Go Up Education Technology Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Wealth Glory Holdings Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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.

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

WEALTH GLORY HOLDINGS LIMITED 富譽控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8269)

(I) MAJOR TRANSACTION IN RESPECT OF

THE ACQUISITION OF THE ENTIRE EQUITY INTEREST IN DIGITAL RAINBOW HOLDINGS LIMITED;

(II) PLACING OF NEW SHARES UNDER SPECIFIC MANDATE; (III) PLACING OF BONDS AND ISSUE OF UNLISTED WARRANTS UNDER THE SPECIFIC MANDATE; AND

(IV) NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening an extraordinary general meeting (the “EGM”) of the Company to be held at 17/F., No. 8 Wyndham Street, Central, Hong Kong on Thursday, 25 July 2013 at 11:00 a.m. is set out on pages 126 to 128 of this circular. A form of proxy for the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are encouraged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong as soon as possible and in any event no later than 48 hours before the time appointed for the holding of the EGM. Completion and return of the enclosed form of proxy will not preclude you from attending and voting in person at such meeting or any adjournment meeting should you so wish.

This circular will remain on the GEM website at www.hkgem.com on the “Latest Company Announcements” page for seven days from the date of its posting and the website of the Company at www.lmfnoodle.com.

29 June 2013

		Page
Characteristics	of GEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Appendix I	– Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Appendix II	– Financial Information of the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . 75
Appendix III	– Unaudited Pro Forma Financial Information
	of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Appendix IV	– Management Discussion and Analysis of the Target Group. . . . . . . . . . . . 93
Appendix V	– Valuation Report of the Hong Kong Company. . . . . . . . . . . . . . . . . . . . . . 95
Appendix VI	– General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

CHARACTERISTICS OF GEM

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

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

DEFINITIONS

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

“1st Chargor”
Conrich Investments Limited, being the beneficial owner of 306,880,000 Shares, representing approximately 30.71% of the entire issued share capital of the Company as at the Latest Practicable Date
“1st Share Charge” the charge over the 306,880,000 Shares beneficially owned by the 1st Chargor to be executed by the 1st Chargor in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds
“1st Supplier” South Sino Mineral Resources Phils, Inc., being a company incorporated in the Philippines with limited liability and is principally engaged in magnetite sand mining, who and its beneficial owner are Independent Third Parties
“1st Vendor” Hu Shuang, being the beneficial owner of 6,912 shares of the Target, representing 69.12% of the entire issued share capital of the Target and one of the vendors of the Acquisition and an Independent Third Party
“2nd Chargor” Fastray Investments Limited, being the beneficial owner of 35,840,000 Shares, representing approximately 3.59% of the entire issued share capital of the Company as at the Latest Practicable Date
“2nd Share Charge” the charge over the 35,840,000 Shares beneficially owned by the 2nd Chargor to be executed by the 2nd Chargor in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds
“2nd Supplier” Hong Ze Mining Corporation, being a company incorporated in Philippines with limited liability and is principally engaged in magnetite sand processing, who and its beneficial owner are Independent Third Parties
“2nd Vendor” Chan Lan, being the beneficial owner of 1,072 shares of the Target, representing 10.72% of the entire issued share capital of the Target and one of the vendors of the Acquisition and an Independent Third Party

DEFINITIONS

“3rd Chargor” Flance Investments Limited, being the beneficial owner of 26,880,000 Shares, representing approximately 2.69% of the entire issued share capital of the Company as at the Latest Practicable Date
“3rd Share Charge” the charge over the 26,880,000 Shares beneficially owned by the 3rd Chargor to be executed by the 3rd Chargor in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds
“3rd Supplier” Aquiflex Holdings, Inc., being a company incorporated in Philippines with limited liability and is principally engaged in investment holdings, who is an Independent Third Party
“3rd Vendor” Cheung Siu Yu, being the beneficial owner of 416 shares of the Target, representing 4.16% of the entire issued share capital of the Target and one of the vendors of the Acquisition and an Independent Third Party
“4th Chargor” Plannet Investments Limited, being the beneficial owner of 22,400,000 Shares, representing approximately 2.24% of the entire issued share capital of the Company as at the Latest Practicable Date
“4th Share Charge” the charge over the 22,400,000 Shares beneficially owned by the 4th Chargor to be executed by the 4th Chargor in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds
“4th Vendor” Lung Yau Wai, being the beneficial owner of 1,600 shares of the Target, representing 16.00% of the entire issued share capital of the Target and one of the vendors of the Acquisition and an Independent Third Party
“Acquisition” the acquisition of the Sale Shares pursuant to the Agreement
“Agreement” the conditional sale and purchase agreement dated 6 February 2013 entered into between the Purchaser and the Vendors relating to the sale and purchase of the Sale Shares (as supplemented by the Supplemental Agreement)
“Announcement” the announcement of the Company dated 6 February 2013 in relation to the Acquisition

DEFINITIONS

“associates” has the meaning ascribed to it under the GEM Listing Rules “Board” board of the Directors from time to time “Bonds” the secured and guaranteed bonds up to an aggregate principal amount of HK$80 million due on Maturity to be placed pursuant to the Bond Placing Agreement and to be created and issued by the Company
“Bondholder(s)” a person in whose name a Bond is registered in the register of Bondholders, and “holder(s)” in relation to a Bond has a corresponding meaning
“Bond Issue Date” the date of issue of the Bonds “Bond Placee(s)” any professional, institutional and other investors selected and procured by or on behalf of the Placing Agent to subscribe for the Bonds pursuant to the Bond Placing Agreement
“Bond Placing” the placing of the Bonds pursuant to the terms and conditions of the Bond Placing Agreement
“Bond Placing Agreement” the conditional placing agreement dated 3 May 2013 and entered into between the Company and the Placing Agent in relation to the Bond Placing (as supplemented by the Supplemental Bond Placing Agreement)
“Bond Placing Completion Date” the date of completion of the Bond Placing which will take place within three Business day after the fulfillment of the conditions of the Bond Placing or such other date agreed by the Company and Placing Agent
“Business Day” a day on which licensed banks in Hong Kong are open for normal banking business throughout their normal business hours (excluding Saturday, Sunday or public holiday)
“CB Placing” the placing of the Convertible Bonds as disclosed in the circular of the Company dated 18 January 2013
“CB Placing Agreement” the placing agreement dated 12 December 2012 and entered into between the Company and Kingsway Financial Services Group Limited for the CB Placing
“Company” Wealth Glory Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on GEM (stock code: 8269)

DEFINITIONS

“Completion” completion of the Acquisition in accordance with the terms and conditions of the Agreement

“Completion Date” the date falling on the third Business Days after the fulfillment or waiver of the conditions precedent set out in the Agreement (or such other date as the Vendors and the Purchaser may agree)
“connected person(s)” has the meaning ascribed to it under the GEM Listing Rules
“Consideration” the total consideration of HK$156,250,000 to be paid by the Purchaser to the Vendors pursuant to the Agreement
“Consideration Shares” a total of 193,000,000 new Shares to be allotted and issued by the Company to the 2nd Vendor, the 3rd Vendor and the 4th Vendor and/or their respective nominee(s) respectively at Completion at the Issue Price to satisfy part of the Consideration
“Convertible Bonds” the placing of an aggregate principal amount of HK$30 million of convertible bonds, details of which are set out in the circular of the Company dated 18 January 2013
“Director(s)” director(s) of the Company from time to time
“Ease Chance Corporate Guarantee” the deed of guarantee to be executed by the Hong Kong Company in favour of the Bondholder(s) (or its trustee, if any) on the date immediately following the Bond Placing Completion Date, pursuant to which the Hong Kong Company agrees to guarantee the performance of the Company’s payment obligations under the Bonds and to charge by way of first floating charge all its property, assets, goodwill, rights and revenues in favour of the Bondholder(s) or its trustee

“EGM”

the extraordinary general meeting of the Company to be convened to consider and, if thought fit, approve amongst others, (i) the Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Consideration Shares); (ii) the Share Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Placing Shares); and (iii) the Bond Placing Agreement and the transactions contemplated thereunder (including but not limited to the issue of the Bonds and the grant of a specific mandate to the Directors for the issue of the Warrant Shares)

DEFINITIONS

“Eminent Along” Eminent Along Limited, being a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company
“Eminent Along Corporate the deed of guarantee to be executed by Eminent Along in favour Guarantee” of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date, pursuant to which Eminent Along agrees to guarantee the performance of the Company’s payment obligations under the Bonds and to charge by way of first floating charge all its property, assets, goodwill, rights and revenues in favour of the Bondholder(s) or its trustee, if any
“Exercise Period” in relation to the Warrants, the period from the date of issue of the Warrants to the date falling on the 3rd anniversary of the issue of the Warrants
“Exercise Price” an initial exercise price of HK$0.24 per new Share (subject to adjustment) at which the holders of the Warrants may subscribe for the new Share(s)
“Extended Maturity Date” the date immediately following twelve (12) months after the Maturity Date (or, if that is not a Business Day, the first Business Day thereafter) in the event of extension of the Maturity Date
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM
“Group” the Company and its subsidiaries from time to time

“HKGAAP”	accounting principles, standards, and practices generally accepted
	in Hong Kong, including but not limited to Hong Kong Financial
	Reporting Standards, Hong Kong Accounting Standards, and
	Interpretations issued by the Hong Kong Institute of Certified
	Public Accountants
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Hong Kong Company”	Ease Chance International Limited, a limited liability company
	incorporated in Hong Kong and is wholly owned by the Target
“Independent Third Party(ies)”	any person or company and their respective ultimate beneficial
	owner(s), to the best of the Directors’ knowledge, information and
	belief having made all reasonable enquiries, are not connected
	persons of the Company and are third parties independent of the
	Company and its connected persons in accordance with the GEM
	Listing Rules

DEFINITIONS

“Independent Valuer” Roma Appraisals Limited, an independent valuer to conduct the Valuation
“Initial Interest Rate” the interest rate of the Bonds of not more than 20% per annum, the exact rate of which shall be fixed on the Bond Placing Completion Date
“Issue Price” the issue price of HK$0.25 per Consideration Share “Latest Practicable Date” 28 June 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular
“Listing Committee” the listing sub-committee of the Stock Exchange “Maturity” the Maturity Date or the Extended Maturity Date (as the case may be)
“Maturity Date” the date immediately following twenty-four (24) months after the Bond Issue Date (or, if that is not a Business Day, the first Business Day thereafter)
“Placing Agent” GF Securities (Hong Kong) Brokerage Limited, licensed to carry on types 1 (dealing in securities) and 4 (advising on securities) regulated activities under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
“Placing Announcement” the announcement of the Company dated 3 May 2013 in relation to the Bond Placing and the Share Placing
“Placing Price” the higher of (i) HK$0.20 per Placing Share; or (ii) the price per Placing Share which represents 30% discount of the average closing price per Share as quoted on the Stock Exchange for the five trading days immediately prior to the Price Determination Date
“Placing Shares” up to an aggregate of 250,000,000 new Shares to be placed under the Share Placing
“Philippines” the Republic of Philippines “PRC” the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Price Determination Date” the date to be notified by the Placing Agent on which the Placing Price will be fixed for the purposes of the Share Placing

DEFINITIONS

“Progressive Interest Rates”
an addition of 2% per annum to the Initial Interest Rate in each quarter commencing from the 25th month after the Bond Issue Date
“Promissory Note” the promissory note in the total principal sum of not more than HK$23,000,000 to be executed and issued by the Company in favour of the 1st Vendor and/or its nominee(s) upon Completion for the purpose of settlement of part of the Consideration
“Proposed Financing the proposed financing activity(ies), whether by way of equity Activity(ies)” financing or debt financing, to be conducted by the Company with gross proceeds and/or loan amount and/or other capital being raised (as the case may be) of not less than HK$85,000,000
“Purchaser” Silver Summit Investments Limited, a company incorporated in the British Virgin Islands with limited liability, an indirect wholly owned subsidiary of the Company, and the purchaser to the Agreement
“Redemption Period” the period from the date immediately following twelve (12) months after the Bond Issue Date to the date immediately prior to the Maturity Date or the Extended Maturity Date (as the case may be)
“Sale Shares”
10,000 shares of US$1.00 each, being the entire issued share capital of the Target as at the date of the Agreement which are legally and beneficially owned by the Vendors collectively
“SFO” The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholder(s)” holder(s) of the Share(s) from time to time
“Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“Share Placing”
the placing, on a best effort basis, of up to an aggregate of 250,000,000 new Shares to be allotted and issued to the Share Placee(s) pursuant to the terms of the Share Placing Agreement
“Share Placing Agreement” the conditional placing agreement dated 3 May 2013 and entered into between the Company and the Placing Agent in relation to the Share Placing (as supplemented by the Supplemental Share Placing Agreement)
“Share Placing Completion Date” the date of completion of the Share Placing which will take place within three Business day after the fulfillment of the conditions of the Share Placing or such other date agreed by the Company and Placing Agent

DEFINITIONS

“Share Placee(s)”

any person or entity whom the Placing Agent and/or any of its agent(s) has procured to subscribe for any of the Placing Shares pursuant to and in accordance with the Share Placing Agreement

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Substantial Shareholder” has the meaning as ascribed thereto under the GEM Listing Rules
“Supplemental Agreement” the supplemental agreement dated 5 April 2013 entered into between the Purchaser and the Vendors to supplement or amend certain terms of the Agreement, among others, (i) changing the amount of capital proposed to be raised under the Proposed Financing Activity(ies) to be HK$85,000,000; (ii) amending the payment schedule of the consideration payable by the Purchaser to the 1st Vendor on the Completion Date; and (iii) extending the long stop date of the Agreement to 31 May 2013
“Supplemental Bond Placing the supplemental agreement to the Bond Placing Agreement dated Agreement” 28 June 2013 entered into between the Company and the Placing Agent to extend the long stop date of the Bond Placing Agreement to 31 August 2013
“Supplemental Share Placing the supplemental agreement to the Share Placing Agreement dated Agreement” 28 June 2013 entered into between the Company and the Placing Agent to extend the long stop date of the Share Placing Agreement to 31 August 2013
“Target” Digital Rainbow Holdings Limited, a company incorporated in the British Virgin Islands with limited liability which is wholly owned by the Vendors collectively and is the target under the Acquisition
“Target Group” the Target and the Hong Kong Company
“Valuation” the value of 100% equity interest in the Hong Kong Company as shown in the valuation report included in Appendix V to this circular, such valuation shall be prepared in compliance with the requirements of the GEM Listing Rules, on a discounted cashflow and income methodology and such bases and assumptions as may be agreed by the Vendors and the Purchaser
“Vendors” collectively, the 1st Vendor, the 2nd Vendor, the 3rd Vendor and the 4th Vendor

DEFINITIONS

“Warrants”	the unlisted bonus warrants (in registered form and by way of
	deed poll) (in the proportions of 1,625,000 Warrants for every
	whole multiple of HK$1,000,000 principal amount of the Bonds
	taken up) to be issued by the Company to the first registered
	holder(s) of the Bonds proposed to confer rights entitling the
	holders thereof to subscribe for up to HK$31.2 million in
	aggregate in cash at HK$0.24 per Share (subject to the adjustment
	in accordance with the provisions of the Warrants) during the
	period from the date of issue of the Warrants to the date falling
	the third (3rd) anniversary of the issue of the Warrants
“Warrants Shares”	Shares to be issued upon the exercise of the subscription rights
	attaching to the Warrants
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollar(s), the lawful currency of the United States of
	America
“BEIJING IODES”	refers to the iron ore price index quoted in China Beijing
	International Mining Exchange, the index price of which is
	available at its website at www.cbmx.com.cn
“Platts”	refers to Platts INDEX, being the daily index price of energy,
	petrochemical and metal – related products provided by McGraw
	– Hill Companies, Inc.
“DMT”	dry metric tonne
“WMT”	wet metric ton
“%”	per cent.

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

Amounts denominated in RMB and US$ in this circular have been converted into HK$ at the rate of HK$1 = RMB0.8 and US$1 = HK$7.80, respectively, for illustration purposes only.

LETTER FROM THE BOARD

WEALTH GLORY HOLDINGS LIMITED

富譽控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8269)

Executive Directors:

Ms. Lee Yau Lin, Jenny (Chairman) Mr. Wong Wing Fat (Chief Executive Officer) Mr. Wong Ka Wah, Albert

Independent non-executive Directors:

Mr. Ho Wai Hung Ms. Cheung Kin, Jacqueline Ms. Mak Yun Chu

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

Head office and principal place of business in Hong Kong: 17/F., No. 8 Wyndham Street Central Hong Kong 29 June 2013

To the Shareholders

Dear Sir or Madam,

(I) MAJOR TRANSACTION IN RESPECT OF

THE ACQUISITION OF THE ENTIRE EQUITY INTEREST IN DIGITAL RAINBOW HOLDINGS LIMITED; (II) PLACING OF NEW SHARES UNDER SPECIFIC MANDATE; (III) PLACING OF BONDS AND ISSUE OF UNLISTED WARRANTS UNDER THE SPECIFIC MANDATE; AND

(IV) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement, of which, the Purchaser and the Vendors entered into the Agreement on 6 February 2013, pursuant to which the Purchaser has conditionally agreed to acquire and the Vendors have conditionally agreed to sell the Sale Shares for the Consideration under the Agreement. Reference is also made to the announcement of the Company dated 5 April 2013 in relation to, inter alia, the lapse of the CB Placing and the Supplemental Agreement.

Reference is also made to the Placing Announcement, where the Board announced that on 3 May 2013 (after the close of trading hours of the Stock Exchange), the Company entered into the Share Placing Agreement with the Placing Agent in relation to the Share Placing. As disclosed in the Placing Announcement, the Company also entered into the Bond Placing Agreement with the Placing Agent in relation to the Bond Placing.

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other matters, (a) the further details of the Acquisition and the transactions contemplated thereunder; (b) the information of the Target Group; (c) the unaudited pro forma financial information of the Enlarged Group; (d) the valuation report on the Valuation prepared by the Independent Valuer; (e) the details of the Share Placing; (f) the details of the Bond Placing and (f) a notice convening the EGM.

(I) MAJOR TRANSACTION IN RESPECT OF THE ACQUISITION OF THE ENTIRE EQUITY INTEREST IN DIGITAL RAINBOW HOLDINGS LIMITED

THE AGREEMENT

Date: 6 February 2013 (as supplemented by the Supplemental Agreement dated 5 April 2013)

Parties:

Purchaser: Silver Summit Investments Limited, a wholly-owned subsidiary of the Company

Vendors: the 1st Vendor, the 2nd Vendor, the 3rd Vendor and the 4th Vendor

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of the Vendors and its respective associates are Independent Third Parties.

Assets to be acquired

On 6 February 2013, the Purchaser and the Vendor entered into the Agreement (as supplemented by the Supplemental Agreement dated 5 April 2013), pursuant to which the Purchaser has conditionally agreed to acquire and the Vendors have conditionally agreed to sell the Sale Shares, representing the entire issued share capital of the Target as at the Latest Practicable Date.

Consideration

The aggregate Consideration for the Sale Shares is HK$156,250,000 and shall be payable by the Purchaser on the Completion Date in the following manner:

(i) as to HK$108,000,000 of the Consideration shall be payable by the Purchaser to the 1st Vendor (or its nominee(s)) on the Completion Date, of which not less than HK$85,000,000 shall be settled by way of cash and not more than HK$23,000,000 shall be settled by the Purchaser by procuring the Company to execute and issue the Promissory Note in favour of the 1st Vendor and/or its nominee(s) on the Completion Date; and
(ii) as to HK$48,250,000 of the Consideration shall be satisfied by the Purchaser by procuring the Company to allot and issue 67,000,000, 26,000,000 and 100,000,000 of the Consideration Shares, credited as fully paid, to the 2nd Vendor, the 3rd Vendor, the 4th Vendor and/or their respective nominees respectively.

LETTER FROM THE BOARD

The various settlement methods of the payment of the Consideration to the respective Vendors were determined after arm’s length negotiations between the Company and the respective Vendors having considered the amount of capital to be raised by the Proposed Financing Activity(ies) and the premium on the Consideration Shares at the time of the signing of the Agreement.

It is contemplated by the Company that the cash portion of the Consideration will be settled partly by the Proposed Financing Activity(ies).

The Proposed Financing Activity(ies)

On 3 May 2013, the Company announced the Share Placing and the Bond Placing, details of which are set out in the paragraphs headed “The Share Placing” and “The Bond Placing” respectively in the later part of this letter from the Board.

The aggregate net proceeds from the Share Placing and the Bond Placing will be in an approximate amount not exceeding HK$124.3 million and the Directors intend to apply such net proceeds to (i) settle the cash portion of the Consideration, which is not more than HK$108 million; (ii) to settle the professional fees for the Acquisition, which is approximately HK$2 million; and (iii) the remaining balance of not more than HK$14.3 million to be used as the future working capital of the Group. As at the Latest Practicable Date, it is intended that the remaining balance of HK$14.3 million from the Proposed Financing Activity(ies) after the settlement of the cash portion of the Consideration will be maintained at the Company level instead of allocating such capital to a particular business segment. Nevertheless, it is foreseeable that working capital may be required for (i) the iron powder trading business in conducting cash trade with potential small and medium operating size iron powder suppliers and customers in the future; and (ii) the payment of finance costs under the Bonds. Despite there was no capital requirement for the iron trading business at present as the payment method will be settled by the Customer’s Transferable L/C arrangement pursuant to the Supply Agreements and the Letter of Intent, the Directors consider that it is prudent to reserve additional working capital in conducting cash trade with potential small and medium operating size iron powder suppliers and customers in the future if opportunities arise as such small and medium size iron powder suppliers and customers may not have the Transferable L/C arrangement. As advised by the management of the Hong Kong Company, such cash trade arrangement may allow the Hong Kong Company to generate a higher profit margin for the iron ore trading business. Based on the above working capital requirements, it is expected that the Company will apply approximately HK$6.3 million for conducting the cash trade of the iron powder trading business and the remaining HK$8 million will be used as a liquidity reserve for the payment of finance costs under the Bonds.

As at the Latest Practicable Date, the Group has approximately HK$30 million in cash. In determining the gross proceeds to be obtained from the Proposed Financing Activity(ies), the Directors consider it is prudent to reserve additional working capital to maintain the financial liquidity of the Group given (i) the Bonds imputed an initial interest of 20% per annum; and (ii) future working capital may be required in conducting cash trade with potential small and medium operating size iron powder suppliers and customers in the future which is beneficial for the future development of the iron trading business.

In determining the composition of the equity financing and debt financing method, the Directors will make reference to the following factors:

(1) the interest expense and finance cost to be incurred in the debt financing method;

LETTER FROM THE BOARD

(2) whether the Group can meet the repayment or security terms for the debt financing method; and
(3) the potential dilution effect for equity financing to the existing Shareholders.

For the details of the Share Placing and the Bond Placing, please refer to the paragraphs headed “The Share Placing” and “The Bond Placing” respectively in the later part of this letter from the Board.

Principal terms of the Promissory Note

The Company will issue the Promissory Note in the total principal amount of not more than HK$23,000,000 to the 1st Vendor as part payment of the Consideration upon completion of the Acquisition. Set out below are the principal terms of the Promissory Note:

Issuer:	the Company
Principal amount:	not more than HK$23,000,000 to be issued to the 1st Vendor and/or its
	nominee(s) upon completion of the Acquisition
Maturity Date:	the date falling 18 months from the date of issue of the Promissory Note (the
	“Maturity Date”)
Interest:	no interest is payable on the principal amount of the Promissory Note
Redemption:	the Company shall repay the principal amount of the Promissory Note to the
	holder(s) of the Promissory Note on the Maturity Date.
	the Company may repay any part of the principal amount of the Promissory
	Note at any time from the date of issue to the date immediately prior to the
	Maturity Date.
	the holder(s) of the Promissory Note shall not have the right to request the
	Company for early redemption of the Promissory Note
Transferability:	the Promissory Note is not transferrable unless with the prior written consent of
	the Company
Listing:	the Promissory Note will not be listed on the Stock Exchange or any other stock
	exchange

The actual amount of the Promissory Note to be issued to the 1st Vendor and/or its nominee(s) will depend on the final amount of capital being raised under the Proposed Financing Activity(ies). In the event that the actual net proceeds from the Proposed Financing Activity(ies) will be higher than HK$85,000,000, being the cash portion of the consideration payable to the 1st Vendor on the Completion Date, the actual amount of the Promissory Note to be issued to 1st Vendor will be reduced accordingly.

LETTER FROM THE BOARD

Basis in determining the payment terms of the Consideration

As disclosed in the Announcement, HK$108,000,000 of the Consideration shall originally be payable in cash by the Purchaser to the 1st Vendor (or its nominee(s)) (the “ Original Payment Terms ”). Since then, the Company has used its best endeavours in sourcing finance for the Company in respect of the Acquisition. However, in light of the expected lapse of the CB Placing and the difficulties experienced by the Company in conducting the fund raising exercises, it was expected that the fund raising size of the Proposed Financing Activity(ies) may not be able to reach HK$100 million as initially planned. Thus, at or around the end of March 2013, the Company negotiated with the Vendors on an arm’s length basis and the 1st Vendor agreed to enter into the Supplemental Agreement to amend, amongst others, the payment terms for the settlement of the consideration payable to the 1st Vendor such that the cash portion of the Consideration be reduced from HK$108 million to not less than HK$85 million and the Promissory Note of not more than HK$23 million be issued (the “ New Payment Terms ”). The Directors consider that the New Payment Terms are beneficial to the Company as (i) it provides the Board with greater flexibility in determining the Proposed Financing Activity(ies); and (ii) the Promissory Note to be issued to the 1st Vendor and/or its nominee(s) will be zero coupon.

Based on the New Payment Terms, the respective amount of the cash portion of the Consideration payable to the 1st Vendor and the amount of the Promissory Note are not fixed. The Directors confirmed that the 1st Vendor’s agreement to the New Payment Terms was based on the mutual understanding that the Directors shall use their best endeavours to conduct the Proposed Financing Activity(ies) and in the event that the Proposed Financing Activity(ies) exceeds HK$85 million, the cash portion of the Consideration payable to the 1st Vendor shall be increased while the actual amount of the Promissory Note to be issued to 1st Vendor shall be reduced accordingly (the “ Arrangement ”).

At or around the end of April 2013, the Company has identified the Placing Agent who was willing to conduct the Proposed Financing Activity(ies) on a best effort basis and negotiation commenced accordingly. During the negotiation, the Placing Agent advised the Company that an asset management fund may be interested in the placement of bonds at an interest rate of 20% per annum with the issue of bonus warrants. However, according to the fund policy of the said asset management fund, the minimum subscription by such fund would be US$10 million. As a result, on 3 May 2013, the principal amount of the Bonds was set at not more than HK$80 million and the interest rate thereof was set at not more than 20% per annum so as to allow the Placing Agent to identify other potential bond placees who may be willing to accept a lower interest rate.

As at the Latest Practicable Date, other than the aforesaid asset management fund (despite no placing letter has been signed yet), no other Bond Placee has been identified yet. Besides, as advised by the Placing Agent, no placee for the Share Placing has been identified as at the Latest Practicable Date. Based on the current circumstances, the Directors consider that in order to conduct the Proposed Financing Activity(ies) (with gross proceeds of not less than HK$85 million), it is likely that the Company will have to proceed with the Bond Placing first and then the Share Placing.

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The Directors consider that in event that the Proposed Financing Activity(ies) exceeds HK$85 million, the Arrangement to increase the cash portion of the Consideration payable to the 1st Vendor and reduce the amount of the Promissory Note is fair and reasonable given that:

(i) 1st Vendor’s agreement to the New Payment Terms was based on the Arrangement with the Company and the Directors consider that it is fair and reasonable to honor the Arrangement;
(ii) despite the Promissory Note will be issued at zero coupon, it is expected that the total interest payable by the Company under the Proposed Financing Activity(ies) will not be reduced by the issue of the Promissory Note as it is expected that the Company will first proceed with the Bond Placing prior to the Share Placing; and
(iii) the reduction of the amount of the Promissory Note will enable the Company to repay part of the liabilities of the Group and will allow the Group to reduce its gearing level.

As such, the Directors consider that the New Payment Terms and the Arrangement are fair and reasonable and are in the interests of the Company and the Shareholders’ as a whole.

Basis in determining the Consideration

The Consideration was arrived at after arm’s length negotiations between the Purchaser and the Vendors mainly based on (i) an independent valuation performed by the Independent Valuer showing that the preliminary estimation of 100% equity interest in the Hong Kong Company is reasonably stated as HK$192,000,000 as at 31 December 2012; (ii) the current business opportunities under the Supply Agreements (as defined below) and the Letter of Intent (as defined below) entered into by the Hong Kong Company; (iii) the increasing demand from the PRC for iron; and (iv) the potential returns from the investment in the Target Group which will contribute positively to the financial results of the Group.

According to the valuation report prepared by the Independent Valuer as set out in Appendix V to this circular, the Valuation is stated as HK$192,000,000 as at 31 December 2012. As confirmed by the Independent Valuer, there is no significant change to the Valuation as at the Latest Practicable Date.

In determining the purchase price for any possible acquisitions, the Directors would normally make reference to (i) the net asset value of the target; (ii) the profit to earnings multiple of the target; and/ or (iii) the market price of other business entities in similar nature of the target. Given that (i) the Hong Kong Company has no significant assets and has not commenced any operation; and (ii) the uniqueness of the operation of the Hong Kong Company, the Directors consider that making reference to its net asset value, the profit to earnings ratio and the comparison of the market comparables in similar business nature would not be feasible and therefore decided to make reference to the valuation amount of the Hong Kong Company assessed by the Independent Valuer.

