(n) Provisions and contingent liabilities

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APPENDIX 3

(n) Provisions and contingent liabilities (continued)

(o) Revenue recognition

(i) Software maintenance services and other services

(ii) Sales of standard software and hardware

(iii) Multiple element arrangements

(iv) Interest income

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

(p) Borrowing costs

(q) Employee benefits

(i) Salaries, annual bonuses and staff welfare are accrued in the period in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
(ii) Contributions to appropriate local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in the statement of comprehensive income as incurred, except to the extent that they are included in the cost of inventories not yet recognised as an expense.

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APPENDIX 3

(r) Related parties

For the purposes of the Financial Information, a party is considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a jointly controlled entity in which the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in 1(r)(i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(s) Segment reporting

The Group operates in a single business segment, provision of integrated business software solutions in the PRC. Accordingly, no segment analysis is presented.

2. Turnover

The principal activities of the Group are the provision of integrated business software solutions in the PRC.

The amount of turnover recognised during the Relevant Period is as follows:

Software maintenance and other services Sale of software products and others	The period from 1 January 2009 to 19 October 2009 RMB’000 88,199 222 88,421	2008 RMB’000 122,730 2,302 125,032	2007 RMB’000 94,676 1,263
			95,939

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APPENDIX 3 FINANCIAL INFORMATION OF CHENGDU OLM

3. Profit/(loss) before taxation

Profit/(loss) before taxation is arrived at after charging:

(i) Staff costs

Salaries, wages and other benefits Contributions to defined contribution retirement schemes (note 18)	The period from 1 January 2009 to 19 October 2009 RMB’000 2,326 320 2,646	2008 RMB’000 3,074 332 3,406	2007 RMB’000 2,114 260
			2,374

(ii) Other items

	The period
	from 1
	January
	2009 to 19
	October
	2009	2008	2007
	RMB’000	RMB’000	RMB’000
Depreciation	90	111	101
Amortisation	–	469	2,462
Operating leases charges in respect of properties	426	540	473

4. Income tax expenses

(i) Income tax expenses in the consolidated statements of comprehensive income represents:

Current tax – PRC Provision for the period/year	The period from 1 January 2009 to 19 October 2009 RMB’000 1,443	2008 RMB’000 680	2007 RMB’000 289

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APPENDIX 3

4. Income tax expenses (continued)

(i) (continued)

Pursuant to the approvals obtained from the relevant PRC tax authorities, being high-tech enterprises in the PRC, the Company is entitled to a preferential income tax rate of 15% for 2007 and 2008 and the period from 1 January 2009 to 19 October 2009.

(ii) Reconciliation between income tax expenses and accounting profit/(loss) at applicable tax rates:

Profit/(loss) before taxation Notional tax on profit/(loss) before tax, calculated at the rate applicable to the Group’s profit/(loss) in the tax jurisdiction concerned (2009:25%, 2008:25%, 2007:33%) Effect of tax concessions	The period from 1 January 2009 to 19 October 2009 RMB’000 9,413	2008 RMB’000 4,242	2007 RMB’000 (172) 57 (346) (289)
	(2,353) 910	(1,060) 380	57 (346
	(1,443)	(680)

(iii) Taxation in the consolidated balance sheets represents:

At 1 January Provision for income tax for the period/year Amounts paid At 19 October / 31 December	2009 RMB’000 684 1,443 (1,201) 926	2008 RMB’000 230 680 (226) 684	2007 RMB’000 115 289 (174) 230

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APPENDIX 3

5. Directors’ remuneration

Details of directors’ remuneration are as follows:

For the period from 1 January 2009 to 19 October 2009 and the year ended 31 December 2008

Name of directors Fee Basic salaries, allowances and other benefits Bonus RMB’000 RMB’000 RMB’000 Executive directors Miss Lin Yan Hua – – – Mr. Wu Wen Jie – – – Mr. Liu Jin Song – – – Total – – – For the year ended 31 December 2007 Name of directors Fee Basic salaries, allowances and other benefits Bonus RMB’000 RMB’000 RMB’000 Executive directors Mr. Liu Jin Song – – – An analysis of directors’ remuneration by the number of directors and remuneration range is as The period from 1 January 2009 to 19 October 2009 2008 Nil to RMB1,000,000 – –	Total RMB’000 – – –
	–

	Total RMB’000 –

	follows: 2007 –

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APPENDIX 3

6. Individuals with highest emoluments

The five highest paid individuals of the Group include nil directors of the Company during the Relevant Period, whose remuneration are reflected in the analysis presented above. Details of remuneration paid to the 5 highest paid individuals of the Group are as follows:

Basic salaries, allowances and other benefits Bonus Number of individuals	The period from 1 January 2009 to 19 October 2009 RMB’000 1,497 280 1,777 5	2008 RMB’000 1,382 274 1,656 5	2007 RMB’000 1,083 240
			1,323

			5

The above individuals’ emoluments are within the band of Nil to RMB 1,000,000.

There were no amounts paid during the Relevant Period to the five highest paid employees in connection with their retirement from employment with the Group, or inducement to join.

7. Dividends

No dividends were declared by the Group during the Relevant Period.

8. Earnings per share

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

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APPENDIX 3

9. Property, plant and equipment

Motor vehicles RMB’000 318 –	Office equipment RMB’000 1,244 88	Total RMB’000 1,562 88 1,650 ------------ --------------------------------------------- 110 (27) 1,733 ------------ --------------------------------------------- 47 (1) 1,779 ------------ --------------------------------------------- (1,194) (101) (1,295) ------------ --------------------------------------------- (111) 26 (1,380) ------------ --------------------------------------------- (90) 1 (1,469) ------------ --------------------------------------------- 310 353 355
318 ------------ --------------------------------------------- – – 318 ------------ --------------------------------------------- – – 318 ------------ --------------------------------------------- (102) (47) (149) ------------ --------------------------------------------- (47) – (196) ------------ --------------------------------------------- (47) –	1,332 ------------ --------------------------------------------- 110 (27) 1,415 ------------ --------------------------------------------- 47 (1) 1,461 ------------ --------------------------------------------- (1,092) (54) (1,146) ------------ --------------------------------------------- (64) 26 (1,184) ------------ --------------------------------------------- (43) 1	1,650 ------------ --------------------------------------------- 110 (27
		1,733 ------------ --------------------------------------------- 47 (1
		1,779 ------------ --------------------------------------------- (1,194 (101
		(1,295 ------------ --------------------------------------------- (111 26
		(1,380 ------------ --------------------------------------------- (90 1
(243) ------------ --------------------------------------------- 75 122 169	(1,226) ------------ --------------------------------------------- 235 231 186

