Hao Wen Holdings Limited — Proxy Solicitation & Information Statement 2010

Jun 30, 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

If you have sold or transferred all your shares in Hao Wen Holdings Limited （皓文控股有限公司）, you should at once hand this circular to the purchaser(s) or the transferee(s), or to the bank, licensed securities dealer or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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HAO WEN HOLDINGS LIMITED 皓文控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8019)

MAJOR AND CONNECTED TRANSACTION

PROPOSED ACQUISITION OF OPERATING RIGHT IN A COMPANY ENGAGED IN INSURANCE MANAGEMENT AND CONSULTANCY SERVICES IN THE PRC

Financial adviser to the Company

Independent Financial Adviser

A letter from the independent committee (the “Independent Board Committee”) of the board of directors of the Company is set out on page 23 of this Circular. A letter from Quam Capital Limited, the independent financial adviser of the Company, containing its advice to the Independent Board Committee and the independent shareholders of the Company is set out on pages 24 to 52 of this circular.

Notice convening the EGM (to be held at Unit 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong on 20 July 2010) is set out on pages 177 to 178 of this circular. Proxy forms for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed proxy forms in accordance with the instructions printed thereon as soon as possible to the Company’s Hong Kong share registrar, Tricor Abacus Ltd. at 26/F, Tesbury Centre, 28 Queen’s Road East, 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.

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

30 June 2010

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.

The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.

– i –

CONTENTS

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	53
Appendix II – Financial Information of Annuo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	117
Appendix III – Unaudited Pro Forma Financial Information of
the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	164
Appendix IV – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	171
Notice of the Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	177
Accompanying document
Form of proxy

– ii –

DEFINITIONS

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

“Acquisition”	the acquisition of the operating right of RL from the Vendor
	for a term of 15 years from 1 June 2010 to 31 May 2025 on the
	terms contained in the Agreement
“Agreement”	the Agreement (as supplemented by the Supplemental
	Agreement) entered into between the Purchaser and the Vendor
	on 24 May 2010 in respect of the Acquisition
“Announcement”	the announcement dated 27 May 2010 made by the Company
	in relation to the Acquisition
“Annuo”	Annuo Insurance Broker Company Limited（安諾保險經紀有
	限公司）
“Associate”	which shall have the same meaning as defined in the GEM
	Listing Rules
“Board”	the board of Directors
“Business Day(s)”	any day on which the Stock Exchange is open for the business
	in dealing securities
“Company”	Hao Wen Holdings Limited, a company incorporated in the
	Cayman Islands with limited liability, the shares of which are
	listed on the GEM
“Completion”	completion of the Acquisitions under the Agreement
“Consideration Shares”	147,772,500 new Shares to be allotted and issued to the Vendor
	by the Company upon Completion to satisfy part of the Total
	Consideration
“Director(s)”	the director(s) of the Company
“EGM”	the extraordinary general meeting

– 1 –

	DEFINITIONS
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	The Rules Governing the Listing of Securities on the Growth
	Enterprise Market of the Stock Exchange
“Group”	The Company and its subsidiaries
“Consideration Adjustment”	the guarantee and warranty given or made by the Vendor that
	the audited consolidated net profit after taxation of Annuo for
	the financial years ending 2010 and 2011 respectively shall not
	be less than RMB10,000,000 each year
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	The Hong Kong Special Administrative Region of the PRC
“Independent Board	an independent committee of the Board established by the
Committee”	Board to advise the Independent Shareholders in respect of the
	Acquisition
“ Independent Financial	Quam Capital Limited, a corporation licensed to carry on type
Adviser”	6 (advising on corporate finance) regulated activity under the
	SFO
“Independent Shareholders”	Shareholder(s) other than the Vendor and his Associates
“Independent Third Party”	a party and, if applicable, the ultimate beneficial owner of the
	party who is not fallen into the definition of connected persons
	to the Company under Chapter 20 of the GEM Listing Rules
“Latest Practicable Date”	28 June 2010, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information for
	inclusion in this circular
“LR”	Lucky River Limited, a company incorporated in Hong Kong
	with limited liability and a wholly-owned subsidiary of the
	Company
“Last Trading Day”	24 May 2010, being the last day on which the Shares were
	traded on the Stock Exchange prior to suspension of trading in
	the Shares pending the release of the Announcement

– 2 –

DEFINITIONS

“PRC”	the People’s Republic of China, excluding for the purpose of
	this circular Hong Kong, the Macau Special Administrative
	Region of the PRC and Taiwan
“Purchaser” or “JH”	Xian Jin Hao Asset Management Company Limited #
	（西安金皓資產管理有限公司）
“RL”	Shaanxi Ruilin Investment Management Company Limited#
	（陝西瑞林投資管理有限公司）
“RMB”	Renminbi, the lawful currency of the PRC
“Share(s)”	ordinary share(s) of HK$0.1 each in the share capital of the
	Company
“Shareholders”	the shareholders of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Supplemental Agreement”	the agreement entered into between the Purchaser and the
	Vendor on 7 June 2010 in respect of the revised Consideration
	Adjustment
“Target Group”	including RL and Annuo
“Total Consideration”	the total consideration of the Acquisition payable by the
	Purchaser pursuant to the Agreement
“Vendor” or “RD”	Shaanxi Ruide Enterprise Development Company Limited
	（陝西瑞德實業發展有限公司）

For illustration purpose, translation of RMB into HK$ is made in this circular at the following rate:–

HK$1.159 = RMB1

No representation is made that any amounts in RMB could have been or could be converted at that rate or at any other rate.

The English transliteration of the Chinese names in this circular, where indicated, is included for information only, and should not be regarded as the official English names of such Chinese names.

– 3 –

LETTER FROM THE BOARD

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HAO WEN HOLDINGS LIMITED 皓文控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8019)

Executive Directors:

Mr. Chung Chi Mang (Chairman) Mr. Hu Yangxiong Mr. Zhao Borui

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

Independent Non-Executive Directors:

Mr. Lam Chung Fai Mr. Leung Siu Kuen Mr. Fu Wing Kwok, Ewing

Principal place of

business in Hong Kong: Unit 701, Tai Yau Building 181 Johnston Road Wanchai Hong Kong

30 June 2010

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF OPERATING RIGHT IN A COMPANY ENGAGED IN INSURANCE MANAGEMENT AND CONSULTANCY SERVICES IN THE PRC

INTRODUCTION

On 24 May 2010, the Purchaser, an indirectly wholly owned subsidiary of the Company, entered into the Agreement with the Vendor, pursuant to which the Purchaser agreed to acquire the operating right of RL, which is a 51% shareholder of Annuo, for a term of 15 years from 1 June 2010 to 31 May 2025 from the Vendor at the Total Consideration.

– 4 –

LETTER FROM THE BOARD

THE AGREEMENT

Date:

24 May 2010

Parties

Purchaser : JH, an indirectly wholly-owned subsidiary of the Company Vendor : RD, a connected person of the Company Subject : RL

The Vendor is established in the PRC with limited liability, the entire issued share capital of which is owned as to 45% by two independent third parties and as to 55% by Mr. Zhao, a Director of the Company. Therefore, the Vendor is a connected person of the Company as defined under the GEM Listing Rules.

Save for its direct and indirect (through RL) investments in Annuo as detailed in the paragraph headed “INFORMATION OF RL AND ANNUO” hereunder, the Vendor does not hold any other investments or substantial business activities

The Vendor is one of the founders of Annuo and controls an aggregate of 67% equity interests in Annuo with an original cost of investment of approximately RMB30 million.

Subject matter and the overall framework

• (i) The Purchaser has agreed to acquire and the Vendor has agreed to sell the operating right of RL for a term of 15 years from 1 June 2010 to 31 May 2025. Upon expiry of the operating right, the Purchaser will have the first refusal right to renew the term of operating right for another 15 years;

• (ii) During the operating period of 15 years, the Purchaser is entitled to enjoy all economic benefits of RL in consideration for the provision of management and consultancy services to RL by the Purchaser and in turn providing the same to Annuo by RL;

• (iii) During the operating period of 15 years, the Purchaser is entitled to appoint all the board members of RL. RL is entitled to appoint over two thirds (2/3) of board members of Annuo as set out in the articles of Annuo and is entitled to nominate the chief financial controller of Annuo;

– 5 –

LETTER FROM THE BOARD

• (iv) The entire registered shares in RL will be pledged to the Purchaser; and

• (v) The Purchaser has the first refusal right to acquire all share interests available for transfer to foreign parties when the national insurance policy in PRC allows.

Upon Completion, as the Company will control the Board of RL and the financial and operating policies of RL, RL will be accounted for as a subsidiary of the Company and Annuo will be accounted for as an indirect subsidiary of the Company and their financial results will also be consolidated into the accounts of the Group. Having considered the expertise required to manage this new business effectively, the Company may appoint two new Directors with experience and expertise in the insurance field. In the event that there is any change to the Board composition, the Company will make such announcement in compliance with the GEM Listing Rules.

Consideration

The Total Consideration of the Acquisition is RMB51,000,000 (approximately HK$59,109,000) which will be financed by the Group’s internal resources.

The Total Consideration shall be payable in the following manner:

• (i) as to 27.5% of the Total Consideration (i.e. RMB14,025,000 (approximately HK$16,274,975)) to be paid in cash by the Purchaser within 10 business days after Completion;

• (ii) as to 13.75% of the Total Consideration (i.e. RMB7,012,500 (approximately HK$8,127,488)) to be paid in cash by the Purchaser within 10 days after the issue of latest quarterly financial result of RL ;

• (iii) as to 13.75 of the Total Consideration (i.e. RMB7,012,500 (approximately HK$8,127,488)) to be paid in cash by the Purchaser within 10 days after the audited financial statement of Annuo in relation to the Consideration Adjustment has been issued by the auditor and this amount will only be paid if Consideration Adjustment are fulfilled; and

• (iv) as to the remaining 45% of the Total Consideration (i.e. RMB22,950,000 (approximately HK$26,599,050)) to be satisfied by the issuance of 147,772,500 Consideration Shares at a price of HK$0.18 within 10 business days after Completion.

The Total Consideration, including the payment terms, was based on arm’s length negotiations between the Purchaser and the Vendor after having considered (i) the Purchaser will effectively control 51% economic benefit of Annuo; and (ii) the Consideration Adjustment as set out in the paragraph headed “Consideration Adjustment” below.

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LETTER FROM THE BOARD

After thorough analysis on the future benefits generated from this new business, the Directors (including independent non-executive Directors) consider the Total Consideration and the relevant payment terms to be fair and reasonable and are in the interests of the Company and the Shareholder as a whole.

Consideration Shares

The 147,772,500 Consideration Shares to be allotted and issued to the Vendor represent (i) approximately 14.34% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 12.54% of the issued share capital of the Company as enlarged by the allotment and issued of the Consideration Shares.

The Consideration Shares, when issued upon Completion, will rank pari passu in all respects with the existing Shares then in issue and be entitled to dividends and other rights carried by the Shares. There will be no restriction on the subsequent sale of the Consideration Shares.

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

The issue price of HK$0.18 of each Consideration Share represent:

• (i) a premium of approximately 8.43% to the closing price of HK$0.166 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (ii) a premium of approximately 6.64% to the average closing price of HK$0.1688 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days immediately preceding and including the Last Trading Day;

• (iii) a premium of approximately 3.03% to the average closing price of HK$0.1747 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days immediately preceding and including the Last Trading Day;

• (iv) a premium of approximately 4.90% to the average closing price of HK$0.1716 per Share as quoted on the Stock Exchange for the last 15 consecutive trading days immediately preceding and including the Last Trading Day;

The issue price of HK$0.18 of each Consideration Share was arrived at by the Company and the Vendor after arm’s length negotiation and the Directors (including independent nonexecutive Directors) consider the issue price of HK$0.18 of each Consideration Share to be fair and reasonable and are in the interests of the Company and the Shareholder as a whole.

– 7 –

LETTER FROM THE BOARD

Consideration Adjustment

Pursuant to the Agreement (as supplemented by the Supplemental Agreement), the Vendor has guaranteed and warranted to the Purchaser that the audited consolidated net profit after taxation of Annuo for the each of the financial years ending 31 December 2010 and 2011 shall not be less than RMB10,000,000. In the event that the Consideration Adjustment is not achieved, the Vendor shall pay to the Purchaser a sum of RMB X based on the following formula:

RMB X for 2010 = (RMB10,000,000 – the actual net profit after taxation of Annuo for the year ending 31 December 2010) X 51% X 10

RMB X for 2011 = (RMB10,000,000 – the actual net profit after taxation of Annuo for the year ending 31 December 2011) X 51% X 10

Note: 10 is the implied price earnings multiple based on the Total Consideration and the Consideration Adjustment.

For the purpose of the above calculations, should Annuo records net loss during the Guarantee Period, it shall be deemed to have recorded zero net profit/loss after taxation for the relevant year.

In the event that the audited consolidated net profit after taxation of Annuo for either of the years during the Guaranteed Period is less than RMB10,000,000, the Total Consideration will be adjusted as follows: Adjusted Total Consideration = Total Consideration – RMB X (2010) – RMB X (2011)

Should the Consideration Adjustment for the year ending 31 December 2010 not be achieved, the Purchaser is not required to pay the part payment of RMB7,012,500 (equivalent to approximately HK$8,127,488) as stated in point (iii) of the above section headed “Consideration” (the “Third Payment”). For the avoidance of doubt, where the Third Payment is forfeited, the Vendor is only required to pay the Purchaser the amount which RMBX is in excess of the Third Payment.

The Consideration Adjustment shall be calculated in accordance with International Financial Reporting Standards. Pursuant to the Agreement, the audited report for each of the two financial years ended 31 December 2010 and 2011 shall be completed and presented to the Purchaser within three (3) months after the respective financial year-end dates.

There is no profit adjustment mechanism to the Total Consideration in place in case the actual audited consolidated net profit after taxation for each of the two financial years ending 31 December 2010 and 2011 exceeds the Consideration Adjustment.

Pursuant to the Agreement, Mr. Zhao Borui, the major shareholder of the Vendor, has provided a guarantee for the due performance of its responsibilities under the Agreement by the Vendor, including the due payment by the Vendor to the Purchaser of RMB X (2011).

The Company will publish an announcement if the Consideration Adjustment regarding the financial performance are less than the amount guaranteed and will include details in its next published annual report and accounts and the independent non-executive Directors of the Company will provide an opinion in the Company’s next published annual report and accounts as to whether the connected person has fulfilled its obligations under the Consideration Adjustment.

– 8 –

LETTER FROM THE BOARD

Conditions Precedent

Completion of the Acquisition is subject to, among other things, 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, financial, operations and affairs of RL and Annuo;

• (b) the obtaining by each of the Company, the Purchaser, the Vendor, RL and Annuo of all necessary consents, authorizations and approvals in connection with their entering into and performance of the terms of the Agreement which may be required under the GEM Listing Rules or any ordinance/law in Hong Kong and the PRC, from the Stock Exchange or any governmental or regulatory authorities in Hong Kong and the PRC required to be obtained in respect of the sale and purchase of the operating right of RL as well as the matters contemplated thereunder having been obtained, including but not limited to the approval of the Shareholders, and the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in the Consideration Shares;

• (c) the entering into exclusive and irrevocable management and operating service agreement(s) (in form and substance satisfactory to the Purchaser) between RL and Annuo for a fixed term of not less than 15 years. Such service agreement(s) shall, in effect, allow RL to control the overall management, administrative and financial operations of Annuo.

• RL and Annuo entered into definitive management and operating service agreement on 7 June 2010;

• (d) the Purchaser will enter into an exclusive and irrevocable management and consultancy contract(s) (in form and substance satisfactory to it) with RL for a fixed term of 15 years for the purpose of assisting RL in discharging its obligation under the management and operating service agreement(s) to be entered into with Annuo. Upon expiry of such management and consultancy contract(s), the Purchaser shall have the first refusal right to renew such contract(s) for another 15 years. Such management and consultancy contract(s) shall cover, but not limited to, the following:

• (i) providing advice on the conduct of insurance brokerage business in the PRC and improvements thereto;

• (ii) providing advice on human resources and training and recruitment programme;

• (iii) providing advice on financial and information system;

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LETTER FROM THE BOARD

• (iv) providing sales and marketing support on insurance brokerage business; and

• (v) providing advice on financing matters.

the Purchaser entered into definitive management and consultancy contract with RL on 24 May 2010.

The Purchaser’s legal adviser as to the PRC laws confirmed that the entering into the exclusive and irrevocable management and consultancy contract(s) comply with all applicable laws and regulations of the PRC.

• (e) the obtaining of a PRC legal opinion (in form and substance satisfactory to the Purchaser) in relation to the validity and legality of the incorporation of each of RD, RL and Annuo and their operations as going concern entities and the transactions contemplated under the Agreement (including but not limited to the exclusive and irrevocable management and consultancy contract(s));

Based on a preliminary legal due diligence conducted by the Purchaser, RL is in the process of incorporation under the laws of the PRC and each of the RD, and Annuo has been duly incorporated under the laws of the PRC and duly operate as going concern entities. The Purchaser’s legal adviser as to the PRC laws further advised that the transactions contemplated under the Agreement comply with all applicable laws and regulations of the PRC.

• (f) certificate from independent capital certification organization（驗資機構）that the shares of RL have been fully paid up including 51% shareholding rights of Annuo.

• (g) RL having completed industrial and commercial registration（工商登記）and obtained the business operation certificate of the corporate body（企業法人營業執照）.

• (h) RL having received the certificate of organisation（組織機構代碼証）.

• (i) RL having arranged for the tax registration and obtained the tax registration certificate.

• (j) RL having amended the articles in relation to the rights of the Purchaser.

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LETTER FROM THE BOARD

Only condition (a) is waivable by the Purchaser under the Agreement. Currently, the Purchaser has no intention to waive the condition.

The Agreement further provides that if the conditions have not been fulfilled or waived by the Purchaser within 180 days from the date of the Agreement (or such later date as the Purchaser and the Vendor may agree in writing), the Agreement shall be terminated and neither party shall have any liability to the other except for antecedent breaches of the Agreement.

Completion

Completion of the Acquisitions shall take place within three (3) Business Days after all the conditions precedents of the Agreement having been fulfilled or waived or such later date as may be agreed between the Vendor and the Purchaser.

EFFECT ON SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below are the shareholding structure of the Company (i) immediately before the Completion; and (ii) immediately following the Completion and upon the allotment and issue of the Consideration Shares:

Shareholders Montgomery Properties Holding Limited (Note) Vendor Public Shareholders Total	Immediately before Completion Number of Shares Approximate % of issued Shares 193,975,000 18.82% – 0% 836,525,900 81.18% 1,030,500,900 100.0%	Immediately following Completion and upon the allotment and issue of the Consideration Shares Number of Shares Approximate % of issued Shares 193,975,000 16.46% 147,772,500 12.54% 836,525,900 71.00% 1,178,273,400 100.0%	Immediately following Completion and upon the allotment and issue of the Consideration Shares Number of Shares Approximate % of issued Shares 193,975,000 16.46% 147,772,500 12.54% 836,525,900 71.00% 1,178,273,400 100.0%
			100.0%

Note:

Mr. Hu Yangxiong is deemed or taken to be interested in those shares which are beneficially owned by Montgomery Properties Holding Limited which is beneficially owned by Mr. Hu Yangxiong and Mr. Zhao Borui as to 75% and 25% respectively.

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LETTER FROM THE BOARD

INFORMATION OF THE GROUP AND REASONS FOR THE ACQUISITION

The Group is principally engaged in the manufacture, trading and brokerage of pharmaceutical products and health care products.

In order to seek for more business opportunities and to maximize return to the Company and the Shareholders in the long run, the Company has decided to enter into the Agreement to explore the possibility of diversification of the business of the Group.

The Directors believe that the uniqueness of the Acquisition (being involved in the blooming insurance industry in the PRC) gives an invaluable investment opportunity to the Group in diversifying its business.

INFORMATION OF RL AND ANNUO

RL is established in the PRC with limited liability. As at the Latest Practicable Date, save for holding 51% shareholding interests in Annuo, RL does not hold any other investment or substantial business activities.

Annuo is a limited company established in the PRC under license granted by the China Insurance Supervisory Commission. As at the Latest Practicable Date, Annuo operates as an insurance intermediary in a total of 6 operating centres in different locales in the PRC.

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LETTER FROM THE BOARD

Corporate Structure of the Target Group as at the Latest Practicable Date:

==> picture [279 x 225] intentionally omitted <==

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

2 Independent
Mr. Zhao Borui
Third Parties
55% 45%
Vendor
100%
16% RL
51%
4 Independent 33%
Annuo
Third Parties
----- End of picture text -----

Corporate Structure of the Target Group immediately after the Completion:

==> picture [290 x 311] intentionally omitted <==

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

The Company
100%
LR
(incorporated in HK)
100% HK
China
JH Vendor
100%
RL
Operating Right + 51% 16%
Management Agreement Management
Agreement
4 Independent 33%
Annuo
Third Parties
----- End of picture text -----

– 13 –

LETTER FROM THE BOARD

Financial information of the Target Group

The financial information of the Target Group for each of the three years ended 31 December 2007, 2008 and 2009, prepared in accordance with International Financial Reporting Standards are set out as follows:–

	Year	ended 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Revenue	3,085	3,873	18,278
Profit/(loss) before tax	(1,415)	(243)	3,948
Profit/(loss) for the year	(1,327)	(252)	3,326
Total assets	15,553	12,767	61,980
Net assets	8,314	8,062	31,388

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The Target Group recorded profit/(loss) for the year of approximately RMB(1.3) million, RMB(0.2) million, and RMB3.3 million in the three years ended 31 December 2007, 2008, and 2009 respectively. From 2007 to 2008, the Target Group’s loss for the year decreased by approximately RMB1.1 million or approximately 81% was primarily due to expansion in the marketing network through move operation centres in 2008. In 2009, the Target Group turnarounded from a loss for 2008 of approximately RMB0.2 million to a profit for the year of approximately RMB3.4 million which was primarily due to the effect of the recovery from the financial crisis in the second half of 2009.

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LETTER FROM THE BOARD

Material acquisitions and disposals

Further and as mentioned in the section titled “Information of RL and Annuo”, the Vendor in order to cater for the Acquisition, underwent a reorganization pursuant to which the Vendor has transferred its 51% equity interests in Annuo on 7 June 2010 at RMB15,000,000 consideration to form the Target Group.

Liquidity and capital resources

The Target Group’s primary cash requirements are to finance its own operations. The Target Group funds its operations primarily by cash generated by its own operations.

	Year	ended 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Net cash inflow from
operating activities	3,445	310	30,654
Net cash outflow from investing
activities	(3,230)	(369)	(20,064)
Net cash inflow from
financing activities	–	–	20,000

Working capital

Taking into account the expected completion of the Acquisition and the internally generated funds available to the Enlarged Group, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirements without relying on any banking facilities, that is for at least the next 12 months from the date of this circular, in the absence of unforeseeable circumstances

Indebtedness

As at 28 June 2010, being the latest practicable date for ascertaining certain information in this statement of indebtedness, the Target Group did not have any outstanding loans and borrowings.

The Target Group’s current ratio (calculated by total current assets divided by total current liabilities) was 2.01, 2.39 and 2.99 as at 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

– 15 –

LETTER FROM THE BOARD

Charge of assets

As at 31 December 2009, being the latest practicable date for ascertaining certain information in this statement of indebtedness, the Target Group has not taken any charge over its assets.

Contingent liabilities

The Target Group’s contingent liabilities as at 31 December 2009 are disclosed in note 24 in the section “Financial Information of Annuo” in Appendix II of this circular.

Capital commitments

The Target Group had no contractual capital expenditure commitments as at 31 December 2009.

Employee remuneration

As at the Latest Practicable Date, the Target Group employs a total of about 40 employees in the PRC. All employees are remunerated based on industry practice and in accordance with the prevailing employment law. Other staff benefits for eligible employees include housing allowances, retirement benefits and bonuses.

Foreign currency risk

The management considers the Target Group is not exposed to significant foreign currency risks as majority of its operations and businesses are transacted and denominated in RMB.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Assets

As at 31 December 2009, the consolidated total assets of the Group were approximately RMB141.2 million.

As set out in the section titled “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix III of this circular, assuming the Acquisition was completed on 31 December 2009, the unaudited pro forma consolidated total assets of the Enlarged Group will be increased by approximately RMB61.8 million to approximately RMB203 million.

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LETTER FROM THE BOARD

Liabilities

As at 31 December 2009, the consolidated total liabilities of the Group were approximately RMB132.2 million. As set out in the section titled “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix III of this circular, assuming the Acquisition was completed on 31 December 2009, the unaudited pro forma consolidated total liabilities of the Enlarged Group will be increased by approximately RMB30.4 million to approximately RMB162.6 million.