As advised by the Independent Valuer, the income-based approach, which focuses on the economic benefits due to the income producing capability of the business entity, is the most suitable approach in the valuation methodology taking into account of (i) the uniqueness of the Hong Kong Company’s operation and the nature of iron ore trading industry; and (ii) the scarcity of similar acquisition of iron ore trading business which information can be obtained in public source.

LETTER FROM THE BOARD

Further, according to the statistics of World Steel Association (whose members has accounted for approximately 85% of steel producers around the world), the PRC is currently the largest steel producer of the World (http://www.worldsteel.org/statistics/crude-steel-production.html), which translates to be the world’s largest iron consumer of iron ore.

In early September 2012, the National Development and Reform Commission of the PRC Government approved to allocate approximately RMB1 trillion for the infrastructure investment plans. With continued development and urbanization of the PRC, the Directors are of the view that the demand for iron ore will increase continuously.

Moreover, based on the Letter of Intent, the aggregate volume of magnetite sand concentrate to be purchased by the Customer would be 0.5 million DMT for the first contractual year, 3 million DMT for the second contractual year and 5 million DMT for the third contractual year and so on till the expiry of the Letter of Intent in the year of 2018. At the time of the purchase order being placed, the index price to be adopted will be determined based on the lower of the latest index price of iron ore (62%, CFR) as quoted in Platts and BEIJING IODES, the two recognized pricing index for iron ore. For illustration purpose only, assuming the index price of Platts and BEIJING IODES 62% Fe Ore CFR North China is US$120 per DMT (being the Platts Index daily average price for 62% iron ore for the year of 2012) throughout the contractual period of the Letter of Intent, the contracted revenue of the Hong Kong Company would be US$48 million (US$120 per DMT x 80% x 0.5 million DMT) for the first contractual year, US$288 million (US$120 per DMT x 80% x 3 million DMT) for the second contractual year and US$480 million (US$120 per DMT x 80% x 5 million DMT) for the third contractual year and so on till the expiry of the Letter of Intent.

In view of the above, the Directors (including the independent non-executive Directors) consider that the Consideration is fair and reasonable and the Agreement is on normal commercial terms and fair and reasonable, and the entering into of the Agreement is in the interests of the Company and the Shareholders as a whole.

Valuation

The Valuation is based on the discounted cash flow method under the income-based approach and the material assumptions used in the Valuation include the following:

there will be sufficient quantity of iron ore supply for the Hong Kong Company and its subsidiaries (if any) within the projection period;
all relevant legal approvals and business certificates or licences to operate the business in the localities in which the Hong Kong Company operates or intends to operate would be officially obtained and renewable upon expiry;
the projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals, and will be materialized;
the Hong Kong Company will be operated as planned;
the Hong Kong Company will only be subjected to Hong Kong corporate tax;

LETTER FROM THE BOARD

there will be no major change in the current taxation laws in the localities in which the Hong Kong Company operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
there will be no major change in the political, legal, economic or financial conditions in the localities in which the Hong Kong Company operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Hong Kong Company; and
interest rates and exchange rates in the localities for the operation of the Hong Kong Company will not differ materially from those presently prevailing.

The relevant comfort letters required under Rule 19.62 of the GEM Listing Rules have been included in Appendix V to this circular.

Conditions precedent

Completion is subject to the following conditions having been fulfilled or waived (as the case may

be):

(a) the Purchaser being satisfied with the results of the due diligence review to be conducted on the assets, liabilities, operations and affairs of Target Group;
(b) all necessary consents, licences and approvals required to be obtained on the part of the Vendors and the Target Group in respect of the Agreement and the transactions contemplated hereby having been obtained and remain in full force and effect;
(c) all necessary consents, licences and approvals required to be obtained on the part of the Purchaser in respect of the Agreement and the transactions contemplated hereby having been obtained and remain in full force and effect;
(d) the passing by the Shareholders at the EGM of the necessary resolution(s) to approve the Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate for the issue of the Consideration Shares);
(e) the Listing Committee having granted or having agreed to grant the listing of, and permission to deal in, the Consideration Shares;
(f) the obtaining of a legal opinion on the laws of the PRC issued by a law firm practicing in the PRC approved by the Purchaser (in such form and substance satisfactory to the Purchaser) in relation to, inter alia, the legality and validity of the Letter of Intent (as defined below);
(g) the obtaining of a legal opinion on the laws of the Philippines issued by a law firm practicing in the Philippines approved by the Purchaser (in such form and substance satisfactory to the Purchaser) in relation to, inter alia, the legality and validity of each of the Supply Agreements (as defined below);

LETTER FROM THE BOARD

(h) the Vendors’ warranties remaining true and accurate in all respects;
(i) (if required) all requisite waivers, consents and approvals from any relevant governments or regulatory authorities or other relevant third parties in connection with the transactions contemplated by this Agreement required to be obtained on the part of the Vendors having been obtained by the Vendors;
(j) the obtaining of a valuation report (in form and substance satisfactory to the Purchaser) performed by the Independent Valuer showing the value of 100% equity interest in the Hong Kong Company to be not less than the Consideration; and
(k) completion of the Proposed Financing Activity(ies).

As mentioned in condition (a) under the paragraph headed “Conditions precedent” above, Completion is subject to the Purchaser being satisfied with the results of the due diligence review to be conducted on the Target Group. Prior to entering into the Agreement, the Company has conducted the following due diligence works:

(1) engaged the PRC/Philippine legal advisers to (i) provide preliminary legal advices on the validity and legality of the Supply Agreements and the Letter of Intent; (ii) perform legal due diligence on each of the 1st Supplier, 2nd Supplier and 3rd Supplier and the Customer. Pursuant to the preliminary Philippine legal opinions, each of the 1st Supply Agreement, the 2nd Supply Agreement and the 3rd Supply Agreement is a legal, valid and binding document and is enforceable in accordance with the laws of the Philippines (for details, please refer to the paragraph headed “Hong Kong Company” on pages 20 to 22 of this circular) and each of the 1st Supplier, 2nd Supplier and 3rd Supplier is a corporation duly organized and existing under the laws of the Philippines and has legal capacity to fulfill its obligation under the respective 1st Supply Agreement, 2nd Supply Agreement and the 3rd Supply Agreement (for details, please refer to the paragraphs headed “1st Supplier”, “2nd Supplier” and “3rd Supplier” on pages 23 to 26 of this circular). Pursuant to the preliminary PRC legal opinion, the Letter of Intent is a legal, valid and binding document and is enforceable in accordance with the laws of the PRC (for details, please refer to the paragraph headed “Hong Kong Company” on pages 22 of this circular) and the Customer is a corporation duly organized and existing under the laws of the PRC and has legal capacity to fulfill its obligation under the Letter of Intent (for details, please refer to the paragraph headed “The Customer” on page 26 of this circular);
(2) prepared a profit forecast and cash flow forecast (“Cashflow Forecast”) based on the Supply Agreements and the Letter of Intent and discussed with the relevant professional parties for the reasonableness of the Cashflow Forecast. The Board considered that the assumptions adopted in the Cashflow Forecast of the Target Group are fair and reasonable and are of the opinion that the Enlarged Group, following the Completion and taking into account (i) the present internal financial resources available to the Enlarged Group and; (ii) the net proceeds from the Proposed Financing Activities, will have sufficient working capital for its present requirements for the next 12 months from the date of this circular. Details of the key assumptions made in the Cashflow Forecast have been set out in the paragraph head “Principal assumptions adopted in the working capital forecast” in this letter from the Board;

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(3) engaged the Independent Valuer to conduct a preliminary estimation (“Estimation”) on the value of the Hong Kong Company. According to the valuation report prepared by the Independent Valuer as set out in Appendix V to this circular, the Valuation is stated as HK$192,000,000 as at 31 December 2012. As confirmed by the Independent Valuer, there is no significant change to the Valuation as at the Latest Practicable Date;
(4) engaged a financial adviser to review the assumptions adopted in the Estimation. The letter from the financial adviser regarding the assumptions adopted in the Estimation has been set out in Appendix V to this circular;
(5) engaged the auditors to review on the accounting policies adopted in the discounted cashflow forecast of the Estimation. The letter from the auditors regarding the accounting policies adopted in the discounted cashflow forecast of the Estimation has been set out in Appendix V to this circular.

As at the Latest Practicable Date, the Directors are satisfied with the results and/or findings of the due diligence results made and no unusual findings have been noticed or observed. The due diligence process to the Target Group will be completed upon the respective PRC and Philippines legal opinions (in such form and substance satisfactory to the Purchaser) are issued.

Further, as at the Latest Practicable Date, condition (j) of the above has been fulfilled in light of the valuation report set out in Appendix V to this circular.

Save for conditions (b), (c), (d), (e), (f), (g), (i), (j) and (k) which are incapable of being waived, the Purchaser may at its absolute discretion at any time waive in writing conditions (a) and/or (h) and such waiver may be made subject to such terms and conditions as are determined by the Purchaser. The reason that the Company has considered in determining that conditions (a) and (h) can be waived is that it allows flexibility for the Company in the event some minor defects have been detected in the results of the due diligence review or there exists some minor breaches of the Vendors’ warranties. The Purchaser has no intention to waive conditions (a) and/or (h) as at the Latest Practicable Date.

Completion of the Acquisition is subject to the fulfillment (or, as the case may be, waiver) of the conditions precedent under the Agreement, which include, among other matters, the completion of the Proposed Financing Activity(ies). As the Proposed Financing Activity(ies) may or may not materialise, Shareholders and potential investors are advised to exercise caution when dealing in the Shares.

Long stop date

If any of the conditions has not been satisfied (or, as the case may be, waived by the Purchaser) on or before 4:00 p.m. on 31 July 2013 or such later date as the Vendors and the Purchaser may agree, the Agreement shall cease and determine and neither party shall have any obligations and liabilities under the Agreement save for any antecedent breaches of the terms thereof.

Completion

Completion shall take place at 4:00 p.m. on the third Business Day after all the conditions of the Agreement have been fulfilled or waived or such later date as may be agreed between the Vendors and the Purchaser.

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Upon Completion, the Target will become an indirect wholly-owned subsidiary of the Company and therefore, the accounts of the Target Group will be consolidated into the consolidated financial statements of the Group.

INFORMATION OF THE TARGET GROUP

The Target

The Target is an investment holding company incorporated in the British Virgin Islands with limited liability and the issued shares of which are owned as to 69.12% by the 1st Vendor, as to 10.72% by the 2nd Vendor, as to 4.16% by the 3rd Vendor and as to 16.00% by the 4th Vendor as at the Latest Practicable Date.

The Hong Kong Company

The Hong Kong Company is a company incorporated in Hong Kong with limited liability and is wholly and beneficially owned by the Target as at the date of this announcement. The Hong Kong Company is currently an investment holding company, which will soon commence the business of magnetite sand concentrate trading. In relation to such business, the Hong Kong Company has entered into the following:

a legally binding off-take agreement dated 23 January 2013 (the “ 1st Supply Agreement ”) and entered into between the Hong Kong Company and the lst Supplier, pursuant to which the 1st Supplier has agreed to sell and the Hong Kong Company has agreed to buy an aggregate of not less than 1,800,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the 1st Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 1st Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to 20% discount of the average daily “Platts or BEIJING IODES 62% Fe Ore CFR North China price (the index with the lower price shall be used)” per DMT during the month of the issue of the bill of ladings after the completion of the loading and further minus US$3.00 per DMT (the “ Base Price ”), which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 1st Supply Agreement, if both parties have no objection, the 1st Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 300,000 DMT magnetite sand concentrate will be supplied by the 1st Supplier to the Hong Kong Company, while all other terms and conditions of the 1st Supply Agreement will remain unchanged.

Based on the preliminary Philippine legal opinion, the 1st Supply Agreement is a legal, valid and binding document and is enforceable in accordance with the laws of the Philippines.

a legally binding off-take agreement dated 23 January 2013 (the “ 2nd Supply Agreement ”) and entered into between the Hong Kong Company and the 2nd Supplier, pursuant to which the 2nd Supplier has agreed to sell and the Hong Kong Company has agreed to buy an aggregate of not less than 10,100,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the 2nd Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 2nd

LETTER FROM THE BOARD

Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to the Base Price, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 2nd Supply Agreement, if both parties have no objection, the 2nd Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 2,000,000 DMT magnetite sand concentrate will be supplied by the 2nd Supplier to the Hong Kong Company, while all other terms and conditions of the 2nd Supply Agreement will remain unchanged.

Based on the preliminary Philippine legal opinion, the 2nd Supply Agreement is a legal, valid and binding document and is enforceable in accordance with the laws of the Philippines.

a legally binding supply agreement dated 23 January 2013 (the “ 3rd Supply Agreement ”, together with the 1st Supply Agreement and the 2nd Supply Agreement, the “ Supply Agreements ”) and entered into between the Hong Kong Company and the 3rd Supplier, pursuant to which the 3rd Supplier has agreed to sell and the Hong Kong Company has agreed to buy an aggregate of not less than 11,600,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the 3rd Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 3rd Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to the Base Price, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 3rd Supply Agreement, if both parties have no objection, the 3rd Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 2,700,000 DMT magnetite sand concentrate will be supplied by the 3rd Supplier to the Hong Kong Company, while all other terms and conditions of the 3rd Supply Agreement will remain unchanged.

Based on the preliminary Philippine legal opinions, the 3rd Supply Agreement is a legal, valid and binding document and is enforceable in accordance with the laws of the Philippines.

a legally binding letter of intent dated 11 January 2013 (the “ Letter of Intent ”) and entered into between the Hong Kong Company and a state-owned enterprise of the PRC (being an Independent Third Party) (the “ Customer ”), pursuant to which the Customer has agreed to buy and the Hong Kong Company has agreed to sell an aggregate of not less than 23,500,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the Letter of Intent, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the Letter of Intent, the price for each shipment of the magnetite sand concentrate will be equal to 20% discount of the average daily “Platts or BEIJING IODES 62% Fe Ore CFR North China price (the index with the lower price shall be used)” per DMT during the month of the issue of the bill of ladings after the completion of the loading, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

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Upon the expiry of the term of the Letter of Intent, if both parties have no objection, the Letter of Intent will automatically be extended for one year up to 31 December 2019, of which not less than 5,000,000 DMT magnetite sand concentrate will be sold by the Hong Kong Company to the Customer, while all other terms and conditions of the Letter of Intent will remain unchanged.

Based on the preliminary PRC legal opinion, the Letter of Intent is a legal, valid and binding document and is enforceable in accordance with the laws of the PRC.

Set out below is the audited financial information of the Target Group which has been prepared in accordance with the HKGAAP:

From 6 September 2012 (being date of incorporate of the Target Group) to 31 December 2012 HK$’000 audited

Turnover	–
Loss before taxation	(12)
Loss after taxation	(12)

The audited net assets of the Target Group as at 31 December 2012 was approximately HK$66,170.

The details of the accountant report of the Target Group has been set out in Appendix II to this circular.

As at the Latest Practicable Date, the Target Group has not commenced operations yet but the Customer has placed the trial order of 10,000 DMT of magnetite sand concentrate with the first cargo of 100 DMT shipment which was completed on 14 June 2013. The magnetite sand concentrate of the trial order has been/will be provided by the 1st Supplier and the unit price of magnetite sand concentrate was determined at US$90 per DMT. The purchase price of the first cargo of 100 DMT of magnetite sand concentrate has been fully settled. Pursuant to the purchase order from the Customer, the remaining 9,900 DMT of magnetite sand concentrate will be delivered to the Customer by the end of July 2013. As disclosed in the paragraph headed “Mode of Operation” under the section headed “Business Model of the Hong Kong Company” below, the exact contract price of iron ore can only be fixed in the beginning of the next following month after the date of shipment. Therefore, the Customer and the Hong Kong Company has prepared the Transferable L/C in the amount of US$900,000 for such 10,000 DMT shipment, which is based on the arm length negotiation and the price estimation made by the Customer at the time of the purchase order.

The 1st Supplier

The 1st Supplier is a company incorporated in the Philippines on 16 June 2011 with limited liability and is principally engaged in magnetite sand mining, who and its beneficial owner are Independent Third Parties. The 1st Supplier is located at Brgy. Consuelo Norte, San Marcelino, Zambales, Philippines, which

LETTER FROM THE BOARD

is situated in the south-western part of the Philippines sitting on the shoreline facing the South China Sea. The 1st Supplier has an installed production capacity of approximately 55,000 DMT of magnetite sand per month and is now exporting approximately 10,000 DMT of magnetite sand per month.

The 1st Supplier is the holder of small scale mining permits (the “ Small Scale Mining Permits ”) issued by the Office of the Governor of the Province of Zambales dated 8 July 2011 to extract and remove 500,000 DMT of magnetite sand per year covering an area of 20 hectares, situated at Brgy. Consuelo Norte, San Marcelino, Zambales, Philippines. The Small Scale Mining Permits are valid for a period of two (2) years from 8 July, 2011 and are renewable for like period(s) provided that the application for renewal shall be filed before the expiration date.

Pursuant to the preliminary Philippine legal opinion, the 1st Supplier is a corporation duly organized and existing under the laws of the Philippines and possesses all necessary permits/licenses and has the legal capacity to fulfill its obligations under the 1st Supplier Agreement and there is no legal obstacles in renewing the Small Scale Mining Permits. Further, as advised by the Philippine legal adviser of the Company, given that the relevant Philippine government agency has verified the 1st Supplier to be in legal and financial good standing as part of the requirements of issuing the Small Scale Mining Permits, the 1st Supplier is prima facie a credible party. In addition, the Directors have reviewed the production schedule of the 1st Supplier and noted that the monthly production of the 1st Supplier amounts to approximately 45,000 DMT. Based on the existing market price of magnetite sand concentrate (approximately US$112 as at the Latest Practicable Date), the monthly turnover for the 1st Supplier is estimated to be approximately US$5 million. Taking into consideration the scale of the operation of the 1st Supplier, the management of the Hong Kong Company and the Directors are satisfied that the 1st Supplier is credible.

The 2nd Supplier

The 2nd Supplier is a company incorporated in the Philippines on 5 April 2011 with limited liability and is principally engaged in magnetite sand processing, who and its beneficial owner are Independent Third Parties. The 2nd Supplier is located at Brgy. San Sebastian, San Vicente, Ilocus Sur., Philippines, which is situated in the north-western part of the Philippines sitting on the shoreline facing the South China Sea. The 2nd Supplier has an installed production capacity of approximately 200,000 DMT of magnetite sand per month and is now exporting approximately 10,000 DMT of magnetite sand concentrate per month. The 2nd Supplier is installing the second phase of its production plant and it is expected that by the end of year 2013, its production capacity could reach up to approximately 500,000 DMT per month.

The 2nd Supplier is the holder of a mineral processing permit (the “ Mineral Processing Permit ”) issued by the Regional Office No.1, San Fernando City, La Union, of the Mines and Geosciences Bureau, Department of Environment and National Resources dated 9 October 2012 to process magnetite sand. The Mineral Processing Permit is valid for a period of five (5) years from 9 October 2012 which is renewable for like period(s) but not to exceed a total term of 25 years. The production capacity and export limit for the Mineral Processing Permit is 6,600,000 DMT of magnetite sand per year.

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The 2nd Supplier has also entered into a memorandum of agreement on 16 August 2012 (as supplemented by a supplemental agreement dated 5 February 2013) (the “ 2nd Supplier Memorandum of Agreement ”) with Jimmy S. Agudo (“ Mr. Agudo ”), a Philippine citizen and an Independent Third Party, whom in turn is the holder of an industrial sand and gravel permit (the “ Industrial Sand and Gravel Permit ”) issued by the Regional Office No.1, San Fernando City, La Union, Mines and Geosciences Bureau, Department of Environment and National Resources dated 3 October 2012 to extract and dispose of sand and gravel and other unconsolidated materials (including magnetite sand) for industrial purposes covering an area of 19.3656 hectares in San Sebastian, San Vicente, Province of Ilocos Sur on Island of Luzon (the “ San Sebastian Site ”). The Industrial Sand and Gravel Permit held by Mr. Agudo is valid for a period for 5 years from 3 October 2012 which is renewable for like period(s) but not to exceed a total term of 25 years. Pursuant to the 2nd Supplier Memorandum of Agreement, Mr. Agudo shall exclusively sell, and the 2nd Supplier shall purchase all the unprocessed magnetite sand to be extracted or removed from the San Sebastian Site as covered by the Industrial Sand and Gravel Permit, which shall consist a minimum of not less than 10,100,000 DMT of magnetite sand over the term of the 2nd Supplier Memorandum of Agreement, which commences from 1 March 2013 and expires on 13 December 2018 (both date inclusive). The period term for the 2nd Supplier Memorandum of Agreement is same as the 2nd Supply Agreement.

As the 2nd Supplier is a magnetite sand processing plant, Mr. Agudo is one of its suppliers for magnetite sand. To the best of the Directors’ knowledge, information and belief, Mr. Agudo is a third party independent of the 2nd Supplier. In the event that Mr. Aguodo defaults the 2nd Supplier Memorandum of Agreement, the 2nd Supplier can obtain supplies of the magnetite sand from its other local suppliers.

Pursuant to the preliminary Philippine legal opinion, the 2nd Supplier is a corporation duly organized and existing under the laws of the Philippines and, with the above arrangement, possesses all necessary permits/licenses and has the legal capacity to fulfill its obligations under the 2nd Supplier Agreement and there is no legal obstacles in renewing the Industrial Sand and Gravel Permit. Further, as advised by the Philippine legal adviser of the Company, given that the relevant Philippine government agency has verified the 2nd Supplier to be in legal and financial good standing as part of the requirements of issuing the Mineral Processing Permit, the 2nd Supplier is prima facie a credible party. In addition, the Directors have assessed, with the assistance of the Independent Valuer, the value of the production facilities of the 2nd Supplier. Based on the preliminary estimation from the Independent Valuer, the asset value of the production facilities (including the vessel) of the 2nd Supplier amounted to approximately HK$52.6 million. Further, as disclosed above, the 2nd Supplier has an installed production capacity of approximately 200,000 DMT of magnetite sand per month and is now exporting approximately 10,000 DMT of magnetite sand concentrate per month. Taking into consideration the asset value of the production facilities and the scale of the operation of the 2nd Supplier, the management of the Hong Kong Company and the Directors are satisfied that the 2nd Suppliers is credible.

The 3rd Supplier

The 3rd Supplier is a company incorporated in the Philippines on 19 November 2009 with limited liability and is principally engaged in investment holdings, who is an Independent Third Party.

LETTER FROM THE BOARD

The 3rd Supplier has entered into a memorandum of agreement (the “ 3rd Supplier Memorandum of Agreement ”) with Massart Mineral Resources, Inc. (“ Massart ”), being a company incorporated in the Philippines and a non-wholly owned subsidiary of the 3rd Supplier. Massart is the holder of an exploration permit (the “ Exploration Permit ”) issued by the Mines and Geosciences Bureau, Department of Environment and National Resources dated 13 May 2010 to undertake exploration activities for magnetite sand covering an area of 18,404.7269 hectares in the offshore area of the Cities of Victorias, Bago, Silay, Talisay and Bacolod; and Pontevedra, Valladolid, San Enrique, Pulupandan, Manapla and E. B. Magalona, Negros Occidental (the “ Victorias Site ”), which is situated in the central part of the Philippines along the Gumaras Strait. The Exploration Permit is valid for an initial period of two (2) years from 13 May 2010 which is renewable for like period(s) but not to exceed a total term of six (6) years for metallic mineral exploration. The Exploration Permit has been renewed once and extended for an additional period of two (2) years until 2 September 2014. Pursuant to the 3rd Supplier Memorandum of Agreement, Massart shall supply raw magnetite sand that contains an aggregate of 11,600,000 DMT magnetite sand concentrate to the 3rd Supplier over the term of the 3rd Supplier Memorandum of Agreement, which commences from 1 March 2013 and expires on 13 December 2018 (both date inclusive). The period term for the 3rd Supplier Memorandum of Agreement is the same as the 3rd Supply Agreement. At the Latest Practicable Date, Massart is in the process of applying for an industrial sand and gravel permit covering the Victorias Site for the terms up to 31 December 2018 and it is expected that the same can be obtained by Massart by the third quarter of 2013. Pursuant to preliminary Philippine legal opinions, there would be no legal obstacle for Massart to obtain the said industrial sand and gravel permit before the third quarter of 2013 and subject to the interest of the public, the total quantity of materials authorized to be extracted and disposed of under, and during the terms of the industrial sand and gravel permit shall be discretionary with Massart. Pursuant to the preliminary Philippine legal opinion, in the event that Massart is not able to renew its exploration license on or before 13 May 2018, it will not affect Massart to fulfil its obligations under the 3rd Supplier Memorandum of Agreement as long as it has a valid industrial sand and gravel permit. As at the Latest Practicable Date, Massart is still in the process of application for the industrial sand and gravel permit. Pursuant to the preliminary Philippine legal opinion, the Philippine legal advisers consider that there is sufficient time for Massart to obtain such permit before the third quarter of 2013 without any legal obstacles. Such permit will be issued by the Regional Director of the Mines and Geosciences Bureau of the Philippine Government. In the event that Massart fails to obtain such permit and is unable to supply such quantity of magnetite sand concentrate to the 3rd Supplier under the 3rd Supplier Memorandum of Agreement, the 3rd Supplier may in turn be in breach of the 3rd Supply Agreement and the Hong Kong Company shall be entitled to claim compensation against the 3rd Supplier for all the losses and costs suffered by the Hong Kong Company. Upon obtaining the industrial sand and gravel permit, it is expected that the production capacity of Massart will reach 6 million WMT of magnetite sand concentrate in the first year, 8 million WMT of magnetite sand concentrate in the second year and 10 million WMT of magnetite sand concentrate in the third year.

Despite Massart does not have any relevant export permission from the Philippines government as it is still applying the same, its magnetite sand concentrate can be exported to the Customer through the arrangement of the 3rd Supplier Processing Agreement (as defined below). It is expected that Massart can obtain such export permission in or about the end of 2013.

In order to export its magnetite sand concentrate to its overseas customer(s), the 3rd Supplier has entered into a memorandum of agreement dated 8 February 2013 with the 2nd Supplier (“ 3rd Supplier Processing Agreement ”), pursuant to which the 2nd Supplier shall process and export an aggregate of 11,600,000 DMT magnetite sand concentrate over the term of the 3rd Supplier Processing Agreement,

LETTER FROM THE BOARD

which commences from 1 March 2013 and expires on 13 December 2018 (both date inclusive). The period term for the 3rd Supplier Processing Agreement is the same as the 3rd Supply Agreement. Pursuant to the terms of the 3rd Supplier Processing Agreement, the 3rd Supplier shall pay to the 2nd Supplier US$8 per DMT of processed magnetite sand concentrate after the 2nd Supplier has completed the loading of the processed magnetite sand concentrate onto the vessel to be nominated by the 3rd Supplier within thirty (30) days after the issue of bill of lading for each shipment. Save for the aforementioned contractual relationship between the 2nd Supplier and the 3rd Supplier under the 3rd Supplier Processing Agreement, the 3rd Supplier is a third party independent of the 2nd Supplier.

As disclosed in the section headed “The 2nd Supplier” under the paragraph headed “Information of the Target Group”, the 2nd Supplier is the holder of the Mineral Processing Permit which allows it to process and export magnetite sand. The reason for entering into the 3rd Supplier Processing Agreement is to allow the 3rd Supplier to process and export the magnetite sand concentrate to the overseas buyers through the 2nd Supplier. By obtaining the industrial sand and gravel permit by Massart, the 3rd Supplier, through Massart, can secure the supply of the magnetite sand concentrate to be sold to the Hong Kong Company and the same can be exported overseas through the 2nd Supplier under the 3rd Supplier Processing Agreement.

Pursuant to the preliminary Philippine legal opinions, each of the 3rd Supplier and Massart is a corporation duly organized and existing under the laws of the Philippines and with the above arrangements, has the legal capacity to fulfill its obligations under the 3rd Supplier Agreement. Further, as advised by the Philippine legal adviser of the Company, given that the relevant Philippine government agency has verified Massart to be in legal and financial good standing as part of the requirements of issuing the original Exploration Permit and the renewed Exploration Permit, Massart is prima facie a credible party. In addition, the Company has reviewed the feasibility study in relation to the Victorias Site submitted by Massart to the Department of Environment and Natural Resources – Mines and Geosciences Bureau of Philippines and noted that the reserve of magnetite sand concentrate at the Victorias Site is estimated to be 960 million tons. Taking into consideration the size of the mine under the Exploration Permit held by Massart, the management of the Hong Kong Company and the Directors are satisfied with the creditability of the 3rd Supplier (by virtue of it being the parent company of Massart).

Based on the scale of business operation of each of the Suppliers as mentioned above, the Board is satisfied with the credibility of each of the Suppliers.

The Customer

The Customer is a stated-owned enterprise which was founded in 1957. The Customer is a major domestic special steel professional bar manufacturer in PRC, with head office in Shijiazhuang city, the capital of Hebei province, the PRC. The Customer focuses on producing automobile steel including carbon structural steel bars, low alloy steel deformed bars, alloy structural steel bars, spring steel, carbon structural steel bars, and low alloy high strength steel with an annual capacity of approximately 2.6 million tons. Pursuant to the preliminary PRC legal opinion, the Customer is a corporation duly established and existing under the laws of the PRC, possesses all necessary permits/licenses in relation to its operation and has the legal capacity to fulfill its obligations under the Letter of Intent. Further, based on the size of the operation of the Customer, the management of the Hong Kong Company and the Directors are satisfied with the creditability of the Customer.