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

10. Intangible assets

Cost: At 1 January 2007 Disposals At 31 December 2007 Disposals At 31 December 2008 and 19 October 2009 Accumulated amortisation: At 1 January 2007 Charge for the year Written back on disposal At 31 December 2007 Charge for the year Written back on disposal At 31 December 2008 and 19 October 2009 Net book value: At 31 December 2008 and 19 October 2009 At 31 December 2007	Software licences RMB’000 3,300 (800)
	2,500 ------------ --------------------------------------------- (2,500)
	– ------------ --------------------------------------------- (369) (2,462) 800
	(2,031) ------------ --------------------------------------------- (469) 2,500
	– ------------ --------------------------------------------- –

	469

11. Inventories

Inventories comprise:

Standard softwares and low value consumables Trade and other receivables Trade receivables Other receivables and prepayments made to suppliers	19 October 2009 RMB’000 2,882 19 October 2009 RMB’000 6,366 1,506 7,872	31 December 2008 RMB’000 2,212 31 December 2008 RMB’000 6,129 709 6,838	31 December 2007 RMB’000 4,032

			31 December 2007 RMB’000 4,901 485
			5,386

12. Trade and other receivables

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APPENDIX 3

12. Trade and other receivables (continued)

All of the trade and other receivables are expected to be recovered within one year.

(i) Included in trade and other receivables are trade receivables with the following ageing analysis as of the balance sheet date:

Invoice date: Within 1 month Over 1 month but less than 3 months Over 3 months but less than 1 year Over 1 year but less than 2 years	19 October 2009 RMB’000 2,881 3,126 297 62 6,366	31 December 2008 RMB’000 3,520 1,100 620 889 6,129	31 December 2007 RMB’000 1,779 832 2,262 28
			4,901

Credit terms granted to customers ranged from 30 days to 60 days. The credit terms granted to each customer vary depending on the customers’ creditworthiness and settlement record.

13. Cash and cash equivalents

An analysis of the balance of cash and cash equivalents is set out below:

Cash on hand Deposits on demand Cash and cash equivalents in the consolidated cash flow statements 14. Bank loans Current Bank loans	19 October 2009 RMB’000 11 1,834 1,845 19 October 2009 RMB’000 50,000	31 December 2008 RMB’000 24 9,153 9,177 31 December 2008 RMB’000 –	31 December 2007 RMB’000 8 5,617
			5,625

			31 December 2007 RMB’000 –

– 141 –

APPENDIX 3

FINANCIAL INFORMATION OF CHENGDU OLM

15. Trade and other payables

Trade payables Advances from customers, other receivables and accruals Other taxes payables	19 October 2009 RMB’000 12,858 18,046 233 31,137	31 December 2008 RMB’000 19,162 3,081 603 22,846	31 December 2007 RMB’000 26,539 521 55
			27,115

All of the trade and other payables are expected to be settled within one year.

Included in trade and other payables are trade payables with the following ageing analysis as of the balance sheet date:

								31	31
							19 October	December	December
							2009	2008	2007
							RMB’000	RMB’000	RMB’000
Due	within	3	months	or	on	demand	12,858	19,162	26,539

16. Capital and reserves

(a) Paid-in capital

Registered and paid-in capital is set out below:

Miss Lin Yan Hua Mr.Wu Wen Jie Fujian Start Group Co., Ltd.	19 October 2009 and 31 December 2008 Percentage of ownership RMB’000 80% 24,000 20% 6,000 100% 30,000 31 December 2007 Percentage of ownership RMB’000 100% 30,000

(b) PRC statutory reserve

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

16. Capital and reserves (continued)

(b) PRC statutory reserve (continued)

(c) Minority interest

The minority interest represents the 10% equity interest in Shanghai OLM, which was held by Mr. Liu Jinsong.

(d) Distributable reserves

At 31 December 2007 and 2008, no reserve was distributable to the equity holders of the Company as the Company had accumulated losses. At 19 October 2009, the amount of reserves available for distribution to equity holders of the Company was RMB4,120,000.

(e) Capital management

17. Commitments

(i) Capital commitments

Outstanding capital commitments at the balance sheet dates not provided for in the Financial Information were as follows:

						31	31
					19 October	December	December
					2009	2008	2007
					RMB’000	RMB’000	RMB’000
Authorised	but	not	contracted	for	518	453	344

(ii) Lease commitments

At the balance sheet dates, the total future minimum lease payments under non-cancellable operating leases in respect of properties were payable as follows:

Less than one year Between one and two years Between two and three years	19 October 2009 RMB’000 325 16 – 341	31 December 2008 RMB’000 547 326 16 889	31 December 2007 RMB’000 511 467 229
			1,207

The Group leased office buildings under operating leases during the Relevant Period. None of the leases includes contingent rentals.

– 143 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

18. Retirement benefits

As stipulated by the regulations of the PRC, the Group’s subsidiary in the PRC participate in basic defined contribution retirement schemes organised by the respective municipal governments under which they are governed. Details of the schemes of the subsidiaries are as follows:

		Contribution
Administrator	Beneficiary	rate
Chengdu Municipal Government, Sichuan Province	Employees of the Company	20%
Shanghai Municipal Government,	Employees of Shanghai OLM	22%

All employees are entitled to retirement benefits equal to a fixed proportion of their salaries and benefits in kind prevailing at their normal retirement ages.

The Group has no other material obligation for the payment of retirement benefits associated with these schemes beyond the contributions described above.

19. Related party transactions

Name of party Relationship Beijing OLM Company controlled by a director of the Company Sichuan Jiguang Company under the significant influence of the key management of the Company Fujian Start Group Co., Ltd. and its Previous equity holder of the Company group companies

(a) Transactions

Particulars of significant transactions between the Group and the above related parties during the Relevant Period are as follows:

Sales to related parties Purchase from related parties	The period from 1 January 2009 to 19 October 2009 RMB’000 40,665 9,744	2008 RMB’000 60,029 1,761	2007 RMB’000 43,071

			349

The directors of the Company are of the opinion that the above transactions with related parties were conducted on normal commercial terms and in the ordinary course of business.