Profits

For the year ended 31 December 2009, the consolidated loss before taxation of the Group from continuing operation was approximately RMB32 million. As stated in the accountant’s report of the Target Group as set out in Appendix II to this circular, the profit before income tax expense of the Target Group for the year ended 31 December 2009 was approximately RMB3.4 million.

Since the Purchaser will control the board and govern the financial and operation of RL as contemplated under the management and consultancy contracts upon Completion, RL will be accounted for as a wholly-owned subsidiary of the Group in accordance with Hong Kong Accounting Standard 27 “Consolidation and Separate Financial Statement and, as RL owns as to 51% shareholding interests in Annuo, Annuo will be accounted for as an indirectly non-whollyowned subsidiary of the Group. The consolidated results of RL and Annuo will be consolidated into the financial statements of the Company. As a result, both the assets and liabilities of the Group will be increased upon Completion.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The PRC economy

The near-term forecasts are also driven by its China outlook, as the country’s economy is expected to expand by 9.5% in 2010 and 8.5% in 2011 (source from The World Bank) on the back of considerable government stimulus. In the last 30 years the rate of Chinese economic growth has been almost miraculous, averaging 8% growth in Gross Domestic Product (GDP) annually. The economy has grown more than 10 times in the same period, with GDP reaching USD3.42 trillion in 2007. In Purchasing Power Parity GDP, China already has the biggest economy after the United States.

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LETTER FROM THE BOARD

The development of China

China has a population of 1.3 billion people, and is experiencing one of the world’s largest industrial revolution, and gradually emerging as a manufacturing power of global significance. The financial and insurance brokerage sector as a result plays a key role in this rapid and massive process of change. China Insurance Regulatory Commission announced that in January 2010 the insurance premiums was RMB16,498 billion, up 43.16% year-on-year.

Over the years, along with the continuous development of the China Reformation and Open Policy where mainland Chinese visiting families in Hong Kong will be more relaxed, the economy of PRC becomes more prosperous

The Company will ride on these favorable industry fundamentals and its strong and experienced management team to scale new heights via organic and acquisition growth. The Board believes that the Enlarged Group, being one of the leading insurance brokerage service provider and operator, will be strategically positioned to take up new opportunities and to capture the benefits from the growth in insurance industry in China.

RISK FACTORS

Termination of consultancy contracts

Upon Completion, the Purchaser will have entered into the management and consultancy contract(s), which is exclusive and irrevocable in nature, with the RL. The management and consultancy contract(s) represent the key income stream of the Acquisition and a very crucial factor for success of the Group’s investment in the Acquisition. If for any unforeseen reasons including, among others, (i) change of government policies, regulations etc. which force early terminations or make the management and consultancy contract(s) unenforceable; (ii) unpredictable environmental events which disrupt the operations of RL and Annuo, and the conditions are beyond the control of either parties for example, earthquake, hurricane etc. (iii) unpredictable events which are beyond the control of the Vendor and the Purchaser such as wars etc., the management and consultancy contract(s) are terminated or unenforceable, the financial position of the Group will be seriously affected and the cost of investment will not be recoverable.

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LETTER FROM THE BOARD

Experience to manage insurance brokerage business

The Group would like to highlight that although the Group has no prior experience in managing insurance brokerage business, the Group would engage insurance brokerage management talents to strengthen the existing management team.

However, the Group admits that if it is unable to recruit a due number of appropriate insurance management talents to support the on-going operation of the Target Group, the financial position of the Group will be seriously affected.

The Directors anticipate that fierce competition in the pharmaceutical industry in Mainland China, together with the fact that the Group operates in a single business segment and with significant loans, will strongly affect adversely the future earnings and prospects of the Group. In order to strengthen the capital base of the Group and to improve the Group’s financial position, immediate liquidity and cash flows, The directors of the Company, apart from continue to take action to tighten cost controls over factory overheads and various general and administrative expenses, are actively seeking new investment and business opportunities with an aim to improve the Group’s profitability and cash flow.

The Board of directors, including the independent directors considers that this acquisition should benefit the Company in the aspects of cash flow and profit generated from the Target Group with the terms under the Consideration Adjustment. The Board believes that the insurance industry in China offers a promising upside prospects to the Company and the shareholders in general.

The Directors believe the strong growth potential is driven largely by continued economic growth, the resulting wealth creation and growth of insurance link products, will drive continued growth of the Chinese insurance industry and expects that the insurance intermediary sector will benefit from the overall growth of the Chinese insurance industry.

Competition among insurance companies will force expansion of distribution channels. As the number of PRC insurance companies has increased, competition has intensified, as demonstrated by the gradual deceases in market shares of the top four insurance companies in the past few years as released by CIRC. The Directors believe that insurance companies will increasingly partner with professional insurance intermediaries with effective distribution networks in order to increase sales. Moreover, competition may also force some insurance companies to focus on their core competencies such as product development, underwriting and investment management and outsource part of their distribution functions to insurance intermediaries.

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LETTER FROM THE BOARD

International practices will increase use of professional insurance intermediaries. International insurance companies are generally more accustomed to relying on independent insurance intermediaries in distributing their products than PRC domestic insurance companies. An increasing number of international insurance companies have recently entered, or in the future will enter, into the Chinese market. Because they seek to quickly penetrate the market but lack a distribution network and sales force of their own, they tend to rely on professional insurance intermediaries with effective distribution networks for the distribution of their products.

Consumer demand will drive the growth of the insurance intermediary sector. As Chinese consumers become more sophisticated, some will want to compare insurance products and services from different insurance companies before making a purchase decision. Moreover, the proliferation of insurance products offered by an increasing number of insurance companies will cause some consumers to seek independent professional advice. Professional insurance intermediaries that offer insurance products from multiple insurance companies and equipped with well-trained sales personnel and extensive distribution channel are in a unique position to meet these consumer demands.

Favorable regulatory environment will benefit professional insurance intermediaries with potential to grow into nation-wide service providers. In its Insurance Intermediary Market Development Report for the first half of 2007, the CIRC expressed its support for market-driven consolidations among, the establishment of nation-wide service networks by, venture capital and other forms of investment in, and initial public offerings by, professional insurance intermediaries. We believe that this favorable regulatory environment will help firms and Annuo alike that already have established an extensive service network and the license granted by the CIRC to operate nationwide to further expand operations geographically and grow into truly nationwide service providers.

Regarding to the above mentioned risks, the Board will adopt certain measures to minimize the impact of adverse factors that the Target Group has to face. When the Company comes to exercise its right to appoint over 2/3s of the Board of RL, those appointed directors will possess with relevant experience and strong background in the insurance brokerage business in China.

The Company will exercise its right through the Annuo Board of Directors and external professionals with expertise to put in place a proposed risk committee with specific goals and authority to supervise the operation by putting in place the proper and up to standard codes of practice, reporting systems, management procedures and risks control systems.

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LETTER FROM THE BOARD

As a director of the Company, RL and Annuo, Mr. Zhao is a renowned veteran in the insurance industry with years of experience. Under the direction and supervision from his office in Annuo, together with the vast risk controls, financial and accounting experience from the office of Mr. Hu, who is the director of the Company, RL and Annuo, are able to minimize the impact likely imposed by adverse factors.

In view of the above risk factors and in view of the rapid growth of the insurance brokerage business, the Directors of the Company still believe entering into the transaction will be beneficial to the Group as well as the shareholders of the Company as a whole.

IMPLICATION UNDER THE GEM LISTING RULES

As the Vendor is a connected person of the Company and the applicable percentage ratios under the GEM Listing Rules of the Acquisitions are more than 25% but less than 100%, the Acquisition is a major and connected transaction for the Company under Chapters 19 and 20 of the GEM Listing Rules. The Vendor and its associates will abstain from voting at the EGM. As at the Latest Practicable Date, Mr. Zhao owns 25% of the issued share capital of Montgomery Properties Holding Limited which in turn owns 193,975,000 Shares (representing about 18.82% of the issued share capital of the Company). As Montgomery Properties Holding Limited does not fall within the meaning of “associate” under the GEM Listing Rules, it is not required to abstain from voting at the EGM. An Independent Board Committee has been formed to advise the Independent Shareholders on the terms of the Agreement and the Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Agreement.

EGM

The notice of the EGM is set out on pages 177 to 178 of this circular.

The EGM will be convened for the purpose of obtaining approval from the Shareholders for the Acquisition and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Consideration Shares, credited as fully paid, and to authorize the Board to determine and deal with matters relating thereto, at its discretion with full authority.

Proxy forms for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed proxy forms in accordance with the instructions printed thereon as soon as possible to the Company’s Hong Kong share registrar, Tricor Abacus Ltd. At 26/F, Tesbury Centre, 28 Queen’s Road East, 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.

– 21 –

LETTER FROM THE BOARD

Pursuant to Rule 17.47 of the GEM Listing Rules, all votes of the Shareholders at the general meetings must be taken by poll. The chairman of the meeting will therefore demand a poll for every resolution put to the vote of the EGM.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the Acquisitions are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution in respect of the Agreement, including the payment of consideration, allotment and issue of the Consideration Shares, credited as fully paid, to be proposed at the EGM.

ADDITIONAL INFORMATION

Your attention is also drawn to the information set out elsewhere in this circular and in the appendices to it.

By Order of the Board Hao Wen Holdings Limited Leung King Fai Company Secretary

– 22 –

LETTER FORM THE INDEPENDENT BOARD

The following is the text of the letter of recommendation, prepared for the purpose of incorporation in the circular, from the Independent Board Committee to the Independent Shareholders regarding the Acquisition

==> picture [70 x 69] intentionally omitted <==

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8019)

30 June 2010

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company to the Shareholders dated 30 June 2010 (the “ Circular ”), in which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on whether the Acquisition is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

We wish to draw your attention to the letter of advice from the Independent Financial Adviser as set out on pages 24 to 52 of the Circular and the letter from the Board as set out on pages 4 to 22 of the Circular.

Having considered, among other things, the factors and reasons considered by, and the opinion of the Independent Financial Adviser as stated in its letter of advice, we consider that the Acquisition is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions in relation to the Acquisition to be proposed at the EGM.

Yours faithfully,

For and on behalf of the

Independent Board Committee

Independent Non-executive Directors

Mr. Lam Chung Fai Mr. Leung Siu Kuen

Mr. Fu Wing Kwok, Kwing

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Agreement.

30 June 2010

To the Independent Board Committee and the Independent Shareholders Hao Wen Holdings Limited Unit 701, Tai Yau Building 181 Johnston Road Wanchai Hong Kong

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition. Details of the Acquisition are set out in the circular issued by the Company to the Shareholders dated 30 June 2010 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meaning as defined in the Circular unless the context otherwise requires.

On 24 May 2010, the Purchaser, a wholly-owned subsidiary of the Company, and the Vendor entered into the Agreement (as supplemented by the Supplemental Agreement dated 15 June 2010), pursuant to which the Purchaser agreed to acquire the operating right of RL (the “Operating Right”) for a term of 15 years from 1 June 2010 to 31 May 2025 (the “Operating Period”) from the Vendor at the Total Consideration of RMB51,000,000 (equivalent to approximately HK$59,109,000) (subject to adjustment), of which RMB28,050,000 (equivalent to approximately HK$32,509,950) will be payable in cash and RMB22,950,000 (equivalent to approximately HK$26,599,050) will be satisfied by the allotment and issue of 147,772,500 Consideration Shares, to be credited as fully paid and issued at HK$0.18 each. RL owns 51% equity interest of Annuo, a company principally engaged in the provision of insurance brokerage and consultancy services in the PRC. During the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

term of the Operating Period, the Purchaser is entitled to enjoy all economic benefits of RL in consideration for the provision of management and consultancy services to RL by the Purchaser and in turn the same to Annuo by RL. The Acquisition constitutes a major transaction of the Company pursuant to the GEM Listing Rules. The Vendor, owned as to 55% by Mr. Zhao Borui, a Director, is a connected person of the Company pursuant to the GEM Listing Rules. As such, the Acquisition also constitutes a connected transaction of the Company and is subject to the approval of the Independent Shareholders at the EGM by way of poll.

Mr. Lam Chung Fai, Mr. Leung Siu Kuen and Mr. Fu Wing Kwok, Ewing, all being independent non-executive Directors, have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Agreement are in the interests of the Company and the Shareholders as a whole, and are fair and reasonable so far as the Shareholders are concerned; and to advise the Independent Shareholders as to whether to vote in favour of the resolution approving the Agreement to be proposed at the EGM. As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in this regard.

In formulating our recommendation, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Company and its advisers; (iii) the opinions expressed by and the representations of the Directors and the management of the Group; and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects at the date thereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations provided to us by the management of the Group, the Directors and the advisers of the Company. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations regarding the Group, the Target Group and the Acquisition provided to us by the Company and/or the Directors and the management of the Group are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the EGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have reviewed sufficient relevant information currently available to reach an informed view regarding the Acquisition and to justify our reliance on the accuracy of the information provided to us and those contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinions expressed by the management of the Group, the Directors, the PRC legal advisers and the reporting accountants, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Group, the Vendor, the Target Group or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation and giving advice to the Independent Board Committee and the Independent Shareholders, we have taken into consideration the following principal factors and reasons:

1. Background to and reasons for entering into the Agreement

(i) Principal business and business strategies of the Group

The Group is principally engaged in the production and sales of medicines known as “Plasmin Capsule” and “Puli Capsule” in the PRC. Set out in tables 1, 2 and 3 below are summaries of the financial results of the Group for each of the three years ended 31 December 2009 and the three months ended 31 March 2010 as extracted from the relevant annual reports and quarterly report of the Company.

Table 1

		(Audited)
	Year	ended 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Revenue	67,466	79,226	83,468
Operating (loss)/profit	11,475	(16,432)	(18,392)
Net (loss)/profit from
ordinary activities
attributable to equity
holders of the Company	4,222	(19,051)	(32,057)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 2

	(Audited)	(Audited)
	As at	31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Net assets	25,878	5,797	8,903
Table 3
		(Unaudited)
	Three months ended 31 March
		2009	2010
	RMB’000		RMB’000
Revenue	20,554		21,323
Operating (loss)/profit		935	(6,231)
Net (loss)/profit from ordinary
activities attributable to equity
holders of the Company		180	(9,818)

As illustrated in table 1 above, the Group has recorded net losses during the past two financial years ended 31 December 2009. As stated in the Company’s annual report for the year ended 31 December 2008, the loss for the year was mainly due to substantial increase in advertising and promotion expenses as well as research and development costs. Further, as stated in the Company’s annual report for the year ended 31 December 2009 (“2009 Annual Report”), the Group’s loss-making performance for the year was mainly due to an increase in finance expenses. The Group continued to record net loss in the three months ended 31 March 2010 mainly due to increases in finance costs, advertising and promotion expenses and share based payment expenses. As at 31 December 2009, the Group’s gearing ratio (being total interest bearing borrowings divided by total assets) was approximately 28.81% and current ratio was approximately 0.25 time. The Directors anticipate that fierce competition in the pharmaceutical industry in the PRC, together with the fact that the Group operates in a single business segment and with significant loans, will strongly affect adversely the future earnings and prospects of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In light of the continued dissatisfactory performance of its sole pharmaceutical business, the Group is realigning its business portfolio. As stated in the 2009 Annual Report, following the new business direction, the Group has completed the acquisitions of a health spa business in the PRC and the exclusive distribution rights and the corresponding distribution licences for Spanish cosmetics and skin care products for the Great China Region in February 2010. These acquisitions signified significant changes in the Group’s business strategy to diversify into different business sectors that the Company believes can offer attractive returns to the Shareholders. As discussed in the quarterly report of the Company for the three months ended 31 March 2010, the Board will make every effort to improve the operating results of the Group and continue, among others, to look for new projects, so as to strengthen the profitability and minimise the performance risk of the Group.

(ii) Background of the Target Group

The following chart shows the structure of the Target Group as at the Latest Practicable Date:

Chart 1

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

2 Independent
Mr. Zhao Borui
Third Parties
55% 45%
100% 4 Independent
Vendor RL
Third Parties
16% 51% 33%
Annuo
----- End of picture text -----

As advised by the Company, RL, established in the PRC on 7 June 2010, is an investment holding company without any business or operations save for holding 51% equity interest in Annuo.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Annuo is a company established in the PRC with limited liability on 9 July 2003. The Vendor is one of the founders of Annuo and controls an aggregate of 67% equity interest in Annuo with an original cost of investment of approximately RMB30 million. Annuo operates as an insurance intermediary in the PRC under the licence granted by the China Insurance Regulatory Commission (“CIRC”). Annuo is principally engaged in the provision of insurance brokerage and consultancy services in the PRC. It operates in the life insurance and general insurance sectors. Being an independent insurance broker, Annuo distributes to individual and institutional customers insurance products underwritten by domestic insurance companies in the PRC and provides other related services, such as damage assessment, risk management and assistance with claim settlement.

According to the PRC insurance intermediary industry report for the first quarter of 2010 issued by CIRC, Annuo ranks the top 20th insurance broker in the PRC in terms of revenue, which amounted to approximately RMB9.37 million for the first quarter of 2010, representing approximately 1.04% of total revenue of the overall insurance brokerage industry.

Annuo currently has branch offices and operation departments established for the operation in areas including the city of Beijing and Hanyang, and the provinces of Shaanxi, Gansu, Liaoning and Qingdao respectively. Annuo currently has more than 30 sales representatives in the PRC. The Company confirmed that all the senior management of Annuo meet the qualification requirements set forth in the Provision on the Administration of Insurance Brokerages promulgated by CIRC which set out the principal regulations governing insurance brokerages. The Company also confirmed that all personnel of Annuo who directly engage in the insurance brokering business have passed qualification examination for insurance brokering practitioners organised by CIRC. In addition, Annuo obtains advice from consultants in various areas such as insurance, finance, electronic, law, medicine, etc. for the provision of risk management services. Mr. Zhao Borui, one of the founders and the Chairman of Annuo, is an experienced practitioner with more than 5 years of experience in the industry. We are advised by the Company that it intends to maintain the employment of the existing management team of Annuo after Completion. In addition, the Group intends to engage insurance brokerage management talents to strengthen the existing management team of the Group. In view of the above, we consider that the Group will possess sufficient expertise in managing the new business following the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Financial information of Annuo

Pursuant to the Agreement, on 7 June 2010 (i) RL and Annuo entered into an exclusive and irrevocable management and operating service agreement (“Management Agreement”) for the Operating Period. Under the Management Agreement, RL has the right to govern the overall management, administrative and financial operations of Annuo. On 24 May 2010, the Purchaser and RL entered into an exclusive and irrevocable management and consultancy agreement (“Consultancy Agreement”) for the Operating Period for the purpose of assisting RL in discharging its obligation under the Management Agreement. As stated in the letter from the Board contained in the Circular (“Letter from the Board”), upon expiry of the Consultancy Agreement, the Purchaser shall have the first right to renew such agreement for another 15 years.

Under the Management Agreement, during the Operating Period, RL is entitled to appoint over two thirds (2/3) of board members of Annuo and to nominate the chief financial controller of Annuo. Under the Consultancy Agreement, the Purchaser will provide advice to RL on the operation of insurance brokerage business in the PRC and improvement thereto, human resources and training and recruitment program, financial and information system, and financing matters. The Purchaser shall also provide sales and marketing support to RL on insurance brokerage business. The entire equity interests in RL will be pledged to the Purchaser.

We have discussed the financial effects of the Acquisition on the Group with the Company’s auditors and are advised that since the Purchaser controls the board of directors and govern the financial and operation of RL as contemplated under the Consultancy Agreement upon Completion, RL will be accounted for as a subsidiary of the Group; and as RL owns 51% equity interest of Annuo, Annuo will be accounted for as an indirect subsidiary of the Group. We have also reviewed the legal opinion provided by the Company’s PRC legal advisers in respect of the Acquisition (“PRC Legal Opinion”). According to the PRC Legal Opinion, the transactions contemplated under the Agreement, including entering into the Consultancy Agreement and the Management Agreement, comply with all applicable laws and regulations of the PRC. As confirmed by the Company and its auditors, the results of the Target Group will be consolidated into the financial statements of the Group upon Completion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Since RL has only recently been established and it has not conducted any operation up to the Latest Practicable Date, no accounts of RL is available. Set out in table 4 below are the audited consolidated financial information of Annuo prepared in accordance with International Financial Reporting Standards for the three years ended 31 December 2009 (the “Track Record Period”) as extracted from Appendix II to the Circular:

Table 4

Revenue Other income and gains Administrative expenses Profit/(loss) before taxation Income tax expenses Profit/(loss) for the year Attributable to the owners of Annuo	Year 2007 RMB 3,085,116 5,527 (4,505,152) (1,414,509) 87,177 (1,327,332) (1,327,332)	ended 31 December 2008 2009 RMB RMB 3,872,684 18,278,078 4,607 5,255 (4,120,571) (14,335,470) (243,280) 3,947,863 (8,739) (621,584) (252,019) 3,326,279 (252,019) 3,326,279

As illustrated in table 4 above, the financial performance of Annuo improved encouragingly during the Track Record Period. Annuo commenced its operation in June 2003. Annuo receives commissions paid by insurance companies, generally calculated as a percentage of premiums paid by the policyholders to the insurance companies. Revenue increased considerably from approximately RMB3.09 million for the year ended 31 December 2007 to approximately RMB18.28 million for the year ended 31 December 2009, representing a compound annual growth rate of approximately 143.41%. A profit of approximately RMB3.33 million was recorded for the year ended 31 December 2009 compared to losses of approximately RMB1.33 million for the year ended 31 December 2007 and approximately RMB0.25 million for the year ended 31 December 2008.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that the improvement in the financial performance of Annuo during the Track Record Period was largely attributable to the increase in revenue. Based on our discussion with the management of the Company regarding the financial performance of Annuo during the Track Record Period, it is our understanding that the increase in revenue was primarily attributed to (i) the recovery from the global financial crisis in the second half of 2009; (ii) the expansion of operation by setting up new branch offices; (iii) the strengthening of the management team and sales team through recruiting members with high calibre and extensive business connection and increasing resources spent on staff training; (iv) improvement in operation efficiency; and (v) the concerted efforts of Annuo’s sales team in seizing business.

(iv) Prospects of the PRC insurance brokerage industry and Annuo

The PRC insurance industry has grown substantially in recent years. According to CIRC, from 2001 to 2009, total insurance premiums increased from approximately RMB210.94 billion to RMB1,114.73 billion, representing a compound annual growth rate of approximately 23.12%. We believe that the growth is attributable to, among others, certain macroeconomic and demographic factors, such as GDP growth and aging of the population. These factors are expected to continue to drive the growth of the PRC insurance industry.

The PRC insurance intermediary industry is in its early stage of development and has been experiencing rapid growth over the recent years. Insurance intermediaries, including insurance agencies, insurance brokers, insurance salespersons and ancillary-business insurance agencies, are gradually becoming an important channel for insurance companies to distribute their products. According to CIRC, for 2009, insurance premium generated through insurance intermediaries amounted to approximately RMB916.11 billion, representing an increase of approximately 13.89% compared to the previous year. This contributed to about 82.26% of total insurance premium generated for the PRC insurance industry during the year, of which approximately 2.20% was contributed by insurance brokers. Total revenue of insurance intermediaries amounted to approximately RMB88.19 billion for 2009, representing an increase of about 22.49% compared to 2008. Insurance brokers receive commissions paid by insurance companies, generally calculated as a percentage of premiums paid by the policyholders to the insurance companies. Accordingly, the growth in overall insurance premiums will have a positive impact on the revenue of insurance brokers. Total revenue of insurance brokers in 2009 amounted to approximately RMB3.31 billion, representing an increase of approximately 24.91% compared to the previous year.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to CIRC, for the first quarter of 2010, insurance premium generated through insurance intermediaries amounted to approximately RMB374.99 billion, representing an increase of approximately 34.35% compared to the same period in the previous year. This contributed to about 82.57% of total insurance premium generated for the PRC insurance industry during the period, of which approximately 1.35% was contributed by insurance brokers. Total revenue of insurance intermediaries amounted to approximately RMB30.14 billion for the first quarter of 2010, representing an increase of about 38.54% compared to the same period in 2009. Total revenue of insurance brokers in the first quarter of 2010 amounted to approximately RMB904.0 million, representing an increase of approximately 36.97% compared to the same period in 2009.