LETTER FROM THE BOARD

The Supply Agreements

In entering into each of the Supply Agreements, the Company has considered the following factors, details of which have been confirmed by the management of the Hong Kong Company:

(a) the respective general quality of magnetite sand from the Suppliers is acceptable to the Customer;
(b) the Base Price agreed by the respective Suppliers will provide a reasonable profit margin (i.e. US$3 per DMT) for the Hong Kong Company; and
(c) the delivery term agreed by the respective Suppliers is CFR (Cost and Freight), by which the export customs clearance will be conducted by the supplier side.

As disclosed in the paragraph headed “The Hong Kong Company” above, the Base Price is subject to minor adjustment according to the quality of the magnetite sand concentrate. Pursuant to the terms and conditions of each of the Supply Agreements, such minor adjustment to the Base Price will be calculated based on the specifications of the chemical composition of the magnetite sand concentrate and may be adjusted upward or downward. Given that the price for each shipment of the magnetite sand concentrate under the Letter of Intent (the “Selling Price”) is also subject to the same adjustment mechanism as set out in each of the Supply Agreements, any adjustment to the Base Price will at the same time lead to an adjustment to the Selling Price. Thus, such adjustment to the Base Price will not affect the US$3 per DMT profit margin of the Hong Kong Company. The US$3 profit margin was provided by the Suppliers based on the Hong Kong Company’s existing business relationship with the Customer and the marketing connection of the management of the Hong Kong Company. The Directors and the management of the Hong Kong Company consider that it is impractical to make direct comparison for the unit profit margin (i.e. US$3 per DMT) of the Hong Kong Company with other iron trading businesses as the locations of the suppliers and customers, the specification and quality of the magnetite sand concentrate, the discount offered by the suppliers (i.e. 20% discount to the market price of iron as specified in the Supply Agreements) are different from that of the Hong Knog Company. However, given there is no capital requirement for the Hong Kong Company to conduct the iron trading business, the Directors and the management of the Hong Kong Company consider that the unit profit margin (i.e. US$3 per DMT) and the total quantities required under the Letter of Intent can provide a reasonable return for the operation of the Hong Kong Company.

Pursuant to each of the Supply Agreements and as advised by the Philippine lawyers, in the event that the Hong Kong Company does not acquire the magnetite sand concentrate according to the minimum amount specified in the Supply Agreements, the Suppliers are entitled to claim compensation against the Hong Kong Company. Nevertheless, the total amount of magnetite sand concentrate to be supplied by the Suppliers under the Supply Agreements is matched to the purchase amount of the Customer under the Letter of Intent. Therefore, as advised by the PRC lawyers, the Hong Kong Company will in turn be entitled to claim the relevant compensation, losses and costs (including all profits which the Hong Kong Company may expect to receive) against the Customer in such event.

On the other-hand and as advised by the Philippine lawyers, pursuant to the Supply Agreements, in the event that any of the Suppliers are in shortage of supply and unable to provide the minimum amount of magnetite sand concentrate in accordance with the term of the respective Supply Agreements, the Hong Kong Company will be entitled to claim the relevant compensation, losses and costs (including all profits

LETTER FROM THE BOARD

which the Hong Kong Company may expect to receive under the respective Supply Agreements) against any such Suppliers. For details of the default arrangement under the Supply Agreements, please refer to the paragraph headed “Default Arrangement” under the section headed “Information of the Target Group” of this circular.

Further, pursuant to the terms and conditions of each of the Supply Agreements and as advised by the Philippine lawyers, save and except for the occurrence of a force majeure event, there are no early exit arrangement and/or termination clauses under the Supply Agreements.

As advised by the management of the Hong Kong Company, the negotiation of the Supply Agreements was initialized since the fourth quarter of 2012 by the Vendors. The management of the Hong Kong Company has also negotiated with other suppliers located in the PRC but no agreement has been reached. As at the Latest Practicable Date, as advised by the management of the Hong Kong Company, no new supply agreement is being contemplated.

Summary of the total annual quantity of magnetite sand concentrate to be supplied by each of the Suppliers to the Hong Kong Company under the respective Supply Agreements on a yearly basis is set out as follows:

1st Supplier 2nd Supplier 3rd Supplier Total	2013 (thousand DMT) 300 100 100 500	2014 (thousand DMT) 300 2,000 700 3,000	2015 (thousand DMT) 300 2,000 2,700 5,000	2016 (thousand DMT) 300 2,000 2,700 5,000	2017 (thousand DMT) 300 2,000 2,700 5,000	2018 (thousand DMT) 300 2,000 2,700 5,000	Total (thousand DMT) 1,800 10,100 11,600
							23,500

Summary of the total annual quantity of magnetite sand concentrate to be supplied by each of the Suppliers to the Hong Kong Company under the respective Supply Agreements based on the Company’s financial year end is also set out as follows:

1st Supplier 2nd Supplier 3rd Supplier Total	Financial Year 2014 (thousand DMT) 375 600 275 1,250	Financial Year 2015 (thousand DMT) 300 2,000 1,200 3,500	Financial Year 2016 (thousand DMT) 300 2,000 2,700 5,000	Financial Year 2017 (thousand DMT) 300 2,000 2,700 5,000	Financial Year 2018 (thousand DMT) 300 2,000 2,700 5,000	Financial Year 2019 (thousand DMT) 225 1,500 2,025 3,750	Total (thousand DMT) 1,800 10,100 11,600
							23,500

The Directors and the management of Hong Kong Company confirm that there will not be any delay in the above schedules in respect of the supply of the magnetite sand concentrate by each of the Suppliers under the respective Supply Agreements.

LETTER FROM THE BOARD

Default arrangement

Pursuant to each of the Supply Agreements and based on the preliminary Philippine legal opinion, the non-defaulting party shall be entitled to request the defaulting party to ratify any breach of terms of the Supply Agreements within a reasonable period of time. The non-defaulting party shall be entitled to claim compensation against the defaulting party if the defaulting party fails to make ratification of its defaults at the end of the reasonable period of time mentioned above, or if the default shall have cause material and irremediable damage to the non-defaulting party. As advised by the Philippine legal advisers of the Company, such compensation shall be limited to the actual damages suffered by the non-defaulting party.

It is further provided under each of the Supply Agreements that in the event that the relevant Supplier shall be unable to sell such quantity of magnetite sand concentrate pursuant to the respective Supply Agreements, it shall indemnify and keep the Hong Kong Company fully indemnified against all losses and costs arising from or as a result of the aforesaid default of the Supplier, such losses and costs include but are not limited to all profits which the Hong Kong Company may expect to receive during the entire term of the relevant supply agreement (from 1 March 2013 to 31 December 2018 or, 31 December 2019, if the term of the relevant supply agreement shall have been renewed automatically), as well as any claims from the Customer.

On the other-hand, pursuant to the terms of the Letter of Intent, in the event that the Customer shall be unable to purchase such quantity of magnetite sand concentrate in accordance with the Letter of Intent, it shall indemnify and keep the Hong Kong Company fully indemnified against all losses and costs arising from or as a result of the aforesaid default of the Customer, such losses and costs include but are not limited to all profits which the Hong Kong Company may expect to receive during the entire term of the Letter of Intent (from 1 March 2013 to 31 December 2018 or 31 December 2019, if the term of the Letter of Intent shall have been renewed automatically), as well as the claims from the relevant Suppliers.

The Letter of Intent

In entering into the Letter of Intent, the Company has considered the following factors, details of which have been confirmed by the management of the Hong Kong Company:

(a) the Customer is the key market player in the world;
(b) the purchase amount from the Customer is considerably enormous throughout the term of the Letter of Intent;
(c) the delivery term agreed by the Customer is CFR (Cost and Freight), by which the import customs clearance will be conducted by the Customer;
(d) the shipment and insurance cost will be borne by the Customer; and
(e) 95% of settlement amount (through the letter of credit arrangement) would be done through bank upon shipment (with the remaining 5% would be settled through the letter of credit arrangement upon the receipt of the certificate of weight and certificate of quality be obtained in the import port), which can provide the Hong Kong Company with financial liquidity.

LETTER FROM THE BOARD

Pursuant to the terms and conditions of the Letter of Intent and as advised by the PRC lawyers, save and except for the occurrence of a force majeure event, there are no early exit arrangement and/ or termination clauses under the Letter of Intent. The force majeure clauses of the Supply Agreements are specifically referred and applied to the code, standards and guidelines set out by the International Chamber of Commerce (“ICC”), a long established and worldwide accepted business organization which facilitates cross-border trade.

The ICC force majeure clauses generally cover the following events:

(a) war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo), hostilities, invasion, act of a foreign enemy, extensive military mobilisation;
(b) civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;
(c) act of terrorism, sabotage or piracy;
(d) act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;
(e) act of God, plague, epidemic, natural disaster such as but not limited to violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought; and
(f) explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current.

As advised by the management of the Hong Kong Company, the negotiation of the Letter of Intent was initialized since the fourth quarter of 2012 by the Vendors. As at the Latest Practicable Date, no new sale agreement is being contemplated. In assessing the credibility of the Customer, the Hong Kong Company has taken into consideration the scale of operation of the Customer. Given that the Customer is a state-owned enterprise, the management of the Hong Kong Company and the Directors are satisfied with the credibility of the Customer.

Average daily price

The price for each shipment of the magnetite sand concentrate will be determined based on the average daily price of iron ore regulated by Platts or BEIJING IODES.

Platts is a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets. Platts is a division of The McGraw-Hill Companies, Inc., (NYSE: MHP), an information provider, and sister to such brands as Standard & Poor’s, J.D. Power & Associates, Aviation Week, and McGraw-Hill Construction. The information from Platts can only be obtained by subscription.

LETTER FROM THE BOARD

BEIJING IODES refers to Iron Ore Price Index quoted in China Beijing International Ming Exchange, the index price of which is available at its website at www.cbmx.com.cn.

In the event that the actual supply amount is lower than 90% of the contracted amount (-10% fluctuation) as stated in the Supply Agreements, it will be considered as non-performance of the obligations by the defaulting party. For the purpose of compensating the non-defaulting party, the indicated price of the existing pricing mechanism in the Supply Agreements and the Letter of Intent will be adopted.

No indicated price has been determined in the Supply Agreements and the Letter of Intent in the event that the actual supply amount is higher than 110% (+10% fluctuation) as stated in the Supply Agreement and the Letter of Intent. If the demand of the Customer exceeds the contracted amount of the Letter of Intent, the Target Group will have to negotiate with the Suppliers and Customer to determine the indicated price in such case.

Guarantor

There is no guarantor for the Supply Agreements and the Letter of Intent. As advised by the Suppliers, the Customer and the management of the Hong Kong Company, inclusion of guarantor into the trading contracts is not a normal business practice in the magnetite sand trading industry.

Management of the Hong Kong Company

The Hong Kong Company has a team of experienced staff in the trading industry of magnetite sand concentrate. Based on the information provided by the Hong Kong Company, the management structure and the biographical details of its management in relation to the of magnetite sand concentrate trading business as well as their respective management role and positions are set out as follows:

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Mr. Chen Nam
Chief Executive Officer
Mr. Meng Zhan Biao
Director
Mr. Feng Keqin Mr. Wang Zhiyuan Mr. Lawrence Hon
Director - Sales Director - Operation Director – Logistic
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Mr. Chen Nam, 48 years old, is the chief executive officer and one of the founder of the Hong Kong Company. Mr. Chen has several years of experience in the manufacturing and trading of the commercial products in Asia. He is a founder and director of Sogo Energy-Saving Lighting Technology Co., Ltd (祟

LETTER FROM THE BOARD

光照明節能科技有限公司), which mainly focuses on selling of LED energysaving lamps and handling the light saving system of the residential building in Southeast Asia; its main product (MASTER) has marketed around the world, especially in Southeast Asia and China market. Mr. Chen is responsible for the business direction and overall management of the Company.

Mr. Meng Zhan Biao (孟戰表), 65 years old, joined the Hong Kong Company in February 2013 and is the director of operation of the Hong Kong Company. Mr. Meng has more than 25 years experience in budgeting gained in the treasury department of Hebei Province. Mr. Meng is an executive director and general manager of Hebei Maolin Real Estate Development Co., Ltd. (河北茂林房地產開發有限公司). Mr. Meng is responsible for the operation and risk management of the Company.

Mr. Wang Zhiyuan (王志遠), 38 years old, joined the Hong Kong Company in January 2013 and is the director of logistic of the Hong Kong Company. Mr. Wang holds a Master Degree in International Relations in Peking University. Mr. Wang acted as an associate general manager of Pacific Century Trading Co., Ltd. from 2007 to 2011, whose main duties include selling and monitoring the trading business of coal and iron powder.

Mr. Lawrence Hon, aged 65, has more than 25 years experience in the financial and accounting professional as well as management and operations through various management positions including director, CEO, CFO and other senior positions in the listed companies in Europe, China and Hong Kong etc. Mr. Hon engaged in different senior positions in Courage Marine Group Ltd, which concentrates in the waters of East and Southeast Asia carrying goods of natural material such as, iron ore, coal, cement and wood clip etc. Mr. Wang joined the Hong Kong Company in February 2013 and is responsible in logistic arrangement for all orders for the Hong Kong Company.

Mr. Feng Keqin (馮克勤), 31 years old, is the director of the sales department of the Hong Kong Company. Mr. Feng graduated from Hartford Technical School Connecticut in the USA. Mr. Feng has several years of experience in Asian trading business, particularly in the coal trading business among Southeast Asia, Indonesia and China. Mr. Feng gained the experience in coal blending, transportation and burning through being a director of Gulf Resources Limited (海灣資源有限公司), which cooperates with major coal enterprises. Mr. Feng joined the Hong Kong Company in January 2013 and his main responsibility is relationship liaison with clients.

The management of the Hong Kong Company has agreed to be retained after Completion.

The management of the Hong Kong Company is mainly responsible for the marketing and shipping/ delivery arrangements for the iron powder trading business. Based on the working experience of the management of the Hong Kong Company, it is noted that they had been mainly focused on the trading of coal products instead of the iron powder. However, the trading procedure and mechanism of these basic commodities is alike and is subject to the following standardized procedures:

(1) Quality testing before delivery (through the qualified inspection agent)
(2) Letter of credit/bill of lading arrangements
(3) Shipping/transportation arrangements
(4) Customs clearance
(5) Trading document preparation (i.e. invoice)

Besides, the pricing of such mineral resource related commodies is available in public source which would enable the trader to negotiate transaction with open information.

LETTER FROM THE BOARD

In light of the experiences and qualifications of the management team of the Hong Kong Company, the Board considers that the management team of the Hong Kong Company has adequate experience and qualification to operate and manage the business operations of the Hong Kong Company. To assist the board of Directors to monitor and oversee the operation of the Target Group after Completion, the Directors will appoint the following candidate to join the management team of the Hong Kong Company after Completion:

Mr. Zheng De Xiong (鄭德雄) (“Mr. Zheng”), aged 47, has more than 25 years experience in the management position of the international iron ore and non-ferrous metals trading and processing in Hong Kong and the PRC. During the period from 1988 to 1993, Mr. Zheng worked in 深圳粵海集團有限公司, being a state-owned enterprise in the PRC, and was responsible for managing the iron ore and nonferrous metals trading. During the period from 1993 to 1998, Mr. Zheng was seconded to 粵海化工機械有限公司 in Hong Kong and was responsible for managing the chemicals, iron ore, non-ferrous metals and refined oil trading business. During the period from 1998 to 2003, Mr. Zheng acted as the general manager of 上海粵聯工業資源有限公司, whose main duties involve monitoring the South Africa zircon sand processing and iron ore trading business. During the period from 2003 to 2012, Mr. Zheng served as the general manager of the 上海粵聯工業資源有限公司 and was responsible for overseeing the sales of Indonesian iron ore and zircon sand to the PRC.

With the assistance from Mr. Zheng and the management of the Hong Kong Company, the Board of Directors considers that they can monitor the financial performance and operation of the Target Group.

Independence

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, (i) each of the Vendors, the Suppliers, the Customer, the vendors from each of the Company’s previous notifiable transactions within twelve (12) months, and the Hong Kong Company’s management are Independent Third Parties and independent to each other; and (ii) each of the Suppliers, the Customer and their respective associates will not become the placees of the Share Placing or the Bond Placing or any of the Proposed Financing Activity(ies).

BUSINESS MODEL OF THE HONG KONG COMPANY

Mode of operation

Upon obtaining the purchase order from the Customer (which includes the delivery location and quantity), the Hong Kong Company will assess the production schedule of the 1st Supplier, 2nd Supplier and 3rd Supplier and decides on which supplier to place the purchase order as to satisfy the purchase order from the Customer.

The Hong Kong Company will arrange the shipment for such purchase order and agree with the supplier with the date of delivery and the quality and quantity inspection (on the same day). The iron ore product will be subject to the quality and quantity test by both of the representative of the Customer and the Hong Kong Company (through the engagement of the independent inspection agency) at port of loading. The certificate of inspection after such test will be issued by such inspection agency confirming that the iron ore product meets the specified requirements.

LETTER FROM THE BOARD

Pursuant to the terms and conditions of the Letter of Intent, prior to the shipment date and upon notification by the Hong Kong Company, the readiness of loading and the specification of the magnetite sand concentrate of the shipment, the Customer has to issue an irrevocable letter of credit through a prime international bank in favour of the Hong Kong Company (“Transferable L/C”) in relation to the placed order. Since the price of each shipment of magnetite sand concentrate is based on average daily price during the month of the issue of the bills of lading, the exact contract price of iron ore can only be fixed in the beginning of next following month after the date of shipment. Therefore, the amount specified in the Transferable L/C will be based on the estimation of the Customer and Hong Kong Company (based on the lower of index price as quoted in Platts and BEIJING IODES at the time of when the purchase order is placed) with 10 per cent adjustment (+/– 10%) to the amount. According to the Vendors, such 10 per cent adjustment (+/– 10%) to the amount stated in the letter of credit is a normal commercial practice in the commodity trading business. Simultaneously upon receipt of the Transferable L/C issued by the Customer, the Hong Kong Company will use the Transferable L/C to settle the balance owed to the corresponding supplier. US$3.00 per DMT will be deducted from the Transferable L/C as the unit profit for the Hong Kong Company.

After the loading of the iron ore product and the issue of bill of lading by the shipping company, the supplier will present the shipping documents (including the bill of lading) to its receiving bank for settlement. Basically, since the Transferable L/C is irrevocable, the supplier can obtain the payment once the shipping documents are presented and processed by its receiving bank. According to the Supply Agreements and the Letter of Intent, 95% of settlement amount in each purchase order will be processed by the receiving bank upon effect of the shipment, and remaining 5% balance shall be made by the Customer/Hong Kong Company upon the receipt of the certificates of quality and quantity in the import port. As the exact contract price for iron ore can only be fixed in the beginning of next month after the shipment, the exact payment can be settled in the beginning of next month. As advised by the Vendors, the above payment arrangement is the common and usual practice in the iron ore trading business.

As the delivery term under the Supply Agreements and the Letter of Intent is Cost and Freight (CFR), the respective custom clearance in the export port and import port will be responsible by the seller (the respective Suppliers) and the Customer, and the ownership of iron powder product will be transferred directly to the Customer from the seller (the respective Suppliers) once the billing of lading is provided by the shipping company and will at no time be transferred to the Target Company. Under such shipment terms, the Customer will have the ownership of the iron powder once the iron powder is fully loaded on the ship and the issue of the bill of lading by the shipping company at the export port.

Operating costs

The major cost of operation for the Hong Kong Company is the finance cost in relation to the Transferable L/C. Based on the existing business arrangement of the Hong Kong Company, there will not be any future capital and financing requirements for its iron powder trading business.

Business Plan

As the principal operation of the Hong Kong Company is to conduct matching services for the iron powder suppliers and buyers, the marketing approach to be adopted by the Hong Kong Company will be a business referral model and it is expected that the Hong Kong Company will recruit suitable sale representatives to further expand the client and supplier base of the Hong Kong Company.

LETTER FROM THE BOARD

However, the shipping/delivery operations will not be included in the business model of the Hong Kong Company.

Business strategies

After the completion of the Acquisition, the Hong Kong Company shall gradually speed up its the iron sand trading business with the Suppliers and the Customer. It will then further explore other sources of supply in the Southern East Asia and at the same time identify more customers in the PRC.

Competitive advantage

The secured legally binding Supply Agreements and the Letter of Intent entered into among the Suppliers, the Hong Kong Company and the Customer will be the key competitive advantage of the Hong Kong Company as compared to other individual trader as demand and supply of the iron product for the Hong Kong Company have been guaranteed until the year of 2018.

INTENTION OF THE CURRENT BUSINESS OF THE COMPANY

As at the Latest Practicable Date, (i) the Company has no intention, negotiation, agreement, arrangement and understanding (concluded or otherwise) about any disposal, scaling-down and/or termination of its existing businesses; (ii) save for the Proposed Financing Activity(ies), the Board has no intention to conduct any fund raising activities in near term; and (iii) the Company has no intention to acquire any other new business.

GROUP STRUCTURE

The following charts show the group structure of the Target Group immediately before and upon the Completion:

Existing structure of the Target Group immediately before Completion

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1st Vendor 2nd Vendor 3rd Vendor 4th Vendor
69.12% 10.72% 4.16% 16.00%
The Target
100%
The Hong Kong Company
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Structure of the Target Group immediately upon Completion

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The Company
100%
The Purchaser
100%
The Target
100%
The Hong Kong Company
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THE CONSIDERATION SHARES

The authorised share capital of the Company is HK$20,000,000 dividend into 2,000,000,000 Shares of HK$0.01 each, of which 999,248,000 Shares one in issue as at the Latest Practicable Date.

Upon Completion, the Company shall allot and issue a total of 193,000,000 Consideration Shares at the Issue Price, of which 67,000,000, 26,000,000 and 100,000,000 of the Consideration Shares will be issued to the 2nd Vendor, the 3rd Vendor and the 4th Vendor and/or their respective nominees respectively.

The Consideration Shares represent (i) approximately 19.31% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 16.19% of the issued share capital of the Company as enlarged by the allotment and issue of all the Consideration Shares.

The Issue Price of HK$0.25 per Consideration Share represents:

(i) a premium of approximately 20.2% over the closing price of HK$0.208 per Share as quoted on the Stock Exchange on 6 February 2013, being the date of the Agreement; and
(ii) a premium of approximately 11.6% over the average closing price of approximately HK$0.224 per Share as quoted on the Stock Exchange for the five trading days immediately prior to the date of the Agreement;
(iii) a premium of approximately 68.9% over the audited net asset value per Share of approximately HK$0.148 as at 31 March 2013; and
(iv) a premium of approximately 67.8% over the closing price of HK$0.149 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Consideration Shares are to be issued by the Company under Specific Mandate sought from the Shareholders at the EGM. The Consideration Shares, when allotted and issued, will rank pari passu in all respects with all the Shares then in issue.

LETTER FROM THE BOARD

The Issue Price was arrived at after arm’s length negotiation between the parties to the Agreement after taking into account the prevailing market price of the Shares. The Directors consider that the Issue Price is fair and reasonable.

An application will be made to the Stock Exchange by the Company for the listing of, and permission to deal in, the Consideration Shares.

REASONS FOR THE ACQUISITION

The Company is an investment holding company and the Group is principally engaged in the manufacture and sale of fresh and dried noodles and investment in coal trading business. Upon Completion, the iron ore trading business will become a new segment to the Group.

The main content of magnetite sand concentrate, the trading commodity product of the Target Group, is iron. Iron is the most widely used of all the metals, accounting for approximately 95% of worldwide metal production. It is used primarily in structural engineering applications, and in maritime purposes, automobiles, and general industrial applications. Approximately 98% of the mined iron ore is used to make steel.

The PRC is currently the largest consumer of iron ore, which translates to be the world’s largest steel producing country. The continued development and urbanization of the PRC is the key driver for the import of iron ore. In early September 2012, the National Development and Reform Commission of the PRC Government approved to allocate approximately RMB 1 trillion for the infrastructure investment plans. In the same month, prices for iron ore in the PRC rallied about 75 percent and reached to a 15-month high in prices. As such, the Directors consider that the outlook for the demand of magnetite sand concentrate is positive.

The Directors have been identifying further investment opportunities in order to diversify its existing business and maximize the return to the Shareholders. The Directors consider that (i) the Acquisition represents a good opportunity for the Group to further develop its mineral trading business and also allow it to diversify its existing businesses; (ii) the Group will be able to benefit from the positive prospects of the Target Group in light of the increasing demand of mineral resources (i.e. iron) in the PRC; and (iii) the Group will be able to benefit from the potential investment return from the Target Group under the secured legally binding Supply Agreements and the Letter of Intent.

In determining the acquisition of the Target Group, the Board has also considered the following factors:

(1) the business connection with the Customer, which is a stated-owned enterprise which will enable and facilitate the future development of the iron powder trading business of the Group in the PRC;

LETTER FROM THE BOARD

(2) the size of operation of the Suppliers which can secure the supply source of the iron source powder to the Target Group;
(3) the competitive indicated price offered by the Suppliers; and
(4) the export activity for the iron powder from the Philippines is not active as compared to Australia or Brazil, which provides the Target Group with the potential to be the major key trader in the Philippines.

As at the Latest Practicable Date, the Hong Kong Company has not commenced business other than the trial shipment which was completed on 14 June 2013. However, the Directors consider that the business model of the Hong Kong Company is viable due to the following factors:

(i) each of the Supply Agreements and the Letter of Intent are legally enforceable;
(ii) the Customer is a state-owned enterprise from which its demand of magnetite sand concentrate is high and continuous;
(iii) the Suppliers have valid licences or legally-binding arrangements to supply magnetite sand concentrate;
(iv) the Directors are satisfied with the competence of the management team of the Hong Kong Company whom has agreed to be retained by the Hong Kong Company after Completion; and
(v) the Company may have to pay higher Consideration if the operation of the Hong Kong Company is in full swing.

The Directors are aware of (1) the risk factors as set out in the paragraph headed “Risk Factors”; (2) the potential dilution effect to the Shareholders from the Proposed Financing Activity(ies); and (3) the Target Group is newly incorporated and has not commenced business operations. However, after reviewing on (i) the feasibility of business operation of the Target Group; and (ii) the validity and enforceability of the Supply Agreements and the Letter of Intent, the Directors consider the these general business risks associated with the Target Group is mitigated despite the Target Group has not yet commenced business operation. Besides, as the profit margin from the Target Group is secured by the legal-binding Supply Agreements and the Letter of Intent, the Target Group will deliver a long term investment return to the Group which is beneficial to the Shareholders and the Company as a whole despite the dilution effect to the Shareholders from the Proposed Financing Activity(ies).

Taking into account the benefits of the Acquisition, the Board is of the view that the terms of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, save for the Acquisition, there is no intention for the Directors to further diversify the existing business of the Group.

LETTER FROM THE BOARD

The operation of the Target Group was contemplating by the Vendors in the fourth quarter of 2012 despite no formal and legal binding agreements was entered into amongst the Suppliers, the Customer and the Hong Kong Company. The Vendors were introduced by Mr. Albert Wong, the Director, to the Company in or around December 2012.

Before the negotiation with the Vendors for the Acquisition, the Group has no connection with either the Customer or the Suppliers or other similar source which can provide a stable supply and demand for the iron powder. Therefore, the Group cannot engage in the iron ore business on its own.

The Customer and the Suppliers were identified by the Hong Kong Company based on the business connections of the Vendors. Before the setting up of the Hong Kong Company, there is no business relationship or connections between the Customer and the Suppliers. The US$3 profit margin was provided by the Suppliers based on the Hong Kong Company’s business relationship with the Customer (through the Letter of Intent) and the marketing connection of the management of the Hong Kong Company.

Further, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, there is no side arrangement between the Company, the Vendors, the management of the Hong Kong Company, the Suppliers and the Customer.

FINANCIAL EFFECTS OF THE ACQUISITION

Assets

As at 31 March 2013, the audited consolidated total assets of the Group amounted to HK$152.2 million.

As set out in Appendix III to this circular, assuming completion of the Acquisition had taken place on 31 March 2013, the audited pro forma consolidated total assets of the Enlarged Group would be HK$317.0 million.

Liabilities

As at 31 March 2013, the audited consolidated total liabilities of the Group amounted to HK$4.5 million.

As set out in Appendix III to this circular, assuming completion of the Acquisition had taken place on 31 March 2013, the unaudited pro forma consolidated total liabilities of the Enlarged Group would be HK$81.0 million.

Earnings

The Group recorded an audited consolidated loss of HK$13.9 million for the year ended 31 March 2013.

LETTER FROM THE BOARD

Since the Hong Kong Company has not yet commenced full operation, the Directors consider that there will be no immediate impact on the earning of the Group upon Completion.

As set out in the unaudited pro forma financial information of the Enlarged Group in Appendix III to the Circular, a goodwill in amount of approximately HK$148.5 million will be arised upon Completion. Such significant amount of goodwill is the result of the significant difference between the Consideration and the net asset of the Target Group and is in accordance with the existing accounting policies of the Company. The nature of such goodwill is a reflection of the expected future economic benefits, (i.e. the expected net cash flow derived from the Supply Agreements and the Letter of Intent) and future prospects of the Target Company. For the calculation of such goodwill, please refer to notes 1 and 2 to the unaudited pro forma statement of assets and liabilities of the Group. The Directors consider that the Company’s accounting treatment and record of such goodwill will be same as those companies with the same accounting policies in the acquisitions in similar nature.