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APPENDIX 3

19. Related party transactions (continued)

(b) Amounts due from/to related parties

Amounts due from related parties (i) Amounts due to related parties (ii)	19 October 2009 RMB’000 106,712 (1,957)	31 December 2008 RMB’000 59,686 (27,105)	31 December 2007 RMB’000 37,822

			(2,275)

(i) Included in the amounts due from related parties as at 19 October 2009 were advances to Fujian Start Group Co., Ltd. and its group companies and Sichuan Jiguang amounting to RMB25,000,000 and RMB25,000,000 respectively. The amount was interest-bearing, with a fixed rate of 5.31%, of which RMB 25,000,000 due from Fujian Start Group Co., Ltd and its group companies was repaid in January 2010, and the remaining balance of RMB 25,000,000 due from Sichuan Jiguang is repayable in June 2010. The remaining balance of amounts due from related parties are unsecured, interest free and have no fixed terms of repayment.
(ii) The amounts due to related parties are unsecured, interest free and have no fixed terms of repayment.
(iii) Guarantees from related parties are disclosed in notes 14 to this Financial Information.

(c) Remuneration to key management personnel

				31	31
			19 October	December	December
			2009	2008	2007
			RMB’000	RMB’000	RMB’000
Short-term	employee	benefits	600	540	480

(d) Contributions to defined contribution retirement plans

The Group participates in defined contribution retirement plans organised by municipal government for its employees. The details of the Group’s employee benefits plan are disclosed in note 18. As at 31 December 2007 and 2008 and 19 October 2009, there was no material outstanding contribution to post-employment benefit plans.

20. Financial risk management and fair values

Exposure to credit, liquidity and interest rate risks arises in the normal course of the Group’s business.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

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APPENDIX 3

20. Financial risk management and fair values (continued)

(a) Credit risk

Individual credit limits are set based on the assessment of credit quality. The Group also undertakes certain monitoring procedures on an individual customer basis to ensure that proper follow-up action is taken to recover overdue debts. Nevertheless, certain amounts of trade receivables cannot be recovered due to default and unexpected financial difficulties suffered by customers from time to time. At the balance sheet date, the Group has no significant concentrations of credit risk with any of its customers.

Further quantitive disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables is set out in note 12.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance. The Company does not provide any guarantees which would expose the Group to credit risk.

(b) Liquidity risk

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FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

20. Financial risk management and fair values (continued)

(b) Liquidity risk (continued)

Contractual maturities of financial liabilities

The following table details the remaining contractual maturities at the balance sheet dates of the Group’s financial liabilities including estimated interest payments:

Carrying amount Contractual undiscounted cash flow RMB’000 RMB’000 50,000 50,686 16,560 16,560 1,957 1,957 68,517 69,203	Carrying amount Contractual undiscounted cash flow RMB’000 RMB’000 50,000 50,686 16,560 16,560 1,957 1,957 68,517 69,203	6 months or less or on demand RMB’000 – – –
		–

22,464 27,105	22,464 27,105	– –
49,569	49,569	–

27,115 2,275	27,115 2,275	– –
29,390	29,390	–

(c) Interest rate risk

The Group’s interest rate risk arises primarily from cash and cash equivalents, issued at variable rates which expose the Group to fair value interest rate risk.

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APPENDIX 3

20. Financial risk management and fair values (continued)

(c) Interest rate risk (continued)

(i) Interest rate profile

The interest rate profile of the Group’s interest-bearing financial instruments at the balance sheet dates is as follows:

==> picture [356 x 231] intentionally omitted <==

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

19 October 2009 31 December 2008 31 December 2007
Effective Effective Effective
weighted weighted weighted
average average average
interest interest interest
rates % rates % rates %
(annual) RMB’000 (annual) RMB’000 (annual) RMB’000
Fixed rate
instruments
Amounts due from
related parties 5.31 50,000 – – – –
Bank loans 5.31 (50,000) – – – –
– – –
Variable rate
instruments
Cash and cash
equivalents 0.36 1,845 0.36 9,177 0.72 5,625
----- End of picture text -----

(ii) Sensitivity analysis

At the balance sheet date, it is estimated that a general increase/decrease of 36 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group’s profit/(loss) after tax and accumulated losses by approximately RMB 17,000, RMB 28,000 and RMB 6,000 for the years ended 31 December 2007 and 2008 and for the period from 1 January 2009 to 19 October 2009. Other components of consolidated equity would not be affected by changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit/(loss) after tax and accumulated losses/retained earnings that would arise assuming that the change in interest rates had occurred at the balance sheet date and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the balance sheet date. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the balance sheet date, the impact on the Group’s profit/(loss) after tax and accumulated losses/retained profits is estimated as an annualised impact on interest expense or income of such a change in interest rates.

(d) Foreign currency risk

The Group is not exposed to foreign currency risk as the Group does not have transactions denominated in currency other than RMB.

(f) Fair values

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APPENDIX 3

20. Financial risk management and fair values (continued)

(f) Fair values (continued)

Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.
Level 3 (lowest level): fair value measured using valuation techniques in which any significant input is not based on observable market data.

The Group does not have any financial instruments that are measured at fair value as at 31 December 2007 and 2008 and 19 October 2009.

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2007 and 2008 and 19 October 2009.

21. Accounting estimates and judgements

The most significant sources of estimation uncertainty used in the preparation of the Financial Information are as follows.

(a) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market conditions and the historical experience of distributing and selling products of a similar nature. Net realisable value could change significantly as a result of market conditions. Management reassess the estimation of net realisable value at each balance sheet date.

(b) Impairment losses on trade and other receivables

(c) Deferred tax assets

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APPENDIX 3

22. Possible impact of amendments, new standards and interpretations issued but not yet effective for the accounting period ended 19 October 2009

Up to the date of issue of the Financial Information, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the period ended 19 October 2009 and which have not been adopted in the Financial Information.