Insurance companies traditionally relied principally on their exclusive sales representatives to distribute their products. However in recent years, amid increased competition in the PRC insurance industry and the need for insurance companies to expand their distribution network to improve sales, insurance companies gradually choose to also use insurance intermediaries to sell their products. In addition, newly established insurance companies which have yet to establish their own distribution network also choose to rely on insurance intermediaries to distribute their products. We are advised by the Company that, as the PRC insurance industry matures and competition continue to intensify, they expect insurance companies will allow insurance intermediaries to distribute a wider range of products, outsource claims adjusting functions to professional insurance intermediaries and provide more incentives to insurance intermediaries to sell their products in an attempt to enhance sales while focusing on their core businesses, such as production development and asset management.

According to CIRC, there were 2,564 insurance intermediaries across PRC by the end of the first quarter of 2010, of which 381 are insurance brokers. However, there are only 4 insurance brokers, including Annuo, being granted the licence to conduct nation-wide insurance brokerage business. We are of the opinion that with the licence to operate nation-wide insurance brokerage business, Annuo is well positioned to fully capitalise on its experienced management and sales team by establishing a nation-wide branch network in order to develop its insurance brokerage business across the PRC to exploit the rapid growth of the PRC insurance intermediary industry.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(v) Reasons for and benefits of the Acquisition

As referred to in the Letter from the Board, the Directors consider that the Acquisition provides an invaluable investment opportunity to the Group in diversifying its business and to maximise return to the Company and the Shareholders in the long run.

In view of (i) the track record of Annuo; (ii) the rapid growth of the PRC insurance intermediary industry; (iii) the business prospect of Annuo; and (iv) the controlling stake in the Target Group which enables the Company to fully enjoy the business potential of Annuo, we concur with the view of the Company that the Acquisition is beneficial to the Group as it enables the Group to diversify its business into a fast growing industry and broaden its revenue source, which in turn would improve the Shareholders’ return. This conforms to the Group’s stated business objective and expansion strategy as discussed above.

(vi) Conclusion

In light of the foregoing, we are of the view that entering into the Agreement by the Group is in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Agreement

(i) The Total Consideration and its basis of determination

The Total Consideration for the Acquisition payable by the Group to the Vendor was agreed at RMB51,000,000 (equivalent to approximately HK$59,109,000), of which RMB28,050,000 (equivalent to approximately HK$32,509,950) will be payable in cash and RMB22,950,000 (equivalent to approximately HK$26,599,050) will be satisfied by the allotment and issue of 147,772,500 Consideration Shares, credited as fully paid and issued at HK$0.18 each. The Total Consideration is subject to adjustment as discussed in section (2)(iv) below.

It is noted that the Total Consideration was determined after arm’s length negotiations between the Purchaser and the Vendor having considered (i) that the Purchaser will effectively control 51% economic benefit of Annuo; and (ii) the consideration adjustment mechanism as discussed in section (2)(ii) below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Consideration adjustment

Pursuant to the Agreement, the Vendor guaranteed and warranted to the Purchaser that the audited consolidated net profit after taxation of Annuo under International Financial Reporting Standards for each of the two financial years ending 31 December 2010 and 2011 (“Guarantee Period”) shall not be less than RMB10,000,000. In the event that such amounts are not achieved, the Vendor shall pay to the Purchaser in cash a sum of RMB X based on the following formula:

For the year ending 31 December 2010

RMB X (2010) = (RMB10,000,000 – the actual net profit after taxation of Annuo for the year ending 31 December 2010) x 51% x ER

For the year ending 31 December 2011

RMB X (2011) = (RMB10,000,000 – the actual net profit after taxation of Annuo for the year ending 31 December 2011) x 51% x ER

where

“ER” = 10, being the implied price-earnings multiple (“PER”) based on the Total Consideration and the net profit after taxation of Annuo for each of the years during the Guarantee Period as implied by the Consideration Adjustment (as defined below)

For the purpose of the above calculations, should Annuo records net loss during the Guarantee Period, it shall be deemed to have recorded zero net profit/loss after taxation for the relevant year.

In the event that the audited consolidated net profit after taxation of Annuo for either of the years during the Guarantee Period is less than RMB10,000,000, the Total Consideration will be adjusted (“Consideration Adjustment”) as follow:

Adjusted Total Consideration = Total Consideration – RMB X (2010) – RMB X (2011)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

There will be no upward adjustment to the Total Consideration. In the event that the audited consolidated net profit after taxation of Annuo for the year ending 31 December 2010 is less than RMB10,000,000, the Purchaser is not required to pay the part payment of RMB7,012,500 (equivalent to approximately HK$8,127,488) as stated in point (a) of section (2)(iv) below (the “Third Payment”). For the avoidance of doubt, where the Third Payment is forfeited, the Vendor is only required to pay the Purchaser the amount which RMB X (2010) and/or RMB X (2011) (as the case may be) is/are in excess of the Third Payment.

Pursuant to the Agreement, Mr. Zhao Borui, the major shareholder of the Vendor, has provided a guarantee for the due performance of its responsibilities under the Agreement by the Vendor, including the due payment by the Vendor to the Purchaser of RMB X (2011).

We have discussed with the management of the Group in respect of the basis of determination of the warranted audited consolidated net profits after taxation of Annuo of RMB10,000,000 of which the Consideration Adjustment is based and were advised that they were determined after arm’s length negotiation between the Purchaser and the Vendor taking into account (i) the financial performance of Annuo during the Track Record Period; (ii) that Annuo ranks the top 20th insurance broker in the PRC in terms of revenue for the first quarter of 2010; (iii) that Annuo accounts for approximately 1.04% of the total revenue of PRC insurance brokers for the first quarter of 2010; (iv) the branch network of Annuo; (v) the prospect in the PRC insurance brokerage industry; (vi) the experienced and competent management, sales and consultants team of Annuo; (vii) that Annuo is one of the four insurance brokers in the PRC being granted the licence to operate nation-wide insurance brokerage business; and (viii) the prospect of Annuo as discussed in section (1)(iv) above.

Based on the above, we consider that the consideration adjustment mechanism, together with the provision of the guarantee by Mr. Zhao Borui has provided downside protection to the Company against any shortfall in the net profits of Annuo during the Guarantee Period and therefore we consider the Consideration Adjustment is fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Comparable analysis

The Purchaser has agreed to acquire 51% economic interest of Annuo at the Total Consideration of RMB51,000,000. This valuates the entire interest of Annuo at RMB100,000,000, which represents (i) a historical PER of approximately 30.06 times of Annuo’s audited consolidated profit after taxation of approximately RMB3.33 million for the financial year ended 31 December 2009; and (ii) a PER of 10.0 times based on the net profit after taxation of Annuo of RMB10,000,000 for each of the years during the Guarantee Period as implied by the Consideration Adjustment. As the business of Annuo, being the provision of insurance brokerage services, is not an asset based business, we consider that it is not appropriate to value Annuo by reference to its net asset value.

In order to assess the fairness and reasonableness of the Total Consideration, we have, to our best efforts, attempted to compare the implied PER of the Total Consideration with the PERs of other Hong Kong listed companies with similar principal activities, being the provision of insurance brokerage services. However, we are unable to identify any companies listed on the Stock Exchange principally engaged in the provision of insurance brokerage services. As an alternative, we have extended our scope of comparables to insurance intermediaries listed on other major stock exchanges so far as we are aware of as at the Latest Practicable Date (“Comparable Companies”). We noted that all the Comparable Companies have significantly larger market capitalisation than the value of Annuo. However, as observed from table 5 below, we do not find any direct correlation between the size of market capitalisation and PER (i.e. companies with larger market capitalisation not necessarily accord with a higher PER). As such, we consider the comparison with companies of larger market capitalisation provides a relevant reference for assessing the fairness and reasonableness of the Total Consideration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the respective PERs of the Comparable Companies and made a comparison on this basis with the Total Consideration in our analysis as detailed in table 5 below.

Table 5

			Current
Comparable			market
Companies	Exchange	Principal activities	capitalisation	PER
			(HK$ million)	(times)
CNinsure Inc.	Nasdaq	Operates an independent insurance agency and	9,893	27.51
		brokerage company in the PRC. The company
		provides insurance-related services, such as claim
		assessments and 24-hour emergency services
Willis Group	NYSE	Engaged in insurance brokerage globally. The	41,106	11.14
Holdings Plc		company offers professional insurance, reinsurance,
		risk management, financial and human resources
		consulting and actuarial services to corporations,
		public entities and institutions around the world
Aon Corporation	NYSE	Engaged in risk and insurance brokerage consulting.	81,369	12.18
		The company’s services include helping manage
		risk for clients, negotiating and placing insurance
		risk with other carriers, and advising clients related
		to health and benefits, retirement, compensation,
		strategic human capital, and human resources
		outsourcing
Arthur J.	NYSE	Engaged in provision of insurance brokerage, risk	20,929	19.04
Gallagher &		management, employee benefit, and other related
Co.		services to clients in the United States and abroad.
		The company’s principal activity is the negotiating
		and placement of insurance for its clients. The
		company also specialises in furnishing risk
		management services
Average				17.47
Maximum				27.51
Minimum				11.14

Source: Bloomberg

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As noted from table 5 above, the implied historical PER based on the Total Consideration and the net profit after taxation of Annuo for the year ended 31 December 2009 of approximately 30.06 times is higher than the range of the PERs of the Comparable Companies. The implied PER of 10.0 times based on the Total Consideration and the net profit after taxation of Annuo for each for the years during the Guarantee Period as implied by the Consideration Adjustment is below the range of the PERs of the Comparable Companies and significantly less than the average and highest PERs of the Comparable Companies. In particular, we consider that CNinsure Inc. is the closest comparable to Annuo in terms of its business activities and geographical presence. CNinsure Inc. has the highest PER among the Comparable Companies, which is more than double of the implied PER based on the Total Consideration and the net profit after taxation of Annuo for each for the years during the Guarantee Period as implied by the Consideration Adjustment.

We wish to highlight that the above comparisons with the Comparable Companies are for illustrative purposes only as each of the Comparable Companies may not be entirely comparable to Annuo in terms of the listing status and exchange, market capitalisation, geographical spread of activities, scale of operations, asset base, risk profile, track record, composition of their business activities, future prospects and other relevant criteria. All these factors may affect the valuation of a company as indicated by the varied range of result in our comparison. Therefore, in forming our opinion, we have considered the results of the above comparison together with all other factors stated in this letter as a whole.

Although the implied historical PER of the Total Consideration for the year ended 31 December 2009 is higher than the range of PERs of the Comparable Companies, given (i) that Annuo has been in its early stage of business life cycle which shown relatively fast pace of growth in the past years; (ii) the growth potential of Annuo as discussed in section (1)(iv) above; (iii) that from our review of the management accounts of Annuo for the four months ended 30 April 2010, we notice substantial improvement in its financial performance as compared to the same period in the previous year due to the expansion of operation and the strengthening of sales efforts; (iv) that the consolidated net profit after taxation of Annuo for each of the years during the Guarantee Period as implied by the Consideration Adjustment amounts to RMB10,000,000; (v) that the implied PER based on the Total Consideration and the net profit after taxation of Annuo for each for the years during the Guarantee Period as implied by the Consideration Adjustment is below the range of the PERs of the Comparable Companies and significantly below the average and highest PERs of the Comparable Companies; and (vi) that the Total Consideration is

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

subject to downward adjustment which provides downside protection to the Company against any shortfall in the net profits of Annuo during the Guarantee Period, we are of the view that the Total Consideration (including the Consideration Adjustment) as well as its basis of determination, is fair and reasonable so far as the Independent Shareholders are concerned.

(iv) Settlement of the Total Consideration

Pursuant to the Agreement, the Total Consideration shall be payable by the Purchaser in the following manner:

• (a) as to RMB14,025,000 (equivalent to approximately HK$16,254,975) to be paid within 10 business days after Completion;

• (b) as to RMB7,012,500 (equivalent to approximately HK$8,127,488) to be paid within 10 business days after the issue of the latest quarterly financial result of RL;

• (c) as to RMB7,012,500 (equivalent to approximately HK$8,127,488) to be paid if the audited consolidated net profit after taxation of Annuo for the year ending 31 December 2010 is RMB10,000,000 or above and payable within 10 business days after the audited financial statements of Annuo for the year ending 31 December 2010 have been issued by the auditors; and

• (d) as to RMB22,950,000 (equivalent to approximately HK$26,599,050) to be satisfied by the issuance of 147,772,500 Consideration Shares at a price of HK$0.18 within 10 business days after Completion.

As discussed with the Company, we were confirmed that the RMB28,050,000 (equivalent to approximately HK$32,509,950) cash consideration will be financed by the Group’s internal resources, including the proceeds of approximately HK$16 million from the share subscription announced by the Company on 7 June 2010. As discussed in section (4)(iii) below, the Company would have sufficient financial resources to satisfy the cash portion of the Total Consideration in full and that there will be no material adverse impact on the Group’s working capital position as a result of the Acquisition. We consider that the aforesaid payment method with the combination of cash and equity to be favourable to the Group given that it enables the Group to implement the Acquisition with less cash outlay. However, this involves the issue of new Shares with consequent dilution to the shareholdings of the existing Shareholders, details of which are set out in section (5) below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(v) Other terms of the Agreement

We have also reviewed the other major terms of the Agreement and are not aware of any terms which are exceptional to normal market practice.

(vi) Conclusion

In light of the foregoing, we are of the opinion that the terms of the Agreement are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3. The issue and allotment of the Consideration Shares

As discussed in section (2)(i) above, 45% of the Total Consideration will be satisfied by the allotment and issue of the Consideration Shares. It is noted that the Consideration Shares will rank pari passu in all respects with the Shares in issue upon allotment and issue thereof within 10 business days after Completion and will be issued at HK$0.18 per Share (the “Issue Price”). The 147,772,500 Consideration Shares to be issued represent about 14.34% of the issued share capital of the Company as at the Latest Practicable Date and about 12.54% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

We were advised by the Company that the Issue Price was arrived at after arm’s length negotiations between the Purchaser and the Vendor after taking into account the then recent Share prices prior to the signing of the Agreement. In order to assess the fairness and reasonableness of the Issue Price, we have reviewed (i) the price performance of the Shares for the 12 month period prior to the Last Trading Day and up to and including the Latest Practicable Date (the “Review Period”); and (ii) the prices of the consideration shares issued by the Company and other Hong Kong listed companies in relation to acquisitions of business or assets.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(i) Historical price performance of the Shares

The chart below shows the daily closing prices of the Shares as quoted on the Stock Exchange during the Review Period:

Chart 2

Daily closing price during the Review Period

==> picture [318 x 243] intentionally omitted <==

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

0.35
0.30
0.25
Issue price = HK$0.18
0.20
0.15
0.10
Suspension of trading
0.05
0.00
25/5/200924/6/200924/7/200923/8/200922/9/200922/10/200922/11/200921/12/200920/1/201019/2/201021/3/201020/4/201020/5/201019/6/2010
----- End of picture text -----

Source: Website of the Stock Exchange (www.hkex.com.hk)

The trading of the Shares was suspended (i) from 1 April 2010 to 20 April 2010, pending the release of the result announcement for the year ended 31 December 2009; and (ii) from 25 May 2010 to 27 May 2010, pending the release of the Announcement. As illustrated in the above chart, the Share price increased significantly in November 2009 following the announcement of the change in the beneficial owners of the largest Shareholder on 12 November 2009 and has remained generally steady at a level close to the Issue Price since February 2010. The Issue Price represents:

• (a) a premium of approximately 8.43% over the closing price of HK$0.166 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (b) a premium of approximately 6.64% over the average closing price of HK$0.1688 per Share as quoted on the Stock Exchange for the five consecutive trading days up to an including the Last Trading Day;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (c) a premium of approximately 3.03% over the average closing price of HK$0.1747 per Share as quoted on the Stock Exchange for the ten consecutive trading days up to an including the Last Trading Day;

• (d) a premium of 20% over the closing price of HK$0.15 per Share on the Latest Practicable Date; and

• (e) a premium of 18 times over the audited consolidated net asset value per Share of the Group of approximately RMB0.009 (equivalent to approximately HK$0.01) as at 31 December 2009 based on the audited consolidated net asset value of the Group as extracted from Appendix I to the Circular and 1,030,500,900 Shares in issue as at the Latest Practicable Date.

(ii) Comparable analysis

To assess whether the relevant premiums represented by the Issue Price set out in sub-section (3)(i) above are in line with those of other acquisition transactions involving issue of consideration shares, we have compared then with the acquisitions of the health spa business and the cosmetics and skin care business by the Company announced in December 2009 (the “December Acquisitions”). The vendors of the December Acquisitions are independent from the Company and its connected persons. Details of the consideration issue of the two acquisitions are set out in table 6 below.

Table 6

		Premium/
		(discount) of
		the issued	Premium/(discount)		of
		price of the	the issue price of the consideration shares
		consideration	over/(to) the closing price/average
Amount		shares	closing price of shares of
involved	Issue price	over/(to) the		last 5 trading	last 10		trading
for the	of the	net asset		days before		days before
consideration	consideration	value per	Last	the last			the last
shares	shares	share	trading day	trading day		trading day
(HK$ million)	(HK$)	(%)	(%)	(%)			(%)
15	0.22	1,396.60	(8.33)	(9.10)			(10.60)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in table 6 above, we noted that the consideration shares of the December Acquisitions were issued at discounts to the then recent Share prices whereas the Issue Price represents a premium over recent Share prices prior to the Last Trading Day. The Issue Price represents a premium of 18 times over the audited consolidated net asset value per Share of the Group as at 31 December 2009 while the consideration shares of the December Acquisitions were issued at a premium of approximately 14 times over the unaudited net asset value per Share of the Group as at 30 June 2009.

Further, we have attempted to compare the relevant premiums represented by the Issue Price set out in sub-section (3)(i) above with acquisition transactions involving issue of shares as consideration of HK$50 million and below undertaken during the past six months immediately preceding the Last Trading Day by Hong Kong listed companies with principal activities similar to those of the Group and/ or the Target Group as the basis of our comparison. However, we are unable to identify any relevant acquisition transactions during the aforesaid period by other pharmaceutical companies listed in Hong Kong. Further, we are unable to identify any Hong Kong listed company principally engaged in the provision of insurance brokerage services. As an alternative, based on the information available on the website of the Stock Exchange, we have, to the best of our effort, identified and made references to, so far as we are aware, all relevant acquisition transactions effected during the aforesaid period by companies which are engaged in various businesses different from that of the Group and/or the Target Group (the “Comparable Consideration Issues”). We believe that although all the aforementioned Hong Kong listed companies are not engaged in the similar principal activities as the Group and/ or the Target Group, they provide a reasonable size of comparison basis and could reflect the recent trend of the terms of issue of consideration shares in the market. We are mindful of the fact that the terms of the Comparable Consideration Issues may vary under different stock market conditions as well as among companies with different financial standings and business performance. Nevertheless, we consider that a broader comparison of issuance of consideration shares announced recently would provide a more general reference for the terms of issue of the Consideration Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the respective issue prices of the consideration shares under the Comparable Consideration Issues and their respective comparison with the then prevailing share prices of the relevant Hong Kong listed companies. Details of the Comparable Consideration Issues are set out in the following table:

Table 7

				Premium/
				(discount) of the issued	Premium/(discount) of
				price of the consideration	the issue price of the consideration shares over/(to) the closing price/average
		Amount		shares	closing price of shares of
		involved	Issue price	over/(to) the		last 5 trading	last 10 trading
		for the	of the	net asset		days before	days before
Company	Date of the	consideration	consideration	value per	Last	the last	the last
(Stock code)	announcement	shares	shares	share	trading day	trading day	trading day	Principal activities
		(HK$ million)	(HK$)	(%)	(%)	(%)	(%)
China Metal Resources	24/6/2010	48	0.24	0.34	14.83	14.07	9.84	Sales of customised
Holdings Limited (Stock								software and related
code: 8071)								computer equipment;
								provision of technical
								support and maintenance
								services; sharing of
								profits of a junket
								representative of a
								VIP lounge in a casino
								in Macau and money
								lending business
Come Sure Group (Holdings)	20/4/2010	9	1.392	25.20	6.26	4.35	3.57	Manufacture and sale of
Limited (Stock code: 794)								corrugated paperboards
								and paper-based packing
								products
Qin Jia Yuan Media Services	16/4/2010	38	1.788	51.79	19.20	17.63	18.41	Provision of cross-media
Company Limited								services including
(Stock code: 2366)								television program
								and production related
								services, marketing
								and promotion, cross-
								media (including outdoor
								media) advertising, art
								and performance, home
								TV shopping, etc, and
								related services in the
								PRC
Sino Union Energy Investment	9/4/2010	11	0.896	(36.45)	5.41	2.99	0.11	Trading of fuel oil and
Group Limited								polyurethane materials,
(Stock code: 346)								and oil and gas
								exploration, exploitation
								and operation
China Star Investment	31/3/2010	18	0.681	(84.49)	(7.97)	7.08	10.73	Distribution of films,
Holdings Limited								sub-licensing of film
(Stock code: 764)								rights, sales of financial
								assets and provision of
								management services to
								concierge departments of
								gaming promoters
AGTech Holdings Limited	5/3/2010	22	0.38	31.49	28.80	31.50	39.70	Sports lottery management
(Stock code: 8279)								and marketing
								consultancy services,
								supply of sports lottery
								sales terminals; lottery
								information technology
								solutions; and enterprise
								solutions
Wing Hing International	17/2/2010	45	0.2	21.21	(3.38)	7.53	6.38	Construction of
Holdings Limited								superstructures,
(Stock code: 621)								foundation piling,
								substructure works, slope
								improvement, special
								construction projects,
								interior decoration and
								landscaping works in
								HK; operations of coal
								mines and leasing of
								mining licenses in the
								PRC

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/
				(discount) of the issued	Premium/(discount) of
				price of the consideration	the issue price of the consideration shares over/(to) the closing price/average
		Amount		shares	closing price of shares of
		involved	Issue price	over/(to) the		last 5 trading	last 10 trading
		for the	of the	net asset		days before	days before
Company	Date of the	consideration	consideration	value per	Last	the last	the last
(Stock code)	announcement	shares	shares	share	trading day	trading day	trading day	Principal activities
		(HK$ million)	(HK$)	(%)	(%)	(%)	(%)
Grand TG Gold Holdings	8/2/2010	14	0.32	145.68	280.95	272.96	276.47	Gold exploration, mining
Limited (Stock code: 8299)					(Note)	(Note)	(Note)	and mineral processing
								in the PRC; design,
								manufacture and
								distribution of desktop
								PC components
Chun Wo Development	5/2/2010	36	0.64	(58.17)	4.92	0.95	1.59	Civil engineering,
Holdings Limited (Stock								electrical and mechanical
code: 711)								engineering, foundation
								and building construction
								work, property
								development, property
								investment and provision
								of security and property
								management services
Xpress Group Limited (Stock	8/1/2010	41	0.135	(40.88)	(3.57)	(6.64)	(4.86)	Investment holding,
code: 185)								property investment,
								hotel operations,
								securities investments,
								treasury investment and
								financing business
China Outdoor Media Group	28/12/2009	13	0.13	124.91	(38.39)	(34.34)	(33.67)	Outdoor media advertising
Limited (Stock code: 254)								and media related
								services
China Environmental Resources	23/12/2009	40	0.112	70.76	(14.50)	(11.81)	(9.97)	Sales of organic fertilisers,
Group Limited (Stock code:								sales of plantation
1130)								products and property
								development
Natural Dairy (NZ) Holdings	10/12/2009	26	0.80	3,760.47	9.59	11.00	12.68	Provision of engineering
Limited (Stock code: 462)				(Note)				systems contracting and
								supporting services and
								sale of related spare parts
								and consumables
China Trends Holdings Limited	10/12/2009	18	0.125	6.75	6.84	6.84	6.84	Sales and marketing of
(Stock code: 8171)								mobile phone appliance
								and the relevant parts
								solution in Mainland
								China market
Bio-Dynamic Group Limited	1/12/2009	37	0.471	(31.70)	(2.90)	(10.80)	0.00	Distribution and production
(Stock code: 39)								of ethanol products
New Focus Auto Tech Holdings	25/11/2009	14	1.78	242.68	(4.81)	(3.78)	(3.26)	Manufacture and sales of
Limited (Stock code: 360)								electronic and power-
								related automotive parts
								and accessories and the
								provision of automobile
								repair, maintenance and
								restyling services and
								retail distribution of
								merchandise goods
Maximum				242.68	28.80	31.50	39.70
Minimum				(84.49)	(38.39)	(34.34)	(33.67)

Source: Website of the Stock Exchange (http://www.hkex.com.hk)

Note: These ratios are considered as extreme outliers and thus excluded from the analysis. Only those ratios within two standard deviations of the respective ratios of the Comparable Consideration Issues are included in the analysis.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in table 7 above, we noted that:

• the premium of about 8.43% represented by the Issue Price over the closing price of the Shares of the Last Trading Day is within the range of ratios of the Comparable Consideration Issues for their respective last trading days, which range between a premium of about 28.80% and a discount of about 38.39%;

• the premium of about 6.64% represented by the Issue Price over the average closing price of the Shares for the last five trading days up to and including the Last Trading Day is within the range of ratios of the Comparable Consideration Issues for their respective last five trading days, which range between a premium of about 31.50% and a discount of about 34.34%;

• the premium of about 3.03% represented by the Issue Price over the average closing price of the Shares for the last ten trading days up to and including the Last Trading Day is within the range of ratios of the Comparable Consideration Issues for their respective last ten trading days, which range between a premium of about 39.70% and a discount of about 33.67%; and

• the premium of 18 times represented by the Issue Price to the net asset value of the Group per Share is higher than the range of ratios of the Comparable Consideration Issues for their respective net asset value per share, which range between a premium of about 242.68% and a discount of about 84.49%.