Upon Completion, the Company will adopt the existing accounting policies and principal assumptions for the valuation of the market value of the Target Group and the Board do not anticipate any impairment in the coming financial year of the Company after Completion.

RISK FACTORS

Changes in the PRC and the Philippines government policies, rules and regulations in trading the iron powder

As advised by the PRC and Philippines legal advisers, given the existing trading arrangement of the Hong Kong Company, the Hong Kong Company is not considered to have business operation in the PRC nor in the Philippines. Therefore, the Hong Kong Company is not subject to any applicable government policies, regulations and measures, non are required to obtain any consents, approvals, rights, licenses, permits, certificates or capital requirement in the PRC and the Philippines.

However, in the event of any change in the existing legal and regulatory environment in the PRC and the Philippines which may result in the Hong Kong Company to be regulated by any of the government policies, rules and regulations in trading of the iron powder, the operation of the Hong Kong Company may be materially and adversely affected.

Changes in economic, political and social conditions of the PRC and the Philippines or interference by the PRC and the Philippine Governments may adversely affect the Target Group

Despite the Target Group has secured a long term agreement with each of the Customer and the Suppliers through the Supply Agreements and the Letter of Intent, any changes in economic, political and social conditions of the PRC and the Philippines or interference by the PRC and the Philippine governments to the iron trading business may result in (i) reduction of demand and supply of the iron powder/magnetite sand concentrate; or (ii) restriction on or disruptions to the iron trading business, and will therefore adversely affect the future business development of the Hong Kong Company in these countries.

LETTER FROM THE BOARD

The success of the Hong Kong Company relies on the knowledge and experience of the management of the Hong Kong Company

The Target Group has not yet commenced business. The financial performance of the Hong Kong Company will be dependent, to a significant extent, on the knowledge and experience of the management team of the Hong Kong Company (the “Management Team”). In the event that the Hong Kong Company is unable to retain or secure the qualified personnel in the Management Team or the Company is unable to appoint qualified personnel to monitor the operation of the Hong Kong Company, there may be a material adverse impact on the Hong Kong Company’s business operation.

The Hong Kong Company has only one customer as at the Latest Practicable Date

As at the Latest Practicable Date, the Hong Kong Company has one customer and the operation of the Hong Kong Company relies on the license, permits and certificates of the Customer for its purchase and import of the magnetite sand concentrate. In the event of (i) the cessation of business relationship between the Hong Kong Company and the Customer; (ii) termination or breach of the Letter of Intent by the Customer; or (iii) the failure to renew and obtain the necessary license, permits and certificates by the Customer, the Hong Kong Company’s business and future profitability may be materially and adversely affected.

The Hong Kong Company has only three suppliers as at the Latest Practicable Date

As at the Latest Practicable Date, the Hong Kong Company has only three suppliers and the operation of the Hong Kong Company relies on the permits, certificates and/or other legal arrangements in relation to the supply and export of the magnetite sand concentrate by the Suppliers. There is no assurance that the Hong Kong Company will not encounter any interruption, delay or shortage in supply from these three suppliers in the future. In the event of occurrence of (i) any interruption, delay or shortage in supply from these suppliers; (ii) the termination or breach of the Supply Agreements; or (iii) the failure to renew and obtain the necessary license, permits and certificates, or other viable and legal arrangement for the provision of the magnetite sand concentrate, by the Suppliers, and that the Hong Kong Company cannot source an alternative supply of magnetite sand concentrate which can met the requirements of the Customer in a timely manner, its business operation and future profitability may be materially and adversely affected.

Possible failure to obtain financing means for the development of the iron trading business

At present, there is no capital requirement for conducting the iron trading business for the Hong Kong Company as all the trading settlement will be conducted by the Transferable L/C provided by the Customer. There is no assurance that the Hong Kong Company will not require funding for conducting business with the new suppliers and customers in future. As these new suppliers and customers may not be able to issue the Transferable L/C, the trading settlement with them may require internal financial resources of the Hong Kong Company. In the event that the Hong Kong Company fails to obtain sufficient financial resources to conduct business with these potential new suppliers and customers, the Hong Kong Company’s future development may be materially and adversely affected.

LETTER FROM THE BOARD

Possible failure to continue the iron trading business after the expiry of the Supply Agreement and the Letter of Intent

The Supply Agreements and the Letter of Intent will be expired on 31 December 2018. In the event that the Hong Kong Company cannot extend the Supply Agreements and Letter of Intent with each of the Suppliers and the Customers, and that the Hong Kong Company cannot identify other suppliers and customers for the iron trading business, the Hong Kong Company’s operation may suspend and cease.

Possible impairment on the goodwill of the Target after the Completion

The business operation of the Target Group is subject to the aforementioned risk factors set out in above paragraphs. In the event that the business operation of the Target Group is adversely affected by the above risk factors, the Company may record a significant impairment on the goodwill of the Target which may affect the future profitability of the Group.

(II) PLACING OF NEW SHARES UNDER SPECIFIC MANDATE

The Share Placing Agreement

Date

3 May 2013

Parties

Issuer : the Company Placing Agent : GF Securities (Hong Kong) Brokerage Limited

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owner(s) are Independent Third Parties.

The Placing of New Shares

Pursuant to the Share Placing Agreement, the Placing Agent has conditionally agreed to place, on a best effort basis, the Placing Shares at the Placing Price.

The Share Placee(s)

The Placing Shares will be placed on a best effort basis to one or more Share Placee(s) which will be professional, corporate, institutional and/or individual investors, who and whose ultimate beneficial owners shall be Independent Third Parties. If any Share Placee(s) becomes a Substantial Shareholder after the completion of the Share Placing, further announcement will be made by the Company.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors will not become a Share Placee and does not and will not have any relationship with the Share Placees or the Placing Agent.

LETTER FROM THE BOARD

Number of Placing Shares

The maximum number of Placing Shares is 250,000,000 new Shares, which represents (i) approximately 25.02% of the existing issued share capital of the Company as at the Latest Practicable Date, and (ii) approximately 20.01% of the issued share capital of the Company as enlarged by the allotment and issue of the Placing Shares.

The Placing Shares will rank, upon issue, pari passu in all respects among themselves and with the Shares in issue as at the date of allotment and issue of the Placing Shares.

Placing Price

The Placing Price will be the higher of (i) HK$0.20 per Placing Share; or (ii) the price per Placing Share which represents 30% discount of the average closing price per Share as quoted on the Stock Exchange for the five trading days immediately prior to the Price Determination Date. In line with the market practice, the Company will bear all costs and expenses of the Share Placing. Based on the estimated expenses for the Share Placing, assuming the Placing Price is HK$0.20 per Placing Share, the net Placing Price is approximately HK$0.191 per Placing Share.

Assuming the Placing Price is HK$0.20 per Placing Share, the Placing Price represents:

(i) a discount of approximately 3.85% to the closing price of HK$0.208 per Share as quoted on the Stock Exchange on 3 May 2013, being the date of the Share Placing Agreement;
(ii) a discount of approximately 1.48% to the average of the closing prices of approximately HK$0.203 per Share as quoted on the Stock Exchange for the last five consecutive trading days prior to the date of the Share Placing Agreement;
(iii) a premium of approximately 35.1% over the audited net asset value per Share of approximately HK$0.148 as at 31 March 2013; and
(iv) a premium of approximately 34.2% over the closing price of HK$0.149 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Placing Price was determined and negotiated on an arm’s length basis between the Company and the Placing Agent with reference to, among others, the prevailing market price of the Shares. The Directors consider that the Placing Price is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Assuming the maximum of 250,000,000 Placing Shares are subscribed in full, the aggregate nominal value of the Placing Shares is HK$2,500,000.

Share Placing commission

The placing commission payable to the Placing Agent under the Share Placing Agreement is equal to 4.00% of the aggregate Placing Price of the actual Placing Shares successfully placed by the Placing Agent under the Share Placing.

LETTER FROM THE BOARD

The placing commission payable to the Placing Agent under the Share Placing Agreement is arrived at after arm’s length negotiations between the Company and the Placing Agent with reference to the prevailing financial condition and the market response to the Company’s previous fund raising activity. As disclosed in the announcement of the Company dated 12 December 2012, the Company has entered into the CB Placing Agreement in relation to the CB Placing. However, as disclosed in the announcement of the Company dated 5 April 2013, the CB Placing was lapsed on 5 April 2013. Despite the previous unsuccessful CB Placing, the Directors consider that it is not appropriate to conduct further fund raising activities by adopting a placing price in deeper discount in order to prevent further dilution effect to the existing Shareholders. As such, the Directors consider that the existing placing commission of the Share Placing Agreement would encourage and facilitate the Placing Agent to locate the potential investors or other sub-placing agents and therefore, is fair and reasonable, in the interests of the Company and the Shareholders as a whole.

Rights of Placing Shares

The Placing Shares, when allotted and issued, will rank equally in all respects among themselves and with the Shares in issue on the date of allotment and issue of the Placing Shares.

Conditions of the Share Placing

The Share Placing is conditional upon:

(i) the granting by the Listing Division of the listing of, and permission to deal in, all of the Placing Shares;
(ii) the passing by the Shareholders at the EGM of an ordinary resolution of the Company approving the Share Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the allotment and issue of the Placing Shares);
(iii) the Company having obtained all necessary consents and approvals in relation to the Share Placing from the relevant authorities, if applicable;
(iv) none of the warranties given by the Company under the Share Placing Agreement having been breached in any material respect (or, if applicable of being remedied, has not been remedied),or is misleading or untrue in any material respect; and
(v) the Acquisition Agreement having becoming unconditional (save for the condition for the completion of the Proposed Financing Activity(ies)).

Save as the condition (iv) above that can be waived by the Placing Agent at any time in writing, all the other conditions are incapable of being waived. In the event that the conditions of the Share Placing is not fulfilled (or, as the case may be, waived by the Placing Agent) at or before 4:00 p.m (Hong Kong time) on 31 August 2013 (or such later date as may be agreed by the Placing Agent and the Company), all rights, obligations and liabilities of the parties to the Share Placing Agreement in relation to the Share Placing shall cease and terminate and none of the parties shall have any claim against any other party in respect of the Share Placing save for any antecedent breaches. The Share Placing and the Bond Placing are not conditional upon each other.

LETTER FROM THE BOARD

Completion of the Share Placing

Completion of the Share Placing will take place within three (3) Business Days after the fulfillment (or, as the case may be, waiver) of the conditions of the Share Placing Agreement or such other date agreed by the Company and the Placing Agent.

Completion of the Share Placing is subject to the fulfillment (or, as the case may be, waiver) of the conditions precedent under the Share Placing Agreement and the Placing Agent’s rights of termination of the Share Placing pursuant to the terms and conditions of the Share Placing Agreement. As the Share Placing may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares.

Termination of the Share Placing Agreement

The Placing Agent has the right to terminate the Share Placing Agreement by notice in writing given to the Company at any time prior to 9:00 a.m. on the Share Placing Completion Date, if in its reasonable opinion, the business or financial or trading position or prospects of the Company or the Group taken as a whole or the success of the Share Placing would be materially and adversely affected by any of the force majeure events provided in the Share Placing Agreement.

The Company may, in its reasonable opinion, after consultation with the Placing Agent, terminate the Share Placing Agreement by notice in writing to the Placing Agent at any time prior to 9:00 a.m. on the Share Placing Completion Date if there is a breach of the warranties, representations and undertakings given by the Placing Agent in the Share Placing Agreement and such breach is considered by the Company on reasonable grounds to be material.

Upon termination of the Share Placing Agreement pursuant to the above provisions, all obligations of the Company and the Placing Agent shall cease and no party of the Share Placing Agreement shall have any claim against the other party in respect of any matter or thing arising out of or in connection with the Share Placing Agreement save of any antecedent breach of any obligation under the Share Placing Agreement.

Specific mandate to allot and issue the Placing Shares

The Placing Shares will be allotted and issued under the specific mandate to be granted by the Shareholders to the Directors at the EGM.

Application for listing of the Placing Shares

Application will be made by the Company to the Listing Division of the Stock Exchange for the listing of, and permission to deal in, the Placing Shares.

LETTER FROM THE BOARD

(III) PLACING OF BONDS AND ISSUE OF UNLISTED WARRANTS

The Bond Placing Agreement

Date

3 May 2013

Parties

Issuer : the Company

Placing Agent : GF Securities (Hong Kong) Brokerage Limited

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owner(s) are Independent Third Parties.

The Placing of Bonds

Pursuant to the Bond Placing Agreement, the Placing Agent has conditionally agreed to place, on a best effort basis, to one or more Bond Placee(s) to subscribe for the Bonds up to an aggregate principal amount of HK$80 million. The Warrants will be issued (for no additional payment) to the first registered holder(s) of the Bonds on the basis of 1,625,000 Warrants for every whole multiple of HK$1,000,000 in the principal amount of the Bonds taken up. The Warrants are detachable from the Bonds. While the Bonds are non-transferrable, the Warrants can be transferred individually and separately from the Bonds. Given that the Bonds are non-transferable, the Warrants will only be issued to the first registered holder(s) of the Bonds.

Bond Placee(s)

The Bonds will be placed to one or more Bond Placee(s) which will be independent professional, institutional and other investors, and who and whose ultimate beneficial owners are Independent Third Parties.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors will not become a Bond Placee and does not and will not have any relationship with the Bond Placee(s) or the Placing Agent.

Bonds

The principal terms of the Bonds are summarised below:

Issuer: the Company Principal amount: HK$80 million

LETTER FROM THE BOARD

Maturity Date:
on the date immediately following twenty-four (24) months after the Bond Issue Date
Extended Maturity Date:
The Maturity Date may be extended for a period of twelve (12) months from the Maturity Date provided that the Company shall serve a written notice on the Bondholder(s) at least ten (10) days’ prior to the Maturity Date
Interest rates:
The Bonds shall bear interest from and including the Bond Issue Date until the Maturity Date at the Initial Interest Rate, which shall be accrued daily on a 365 days basis and payable semiannually in arrears.

In the event of an extension of the Bonds, the Bonds shall bear interest at the Progressive Interest Rates, which shall be accrued daily on a 365 days basis and is payable semi-annually in arrears.

Status: The Bonds constitute direct, unconditional, secured and guaranteed obligations of the Company and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Company under the Bonds shall, save for such exceptions as may be provided by applicable legislation, at all times rank in priority to all its other present and future unsecured and unsubordinated obligations. No application will be made for the listing of the Bonds.
Transferability: No Bondholder may offer, lend, transfer, sell, pledge or otherwise dispose of or create any encumbrance or other rights in respect of any of the Bonds or any interests therein.
Early redemption:
The Company may at any time during the Redemption Period redeem the Bonds (in whole or in part) at 101% of the total principal amount of such Bonds together with payment of interests accrued up to the date of such early redemption.
Early repayment:

Save and except for the occurrence of an event of default on the part of the Company, the Bondholder has no right to demand early repayment of the Bonds.

Securities for the Bonds

Pursuant to the Bond Placing Agreement, as security for the Bonds, the Company has agreed to procure the execution and delivery of the Eminent Along Corporate Guarantee, the Ease Chance Corporate Guarantee, the 1st Share Charge, the 2nd Share Charge, the 3rd Share Charge and the 4th Share Charge, each in favour of the Bondholder(s) (or its trustee) upon or immediately following completion of the Bond Placing (as the case may be).

LETTER FROM THE BOARD

Eminent Along Corporate Guarantee

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the Eminent Along Corporate Guarantee to be executed by Eminent Along (being a wholly-owned subsidiary of the Company) in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds. In addition, pursuant to the terms and conditions of the Eminent Along Corporate Guarantee, Eminent Along shall, as beneficial owner, charges by way of first floating charge all its property, assets, goodwill, rights and revenues to the Bondholder(s) (or its trustee, if any).

As at the date of this announcement, Eminent Along is beneficially interested in approximately 33.33% equity interests in Goldenbase Ltd (“ Goldenbase ”), a company incorporated in the Republic of Seychelles with limited liability, which in turn holds 100% equity interest in Royal Dragon Corporation Limited (“ Royal Dragon ”), a company incorporated in Hong Kong with limited liability which engages in the business of coal trading in the PRC. For details of Eminent Along, Goldenbase and Royal Dragon, please refer to the circular of the Company dated 18 July 2012 in relation to, inter alia, the major transaction in respect of the acquisition of the entire equity interest in Eminent Along. As at 31 March 2013, Eminent Along recorded a net liability of HK$13,975.

Ease Chance Corporate Guarantee

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the Ease Chance Corporate Guarantee to be executed by the Hong Kong Company in favour of the Bondholder(s) (or its trustee, if any) on the day immediately following Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds. In addition, pursuant to the terms and conditions of the Ease Chance Corporate Guarantee, the Hong Kong Company shall, as beneficial owner, charges by way of first floating charge all its property, assets, goodwill, rights and revenues to the Bondholder(s) (or its trustee, if any).

Subject to the conditions precedent of the Agreement being fulfilled or waived (as the case may be), the Target and the Hong Kong Company will become wholly-owned subsidiaries of the Company upon completion of the Acquisition. For details of the Target and the Hong Kong Company, please refer to the paragraph headed “Information of the Target Group” in this letter from the Board.

1st Share Charge

As at the Latest Practicable Date, the 1st Chargor is the holder of 306,880,000 Shares (the “ 1st Charged Securities ”), representing approximately 30.71% of the entire issued share capital of the Company. The 1st Charged Securities amounted to approximately HK$45.7 million based on the closing price of HK$0.149 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the 1st Share Charge to be executed by the 1st Chargor to grant a fixed charge over the 1st Charged Securities in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds.

LETTER FROM THE BOARD

2nd Share Charge

As at the Latest Practicable Date, the 2nd Chargor is the holder of 35,840,000 Shares (the “ 2nd Charged Securities ”), representing approximately 3.59% of the entire issued share capital of the Company. The 2nd Charged Securities amounted to approximately HK$5.3 million based on the closing price of HK$0.149 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the 2nd Share Charge to be executed by the 2nd Chargor to grant a fixed charge over the 2nd Charged Securities in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds.

3rd Share Charge

As at the Latest Practicable Date, the 3rd Chargor is the holder of 26,880,000 Shares (the “ 3rd Charged Securities ”), representing approximately 2.69% of the entire issued share capital of the Company. The 3rd Charged Securities amounted to approximately HK$4.0 million based on the closing price of HK$0.149 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the 3rd Share Charge to be executed by the 3rd Chargor to grant a fixed charge over the 3rd Charged Securities in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds.

4th Share Charge

As at Latest Practicable Date, the 4th Chargor is the holder of 22,400,000 Shares (the “ 4th Charged Securities ”), representing approximately 2.24% of the entire issued share capital of the Company. The 4th Charged Securities amounted to approximately HK$3.3 million based on the closing price of HK$0.149 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Pursuant to the Bond Placing Agreement, the Company shall procure the execution and delivery of the 4th Share Charge to be executed by the 4th Chargor to grant a fixed charge over the 4th Charged Securities in favour of the Bondholder(s) (or its trustee, if any) on the Bond Placing Completion Date as security for the performance of the Company’s payment obligations under the Bonds.

The aggregate value of the pledged securities for the Bond would be approximately HK$58.3 million based on the value of the 1st Share Charge of HK$45.7 million as at the Latest Practicable Date, the value of the 2nd Share Charge of HK$5.3 million as at the Latest Practicable Date, the value of the 3rd Share Charge of HK$4.0 million as at the Latest Practicable Date, the net liability of Eminent Along of HK$13,975 as at 31 March 2013 and the net asset value of Ease Chance of HK$66,000 as at 31 December 2012.

The Directors consider that it is a normal commercial practice to have the value of the pledged assets to be higher than the amount of the loans.

LETTER FROM THE BOARD

Warrants

The principal terms of the Warrants are summarised below:

Issuer:

the Company

Number of Warrants up to 130,000,000 Warrants
to be issued:
Exercise Period:
the period commencing from the date of issue of the Warrants to the date falling on the third (3rd) anniversary of the issue of the Warrants
Exercise Price: an initial exercise price of HK$0.24 per new Share (subject to adjustments) at which the holder(s) of the Warrants may subscribe for the new Share(s)
Transferability: Except as specified in the succeeding paragraph, the Warrants are transferable in whole or partly in integral multiples of 1,000,000 Warrants and may be transferred to any person.

Save with the consent of the Stock Exchange, none of the Warrants may be transferred to a “connected person” of the Company. The Company shall give notice to the Stock Exchange for seeking consent only for any transfer of the Warrants where a connected person of the Company is involved.

If all the Bonds under the Bond Placing Agreement are subscribed by one Bond Placee and all the Warrants are issued to such Bondholder, upon exercise of the Warrants, such Bondholder will become a Substantial Shareholder. If any of the holder(s) of the Warrants will become a Substantial Shareholder after the exercise of the Warrants, further announcement will be made by the Company. Regarding the transfer of the Warrants, the Placing Agent confirmed that there is not any plan or arrangement between the Placing Agent and any connected persons of the Company regarding the transfer of any of the Warrants.

Number of Warrants Shares

The Warrants Shares of 130,000,000 Shares represent (i) approximately 13.01% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 11.51% of the issued share capital of the Company as enlarged by the issue and exercise of the Warrants Shares.

Exercise Price of the Warrants

The Exercise Price of HK$0.24 per Warrants Shares represents:

(i) a premium of approximately 15.38% over the closing price of HK$0.208 per Share as quoted on the Stock Exchange on 3 May 2013, being the date of the Bond Placing Agreement;

LETTER FROM THE BOARD

(ii) a premium of approximately 18.23% over the average of the closing prices of approximately HK$0.203 per Share as quoted on the Stock Exchange for the last five consecutive trading days prior to the date of the Bond Placing Agreement;
(iii) a premium of approximately 62.1% over the audited net asset value per Share of approximately HK$0.148 as at 31 March 2013; and
(iv) a premium of approximately 61.1% over the closing price of HK$0.149 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Exercise Price was arrived at after arm’s length negotiations between the Company and the Placing Agent with reference to the recent market prices of the Shares. The Directors consider that the Exercise Price and the terms and conditions of the Bonds, the Warrants and the Bond Placing Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The Exercise Price is subject to adjustment based on the prescribed formulas as set out in the instrument creating the Warrants for the happening of the following events (but shall however not be adjusted by reason of the Share Placing):

(i) an alteration of the nominal amount of each Share by reason of any consolidation or subdivision;
(ii) an issue (other than pursuant to a scrip dividend scheme in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves;
(iii) a capital distribution to Shareholders (including but not limited to such a distribution pursuant to a reduction or redemption of share capital, share premium account, or capital redemption reserve fund or otherwise);
(iv) a grant by the Company to Shareholders rights to acquire for cash assets of the Company or any of its subsidiaries;
(v) an offer of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe for new Shares, at a price which is less than 85% of the market price per Share to Shareholders;
(vi) an issue wholly for cash being made by the Company or any of its subsidiaries of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per new Share receivable is less than 85% of the market price, or the conversion, exchange or subscription rights of any such issue are altered so that the said total effective consideration receivable is less than 85% of such market price;
(vii) an issue of Shares being made wholly for cash at a price less than 85% of the market price per Share; and
(viii) the purchase by the Company of Shares or securities convertible into Shares or any rights to acquire Shares (excluding any such purchase made on the Stock Exchange) in circumstances where the Directors consider that it may be appropriate to make an adjustment to the Exercise Price.

LETTER FROM THE BOARD

Every adjustment to the Exercise Price shall be certified either (at the option of the Company) by the auditors of the Company or by an approved merchant bank.

For the above adjustment event (viii), the Directors will consider to make an adjustment of the Exercise Price in the event of:

(a) an off-market share repurchase which represents a premium over the price per Share as quoted on the Stock Exchange and the net asset value per Share;
(b) a repurchase of any convertible bonds of the Company at a consideration which represents a premium over the principal amount of such convertible bonds; or
(c) a repurchase of securities (such as warrants and share options) which has a subscription right attaching to it to subscribe Shares at a premium over its issue price,

and such repurchase will result in a dilution of the net asset value per Share and will adversely affect the market price of the Shares.

If adjustment event (viii) is considered necessary, the Directors shall appoint the auditors of the Company or an approved merchant bank to consider whether, for any reason whatever as a result of such repurchases, an adjustment should be made to the Exercise Price fairly and appropriately to reflect the relative interests of the persons affected by such purchases by the Company and, if the auditors or such approved merchant bank shall consider in its opinion that it is appropriate to make an adjustment to the Exercise Price, an adjustment to the Subscription Price shall be made in such manner as the auditors or such approved merchant bank shall certify to be, in its opinion, appropriate. The Directors consider that in the event of purchase by the Company of Shares or securities convertible into Shares or any rights to acquire Shares, the net asset value per share may be adjusted accordingly. In the event that the net asset value per share be adjusted, the Directors consider that it is fair and reasonable to adjust the Exercise Price accordingly in order to reflect the relative interests of the holders of the Warrants. Further, any adjustment to the Exercise Price to be made pursuant to the adjustment event (viii) is subject to certification by the auditors of the Company or the approved merchant bank in a fair and appropriate manner. As such, the Directors are of the view that the adjustment event (viii) is in the interest of the Company and the Shareholders as a whole.

Ranking of the Warrants Shares

The Warrants Shares when allotted and issued, will rank pari passu in all respects among themselves and with the Shares then in issue.

Bond Placing Commission

In consideration of the services of the Placing Agent in connection with the Bond Placing, the Company shall pay the Placing Agent a placing commission of 4.0% of the total principal amount of the Bonds under the Bond Placing Agreement, out of which the Placing Agent will meet their selling concession and sub-placing commission obligations (if any) in accordance with the Bond Placing Agreement.

LETTER FROM THE BOARD

The placing commission payable to the Placing Agent under the Bond Placing Agreement was negotiated on an arm’s length basis between the Company and the Placing Agent and determined with reference to, amongst other things, the market rate.

The Directors consider that the placing commission payable to the Placing Agent under the Bond Placing Agreement is fair and reasonable based on the current market conditions.

Conditions of the Bond Placing

The Bond Placing is conditional upon the fulfillment (or waiver by the Placing Agents or the Company) of the following conditions at or before 4:00 p.m. (Hong Kong time) on 31 August 2013 (or such later time and date as the Placing Agent and the Company shall agree in writing):

(i) the Listing Division of the Stock Exchange granting approval of the listing of, and permission to deal in the Warrants Shares falling to be issued on the exercise of the subscription rights attached to the Warrants either unconditionally or subject to conditions to which the Placing Agent and the Company may accept;
(ii) the passing by the Shareholders at the EGM of an ordinary resolution of the Company approving the Bond Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Warrants Shares);
(iii) none of the warranties given by the Company under the Bond Placing Agreement having been breached in any material respect (or, if capable of being remedied, has not been remedied), or is misleading or untrue in any material respect; and
(iv) the Acquisition Agreement having becoming unconditional (save for the condition for the completion of the Proposed Financing Activity(ies)).

Save as the condition (iii) above that can be waived by the Placing Agent at any time in writing, all the other conditions are incapable of being waived. If the conditions have not been satisfied (or, as the case may be, waived by the Placing Agent) at or before 4:00 p.m. (Hong Kong time) on 31 August 2013 or such later time and date as the Placing Agent and the Company shall agree in writing, the Placing Agent may, at any time thereafter, terminate its obligations under the Bond Placing Agreement by notice in writing to the Company, whereupon the obligations of the Placing Agent under the Bond Placing Agreement shall forthwith cease and terminate and neither the Company nor the Placing Agent shall have any claim against any of the others, save for any antecedent breach thereof. The Share Placing and the Bond Placing are not conditional upon each other.

Completion of the Bond Placing

Completion of the Bond Placing will take place within three (3) Business Days after the conditions have been fulfilled (or, as the case may be, waived by the Placing Agent) or such later time and date as the Placing Agent and the Company may agree in writing.

LETTER FROM THE BOARD

Completion of the Bond Placing is subject to fulfillment of the conditions precedent under the Bond Placing Agreement and the Placing Agent’s rights of termination of the Bond Placing under the terms and conditions of the Bond Placing Agreement. Accordingly, the Bond Placing may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

Termination

The Placing Agent has the right to terminate the Bond Placing Agreement by notice in writing given to the Company at any time prior to 9:00 a.m. on the Bond Placing Completion Date, if in its reasonable opinion, the business or financial or trading position or prospects of the Company or the Group taken as a whole or the success of the Bond Placing would be materially and adversely affected by any of the force majeure events provided in the Bond Placing Agreement.

Upon termination of the Bond Placing Agreement pursuant to the above mentioned factors, all obligations of the Company and the Placing Agent shall cease and no party of the Bond Placing Agreement shall have any claim against the other party in respect of any matter or thing arising out of or in connection with the Bond Placing Agreement save of any antecedent breach of any obligation under the Bond Placing Agreement.

Specific Mandate to allot and issue the Warrants Shares

The Warrants Shares will be allotted and issued under a specific mandate to be granted by the Shareholders to the Directors at the EGM.

Application for listing of the Warrants Shares

The Company will apply to the Listing Division of the Stock Exchange for the listing of, and permission to deal in, the Warrants Shares. No listing of the Bonds and the Warrants will be sought on the Stock Exchange or any other stock exchanges.