	Effective for
	accounting period
	beginning on or after
Improvements to IFRS 2008	1 July 2009
(Amendments to IFRS 5, Non-current assets held for sales and discontinued
operations)
Revised IFRS 1, First-time adoption of International Financial Reporting	1 July 2009
Standards
Amended IAS 27, Consolidated and separate financial statements	1 July 2009
IFRIC 19, Extinguishing financial liabilities with equity instruments	1 July 2010
Revised IFRS 3, Business combinations	Applied to business
	combinations for
	which the acquisition
	date is on or after the
	beginning of the first
	annual reporting
	period beginning on
	or after 1 July 2009
Amendment to IAS 39, Financial instruments: Recognition and measurement –	1 July 2009
Eligible hedged items
IFRIC 17, Distributions of non-cash assets to owners	1 July 2009
Improvements to IFRS 2009	1 July 2009
	or
	1 January 2010
Amendments to IFRS 1, First-time adoption of International Financial Reporting	1 January 2010
Standards – Additional exemptions for first-time adopters
Amendments to IFRS 2, Share-based payment – Group cash-settled share-based	1 January 2010
payment transactions
Amendment to IAS 32, Financial instruments: Presentation – Classification of	1 February 2010
rights issues
Amendment to IFRS 1, First-time adoption of International Financial Reporting	1 July 2010
Standards – limited exemption from comparative IFRS 7 disclosures for
first-time adopters
Revised IAS 24, Related party disclosures	1 January 2011
Amendments to IFRIC 14, IAS 19 – minimum funding requirements and their	1 January 2011
interaction – Prepayments of a minimum funding requirement The limit on a
defined benefit asset,
IFRS 9, Financial instruments	1 January 2013
Basis for conclusions on IFRS 9 Amendments to other IFRSs and guidance on
IFRS 9
Improvements to IFRSs 2010	1 July 2010 or 1
	January 2011

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. Up to the date of issuance of the Financial Information, the Group believes that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

– 150 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

D SUBSEQUENT FINANCIAL INFORMATION

The following significant events took place subsequent to 19 October 2009:

(a) Domestic Acquisition

On 26 April 2010, Oriental Legend Maker Technology Limited (“OLM”), a company incorporated in Hong Kong, which is a wholly-owned subsidiary of Liang Hui Holdings Limited, entered into an equity transfer agreement relating to the Domestic Acquisition pursuant to which OLM will acquire the entire equity interest in the Company’s holding company, Beijing OLM, at a consideration of RMB60,000,000 from Miss Lin Yan Hua and Mr. Wu Wen Jie. The Domestic Acquisition was completed on 8 June 2010 and Beijing OLM and the Company became wholly-owned subsidiaries of OLM.

In addition, the Company acquired the 10% minority interest in Shanghai OLM at a cash consideration of RMB100,000 from Mr. Liu Jin Song on 11 June 2010 and Shanghai OLM became a direct wholly-owned subsidiary of the Company.

E SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its subsidiaries in respect of any period subsequent to 19 October 2009.

Yours faithfully KPMG

Certified Public Accountants Hong Kong

– 151 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

2. MANAGEMENT DISCUSSION AND ANALYSIS

Financial Summary

Set out below is the management discussion and analysis on Chengdu OLM and its subsidiaries for the two years ended 31 December 2008 and the period from 1 January 2009 to 19 October 2009, the acquisition date of the entire equity interest of Chengdu OLM by Beijing OLM.

The turnover and profit of Chengdu OLM for the two years ended 31 December 2008 and the period from 1 January 2009 to 19 October 2009 are set out below:

						For the
						period from
				For the	year ended	1 January 2009 to 19
				31 December		October
				2007	2008	2009
				RMB’000	RMB’000	RMB’000
Turnover				95,939	125,032	88,421
(Loss)/profit	for	the	year/period	(461)	3,562	7,970

Results of operations

Software maintenance and other services Sale of software products and others	For the year ended 31 December 2007 2008 RMB’000 RMB’000 94,676 122,730 1,263 2,302 95,939 125,032	For the period from 1 January 2009 to 19 October 2009 RMB’000 88,199 222
		88,421

Turnover generated from provision of software maintenance and other services grew by approximately 29.6% from approximately RMB94.7 million in 2007 to approximately RMB122.7 million in 2008. Such increase was mainly due to increase in number of new customers and orders from existing customers by approximately 45.8% from 2007 to 2008. Such turnover for the period from 1 January 2009 to 19 October 2009 was approximately RMB88.2 million.

The turnover contributed by sale of software products and others increased from approximately RMB1.3 million in 2007 to approximately RMB2.3 million in 2008 which was mainly due to the practice of a major client that it upgraded its software from Chengdu

– 152 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

OLM every 2 years, resulting in an increase in sales to major customer by approximately RMB1.4 million. Such turnover was approximately RMB0.2 million for the period from 1 January 2009 to 19 October 2009 which was mainly because no upgrade product was sold to the customers during the period.

A loss was recorded in 2007, but Chengdu OLM became profit making in 2008, amounting to approximately RMB3.6 million in 2008 and approximately RMB8.0 million in 2009. Such increase was mainly due to the nature and location of the business of Chengdu OLM. As the New Technology Sector and development in western part of the PRC is supported by the PRC Government and Chengdu OLM is based in Chengdu, Chengdu OLM enjoys a number of benefits offered by the central and local government, including income tax rates. Therefore, Chengdu OLM has been developing rapidly.

Liquidity And Financial Resources

As at 31 December 2007, 31 December 2008 and 19 October 2009, the net assets of Chengdu OLM were approximately RMB24.1 million, RMB27.6 million and RMB35.6 million respectively.

There was no bank loan as at 31 December 2007 and 31 December 2008, while the total bank loans were RMB50 million as at 19 October 2009. The bank loans raised in 2009 were used to make equivalent advances to related parties.

Amounts due to related parties amounted to approximately RMB2.3 million as at 31 December 2007 which were unsecured, interest free and have no fixed terms of repayment. Such amounts increased to approximately RMB27.1 million as at 31 December 2008 because of a bank note issued to related parties amounting to RMB25 million. Amounts due to related parties decreased to approximately RMB2.0 million as at 19 October 2009 because of the expiry of the issued bank note in 2009.