(iii) Conclusion

We note that the ranges of premium/discount for the issue prices of consideration shares in the Comparable Consideration Issues are very wide. This might be due to specific circumstances facing each of the Comparable Consideration Issues. Given the wide range, we consider that the premium/discount for the issue of consideration shares in the Comparable Consideration Issues may not be useful as a direct reference to the fairness and reasonableness of the Issue Price. In addition, the terms of the issue of the Consideration Shares are not comparable to the terms of the issue of the consideration shares for the December Acquisitions. Therefore, in forming our opinion, we have considered the results of the above analysis together with all other factors stated in this letter as a whole.

In light of the foregoing, we are of the view that the Issue Price is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of both the Company and the Shareholders as a whole.

– 47 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Financial impact of the Acquisition on the Group

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

(i) Net asset value

Based on the unaudited pro form consolidated financial information of the Enlarged Group set out in Appendix III to the Circular (the “Pro Forma Financial Information”), the net asset value of the Group would be increased from approximately RMB8.90 million to approximately RMB47.23 million assuming that Completion had taken place on 31 December 2009. Based on the number of issued Shares of 1,030,500,900 Shares as at the Latest Practicable Date and the number of issued Shares after the issue of the Consideration Shares of 1,178,273,400, the net asset value per Share would be increased from approximately RMB0.0086 to RMB0.040. The increase in the net asset value per Share immediately after the issue of the Consideration Shares is mainly attributable to (i) the issue of the Consideration Shares at the Issue Price to settle the Total Consideration partially; (ii) the inclusion of the net asset value of Annuo of approximately RMB31.39 million as at 31 December 2009; and (iii) the recognition of goodwill in respect of the Acquisition amounting to approximately RMB34.99 million.

(ii) Earnings

As set out in Appendix II to the Circular, Annuo recorded net profit after taxation of approximately RMB3.33 million for the year ended 31 December 2009. In view of (i) the profitable track record of Annuo for the year ended 31 December 2009; (ii) the substantial improvement in the financial performance of Annuo during the Track Record Period as discussed in section (1)(ii) above; and (iii) that the net profit after taxation of Annuo for each of the years during the Guarantee Period as implied by the Consideration Adjustment amounts to RMB10,000,000, we are of the view that the Acquisition is expected to have positive contribution to the earnings of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Working capital position

Based on the consolidated cash flow statements of Annuo as set out in Appendix II to the Circular, Annuo generated approximately RMB3.44 million, RMB297,928, and RMB30.64 million cash inflow from operating activities for the three years ended 31 December 2007, 2008 and 2009 respectively. We are advised by the Company that it is expected that the Target Group will be able to finance its operations independently from the Group.

As discussed in section (2)(iii) above, 45% of the Total Consideration will be satisfied by the allotment and issue of the Consideration Shares. Based on the Pro Forma Financial Information, the Group had cash and cash equivalent balance of approximately RMB18.64 million as at 31 December 2009 and the cash and cash equivalent balance of the Enlarged Group will be increased to approximately RMB35.89 million. The Company has confirmed to us that there has been no material change to the cash balance of the Group since 31 December 2009 and up to the Latest Practicable save for (i) the receipt of the net proceeds from the share subscription completed by the Company in March 2010; (ii) the contribution to the establishment of a joint venture in April 2010; and (iii) the consideration paid for the December Acquisitions. The Company has confirmed to us that the Group would have sufficient financial resources to satisfy the cash portion of the Total Consideration in full and that there will be no material adverse impact on the Group’s working capital position as a result of the Acquisition, after taking into account (i) the Group’s current working capital position and working capital requirements for short to medium term; (ii) the settlement method for the Total Consideration as discussed in section (2)(iii) above (including that the cash portion of the Total Consideration will be settled by stage payments until the issue of the audited financial statements of Annuo for the year ending 31 December 2010); (iii) the receipt of net proceeds of approximately HK$16 million from the share subscription announced by the Company on 7 June 2010; (iv) the banking facilities currently available to the Group and the possibility of loan refinancing; (v) the general mandate granted by the Shareholders to the Directors to issue new Shares which may be ultilised as and when required for equity fund raising; and (vi) that the Target Group is expected to be able to finance its operations independently from the Group.

Further, as stated in the Letter from the Board, taking into account the expected completion of the Acquisition and the internally generated funds available to the Enlarged Group, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirements without relying on any banking facilities, that is for at least the next 12 months from the date of the Circular, in the absence of unforeseeable circumstances.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Gearing ratio

According to the 2009 Annual Report, the Group had a gearing ratio (defined as the total interest bearing liabilities to the total assets) of approximately 28.81% as at 31 December 2009. Based on the Pro Forma Financial Information, the gearing ratio of the Enlarged Group would be decreased to approximately 18.16% assuming that Completion had taken place on 31 December 2009, mainly attributable to the increase in total assets as a result of the Acquisition.

(v) Conclusion

In view of the foregoing, we are of the opinion that the impact on the financial position of the Group as a result of the Acquisition to be acceptable in this regard.

5. Potential dilution effect on the shareholdings of the existing Shareholders

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date, and for illustrative purpose, the effects to the shareholding of the Company upon the issue of the Consideration Shares (assuming that there will be no change in the Company’s shareholding structure from the Latest Practicable Date to the date of Completion):

Table 8

Shareholders Montgomery Properties Holding Limited (Note) Vendor Public Shareholders Total	As at the Latest Practicable Date Number of Shares Approximate % of issued Shares 193,975,000 18.82% – – 836,525,900 81.18% 1,030,500,900 100.0%	Immediately upon the allotment and issue of the Consideration Shares Number of Shares Approximate % of issued Shares 193,975,000 16.46% 147,772,500 12.54% 836,525,900 71.00% 1,178,273,400 100.0%	Immediately upon the allotment and issue of the Consideration Shares Number of Shares Approximate % of issued Shares 193,975,000 16.46% 147,772,500 12.54% 836,525,900 71.00% 1,178,273,400 100.0%
			100.0%

Note: Montgomery Properties Holding Limited is an investment holding company incorporated in the British Virgin Islands and is owned as to 75% by Mr. Hu Yangxiong and 25% by Mr. Zhao Borui.

– 50 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in table 8 above, upon the issue of the Consideration Shares, the shareholding interests of the existing public Shareholders will be diluted from about 81.18% to 71.0%. Taking into account (i) the reasons for and benefits of the Acquisition as discussed above; (ii) that the terms of the Agreement and the Issue Price are fair and reasonable so far as the Independent Shareholders are concerned; (iii) that the shareholdings of all existing public Shareholders will be diluted proportionally to their respective shareholdings upon the issue of the Consideration Shares; (iv) and that the issue of the Consideration Shares allows the Group to pursue the Acquisition with less cash outlay, we consider the potential dilution on the shareholdings of the existing public Shareholders upon Completion to be acceptable in this regard.

RECOMMENDATION

Having considered the principal factors and reasons discussed above and in particular the following (which should be read in conjunction with and interpreted in the full context of this letter):

• the reasons for and the benefits of the Acquisition as discussed in section (1) above;

• that the Acquisition is in line with the Group’s stated business objective and strategy as discussed in section (1)(i) above;

• that the Total Consideration after taking into account the Consideration Adjustment is fair and reasonable;

• that the terms of the Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole;

• that the Issue Price is in general fair and reasonable so far as the Independent Shareholders are concerned;

– 51 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• that the impact on the financial position of the Group as a result of the Acquisition is considered to be acceptable; and

• that the potential dilution effect on the shareholdings of the existing Shareholders is considered to be acceptable,

we consider that though the entering into of the Agreement by the Group is conducted otherwise than its ordinary and usual course of business, it is however based on normal commercial terms, and the terms thereof are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Agreement.

Yours faithfully, For and on behalf of Quam Capital Limited Gary Mui Executive Director

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the financial information of the Group for each of the three years ended 31 December 2007, 2008 and 2009 as extracted from the annual reports for the years ended 31 December 2008 and 2009.

Revenue Profit before income tax Income tax expense Profit for the year Minority interests Profit attributable to equity holders of the Company Total assets Total liabilities Minority interests Total equity attributable to equity holders of the Company	For the year ended 31 December 2007 2008 2009 (HK$’000) (HK$’000) (HK$’000) (Restated) 67,466 79,226 83,468 (7,352) (15,023) (29,303) (3,130) (4,028) (2,754) 4,222 (19,051) (32,057) – – – 4,222 (20,081) (32,081) As at 31 December 2007 2008 2009 (HK$’000) (HK$’000) (HK$’000) (Restated) 138,230 89,229 141,172 (112,352) (83,432) (132,269) – – – 25,878 5,797 8,903

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is a summary of the consolidated financial information of the Group for the year ended 31 December 2009 as extracted from the annual report of the Company for the year presented.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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

Note Turnover 4 Cost of sales Gross profit Other operating (loss)/income 6 Selling and distribution expenses General and administrative expenses Loss from operations Net finance (costs)/income 7(a) Loss before taxation 7 Income tax 8(a) Loss attributable to equity shareholders of the Company 11 Other comprehensive loss for the year Exchange differences on translation into presentation currency, net of nil tax Total comprehensive loss for the year attributable to equity shareholders of the Company Loss per share 12 Basic and diluted	2009 RMB’000 83,468 (24,133) 59,335 (2,784) (36,504) (38,439) (18,392) (10,911) (29,303) (2,754) (32,057) (24) (32,081) RMB(4.35) cents	2008 RMB’000 79,226 (17,492) 61,734 5,008 (46,672) (36,502) (16,432) 1,409 (15,023) (4,028) (19,051) (1,030) (20,081) RMB(2.65) cents

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

STATEMENTS OF FINANCIAL POSITION

At 31 December 2009

(Expressed in Renminbi)

Note Non-current assets Fixed assets – Leasehold properties 13 – Plant and equipment 14 Intangible assets 15 Investments in subsidiaries 16 Current assets Inventories 17 Trade and other receivables 18 Cash and cash equivalents 19 Current liabilities Trade and other payables 20 Loans and borrowings 21 Current taxation 22 Net current (liabilities)/assets Total assets less current liabilities NET ASSETS CAPITAL AND RESERVES Share capital 23(b)(i) Reserves TOTAL EQUITY	The Group 2009 2008 RMB’000 RMB’000 94,930 42,111 12,635 29,536 107,565 71,647 – – – – 107,565 71,647 5,241 7,470 9,726 8,481 18,640 1,631 33,607 17,582 (80,769) (69,477) (47,545) (12,500) (3,955) (1,455) (132,269) (83,432) (98,662) (65,850) 8,903 5,797 8,903 5,797 92,623 75,438 (83,720) (69,641) 8,903 5,797	The Company 2009 2008 RMB’000 RMB’000 – – 125 – 125 – – – 1 4 126 4 – – 2,689 13,897 15,139 9 17,828 13,906 (9,051) (8,159) – – – – (9,051) (8,159) 8,777 5,747 8,903 5,751 8,903 5,751 92,623 75,438 (83,720) (69,687) 8,903 5,751	The Company 2009 2008 RMB’000 RMB’000 – – 125 – 125 – – – 1 4 126 4 – – 2,689 13,897 15,139 9 17,828 13,906 (9,051) (8,159) – – – – (9,051) (8,159) 8,777 5,747 8,903 5,751 8,903 5,751 92,623 75,438 (83,720) (69,687) 8,903 5,751
			– – – – 4
			4
			– 13,897 9
			13,906
			(8,159) – –
			(8,159) 5,747 5,751 5,751 75,438 (69,687) 5,751

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

(Expressed in Renminbi)

Balance at 1 January 2008 Changes in equity for 2008: Loss for the year Other comprehensive income for the year: Exchange differences on translation into presentation currency Total comprehensive income for the year Balance at 31 December 2008 Balance at 1 January 2009 Change in equity 2009: Loss for the year Other comprehensive income for the year: Exchange differences on translation into presentation currency Total comprehensive income for the year Issue of warrants, net of warrant issuance expenses Shares issued upon the exercise of warrants Shares issued pursuant to share subscription, net of share issuance expenses Share issued under share option scheme Equity settled share-based transaction Balance at 31 December 2009	Sharecapital RMB’000 75,438	Share premium RMB’000 10,058	Capital reserve RMB’000 7,195	Warrants reserve Share-based compensation reserve RMB’000 RMB’000 – –	Warrants reserve Share-based compensation reserve RMB’000 RMB’000 – –	General reserve fund RMB’000 9,025	Exchange reserve RMB’000 366	Accumulated losses RMB’000 (76,204) (19,051) – (19,051) (95,255) (95,255) (32,057) – (32,057) – – – – – (127,312)	Total RMB’000 25,878
	– –	– –	– –	– –	– –	– –	– (1,030)	(19,051) –	(19,051) (1,030)
	– 75,438 75,438	– 10,058 10,058	– 7,195 7,195	– – –	– – –	– 9,025 9,025	(1,030) (664) (664)		(20,081) 5,797 5,797
	– –	– –	– –	– –	– –	– –	– (24)	(32,057) –	(32,057) (24)
	– – 3,878 12,690 617 – 92,623	– – 217 6,209 1,730 – 18,214	– – – – – – 7,195	– 204 (62) – – – 142	– – – – (1,045) 10,749 9,704	– – – – – – 9,025	(24) – – – – – (688)		(32,081) 204 4,033 18,899 1,302 10,749 8,903

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

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

Note Operating activities Cash generated from operations 19(b) Tax paid: – PRC enterprise income tax paid Net cash generated from operating activities Investing activities Payment for the acquisition of fixed assets Refund of deposit for acquisition of a property Interest received Net cash (used in)/generated from investing activities Financing activities Net repayment to a director Repayment of bank loans Proceeds from new other borrowings Repayment of other borrowings Net proceeds from issuance of warrants, net of warrant issuance expenses 23(b)(ii) Net proceeds from shares issued upon the exercise of warrants, net of shares issuance expenses 23(b)(ii) Net proceeds from shares issued pursuant to share subscription, net of share issuance expenses 23(b)(iii) Net proceeds from shares issued under share option scheme 23(b)(iv) Interest paid Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 19(a) Effect of foreign exchange rate changes Cash and cash equivalents at 31 December 19(a)	2009 RMB’000 RMB’000 1,968 (254) 1,714 (41,586) – 4 (41,582) (1,367) – 54,337 (19,292) 204 – 4,033 18,899 1,302 (1,239) 56,877 17,009 1,631 – 18,640	2008 RMB’000 RMB’000 56,687 (17,549) 39,138 (18,841) 20,564 2 1,725 (878) (40,160) 14,000 (1,500) – – – (11,477) (40,015) 848 787 (4) 1,631

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS

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

1. Corporate information

Hao Wen Holdings Limited (formerly known as Everpride Biopharmaceutical Company Limited) (the “Company”) was incorporated in the Cayman Islands on 1 August 2000 as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands, and its shares have been listed on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) with effect from 20 July 2001.

The consolidated financial statements of the Company as at and for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily engaged in the manufacture and sales of medicines.

2. Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations promulgated by the International Accounting Standards Board (the “IASB”). These financial statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on the GEM of the Stock Exchange.

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

The Group has not applied any new and revised standard or interpretation that is not yet effective for the current accounting period (see note 3(t)).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Going concern

The Group incurred a loss attributable to the equity shareholders of the Company of RMB32,057,000 for the year ended 31 December 2009. In addition, the Group had net current liabilities of RMB98,662,000 as at 31 December 2009. Nevertheless, the directors of the Company have adopted the going concern basis in the preparation of these consolidated financial statements based on the following:

• The directors of the Company are in ongoing negotiations with the Group’s lenders to reschedule the repayment of loans and borrowings due from the Group and to seek the ongoing support to the Group from these lenders and new lenders.

• The directors of the Company are considering various alternatives to strengthen the capital base of the Company through various fund raising exercises, including but not limited to, a private placement, an open offer or a rights issue of new shares of the Company.

• The directors of the Company continue to take action to tighten cost controls over factory overheads and various general and administrative expenses, and are actively seeking new investment and business opportunities with an aim to attain profitable and positive cash flow operations.

In addition, the Group underwent the following activities for the period up to the date of issue of these financial statements so as to improve its cash flows:

• In August 2009, the Company raised approximately RMB204,000 after direct expenses by issuing 144,000,000 warrants at a price of HK$0.003 per warrant, which were used to provide working capital for the Group’s operation, and in December 2009, the warrant-holder exercised 44,000,000 warrants at a price of HK$0.104 per ordinary share which raised approximately RMB4,033,000 to provide additional working capital to the Group.

• In November 2009, the Company raised approximately RMB18,899,000 after direct expenses by issuing 144,000,000 new ordinary shares of HK$0.10 each in the Company at a subscription price of HK$0.159 per ordinary share, which were used to provide funds for future development of the Group when investment opportunities arise and additional working capital.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• In November and December 2009, 7,000,000 share options were exercised at a price of HK$0.211 per ordinary share which raised approximately RMB1,302,000 to provide additional funding to the Group.

• Subsequent to the end of the reporting period on 5 March 2010, the Company entered into the four conditional subscription agreements with the four independent third parties (the “Four Subscribers”). Pursuant to the subscription agreements, the Company agreed to allot and issue, and the Four Subscribers agreed to subscribe for an aggregate of 196,181,818 new ordinary shares of HK$0.10 each in the Company at a subscription price of HK$0.168 per ordinary share.

On 30 March 2010, the condition of the subscription stated in the two subscription agreements has been fulfilled, and the subscription of an aggregate of 49,591,809 new ordinary shares of HK$0.10 each in the Company at a subscription price of HK$0.168 per ordinary share was completed in accordance with their respective terms and conditions. The net proceeds of approximately HK$8 million (approximately equivalent to RMB7 million), net of shares issuance expenses, was raised for the general corporate and working capital requirements of the Group and as funds for future development of the Company when investment opportunities arise. On the same date, the two supplemental agreements were entered into between the Company and the another two subscribers respectively in relation to the extension of the completion date of each of their conditional subscription agreements. Under these supplemental agreements, the completion date of each of these two conditional subscription agreements is extended to a day on or before 30 June 2010. Save as the aforesaid, the other terms of these two conditional subscription agreements remain valid and continue to be in full force and effect.

In the opinion of the directors of the Company, in light of the measures taken to date, together with expected results of other measures in progress, the Group will have sufficient working capital to finance its operations and remain as a going concern in the foreseeable future. Accordingly, the directors of the Company are satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis.

Should the Group be unable to continue to operate as a going concern, adjustments would have to be made to restate the values of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets as current assets. The effects of these potential adjustments have not been reflected in the consolidated financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis.

(d) Functional and presentation currency

Items included in the financial statements of each of the Group’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currencies of the Company and its operating subsidiary in the People’s Republic of China (the “PRC”) are Hong Kong dollars and Renminbi (“RMB”) respectively. For the purpose of presenting the consolidated financial statements, the Group adopted RMB as its presentation currency. All financial information presented in RMB has been rounded to the nearest thousand.

(e) Use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and report amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Judgements made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are disclosed in note 29.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) Changes in accounting policies

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

• IFRS 8 “Operating Segments”

• IAS 1 (revised) “Presentation of Financial Statements”

• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Improving disclosures about financial instruments

• Improvements to IFRSs (2008)

• Amendments to IAS 27 “Consolidated and Separate Financial Statements” – cost of an investment in a subsidiary, jointly controlled entity or associate

• IAS 23 (revised) “Borrowing Costs”

• Amendments to IFRS 2 “Share-Based Payment” – vesting conditions and cancellations

The improvements to IFRSs (2008) and amendments to IFRS 2 have had no material impact on the Group’s financial statements as the amendments were consistent with policies already adopted by the Group. In addition, the amendments to IFRS 7 do not contain any additional disclosure requirements specifically applicable to the Group’s financial statements. The impact of the remainder of these developments is as follows:

• (i) IFRS 8 requires segment disclosure to be based on the way that the Group’s chief operating decision maker regards and manages the Group, with the amounts reported for each reportable segment being the measures reported to the Group’s chief operating decision maker for the purposes of assessing segment performance and making decisions about operating matters. This contrasts with the presentation of segment

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

information in prior years which was based on a disaggregation of the Group’s financial statements into segments based on related products and services and on geographical areas. The adoption of IFRS 8 has resulted in the presentation of the Group’s segment information in a manner that is more consistent with internal reporting provided to the Group’s most senior executive management.

The Group operated in a single business segment, which was the manufacture and sale of medicines in Mainland China. Accordingly, no segmental analysis is presented.

• (ii) As a result of the adoption of IAS 1 (revised), details of changes in equity during the period arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated statement of comprehensive income. The new format for the consolidated statement of comprehensive income and the consolidated statement of changes in equity has been adopted in these financial statements and corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.

• (iii) The amendments to IAS 27 have removed the requirement that dividends out of preacquisition profits should be recognised as a reduction in the carrying amount of the investment in the investee, rather than as income. As a result, as from 1 January 2009, all dividends receivable from subsidiaries, whether out of pre- or post-acquisition profits, will be recognised in the Group’s profit or loss and the carrying amount of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a result of the investee declaring the dividend. In such cases, in addition to recognising dividend income in profit or loss, the Company would recognise an impairment loss. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any dividends receivable in the current or future periods and previous periods have not been restated.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (iv) In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Previously the Group immediately recognised all borrowing costs as an expense. This change in accounting policy was due to the adoption of IAS 23 (Revised) in accordance with the transitional provisions of such standard; comparative figures have not been restated. The change in accounting policy had no material impact on the Group’s financial statements.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

(a) Basis of consolidation

(i) Subsidiaries

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

(ii) Transactions eliminated on consolidation

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

(b) Investments in subsidiaries

In the Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment losses (see note 3(i)).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses (see note 3(i)).

Cost includes expenditure that are directly attributable to the acquisition of the asset. The cost of self-constructed items of assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs (see note 2(f)(iv)).

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains or losses arising on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (iii) Depreciation

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

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

• Machinery and equipment 8 – 10 years

• Furniture and office equipment 5 – 8 years

• Motor vehicles 5 – 8 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

• (iv) Construction in progress represents buildings and various plant and equipment under construction and pending installation, and is stated at cost less any impairment losses (see note 3(i)). Cost comprises direct costs of construction incurred during the periods of construction.

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

(d) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Classification of assets leased to the Group

Assets that are held by Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exception:

Land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of the building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from previous lessee.

(ii) Operating lease charges

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

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term.

(e) Intangible assets

(i) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss when incurred.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are recognised in profit or loss as incurred. Other development expenditure is recognised in profit or loss as incurred.

Capitalised development expenditure is measured at cost less accumulated amortisation (see below) and accumulated impairment losses (see note 3(i)).

(ii) Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation (see below) and accumulated impairment losses (see note 3(i)).

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other subsequent expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(iv) Amortisation

Amortisation of intangible assets is recognised in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives are 5 to 10 years.

The amortisation method and useful life of the intangible assets are reviewed at each financial year-end and adjusted if appropriate.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) Inventories

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

The cost of inventories is calculated based on the weighted average costing method (which approximates the average actual cost) and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

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

(g) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 3(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts (see note 3(i)).

(h) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

(i) Impairment of assets

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor will enter bankruptcy.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimate future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash-generating unit to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cashgenerating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(j) Borrowings

Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(k) Trade and other payables

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

(l) Revenue

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue from sale of goods is recognised when significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue excludes value added tax or other sales taxes and is stated after deduction of any trade discounts.

(ii) Interest income

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

(m) Employee benefits

• (i) Short term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Share-based payments

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

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

(n) Finance income and costs

Finance income comprises interest income on funds invested that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying assets are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a net basis

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(o) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Provisions and contingent liabilities

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

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

(q) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of operations outside the PRC are translated into Renminbi at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position’s items are translated into Renminbi at the closing foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

On disposal of an operation outside the PRC, the cumulative amount of the exchange differences relating to that operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(r) Related parties

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

• i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group.