REASONS FOR THE SHARE PLACING, THE BOND PLACING AND USE OF PROCEEDS

The Company is an investment holding company and the Group is principally engaged in the manufacture and sale of fresh and dried noodles and investment in coal trading business.

The Directors are of the view that each of the Share Placing and the Bond Placing represents a good opportunity to raise additional funds for the Company. If the Warrants are exercised, it will enlarge the shareholder base and capital base of the Company.

Assuming all the Placing Shares were allotted and issued, the gross proceeds of the Share Placing will be approximately HK$50 million. The net proceeds from the Share Placing, after the deduction of the placing commission of 4.0% and other related expenses, are estimated to be approximately HK$47.8 million.

LETTER FROM THE BOARD

Assuming all the Bonds under the Bond Placing Agreement are subscribed by the Bond Placee(s), the gross proceeds of the Bond Placing will be approximately HK$80 million. The net proceeds from the Bond Placing, after the deduction of the placing commission of 4.0% and other related expenses, are estimated to be approximately HK$76.5 million.

As disclosed in the paragraph headed “The Proposed Financing Activity(ies)” in the section headed “Consideration” in this letter of the Board above, the Directors intend to apply the net proceeds of the Share Placing and the Bond Placing in an aggregate approximate amount of not exceeding HK$124.3 million (i) to settle the cash portion of the Consideration, which is not more than HK$108 million; (ii) to settle the professional fees for the Acquisition, which is approximately HK$2 million; and (iii) the remaining balance of not more than HK$14.3 million to be used as the future working capital of the Group. As at the Latest Practicable Date, it is intended that the remaining balance of HK$14.3 million from the Proposed Financing Activity(ies) after the settlement of the cash portion of the Consideration will be maintained at the Company level instead of allocating such capital to a particular business segment. Nevertheless, it is foreseeable that working capital may be required for (i) the iron powder trading business in conducting cash trade with potential small and medium operating size iron powder suppliers and customers in the future; and (ii) the payment of finance costs under the Bonds. Despite there was no capital requirement for the iron trading business at present as the payment method will be settled by the Customer’s Transferable L/C arrangement pursuant to the Supply Agreements and the Letter of Intent, the Directors consider that it is prudent to reserve additional working capital in conducting cash trade with potential small and medium operating size iron powder suppliers and customers in the future if opportunities arise as such small and medium size iron powder suppliers and customers may not have the Transferable L/C arrangement. As advised by the management of the Hong Kong Company, such cash trade arrangement may allow the Hong Kong Company to generate a higher profit margin for the iron ore trading business. Based on the above working capital requirements, it is expected that the Company will apply approximately HK$6.3 million for conducting the cash trade of the iron powder trading business and the remaining HK$8 million will be used as a liquidity reserve for the payment of finance costs under the Bonds.

The net proceeds from the exercise of the Warrants of HK$31.2 million will be used to repay the outstanding interest of the Bonds with the remaining balance (if any) to redeem the Bonds.

The Board has used its best endeavours to review the recent debt securities fund raising activities (including the issue of the convertible securities) conducted and announced by the listed companies in Hong Kong since 2013 (“ Reference Bonds ”). Although these companies may be in different industries with different risk portfolios and financial positions from that of the Company, the Board considers that reviewing such terms of debt financing may nevertheless serve as references for the Board in assessing on the fairness and reasonableness of the terms of the Bond Placing.

Based on the above findings, it was noted that that the Reference Bonds carried an interest rate which ranges from Nil to 17.6% per annum with an outliner of 36% per annum. Based on the above results, the interest rate of the Bonds may be higher than most of the Reference Bonds but is not the highest among the Reference Bonds. The Board considers that the reasons that a lower interest rate cannot be offered to the Company are due to (i) the unsatisfactory financial performance of the Company in the preceding financial year; (ii) the proceeds from the Bonds will be used to acquire the Target Group, which is a new business to the Company; and (iii) the Target Group has not yet commenced business and has no track record.

LETTER FROM THE BOARD

Since the Announcement, the Directors had been proactively seeking all available financial options and identifying suitable placing agents or financial institutions in financing the settlement of the cash portion of the Consideration. The Directors had also considered various financial methods available to be the Proposed Financing Activity(ies), which included debt financing from bank borrowings and issue of promissory notes, equity fund raising and/or placing of the convertible securities by various placing agents in Hong Kong. Since February 2013, the Directors have approached three banks for the purpose of loan borrowings. However, as the Company intends to apply the proceeds from the bank borrowings to finance the new business of the Company (i.e. the acquisition of the Target), such project financing has not been considered by the banks.

Since February 2013, the Company has also used its best efforts in sourcing finance for the Company in respect of the Acquisition and has approached more than 20 securities brokerage firms and private asset management companies for the purpose of fund raising. However, the responses from such securities brokerage firms and private assets management companies were either unfavourable or the terms of such other fund raising activities were less attractive as compared to that of the Bond Placing as they are of higher interest rates and related costs, shorter maturity dates, and/or more bonus warrants are to be issued with deeper discount to the exercise price of the warrants. Further, the terms of the equity financing offered by the relevant securities brokerage firms and private assets management companies were also less favourable as compared to that of the Share Placing in terms of deeper discount to the then current share price of the Company. Based on the above terms, the Board considers that such other fund raising alternatives would be difficult and would probably incur significant expenses to the Group. Compare to the abovesaid, the Board therefore considers that the current terms of the Bond Placing and the Share Placing are relatively more cost effective and time efficient and represent the best terms offered by the financial market in fund raising activities that are available to the Company. As such, the Board considers that the terms of the Bond Placing are fair and reasonable and in the interests of the Company and the Shareholders as a whole notwithstanding the interest rate of 20%, the issue of warrants is made with no additional payments and the amount of securities provided for the Bonds exceeds the principal amount of the Bonds.

In light of the above circumstances, the Directors confirmed that they are acting in good faith in ensuring that the terms of the Bond Placing are the best terms offered by the financial market that are available to the Company at the material times and therefore are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Thus, the Directors confirmed that they have fulfilled their fiduciary duties pursuant to Rule 3.08 of the GEM Listing Rules.

In respect of the issue of Warrants under the Bond Placing, based on the Black Scholes Model, the fair value of each Warrant amounts to HK$0.079 and therefore, assuming a maximum of 130,000,000 Warrants are to be issued, the fair value of the Warrants amounts to approximately HK$10.3 million. Taking into account the annual interest of the Bonds (i.e. HK$16 million) and the estimated fair value of the Warrant (i.e. approximately HK$10.3 million), the effective interest of the Bonds would be approximately 24.3% per annum. Having considered the fair value of the Warrants and the effective interest rate of the Bonds, the Directors nevertheless consider that the issue of the Warrants with no

LETTER FROM THE BOARD

additional payment is fair and reasonable and beneficial to the Company and the Shareholders as a whole based on the reasons as follows:

(i) despite the fair value of the Warrants will be deducted from the reserve account in accordance with the Company’s accounting standards, there will not be any actual cash outflow from the Company by the issue of the Warrants. On the contrary, assuming the Warrants are exercised in full, the actual cash inflow from the exercise of the Warrants will amount to HK$31.2 million. As such, the Directors consider that such actual benefits to the Company outweigh the fair value calculation;
(ii) the exercise price of the Warrants (being HK$0.24 per Share) represents a premium to the closing prices of the Shares as quoted on the Stock Exchange at the time of entering into the Bond Placing Agreement and as at the Latest Practicable Date;
(iii) the proceeds from the exercise of the Warrants can be used to repay and set-off the interest expense of the Bonds and any remaining balance can be used to repay the outstanding principal amount the Bonds; and
(iv) the issue of the Warrants, which is attached to the Bonds, can enhance the attractiveness of the Bonds and facilitate the Placing Agent in identifying the Bond subscriber(s) to the Company.

In light of the above reasons, the Board considers that the terms of the Bond Placing in terms of the issue of Warrants with no additional payment are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

As at the Latest Practicable Date, as advised by the Placing Agent, the Placing Agent has identified a potential placee, which is an asset management fund, to subscribe the Bonds at an interest rate of 20% per annum but no placing letter has been signed yet. As advised by the Placing Agent, the identity of the potential Bond Placee is Adamas Asset Management (HK) Limited, being a licensed corporation to carry out Type 9 (asset management) regulated activity under the SFO. As at the Latest Practicable Date, the Placing Agent is still in the course of identifying other possible placees who may be willing to accept a lower interest rate. In view of the above reasons, the Board considers that the terms of the Share Placing and the Bond Placing are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole given (i) the use of the proceeds for the Bonds is to acquire the Target Group which is a new business to the Company; (iii) the Target Group has not yet commenced business and has no track record.

As at the Latest Practicable Date, the Company does not have any borrowings.

LETTER FROM THE BOARD

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

The table below sets out the Company’s shareholding structure (i) as at the Latest Practicable Date; (ii) immediately after the Completion and the allotment and issue of all the Consideration Shares and the completion of the Share Placing of up to 250,000,000 new Shares; and (iii) immediately after (a) the Completion and the allotment and issue of all the Consideration Shares, (b) the completion of the Share Placing of up to 250,000,000 new Shares and (c) the exercise of the Warrants in full.

Shareholders Conrich Invesments Limited (Note 1) Fastray Investments Limited (Note 2) Public Shareholders (Note 3) The 2nd Vendor The 3rd Vendor The 4th Vendor Share Placee(s) Holder(s) of the Warrants Other public Shareholders (Note) Total	As at the date of Latest Practicable Date approximate No. of percentage Shares (%) 306,880,000 30.71 35,840,000 3.59 – – – – – – – – – – 656,528,000 65.70 999,248,000 100.00	Immediately after the Completion and the allotment and issue of all the Consideration Shares and the completion of the Share Placing of up to 250,000,000 new Shares approximate No. of percentage Shares (%) 306,880,000 21.28 35,840,000 2.49 67,000,000 4.65 26,000,000 1.80 100,000,000 6.93 250,000,000 17.33 – – 656,528,000 45.52 1,442,248,000 100.00	Immediately after (a) the Completion and the allotment and issue of all the Consideration Shares, (b) the completion of the Share Placing of up to 250,000,000 new Shares; and (c) exercise of the Warrants in full approximate No. of percentage Shares (%) 306,880,000 19.52 35,840,000 2.28 67,000,000 4.26 26,000,000 1.65 100,000,000 6.36 250,000,000 15.90 130,000,000 8.27 656,528,000 41.76 1,572,248,000 100.00	Immediately after (a) the Completion and the allotment and issue of all the Consideration Shares, (b) the completion of the Share Placing of up to 250,000,000 new Shares; and (c) exercise of the Warrants in full approximate No. of percentage Shares (%) 306,880,000 19.52 35,840,000 2.28 67,000,000 4.26 26,000,000 1.65 100,000,000 6.36 250,000,000 15.90 130,000,000 8.27 656,528,000 41.76 1,572,248,000 100.00
				100.00

Notes:

Conrich Investments Limited is an investment holding company incorporated in the British Virgin Islands with limited liability, the entire issued share capital of which is wholly and beneficially owned by Ms. Lee Yau Lin, Jenny, the Chairman and executive Director.
Fastray Investments Limited is an investment holding company incorporated in the British Virgin Islands with limited liability, the entire issued share capital of which is wholly and beneficially owned by Mr. Wong Wing Fat, the chief executive officer of the Company and executive Director.
The public shareholders include the 3rd Chargor and the 4th Chargor who are the initial and founding Shareholders before the initial public offering of the Company and are the business acquaintances of Conrich Investments Limited and Fastray Investments Limited.

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN PAST 12 MONTHS

Date of	Event	Net proceeds	Intended use of	Actual use of
announcement			proceeds	proceeds
12 June 2012	Placing of an	Approximately	Applied towards	Used as intended
	aggregate of	HK$40.79 million	part of the
	247,448,000		consideration
	Shares at the		under the
	placing price		acquisition
	of HK$0.17 per		agreement dated
	placing share		25 May 2012
			(the “Acquisition
			Agreement”) in
			relation to the
			acquisition of
			Eminent Along
			Limited
19 September	Top-up placing	Approximately	Applied towards	Used as intended
2012	of a total of	HK$7.80 million	part of the
	42,400,000 Shares		consideration
	at the placing		under the
	price of HK$0.189		Acquisition
	per placing share		Agreement
12 December	Subscription of	Approximately	Applied for	Used as intended
2012	an aggregate of	HK$7.85 million	general working
	47,000,000 Shares		capital of the
	at the subscription		Company
	price of HK$0.17
	per subscription
	share

The Company has also entered into the CB Placing Agreement on 12 December 2012, in relation to the CB Placing, on a best effort basis, of the Convertible Bonds under a specific mandate. The CB Placing was approved by the Shareholders at an extraordinary general meeting held on 18 January 2013. However, as disclosed in the announcement of the Company dated 5 April 2013, the Board has been informed by Kingsway Financial Services Group Limited that the Placing has not been completed on or before 5 April 2013, being the long stop date for the fulfillment of the conditions in the CB Placing Agreement, and accordingly the CB Placing lapsed on 5 April 2013. Save as disclosed, the Company has not conducted any fund raising exercise during the past twelve months immediately preceding the Latest Practicable Date.

LETTER FROM THE BOARD

PRINCIPAL ASSUMPTIONS ADOPTED IN THE WORKING CAPITAL FORECASTS

The principal assumptions adopted in the working capital forecasts for the Enlarged Group as stated in the paragraph headed “Working Capital” in Appendix I to this circular are as follows:

For the existing noodle business:

Principal assumptions

There will be no material changes in existing political, legal, fiscal, social or economic conditions in Hong Kong, the People’s Republic of China (the “PRC”), Macao or elsewhere in which the Group carries on business;
There will be no material changes in legislation or regulations whether in Hong Kong, the PRC, Macao or elsewhere materially affecting the business carried on by the Group;
There will be no material changes in interest rates and exchange rates from those currently prevailing;
There will be no material changes in the bases or rates of tax applicable to the activities of the Group or in the bases or rates of custom duties or levies in the territories in which the Group carried on business;
There will be no material changes in the debt collection period from the Group’s customers as compared with the Group’s historical track record;
There will be no material changes in the credit period granted by the Group’s suppliers as compared with the Group’s historical track record;
No major litigation costs will be incurred during the forecast period;
There will be no material changes in selling prices of products sold by the Group in the existing market during the forecast period; and
There will be no material changes in purchase price of raw materials used or finished products purchased by the Group during the forecast period.

Financial assumptions

The proceeds from sales for the years ending 31 March 2014 and 2015 are based on the average credit days granted to main customers of approximately 60 days for year ended 31 March 2013 and the turnover of fresh noodles, which accounted for approximately 16.4% of total turnover of the Group for the year end 31 March 2013, will increase approximately 22% for the year ending 31 March 2014 and 15% per annum thereafter;
Due to persistent uncertainty of the global economy and weakening demand from overseas customers, it is expected that sales to overseas customers (i.e. dry noodles), which historically formed a major part of the Group’s sales (which accounted for approximately 83.6% of total turnover of the Group for the year end 31 March 2013), would still be adversely affected and be kept at a minimal level unless a higher profit margin is achieved through a higher selling price that is accepted by overseas customers;

LETTER FROM THE BOARD

The payment to suppliers for the years ending 31 March 2014 and 2015 are based on the average credit days granted to main creditors of approximately 60 days for year ended 31 March 2013;
It is expected the Group will achieve a profit margin of approximately 38% for the years ending 31 March 2014 and 2015 given its existing plan to expand sale of fresh noodles in the PRC domestic market with a comparable higher profit margin than dried noodles in overseas markets;
The selling expenses of noodle business for the years ending 31 March 2014 will increase approximately 60% when compared with 2013 as the Group will allocate more resources to develop the domestic market, especially for branding building and advertising activities to promote the Group’s products and brand in the PRC as per original development plan in the Company prospectus and such expenses are estimated to be paid in the month incurred;
The administrative expenses of the Group for the years ending 31 March 2014 and 2015 will increase approximately 20% when compared with 2013 as the Group will increase in headcount and other expenses for further development in the mineral trading business and such expenses are estimated to be paid in the month incurred;
No finance charge is budgeted for the existing noodle business as the Group has no external borrowing; and
The noodle business will be subject to PRC income tax of 25% but there is no tax provision for the years ending 31 March 2014 and 2015 as the noodle business in PRC has tax losses carried forward to offset the future taxable profit.

For the iron trading business:

Principal assumptions:

There will be sufficient quantity of iron ore supply for the Hong Kong Company and its subsidiaries (if any) within the projection period;
All relevant legal approvals and business certificates or licences to operate the business in the localities in which the Hong Kong Company operates or intends to operate would be officially obtained and renewable upon expiry;
The projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals, and will be materialized;
The Hong Kong Company will be operated as planned;
The Hong Kong Company will only be subjected to Hong Kong corporate tax;

LETTER FROM THE BOARD

There will be no major change in the current taxation laws in the localities in which the Hong Kong Company operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
There will be no major change in the political, legal, economic or financial conditions in the localities in which the Hong Kong Company operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Hong Kong Company; and
Interest rates and exchange rates in the localities for the operation of the Hong Kong Company will not differ materially from those presently prevailing.

Financial assumptions

The turnover and cost of sales of the iron trading business is budgeted in accordance with the terms of the Letter of Intent and Supply Agreements, i.e. the annual quantity, the unit profit margin of US$ per DMT and period term;
Administrative expenses for the iron trading business mainly comprises of finance charge for the Transferable L/C, which is based on 0.25% of the turnover of iron trading business and staff costs and other operating expenses; and
The profit generated from the iron trading business will be subject to 16.5% Hong Kong profits tax.

For the investment of the coal trading business

Principal assumptions

The projection period would be 10 years from the commencement date of its operation;
Royal Dragon Corporation Limited (“Royal Dragon”) would commence operation in September 2013 upon obtaining the relevant operating licenses;
The domestic demand for coal in China would be maintained at a steady level within the projection period;
There would be sufficient quantity of coal supply for Royal Dragon and its subsidiaries within the projection period;
All relevant legal approvals and business certificates or licenses to operate in the localities in which Royal Dragon operates or intends to operate would be officially obtained and renewable upon expiry within the projection period;
The terms and conditions of the existing signed contracts and the PRC legal opinions on which the projections relied, were true and accurate;

LETTER FROM THE BOARD

Existing contracts would be renewed or new contracts with similar terms and conditions would be negotiated and entered upon expiry of the contracts within the projection period;
Royal Dragon would be operated as planned;
There would be sufficient supply of technical staff in the industry in which Royal Dragon operates, and Royal Dragon would retain competent management, key personnel and technical staff to support its ongoing operations and development;
There will be no major change in the current taxation laws in the localities in which Royal Dragon operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations would be complied with;
There would be no major change in the political, legal, economic or financial conditions in the localities in which Royal Dragon operates or intends to operate, which would adversely affect the revenues attributable to and profitability of Royal Dragon; and
Interest rates and exchange rates in the localities for the operation of Royal Dragon would not differ materially from those presently prevailing.

Financial assumptions

The business of Royal Dragon will be operated in accordance with the terms of the Coal Supply Agreements (as defined in the Company’s circular dated 18 July 2012 (“Previous Circular”) and Coal Purchase Agreement (as defined in the Previous Circular), i.e. the annual quantity, the unit guaranteed profit margin and period term; and
The coal trading business will be subject to PRC income tax of 25%.

For the Proposed Financing Activity(ies)

Principal assumptions

The Bond Placing and the Share Placing will be fully subscribed by the placees and the aggregate gross proceeds from the Bond Placing will be HK$80 million and the Share Placing will be HK$50 million respectively. The cost of fund raising is based on 4% on the net proceeds of Bond Placing and Share Placing;
The interest rate of the Bond will be 20% per annum and is payable semi-annually;
The consideration paid to the 1st Vendor will be HK$108 million in cash; and
No Warrants were exercised by the Bond placees in the forecast period.

LETTER FROM THE BOARD

IMPLICATIONS OF THE GEM LISTING RULES

Since the relevant percentage ratios (as defined under the GEM Listing Rules) in respect of the Acquisition are greater than 25% but less than 100%, the Acquisition constitutes a major transaction on the part of the Company pursuant to Rule 19.06(3) of the GEM Listing Rules. Accordingly, the Acquisition is subject to, among others, the approval of the Shareholders at the EGM.

Subject to the fulfilment of the conditions precedent in each of the Share Placing Agreement and the Bond Placing Agreement, the proposed issue of the respective Placing Shares and the Warrants Shares is subject to Shareholders’ approval. The Company will seek a specific mandate from the Shareholders at the EGM for the allotment and issue of each of the Placing Shares and the Warrants Shares.

To the best of the knowledge, information and belief of the Directors, no Shareholder has a material interest in the transactions contemplated under the Agreement, the Share Placing Agreement and the Bond Placing Agreement. As such, no shareholder will be required to abstain from voting on the resolution(s) to approve (i) the Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Consideration Shares); (ii) the Share Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Placing Shares); and (iii) the Bond Placing Agreement and the transactions contemplated thereunder (including but not limited to the issue of the Bonds and the grant of a specific mandate to the Directors for the issue of the Warrant Shares). Any vote exercised by the Shareholders at the EGM shall be taken by way of poll.

EGM

The EGM will be held at 17/F., No. 8 Wyndham Street, Central, Hong Kong, on Thursday, 25 July 2013 at 11:00 a.m., the notice of which is set out on pages 126 to 128 of this circular, to consider and, if thought fit, approve the ordinary resolution(s) to approve (i) the Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Consideration Shares); (ii) the Share Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Placing Shares); and (iii) the Bond Placing Agreement and the transactions contemplated thereunder (including but not limited to the issue of the Bonds and the grant of a specific mandate to the Directors for the issue of the Warrant Shares).

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to attend and vote at such meeting, you are requested to complete and return the enclosed form of proxy to the Company’s branch share registrar in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding 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.

LETTER FROM THE BOARD

RECOMMENDATION

The Board is of the view that the terms of the Agreement, the Share Placing Agreement and the Bond Placing Agreement are fair and reasonable, on normal commercial terms and 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(s) approving (i) the Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Consideration Shares); (ii) the Share Placing Agreement and the transactions contemplated thereunder (including but not limited to the grant of a specific mandate to the Directors for the issue of the Placing Shares); and (iii) the Bond Placing Agreement and the transactions contemplated thereunder (including but not limited to the issue of the Bonds and the grant of a specific mandate to the Directors for the issue of the Warrant Shares).

FURTHER INFORMATION

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

By order of the Board Wealth Glory Holdings Limited Lee Yau Lin, Jenny Chairman

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. FINANCIAL SUMMARY

Financial Information Incorporated by Reference

The audited consolidated financial statements of the Group for the year ended 31 March 2011, including the notes thereto, has been published in the audit report of the Company for the year ended 31 March 2011 (pages 38 to 68), which are incorporated by reference into this circular.

The audited consolidated financial statements of the Group for the year ended 31 March 2012, including the notes thereto, has been published in the audit report of the Company for the year ended 31 March 2012 (pages 36 to 70), which are incorporated by reference into this circular.

The audited consolidated financial statements of the Group for the year ended 31 March 2013, including the notes thereto, has been published in the audit report of the Company for the year end 31 March 2013 (pages 39 to 76), which are incorporated by reference into this circular.

The management discussion and analysis of the Group for the year ended 31 March 2011 has been published in the annual report of the Company for the year ended 31 March 2011 (pages 4 to 12), which are incorporated by reference into this circular.

The management discussion and analysis of the Group for the year ended 31 March 2012 has been published in the annual report of the Company for the year ended 31 March 2012 (pages 4 to 12), which are incorporated by reference into this circular.

The management discussion and analysis of the Group for the year ended 31 March 2013 has been published in the annual report of the Company for the year ended 31 March 2013 (pages 4 to 13), which are incorporated by reference into this circular.

The annual reports of the Company and the Prospectus have been published on both the GEM website (www.hkgem.com) and the website of the Company at www.lmfnoodle.com respectively.

II. INDEBTEDNESS

As at the close of business on 31 May 2013, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of the circular, the Enlarged Group had no debt securities issued and outstanding, no other borrowing or indebtedness, no mortgage and charges and no contingent liabilities or guarantees.

Save as aforesaid or as otherwise mentioned herein, and apart from intra-group liabilities, the Enlarged Group did not have any other outstanding borrowings, mortgages, charges, debentures, loan capital and overdraft, debt securities or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities at the close of business on 31 May 2013 being the latest practicable date for the purpose of this statement of indebtedness prior to printing of this circular.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid, the Directors are not aware of any material changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 May 2013, the date to which the indebtedness statement is made and up to the Latest Practicable Date.

III. WORKING CAPITAL

As at the Latest Practicable Date, the Directors, after due and careful consideration, are of the opinion that the Enlarged Group, following the Completion and taking into account (i) the present internal financial resources available to the Enlarged Group and; (ii) the net proceeds from the Proposed Financing Activities, will have sufficient working capital for its present requirements for the next 12 months from the date of this circular.

IV. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2013, the date to which the latest audited financial statements of the Group were made up.

V. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is principally engaged in (i) the supply and sale of dried noodles including bowl noodles and packed noodles; (ii) the manufacture and sale of fresh noodles, including but not limited to hefen, wonton noodles and yi mein; and (iii) investment holding in coal trading business.

As disclosed in the Company’s annual report for the year ended 31 March 2013, the performance of the Group’s noodle business had been significantly affected by (i) the downturn in the global economy and the implementation of more stringent domestic measures on food quality control that had weakened the confidence and demand of the overseas customers, which resulted in decrease in customers’ orders; and (ii) the escalating costs in raw materials and direct labours which the Group had difficulties to fully transfer all the increased costs to the customers and eliminated the possibility of a price-cut strategy to maintain the sales level with overseas customers. These all together affected the financial performance of the Group.

Contrary to most western and developing countries, China is still sustaining admirable growth rates both on its GDP and domestic consumption. Due to persistent uncertainty of the global economy and weakening demand from overseas customers, more resources would be reallocated in the development of the noodle business in the PRC domestic market rather than the overseas markets in future. In the coming year, it is expected that sales to overseas customers, which historically formed a major part of the Group’s sales, would still be adversely affected and be kept at a minimal level unless a higher profit margin is achieved through a higher selling price that is accepted by overseas customers. Sale of fresh noodles in the PRC domestic market with a comparable higher profit margin than dried noodles in overseas markets is expected to be the key driver for the Group’s noodle business in the coming years.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Going forward, the Group would carry out its business plan with certain fine tunings as necessary as set out in the prospectus of the Company dated 30 September 2010 for existing sales of fresh and dried noodle business by (i) improving its operation mode with its newly installed production lines so as to uplifting its production capacity and efficiency to cater for the demand in the PRC domestic market; (ii) exploring business opportunities in existing and new markets, enhancing the Group’s corporate profile and evaluating the effectiveness of setting up new overseas sale offices; (iii) carrying out marketing and brand building activities through strengthening communication channels with customers, participating in tradeshows and marketing campaigns, product advertisements and regularly updating marketing materials such as poster brochures and leaflets and product information in its website so as to expand its customer base and hence the sales in the PRC domestic market; and (iv) strengthening product development by improving the taste, ingredient, quality, appearance and packaging of the Group’s existing and new products to cater for customer appetites in the PRC domestic market.

The Group also started to diversify its existing business and engaged in coal trading business through acquisition of 33.3% equity interest in the coal trading business in or about September 2012. The associate of the Group, Royal Dragon Corporation Limited (“Royal Dragon”), has already commenced trading of coal products in Xinin, Qinghai Province, the PRC since the end of October 2012 and has generated an unaudited revenue of approximately HK$3 million up to 31 March 2013 with a total of 3,256 tonnes of thermal coal traded. As at the Latest Practicable Date, Royal Dragon has a team of 13 staff in the local office of Xinin and is conducting coal trading business with the coal operation license from Zhangjiang Zhongxin Energy Company Limited (“Zhangjiang Company”) as disclosed in the Company’s circular dated 18 July 2012 (the “Previous Circular”).