The gearing ratio, which was calculated as a percentage of total interest-bearing borrowings less cash and cash equivalent over total assets, was nil and nil as at 31 December 2007 and 31 December 2008. The gearing ratio as at 19 October 2009 was 40.3% due to the loan drawdown of RMB50 million.

The current ratio of Chengdu OLM was 178.5%, 153.9% and 142.0% at 31 December 2007, 31 December 2008 and 19 October 2009 respectively. Such decrease was mainly due to the increasing advances to related parties.

Total cash and cash equivalents of Chengdu OLM increased to approximately RMB9.2 million as at 31 December 2008 from approximately RMB5.6 million as at 31 December 2007 which was mainly due to the increase in cash generated from operating activities. The balance decreased to approximately RMB1.8 million as at 19 October 2009 which was mainly due to advance made to the related parties.

– 153 –

FINANCIAL INFORMATION OF CHENGDU OLM

APPENDIX 3

Capital Expenditure

For the two years ended 31 December 2008 and the period from 1 January 2009 to 19 October 2009, Chengdu OLM incurred total capital expenditure of approximately RMB88,000, RMB110,000 and RMB47,000 respectively which was mainly for the purchase of office equipment.

Pledge of Assets

As at 31 December 2007, 31 December 2008 and 19 October 2009, Chengdu OLM had no pledge over its assets.

Contingent Liabilities

As at 31 December 2007, 31 December 2008 and 19 October 2009, there was no significant contingent liabilities.

Commitments

As at 31 December 2007, 31 December 2008 and 19 October 2009, Chengdu OLM had capital commitments approved but not yet contracted incurred of approximately RMB0.3 million, RMB0.5 million and RMB0.5 million for the purchase of office equipment. The lease commitments of Chengdu OLM were approximately RMB1.2 million, RMB0.9 million and RMB0.3 million as at 31 December 2007, 31 December 2008 and 19 October 2009 respectively, for the leases of office buildings under operating leases.

Major Acquisition

There was no major acquisition during the two years ended 31 December 2008 or the period from 1 January 2009 to 19 October 2009.

Foreign Exchange Risk

Chengdu OLM was not exposed to foreign currency risk as it did not have transactions denominated in currencies other than RMB.

Employee and Remuneration Policy

As at the Latest Practicable Date, Chengdu OLM employed a total of about 42 employees in Hong Kong and the PRC. All employees are remunerated based on industry practice and in accordance with the prevailing employment laws and regulations. Other staff benefits for eligible employees include housing allowances, retirement benefits and bonuses.

Business Overview and Development of Chengdu OLM

Please refer to the section headed “Business Overview and Development of Beijing OLM and its Subsidiaries” in Appendix 2 to this circular.

– 154 –

APPENDIX 4 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Enlarged Group assuming completion of the Acquisition. The unaudited pro forma financial information is prepared in accordance with Paragraph 4.29(1) and Paragraph 14.69(4)(a)(ii) of the Listing Rules to illustrate the effect of the Acquisition on the Group’s financial information.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION

Introduction to the unaudited pro forma financial information

The accompanying unaudited pro forma financial information of Tai-I International Holdings Limited (“the Company”) and its subsidiaries and an associate (collectively, the “Group”) together with Liang Hui Holdings Limited (the “Target Company”) and its subsidiaries (collectively, the “Target Group”) (collectively referred to as the “Enlarged Group”) includes the unaudited pro forma combined balance sheet prepared based on the consolidated balance sheet of the Group as at 31 December 2009 and the consolidated balance sheet of Beijing Orient LegendMaker Software Development Co., Ltd. (“Beijing OLM”) as at 31 December 2009, and gives effect to the proposed acquisition of the Target Company by the Company (the “Acquisition”) as if the Acquisition had been completed on 31 December 2009 (the “Unaudited Pro Forma Financial Information”)

The unaudited pro forma combined balance sheet of the Enlarged Group is prepared based upon the audited consolidated balance sheet of the Group as at 31 December 2009 as set out in Appendix 1 to this circular and the audited consolidated balance sheet of Beijing OLM as at 31 December 2009 as set out in Appendix 2 after incorporating the unaudited pro forma adjustments described in the accompanying notes. A narrative description of the unaudited pro forma adjustments of the Acquisition that are (i) directly attributable to the transaction concerned and not relating to future events or decisions; (ii) expected to have a continuing impact on the Enlarged Group; and (iii) factually supportable, are summarised in the accompanying notes.

The Unaudited Pro Forma Financial Information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 December 2009. Further, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix 1 to this circular, the financial information of Beijing OLM as set out in Appendix 2 to this circular and other financial information included elsewhere in this circular.

– 155 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX 4

1 Unaudited pro forma combined balance sheet as at 31 December 2009

The Group RMB’000 428,014 31,346 – 18,750 26,081 –	Beijing OLM RMB’000 2,394 – 10,468 – 1,347 –	Pro forma combined Pro forma adjustments RMB’000 RMB’000 Notes 430,408 – 31,346 – 10,468 – 18,750 – 27,428 – – 47,919 (f)	Pro forma combined Pro forma adjustments RMB’000 RMB’000 Notes 430,408 – 31,346 – 10,468 – 18,750 – 27,428 – – 47,919 (f)	Pro forma balance sheet of the Enlarged Group RMB’000 430,408 31,346 10,468 18,750 27,428 47,919
504,191 - - - - - - - - - - 211,477 1,085,762 – 5,712 284,494 245,780 287,268 2,120,493 - - - - - - - - - - 1,000,977 986,302 – 6,387 (1,284)	14,209 - - - - - - - - - - 4,879 34,628 52,841 – – – 8,864 101,212 - - - - - - - - - - 50,000 18,337 4,082 – 1,256	518,400 - - - - - - - - - - 216,356 1,120,390 52,841 5,712 284,494 245,780 296,132 2,221,705 - - - - - - - - - - 1,050,977 1,004,639 4,082 6,387 (28)	47,919 - - - - - - - - - - – – – – – – – – - - - - - - - - - - – 1,825 (g) – – –	566,319 - - - - - - - - - - 216,356 1,120,390 52,841 5,712 284,494 245,780 296,132
				2,221,705 - - - - - - - - - - 1,050,977 1,006,464 4,082 6,387 (28)
1,992,382 - - - - - - - - - ------------------------------------- 128,111 - - - - - - - - - ------------------------------------- 632,302 - - - - - - - - - -	73,675 - - - - - - - - - ------------------------------------- 27,537 - - - - - - - - - ------------------------------------- 41,746 - - - - - - - - - -	2,066,057 - - - - - - - - - ------------------------------------- 155,648 - - - - - - - - - ------------------------------------- 674,048 - - - - - - - - - -	1,825 - - - - - - - - - ------------------------------------- (1,825) - - - - - - - - - ------------------------------------- 46,094 - - - - - - - - - -	2,067,882 - - - - - - - - - ------------------------------------- 153,823 - - - - - - - - - ------------------------------------- 720,142 - - - - - - - - - -