• ii) the Group and the party are subject to common control;

• iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;

• iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

• v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or

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

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

(s) Segment reporting

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

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

(t) New standards and interpretations not yet adopted

Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and Interpretations which are not yet effective for the accounting year ended 31 December 2009 and which have not been applied in preparing these consolidated financial statements.

	Effective for
	accounting periods
	beginning on
	or after
IFRS 3 (Revised) “Business Combinations”	1 July 2009
Amendments to IAS 27 “Consolidated and	1 July 2009
Separate Financial Statements”
Amendments to IAS 39 “Financial Instruments:	1 July 2009
Recognition and Measurement” – Eligible hedged
items
IFRIC 17 “Distributions of Non-Cash Assets to Owners”	1 July 2009
Improvements to IFRSs 2009	1 July 2009 or
	1 January 2010
Amendments to IFRS 1 “First-time Adoption of	1 January 2010
International Financial Reporting Standards”
– Additional exemptions for First-time Adopters
Amendments to IFRS 2 “Share-based Payment”
– Group cash-settled share-based payment	1 January 2010
transactions

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Effective for
	accounting periods
	beginning on
	or after
Amendments to IAS 32 “Financial Instruments
– Presentation”
– Classification of rights issue	1 February 2010
IFRIC 19 “Extinguishing Financial Liabilities with	1 July 2010
Equity Instruments”
Amendments to IFRS 1 “First-time Adoption of	1 July 2010
International Financial Reporting Standards”
– Limited exemption from comparative
IFRS 7 disclosures for first-time disclosures
IAS 24 (Revised) “Related Party Disclosures”	1 January 2011
Amendments to IFRIC 14 “IAS 19	1 January 2011
– The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction”
– Prepayments of a minimum funding requirement
IFRS 9 “Financial Instruments”	1 January 2013

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to result in a restatement of the Group’s and the Company’s results of operations and financial positions.

4. Turnover

Turnover represents the sales value of goods supplied to customers, which excludes value added tax and is stated after deduction of goods returns and trade discounts.

Revenue of approximately RMB47,294,000 (2008: RMB40,021,000) and RMB16,596,000 (2008: N/A) are derived from two (2008: one) single external customers. Transactions with each of these two customers have exceeded 10% of the Group’s turnover.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Segment reporting

Throughout the year, the Group has been operating in a single business segment, i.e. the manufacture and sale of medicines in Mainland China. Accordingly, no segmental analysis is presented.

6. Other operating (loss)/income

Sample income (Impairment loss)/reversal of impairment loss on trade receivables Write-off of other receivables Reversal of write-down of inventories Loss on disposal of fixed assets Sundry income	2009 RMB’000 173 (1,046) (705) – (1,207) 1 (2,784)	2008 RMB’000 54 5,851 (397) 500 (1,054) 54 5,008

7. (Loss) before taxation

Loss from ordinary activities before taxation is arrived at after charging/(crediting):

(a) Net finance costs/(income)

Interest on bank advances and other borrowings wholly repayable within five years Net foreign exchange gain Interest income from banks Net financial costs/(income) recognised in profit or loss The above financial income and costs include the following in respect of assets/liabilities not at fair value through profit or loss: Total interest income on financial assets Total interest expense on financial liabilities	2009 RMB’000 10,915 – (4) 10,911 (4) 10,915	2008 RMB’000 339 (1,746) (2) (1,409) (2) 339

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Staff costs

Contributions to defined contribution retirement plans Equity-settled share-based payment expenses Salaries, wages and other benefits Total staff costs (c) Other items Amortisation of land lease premium Depreciation of property, plant and equipment Research and development costs Operating lease charges in respect of property rentals: minimum lease payments Advertising and promotion expenses Auditors’ remuneration – audit services Cost of inventories sold Equity-settled share-based payment expenses#	2009 RMB’000 1,070 2,986 11,005 15,061 2009 RMB’000 276 4,185 487 737 23,863 670 24,133 10,749	2008 RMB’000 1,275 – 10,867
		12,142
		2008 RMB’000 252 3,986 12,151 780 41,405 553 17,492 –

Equity-settled share-based payment expenses include RMB2,986,000 relating to staff costs, which amount is also included in the total staff costs disclosed separately in note 7(b).

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Income tax in the consolidated income statement

(a) Income tax in the consolidated income statement represents:

	2009	2008
	RMB’000	RMB’000
Current tax –
Provision for the PRC enterprise
income tax for the year	2,754	4,028

• (i) Hong Kong profits tax

No provision for Hong Kong profits tax has been made as the Group had no estimated assessable profits arising from Hong Kong during the years ended 31 December 2009 and 2008.

(ii) Income taxes outside Hong Kong

Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands (the “BVI”), the Company and the Company’s subsidiaries registered in the BVI are not subject to any income tax in the Cayman Islands and BVI, respectively.

The subsidiary of the Group established in the PRC is generally subject to PRC enterprise income tax on its taxable income at an income tax rate of 25% in respect of the year ended 31 December 2009 (2008: 25%).

(b) Reconciliation between tax expense and accounting loss at applicable tax rates:

Loss before tax Notional tax on loss before tax, calculated at the PRC enterprise income tax rate of 25% (2008: 25%) Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of unused tax losses not recognised Tax effect of different tax rates in other jurisdictions Actual tax expense	2009 RMB’000 (29,303) (7,326) 8,060 (1) 253 1,768 2,754	2008 RMB’000 (15,023)
		(3,756) 9,072 (1,877) 324 265
		4,028

– 81 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

9. Directors’ remuneration

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

Executive directors: Chung Chi Mang Hu Yangxiong (appointed on 20/7/2009) Zhao Borui (appointed on 21/10/2009) Zhang Jianshe (appointed on 21/10/2009 and resigned on 20/4/2010) Sun Qiong (appointed on 20/7/2009 and resigned on 21/10/2009) Zhong Zhi Gang (resigned on 20/7/2009) Xie Xiaodong (resigned on 20/7/2009) Mu Yong (retired on 11/5/2009) Independent non-executive directors: Fu Wing Kwok, Ewing (appointed on 30/11/2009) Leung Siu Kuen (appointed on 30/11/2009) Lam Chung Fai (appointed on 7/12/2009) Sun Xufeng (appointed on 28/9/2009 and resigned on 5/2/2010) Wu Wang Li (appointed on 15/5/2009 and resigned on 24/7/2009) Zhuo Ze Fan (appointed on 24/7/2009 and resigned on 28/9/2009) Chan Wai Kwong, Peter (appointed on 19/8/2009 and resigned on 7/12/2009) Yang Gao Yu (appointed on 24/7/2009 and resigned on 30/11/2009) Chau On Ta Yuen (resigned on 20/8/2009) Ho Leong Leong, Lawrence (resigned on 19/8/2009) Ng Kay Kwok (resigned on 15/5/2009)	Directors’ fees Salaries, allowances and benefits in kind RMB’000 RMB’000 – 684 – 896 – 62 – 62 – 15 – 127 – 127 – 42 5 – 5 – 4 – 14 – 11 – 10 – 16 – 20 – 36 – 36 – 21 – 178 2,015	Retirement scheme contributions RMB’000 7 – – – – 6 6 – – – – – – – – – – – – 19	2009 Sub-Total RMB’000 691 896 62 62 15 133 133 42 5 5 4 14 11 10 16 20 36 36 21 2,212	Share-based payments 2009 (note) RMB’000 – – 1,045 1,045 – – – – – – – – – – – – – – – 2,090	Total RMB’000 691 896 1,107 1,107 15 133 133 42 5 5 4 14 11 10 16 20 36 36 21
					4,302

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

These represent the estimated value of share options granted to the directors under the Company’s share option scheme. The value of these share options is measured according to the Group’s accounting policies for share-based payment transactions as set out in note 3(m)(ii) and, in accordance with that policy, includes adjustments to reverse amounts accrued in previous years where grants of equity instruments are forfeited prior to vesting.

The details of those benefits in kind, including the principal terms and number of options granted, are disclosed in note 24.

Executive directors: Chung Chi Mang Zhong Zhi Gang (resigned on 20/7/2009) Xie Xiaodong (resigned on 20/7/2009) Mu Yong (retired on 11/5/2009) Independent non-executive directors: Chau On Ta Yuen (resigned on 20/8/2009) Ho Leong Leong, Lawrence (resigned on 19/8/2009) Ng Kay Kwok (resigned on 15/5/2009)	Directors’ fees RMB’000 – – – – 58 58 58 174	Salaries, allowances and benefits RMB’000 1,048 232 232 53 – – – 1,565	Retirement scheme in kind contributions RMB’000 11 11 11 – – – – 33	2008 Total RMB’000 1,059 243 243 53 58 58 58
				1,772

For the years ended 31 December 2009 and 2008, no emolument was paid to the directors as an inducement to join or upon joining the Company or as compensation for loss of office. There was no arrangement under which a director waived or agreed to waive any remuneration for the years ended 31 December 2009 and 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Individuals with highest emoluments

Of the five individuals with the highest emoluments, four (2008: three) are directors whose emoluments are disclosed in note 9. The aggregate of the emoluments in respect of the other one individual (2008: two individuals) are as follows:

Salaries and other emoluments Share-based payments Retirement scheme contributions	2009 RMB’000 530 597 18 1,145	2008 RMB’000 564 – 19
		583

The emoluments of the other one individual (2008: two individuals) with the highest emoluments are within the following bands:

	Number of individuals
	2009	2008
Nil – RMB1,000,000	–	2
RMB1,000,001 to RMB1,500,000	1	–

For the years ended 31 December 2009 and 2008, no emolument was paid by the Group to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

11. Loss attributable to equity shareholders of the company

The consolidated loss attributable to equity shareholders of the Company includes a loss of RMB32,025,000 (2008: RMB14,597,000) which has been dealt with in the financial statements of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Loss per share

(a) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to ordinary equity shareholders of the Company of RMB32,057,000 (2008: RMB19,051,000) and the weighted average of 736,996,000 (2008: 720,000,000) ordinary shares in issue during the year, calculated as follows:

Weighted average number of ordinary shares: Issued ordinary shares at 1 January Effect of shares issued pursuant to share subscription (note 23(b)(iii)) Effect of warrants exercised (note 23(b)(ii)) Effect of share options exercised (note 23(b)(iv)) Weighted average number of ordinary shares at 31 December	2009 ’000 720,000 14,992 1,370 634 736,996	2008 ’000 720,000 – – –
		720,000

(b) Diluted loss per share

Diluted loss per share for the year ended 31 December 2009 was the same as basic loss per share because the effects of the Company’s outstanding warrants and share options were antidilutive for this year.

Diluted loss per share for the year ended 31 December 2008 was the same as basic loss per share as the Company does not have dilutive potential ordinary shares for this year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Leasehold properties

• (a) Movements in leasehold properties are as follows:

Cost At 1 January 2008 Exchange adjustments Additions At 31 December 2008 At 1 January 2009 Transfer from construction in progress At 31 December 2009 Accumulated amortisation and depreciation and impairment losses At 1 January 2008 Exchange adjustments Charge for the year At 31 December 2008 At 1 January 2009 Exchange adjustments Charge for the year At 31 December 2009 Carrying amounts At 31 December 2009 At 31 December 2008	Interests in leasehold land held for own use under operating leases RMB’000 8,039 – 4,960 12,999 12,999 – 12,999 1,212 – 252 1,464 1,464 – 276 1,740 11,259 11,535	The Group Buildings held for own use carried at cost RMB’000 55,361 (2) – 55,359 55,359 54,626 109,985 23,243 (1) 1,541 24,783 24,783 (1) 1,532 26,314 83,671 30,576	Total RMB’000 63,400 (2) 4,960 68,358 68,358 54,626 122,984 24,455 (1) 1,793 26,247 26,247 (1) 1,808 28,054 94,930 42,111

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) The analysis of carrying amount of leasehold land held for own use under operating leases is as follows:

In the PRC – medium-term leases (note) – long leases	The Group 2009 2008 RMB’000 RMB’000 10,656 10,922 603 613 11,259 11,535	The Group 2009 2008 RMB’000 RMB’000 10,656 10,922 603 613 11,259 11,535
		11,535

Note:

Included in interests in leasehold land held for own use under operating leases is the land use right under medium-term lease which comprises land use fees paid to the government of Taigu County for the rights to use the land where the Group’s factory buildings in Taigu County of Shanxi Province are located.

• (c) At 31 December 2009, leasehold properties of approximately RMB94,925,000 have been pledged to independent third parties to secure loans granted to the Group.

At 31 December 2008, leasehold properties of approximately RMB4,884,000 have been pledged to banks to secure bank loan facilities granted to the Group.

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Plant and equipment

Movements in plant and equipment are as follows:

						The
			The Group			Company
	Machinery	Furniture				Furniture
	and	and office	Motor	Construction-		and office
	equipment	equipment	vehicles	in-progress	Total	equipment
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Cost
At 1/1/2008	14,884	3,410	11,546	920	30,760	–
Exchange adjustments	–	(15)	(77)	–	(92)	–
Additions	315	2,588	201	15,057	18,161	–
Disposals	(2,101)	–	(550)	–	(2,651)	–
At 31/12/2008	13,098	5,983	11,120	15,977	46,178	–
At 1/1/2009	13,098	5,983	11,120	15,977	46,178	–
Exchange adjustments	–	(1)	(2)	–	(3)	(1)
Additions	343	592	756	39,895	41,586	137
Transfer from
construction-in-
progress to furniture
and office equipment	–	596	–	(596)	–	–
Transfer to leasehold
properties	–	–	–	(54,626)	(54,626)	–
Disposals	(2,331)	(193)	–	–	(2,524)	–
At 31/12/2009	11,110	6,977	11,874	650	30,611	136
Accumulated
amortisation and
depreciation and
impairment losses
At 1/1/2008	5,761	3,161	6,958	–	15,880	–
Exchange adjustments	–	(11)	(75)	–	(86)	–
Change for the year	1,324	170	951	–	2,445	–
Written back on
disposals	(1,103)	–	(494)	–	(1,597)	–
At 31/12/2008	5,982	3,320	7,340	–	16,642	–

– 88 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 1/1/2009 Exchange adjustments Change for the year Written back on disposals At 31/12/2009 Carrying amounts At 31/12/2009 At 31/12/2008			The Group	Total RMB’000 16,642 (2) 2,653 (1,317) 17,976 12,635 29,536	The Company Furniture and office equipment RMB’000 – – 11 – 11 125 –
	Machinery and equipment RMB’000 5,982 – 1,359 (1,317) 6,024 5,086 7,116	Furniture and office equipment RMB’000 3,320 – 428 – 3,748 3,229 2,663	Motor vehicles Construction- in-progress RMB’000 RMB’000 7,340 – (2) – 866 – – – 8,204 – 3,670 650 3,780 15,977

15. Intangible assets

Movements in intangible assets of the Group are as follows:

	The Group
	2009	2008
	RMB’000	RMB’000
Cost
At 1 January and 31 December	5,000	5,000
Accumulated amortisation and impairment
losses
At 1 January and 31 December	(5,000)	(5,000)
Carrying amount
At 31 December	–	–

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Intangible assets represents exclusive rights acquired by the Group to produce and sell the products of “Plasmin Capsule” and “Puli Capsule” within and outside the PRC.

At 31 December 2009, the exclusive right to produce and sell the products of “Puli Capsule” has been pledged to an independent third party to secure a loan granted to the Group (See note 21).

16. Investments in subsidiaries

In the Company’s statement of financial position, investments in subsidiaries consist

of:

Unlisted shares, at cost Less: Accumulated impairment losses	The Company 2009 2008 RMB’000 RMB’000 56,165 56,164 (56,164) (56,160) 1 4

In prior and current years, the directors of the Company assessed the recoverable amounts of the investments in subsidiaries. They considered that the subsidiaries incurred losses for the prior and current years and there were indications of impairment on the carrying amount. Accordingly, Impairment losses of approximately RMB56,160,000 and RMB4,000 were made in prior and current years, respectively.

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The particulars of all subsidiaries of the Company at 31 December 2009 were as follows:

		Particulars of	Proportion of ownership interest	Proportion of ownership interest	Proportion of ownership interest
		issued and fully
		paid share	Group’s
	Place of	capital/	effective	held by the	held by the	Principal
Name of company	incorporation	registered capital	interest	Company	subsidiary	activities
Garner International Investments	British Virgin Islands	1 ordinary share of	100%	100%	–	Investment holding
Limited	(“BVI”)	US$1 each
Everpride Pharmaceutical (H.K.)	Hong Kong	100 ordinary shares of	100%	–	100%	Trading of
Co., Limited		HK$1 each				medicines
Scylla Assets Limited	BVI	1,000 ordinary shares of	100%	–	100%	Investment holding
		US$1 each
Shanxi Everpride Pharmaceutical	PRC	US$2,280,000	100%	–	100%	Manufacture and
Co., Ltd.						sales of medicines
(“Shanxi Everpride”) *
Top Beauty Holding Limited	BVI	100 ordinary of US$1	100%	100%	–	Investment holding
		each
Good Wisdom Limited	Hong Kong	10,000 ordinary shares of	100%	–	100%	Not yet commenced
		HK$1 each				business

• Shanxi Everpride is a wholly foreign-owned enterprise established in the PRC to be operated for 20 years up to 26 May 2015.

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Inventories

Raw materials, at cost Finished goods, at cost Consignment goods, at cost Less: Write-down of inventories	The Group 2009 2008 RMB’000 RMB’000 4,754 6,104 829 2,388 1,458 778 7,041 9,270 (1,800) (1,800) 5,241 7,470	The Group 2009 2008 RMB’000 RMB’000 4,754 6,104 829 2,388 1,458 778 7,041 9,270 (1,800) (1,800) 5,241 7,470
		9,270 (1,800)
		7,470

18. Trade and other receivables

Trade debtors Less: allowance for doubtful debts (note 18(b)) Advances to staff Other receivables Amounts due from subsidiaries * Loans and receivables Rental and other deposits Prepayments	The Group 2009 2008 RMB’000 RMB’000 62,082 64,793 (58,070) (60,512) 4,012 4,281 2,462 1,789 1,782 1,314 – – 8,256 7,384 295 181 1,175 916 9,726 8,481	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – 1 – 1,780 13,730 1,781 13,730 114 – 794 167 2,689 13,897	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – 1 – 1,780 13,730 1,781 13,730 114 – 794 167 2,689 13,897
			– – – 13,730
			13,730 – 167
			13,897

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• The amounts due from subsidiaries are non-trade nature, unsecured, interest free and repayable on demand. The directors of the Company had reviewed the net asset values of the Company’s subsidiaries as at 31 December 2009 and considered their operating performance, the directors are of the view that accumulated impairment losses of approximately RMB42,658,000 (2008: RMB29,912,000) has been made for the amounts due so as to write down the amounts due from subsidiaries to their net recoverable amounts.

All of the trade and other receivables, apart from rental and other deposits, are expected to be recovered or recognised as expense within one year.

(a) Ageing analysis

Included in trade and other receivables are trade debtors with the following ageing analysis as of the end of the reporting period:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days Less: allowance for doubtful debts	The Group 2009 2008 RMB’000 RMB’000 145 507 15 128 357 160 1,392 278 259 658 59,914 63,062 62,082 64,793 (58,070) (60,512) 4,012 4,281

The Group generally requires its customer to pay a deposit shortly before delivery of goods, with the remaining balances of the sales with credit periods ranging from 90 to 180 days. Further details on the Group’s policy are set out in note 28(a)(i). .

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Impairment of trade debtors

Impairment losses in respect of trade debtors are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade debtors directly (see note 3(i)(i)).

The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

At 1 January Impairment loss/(Reversal of impairment loss) recognised Uncollectible amounts written off At 31 December	The Group 2009 2008 RMB’000 RMB’000 60,512 67,110 1,046 (5,851) (3,488) (747) 58,070 60,512

At 31 December 2009, the Group’s trade debtors of RMB61,648,000 (2008: RMB62,620,000) were individually determined to be impaired. The individually impaired receivables related to customers that were in financial difficulties and management assessed that only a portion of the receivables is expected to be recovered. The Group holds sales deposits from the relevant customers over these balances.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Trade debtors that are not impaired

The ageing analysis of trade debtors that are neither individually nor collectively considered to be impaired are as follows:

Neither past due nor impaired Less than 6 months past due More than 6 months past due	The Group 2009 2008 RMB’000 RMB’000 141 1,019 63 345 230 809 293 1,154 434 2,173	The Group 2009 2008 RMB’000 RMB’000 141 1,019 63 345 230 809 293 1,154 434 2,173
		345 809
		1,154
		2,173

Receivables that were neither past due nor impaired relate to a range of customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balance as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group holds sales deposits from the relevant customers over these balances.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. Cash and cash equivalents

(a) Cash and cash equivalents comprise:

Cash at bank and on hand, denominated in – Hong Kong dollars and United States dollars – Renminbi Cash and cash equivalents in statements of financial position and consolidated statement of cash flows	The Group 2009 2008 RMB’000 RMB’000 17,219 310 1,421 1,321 18,640 1,631	The Company 2009 2008 RMB’000 RMB’000 15,139 9 – – 15,139 9	The Company 2009 2008 RMB’000 RMB’000 15,139 9 – – 15,139 9
			9

Cash and cash equivalents of approximately RMB1,421,000 (2008: RMB1,321,000) are denominated in Renminbi. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restriction imposed by the PRC government.

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Reconciliation of loss before taxation to cash generated from operations:

Note Loss before taxation Adjustments for: Amortisation of land lease premium for property held for own use 7(c) Depreciation 7(c) Impairment loss on trade receivables/(Reversal of impairment loss) 6 Write-off of other receivables 6 Reversal of write-down of inventories 6 Interest expense 7(a) Interest income 7(a) Loss on disposal of fixed assets 6 Equity-settled share-based payment expenses 7(c) Net foreign exchange gain Changes in working capital: Decrease/(increase) in inventories (Increase)/decrease in debtors, deposits and prepayments Increase in creditors and accrued charges (Decrease)/increase in sales deposits from customers Decrease in other tax payable Cash generated from operations	2009 RMB’000 (29,303) 276 4,185 1,046 705 – 10,915 (4) 1,207 10,749 (23) 2,229 (2,997) 6,285 (2,744) (558) 1,968	2008 RMB’000 (15,023) 252 3,986 (5,851) 397 (500) 339 (2) 1,054 – (1,019) (2,345) 51,122 2,485 24,981 (3,189) 56,687

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Trade and other payables

Trade creditors Accrued expenses and other payables Interest payable Amount due to subsidiary Amounts due to directors Financial liabilities amortised at cost Sales deposits from customers Other taxes payable **	The Group 2009 2008 RMB’000 RMB’000 4,473 3,260 22,586 17,514 9,864 188 – – 1,325 2,692 38,248 23,654 33,417 36,161 9,104 9,662 80,769 69,477	The Company 2009 2008 RMB’000 RMB’000 – – 2,482 813 – – 5,968 5,968 601 1,378 9,051 8,159 – – – – 9,051 8,159	The Company 2009 2008 RMB’000 RMB’000 – – 2,482 813 – – 5,968 5,968 601 1,378 9,051 8,159 – – – – 9,051 8,159
			8,159 – –
			8,159

• The amounts due to the subsidiary and the directors are unsecured, non-interest bearing and have no fixed terms of repayment.

** Other taxes payable comprises value-add tax payable and urban real estate tax payable.

All of the trade and other payables, apart from sales deposits of approximately RMB6,512,000 (2008: RMB6,512,000) from customers, are expected to be settled within one year.

Included in trade and other payables are trade creditors with the following ageing analysis:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days	The Group 2009 2008 RMB’000 RMB’000 2,442 1,128 149 303 16 133 49 1 29 70 1,788 1,625 4,473 3,260	The Group 2009 2008 RMB’000 RMB’000 2,442 1,128 149 303 16 133 49 1 29 70 1,788 1,625 4,473 3,260
		3,260

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Loans and borrowings

This note provides information about the contractual terms of the Group’s loans and borrowings, which are measured at amortised cost.