The unaudited revenue generated by Royal Dragon up to 31 March 2013, which amounted to approximately HK$3 million, was significantly lower than the revenue as originally expected. At the time of the acquisition of Royal Dragon, the Directors expected that Royal Dragon would have generated a revenue of approximately RMB962.5 million for the period from 1 April 2012 to 31 December 2012. However, as disclosed in the above paragraphs, Royal Dragon had only commenced its coal trading business since the end of October 2012. In addition, despite it is legally feasible to conduct coal trading business in Qinghai Province, the PRC under the coal trading license of Zhangjiang Company as disclosed in the Previous Circular, Royal Dragon, when commenced its operation, has taken months to liaise with and explain to the tax bureau of Zhangjiang, Guangdong Province, the PRC in relation to the issuance of tax invoice in connection with each coal trade. The main issue raised by the tax bureau of Zhangjiang, Guangdong Province, the PRC is that the tax bureau of Xining, Qinghai Province, the PRC should be the authority to assess the tax matters, including the issuance of tax invoice of the coal trade given that the physically performance of such trading has been carried out in Xining. However, the tax bureau of Xining holds an opposite view given that the Coal Operation Certificate was issued by the relevant government authority in Zhangjiang, Guangdong Province. Such administrative delay has significantly slowed down the trade cycle of Royal Dragon. In order to resolve such delay, the management of Royal Dragon has decided to obtain a local coal trading license in Qinghai Province, the PRC (“Coal Operation Certificate”) instead. As disclosed in the paragraph headed “Information on the Joint Cooperation Agreement” in the section headed “Information of the Target Group” on page 24 of the Previous Circular, the process of obtaining the Coal Operation Certificate normally takes about 6 months. As confirmed by the PRC legal advisers of the Company, such time estimate for the application of the Coal Operation Certificate remains true and accurate as at the Latest Practicable Date. Since October 2012, Royal Dragon has liaised with

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

the local government authority in Qinghai Province, the PRC for the obtainment of the Coal Operation Certificate as the total number of the Coal Operation Certificate in Qinghai Province, the PRC is limited. In or about March 2013, Royal Dragon was advised by the local government authority in Qinghai Province, the PRC that the Coal Operation Certificate will be available for application. As confirmed by the Directors and the management of Royal Dragon, an application for the Coal Operation Certificate in Qinghai Province, the PRC has been made in March 2013. Therefore, after taking into account the time required in relation to the application for the Coal Operation Certificate, it is estimated that the obtaining of the Coal Operation Certificate will be completed in or about the third quarter of 2013 after the WFOE has been set up in Xinin City. As such, the Directors consider that the disclosures made in the Previous Circular remain accurate. As at the Latest Practicable Date, Royal Dragon has engaged a local legal adviser for setting up the WFOE and it is expected that the WFOE will be set up in or about September 2013. As advised by the PRC legal advisers of the Company, there is no legal impediment for Royal Dragon to obtain the Coal Operation Certificate after the set up of the WFOE. Further, given that the performance of the coal trading business is mainly carried out in Qinghai Province, it is confirmed by the PRC legal advisers of the Company that the obtaining of the Coal Operation Certificate by the WFOE will simplify and expedite the administrative process in relation to the issuance of tax invoice in connection with each coal trade by the tax bureau of Xinin, Qinghai Province. In such circumstances, it is expected that the coal trading business of Royal Dragon will be restored and will contribute a stable profit, through a share of its profit by the Group in its income statement as an associate, upon obtaining the coal operation certificate. As at the Latest Practicable Date, the Directors consider that no impairment has been or will be made on the investment in the associate, Royal Dragon, by the Company.

It is expected that the registered capital of the WFOE will be approximately RMB10 million. The amount of such registered capital was originally planned to be funded by the internal resources of Royal Dragon on the assumption that the coal trading business is in full operation. In light of the delay of the full operation of the coal trading business of Royal Dragon, such registered capital shall be funded by the shareholders of Royal Dragon based on their respective shareholdings. As such, an amount of HK$4 million shall be borne by the Group based on its 33.3% equity interests in Royal Dragon as funding for part of the registered capital of the WFOE and the Company plans to finance such amount by the internal resources of the Company.

In view of the above administrative delay in the trade cycle of Royal Dragon, supplemental agreements had been entered into by the relevant parties to the Coal Supply Agreements (as defined in the Previous Circular) and the Coal Purchase Agreement (as defined in the Previous Circular) on 1 December 2012, such that the execution of each of the Coal Supply Agreements (as defined in the Previous Circular) and the Coal Purchase Agreement (as defined in the Previous Circular) be postponed until the WFOE has obtained the Coal Operation Certificate the Board considers that the above change of terms of the Coal Supply Agreements and the Coal Purchase Agreement relates to the operation of Royal Dragon and was in the ordinary course of business of Royal Dragon in view of the administrative delay. The Board also confirms that there is no change in the acquisition terms for the transaction relating to Eminent Along as disclosed in the Previous Circular.

Further, based on the preliminary PRC legal opinion, the PRC legal advisers of the Company confirmed that there has not been any breach or default in relation to each of the Joint Cooperation Agreement, the Coal Supply Agreements and the Coal Purchase Agreement and the Joint Cooperation Agreement, the Coal Supply Agreements and the Coal Purchase Agreement remain valid and enforceable

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

as at the Latest Practicable Date. Moreover, given that Royal Dragon was considered to be an investment (in accounting term, an associate) of the Company, the Board considers that the delay in the full operation of the coal trading business by Royal Dragon will not caused any material costs, working capital investment and/or risks to the Company, and thus has no material financial and operational impact to the Company.

As disclosed in the paragraph headed “Information on the Coal Supply Agreements and the Coal Purchase Agreement” on pages 26 to 27 of the Previous Circular, Royal Dragon is required to pay the Security Deposits (as defined in the Previous Circular) to the relevant coal suppliers. Pursuant to the terms and conditions of the respective Coal Supply Agreements, the Security Deposits (as defined in the Previous Circular) shall be settled within 3 months after the first delivery notice by Zhangjiang Company. As the execution of the Coal Purchase Agreement is delayed, it is expected that the Security Deposits will be payable by Royal Dragon within 3 months upon the restoration of the coal trading business.

As disclosed in the notes under the paragraph headed “Information on the Coal Supply Agreements and the Coal Purchase Agreement” on page 30 of the Previous Circular, the Security Deposits will be partly settled by the Advance Deposit (as defined in the Previous Circular) and partly by the payment received from the coal customer under the Coal Purchase Agreement upon the delivery of coal by the relevant suppliers. According to the terms of the Coal Purchase Agreement, the coal customer will be required to settle each purchase amount within 15 working days upon receipt of the invoice issued by Zhangjiang Company from time to time. As the credit terms of the relevant suppliers will be 30 days to 60 days, the balance of the Security Deposits would be fully covered by the payment of the coal customer.

Regarding the latest status of the coal trading business carried out by Royal Dragon, as confirmed by the management of Royal Dragon, despite the administrative delay in the trade cycle of the coal trading business of Royal Dragon, the coal trading business of Royal Dragon is still in operation. In June 2013, 52,000 tonnes of coal purchase order in a contract sum of approximately RMB 10.6 million has also been received by the Royal Dragon and the respective sale invoice and related documents were being sent to the tax bureau of Zhangjiang, Guangdong Province, the PRC for the purpose of the issuance of tax invoice.

As disclosed above, the administrative delay occurred in the operation of the coal trading business was due to the prolonged process in relation to the issuance of tax invoice by the relevant PRC government authority. Pursuant to the preliminary PRC legal opinion, the PRC legal advisers to the Company confirmed that the Hong Kong Company will not be subject to any PRC tax. Further, pursuant to the preliminary Philippine legal opinions, the Philippine legal advisers to the Company confirmed that save for the documentary stamp duty on, inter alia, the bills of lading and letters of credit, the Hong Kong Company will not be subject to any Philippine tax. As advised by the Philippine legal advisers, such documentary stamp duty shall be payable by the Hong Kong Company within five (5) days after the close of the month when the relevant taxable document was made, signed, issued, accepted, or transferred at a local tax bureau in Philippine whereupon the receipt of payment will be issued immediately upon such payment. Therefore, the Directors consider that the administrative delay in relation to the issuance of tax invoice in connection with the operation of Royal Dragon will not occur for the Hong Kong Company.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Moreover, the Directors is also identifying further investment opportunity to diversify its existing business into the iron trading business through acquisition of 100% equity interest of the Target Group. The Acquisition represents a good opportunity for the Group to further develop its mineral trading business and the Group would be able to benefit from the revenue stream and the profit contribution upon completion of the Acquisition. Nevertheless, save for the fine tuning and slight rescheduling of the Company’s future plan of its existing sale of fresh and dried noodles business as disclosed above, the Company will conduct its existing noodle business as stated in the prospectus of the Company dated 30 September 2012 and will not be affected by the Completion.

Regarding the allocation of the Company’s human and financial resources, given that the noodle business, the coal trading business and the iron powder trading business have already established their own separate operation and management teams and are financially independent and self sustainable, the Board has no current intention to reallocate the current human and financial resources amongst these different segments as at the Latest Practicable Date.

VI INDUSTRY OVERVIEW OF IRON ORE TRADING BUSINESS

Introduction

Iron ore can be used for almost all aspects of human activity, infrastructure and standard of living. From skyscrapers to beverage cans, from automobiles to heavy machinery and steel. According to a commentary article (http://www.economist.com/node/21564559) dated 13 October 2012 published in one of major financial news providers, the Economist website, the trade in iron ore makes it the second-largest commodity market by value after crude oil. Iron ore may, in fact, be more integral to the global economy than other raw material, other than oil.

Overview of supply and demand of iron and steel in the Philippines and the PRC

The Exports of Iron and Steel in the Philippines

The below diagram shows the in the Philippine’s exports of iron and steel from 2007 to 2012.

==> picture [379 x 181] intentionally omitted <==

Source: United Nations (UN), International Merchandise Trade Statistics

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

According to Philippines’s Mining Industry Data and Forecasts 2008-2015 conducted by the Business Monitor International, the exports of iron ore, concentrate, not iron pyrites will be expected to have approximately 230% period growth, increasing from US$115.56 million in 2008 to US$ 381.3 million in 2015. (see the charts below)

==> picture [337 x 257] intentionally omitted <==

Source: PHILIPPINES MINING REPORT 2011, Business Monitor International

The figures are based on the estimation from Business Monitor International

The Imports of Iron and Steel in PRC

The diagram below reveals the PRC’s imports of iron and Steel from 2007 to 2012.

==> picture [343 x 181] intentionally omitted <==

Source: United Nations (UN), International Merchandise Trade Statistics

As shown in the above bar chart, the PRC’s imports of iron and steel increase from 24,000 million tonnes in 2007 to 27,220 million tonnes in 2012, representing approximately 12.74% period growth.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Opportunities

According to an industry analysis article “China and world steel output and consumption analysis 2011” dated 3 September 2012 published on the website of China Iron and Steel Association, there has been a gradual recovery of the global economy in 2011 and the global demand for iron and steel has been rebounded:

i. As shown in the statistics of the World Steel Association, the PRC steel production in 2012 is 683.265 million tons, representing an increase of 8.9% year-on-year; accounted for 44.94% of the world’s steel production;

Movement of PRC Steel Production to Global Steel Production in Recent Years

==> picture [230 x 182] intentionally omitted <==

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

PRC Steel Production Global Steel Production
Share of Global Production
’0,000 tons
----- End of picture text -----

Source: http://www.chinaisa.org.cn

ii. In 2011 the top ten steel production countries, except Japan, recorded an increase of 1% to 17% year-on-year, South Korea, Turkey’s even grew over the PRC;

==> picture [357 x 183] intentionally omitted <==

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

Comparison of World’s Top 10 Steel Production Countries
or Regions in 2011
800000 20
683,265 17.0
700000 15
600000 8.9 7.1 5.7 2.7 16.8 1.0 5.7 6.8 105
500000
0
400000
-1.8 Steel Production (‘0,000 tons) Growth (%) -5
300000
-10
200000 -15
107,595 86,247 72,200 68,743 68,471
100000 44,288 35,332 35,162 34,103 -20
0 -25
Mainland Japan USA India Russia South Germany Ukraine Brazil Turkey
China Korea
----- End of picture text -----

Source: http://www.chinaisa.org.cn

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

iii. the PRC’s western regions support the growth of steel consumption, as steel production of coastal regions in the PRC is close to the peak. The western regions have become a strategic area for iron and steel enterprises to persuade further growth in production as urbanization and industrialization of such regions will drive huge demand for the iron and steel. In addition, the steel consumption per capita in the mid-west regions is even less than half of the coastal areas. As the PRC government intends to reduce such gap between mid-western regions and coastal regions, a large-scale infrastructure will be conducted and which will boost the demand for iron and steel.

The increased global production of steel is a positive signal for iron ore trading business since it will drive the demand for iron ore.

Challenge to iron ore trading business

As the international trading of the iron ore may not subject any local government policy or regulations and have low entry barrier, the competition for international iron ore trading business is fierce. The rivals range from small, localized companies to large, multi-national corporations. Rongtai International Group Holdings Limited and Abterra Limited are the key international players which are engaged in iron ore trading business mainly in Asia Pacific.

The major challenge for the international traders is to secure reliable sources of supply and provide its customer with competitive price. With dominance of financial resources, the multi-national corporation will have higher bargaining power to secure source of supply with a competitive price.

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, RSM Nelson Wheeler, Certified Public Accountants, Hong Kong.

==> picture [57 x 57] intentionally omitted <==

==> picture [67 x 50] intentionally omitted <==

29th Floor Caroline Centre Lee Gardens Two 28 Yun Ping Road Hong Kong 29 June 2013

The Board of Directors Wealth Glory Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Digital Rainbow Holdings Limited (the “Target Company”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) for the period from 6 September 2012 (date of incorporation) to 31 December 2012 (the “Relevant Period”) for inclusion in the circular dated 29 June 2013 issued by Wealth Glory Holdings Limited (the “Company”) in connection with the proposed acquisition of the entire equity interest in the Target Company (the “Circular”).

The Target Company was incorporated on 6 September 2012 in the British Virgin Islands with limited liability and acts as an investment holding company. As at the date of this report, the Target Company has the following subsidiary:

	Place and	Issued and	Percentage
Name of	date of	fully paid	of ownership	Principal
subsidiary	incorporation	share capital	interest	activities
Ease Chance International	Hong Kong	10,000 ordinary	100%	magnetite sand
Limited (“Ease Chance”)	13 September	shares of		concentrate
	2012	HK$1 each		trading

All the companies of the Target Group have adopted 31 March as their financial year end date.

No statutory financial statements of Ease Chance have been prepared since its date of incorporation as it was newly incorporated and has not been involved in any significant business transactions since its incorporation.

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

No audited financial statements of the Target Company have been prepared for the Relevant Period as there is no statutory audit requirement in the country of its incorporation. For the purpose of this report, the sole director of the Target Company has prepared the consolidated financial statements of the Target Group for the Relevant Period in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “HKFRS Financial Statements”).

We have performed our independent audit on the HKFRS Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have examined the HKFRS Financial Statements in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The Financial Information has been prepared from the HKFRS Financial Statements in accordance with HKFRSs. No adjustments were considered necessary for the purpose of preparing our report for inclusion in the Circular.

The sole director of the Target Company is responsible for the preparation of the HKFRS Financial Statements. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the HKFRS Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the state of affairs of the Target Company and of the Target Group as at 31 December 2012 and of the Target Group’s results and cash flows for the Relevant Period.

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

			Period from
			6 September
			2012 (date of
			incorporation)
			to 31 December
			2012
		Note	HK$
	Turnover	5	–
	Administrative expenses		(11,830)
	Loss before tax		(11,830)
	Income tax expense	6	–
	Loss for the period and total comprehensive
	income for the period	7	(11,830)
	Attributable to:
	Owners of the Target Group	8	(11,830)
B.	CONSOLIDATED STATEMENT OF FINANCIAL POSITION
			At
			31 December
			2012
		Note	HK$
	Current assets
	Due from sole director	10	66,170
	NET ASSETS		66,170
	Capital and reserves
	Share capital	11	78,000
	Accumulated losses	12	(11,830)
	TOTAL EQUITY		66,170

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

C. STATEMENT OF FINANCIAL POSITION

Note Non-current assets Investment in a subsidiary 9 Current assets Due from sole director 10 Current liabilities Due to a subsidiary Net current assets NET ASSETS Capital and reserves Share capital 11 Accumulated losses 12 TOTAL EQUITY D. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	At 31 December 2012 HK$ 10,000 69,420 (10,000) 59,420 69,420 78,000 (8,580) 69,420

Accumulated Share capital losses HK$ HK$ Issues of shares 78,000 – Total comprehensive income for the period – (11,830) At 31 December 2012 78,000 (11,830)	Total HK$ 78,000 (11,830) 66,170

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

E. CONSOLIDATED STATEMENT OF CASH FLOWS

	Period from
	6 September
	2012 (date of
	incorporation)
	to 31 December
	2012
	HK$
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax and operating loss before working capital changes	(11,830)
Increase in amount due from sole director	(66,170)
Net cash used in operating activities	(78,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares and net cash generated
from financing activities	78,000
NET INCREASE IN CASH AND CASH EQUIVALENTS	–
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	–
CASH AND CASH EQUIVALENTS AT END OF PERIOD	–
ANALYSIS OF CASH AND CASH EQUIVALENTS
Cash balance	–

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

F. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Target Company was incorporated in the British Virgin Islands with limited liability on 6 September 2012. The address of its registered office is situated at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The principal place of business of the Target Company is 15th Floor, Radio City, 505 Hennessy Road, Causeway Bay, Hong Kong.

The Target Company is engaged in investment holding. As at 31 December 2012, the subsidiary has not yet commenced its business.

In the opinion of the sole director of the Target Company, as at 31 December 2012, Madam Hu Shuang is the ultimate controlling party of the Target Company.

2. BASIS OF PREPARATION

This Financial Information has been prepared in accordance with HKFRSs, accounting principles generally accepted in Hong Kong and the applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

In the Relevant Period, the Target Group has adopted all the new and revised HKFRSs issued by the HKICPA that are relevant to its operations and effective for its accounting period beginning on 6 September 2012. HKFRSs comprise Hong Kong Financial Reporting Standards; Hong Kong Accounting Standards; and Interpretations. The adoption of these new and revised HKFRSs did not result in significant changes to the Target Group’s accounting policies, presentation of the Target Group’s financial statements and amounts reported for the Relevant Period.

The Target Group has not applied the new HKFRSs that have been issued but are not yet effective. The Target Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a material impact on its results of operations and financial position.

The preparation of Financial Information in conformity with HKFRSs requires the use of certain key assumptions and estimates. It also requires the sole director of the Target Company to exercise its judgements in the process of applying the accounting policies.

3. SIGNIFICANT ACCOUNTING POLICIES

This Financial Information has been prepared under the historical cost convention.

The significant accounting policies applied in the preparation of this Financial Information are set out below.

(a) Consolidation

The Financial Information includes the financial statements of the Target Company and its subsidiary made up to 31 December. A subsidiary is an entity over which the Target Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Target Group has control.

The subsidiary is consolidated from the date on which control is transferred to the Target Group. It is deconsolidated from the date the control ceases.

Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Target Group.

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

In the Target Company’s statement of financial position the investment in a subsidiary is stated at cost less allowance for impairment losses. The results of the subsidiary are accounted for by the Target Company on the basis of dividends received and receivable.

(b) Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Target Group becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Target Group transfers substantially all the risks and rewards of ownership of the assets; or the Target Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

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

(c) Other receivables

Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of other receivables is established when there is objective evidence that the Target Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the receivables’ carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate computed at initial recognition. The amount of the allowance is recognised in profit or loss.

Impairment losses are reversed in subsequent periods and recognised in profit or loss when an increase in the receivables’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the receivables at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

(d) Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value. Bank overdrafts which are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents.

(e) Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument under HKFRSs. An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

(f) Other payables

Other payables are stated initially at their fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(g) Equity instruments

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

(h) Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit recognised in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Target Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

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

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Target Group intends to settle its current tax assets and liabilities on a net basis.

(i) Related parties

A related party is a person or entity that is related to the Target Group.

(A) A person or a close member of that person’s family is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of the key management personnel of the Target Company or of a parent of the Target Company.

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

(B) An entity is related to the Target Group (reporting entity) if any of the following conditions applies:
(i) The entity and the Target Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group. If the Target Group is itself such a plan, the sponsoring employers are also related to the Target Group.
(vi) The entity is controlled or jointly controlled by a person identified in (A).
(vii) A person identified in (A)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(j) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a present 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 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 is remote.

(k) Events after the reporting period

Events after the reporting period that provide additional information about the Target Group’s position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the Financial Information. Events after the reporting period that are not adjusting events are disclosed in the notes to the Financial Information when material.

4. FINANCIAL RISK MANAGEMENT

The Target Group’s activities expose it to a variety of financial risks: credit risk and interest rate risk. The Target Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Target Group’s financial performance.

(a) Credit risk

The carrying amount of the amount due from sole director included in the statement of financial position represents the Target Group’s maximum exposure to credit risk in relation to the Target Group’s financial assets.

The Target Group has no significant concentrations of credit risk.

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(b)

Interest rate risk

As the Target Group has no significant interest-bearing assets and liabilities, the Target Group’s operating cash flows are substantially independent of changes in market interest rates. Accordingly, no sensitivity analysis has been presented.

(c) Categories of financial instruments

	At
	31 December 2012
	HK$
Financial assets:
Loans and receivables (including cash and cash equivalents)	66,170
Financial liabilities:
Financial liabilities at amortised cost	–

(d) Fair values

The carrying amounts of the Target Group’s financial assets and financial liabilities as reflected in the consolidated statements of financial position approximate their respective fair values.

5. TURNOVER

The Target Group did not generate any turnover during the Relevant Period.

6. INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax is required since the Target Group has no assessable profit for the Relevant Period.

The reconciliation between the income tax expense and the product of loss before tax multiplied by the Hong Kong Profits Tax rate is as follows:

	Period from
	6 September
	2012 (date of
	incorporation)
	to 31 December
	2012
	HK$
Loss before tax	(11,830)
Tax at Hong Kong Profits Tax rate of 16.5%	(1,952)
Tax effect of expenses that are not deductible	1,952
	–

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

7. LOSS FOR THE PERIOD

The Target Group’s loss for the period is stated after charging the following:

		Period from
		6 September
		2012 (date of
		incorporation)
		to 31 December
		2012
		HK$
Auditor’s	remuneration	–
Director’s	remuneration	–

8. LOSS FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE TARGET COMPANY

The loss for the period attributable to owners of the Target Company included a loss of HK$8,580 which has been dealt with in the financial statements of the Target Company for the Relevant Period.

9. INVESTMENT IN A SUBSIDIARY

		At
	31	December
		2012
		HK$
Unlisted investments, at cost		10,000

10. DUE FROM SOLE DIRECTOR

The amount due from sole director is unsecured, interest-free and has no fixed terms of repayment.

11. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 10,000 ordinary shares of US$1 each	At 31 December 2012 HK$ 390,000

	78,000

Upon incorporation, 10,000 subscriber’s shares of US$1 each were issued at par for cash to provide the initial working capital of the Target Company.

The Target Company’s objectives when managing capital are to safeguard the Target Company’s ability to continue as a going concern and to maximise the return to the shareholders through the optimisation of the debt and equity balance.

The Target Company currently does not have any specific policies and processes for managing capital.

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

12. RESERVES

(a) The Target Group

The amounts of the Target Group’s reserves and movements therein are presented in the consolidated statement of profit or loss and other comprehensive income and consolidated statements of changes in equity.

(b) The Target Company

Loss for the period and at 31 December 2012

Accumulated losses HK$ (8,580)

13. CONTINGENT LIABILITIES

At 31 December 2012, the Target Group had no significant contingent liabilities.

14. CAPITAL COMMITMENTS

At 31 December 2012, the Target Group had no significant capital commitments.

15. SUBSEQUENT EVENTS

The following events took place subsequent to 31 December 2012:

(a) A legally binding off-take agreement dated 23 January 2013 (the “1st Supply Agreement”) was entered into between Ease Chance and a company established in the Philippines (being an independent third party) (the “1st Supplier”), pursuant to which the 1st Supplier has agreed to sell and Ease Chance has agreed to buy an aggregate of not less than 1,800,000 dry metric tonnes (“DMT”) magnetite sand concentrate (subject to (+/) 10% fluctuation) over the term of the 1st Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 1st Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to 20% discount of the average daily “Platts or BEIJING IODES 62% Fe Ore CFR North China price (the index with the lower price shall be used)” per DMT during the month of the issue of the bill of ladings after the completion of the loading and further minus US$3.00 per DMT (the restate “Base Price”), which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 1st Supply Agreement, if both parties have no objection, the 1st Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 300,000 DMT magnetite sand concentrate will be supplied by the 1st Supplier to Ease Chance, while all other terms and conditions of the 1st Supply Agreement will remain unchanged.

(b) A legally binding off-take agreement dated 23 January 2013 (the “2nd Supply Agreement”) was entered into between Ease Chance and a company established in the Philippines (being an independent third party) (the “2nd Supplier”), pursuant to which the 2nd Supplier has agreed to sell and Ease Chance has agreed to buy an aggregate of not less than 10,100,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the 2nd Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 2nd Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to the Base Price, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 2nd Supply Agreement, if both parties have no objection, the 2nd Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 2,000,000 DMT magnetite sand concentrate will be supplied by the 2nd Supplier to Ease Chance, while all other terms and conditions of the 2nd Supply Agreement will remain unchanged.

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

(c) A legally binding supply agreement dated 23 January 2013 (the “3rd Supply Agreement”) was entered into between Ease Chance and a company established in the Philippines (being an independent third party) (the “3rd Supplier”), pursuant to which the 3rd Supplier has agreed to sell and Ease Chance has agreed to buy an aggregate of not less than 11,600,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the 3rd Supply Agreement, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the 3rd Supply Agreement, the price for each shipment of the magnetite sand concentrate will be equal to the Base Price, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the 3rd Supply Agreement, if both parties have no objection, the 3rd Supply Agreement will automatically be extended for one year up to 31 December 2019, of which not less than 2,700,000 DMT magnetite sand concentrate will be supplied by the 3rd Supplier to Ease Chance, while all other terms and conditions of the 3rd Supply Agreement will remain unchanged.

(d) A legally binding letter of intent dated 11 January 2013 (the “Letter of Intent”) was entered into between Ease Chance and a state-owned enterprise of the People’s Republic of China (being an independent third party) (the “Customer”), pursuant to which the Customer has agreed to buy and Ease Chance has agreed to sell an aggregate of not less than 23,500,000 DMT magnetite sand concentrate (subject to (+/-) 10% fluctuation) over the term of the Letter of Intent, which commences from 1 March 2013 and expires on 31 December 2018 (both dates inclusive). Under the Letter of Intent, the price for each shipment of the magnetite sand concentrate will be equal to 20% discount of the average daily “Platts or BEIJING IODES 62% Fe Ore CFR North China price (the index with the lower price shall be used)” per DMT during the month of the issue of the bill of ladings after the completion of the loading, which is subject to minor adjustment according to the quality of the magnetite sand concentrate.

Upon the expiry of the term of the Letter of Intent, if both parties have no objection, the Letter of Intent will automatically be extended for one year up to 31 December 2019, of which not less than 5,000,000 DMT magnetite sand concentrate will be sold by Ease Chance to the Customer, while all other terms and conditions of the Letter of Intent will remain unchanged.

Details of the aforesaid subsequent events could be found in the announcement of the Company dated 6 February 2013.

16. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company or its subsidiary in respect of any period subsequent to 31 December 2012.

Yours faithfully,

RSM Nelson Wheeler

Certified Public Accountants Hong Kong

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

The accompanying unaudited pro forma statement of assets and liabilities of the Group (the “Statement”) has been prepared to illustrate the effect of the Acquisition, assuming the transaction had been completed as at 31 March 2013 might have affected the financial position of the Group.

The Statement is prepared based on the audited consolidated statement of financial position of the Group as at 31 March 2013 as extracted from the annual report of the Group for the year ended 31 March 2013 and the audited consolidated statement of financial position of Digital Rainbow Holdings Limited and its subsidiary (the “Target Group”) as at 31 December 2012 as extracted from the Accountants’ Report set out in Appendix II of the Circular after making certain pro forma adjustments resulting from the Acquisition.

The Statement is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the Statement, it may not give a true picture of the actual financial position of the Group that would have been attained had the Acquisition actually occurred on 31 March 2013. Furthermore, the Statement does not purport to predict the Group’s future financial position.

The Statement should be read in conjunction with the financial information of the Group as set out in Appendix I of the Circular, the financial information of the Target Group as set out in Appendix II of the Circular and other financial information included elsewhere in the Circular.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group HK$’000 Non-current assets Fixed assets 10,355 Goodwill – Interest in associates 100,274 110,629 Current assets Inventories 655 Trade receivables 1,366 Prepayments, deposits and other receivables 3,034 Loan to an associate 5,000 Bank and cash balances 31,515 41,570 Current liabilities Trade payables 1,090 Accruals and other payables 3,452 4,542 Net current assets 37,028 Total assets less current liabilities 147,657 Non-current liabilities Borrowings – Deferred tax liabilities 3 3 NET ASSETS 147,654 Capital and reserves Share capital 9,992 Reserves 137,639 Equity attributable to owners of the Company 147,631 Non-controlling interests 23 TOTAL EQUITY 147,654	The Target Group HK$’000 – – – – – – 66 – – 66 – – – 66 66 – – – 66 78 (12) 66 – 66	Sub- Pro forma total adjustments HK$’000 HK$’000 Notes 10,355 – 148,464 1 100,274 110,629 655 1,366 3,100 5,000 (108,000) 2 124,300 3 31,515 16,300 41,636 1,090 3,452 4,542 37,094 147,723 – 76,500 3 3 3 147,720 (78) 1 1,930 2 2,500 3 10,070 4,352 12 1 38,600 2 45,300 3 137,627 83,912 147,697 23 147,720	Adjusted Balance HK$’000 10,355 148,464 100,274
			259,093
			655 1,366 3,100 5,000 47,815
			57,936
			1,090 3,452
			4,542
			53,394
			312,487
			76,500 3
			76,503
			235,984

			14,422 221,539
			235,961 23
			235,984

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

To record the goodwill arising on the acquisition of the 100% equity interests in the Target Group at an aggregate consideration of HK$148.53 million. The fair value of the Target Group is determined as its net assets of HK$0.066 million as at 31 December 2012 assuming the carrying amounts of the Target Group approximate to its fair value.
The consideration of the acquisition amounted to HK$148.53 million would be settled by (i) cash of approximately HK$108 million; and (ii) allot and issue of 193,000,000 consideration shares of HK$0.01 each at the issue price of HK$0.21 per share (Closing price of the Company as at 31 March 2013) to vendors (the excess of fair value over the nominal value of shares issued of approximately HK$38.6 million was credited to the share premium account).
Assuming the cash portion of the consideration of HK$108 million is financed from the net proceeds of the following activities: (i) Fund raising from issue of HK$80 million bonds and 130,000,000 warrants at exercise price of HK$0.24 per warrant; and (ii) HK$50 million raise from further placing of 250,000,000 of new shares of HK$0.01 each at a placing price of HK$0.20 per share (the excess of the consideration received over the nominal value of the shares issued of approximately HK$47.5 million was credited to the share premium account). Fund raising costs based on 4% on the net proceeds of bonds and new shares, together of other related expenses of approximately HK$3.5 million and HK$2.2 million would be net off against the nominal value of bonds and charged directly to share premium account respectively.