– 156 –

APPENDIX 4 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1 Unaudited pro forma combined balance sheet as at 31 December 2009 (continued)

The Group RMB’000 – 632,302	Beijing OLM RMB’000 – 41,746	Pro forma combined Pro forma adjustments RMB’000 RMB’000 Notes – 81,367 (e) 674,048 (35,273)	Pro forma combined Pro forma adjustments RMB’000 RMB’000 Notes – 81,367 (e) 674,048 (35,273)	Pro forma balance sheet of the Enlarged Group RMB’000 81,367
				638,775

5,962 626,340 632,302 - - - - - - - - - ------------------------------------- –	60,000 (18,425) 41,575 - - - - - - - - - ------------------------------------- 171	65,962 607,915 673,877 - - - - - - - - - ------------------------------------- 171	(60,000) (h) 24,898 (g),(h) (35,102) - - - - - - - - - ------------------------------------- (171) (i)	5,962 632,813
				638,775 - - - - - - - - - ------------------------------------- –
632,302	41,746	674,048	(35,273)	638,775

See accompanying notes to the Unaudited Pro Forma Financial Information of the Enlarged Group.

– 157 –

APPENDIX 4 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2 Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

(a) The balances of assets and liabilities of the Group are extracted from the audited consolidated balance sheet of the Group as at 31 December 2009 as included in the published annual report of the Group for the year ended 31 December 2009.
(b) The balances of assets and liabilities of Beijing OLM are extracted from the audited consolidated balance sheet of Beijing OLM as at 31 December 2009 as set out in Appendix 2 to this circular.
(c) The Target Company and its wholly-owned subsidiary, Oriental Legend Maker Technology Limited (“OLM”) were incorporated on 6 January 2010 and 31 March 2010 respectively. The Target Company and OLM have not carried on any business with each other since the dates of their respective incorporation save for the domestic acquisition as disclosed in section headed “Letter from the Board” contained in this circular. Accordingly, the balances of assets and liabilities of Beijing OLM are assumed to be the balances of assets and liabilities of the Target Group.
(d) Pursuant to the sales and purchase agreement dated 7 June 2010 entered into between Winsino Investment Limited (“Winsino”), a wholly-owned subsidiary of the Company, and Advance Mode Limited, the beneficial owner of the Target Company (the “Agreement”), the consideration payable by Winsino for the Acquisition will be HK$ 96,000,000 and subject to downward adjustment based on the Beijing OLM’s performance for the year ending 31 December 2010, which will be satisfied by issue of a promissory note to Advance Mode Limited with an expiry period of 18 months from the date of issuance. Also, a put option was granted to Winsino whereby the Group could sell the entire share capital of the Target Company back to Advance Mode Limited, in exchange for the return of the promissory note previously issued. Winsino has also entered into a management agreement with Advance Mode Limited pursuant to which Advance Mode Limited will provide management consulting services to Beijing OLM and its subsidiaries.

For the purposes of calculating the amount of goodwill arising on the Acquisition, the carrying amount of total equity attributable to equity holders of the Company of the Target Group as at 31 December 2009 is assumed to be the fair value of the identifiable assets and liabilities of the Target Group and the put option granted to the Company and the consideration for the management consulting services to be provided by Advance Mode Limited are assumed to have no significant fair value at the date of completion.

– 158 –

APPENDIX 4 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2 Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group (continued)
(d) (continued)

Since the fair value of the identifiable assets and liabilities of the Target Group, fair value of the put option granted to the Company and of the management consulting services at the date of completion may be substantially different from their estimated fair values as at 31 December 2009, the actual goodwill arising from the Acquisition may differ from the estimated goodwill as shown above. The final amount of goodwill will be determined based on the consideration paid by the Group and the fair value of the identifiable assets and liabilities of the Target Group on the date of completion in accordance with Revised International Financial Reporting Standards 3 “Business Combinations” (“Revised IFRS 3”).

(e) The adjustment to long term payables represents the issue of a promissory note of HK$ 96,000,000 by Winsino for the acquisition of the entire share capital of the Target Company. The promissory note is recognised initially at its fair value of HK$ 92,410,000 (equivalent to approximately RMB 81,367,000), based on the fair value calculated by the directors of the Company by applying discounted cash flow method with an effective interest rate of 2.57% per annum.
(f) The adjustment to goodwill represents the goodwill arising from the excess of approximately RMB 47,919,000, of the fair value of consideration payable by Winsino for the issue of a promissory note of HK$ 96,000,000 (with a fair value of HK$ 92,410,000 (note 2(e)) and equivalent to approximately RMB 81,367,000) upon the acquisition of entire share capital of the Target Company, over the total equity attributable to equity holders of the Company of the Target Group of RMB 33,277,000 and minority interest of RMB 171,000 as at 31 December 2009 as if the Acquisition had been completed on 31 December 2009.
(g) The adjustment to trade and other payables represents the related cost incurred, such as stamp duties, lawyer’s fees, audit fee, financial advisory fees and other costs of approximately HK$ 2,070,000 (equivalent to approximately RMB 1,825,000) that are directly attributable to the Acquisition, which are required to be recognised in profit or loss in accordance with Revised IFRS 3.
(h) The adjustments to capital and reserves represent the elimination of capital and reserves of the Enlarged Group upon the completion of the Acquisition.
(i) The adjustment to minority interest represents the acquisition of 10% minority interest in Shanghai Orient LegendMaker Technology Co., Ltd. by OLM as part of the domestic acquisition before the Acquisition.