Note Secured interest-bearing loans – Loan A (a) – Loan B (b) – Loan C (c) – Loan D (d) Unsecured interest-bearing loan – Loan E (e) – Loan F (f) Unsecured non-interest bearing loan (g) Unsecured non-interest bearing loans (h)	The Group 2009 2008 RMB’000 RMB’000 19,465 – 15,000 – 5,000 – – 3,000 39,465 3,000 – 3,500 1,208 – 1,208 3,500 4,000 6,000 2,872 – 47,545 12,500	The Group 2009 2008 RMB’000 RMB’000 19,465 – 15,000 – 5,000 – – 3,000 39,465 3,000 – 3,500 1,208 – 1,208 3,500 4,000 6,000 2,872 – 47,545 12,500
		– – – 3,000
		3,000
		3,500 –
		3,500 6,000 – 12,500

Note:

• (a) During the year ended 31 December 2009, the Group entered into a loan agreement with an independent third party (the “Party A”) whereby the Group borrowed a loan of RMB19,465,000 (the “Loan A”) from the Party A for the period from 5 August 2009 to 4 August 2010.

The Loan A bears interest at 42% per annum and is secured by (1) the Group’s leasehold properties of approximately RMB66,122,000, (2) two corporate guarantees from two independent third parties and (3) a property owned by an independent third party. During the year ended 31 December 2009, the Group failed to repay the interest of approximately RMB4,317,000 (which is included in the interest payable under “Trade and other payables” (note 20)) according to this loan agreement, therefore the whole loan amount became due as at 31 December 2009. However, up to the date of the issue of these financial statements, the Party A did not take any actions against the Group, and the Group is in ongoing negotiation with the Party A to reschedule the repayments of loan principal and interest.

– 99 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (b) During the year ended 31 December 2009, the Group entered into a loan agreement with an independent third party (the “Party B”) whereby the Group borrowed a loan of RMB25,000,000 (the “Loan B”) from the Party B for the period from 23 January 2009 to 31 July 2009. The Loan B bears interest at 14% per annum and is secured by (i) the Group’s leasehold properties of approximately RMB22,622,000 and (ii) the Group’s intangible asset of RMB Nil in respect of the exclusive right to produce and sell the products of “Puli Capsule”.

During the year ended 31 December 2009, the Group repaid RMB10,000,000 to the Party B but failed to repay the remaining balance of the Loan B on the maturity date, therefore the whole loan amount became due as at 31 December 2009. Up to the date of the issue of these financial statements, the Party B did not take any actions against the Group, and the Group is in ongoing negotiation with the Party B to reschedule the loan repayment.

• (c) During the year ended 31 December 2009, the Group entered into a loan agreement with a financial institution (the “Party C”) whereby the Group borrowed a loan of RMB5,000,000 (the “Loan C”) from the Party C for the period from 30 March 2009 to 20 February 2010.

The Loan C is secured by the Group’s leasehold properties of approximately RMB6,181,000, bears interest at 11.88% per annum and is repayable on 20 February 2010. Subsequent to 31 December 2009, the Group failed to repay the loan on the maturity date. However, up to the date of the issue of these financial statements, the Party C did not take any actions against the Group, and the Group is in ongoing negotiation with the Party C to reschedule the loan repayment.

• (d) During the year ended 31 December 2008, the Group entered into a loan agreement with an independent third party (the “Party D”) whereby the Group borrowed a loan of RMB3,000,000 (“Loan D”) from the Party D.

The Loan D was secured by the Group’s leasehold land of approximately RMB4,884,000, bore interest at 9.72% per annum and was repayable within one year.

During the year ended 31 December 2009, the Loan D was settled in full.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (e) During the year ended 31 December 2008, the Group entered into a loan agreement with an independent third party (the “Party E”) whereby the Group borrowed a loan of RMB5,000,000 from the Party E.

During the year ended 31 December 2008, the Group repaid RMB1,500,000 to the Party E. At 31 December 2008, the balance of the loan was unsecured, bore interest at 15% per annum and was repayable within one year.

During the year ended 31 December 2009, this loan was settled in full.

• (f) During the year ended 31 December 2009, the Group entered into a loan agreement with an independent third party (the “Party F”) whereby the Group borrowed a loan of RMB2,000,000 (the “Loan F”) from the Party F for the period from 17 April 2009 to 16 May 2009. The Loan F is unsecured and bears interest at 36% per annum.

During the year ended 31 December 2009, the Group repaid RMB792,000 to the Party F but failed to repay the remaining balance of Loan F on the maturity date, therefore the whole loan amount became due as at 31 December 2009. Up to the date of the issue of these financial Statements, the Party F did not take any actions against the Group, and the Group is in ongoing negotiation with the lender to reschedule the loan repayments.

• (g) During the year ended 31 December 2008, the Group entered into a loan agreement with an independent third party (the “Party G”) whereby the Group borrowed a loan of RMB6,000,000 from the Party G.

During the year ended 31 December 2009, the Group repaid RMB2,000,000 to Party G.

This loan is interest free, is repayable within one year and is secured by (1) a property owned by an independent third party and (2) a personal guarantee put up by another independent third party.

• (h) These loans from three independent third parties are unsecured, non-interest bearing and are repayable on demand.

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Current taxation in the consolidated statement of financial position represents:

Provision for PRC enterprise income tax for the year Balance of provision for PRC enterprise income tax relating to prior years Provisional PRC enterprise income tax paid	The Group 2009 2008 RMB’000 RMB’000 2,754 4,028 1,201 – – (2,573) 3,955 1,455

(b) Deferred tax liabilities/(assets) not recognised

At the end of the reporting period and for the reporting period, no deferred tax assets has been recognised in relation to the deductible temporary differences and tax losses as it is not probable that taxable profit will be available against which the deductible temporary differences and tax losses can be utilised. The Group has tax losses of approximately RMB8,606,000 (2008: RMB7,097,000), which do not expire under current tax legislation.

The Group and the Company had no significant potential deferred tax liabilities for the reporting period and at the end of the reporting period.

– 102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Capital and reserves

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity. Details of changes in the Company’s individual components of equity between the beginning and the end of the year are set out below:

The Company

Balance at 1 January 2008 Changes in equity for 2008: Loss for the year Other comprehensive income for the year: – Exchange differences on translation into presentation currency Total comprehensive income for the year Balance at 31 December 2008 Balance at 1 January 2009 Changes in equity for 2009: Loss for the year Other comprehensive income for the year: – Exchange differences on translation into presentation currency Total comprehensive income Issue of warrants, net of warrant issuance expenses Shares issued upon the exercise of warrants Shares issued pursuant to share subscription, net of share issuance expenses Shares issued under share option scheme Equity settled share-based transactions Balance at 31 December 2009	Share capital RMB’000 75,438 – – – 75,438 75,438 – – – – 3,878 12,690 617 – 92,623	Share premium RMB’000 10,058 – – – 10,058 10,058 – – – – 217 6,209 1,730 – 18,214	Contributed surplus RMB’000 56,774 – – – 56,774 56,774 – – – – – – – – 56,774	Warrants reserve Share-based compensation reserve RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – 204 – (62) – – – – (1,045) – 10,749 142 9,704	Exchange reserve RMB’000 551 – (1,227) (1,227) (676) (676) – (10) (10) – – – – – (686)	Accumulated losses RMB’000 (121,246) (14,597) – (14,597) (135,843) (135,843) (32,025) – (32,025) – – – – – (167,868)	Total RMB’000 21,575
							(14,597) (1,227)
							(15,824) 5,751
							5,751
							(32,025) (10)
							(32,035) 204 4,033 18,899 1,302 10,749
							8,903

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Share capital

(i) Authorised and issued share capital

Authorised: Ordinary shares of HK$0.10 each Issued and fully paid: At 1 January Share issued upon the exercise of warrants Shares issued pursuant to share subscription Share issued under share option scheme At 31 December	2009 2008 Number Nominal Number Nominal of shares value of shares value ’000 HK$’000 ’000 HK$’000 2,000,000 200,000 2,000,000 200,000 2008 2009 Number of shares Nominal value of ordinary shares Number of shares Nominal value of ordinary shares ’000 HK$’000 RMB’000 ’000 HK$’000 RMB’000 720,000 72,000 75,438 720,000 72,000 75,438 44,000 4,400 3,878 – – – 144,000 14,400 12,690 – – – 7,000 700 617 – – – 915,000 91,500 92,623 720,000 72,000 75,438	2009 2008 Number Nominal Number Nominal of shares value of shares value ’000 HK$’000 ’000 HK$’000 2,000,000 200,000 2,000,000 200,000 2008 2009 Number of shares Nominal value of ordinary shares Number of shares Nominal value of ordinary shares ’000 HK$’000 RMB’000 ’000 HK$’000 RMB’000 720,000 72,000 75,438 720,000 72,000 75,438 44,000 4,400 3,878 – – – 144,000 14,400 12,690 – – – 7,000 700 617 – – – 915,000 91,500 92,623 720,000 72,000 75,438
		75,438

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

– 104 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) Warrants issued pursuant to warrant subscription

On 4 August 2009, the Company entered into a warrant subscription agreement with an independent third party (the “Holder”) in relation to the subscription of 144,000,000 warrants at an issue price of HK$0.003 per warrant. Pursuant to this warrant subscription agreement, the Holder will subscribe 144,000,000 warrants, which entitle the Holder thereof to subscribe for up to 144,000,000 new ordinary shares of HK$0.10 each in the Company at an initial exercise price of HK$0.104 per ordinary share for a period of two years commencing from the date of issue of the warrants. Each of the warrants carries the right to subscribe for one new ordinary share of the Company. Net proceeds of approximately HK$232,000 (equivalent to approximately RMB204,000), net of warrant issuance expenses of approximately HK$200,000 (equivalent to approximately RMB176,000), was raised for cash as its additional working capital and was credited to the warrants reserve.

In December 2009, 44,000,000 warrants were exercised to subscribe for 44,000,000 new ordinary shares in the Company at a consideration of HK$4,576,000 (equivalent to approximately RMB4,033,000) of which HK$4,400,000 (equivalent to approximately RMB3,878,000) was credited to share capital and the balance of HK$176,000 (equivalent to approximately RMB155,000) was credited to share premium account. RMB62,000 has been transferred from the warrants reserve to share premium account.

(iii) Shares issued pursuant to share subscription

On 10 November 2009, the Company entered into six conditional agreements (the “Subscription Agreements”) with the six independent third parties (the “Subscribers”). Pursuant to the Subscription Agreements, the Company agreed to allot and issue, and the Subscribers agreed to subscribe for an aggregate of 144,000,000 new ordinary shares of HK$0.10 each in the Company at a subscription price of HK$0.159 per ordinary share. The net proceeds of approximately HK$21,445,000 (equivalent to approximately RMB18,899,000), net of share issuance expenses of approximately HK$1,451,000 (equivalent to approximately RMB1,279,000), was raised for cash as funds for future development of the Group when investment opportunities arise and its additional working capital.

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (iv) Share issued under share option scheme

During the year ended 31 December 2009, options were exercised to subscribe for 7,000,000 new ordinary shares in the Company at a consideration of HK$1,477,000 (equivalent to approximately RMB1,302,000) of which HK$700,000 (equivalent to approximately RMB617,000) was credited to share capital and the balance of HK$777,000 (equivalent to approximately RMB685,000) was credited to share premium account. RMB1,045,000 has been transferred from share-based compensation reserve to the share premium account in accordance with policy set out in note 3(m)(ii).

• (v) Terms of unexpired and unexercised share options at the end of the reporting period

	Exercise	2009	2008
Exercise period	price	Number	Number
11 November 2009 to
10 November 2019	HK$0.211	65,000,000	–

Each option entitles the holder to subscribe for one ordinary share in the Company. Further details of these options are set out in note to these financial statements.

(c) Nature and purpose of reserves

(i) Share premium

Share premium represents the share premium of the Company, the application of which is governed by the Companies Law of the Cayman Islands. Under the Companies Law (Revised) of the Cayman Islands, the funds in the share premium account of the Company are distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of the business.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Capital reserve

Capital reserve represents the difference between the aggregate nominal value of the share capital issued by the Company and the aggregate amount of the issued share capital of subsidiaries acquired by the Company through an exchange of shares.

(iii) Warrants reserve

Warrants issued by the Company that settled by the exchange of a fixed amount of cash for a fixed number of the Company’s own equity instruments are classified as an equity instrument.

The fair value of warrants on the date of issue is recognised in warrants reserve. The warrants reserve will be transferred to share capital and share premium upon exercise of the warrants. Where the warrants remain unexercised at the expiry date, the amount previously recognised in warrants reserve will be released to the retained profits.

(iv) Share-based compensation reserve

Share-based compensation reserve comprises the portion of the grant date fair value of unexercised share options granted to employees and other service providers of the Company that has been recognised in accordance with the accounting policy adopted for share-based payments in note 3(m)(ii).

(v) General reserve fund

According to the relevant laws and regulations in the PRC, Shanxi Everpride, as a wholly foreign-owned enterprise established in the PRC, is required to appropriate at least 10% of after-tax profit (after offsetting prior years’ losses), based on the PRC statutory financial statements prepared in accordance with the generally accepted accounting principles and financial regulations applicable to the PRC enterprises, to a general reserve fund until the balance of the fund reaches 50% of its registered capital. Thereafter, any further appropriation can be made at the directors’ discretion.

The general reserve fund can be utilised to offset the prior years’ losses, or be utilised to increase the capital on the condition that the general reserve fund shall be maintained at a minimum of 25% of the registered capital after such increase.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The directors of Shanxi Everpride resolved not to appropriate its aftertax profit to the general reserve fund for each of the years ended 31 December 2009 and 2008. It is because the general reserve fund of Shanxi Everpride has reached 50% of its registered capital and no further appropriation is necessary unless there is an increase in the amount of its registered capital.

(vi) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 3(q).

(vii) Contributed surplus

The contributed surplus of the Company represents the difference between the aggregate nominal value of the share capital issued by the Company and the net asset value of subsidiaries acquired through an exchange of shares.

Under the Companies Law (2000 Revision) of the Cayman Islands, contributed surplus is distributable to shareholders, subject to the condition that the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if (i) it is, or would after the payment be, unable to pay its liabilities as they become due, or (ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued capital account.

(d) Distributability of reserves

In the opinion of the Company’s directors, as at 31 December 2009 and 2008, the Company has no reserves available for distribution to its shareholders.

(e) Capital management

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The capital structure of the Group consists of (i) debt, which includes loans and other borrowings; (ii) cash and cash equivalents; and (iii) capital, which comprises all components of equity.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. In order to balance its overall capital structure, the Group may issue new shares, raise new debt financing or sell assets to reduce debt.

There were no changes in the Group’s approach to capital management during the year.

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

24. Equity settled share-based transactions

On 5 July 2001, the Company had adopted a share option scheme (the “Old Scheme”) for the purpose of providing incentives and rewards to eligible employees for their contribution to the Group. Eligible employees of the Old Scheme include all executive directors, executives, officers and full-time employees of the Group. The Old Scheme was effective for a period of 10 years commencing from 5 July 2001, after which period no further options will be granted but the provisions of the Old Scheme shall in all other respects remain in full force and effect.

On 24 September 2009, the Old Scheme was terminated and a new share option scheme (the “New Scheme”) was adopted. As a result, the Company can no longer grant any further share options under the Old Scheme. In addition, no share option was granted prior to the termination of the Old Scheme.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Company has the New Scheme which was adopted on 24 September 2009 whereby the directors of the Company are authorised, at their discretion, to invite eligible participants of the Group, including the employees and directors of any company in the Group, to take up options at HK$10 consideration to subscribe for shares of the Company. The New Scheme remains in force for a period of 10 years from adoption of such scheme and expires on 23 September 2019. The exercise period of the share options granted is determined by the directors of the Company but not later than 10 years from the date of grant. Each option gives the holder the right to subscribe for one ordinary share in the Company and is settled gross in shares.

(a) The terms and conditions of the grants are as follows:

Options granted to the directors of the Company: – on 11 November 2009 Options granted to the employees of the Company: – on 11 November 2009 Options granted to services providers – on 11 November 2009 Total share options granted	Number of instruments Vesting conditions Contractual life of options 14,000,000 Immediately from the date of grant 10 years 6,000,000 Immediately from the date of grant 10 years 52,000,000 Immediately from the date of grant 10 years 72,000,000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) the number and weighted average exercise prices of share options are as follows:

		2009		2008
	Weighted		Weighted
	average	Number of	average	Number of
	exercise price	options	exercise price	options
		’000		’000
Outstanding at the beginning
of the year	–	–	–	–
Granted during the year	HK$0.211	72,000,000	–	–
Exercised during the year	HK$0.211	(7,000,000)	–	–
Outstanding at the end of the year	HK$0.211	65,000,000	–	–
Exercisable at the end of the year	HK$0.211	65,000,000	–	–

The weighted average share price at the date of exercise for shares options exercised during the year was HK$0.211 (2008: not applicable).

The options outstanding at 31 December 2009 had an exercise price of HK$0.211 (2008: not applicable) and a weighted average remaining contractual life of 9.8 years (2008: not applicable).

(c) Fair value of share options and assumptions

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the share options granted is measured based on a binomial model. The contractual life of the share option is used as an input into this model. Expectations of early exercise are incorporated into the binomial model.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value of share options and assumptions

	2009
Fair value at measurement date	HK$0.1694
Share price	HK$0.211
Exercise price	HK$0.211
Expected volatility (expressed as weighted average
volatility used in the modelling under binomial model)	113.231%
Option life (expressed as weighted average life used in
the modelling under binomial model)	5 years
Expected dividends	0.000%
Risk-free interest rate (based on Hong Kong Exchange
Fund Notes)	1.683%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of share options), adjusted for an expected changes to future volatility based on publicly available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate.

Share options were granted under a service condition. This condition has not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share option grants.

25. Retirement benefits scheme

The Group operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Scheme Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement scheme administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap monthly relevant income of HK$20,000. Contributions to the scheme vest immediately.

As stipulated by the rules and regulations in the PRC, Shanxi Everpride, a subsidiary established in the PRC, is required to contribute to a state-sponsored retirement plan for all of its employees at approximately 17% of the basic salary of its employees.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Under the above schemes, retirement benefits of existing and retired employees are payable by the relevant scheme administrators and the Group has no further obligations beyond the annual contributions.

For the year ended 31 December 2009, the aggregate amount of the Group’s contributions to the aforementioned schemes was approximately RMB1,070,000 (2008: RMB1,275,000) which was included in the staff costs.

26. Related party transactions

In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions.

Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed in Note 9, is as follows:

Short-term employee benefits Retirement scheme contributions Share-based payments Total	The Group 2009 2008 RMB’000 RMB’000 2,722 2,140 37 43 2,687 – 5,446 2,183	The Group 2009 2008 RMB’000 RMB’000 2,722 2,140 37 43 2,687 – 5,446 2,183
		2,183

Total remuneration is included in “staff cost” (see note 7(b)).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. Commitments

• (a) Capital commitments outstanding at 31 December 2009 not provided for in the financial statements were as follows:

Contracted for – construction of factory buildings – acquisitions of subsidiaries	The Group 2009 2008 RMB’000 RMB’000 – 2,475 16,728 – 16,728 2,475	The Group 2009 2008 RMB’000 RMB’000 – 2,475 16,728 – 16,728 2,475
		2,475

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. STATEMENT OF INDEBTEDNESS

Borrowings

As at the close of business on 31 May 2010, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had the following outstanding loans and borrowings.

Secured interest-bearing loans Unsecured interest-bearing loans Unsecured non-interest-bearing loans	RMB’000 34,465 1,208 10,640
	46,313

Securities and guarantees

As at 31 May 2010, the secured interest-bearing loans of approximately RMB34,465,000 of the Enlarged Group were secured by:

• i) the Group’s leasehold properties situated in PRC.

• ii) two corporate guarantees from two independent third parties.

• iii) a property owned by an independent third party.

• iv) the Group’s intangible asset in respect of the exclusive right to produce and sell the products of “Puli Capsale”.

Disclaimers

Save as aforesaid and apart from intra-group liabilities and normal trade payables, at the close of business on 31 May 2010, the Enlarged Group did not have any loan capital issued or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills and payables) or acceptance credits, debentures, mortgages, charges, financial lease, hire purchases commitments, guarantees or other material contingent liabilities.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 May 2010.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL

The Directors are of the opinion that, following completion of the Acquisition, after taking into account the financial resources available to the Enlarged Group, including internally generated funds, the Group has sufficient working capital for its present requirements for at least the next twelve months from the date of this Circular, in the absence of unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

The Directors confirm that there have been no material adverse change in the financial or trading position or outlook of the Group since 31 December 2009 (being the date to which the latest published audited financial statements of the Group were made up) up to and including the Latest Practicable Date.

5. FINANCIAL AND TRADING PROSPECT

The Group will continue to pharmaceutical and leisure business by organic growth, external acquisitions and by exploring the forming of strategic partnerships with both overseas and Chinese enterprises. The Group will continue to focus on and benefit from the rapidly increasing demand in the PRC for customer products and services. Further, the Group will continue to expand its cosmetic distribution service. The Group will strive to continually enhance its capability within the consumer product and leisure services via infusion of talents and forging strategic and technical alliances with foreign partners. It is expected that the growth of the Group’s servicing business will continue and will contribute positively to the Group’s turnover and profitability in 2010 and thereafter.

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APPENDIX II

FINANCIAL INFORMATION OF ANNUO

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ascenda Cachet CPA Limited, in respect of the accountants’ report on Annuo as set out in this appendix.

==> picture [148 x 68] intentionally omitted <==

13F Neich Tower 128 Gloucester Road Wanchai Hong Kong 30 June 2010

The Board of Directors Hao Wen Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Annuo Financial Information”) relating to Annuo Insurance Broker Company Limited (“Annuo”) for the years ended 31 December 2007, 2008 and 2009 (the “Relevant Periods”), including the statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows of Annuo for the Relevant Periods and the statements of the financial position of Annuo as at 31 December 2007, 2008 and 2009 together with the notes thereto, prepared for inclusion in a circular (the “Circular”) dated 30 June 2010 issued by Hao Wen Holdings Limited (the “Company”) in connection with the proposed acquisition (the “Acquisition”) of the operating right (the “Operating Right”) of Shaanxi Ruilin Investment Management Company Limited（陝西瑞林投資管理有限 公司）(“RL”), which is a 51% shareholder of Annuo, for a term of 15 years from 1 June 2010 to 31 May 2025 pursuant to an agreement dated 24 May 2010 and a supplemental agreement dated 15 June 2010 (the “Agreements”) between Xian Jin Hao Asset Management Company Limited (西安金皓資產管理有限公司, an indirect wholly-owned subsidiary of the Company, “JH”) and Shaanxi Ruide Enterprise Development Company Limited（陜西瑞德實業發展有限公司）(the “Vendor” or “RD”) to acquire the Operating Right at a total consideration of RMB51,000,000 (the “Consideration”).

– 117 –

APPENDIX II

FINANCIAL INFORMATION OF ANNUO

The Acquisition constitutes a major and connection transaction of the Company under the Rules (the “GEM Listing Rules”) Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and is subject to the approval by the independent shareholders of the Company at an extraordinary general meeting of the Company to be convened and held.

Annuo was established in the People’s Republic of China (the “PRC”) with limited liability on 9 July 2003. The principal activity is the provision of insurance brokerage and consultancy services in the PRC during the Relevant Periods.

Annuo has its statutory financial statements prepared in accordance with the accounting principles and regulations applicable to enterprises established in the PRC. These statutory financial statements were audited by 西安長興會計師事務所有限責任公司 in the PRC for the years ended 31 December 2007, 2008 and 2009.

For the purpose of this report, the directors of Annuo have prepared the financial statements of Annuo for the Relevant Periods (the “Underlying Financial Statements”) in accordance with International Financial Reporting Standards (“IFRSs”) (which also include all International Financial Reporting Standards and International Accounting Standards (“IASs”) and Interpretations) issued by the International Accounting Standards Board (the “IASB”).

The Annuo Financial Information as set out in this report has been prepared from the Underlying Financial Statements, after making such adjustments where appropriate. The directors of Annuo are responsible for the preparation and the true and fair presentation of the Annuo Financial Information. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial information that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In preparing the Annuo Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of the Company are also responsible for the contents of the Circular in which this report is included.

It is our responsibility to form an independent opinion, based on our examination, on the Annuo Financial Information and to report our opinion to you.

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APPENDIX II

FINANCIAL INFORMATION OF ANNUO

For the purpose of this report, we have carried out an independent audit on the Annuo Financial Information for the Relevant Periods in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and have carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and Reporting Accountant” issued by the HKICPA.

In our opinion, the Annuo Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of Annuo as at 31 December 2007, 2008 and 2009 and of the results and cash flows of Annuo for the Relevant Periods.

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APPENDIX II

FINANCIAL INFORMATION OF ANNUO

ANNUO FINANCIAL INFORMATION

The following is the Annuo Financial Information for each of the Relevant Periods and as at 31 December 2007, 2008 and 2009, prepared on the basis set out in note 2 below.