For illustrative purposes, assume the fair value of bonds approximate the nominal value of the bond issued (net of fund raising costs), and the fair value of warrants issued was nil.

An impairment test in respect of the goodwill resulting from the acquisition conducted in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets” issued by the Hong Kong Institute of Certified Public Accountants involves the determination of the recoverable amount of the cash-generating unit to which the goodwill has been allocated, being the higher of the cash-generating unit’s fair value less costs to sell and its value in use. For the purpose of the preparation of the unaudited pro forma financial information, the directors estimate that the value in use of the Target Group based on income-based approach is approximately HK$192,000,000. The directors consider that no impairment of goodwill existed as at 31 December 2012. The reporting accountants concur with the directors’ assessment of impairment of goodwill in the unaudited pro forma financial information. In addition, the directors will adopt consistent accounting policies and principal assumptions (as used in the unaudited pro forma financial information), including the principal assumptions of the valuation of the Target Group, to assess the impairment of the Enlarged Group’s goodwill in future.

Since the fair value of the consideration shares as at the date of completion of the acquisition will be used to calculate the actual goodwill of the Enlarged Group, which may be different from the estimated amount as presented above. Therefore, the result of impairment test in respect of the goodwill may be different from that assessed in the preparation of the unaudited pro forma financial information presented above.

Furthermore, the value in use of the Target Group after completion of the acquisition may be different from the estimated amount used in the preparation of the unaudited pro forma financial information presented above, the actual impairment of goodwill, if any, may be different from the estimated amount as presented above.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

B. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, RSM Nelson Wheeler, Certified Public Accountants, Hong Kong.

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==> picture [53 x 38] intentionally omitted <==

29th Floor Caroline Centre Lee Gardens Two 28 Yun Ping Road Hong Kong

29 June 2013

The Board of Directors Wealth Glory Holdings Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (the “Statement”) of Wealth Glory Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the proposed acquisition of the entire equity interest in Digital Rainbow Holdings Limited might have affected the assets and liabilities of the Group presented, for inclusion in Appendix III to the circular of the Company dated 29 June 2013 (the “Circular”). The basis of preparation of the Statement is set out on pages 88 to 90 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibilities solely of the directors of the Company to prepare the Statement in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Listing Rules, on the Statement 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 Statement beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Statement with the directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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 Statement has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Statement as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.

The Statement is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 March 2013 or any future date.

Opinion

In our opinion:

(a) the Statement has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Statement as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.

Yours faithfully,

RSM Nelson Wheeler Certified Public Accountant s Hong Kong

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Set out below is the management discussion and analysis of the Target Group for the period from 6 September 2012 (date of incorporation of the Target Company) to 31 December 2012. The following financial information are based on the financial information of the Target Group as set out in Appendix II to this circular.

Business and financial review

For the period from 6 September 2012 to 31 December 2012, the Target Group has not commenced business operation. The net loss before tax of the Target Group of HK$11,830 for such period was mainly incurred for the incorporation fee for the Target Group.

Liquidity, financial resources and capital structure

As at 31 December 2012, the audited net asset of Target Group was approximately HK$66,170. The Target Group had a current asset of approximately HK$66,170 as at 31 December 2012. As at 31 March 2012, the gearing ratio (total borrowings to total assets) of the Target Group was nil during the period under review.

Capital structure

As at 31 December 2012, the issued share capital of the Target Company was US$10,000 (equivalent to approximately HK$78,000), comprised 10,000 issued and fully paid ordinary share of US$1.

Significant investment, material acquisition and disposals

The Target Group did not have any significant investments, material acquisition or disposal for the period from 6 September 2012 (date of incorporation of the Target Company) to 31 December 2012.

Employee information

As the Management Team was established after 31 December 2012, no remuneration expenses had been incurred by the Target Group for the period from 6 September 2012 (date of incorporation of the Target Company) to 31 December 2012 and the Target Group did not have any employee as at 31 December 2012.

Exposure to exchange rate

Since the date of incorporation, the Target Group has not commenced the business operation. It is expected that most of the transactions, monetary assets and liabilities will be denominated in US$. The Target Group did not use any derivative financial instruments for hedging purposes.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX IV

Segment information

During the period from 6 September 2012 (date of incorporation of the Target Company) to 31 December 2012, no operation was conducted and accordingly no segment information has been disclosed.

Charge on group assets

As at 31 December 2012, no asset of Target Group was pledged.

Contingent liabilities

As at 31 December 2012, the Target Group had no significant contingent liabilities.

Future plans

As at the Latest Practicable Date, there are no proposed material investments of the Target Group.

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

The following is the text of a valuation report on the value of 100% equity interest of the Hong Kong Company, prepared by Roma Appraisals Limited for the purpose of incorporation in the Circular.

(A) VALUATION REPORT

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Unit 3806, 38/F, China Resources Building, 26 Harbour Road, Wan Chai, Hong Kong Tel (852) 2529 6878 Fax (852) 2529 6806 E‐mail [email protected] http://www.romagroup.com

29 June 2013

Wealth Glory Holdings Limited

17/F., No. 8 Wyndham Street, Central, Hong Kong

Dear Sir/Madam,

Re: Business Valuation of 100% Equity Interest in Ease Chance International Limited

In accordance with the instructions from Wealth Glory Holdings Limited (hereinafter referred to as the “Company”) for us to conduct a business valuation on 100% equity interest in Ease Chance International Limited (hereinafter referred to as the “Business Enterprise”) as at 31 December 2012 (hereinafter referred to as the “Date of Valuation”).

This report states the purpose and basis of valuation, scope of work, economic and industry overviews, an overview of the Business Enterprise, major assumptions, valuation methodology, limiting conditions, and presents our opinion of value.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the Company. The Company is a public company listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange of Hong Kong Limited. In addition, Roma Appraisals Limited (hereinafter referred to as “Roma Appraisals”) acknowledges that this report may be made available to the Company for public documentation purpose and include in the Company’s circular only.

Roma Appraisals assumes no responsibility whatsoever to any person other than the Company in respect of, or arising out of, the contents of this report. If others choose to rely in any way on the contents of this report they do so entirely at their own risk.

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

2. SCOPE OF WORK

Our valuation conclusion is based on the assumptions stated herein and the information provided by the management of the Company, the management of the Business Enterprise and/or their representative(s) (together referred to as the “Management”).

In preparing this report, we have had discussions with the Management and the Company in relation to the development and prospect of the iron ore trading industry, and the development, operations and other relevant information of the Business Enterprise. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Business Enterprise provided to us by the Management and have considered such information and data as attainable and reasonable.

We have no reason to believe that any material facts have been withheld from us, however, we do not warrant that our investigations have revealed all of the matters which an audit or more extensive examination might disclose.

3. ECONOMIC OVERVIEW

3.1 Overview of the Economy in China

According to the National Bureau of Statistics of China, the nominal gross domestic product (“GDP”) of 2012 was RMB 51,932 billion, an increase of 9.8% over last year. China was the third largest economy in the world, ranked after the European Union and the United States (“U.S.”), in terms of nominal GDP measured by the International Monetary Fund (“IMF”) in 2012. Despite the global financial crisis in late 2008, the Chinese economy continued to be supported by the Chinese government through spending in infrastructure and real estates.

Throughout 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years. The government vowed to continue reforming the economy and emphasized the need to increase domestic consumption in order to make China less dependent on foreign exports. China’s economy rebounded quickly in 2010, outperforming all other major economies with robust GDP growth and the economy remained in strong growth in 2011 and 2012.

Over the past decade from 2003 to 2012, compound annual growth rate of China’s nominal GDP was 14.4% and in the government’s latest plan, it is targeted to grow at 7% for the period from 2011 to 2015. Figure 1 further illustrates the nominal GDP of China from 2008 to 2012.

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

Figure 1 – China’s Nominal Gross Domestic Product from 2008 to 2012

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billion RMB
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55,000
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2008 2009 2010 2011 2012
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Source: National Bureau of Statistics of China

3.2 Inflation in China

Tackling inflation problem has long been the top priority of the Chinese government as high prices are considered as one of the causes of social unrest. For such a fast-growing economy, the middle-class’ demand for food and commodities has been rising continuously. Inflation in China has been driven mainly by food prices, which have been stayed high in 2011. According to the National Bureau of Statistics of China, the consumer price index demonstrated an uptrend in the first half of 2011. Thanks to the government’s policies in suppressing commodity prices, the inflation slowed in the second half of 2011 and first half of 2012. Figure 2 shows the year-over-year change in consumer price index of China from March 2011 to December 2012.

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

Figure 2 – Year-over-year Change in China’s Consumer Price Index from March 2011 to December 2012

2011 to December 2012 2011 to December 2012

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%
7
6
5
4
3
2
1
0
Mar Jun Sep Dec Mar Jun Sep Dec
2011 2012
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Source: National Bureau of Statistics of China

China’s inflation rate was volatile during the past decade. According to the IMF, the average inflation rate in China increased sharply from 2.8% in 2006 to 6.5% in 2007, and then dropped drastically to 1.2% and 1.9% in 2008 and 2009 respectively. The inflation rate rebounded and increased to 4.6% in 2010 and maintained at a similar level of 4.1% in 2011. The inflation dropped again in 2012 to 2.8%. According to the forecast by the IMF, the long-term inflation rate of China is expected to be around 3.0%. Figure 3 shows the historical trend of China’s inflation rate from 2003 to 2012.

Figure 3 – China’s Inflation Rate from 2003 to 2012

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%
7
6
5
4
3
2
1
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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Source: International Monetary Fund

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

4. INDUSTRY OVERVIEW

4.1 Iron Ore Industry Overview

Iron ores are rocks and minerals from which metallic iron can be economically extracted. According to Mineral Information Institute, about 98% of iron ores are used to make steel. Raw iron by itself is not strong and hard enough for construction and other purposes. The raw iron is usually alloyed with a variety of elements such as nickel, vanadium and chromium to make steel useful for construction, automobiles, and various types of transportation such as trucks, trains and train tracks.

4.2 Global Iron Ore Production

While iron-rich rocks are available worldwide, commercial mining of iron ores is mainly operated by China, Australia, Brazil and India. It is not particularly hard to prove the existence of the tonnage of rocks, but there are certain constraints to the economics of iron ore deposits. The geographical location of the iron ores relative to the importing countries has been one issue. In some cases the cost of transportation is higher than the value of the cargo because of the respective locations. Energy cost in production could be another issue. Figure 4 shows the world iron mine production by countries in 2011 and 2012.

Figure 4 – World Iron Mine Production by Countries in 2011 and 2012

	2011	2012	(Estimated)
	(million tonnes)	(million tonnes)
China	1,330		1,300
Australia	488		525
Brazil	373		375
India	240		245
Russia	100		100
Ukraine	81		81
South Africa	60		61
United States	55		53
Canada	34		40
Iran	28		28
Sweden	25		25
Kazakhstan	25		25
Venezuela	17		20
Mexico	15		13
Mauritania	12		12
Other Countries	59		61
World Total	2,940		3,000

Source: U.S. Geological Survey

Note: Totals may not add up due to rounding

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

Due to the highly capital-intensive nature of the iron ore mining industry, the majority of the production is dominated by a few market players in the industry. The world’s largest iron ore producers in 2012 were listed in figure 5.

Figure 5 – World’s Largest Iron Ore Producers in 2012

Company	Base Country	Annual Capacity
		(million tonnes)
Vale Group	Brazil	446.0
Rio Tinto Group	United Kingdom	350.2
BHP Billiton Group	Australia	271.9
ArcelorMittal Group	United Kingdom	77.8
Fortescue Metals Group	Australia	55.8
AnBen Group	China	51.2
Anglo American Group	South Africa	50.3
Metalloinvest Group	Russia	46.3
Evrazholding Group	Russia	45.9
LKAB Group	Sweden	44.8
Metinvest Holding Group	Ukraine	44.3
Cliffs Natural Resources	United States	42.4
CVG Group	Venezuela	40.3
Shougang Beijing Group	China	37.0
Unidentified mines	India	36.8
NMDC Group	India	33.7
Imidro Group	Iran	32.1
CSN Group	Brazil	28.9
US Steel Group	United States	24.3
Poltavsky	Ukraine	24.1
Top 20		1,784.1
Total capacity		2,177.3

Source: Steelonthenet.com

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4.3 Iron Ore Imports and Demand in China

The shipments of iron ore are generally in the range of 62% to 64%. The imports of 63% iron ore in China demonstrated an uptrend from 2008 to 2012. The 63% iron ore imports in China increased by 41.5% from 444.1 million tonnes in 2008 to 628.3 million tonnes in 2009, and decreased slightly by 1.4% to 619.3 million tonnes in 2010. The 63% iron ore imports in China increased by 10.8% to 686.1 million tonnes in 2011. Figure 6 shows the trend of the 63% iron ore imports in China from 2008 to 2012.

Figure 6 – 63% Iron Ore Imports in China from 2008 to 2012

million tonnes

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800
700
600
500
400
300
200
100
0
2008 2009 2010 2011 2012
Q1 – Q4 Q1 – Q4 Q1 – Q4 Q1 – Q4 Q1 – Q3
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Source: Baltic and International Maritime Council

Note *: The actual figure of 2012 Q4 is not available at the time of preparing this report.

China has over 50% share of the world’s total iron import and is the most influential player in the global iron market. The demand for 63% iron ore in China demonstrated an uptrend with compound annual growth rate of 8.2% from 2008 to 2011. Figure 7 shows the 63% iron ore demand in China from 2008 to 2012.

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Figure 7 – 63% Iron Ore Demand in China from 2008 to 2012

million tonnes

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1,100
1,000
900
800
700
600
500
400
300
200
100
0
2008 2009 2010 2011 2012
Q1 – Q4 Q1 – Q4 Q1 – Q4 Q1 – Q4 Q1 – Q3
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Source: Baltic and International Maritime Council

Note *: The actual figure of 2012 Q4 is not available at the time of preparing this report.

4.4 Iron Ore Price

With reference to an index price of Platts 62% Fe Ore CFR North China, the monthly closing price in December 2012 was USD 144.5 per dry metric tonne, which was 4.0% higher than that in December 2011. According to World Steel Association, production growth of crude steel was slow and this resulted in the drop in iron ore demand and thus the price. Figure 8 and figure 9 show the monthly and yearly closing indexes of Platts 62% Fe Ore CFR North China price respectively.

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Figure 8 – Monthly Closing Index of Platts 62% Fe Ore CFR North China Price from January 2011 to December 2012

USD/dry metric tonne

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200
180
160
140
120
100
80
Mar Jun Sep Dec Mar Jun Sep Dec
2011 2012
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Source: Platts

Figure 9 – Yearly Closing Index of Platts 62% Fe Ore CFR North China Price from 2010 to 2012

USD/dry metric tonne

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180
170
160
150
140
130
120
110
100
2010 2011 2012
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Source: Platts

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APPENDIX V

5. THE BUSINESS ENTERPRISE

The Business Enterprise is a company incorporated in Hong Kong with limited liability and is wholly and beneficially owned by Digital Rainbow Holdings Limited. The Business Enterprise is currently an investment holding company, which will soon commence the business of magnetite sand concentrate trading.

In relation to the magnetite sand concentrate trading business, the Business Enterprise has entered into three legally binding agreements (hereinafter referred to as the “Legally Binding Agreements”) dated 23 January 2013 between the Business Enterprise and three suppliers (being independent third parties), pursuant to which the three suppliers have agreed to sell and the Business Enterprise has agreed to buy magnetite sand concentrate during the agreement period. In addition, the Business Enterprise has entered into a legally binding letter of intent (hereinafter referred to as the “Legally Binding Letter of Intent”) dated 11 January 2013 between the Business Enterprise and a state-owned enterprise of the People’s Republic of China (being an independent third party) (hereinafter referred to as the “Buyer”), pursuant to which the Buyer has agreed to buy and the Business Enterprise has agreed to sell magnetite sand concentrate during the agreement period.

The terms of the Legally Binding Agreements and the Legally Binding Letter of Intent (collectively referred to as the “Agreements”) commence from 1 March 2013 and expire on 31 December 2018 (both dates inclusive). Upon the expiry of the terms of the Agreements, if both parties have no objection, the Agreements will automatically be extended for one year up to 31 December 2019, while all other terms and conditions of the Agreements will remain unchanged. For details of the terms and conditions of the Agreements, please refer to “Letter from the Board” to this circular.

6. BASIS OF VALUATION

Our valuation was conducted on a market value basis. Market value is defined as “the estimated amount for which an asset could be exchanged, or a liability settled, between willing parties in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

7. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management of the Company in relation to the development and prospect of the iron ore trading industry, and the development, operations and other relevant information of the Business Enterprises. In addition, we have made relevant inquiries and obtained further information and statistical figures regarding the iron ore trading industry from external public sources as we considered necessary for the purpose of the valuation.

As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Business Enterprise provided to us by the Management and have considered such information and data as attainable and reasonable. We have also consulted other sources of financial and business information.

The valuation of the Business Enterprise requires consideration of all pertinent factors, which may or may not affect the operation of the business. The factors considered in our valuation include, but are not necessarily limited to, the following: 104

APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

The nature and prospect of the Business Enterprise;
The financial condition of the Business Enterprise;
The economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;
Relevant licenses and agreements;
The business risks of the Business Enterprise such as the ability in maintaining competent technical and professional personnel; and
Investment returns and market transactions of entities engaged in similar lines of business.

8. VALUATION METHODOLOGY

There are generally three accepted approaches to obtain the market value of the Business Enterprise, namely the Market-Based Approach, Income-Based Approach and Asset-Based Approach. Each of these approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing business entities that are similar in nature.

8.1 Market-Based Approach

The Market-Based Approach values a business entity by comparing prices at which other business entities in a similar nature changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to for an equally desirable alternative. By adopting this approach, the valuer will first look for valuation indication of prices of other similar business entities in companies that have been sold recently.

The right transactions employed in analyzing indications of values need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell.

8.2 Income-Based Approach

The Income-Based Approach focuses on the economic benefits due to the income producing capability of the business entity. The underlying theory of this approach is that the value of the business entity can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the Income-Based Approach estimates the future economic benefits and discounts them to their present values using a discount rate appropriate for the risks associated with realizing those benefits.

Alternatively, this present value can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the business entity will continue to maintain stable economic benefits and growth rate.

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8.3 Asset-Based Approach

The Asset-Based Approach is based on the general concept that the earning power of a business entity is derived primarily from its existing assets. The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business entity and equals to the value of its invested capital (“equity and long term debt”). In other words, the value of the business entity is represented by the money that has been made available to purchase the business assets needed.

This money comes from investors who buy stocks of the business entity (“equity”) and investors who lend money to the business entity (“debt”). After collecting the total amounts of money from equity and debt, and converted into various types of assets of the business entity for its operation, their sum equals the value of the business entity.

8.4 Business Valuation

In the process of valuing the Business Enterprise, we have taken into account of the uniqueness of its operation and the nature of the iron ore trading industry it is participating. Also, we have considered the accessibility to available data and relevant market transactions in choosing among the valuation approaches.

The Market-Based Approach was not adopted in this case because most of the important assumptions of the comparable transactions, such as discount or premium on the transaction prices or considerations, were hidden. The Asset-Based Approach was also not adopted because it could not capture the future earning potential of the Business Enterprise. We have therefore considered the adoption of the Income-Based Approach in arriving at the market value of the Business Enterprise.

8.4.1 Discounted Cash Flow

Under the Income-Based Approach, we have adopted the discounted cash flow (“DCF”) method, which is based on a simple reversal calculation to restate all future cash flows in present terms. The expected free cash flow for each year was determined as follows:

Expected Free Cash Flow = Net Profit + Depreciation + After-Tax Interest Expense – Change in Net Working Capital – Capital Expenditure

The present value of the expected free cash flows was calculated as follows:

PVCF = CF1/(1+r)[1] + CF2/(1+r)[2] + ... + CFn/(1+r)[n]

In which PVCF = Present value of the expected free cash flows; CF = Expected free cash flow;

r = Discount rate; and

n = Number of years.

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To adopt this method, we obtained the weighted average cost of capital (“WACC”) for the company as a basic discount rate. The WACC of the Business Enterprise is the minimum required return that the Business Enterprise must earn to satisfy its various capital providers including shareholders and debt holders. WACC calculation takes into account the relative weights of debt and equity. It is computed using the formula below:

WACC = We x Re + Wd x Rd x (1 – Tc)

In which Re = Cost of equity; Rd = Cost of debt; We = Weight of equity value to enterprise value; Wd = Weight of debt value to enterprise value; and Tc = Corporate tax rate.

8.4.2 Cost of Debt

The cost of debt was determined by the expected borrowing rate of the Business Enterprise. Since the interest expenses paid on debts are tax-deductible for the Business Enterprise, the cost of the Business Enterprise to get debt funds is less than the required rate of return of the suppliers of the debt capital. The after-tax cost of debt was calculated by multiplying one minus the corporate tax rate by the cost of debt.

8.4.3 Cost of Equity

The cost of equity was determined using the Capital Asset Pricing Model (“CAPM”), which describes the relationship between the risk of the Business Enterprise and expected return to investors. It is calculated by the following formula:

Re = Rf + β x Market Risk Premium + Other Risk Premium

In which Re = Cost of equity; Rf = Risk-free rate; and β = Beta coefficient.

8.4.4 Discount Rate

The risk-free rate and the betas of the comparable companies were obtained from Bloomberg as at the Date of Valuation.

The risk-free rate of 1.76% adopted was the yield rate of the U.S. 10-year government bond. The market risk premium of the U.S. adopted was 6.62%. The U.S. 10-year government bond was adopted in the view that the U.S. market is a broad market that well reflects the behaviour of the market participants as a whole. Since the Business Enterprise is engaged in the iron ore trading business in Hong Kong, the cost of equity obtained from the U.S. market risk premium and risk-free rate was further adjusted by adding the country risk premium of Hong Kong relative to the U.S. to reflect the difference in country risk between the U.S. and Hong Kong.

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The beta coefficient measures the risk of the Business Enterprise relative to the market. Two listed companies with similar business natures and operations as the Business Enterprise in the iron ore trading industry have been considered as comparable companies, namely Abterra Limited (Stock code: ABT. SP) listed in Singapore and Rongtai International Group Holdings Limited (Stock code: RIG.AU) listed in Australia. The above listed companies were selected mainly with reference to the following selection criteria:

The companies are principally engaged in iron ore trading business;
The companies have significant portions of their businesses in Asia Pacific; and
The financial information of the companies is available to the public.

Although the Business Enterprise was incorporated in Hong Kong as disclosed in section 5 of this report, the Business Enterprise will buy magnetite sand concentrate from three suppliers in the Philippines and sell to the Buyer in China. Thus, the Business Enterprise will have significant portion of its businesses in Asia Pacific.

Constrained by the scarcity of listed companies principally engaged in iron ore trading businesses in Asia Pacific, the two comparable companies adopted were selected on a best effort basis and were deemed as fair and representative, and represented an exhaustive list of comparables with regard to the selection criteria aforementioned.

We estimated the beta coefficient of 0.23 by re-leveraging the average of the unleveraged beta coefficients of the comparable companies as at the Date of Valuation.

Stocks of smaller companies are usually less liquid and have lower valuations for the same cash flows because they have a higher cost of capital and higher returns on average due to higher size premiums. Therefore, a size premium of 3.89% was adopted based on an internationally recognized size premium study conducted by Ibbotson Associates, Inc., a leading authority on asset allocation with expertise in capital market expectations and portfolio implementation. It is a common market practice to adopt the results of researches and studies concerning the size premium in business valuations in general industries including the iron ore trading industry, since those researches and studies involved an extensive collection and analysis of historical data.

Besides, as the U.S. equity risk premium has been adopted in calculating the cost of equity and the Business Enterprise is engaged in iron ore trading business in Hong Kong, a country risk premium of 0.38% was adopted by calculating the difference between the country risk premium of Hong Kong of 0.38% and the country risk premium of the U.S. of 0%. The country risk premium figures were with reference to an internationally recognized study conducted by Aswath Damodaran, a finance professor at the Stern School of Business at New York University. It is a common market practice to adopt the results of researches and studies concerning the country risk premium in business valuations in general industries including the iron ore trading industry, since those researches and studies involved an extensive collection and analysis of historical data.

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In addition, we have considered risk factors specific to the business operations of the Business Enterprise. After reviewing information regarding the Business Enterprise and discussing with the Management, the Business Enterprise may be subject to default risk by its counterparties whether they can fulfill their obligations as stated in the Agreements. Moreover, compared to the two comparable companies aforementioned, the Business Enterprise is a start-up company in iron ore trading business operation. Therefore, other risk premium of 4.00% was added to the cost of equity to reflect the uncertainty of the cash flows in the financial projects, which was determined based on our experience and professional judgments. Hence, we arrived at the cost of equity of 11.58%.

The cost of debt of 5.00% adopted was the Hong Kong prime rate as extracted from Bloomberg as at the Date of Valuation. As advised by the Management, the Business Enterprise has no intention to incur debt in its operation, thus the debt-to-equity ratio was 0%. With the corporate tax rate of Hong Kong of 16.50%, the after-tax cost of debt was 4.18%.

Accounting for the above items, we concluded the WACC of 11.58% and it was adopted as the discount rate for the Business Enterprise as at the Date of Valuation. The WACCs of the comparable companies, namely Abterra Limited (Stock code: ABT.SP) and Rongtai International Group Holdings Limited (Stock code: RIG.AU), were 4.33% and 3.86% as at the Date of Valuation respectively. The WACC of the Business Enterprise adopted was higher than those of the aforementioned comparable companies. In view of the comparable companies were publicly listed, they would normally have lower cost of capital than private companies. We considered that the WACC of the Business Enterprise adopted was fair and reasonable.

Below is the summary of the key assumptions and parameters of WACC and cost of equity adopted as at the Date of Valuation:

Key Assumptions and Parameters	As at 31 December 2012
Risk-free Rate	1.76%
Market Risk Premium	6.62%
Beta Coefficient	0.23
Size Premium	3.89%
Country Risk Premium	0.38%
Other Risk Premium	4.00%
Cost of Equity	11.58%
Cost of Debt	5.00%
Weight of Equity Value to Enterprise Value	100%
Weight of Debt Value to Enterprise Value	0%
Corporate Tax Rate	16.50%
WACC (Rounded)	11.58%

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8.4.5 Marketability Discount

Compared to similar interest in public companies, ownership interest is not readily marketable for closely held companies. Therefore, the value of a share of stock in a privately held company is usually less than an otherwise comparable share in a publicly held company. We adopted a marketability discount of 32.50% with reference to an internationally recognized research article “Why Is the Value of Minority Stock Discounted So Heavily” by LarsonAllen, an international professional service firm with more than fifty years of experience in accounting, consulting and advisory, in arriving at the market value of the Business Enterprise as at the Date of Valuation. It is a common market practice to adopt the results of researches and studies concerning the marketability discount in business valuations in general industries including the iron ore trading industry, since those researches and studies involved an extensive collection and analysis of historical data.

8.4.6 Sensitivity Analyses

To determine how the different values of an independent variable would impact particular dependent variables under a given set of assumptions, we carried out sensitivity analyses on the market value of the Business Enterprise in respect of the discount rate, possible delay of business operation, sales quantity and selling price of magnetite sand concentrate used in the valuation model. The results of the sensitivity analyses were as follows:

Absolute Change in	Applied Discount Rate (%)	Market Value of the
Discount Rate		Business Enterprise (HKD)
+2%	13.58	180,000,000
+1%	12.58	186,000,000
0%	11.58	192,000,000
–1%	10.58	198,000,000
–2%	9.58	204,000,000

	Market Value of the
elay of Business Operation	Business Enterprise (HKD)
No Delay	192,000,000
3-Month Delay	186,000,000
6-Month Delay	181,000,000
9-Month Delay	176,000,000
12-Month Delay	171,000,000

Possible Delay of Business Operation

Note: The business operation of the Business Enterprise was originally assumed to commence from 1 March 2013 according to the Agreements.

Percentage Change in Sales Quantity of	Market Value of the
Magnetite Sand Concentrate	Business Enterprise (HKD)
+10%	211,000,000
+5%	201,000,000
0%	192,000,000
–5%	182,000,000
–10%	173,000,000

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Since the terms and conditions of the Agreements concerning the minor adjustment to the selling price are similar in nature, the effect from the minor adjustment to the Legally Binding Agreements would be netted by that to the Legally Binding Letter of Intent. Therefore, the market value of the Business Enterprise would not be sensitive to the change in the selling price of magnetite sand concentrate as at the Date of Valuation.