– 159 –

APPENDIX 4 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of the report, which is prepared for the purpose of incorporation in this circular, received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

(B) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

28 June 2010

The Directors

Tai-I International Holdings Limited

Dear Sirs,

We report on the unaudited pro forma financial information (“the Unaudited Pro Forma Financial Information”) of Tai-I International Holdings Limited (the “Company”) and its subsidiaries (“the Group”), together with Liang Hui Holdings Limited (the “Target Company”) and its subsidiaries, (the “Target Group”) (collectively referred to as the “Enlarged Group”) set out in Section A of Appendix 4 of the circular dated 28 June 2010 (“the Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of the entire share capital in the Target Company might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in notes to the Unaudited Pro Forma Financial Information of the Enlarged Group of Section A of this Appendix.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 160 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX 4

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Company and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, 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 Enlarged Group as at 31 December 2009 or any future date.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Company, and
c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

Yours faithfully

KPMG

Certified Public Accountants Hong Kong

– 161 –

GENERAL INFORMATION

APPENDIX 5

(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 Group. 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

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

HK$

Authorised Share Capital as at the Latest Practicable Date:

1,000,000,000 Shares Issued, to be issued and fully paid or credited as fully paid up: 596,158,000 Shares in issue as at the Latest Practicable Date	10,000,000

	5,961,580

The Company has no options, warrants and conversion rights convertible into Shares. No Shares or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commission, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital.

All existing Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital.

The Shares are listed and traded on the main board of the Stock Exchange. None of the Shares is listed, or dealt in, on any other stock exchange, nor is any listing of or permission to deal in Shares being, or proposed to be, sought on any other stock exchange.

(3) SHARE OPTIONS

The Board confirms that the Company has no outstanding share option as at the Latest Practicable Date.

– 162 –

GENERAL INFORMATION

APPENDIX 5

(4) DISCLOSURE OF INTEREST

(a) Directors’ and chief executives’ interests or short positions in the shares, underlying shares and debentures of the Company and associated corporation

As at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO), 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 are taken or deemed to have under such provision of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

(b) Substantial Shareholders

Save as disclosed below, so far as is known to the Directors, as at the Latest Practicable Date, the following persons, other than a Director or chief executive of the Company, had or were deemed to have an interest or a short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group, or held any option in respect of such capital:

Long position in the Shares

			Approximate
			percentage
			of issued
			ordinary
			shares of
	Number	Nature of	the
Name	of Shares	Interest	Company	Notes
Tai-I International (BVI)	195,487,000	Beneficial owner	32.79%	1
Limited (“Tai-I (BVI)”)
Tai-I Electric Wire &	195,487,000	Interest through	32.79%	1
Cable Co., Ltd. (“Taiwan		controlled
Tai-I”)		corporation
First Sense International	102,015,000	Beneficial owner	17.11%	2
Limited (“First Sense”)
AIF Capital Asia III, L.P.	102,015,000	Interest through	17.11%	2
(“AIF”)		controlled
		corporation

– 163 –

GENERAL INFORMATION

APPENDIX 5

			Approximate
			percentage
			of issued
			ordinary
			shares of
	Number	Nature of	the
Name	of Shares	Interest	Company	Notes
Green Island Industries	67,500,000	Beneficial owner	11.32%	3
Limited (“Green Island”)
Liu Tianni	67,500,000	Interest through	11.32%	3
		controlled
		corporation
Sumitomo Corporation	34,418,000	Interest through	5.77%
		controlled
		corporation

Notes:

Taiwan Tai-I owns approximately 87.03% of the issued share capital of Tai-I (BVI).
The entire issued share capital of First Sense is owned by AIF.
The entire issued share capital of Green Island is owned by Liu Tianni.

(5) DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which have since 31 December 2009 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any members of the Group, or was proposed to be acquired or disposed of by or leased to any members of the Group.

(6) DIRECTORS’ INTERESTS IN CONTRACT OF SIGNIFICANCE

None of the Directors is materially interested, directly or indirectly, in any contracts or arrangements entered into by any members of the Group subsisting at the date of this circular and which is significant in relation to the business of the Group.

(7) LITIGATION

As at the Latest Practicable Date, none of the members of the Group was engaged in any litigation, arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

– 164 –

GENERAL INFORMATION

APPENDIX 5

(8) MATERIAL CONTRACTS

Save for the Sale and Purchase Agreement, there was no contract (not being contracts in the ordinary course of business carried on by the Group) entered into by members of the Group within the two years immediately preceding the Latest Practicable Date.

(9) QUALIFICATION AND CONSENT OF EXPERTS

(a) The following is the qualification of the expert who have given opinion or advice contained in this circular:

Name

Qualification

KPMG

Certified public accountants

(b) As at the Latest Practicable Date, KPMG had no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member in the Group.
(c) KPMG has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear respectively.
(d) As at the Latest Practicable Date, KPMG did not have any interest, direct or indirect, in any assets which have been, since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

(10) SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which does not expire or is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

(11) COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or substantial shareholders or any of their respective associates had an interest in a business which competes or may compete with the business of the Group or had any other conflict of interest which any such person has or may have with the Group.

(12) 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 December 2009, the date to which the latest published audited consolidated financial statements of the Group were made up.

– 165 –

GENERAL INFORMATION

APPENDIX 5

(13) MISCELLANEOUS

(a) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
(b) The principal place of business of the Company in Hong Kong is at Room 1502, 15th Floor, The Chinese Bank Building, 61-65 Des Voeux Road Central, Hong Kong.
(c) The principal place of business of the Company in the PRC is at No. 77 Dongpeng Avenue, Eastern District of Guangzhou Economic and Technological Development Zone, Guangzhou, Guangdong Province, the PRC.
(d) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) The company secretary of the Company is Ms. Chan Yuen Ying, Stella, an associate member of the Institute of Chartered Secretaries and Administrators and an associate member of the Hong Kong Institute of Chartered Secretaries. She is also a member of the Hong Kong Institute of Directors.
(f) The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts in case of inconsistency.