STATEMENTS OF INCOME

Notes REVENUE 5 Other income and gains 5 Administrative expenses PROFIT/(LOSS) BEFORE TAX 6 Income tax expenses 9 PROFIT/(LOSS) FOR THE YEAR Attributable to: Owners of Annuo	Year	ended 31 December 2008 2009 RMB RMB 3,872,684 18,278,078 4,607 5,255 (4,120,571) (14,335,470) (243,280) 3,947,863 (8,739) (621,584) (252,019) 3,326,279 (252,019) 3,326,279
	2007 RMB 3,085,116 5,527 (4,505,152) (1,414,509) 87,177 (1,327,332) (1,327,332)	2008 RMB 3,872,684 4,607 (4,120,571) (243,280) (8,739) (252,019) (252,019)

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

STATEMENTS OF COMPREHENSIVE INCOME

PROFIT/(LOSS) FOR THE YEAR Total comprehensive income for the year, net of tax Total comprehensive income attributable to: Owners of Annuo	Year	ended 31 December	ended 31 December
	2007 RMB (1,327,332) (1,327,332) (1,327,332)	2008 RMB (252,019) (252,019) (252,019)	2009 RMB 3,326,279
			3,326,279
			3,326,279

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 11 Deferred tax assets 20 Total non-current assets CURRENT ASSETS Trade receivables 12 Prepayments, deposits and other receivables 13 Due from holding company 14 Due from directors 15 Cash and bank balances 16 Total current assets CURRENT LIABILITIES Trade payables 17 Other payables and accruals 18 Deferred revenue 19 Tax payables Total current liabilities NET CURRENT ASSETS Net assets EQUITY Equity attributable to owners of Annuo Paid up capital 21 Retained earnings/(Accumulated losses) Total equity		31 December
	2007 RMB 881,752 99,489 981,241 6,349,958 482,228 6,970,000 – 769,526 14,571,712 5,987,992 1,239,051 – 12,312 7,239,355 7,332,357 8,313,598 10,000,000 (1,686,402) 8,313,598	2008 RMB 1,410,513 101,408 1,511,921 3,626,163 481,770 6,448,915 – 698,454 11,255,302 3,090,200 1,604,786 – 10,658 4,705,644 6,549,658 8,061,579 10,000,000 (1,938,421) 8,061,579	2009 RMB 3,264,299 91,333
			3,355,632
			2,502,719 605,899 23,828,915 208,348 31,277,430
			58,423,311
			1,736,266 6,350,429 21,692,880 611,510
			30,391,085
			28,032,226
			31,387,858
			30,000,000 1,387,858
			31,387,858

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

At 1 January 2007 Total comprehensive income for the year At 31 December 2007 and 1 January 2008 Total comprehensive income for the year At 31 December 2008 and 1 January 2009 Additional capital contributions (note 21) Total comprehensive income for the year At 31 December 2009	Attributable to owners of Annuo Paid-up capital Retained earnings/ (Accumulated losses) Total RMB RMB RMB 10,000,000 (359,070) 9,640,930 – (1,327,332) (1,327,332) 10,000,000 (1,686,402) 8,313,598 – (252,019) (252,019) 10,000,000 (1,938,421) 8,061,579 20,000,000 – 20,000,000 – 3,326,279 3,326,279 30,000,000 1,387,858 31,387,858

– 123 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(Loss) before tax Adjustments for: Depreciation Write-off of property, plant and equipment Bank interest income Impairment loss on trade receivables Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in trade payables Increase in other payables and accruals Increase in deferred revenue Cash generated from operations Profits tax paid Interest received Net cash flows from operating activities	Year ended 31 December 2007 2008 2009 RMB RMB RMB (1,414,509) (243,280) 3,947,863 385,465 361,324 622,032 231,446 – – (5,527) (4,607) (5,255) 431,810 98,121 5,903 (371,315) 211,558 4,570,543 (4,730,730) 2,625,674 1,117,541 3,771,213 458 (124,129) 4,502,830 (2,897,792) (1,353,934) 267,440 365,735 4,745,643 – – 21,692,880 3,439,438 305,633 30,648,544 – (12,312) (10,657) 5,527 4,607 5,255 3,444,965 297,928 30,643,142	Year ended 31 December 2007 2008 2009 RMB RMB RMB (1,414,509) (243,280) 3,947,863 385,465 361,324 622,032 231,446 – – (5,527) (4,607) (5,255) 431,810 98,121 5,903 (371,315) 211,558 4,570,543 (4,730,730) 2,625,674 1,117,541 3,771,213 458 (124,129) 4,502,830 (2,897,792) (1,353,934) 267,440 365,735 4,745,643 – – 21,692,880 3,439,438 305,633 30,648,544 – (12,312) (10,657) 5,527 4,607 5,255 3,444,965 297,928 30,643,142
	2007 RMB (1,414,509) 385,465 231,446 (5,527) 431,810 (371,315) (4,730,730) 3,771,213 4,502,830 267,440 – 3,439,438 – 5,527 3,444,965	2008 RMB (243,280) 361,324 – (4,607) 98,121 211,558 2,625,674 458 (2,897,792) 365,735 – 305,633 (12,312) 4,607 297,928

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APPENDIX II

FINANCIAL INFORMATION OF ANNUO

CASH FLOWS FROM INVESTING ACTIVITIES Advances to directors Repayments from/(advances to) holding company Purchase of items of property, plant and equipment Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from additional capital contributions Net cash flows from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	Year ended 31 December 2007 2008 2009 RMB RMB RMB – – (208,348) (2,970,000) 521,085 (19,380,000) (260,418) (890,085) (475,818) (3,230,418) (369,000) (20,064,166) – – 20,000,000 – – 20,000,000 214,547 (71,072) 30,578,976 554,979 769,526 698,454 769,526 698,454 31,277,430 769,526 698,454 31,277,430	Year ended 31 December 2007 2008 2009 RMB RMB RMB – – (208,348) (2,970,000) 521,085 (19,380,000) (260,418) (890,085) (475,818) (3,230,418) (369,000) (20,064,166) – – 20,000,000 – – 20,000,000 214,547 (71,072) 30,578,976 554,979 769,526 698,454 769,526 698,454 31,277,430 769,526 698,454 31,277,430
	2007 RMB – (2,970,000) (260,418) (3,230,418) – – 214,547 554,979 769,526 769,526	2008 RMB – 521,085 (890,085) (369,000) – – (71,072) 769,526 698,454 698,454

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

NOTES TO THE ANNUO FINANCIAL INFORMATION

1. General

Annuo is a limited liability company established in the People’s Republic of China (the “PRC”) on 9 July 2003. The registered office of Annuo is situated at Room 11605, 16F, Block A, Huixin IBC Buildings, No.1 Zhangba Road One, High-Technology Zone, Xi’an, the PRC.

The principal activity of Annuo is the provision of insurance brokerage and consultancy services in the PRC. Annuo holds a licence for insurance brokerage（經營保險 經紀業務許可證）(the “Licence”) granted by the China Insurance Supervisory Commission （中國保險監督管理委員會）(the “CISC”) for the operations in its insurance brokerage and consultancy business with an expiry date up of September 2011. The Licence can be further extended subject to the compliance with the relevant CISC’s requirements.

During the Relevant Periods and as at 31 December 2009, the holding company of Annuo was Shaanxi Ruide Enterprise Development Company Limited (“RD”), a limited liability company incorporated in the PRC. Subsequent to the Relevant Periods, on 7 June 2010, the major share holding company of Annuo became Shaanxi Ruilin Investment Management Company Limited (“RL”).

In the opinion of the directors of Annuo, during the Relevant Periods and as at the date of this report, the ultimate holding company of Annuo was RD

2.1 Basis of preparation

These Annuo Financial Information have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), which include all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations promulgated by the International Accounting Standards Board (the “IASB”). These Annuo Financial Information also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the GEM Listing Rules.

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

2.2 Early adoption of new and revised international financial reporting standards

The IASB has issued a number of new and revised IFRSs which are effective for accounting periods beginning on or before 1 January 2009. Annuo has early adopted these new and revised IFRSs in preparing the Annuo Financial Information for the years ended 31 December 2007 and 2008. The adoption of these new and revised IFRSs did not have any significant impact on Annuo’s results of operations and financial position.

2.3 Issued but not yet effective International Financial Reporting Standards

Annuo has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in the Annuo Financial Information.

IFRS 1 (Revised)	First-time Adoption of International Financial
	Reporting Standards1
IFRS 1 Amendments	Amendments to IFRS 1 First-time Adoption of
	International Financial Reporting Standards –
	Additional Exemptions for First-time Adopters2
IFRS 2 Amendments	Amendments to IFRS 2 Share-based Payment
	– Group Cash-settled Share-based Payment
	Transactions2
IFRS 3 (Revised)	Business Combinations1
IFRS 9	Financial Instruments6
IAS 24 (Revised)	Related Party Disclosures5
IAS 27 (Revised)	Consolidated and Separate Financial Statements1
IAS 32 Amendment	Amendment to IAS 32 Financial Instruments:
	Presentation – Classification of Rights Issues3
IAS 39 Amendment	Amendment to IAS 39 Financial Instruments:
	Recognition and Measurement – Eligible Hedged
	Items1
IFRIC-Int 14	Amendments to IFRIC-Int 14 Prepayments of a
	Minimum Funding Amendments Requirement5
IFRIC-Int 17	Distributions of Non-cash Assets to Owners1
IFRIC-Int 19	Extinguishing Financial Liabilities with Equity
	Instruments4
Amendments to IFRS 5	Amendments to IFRS 5 Non-current Assets Held for
included in Improvements	Sale and Discontinued Operations – Plan to Sell
to IFRSs issued in October	the Controlling Interest in a Subsidiary1
2008

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APPENDIX II

Apart from the above, the IASB has issued Improvements to IFRSs 2009 which sets out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to IFRS 2, IAS 38, IFRIC-Int 9 and IFRIC-Int 16 are effective for annual periods beginning on or after 1 July 2009 while the amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 38 and IAS 39 are effective for annual periods beginning on or after 1 January 2010 although there are separate transitional provisions for each standard or interpretation.

The IASB has issued Improvements to IFRSs 2010 which sets out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to IFRS 1, IFRS 7, IAS 1, IAS 34 and IFRIC-Int 13 are effective for annual periods beginning on or after 1 January 2011 while the amendments to IFRS 3 are effective for annual periods beginning on or after 1 July 2010 although there are separate transitional provisions for each standard or interpretation.

• 1 Effective for annual periods beginning on or after 1 July 2009 2 Effective for annual periods beginning on or after 1 January 2010 3 Effective for annual periods beginning on or after 1 February 2010 4 Effective for annual periods beginning on or after 1 July 2010 5 Effective for annual periods beginning on or after 1 January 2011 6 Effective for annual periods beginning on or after 1 January 2013

Annuo is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. So far, Annuo considers that the adoption of these new and revised IFRSs are unlikely to have a significant impact on Annuo’s results of operations and financial position.

2.4 Summary of significant accounting policies

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than deferred tax assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

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An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined net of any depreciation/amortisation had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises.

Related parties

A party is considered to be related to Annuo if:

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

• (b) the party is an associate;

• (c) the party is a jointly-controlled entity;

• (d) the party is a member of the key management personnel of Annuo or its parent;

• (e) the party is a close member of the family of any individual referred to in (a) or (d); or

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• (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

• (g) the party is a post-employment benefit plan for the benefit of the employees of Annuo, or of any entity that is a related party of Annuo.

Property, plant and equipment and depreciation

Property, plant and equipment, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of income in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, Annuo recognises such parts as individual assets with specific useful lives and depreciation.

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

Furniture and fixtures	20% to 33%
Motor vehicles	20% to 24%
Leasehold improvements	20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

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An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where Annuo is the lessee, rentals payable under operating leases are charged to the income statement on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as loans and receivables, as appropriate. Annuo determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

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

Annuo’s financial assets include cash and bank balances, trade receivables, prepayments, deposits and other receivables, amounts due from directors and holding company.

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Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The loss arising from impairment is recognised in the income statement in finance costs.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• the rights to receive cash flows from the asset have expired;

• Annuo has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

• and either (a) Annuo has transferred substantially all the risks and rewards of the asset, or (b) Annuo has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When Annuo has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of Annuo’s continuing involvement in the asset. In that case, Annuo also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that Annuo has retained.

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Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that Annuo could be required to repay.

Impairment of financial assets

Annuo assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, Annuo first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If Annuo determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

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FINANCIAL INFORMATION OF ANNUO

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the impairment loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement.

Assets carried at cost

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

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss or loans and borrowings. Annuo determines the classification of its financial liabilities at initial recognition.

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All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

Annuo’s financial liabilities include trade payables and other payables and accruals.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of income when the liabilities are derecognised as well as through the effective interest rate method amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement.

Derecognition of financial liabilities

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

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

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Fair value of financial instruments

The fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Deferred revenue

Deferred revenue represents commission income received in advance. Revenue is recognised and deferred revenue is released to the statement of income when the corresponding services are rendered.

Cash and cash equivalents

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

For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of income.

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Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which Annuo operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

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 profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

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

• (a) commission income, when the service is rendered; and

• (b) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Employee benefits

Pension scheme

The employees of Annuo which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. Annuo is required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Foreign currencies

These financial information are presented in Renminbi, which is Annuo’s functional and presentation currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the each of the reporting period. All differences are taken to the statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

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3 Significant accounting judgements and estimates

The preparation of Annuo Financial Information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying Annuo’s accounting policies, management has made the following judgement, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial information.

Estimation uncertainty

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

Impairment of non-financial assets

Annuo assesses whether there are any indicators of impairment for all nonfinancial assets at the end of each reporting period. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cashgenerating units exceeds it recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculation of the fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

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Provision for impairment of trade receivables

The policy for the provision for impairment of trade receivables of Annuo is based on the evaluation of collectibles and ageing analysis of accounts receivable and on the management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each customer.

Estimated fair value of financial assets

The estimation of fair value of financial assets required Annuo to estimate the future market value expected to be recovered from the disposal of the financial assets and a suitable discount rate in order to calculate the present value.

4 Operating segment information

For management purpose, Annuo is organised into business units based on their services. However, Annuo operates only in one business, being the provision of insurance brokerage and consultancy services in the PRC during the Relevant Periods. Accordingly, no further disclosures by the reportable segments based on business were made.

Annuo operates principally in the PRC. Over 90% of Annuo’s revenue is derived from the provision of services in the PRC and over 90% of Annuo’s assets are located in the PRC. Accordingly, no further disclosures by the reportable segments based on geographical were made.

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APPENDIX II

Revenue of approximately RMB485,000, 511,000, and 11,454,000, respectively were derived from the largest customer during the years ended 31 December 2007, 2008 and 2009. Revenue of approximately RMB1,057,000, 1,154,000, and 17,692,000, respectively were derived from the top 5 customers during the years ended 31 December 2007, 2008 and 2009.

5 Revenue, other income and gains

Revenue which is also Annuo’s turnover, represents commission income received and receivable for the services rendered during the Relevant Periods.

Revenue, other income and gains recognised during the Relevant Periods are as follows:

Revenue: Commission income Other income and gains: Bank interest income Total revenue, other income and gains	Year ended 31 December 2007 2008 2009 RMB RMB RMB 3,085,116 3,872,684 18,278,078 5,527 4,607 5,255 3,090,643 3,877,291 18,283,333	Year ended 31 December 2007 2008 2009 RMB RMB RMB 3,085,116 3,872,684 18,278,078 5,527 4,607 5,255 3,090,643 3,877,291 18,283,333
		18,283,333

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6 Profit/(loss) before tax

Annuo’s profit/(loss) before tax is arrived after charging/(crediting):

Depreciation Auditors’ remuneration Write-off of property, plant and equipment Minimum lease payments under operating leases: land and buildings Impairment loss on trade receivables Staff costs (excluding directors’ remuneration (note 7)): Salaries and allowances Contributions to retirement scheme Bank interest income	Year ended 31 December 2007 2008 2009 RMB RMB RMB 385,465 361,324 622,032 3,000 3,000 4,000 231,446 – – 453,643 453,341 882,060 431,810 98,121 5,903 795,852 662,232 956,302 218,095 259,331 307,912 1,013,947 921,563 1,264,214 (5,527) (4,607) (5,255)

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7 Directors’ remuneration

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

Fees Other emoluments: Salaries, allowances and benefits in kind Retirement scheme contributions 31 December 2007 Directors Zhao Borui Zhao Yan Zhang Guoan Yao Jiansheng		Year ended 31 December 2007 2008 RMB RMB – – 224,700 404,520 9,600 14,880 234,300 419,400 Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 57,600 2,400 – 58,200 2,400 – 54,300 2,400 – 54,600 2,400 – 224,700 9,600	Year ended 31 December 2007 2008 RMB RMB – – 224,700 404,520 9,600 14,880 234,300 419,400 Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 57,600 2,400 – 58,200 2,400 – 54,300 2,400 – 54,600 2,400 – 224,700 9,600	2009 RMB –
				404,520 17,280
				421,800
				Total RMB 60,000 60,600 56,700 57,000
				234,300

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31 December 2008

Directors Zhao Borui Zhao Yan Zhang Guoan Yao Jiansheng 31 December 2009 Directors Zhao Borui Zhao Yan Zhang Guoan Yao Jiansheng		Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 107,280 3,720 – 95,280 3,720 – 100,680 3,720 – 101,280 3,720 – 404,520 14,880 Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 107,280 4,320 – 95,280 4,320 – 100,680 4,320 – 101,280 4,320 – 404,520 17,280	Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 107,280 3,720 – 95,280 3,720 – 100,680 3,720 – 101,280 3,720 – 404,520 14,880 Directors’ fees Salaries, allowances and benefits in kind Retirement scheme contributions RMB RMB RMB – 107,280 4,320 – 95,280 4,320 – 100,680 4,320 – 101,280 4,320 – 404,520 17,280	Total RMB 111,000 99,000 104,400 105,000 419,400 Total RMB 111,600 99,600 105,000 105,600 421,800

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The emoluments of the above director fall within the band from Nil to RMB1,000,000 during the Relevant Periods.

During the Relevant Periods, no director of Annuo waived any emoluments and no emoluments were paid or payable by Annuo as an inducement to join or upon joining Annuo, or as compensation for loss of office.

8 Retirement benefit costs

The employees of Annuo is a member of state-sponsored retirement plan operated by the local government in the PRC and it makes mandatory contributions to the state-sponsored retirement plan to fund the employee retirement benefits. The retirement contributions paid by Annuo are based on certain percentage of the relevant portion of the payroll of all qualifying employees in accordance with the relevant regulations in the PRC and are charged to the income statement as incurred. Annuo discharges its retirement obligations upon payment of the retirement contributions to the state-sponsored retirement plan operated by the local government in the PRC.

9 Income tax expenses

Under the relevant Corporate Income Tax Law (the “Previous CIT Law”) and the respective regulations, the corporate income tax is calculated at rate of 33% on Annuo’s estimated assessable profits for the period on or before 15 March 2007 based on such legislations, interpretations and practices in respect thereof.

On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), which is effective from 1 January 2008. Under the New CIT Law, the enterprise income tax rate (“EIT rate”) applicable to domestic companies from 1 January 2008 has decreased from 33% to 25% on 1 January 2008 and thereafter.

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FINANCIAL INFORMATION OF ANNUO

Pursuant to an approval document issued by the Shaanxi Provincial State Taxation Bureau （陝西省國家稅務局）, Annuo had been designated as a China Western Development Enterprise（西部大開發企業）and was subject to a concessionary tax rate of 15% effective for the year ended on or after 31 December 2006 and will be expired on 31 December 2010.

Current tax: Charge for the year Deferred tax: Charge/(Credit) for the year (note 20) Tax credit/(charge)	Year ended 31 December 2007 2008 2009 RMB RMB RMB 12,312 10,658 611,509 (99,489) (1,919) 10,075 (87,177) 8,739 621,584	Year ended 31 December 2007 2008 2009 RMB RMB RMB 12,312 10,658 611,509 (99,489) (1,919) 10,075 (87,177) 8,739 621,584
		621,584

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rates to the tax expense at the effective tax rates for the year is as follows:

Profit/(Loss) before tax Tax at the domestic tax rates applicable Expense not deductible for tax Tax credit/(charge)	2007 RMB (1,414,509) (212,176) 124,999 (87,177)	15.0% (8.8)% 6.2%	Year ended 31 December 2008 RMB (243,280) (36,492) 15.0% 45,231 (18.6)% 8,739 (3.6%)	2009 RMB 3,947,863 592,179 29,405 621,584	15.0% 0.7%
					15.7%

10 Earnings /(loss)per share

No earnings /(loss) per share is presented as the calculation of basic earnings /(loss) per shares is not meaningful for the purpose of this report.

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11 Property, plant and equipment

Leasehold improvements Furniture and fixtures RMB RMB 31 December 2007 At 1 January 2007 Cost – 417,555 Accumulated depreciation – (179,053) Net carrying amount – 238,502 At 1 January 2007, net of accumulated depreciation – 238,502 Additions – 13,148 Write-off – – Depreciation provided for the year – (81,054) At 31 December 2007, net of accumulated depreciation – 170,596 At 31 December 2007 Cost – 430,703 Accumulated depreciation – (260,107) Net carrying amount – 170,596 31 December 2008 At 1 January 2008 Cost – 430,703 Accumulated depreciation – (260,107) Net carrying amount – 170,596	Motor vehicles RMB 1,427,639 (427,896) 999,743 999,743 247,270 (231,446) (304,411) 711,156 1,184,876 (473,720) 711,156 1,184,876 (473,720) 711,156	Total RMB 1,845,194 (606,949) 1,238,245 1,238,245 260,418 (231,446) (385,465) 881,752 1,615,579 (733,827) 881,752 1,615,579 (733,827) 881,752

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FINANCIAL INFORMATION OF ANNUO

At 1 January 2008, net of accumulated depreciation Additions Depreciation provided for the year At 31 December 2008, net of accumulated depreciation At 31 December 2008 Cost Accumulated depreciation Net carrying amount 31 December 2009 At 1 January 2009 Cost Accumulated depreciation Net carrying amount At 1 January 2009, net of accumulated depreciation Additions Depreciation provided for the year At 31 December 2009, net of accumulated depreciation At 31 December 2009 Cost Accumulated depreciation Net carrying amount	– – – – – – – – – – – 2,000,000 (33,333) 1,966,667 2,000,000 (33,333) 1,966,667 Leasehold improvements RMB	170,596 – (77,146) 93,450 430,703 (337,253) 93,450 430,703 (337,253) 93,450 93,450 17,750 (59,994) 51,206 448,453 (397,247) 51,206 Furniture and fixtures RMB	711,156 890,085 (284,178) 1,317,063 2,074,961 (757,898) 1,317,063 2,074,961 (757,898) 1,317,063 1,317,063 458,068 (528,705) 1,246,426 2,533,029 (1,286,603) 1,246,426 Motor vehicles RMB	881,752 890,085 (361,324) 1,410,513 2,505,664 (1,095,151) 1,410,513 2,505,664 (1,095,151) 1,410,513 1,410,513 2,475,818 (622,032) 3,264,299 4,981,482 (1,717,183) 3,264,299 Total RMB

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

12 Trade receivables

Trade receivables Impairment	2007 RMB 6,781,768 (431,810) 6,349,958	31 December 2008 RMB 4,156,094 (529,931) 3,626,163	2009 RMB 3,038,553 (535,834) 2,502,719

Notes:

At the end of each reporting period, included in trade receivables were (a) premium receivables; and (b) commission receivables as follows:

• (a) The amounts of premium receivables represented premiums to be received from the policyholders for and on behalf of insurance companies (the “Principals”) and the related amounts due to the Principals were shown as trade payables (note 17). Normally, premiums are received from the policyholders on a monthly basis and received within 15 days after the payment due date of the insurance policy.

• (b) Normally, the credit period of commission income is generally 15 days after the above premiums have been paid to the Principals by Annuo.

Annuo seeks to maintain strict control over both of the above outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that Annuo’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

An aged analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of provisions, is as follows:

Within 1 month 1 to 2 months 2 to 3 months Over 3 months	2007 RMB 2,968,736 677,753 642,244 2,061,225 6,349,958	31 December 2008 RMB 294,466 707,669 808,995 1,815,033 3,626,163	2009 RMB 463,058 562,915 442,701 1,034,045
			2,502,719

The movements in provision for impairment of trade receivables are as follows:

At 1 January Impairment losses recognised At 31 December	2007 RMB – 431,810 431,810	31 December 2008 RMB 431,810 98,121 529,931	2009 RMB 529,931 5,903
			535,834

Annuo does not hold any collateral or other credit enhancements over these balances.