9. MAJOR ASSUMPTIONS

We have adopted certain specific assumptions in our valuation and the major ones are as follows:

We have made reference to the terms and conditions as stated in the Agreements;
The terms stated in the Agreements will be from 1 March 2013 to 31 December 2018;
The cash flows will be distributed throughout the year;
There will be sufficient quantity of iron ore supply for the Business Enterprise and its subsidiaries (if any) within the projection period;
All relevant legal approvals and business certificates or licenses to operate the business in the localities in which the Business Enterprise operates or intends to operate would be officially obtained and renewable upon expiry;
The projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals, and will be materialized;
The Business Enterprise will be operated as planned;
The Business Enterprise will only be subjected to Hong Kong corporate tax;
There will be no major change in the current taxation laws in the localities in which the Business Enterprise operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
There will be no major change in the political, legal, economic or financial conditions in the localities in which the Business Enterprise operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Business Enterprise; and
Interest rates and exchange rates in the localities for the operation of the Business Enterprise will not differ materially from those presently prevailing.

10. INFORMATION REVIEWED

Our opinion requires consideration of relevant factors affecting the market value of the Business Enterprise. The factors considered included, but were not necessarily limited to, the following:

Financial statements of the Business Enterprise;

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Historical information of the Business Enterprise;
Market trends of the iron ore trading industry;
General descriptions in relation to the Business Enterprise; and
Economic outlook in China.

We have discussed the details with the Management. We have also conducted research from various sources to verify the reasonableness and fairness of information provided and we believe that such information is reasonable and reliable. We have assumed the accuracy of information provided and relied to a considerable extent on such information in arriving at our opinion.

11. LIMITING CONDITIONS

The valuation reflects facts and conditions existing at the Date of Valuation. Subsequent events or circumstances have not been considered and we are not required to update our report for such events and conditions.

We would particularly point out that our valuation was based on the information such as the company background, business nature and market share of the Business Enterprise provided to us.

To the best of our knowledge, all data set forth in this report are reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others that have been used in formulating this analysis are gathered from reliable sources; yet, no guarantee is made nor liability assumed for their accuracy.

We have relied to a considerable extent on the historical and/or prospective information provided by the Management and other third parties in arriving at our opinion of value. The information has not been audited or compiled by us. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reason to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibilities for the operation and financial information that have not been provided to us are accepted.

We assumed that the Management is competent and perform duties under the company regulation. Also, ownership of the Business Enterprise was in responsible hands, unless otherwise stated in this report. The quality of the Management may have direct impact on the viability of the business as well as the market value of the Business Enterprise.

We have not investigated the title to or any legal liabilities of the Business Enterprise and have assumed no responsibility for the title to the Business Enterprise appraised.

Our conclusion of the market value was derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. The conclusion and various estimates may not be separated into parts, and/or used out of the context presented herein, and/or used together with any other valuation or study.

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We assume no responsibility whatsoever to any person other than the directors and management of the Company in respect of, or arising out of, the content of this report. If others choose to rely in any way on the contents of this report, they do so entirely at their own risk.

No change to any item in any part of this report shall be made by anyone except Roma Appraisals. We have no responsibility for any such unauthorized change. Neither all nor any part of this report shall be disseminated to the public without the written consent and approval of Roma Appraisals through any means of communication or referenced in any publications, including but not limited to advertising, public relations, news or sales media.

This report may not be reproduced, in whole or in part, and utilized by any third parties for any purpose, without the written consent and approval of Roma Appraisals.

The working papers and models for this valuation are being kept in our files and would be available for further references. We would be available to support our valuation if required. The title of this report shall not pass to the Company until all professional fee has been paid in full.

12. REFERENCES

The list of sources of information cited in this report is stated as follows:

Baltic and International Maitime Council;
Bloomberg;
“Country Default Spreads and Risk Premiums” by Aswath Damodaran;
Credit Suisse;
Ibbotson Associates, Inc.;
International Monetary Fund;
Mineral Information Institute;
National Bureau of Statistics of China;
Steelonthenet.com;
U.S. Geological Survey;
“Why Is the Value of Minority Stock Discounted So Heavily” by LarsonAllen; and
World Steel Association.

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VALUATION REPORT OF THE HONG KONG COMPANY

13. REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in Hong Kong Dollars (HKD). The exchange rate adopted in the valuation was approximately 1 USD = 7.7503 HKD which was the prevailing exchange rate as at the Date of Valuation.

We hereby confirm that we have neither present nor prospective interests in the Company, the Business Enterprise, and their subsidiaries and associated companies, or the values reported herein.

14. OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, the market value of 100% equity interest in the Business Enterprise as at the Date of Valuation, in our opinion, was HKD 192,000,000 (HONG KONG DOLLARS ONE HUNDRED AND NINETY TWO MILLION ONLY) .

Yours faithfully, For and on behalf of Roma Appraisals Limited

Kelvin Luk

CVA Director

Note:

Mr. Luk is a member of the International Association of Consultants, Valuators and Analysts (IACVA). He has over eight years of experience in valuation and consultation related to companies engaged in similar business activities worldwide as that of the Business Enterprise.

This report is co-authored by Mr. Angela Kwan, Mr. Terry Hui and Mr. Stephen Chan.

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APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

Set out below are the texts of letters in connection with the Valuation which is considered as a profit forecast under Rule 19.61 of the GEM Listing Rules, received from Nuada Limited, the financial adviser, and RSM Nelson Wheeler, the auditors of the Company, for the purpose of inclusion in this circular.

(B) COMFORT LETTERS

(i) Letter from Nuada Limited

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Nuada Limited 19th Floor, BLINK, 111 Bonham Strand Sheung Wan, Hong Kong 洛爾達有限公司香港上環文咸東街111號 BLINK 19字樓

Phone/電話: 2544-9975 Fax/傳真: 2581-0532

29 June 2013

The Board of Directors Wealth Glory Holdings Limited 17/F., No. 8 Wyndham Street Central Hong Kong

Dear Sirs,

We refer to the discounted cash flow forecast (“Forecast”) underlying the valuation (“Valuation”) of 100% equity interest in Digital Rainbow Holdings Limited (“Target”), prepared by Roma Appraisals Limited in respect of the appraisal of the fair value of the Target as at 31 December 2012 in connection with the circular of Wealth Glory Holdings Limited (the “Company”) dated 29 June 2013 (the “Circular”). The Valuation which are determined based on the discounted cash flow is regarded as a profit forecast under Rule 19.61 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”).

We have discussed with you the bases and assumption as set out in the Valuation upon which the Forecast has been made. We have also considered the letter dated 29 June 2013 addressed to yourselves from RSM Nelson Wheeler (“Auditors”) regarding the accounting policies and calculations upon which the Forecast has been made.

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APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

On the basis of the assumptions and calculations adopted by the Valuer in respect of the Forecast after properly reviewed by the directors of the Company, we are of the opinion that the Forecast, for which the directors of the Company and the Valuer are responsible, has been made after due and careful enquiry. However, we express no opinion on how closely the actual cash flow eventually will correspond with the Forecast.

Our work in connection with the Forecast has been undertaken solely for the strict compliance under Rule 19.62(3) of the GEM Listing Rules and for no other purpose.

Yours faithfully, For and on behalf of

Nuada Limited Kevin Chan

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APPENDIX V VALUATION REPORT OF THE HONG KONG COMPANY

(ii) Letter from RSM Nelson Wheeler

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29 June 2013

The Board of Directors Wealth Glory Holdings Limited 17/F., No. 8 Wyndham Street Central, Hong Kong

Dear Sirs,

We have examined the principal accounting policies adopted in and the arithmetical accuracy of the calculations of the discounted cash flow forecast (the “Forecast”) underlying the valuation (the “Valuation”) of 100% equity interest in Ease Chance International Limited (the “Target Subsidiary”), a subsidiary of Digital Rainbow Holdings Limited performed by Roma Appraisals Limited (the “Valuer”) in respect of the appraisal of the fair value of the Target Subsidiary as at the reference date of 31 December 2012 in connection with the circular of Wealth Glory Holdings Limited (the “Company”) to be dated on or about 29 June 2013 (the “Circular”).

Respective responsibilities of directors and RSM Nelson Wheeler

The directors of the Company are responsible for the preparation of the Forecast and the reasonableness and validity of the assumptions based on which the Forecast is prepared (the “Assumptions”).

It is our responsibility to form an opinion based on our reasonable assurance engagement, so far as the accounting policies and the arithmetical accuracy of the calculations are concerned, on whether the Forecast has been properly compiled, in all material respects, in accordance with the Assumptions and on a basis consistent with the accounting policies normally adopted by the Group as set out in the audited consolidated financial statements of the Company for the year ended 31 March 2013 and to report our opinion solely to you, as a body, solely for the purpose in connection with the Circular and for no other purpose. We accept no responsibility to any other person in respect of, arising out of, or in connection with our work.

The Assumptions include hypothetical assumptions about future events and management actions that may or may not necessarily be expected to occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Forecast and the variation may be material. Accordingly we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express opinion whatsoever thereon.

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APPENDIX V

Basis of opinion

We conducted our reasonable assurance engagement in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” with reference to the procedures under Auditing Guideline 3.341 “Accountants’ Report on Profit Forecasts” issued by the Hong Kong Institute of Certified Public Accountants. Our work was performed solely to assist the directors of the Company to evaluate, so far as the accounting policies and the arithmetical accuracy of the calculations are concerned, whether the Forecast has been properly compiled, in all material respects, in accordance with the Assumptions and on a basis consistent with the accounting policies normally adopted by the Group as set out in the audited consolidated financial statements of the Company for the year ended 31 March 2013.

We planned and performed our reasonable assurance engagement so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give our opinion. Our reasonable assurance engagement included:

a. obtaining an understanding of the principal accounting policies adopted in the preparation of the Forecast through inquiry of persons responsible for financial and accounting matters;
b. comparing the principal accounting policies adopted in the preparation of the Forecast with those adopted in the preparation of the audited consolidated financial statements of the Company for the year ended 31 March 2013;
c. checking the arithmetical calculations relating to the amounts presented in the Forecast; and
d. such other procedures that we considered necessary.

We believe that our reasonable assurance engagement provides a reasonable basis for our opinion.

Our reasonable assurance engagement does not constitute an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the Hong Kong Institute of Certified Public Accountants. Accordingly, we do not express an audit or a review opinion on the Forecast.

Opinion

In our opinion, based on the foregoing, so far as the accounting policies and the arithmetical accuracy of the calculations are concerned, the Forecast has been properly compiled, in all material respects, in accordance with the Assumptions and on a basis consistent with the accounting policies normally adopted by the Group as set out in the audited consolidated financial statements of the Company for the year ended 31 March 2013.

Yours faithfully,

RSM Nelson Wheeler

Certified Public Accountants Hong Kong

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GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particular given in compliance with the GEM 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 is not misleading or deceptive and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

DIRECTORS’ INTERESTS IN SHARES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) (“SFO”)) as recorded in the register required to be kept by the Company under Section 352 of the SFO; or as otherwise notified to the Company and the Stock Exchange pursuant to the required standard of dealings by directors of the Company as referred to in Rule 5.46 of the GEM Listing Rules, were as follows:-

Aggregate long positions in Shares

			Approximate
		Number of shares	percentage of
Name of Director	Capacity of interests	in interest	interest in shares
Ms. Lee Yau Lin, Jenny	Interest in controlled	310,880,000	31.11%
(“Ms Lee”)(Note 1)	corporation/Beneficial	owner
Mr. Wong Wing Fat	Interest in controlled	39,840,000	3.99%
(“Mr Wong”)(Note 2)	corporation/Beneficial	owner
Mr. Ho Wai Hung	Beneficial owner	400,000	0.04%
(Note 3)
Ms. Cheung Kin, Jacqueline	Beneficial owner	400,000	0.04%
(Note 3)
Ms. Mak Yun Chu	Beneficial owner	400,000	0.04%
(Note 3)

Notes:

Ms. Lee is the beneficial owner of 100% of the issued share capital of Conrich Investments Limited (“Conrich”). Ms Lee is deemed to be interested in, and duplicated the interests of, the 306,880,000 shares held by Conrich under section 316(2) of the SFO. The remaining interests in 4,000,000 Shares are share options granted by the Company to Ms. Lee on 11 July 2011.

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APPENDIX VI

Mr. Wong is the beneficial owner of 100% of the issued share capital of Fastray Investments Limited (“Fastray”). Mr Wong is deemed to be interested in, and duplicated the interests of, the 35,840,000 shares held by Fastray under section 316(2) of the SFO. The remaining interests in 4,000,000 Shares are share options granted by the Company to Mr. Wong on 11 July 2011.
These Shares in interests are share options granted by the Company to respective Directors on 11 July 2011.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any other interests or short positions in any shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company under Section 352 of the SFO; or as otherwise notified to the Company and the Stock Exchange pursuant to Rule 5.46 of the GEM Listing Rules.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SHARES

As at the Latest Practicable Date, the interests or short positions of every person, other than a Director or chief executive of the Company, in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

Aggregate long positions in Shares

			Approximate
		Number of shares	percentage of
Name of shareholder	Capacity of interests	in interest	interest in shares
Conrich Investments Limited	Beneficial Owner	306,880,000	30.71%
(“Conrich”)(Note 1)
Mr. Leung Kai Tong, Tommy	Family Interest	310,880,000	31.11%
(Note 2)

Notes:

Conrich is an investment holding company incorporated in the British Virgin Islands on 5 January 2010 with limited liability, the entire issued share capital of which is wholly and beneficially owned by Ms. Lee. These Shares in interests are in duplicate the interests held by Ms. Lee and Mr. Leung Kai Tong, Tommy.
Mr. Leung Kai Tong, Tommy is the spouse of Ms Lee and is deemed to be interested in, and duplicated the interests of, all the shares Ms. Lee is interested under Section 316(1) of the SFO.

Save as disclosed above, as at the Latest Practicable Date, no other person had any interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO.

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APPENDIX VI

3. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Enlarged Group within the two years immediately preceding the date of this circular and are or may be material:

(i) the agreement entered into between an indirectly wholly-owned subsidiary of the Company and Earn Vast Limited in relation to the expansion of production capacity of the Group at the contract price of HK$7,920,000, details of which are set out in the Company’s announcement dated 13 April 2011;
(ii) a placing and subscription agreement dated 29 April 2011 entered into between Conrich Investments Limited, Ms. Lee Yau Lin Jenny, the Company and Yuanta Securities (Hong Kong) Company Limited in relation to the top-up placing and subscription of 110,400,000 shares of the Company at the price of 0.37 per Share;
(iii) a conditional sale and purchase agreement dated 25 May 2012 entered into the Purchaser and Intellect Hero Limited at a consideration of HK$100,000,000 in relation to the acquisition of Eminent Along Limited;
(iv) a conditional facility letter dated 25 May 2012 entered into between the Company and Goldenbase Ltd. in relation to the provision of loan facilities of up to HK$5,000,000 by the Company to Goldenbase Ltd.;
(v) a conditional placing agreement dated 12 June 2012 entered into between the Company and Kingsway Financial Services Group Limited in relation to the placing of up to an aggregate of 300,000,000 new Shares at the price of HK$0.17 per Share;
(vi) a placing and subscription agreement dated 19 September 2012 entered into amongst Conrich Investments Limited, the Company and Fortune (HK) Securities Limited in relation to the top-up placing and subscription of 42,400,000 Shares at the price of HK$0.189 per Share;
(vii) a subscription agreement dated 12 December 2012 entered into between the Company and Ms. Ke Wei Fang in relation to the subscription of 47,000,000 Shares at the price of HK$0.17 per Share;
(viii) a placing agreement dated 12 December 2012 entered into the Company and Kingsway Financial Services Group Limited in relation to the placing of the Convertible Bonds, the initial conversion price of which is HK$0.20 per Share;
(ix) the Agreement;
(x) the Bond Placing Agreement; and
(xi) the Share Placing Agreement.

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APPENDIX VI

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group, excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Enlarged Group.

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or substantial Shareholder or any of their respective associates has any interest in business which competes with or may compete with the business of the Group or has any other conflict of interests which any person has or may have with the Group.

7. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given an opinion or advice contained in this circular:

Name	Qualification
RSM Nelson Wheeler	Certified Public Accountants
Nuada Limited	Corporation licensed under the SFO to carry on type 6
	regulated activity
Roma Appraisals Limited	Independent Professional Valuer
Alpha & Leader Law Firm	the PRC legal advisers
(“Alpha & Leader”)
Cayañga, Zuñiga & Angel Law Office	the Philippine legal advisers
(“the Philippine Legal Advisers”)

As at the Latest Practicable Date, each of RSM Nelson Wheeler, Nuada Limited, Roma Appraisals Limited, Alpha & Leader and the Philippine Legal Advisers did not have any interests, either direct or indirect, in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 March 2013, the date to which the latest published audited consolidated financial statements of the Group were made up.

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APPENDIX VI

As at the Latest Practicable Date, each of RSM Nelson Wheeler, Nuada Limited, Roma Appraisals Limited, Alpha & Leader and the Philippine Legal Advisers was not interested beneficially or nonbeneficially in any Shares in the Company or any of its subsidiaries or any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of RSM Nelson Wheeler, Nuada Limited, Roma Appraisals Limited, Alpha & Leader and the Philippine Legal Advisers has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or report and/or reference to its name in the form and context in which it respectively appears.

8. MISCELLANEOUS

(a) Save for disclosed in this circular, there is no contract or arrangement entered into by any member of the Group subsisting at the date of this circular in which any Director is materially interested and which is significant to the business of the Enlarged Group.
(b) As at the Latest Practicable Date, no Directors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 March 2013, the date to which the latest published audited consolidated financial statements of the Group were made up.
(c) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands and the head office and principal place of business in Hong Kong is at 17/F., No. 8 Wyndham Street, Central, Hong Kong.
(d) The branch share registrar and transfer office of the Company in Hong Kong is Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong.
(e) The company secretary of the Company is Mr. Wong Chun who is a certified public accountant of the Hong Kong Institute of Certified Public Accountants and a member of the Association of Chartered Certified Accountants. He has over 15 years of experience in audit and accounting.
(f) The compliance officer of the Company is Mr. Wong Wing Fat.
(g) The Company established an audit committee pursuant to a resolution of the Directors passed on 26 September 2010 with written terms of reference in compliance with Rule 5.28 and 5.29 of the GEM Listing Rules. The primary duties of the audit committee are mainly to make recommendation to the Board on the appointment and removal of external auditor; review the financial statements and material advice in respect of financial reporting; and oversee internal control procedures of the Company. The audit committee comprises three independent non-executive Directors, namely Mr. Ho Wai Hung, Ms. Cheung Kin, Jacqueline and Ms. Mak Yun Chu. Ms. Mak Yun Chu is the chairman of the audit committee.

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APPENDIX VI

GENERAL INFORMATION

Mr. Ho Wai Hung , aged 54, was appointed as an independent non-executive Director on 26 September 2010. Mr. Ho obtained a Non-UK Intermediate Certificate in Food Safety in The Royal Institute of Public Health in Dubai in 2007, an Intermediate Certificate in Hazard Analysis in Chartered Institute of Environmental Health in United Kingdom in 2002, and a Certificate in Food Hygiene and Safety in The Royal Institute of Public Health and Hygiene in United Kingdom in 1998. Mr. Ho is the chief operation manager of Royal China Group (Shanghai) since 2003 and is primarily responsible for formulating and implementing business strategy for the company such that new market is exploited. Prior to joining Royal China Group (Shanghai), Mr. Ho has worked in the catering industry in London, the United Kingdom. Between 1996 and 1998, an established department store in London employed Mr. Ho as a senior sous chef to, amongst others, supervise the operation of its restaurants and monitor compliance of HACCP requirements.

Ms. Cheung Kin, Jacqueline , aged 39, was appointed as an independent non-executive Director on 26 September 2010. Ms. Cheung obtained a bachelor’s degree in Business from the University of Technology, Sydney in 1995 and a Master’s degree in Business Administration (Executive) from the Australian Graduate School of Management (jointly by The University of New South Wales and The University of Sydney) in 2004. Ms. Cheung is a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants and the Australian Society of Certified Practising Accountants, and she has over 10 years of work experience in accounting and auditing. Ms. Cheung is currently a financial controller of a group which is one of the largest private corporation in the sports and leisure industry in Asia. She is responsible for managing the accounting and company secretary team in Hong Kong and also the group finance team for group consolidation.

Ms. Mak Yun Chu , aged 54, was appointed as an independent non-executive Director on 26 September 2010. Ms. Mak obtained an Endorsement Certificate in Accountancy in Hong Kong Polytechnic University in 1986. Ms. Mak is a fellow of the Association of Chartered Certified Accountants and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants, and has over 10 years of work experience in accounting and administration. Ms. Mak is also an independent non-executive director of Heng Tai Consumables Group Limited (stock code: 197), a listed company on the Main Board of the Stock Exchange.

(h) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

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APPENDIX VI

9. DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at 17/F., No. 8 Wyndham Street, Central, Hong Kong during normal business hours on any Business Day 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 material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(c) the written consent of experts referred to in the paragraph headed “Experts and Consents” in this Appendix;
(d) the accountants’ reports from RSM Nelson Wheeler on the Target and the Goldenbase Group, the text of which are set out in Appendix II to this circular;
(e) the accountants’ report from RSM Nelson Wheeler in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(f) the annual reports of the Company for each of the two financial years ended 31 March 2012 and 31 March 2013;
(g) the valuation report of the Hong Kong Company from Roma Appraisals Limited, the text of which is set out in Appendix V to this circular;
(h) the letters from RSM Nelson Wheeler and Nuada Limited, the text of which are set out in Appendix V to this circular; and
(i) this circular.

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NOTICE OF EGM

WEALTH GLORY HOLDINGS LIMITED 富譽控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8269)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of the shareholders of Wealth Glory Holdings Limited (the “ Company ”) will be held at 17/F., No. 8 Wyndham Street, Central, Hong Kong on Thursday, 25 July 2013 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the conditional sale and purchase agreement dated 6 February 2013 (the “ Agreement ”, details of which are disclosed in the circular of the Company dated 29 June 2013 (the “ Circular ”)) entered into between Silver summit Investments Limited, a wholly-owned subsidiary of the Company, as purchaser (the “ Purchaser ”) and Hu Shuang (the “ 1st Vendor ”), Chan Lan (the “ 2nd Vendor ”), Cheung Siu Yu (the “ 3rd Vendor ”) and Lung Yau Wai (the “ 4th Vendor ”, together with the 1st Vendor, the 2nd Vendor and the 3rd Vendor, the “ Vendors ”) as vendors in relation to, among other matters, the sale and purchase of the 10,000 ordinary shares of US$1.00 each in the issued share capital of Digital Rainbow Holdings Limited (the “ Target ”) (the “ Sale Shares ”), representing the entire issued share capital of the Target, for a total consideration of HK$156,250,000 (a copy of the Agreement is marked “A” and produced to the Meeting and signed by the chairman of the Meeting (the “ Chairman ”) for identification purpose) and the transactions contemplated thereunder be and are hereby ratified, confirmed and approved;
(b) the allotment and issue of the Consideration Shares (as defined in the Circular) credited as fully paid at the Issue Price (as defined in the Circular) to the 2nd Vendor, 3rd Vendor and the 4th Vendor and/or their respective nominee(s) in accordance with the terms and conditions of the Agreement and the transactions contemplated thereunder be and is hereby approved; and
(c) any one or more of the directors (the “ Directors ”) of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Agreement and the transactions contemplated thereunder.”
“ THAT subject to the fulfillment of the terms and conditions set out in the placing agreement dated 3 May 2013 entered into between the Company and GF Securities (Hong Kong) Brokerage Limited (the “ Placing Agent ”) in respect of the placing, on a best effort basis, of up to 250,000,000 new ordinary shares of HK$0.01 each in the capital of the Company (the “ Placing Shares ”) at a placing price, being the higher of (i) HK$0.20 per Placing Share; or (ii) the price per Placing Share which

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NOTICE OF EGM

represents 30% discount of the average closing price per Share as quoted on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) for the five trading days immediate prior to the Price Determination Date (as defined in the Circular) (the “ Share Placing Agreement ”, a copy of which having been produced to the Meeting and marked “B” and initialed by the Chairman for the purpose of identification) (the “ Share Placing ”):

(a) the Share Placing Agreement in relation to the Share Placing and the matters contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the placing of the Placing Shares to the Share Placee(s) (as defined in the Circular) pursuant to the Share Placing Agreement be and is hereby approved and the Directors be and are hereby authorised to allot and issue the Placing Shares pursuant to the Share Placing Agreement; and
(c) any one or more Directors be and are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient of the purpose of, or in connection with, the, the implementation of and giving effect to the Share Placing Agreement and the transactions contemplated thereunder.”
“ THAT subject to the fulfillment of the terms and conditions set out in the placing agreement dated 3 May 2013 entered into between the Company and the Placing Agent, pursuant to which the Company has conditionally agreed to issue and the Placing Agent has conditionally agreed to procure, on a best effort basis, one or more Bond Placee(s) (as defined in the Circular) to subscribe for the bonds of up to an aggregate principal amount of HK$80 million (the “ Bonds ”) with warrants to be issued (for no additional payment) to the first registered holder(s) of the Bonds on the basis of 1,625,000 Warrants for every whole multiple of HK$1,000,000 principal amount of the Bonds taken up (the “ Warrants ”) with subscription price of HK$0.24 (subject to adjustments) (the “ Subscription Price ”) per Warrant Share (as defined below) (the “ Bond Placing Agreement ”, a copy of which having been produced to the Meeting and marked “C” and initialed by the Chairman for the purpose of identification):
(a) the Bond Placing Agreement in relation to the Bond Placing and the matters contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the creation and issuance of the Bonds and the Warrants by the Company in accordance with the terms and conditions of the Bond Placing Agreement and the terms and conditions of the Bonds and the Warrants as set out in the Bond Placing Agreement be and are hereby approved;
(c) the issuance and allotment of up to a maximum number of 130,000,000 new ordinary shares of HK$0.01 each in the capital of the Company (the “ Warrant Shares ”) credited as fully paid at the Subscription Price which may fall to be issued upon the exercise of the subscription rights attached to the Warrants be and are hereby approved;
(d) all the transactions contemplated under the Bond Placing Agreement in connection with the issue of the Bonds and the Warrants be and are hereby approved; and

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NOTICE OF EGM

(e) any one or more Directors be and are hereby authorised to do all such acts and things and execute all such documents which he/they consider necessary, desirable or expedient of the purpose of, or in connection with, the, the implementation of and giving effect to the Bond Placing Agreement and the transactions contemplated thereunder.”

By order of the Board Wealth Glory Holdings Limited Lee Yau Lin, Jenny Chairman

Hong Kong, 29 June 2013

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

Head Office and Principal Place of Business: 17/F., No. 8 Wyndham Street Central Hong Kong

Notes:

A member entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint one or more proxies to attend and, subject to the provisions of the articles of association of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the Meeting to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.
A form of proxy for use at the Meeting is enclosed. Whether or not you intend to attend the Meeting in person, you are encouraged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the Meeting or any adjournment thereof, should he so wish.
In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, and deposit the same at the branch share registrar and transfer office of the Company in Hong Kong, Union Registrars Limited, at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, 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 meeting or any adjournment thereof.
In the case of joint holders of Shares, any one of such holders may vote at the Meeting, either personally or by proxy, in respect of such Shares as if he was solely entitled thereto, but if more than one such joint holders are 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 Shares shall alone be entitled to vote in respect thereof.
The register of members of the Company will be closed from Wednesday, 24 July 2013 to Thursday, 25 July 2013 (both dates inclusive) during which period no transfer of shares will be registered. In order to qualify for attending and voting at the EGM, all transfers of shares accompanied by the relevant share certificates must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Union Registrars Limited at 18/F, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong for registration not later than 4:00 p.m. on Tuesday, 23 July 2013.

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Go Up Education Technology Limited — Proxy Solicitation & Information Statement 2013

51358_rns_2013-06-28_5aa84a26-a57b-4b49-8c14-374df3920541.pdf

WEALTH GLORY HOLDINGS LIMITED 富譽控股有限公司

(I) MAJOR TRANSACTION IN RESPECT OF

(II) PLACING OF NEW SHARES UNDER SPECIFIC MANDATE; (III) PLACING OF BONDS AND ISSUE OF UNLISTED WARRANTS UNDER THE SPECIFIC MANDATE; AND

(IV) NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

CHARACTERISTICS OF GEM

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

WEALTH GLORY HOLDINGS LIMITED

富譽控股有限公司

(IV) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Assets to be acquired

Consideration

LETTER FROM THE BOARD

The Proposed Financing Activity(ies)

LETTER FROM THE BOARD

Principal terms of the Promissory Note

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Basis in determining the Consideration

LETTER FROM THE BOARD

Valuation

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Long stop date

Completion

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

The Target

The Hong Kong Company

The 1st Supplier

LETTER FROM THE BOARD

The 2nd Supplier

LETTER FROM THE BOARD

The 3rd Supplier

LETTER FROM THE BOARD

LETTER FROM THE BOARD

The Customer

LETTER FROM THE BOARD

The Supply Agreements

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Default arrangement

The Letter of Intent

LETTER FROM THE BOARD

Average daily price

LETTER FROM THE BOARD

Guarantor

Management of the Hong Kong Company

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Independence

BUSINESS MODEL OF THE HONG KONG COMPANY

Mode of operation

LETTER FROM THE BOARD

Operating costs

Business Plan

Business strategies

Competitive advantage

INTENTION OF THE CURRENT BUSINESS OF THE COMPANY

GROUP STRUCTURE

Existing structure of the Target Group immediately before Completion

Structure of the Target Group immediately upon Completion

THE CONSIDERATION SHARES

Go Up Education Technology Limited Proxy Solicitation & Information Statement 2013