(14) DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong at Room 1502, 15th Floor, The Chinese Bank Building, 61-65 Des Voeux Road Central, Hong Kong, during normal business hours on any weekday other than public holidays, from the date of this circular up to and including the date of the EGM:

(a) the memorandum of association and articles of association of the Company;
(b) the annual reports of the Company for each of the two years ended 31 December 2009;
(c) the accountants’ reports prepared by KPMG on Beijing OLM and Chengdu OLM, the text of which are set out in Appendix 2 and 3 to this circular;
(d) the letter from KPMG in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix 4 to this circular;
(e) the Sale and Purchase Agreement;
(f) the letter of consent referred to under the paragraph headed “Qualification and consent of expert” in this appendix; and
(g) this circular.

– 166 –

NOTICE OF EGM

TAI-I INTERNATIONAL HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1808)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) of Tai-I International Holdings Limited (the “Company”) will be held at 35th Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong on 14 July 2010 at 3:00 p.m. for the purpose of considering and, if thought fit, passing the following resolution as ordinary resolution:

ORDINARY RESOLUTION

“ THAT the sale and purchase agreement dated 7 June 2010 (the “Sale and Purchase Agreement”) between Winsino Investments Limited (the “Purchaser”), a wholly owned subsidiary of the Company, as purchaser, Advance Mode Limited (the “Vendor”) as vendor and Mr. Lo Kai Bong as vendor’s guarantor, a copy of which having been produced at the Meeting marked “A” and signed by the chairman of the Meeting for identification purposes, under which the Purchaser conditionally agreed to purchase the entire issued share capital of Liang Hui Holdings Limited (the “Target Company”) and the entire shareholder’s loan owed to the Vendor by the Target Company for a total consideration of HK$96,000,000 (subject to downward adjustment), which will be settled by the issue of the promissory note in the principal amount of HK$96,000,000 (subject to downward adjustment) by the Purchaser with guarantee to be given by the Company, and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified, and the directors and secretary of the Company be and are hereby authorized to sign, execute and deliver any agreements, deeds, instruments and any other documents (and, where necessary, to affix the seal of the Company on them in accordance with the articles of association of the Company) in connection with the Sale and Purchase Agreement and to do such acts and things as necessary, desirable or expedient to give effect to the transactions contemplated under the Sale and Purchase Agreement.”

By order of the Board Tai-I International Holdings Limited Huang Cheng-Roang Chairman

Hong Kong, 28 June 2010

– 167 –

NOTICE OF EGM

Registered office: Principal place of Principal place of Cricket Square business in Hong Kong: business in the PRC: Hutchins Drive Room 1502, 15th Floor No. 77 Dongpeng Avenue P.O. Box 2681 The Chinese Bank Building Eastern District of Guangzhou Grand Cayman 61-65 Des Voeux Road Central Economic and Technological KY1-1111 Hong Kong Development Zone Cayman Islands Guangzhou Guangdong Province The PRC

Notes:

Any member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend in his stead. A proxy need not be a member of the Company.
A proxy form of the Meeting is enclosed. If the appointer is a corporation, the proxy form must be made under its common seal or under the hand of an officer or attorney duly authorized on its behalf.
Where there are joint registered holders of any Shares, any one of such persons may vote at the Meeting (or any adjournment thereof), either personally or by proxy, in respect of such Share as if he were solely entitled thereto; but if more than one of such holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such Share shall alone be entitled to vote in respect thereof.
In order to be valid, the proxy form, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s branch registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Ltd. at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or at any adjournment thereof.
Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
As at the date of this notice, the Board comprises four executive Directors, namely, Mr. Huang Cheng-Roang (Chairman), Mr. Lin Chi-Ta (Chief Executive Officer), Mr. Huang Kuo-Feng and Mr. Du Chi-Ting, and five independent non-executive Directors, namely, Mr. Kang Jung-Pao, Mr. Cheng Yang-Yi, Mr. Tsay Yang-Tzong, Mr. Yan Minghe and Mr. Atsushi Kanayama.

– 168 –

AI assistant

Enterprise Development Holdings Limited — Proxy Solicitation & Information Statement 2010

50183_rns_2010-06-27_3a342989-3a0f-4321-bf1a-6bb62f7336d9.pdf

TAI-I INTERNATIONAL HOLDINGS LIMITED

MAJOR TRANSACTION ACQUISITION OF 100% INTEREST IN LIANG HUI HOLDINGS LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

TAI-I INTERNATIONAL HOLDINGS LIMITED

To the Shareholders

MAJOR TRANSACTION ACQUISITION OF 100% INTEREST IN LIANG HUI HOLDINGS LIMITED

INTRODUCTION

THE ACQUISITION

(a) Date

(b) Parties

(c) Assets to be acquired

(d) Consideration and adjustment

LETTER FROM THE BOARD

(e) Put Option

(f) Management Agreement

(g) Conditions Precedent

LETTER FROM THE BOARD

(h) Completion

(i) Termination

SUMMARY OF TERMS OF PROMISSORY NOTE

(a) Aggregate principal amount

(b) Interest

(c) Transferability

SHAREHOLDING STRUCTURE

The Group (simplified)

The Target Group

The Enlarged Group

INFORMATION OF THE TARGET GROUP

LETTER FROM THE BOARD

Beijing OLM

LETTER FROM THE BOARD

INFORMATION ON THE VENDOR

REASONS FOR AND BENEFITS OF THE ACQUISITION

FUND RAISING EXERCISE OF THE COMPANY IN THE PAST 12 MONTHS

FINANCIAL IMPACT OF THE ACQUISITION

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

RECOMMENDATION

EGM

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

2. AUDITED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Company Level Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. Significant accounting policies

(a) Statement of compliance

(b) Basis of preparation of the financial statements

(c) Subsidiaries

(d) Associate

(e) Goodwill

(f) Derivative financial instruments and hedging

Fair value hedges

Cash flow hedges

(g) Property, plant and equipment

(h) Lease prepayments

(i) Operating lease charges

(j) Impairment of assets

(k) Inventories

APPENDIX 1

(l) Trade and other receivables

(m) Cash and cash equivalents

(n) Trade and other payables

(o) Income tax

(p) Provisions and contingent liabilities

(q) Revenue recognition

(i) Sale of goods

(ii) Service income

Enterprise Development Holdings Limited Proxy Solicitation & Information Statement 2010