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

The aged analysis of the trade receivables that are not considered to be impaired is as follows:

Neither past due nor impaired Less than 1 month past due 1 to 3 months past due	2007 RMB 2,968,736 677,753 2,703,469 6,349,958	31 December 2008 RMB 294,466 707,669 2,624,028 3,626,163	2009 RMB 463,058 562,915 1,476,746
			2,502,719

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with Annuo. Based on past experience, the directors of Annuo are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. Annuo does not hold any collateral or other credit enhancements over these balances.

13 Prepayments, deposits and other receivables

Prepayments Other receivables	2007 RMB 3,680 478,548 482,228	31 December 2008 RMB 127,000 354,770 481,770	2009 RMB 39,264 566,635
			605,899

None of the above assets are either past due or impaired. The financial assets included in the above balances receivables for which there was no recent history of default.

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FINANCIAL INFORMATION OF ANNUO

APPENDIX II

14 Due from holding company

Particulars of the amount due from the holding company, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

31 December 2007

Shaanxi Ruide Enterprise Development Company Limited (“RD”) 31 December 2008 RD 31 December 2009 RD	31 December 2007 RMB 6,970,000 31 December 2008 RMB 6,448,915 31 December 2009 RMB 23,828,915	Maximum amount outstanding during the year RMB 8,970,000 Maximum amount outstanding during the year RMB 6,970,000 Maximum amount outstanding during the year RMB 23,828,915	1 January 2007 RMB 7,070,000 1 January 2008 RMB 6,970,000 1 January 2009 RMB 6,448,915

– 152 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

The amount due from the holding company is interest-free, has no fixed terms of repayment, is unsecured and is guaranteed by Mr. Zhao Borui, a director of the Company, Annuo and Annuo's holding company.

15 Due from directors

Particulars of the amounts due from the directors, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

31 December 2009

Yao Jiansheng Zhao Yan	31 December 2009 RMB 117,948 90,400 208,348	Maximum amount outstanding during the year RMB 119,760 90,400 210,160	1 January 2009 RMB – – –

The amounts due from the directors are unsecured, interest-free and have no fixed terms of repayment.

16 Cash and cash equivalents

The cash and bank balance, which was denominated in Renminbi (“RMB”), was not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, Annuo was permitted to exchange RMB for other currencies through bank authorised to conduct foreign exchange business.

– 153 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

17 Trade payables

An aged analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows:

Within 1 month 1 to 2 months 2 to 3 months Over 3 months	2007 RMB 1,023,850 1,659,003 1,168,960 2,136,179 5,987,992	31 December 2008 RMB 137,256 366,941 672,207 1,913,796 3,090,200	2009 RMB 319,094 145,001 350,181 921,990
			1,736,266

The trade payables represent premiums received and receivable for and on behalf of insurance companies, (the “Principals”), which are non-interest-bearing and are normally settled to the Principals by Annuo within 15 days after the related premiums have been collected by Annuo.

18 Other payables and accruals

Accrued salaries Accruals Other payables Other tax payables	2007 RMB 720,467 167,903 326,718 23,963 1,239,051	31 December 2008 RMB 667,959 12,987 892,007 31,833 1,604,786	2009 RMB 746,799 2,218,785 1,505,235 1,879,610
			6,350,429

– 154 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

19 DEFERRED REVENUE

Deferred revenue represents commission income received in advance. Included in the commission income for the year ended 31 December 2009 is an amount of RMB 32,539,320 representing commission income (the “Commission Income”) for services provided to an insurance company in relation to a general insurance policy with a policy period of 11 years (the “Insurance Cover Period”) starting from the year 2009.

During the year ended 31 December 2009, Annuo had received the whole amount of the Commission Income. Pursuant to the arrangement between Annuo and the insurance company:

• if the insurance policy is terminated either by the insurance company or the policyholder in the first year of the Insurance Cover Period, Annuo is required to refund two thirds of the Commission Income;

• if the insurance policy is terminated either by the insurance company or the policyholder in the second year of the Insurance Cover Period, Annuo is required to refund one third of the Commission Income; and

• if the insurance policy is terminated either by the insurance company or the policyholder after the second anniversary of the effective date of the Insurance Cover Period, Annuo is not required to refund any of the Commission Income;

Accordingly, Annuo recognised RMB10,846,440 in the statement of income for the year ended 31 December 2009, with the remaining balance of RMB21,692,880 recorded as deferred revenue in the statement of financial position as at 31 December 2009.

– 155 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

20 Deferred tax assets

At 1 January 2007 Deferred tax credited to the statement of income during the year (note 9) At 31 December 2007 and at 1 January 2008 Deferred tax credited to the statement of income during the year (note 9) At 31 December 2008 and at 1 January 2009 Deferred tax charged to the statement of income during the year (note 9) At 31 December 2009	RMB – 99,489
	99,489 1,919
	101,408 (10,075)
	91,333

The above deferred tax assets represented deductible temporary differences arising from the impairment of trade receivables and the write-off of the motor vehicles.

21 Registered and paid-up capital

		31 December
	2007	2008	2009
	RMB	RMB	RMB
Registered and
fully paid up	10,000,000	10,000,000	30,000,000

On 16 November 2009, Annuo further increased its registered capital from RMB10,000,000 to RMB30,000,000 as additional working capital, which was fully paid up in cash.

– 156 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

22 Commitments

(a) Operating lease commitments

Annuo leases certain of its office premises under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to five years.

At the end of each reporting date, Annuo had future aggregate minimum lease payments under non-cancellable operating leases in respect of office premises as follows:

Within one year In the second to fifth years, inclusive	2007 RMB 259,470 112,800 372,270	31 December 2008 RMB 325,740 121,560 447,300	2009 RMB 441,260 314,200
			755,460

(b) Capital commitments

At the end of each reporting period, Annuo did not have any significant capital commitments.

23 Contingent liabilities

At the end of each reporting period, Annuo did not have any significant contingent liabilities.

– 157 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

24 Related party transactions

• (a) Annuo had the following transactions with the holding company during the Relevant Periods:

		31 December
	2007	2008	2009
	RMB	RMB	RMB
Leasehold improvements*
(note 11)	–	–	2,000,000

• The leasehold improvements of RMB2,000,000 was paid to the holding company of Annuo for a refurbishment of Annuo’s new office during the year ended 31 December 2009, pursuant to a subcontracting agreement dated 1 December 2009 entered into between Annuo and the holding company ,who acted as a contractor who is responsible for purchasing raw materials, designing and searching for sub-contractors.

The related party transactions were conducted on terms negotiated between Annuo and the holding company.

• (b) Details of the balances with related parties are set out in notes 14 and 15.

• (c) Compensation of key management personnel of Annuo:

Short-term employee benefits Post-employment benefits Total compensation paid to key management personnel	2007 RMB 50,220 – 50,220	31 December 2008 RMB 75,600 – 75,600	2009 RMB 76,200 –
			76,200

Further details of directors’ emoluments are included in note 7 to the financial information.

– 158 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

25 Event after the reporting period

Subsequent to the reporting period, on 29 March 2010, dividends of RMB2,730,200 were approved by the board of directors of Annuo.

26 Financial instruments by category

The carrying amounts of each of the categories of financial instruments as at the respective reporting dates are as follows:

31 December 2009

Financial assets Trade receivables Financial assets included in prepayments, deposits and other receivables Due from holding company Due from directors Cash and bank balances Financial liabilities Trade payables Financial liabilities included in other payables and accruals	Loans and receivables RMB 2,502,719 566,635 23,828,915 208,348 31,277,430 58,384,047 Financial liabilities at amortised cost RMB 1,736,266 6,350,429 8,086,695

– 159 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

31 December 2008

Financial assets Trade receivables Financial assets included in prepayments, deposits and other receivables Due from holding company Cash and bank balances Financial liabilities Trade payables Financial liabilities included in other payables and accruals 31 December 2007 Financial assets Trade receivables Financial assets included in prepayments, deposits and other receivables Due from holding company Cash and bank balances

Loans and receivables RMB 3,626,163 354,770 6,448,915 698,454 11,128,302 Financial liabilities at amortised cost RMB 3,090,200 1,604,786 4,694,986 Loans and receivables RMB 6,349,958 478,548 6,970,000 769,526 14,568,032

– 160 –

APPENDIX II

FINANCIAL INFORMATION OF ANNUO

Financial liabilities Trade payables Financial liabilities included in other payables and accruals	Financial liabilities at amortised cost RMB 5,987,992 1,239,051 7,227,043

27 Financial risk management objectives and policies

Annuo is exposed to various kinds of risks in its operation and financial instruments. Annuo’s risk management objectives and policies mainly focused on minimising the potential adverse effects of these risks on Annuo by closely monitoring the individual exposure as follows:

Interest rate risk

Annuo has no significant interest-bearing financial assets and liabilities with a floating interest rate at the end of each reporting period. Annuo’s results and operating cash flows are substantially independent of changes in market interest rates.

Foreign currency risk

Annuo does not have significant foreign currency risk arising from future commercial transactions and recognised financial assets and liabilities since almost all of them are denominated in Renminbi.

Credit risk

Annuo’s credit risk is primarily attributable to trade receivables, prepayments, deposits and other receivables, amounts due from directors and holding company and cash and bank balances. Annuo has policies in place to ensure that their customers with an appropriate credit history. All the bank balances were made with financial institutions with high-credit quality.

– 161 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

Liquidity risk

Liquidity risk is minimal as Annuo has significant cash and bank balances to meet its liquidity requirements.

Capital management

The primary objective of Annuo’s capital management is to safeguard Annuo’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholder value.

Annuo monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes trade payables, other payables and accruals, and deferred revenue less cash and bank balances. Capital includes equity attributable to equity shareholders of Annuo.

Trade payables Other payables and accruals Deferred revenue Less: Cash and bank balances Net debt/(Net cash) Equity attributable to owners of Annuo Capital and net debt Gearing ratio	2007 RMB 5,987,992 1,239,051 – (769,526) 6,457,517 8,313,598 14,771,115 44%	31 December 2008 RMB 3,090,200 1,604,786 – (698,454) 3,996,532 8,061,579 12,058,111 33%	2009 RMB 1,736,266 6,350,429 21,692,880 (31,277,430) (1,497,855) 31,387,858 29,890,003 N/A

– 162 –

FINANCIAL INFORMATION OF ANNUO

APPENDIX II

28 Subsequent financial statements

No audited financial statements have been prepared for Annuo in respect of any period subsequent to 31 December 2009.

Yours faithfully

Ascenda Cachet CPA Limited

Certified Public Accountants

Chan Yuk Tong

Practicing Certificate Number P03723

Hong Kong

– 163 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Enlarged Group assuming completion of the Acquisition. The unaudited pro forma financial information is prepared in accordance with Paragraph 7.31(1) and Paragraph 19.67(6)(a)(ii) of the GEM Listing Rules to illustrate the effect of the Acquisition on the Group’s financial information.

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction to the unaudited pro forma financial information

The accompanying unaudited pro forma financial information of the Group together with the Target Group includes the unaudited pro forma statement of the combined assets and liabilities of the Enlarged Group prepared based on the Group’s statement of financial position as at 31 December 2009 and the statement of financial position of the Target Group as at 31 December 2009, and gives effect to the proposed Acquisition as if the Acquisition had been completed on 31 December 2009 (the “Unaudited Pro Forma Financial Information”).

The unaudited pro forma statement of combined assets and liabilities of the Enlarged Group is prepared based upon the audited statement of financial position of the Group as at 31 December 2009 as set out in Appendix I to this circular and the audited statement of financial position of the Target Group as at 31 December 2009 as set out in Appendix II after incorporating the unaudited pro forma adjustments described in the accompanying notes. A narrative description of the unaudited pro forma adjustments of the Acquisition that are (i) directly attributable to the transactions concerned and not relating to future events or decisions; (ii) expected to have a continuing impact on the Enlarged Group; and (iii) factually supportable, are summarised in the accompanying notes.

The Unaudited Pro Forma Financial Information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 December 2009. Further, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I to this circular, the financial information of the Target Group as set out in Appendix II to this circular and other financial information included elsewhere in this circular.

– 164 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

• (1) Unaudited pro forma statement of combined assets and liabilities of the Enlarged Group as at 31 December 2009

Non-current assets Fixed assets Intangible assets (including goodwill) Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents TOTAL ASSETS Current liabilities Trade and other payables Consideration payable Loans and borrowings Deferred revenue Current tax payable Non-current liabilities Consideration payable TOTAL LIABILITIES NET ASSETS	The Group (Note 2(a) RMB’000 107,565 – – 107,565 5,241 9,726 18,640 33,607 141,172 80,769 – 47,545 – 3,955 132,269 – 132,269 8,903	The Target Company (Note 2(b) RMB’000 3,264 – 92 3,356 – 27,146 31,277 58,423 61,779 8,087 – – 21,693 611 30,391 – 30,391 31,388	Pro forma combined Pro forma adjustments Note Pro forma the Enlarged Group RMB’000 RMB’000 RMB’000 110,829 110,829 – 34,992 2(c) 34,992 92 92 110,921 145,913 5,241 5,241 36,872 36,872 49,917 (14,025) 2(c) 35,892 92,030 78,005 202,951 223,918 88,856 88,856 – 7,013 2(c) 7,013 47,545 47,545 21,693 21,693 4,566 4,566 162,660 169,673 – 7,012 2(c) 7,012 162,660 176,685 40,291 47,233	Pro forma combined Pro forma adjustments Note Pro forma the Enlarged Group RMB’000 RMB’000 RMB’000 110,829 110,829 – 34,992 2(c) 34,992 92 92 110,921 145,913 5,241 5,241 36,872 36,872 49,917 (14,025) 2(c) 35,892 92,030 78,005 202,951 223,918 88,856 88,856 – 7,013 2(c) 7,013 47,545 47,545 21,693 21,693 4,566 4,566 162,660 169,673 – 7,012 2(c) 7,012 162,660 176,685 40,291 47,233
				145,913
				5,241 36,872 35,892
				78,005
				223,918
				88,856 7,013 47,545 21,693 4,566
				169,673 7,012
				176,685
				47,233

See accompanying notes to Unaudited Pro Forma Financial Information of the Enlarged Group.

– 165 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(2) Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

• (a) The balances of assets and liabilities of the Group are extracted from the audited statement of financial position of the Group as at 31 December 2009 as included in the published annual report of the Group for the year ended 31 December 2009.

• (b) The balances of assets and liabilities of the Target Group are extracted from the audited statement of financial position of the Target Group as at 31 December 2009 as set out in Appendix II of this circular.

(c) Acquisition

Pursuant to the Agreement entered into between Xian Jin Hao Asset Management Company Limited（西安金皓資產管理有限公司）(“JH”), an indirectly wholly-owned subsidiary of the Company, and Shaanxi Ruide Enterprise Development Company Limited（陝西瑞德實業發展有限公司）, the owner of the Target Group, JH has conditionally agreed to acquire the operating right of the Target Group for a term of 15 years from 1 June 2010 to 31 May 2025 for a total consideration of RMB51,000,000.

Current PRC laws and regulations place certain restrictions on foreign investment in and ownership of insurance agencies and brokerages. Accordingly, the Company conducts its operations in China principally through contractual arrangements among its PRC subsidiary, the Target Group and the equity shareholders of the Target Group, who are PRC nationals. The contractual arrangements include a series of contracts entered into between the Company’s PRC subsidiary and the equity shareholders of the Target Group, including equity pledge agreements, irrevocable powers of attorney, exclusive purchase option agreements, and service agreements. Through these contractual arrangements, the Company is entitled to: (1) receive service fees from the Target Group; (2) exercise more than half of the voting powers of the Target Group; and (3) acquire the 51% equity interests of the Target Group once PRC laws permit. As a result, the Company absorbs 51% of the expected losses and residual returns of the Target Group. Since the Group will control the board and govern the financial and operation of the Target Group as contemplated under the management and consultancy contracts upon Completion, the Target Group is considered as the special purpose entity (“SPE”) of the Company. As the Company is the beneficiary of this SPE, the Company consolidates it into its consolidated financial statements.

– 166 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Upon completion of the Acquisition, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Company at fair values under the purchase method of accounting in accordance with International Financial Reporting No. 3 “Business Combinations” (“IFRS 3”).

The pro forma adjustments represent the following:

• (i) The excess of the consideration over the share of fair values of the identifiable assets and liabilities of the Target Group is recorded as goodwill. The fair values of the identifiable assets and liabilities of the Target Group may be substantially different from the estimated fair value used in the preparation of this Unaudited Pro Financial Information. Accordingly, the actual amount of goodwill may be different from the amount as adopted in the Unaudited Pro Forma Financial Information; and

• (ii) The consideration of RMB28,050,000 will be payable in the following manner:

• RMB14,025,000 to be paid in cash within 10 business days after Completion;

• RMB7,012,500 to be paid in cash within 10 days after the issue of latest quarterly financial result of the Target Group; and

• RMB7,012,500 to be paid in cash within 10 days after the audited financial statements of Annuo in relation to the Consideration Adjustment has been issued by the auditor and this amount will only be paid if the Consideration Adjustment are met.

The remaining balance of RMB22,950,000 will be settled by the issuance of 147,772,500 ordinary shares of the Company at a price of HK$0.18 per ordinary share within 10 business days after Completion.

• (d) No adjustments have been made to reflect any trading results or other transactions of the Group and the Target Group entered into subsequent to 31 December 2009.

– 167 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a comfort letter, prepared for the sole purpose of inclusion in this circular, as received from the independent reporting accountants, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

(B) COMFORT LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [86 x 92] intentionally omitted <==

30 June 2010

The Directors

Hao Wen Holdings Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Hao Wen Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), together with Shaanxi Ruilin Investment Management Company Limited（陝西瑞林投資管理有限公司）and its subsidiary (collectively, the “Target Group”), (collectively referred to as the “Enlarged Group”) set out in Section A of Appendix III to the circular of the Company dated 30 June 2010 (the “Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the proposed acquisition of the operating right of the Target Group for a term of 15 years from 1 June 2010 to 31 May 2025 might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the notes to the Unaudited Pro Forma Financial Information of the Enlarged Group of section A of Appendix III to the Circular.

– 168 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Respective Responsibilities of Directors of the Company and Reporting Accountant

It is the sole responsibility of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 7.31(1) of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

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

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly complied by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 7.31(1) of the GEM Listing Rules.

– 169 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2009 or any future dates.

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 7.31(1) of the GEM Listing Rules.

Yours faithfully,

CCIF CPA Limited

Certified Public Accountants Hong Kong

Yau Hok Hung

Practising Certificate Number P04911

– 170 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

Assuming there is no change to the number of Shares in issue from the Latest Practicable Date to the Completion Date, the authorised and issued share capital of the Company (a) as at the Latest Practicable Date; and (b) after Completion and upon the allotment and issue of the Consideration Shares were/will be as follows:

(a) As at the Latest Practicable Date

Authorised: 2,000,000,000 Shares Issued and fully paid: 1,030,500,900 Shares	HK$ 200,000,000
	103,050,090

(b)	After Completion and upon the allotment and issue of the Consideration Shares	After Completion and upon the allotment and issue of the Consideration Shares	After Completion and upon the allotment and issue of the Consideration Shares
	Authorised:		HK$
	2,000,000,000	Shares	200,000,000
	Issued and fully paid:
	1,030,500,900	Existing Shares	103,050,090
	147,772,500	Consideration Shares to be alloted and issued	14,777,250
	1,178,273,400		117,827,340

– 171 –

GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF INTERESTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors, chief executive of the Company and their associates had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange:

(a) Interests in issued ordinary shares and underlying shares of the Company

			Approximate
	Capacity/		percentage of
Name of Director	Nature of interest	No. of Shares	interest
		(Note 1)
Mr. Hu Yangxiong	Interest of a controlled	193,975,000 (L)	18.82%
(“Mr. Hu”)	corporation	(Note 2)

Notes:

1. The letter “L” denotes a long position in shares.

2. These shares are beneficially owned by Montgomery Properties Holding Limited. By virtue of his 100% shareholding in Montgomery Properties Holding Limited, Mr. Hu is deemed or taken to be interested in the 193,975,000 Shares owned by Montgomery Properties Holding Limited.

(b) Interest in the share options of the Company

		Exercise		No. of	Approximate
		price per		share	percentage
Name of director	Date of grant	share	Exercisable period	options	held
		(HK$)
Zhao Borui	11 November 2009	0.211	11 November 2009 to	7,000,000	0.68%
			10 November 2019
Hu Yangxiong	22 January 2010	0.249	22 January 2010 to	86,760,000	8.42%
			21 January 2020

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GENERAL INFORMATION

APPENDIX IV

4. SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, the Directors and chief executive of the Company are not aware that there was any party (other than a Director or chief executive of the Company), who, as at the Latest Practicable Date had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote at general meeting of any other member of the Group:

			Approximate
	Capacity/		percentage of
Name	Nature of interest	No. of Shares	interest
		(Note 1)
Montgomery Properties	Beneficial owner	193,975,000 (L)	18.82%
Holding Limited

Note:

1. The Letter “L” denotes a long position in shares of the Company.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered or proposed to enter into a service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

6. DIRECTORS INTERESTS IN CONTRACTS

As at the Latest Practicable Date, save for the Acquisition, none of the Directors has any interest, direct or indirect, in any asset which since 31 December 2009, the date to which the latest published audited financial statements of the Group were made up, have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, save for the Acquisition, none of the Directors was materially interested in any contract or arrangement which is significant in relation to the businesses of the Group.

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GENERAL INFORMATION

APPENDIX IV

7. NO MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, the date to which the latest published audited financial statements of the Group were made up.

8. EXPERT

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

Name	Qualification
Quam Capital Limited	a corporation licensed to carry out type 6 (advising on
	corporate finance) regulated activity under the SFO.
Ascenda Cachet CPA Limited	certified public accountants
CCIF CPA Limited	certified public accountants

As at the Latest Practicable Date, Quam Capital Limited and Ascenda Cachet CPA Limited and CCIF CPA Limited do not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

As at the Latest Practicable Date, Quam Capital Limited and Ascenda Cachet CPA Limited and CCIF CPA Limited do not have any interest, direct or indirect, in any asset which since 31 December 2009, the date to which the latest published audited financial statements of the Group were made up, have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

Quam Capital Limited and Ascenda Cachet CPA Limited and CCIF CPA Limited have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their letters and report as set out in this circular and references to their names in the form and context in which they appear in this circular.

9. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates has an interest in a business apart from the Company’s business which competes or is likely to compete, either directly or indirectly, with the Group’s businesses.

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GENERAL INFORMATION

APPENDIX IV

10. LITIGATION

Neither the Company nor any member of the Group is engaged in any litigation or arbitration or claim of material importance and, so far as the Directors are aware, no litigation, arbitration or claim of material importance is pending or threatened against any member of the Group.

11. GENERAL

• (a) The secretary of the Company is Mr. Leung King Fai, who is a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants.

• (b) The Compliance Officer of the Company is Mr. Oliver Ching Yue Tong, who is also the Chief Executive Officer.

• (c) The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111 and the principal place of business of the Company is situated at Rooms 701 Tai Yau Building, 181 Johnston Road , Wanchai, Hong Kong.

• (d) The principal share registrar and transfer office of the Company is Butterfield Fund Services (Cayman) Limited, which is situated at Butterfield House, 68 Fort Street, P.O. Box 705, George Town, Grand Cayman, Cayman Islands.

• (e) The Company’s Hong Kong branch share registrar and transfer office is Tricor Abacus Limited, which is situated at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (f) The English text of this circular will prevail over the corresponding Chinese text.

12. MATERIAL CONTRACTS

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

• (a) the Agreement (including the Supplemental Agreement);

• (b) the agreement dated 14 December 2009 between Wu Ching Por (vendor) and the Company (purchaser) in relation to the acquisition of the entire issued share capital of Jin Hao Limited at consideration of HK$9,000,000;

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GENERAL INFORMATION

APPENDIX IV

• (c) the agreement dated 14 December 2009 between Cosmetics Holdings Limited (vendor) and the Company (purchaser) in relation to the acquisition of the entire issued share capital of Merry Sky Holdings Limited at consideration of HK$10,000,000;

• (d) six subscription agreements dated 10 November 2009 between the Company as issuer and separately with six subscribers namely: Yuen Eddie Hong Sing, Wu Ching Por, Ng Oi Yee Elly, Zhang Jinxing, Guo Zhan Wu and Yao Yingli in relation to subscription for an aggregate of 144,000,000 new Shares at price of 0.159 each; and

• (e) a joint venture agreement dated 15 March 2010 among, Beijing Haofeng Yangguang Investment and Consultancy Limited Liability Company, Beijing Huoyi Nianhua Media Technology Limited Liability Company and Good Wisdom Holdings Limited in relation to establishment of a joint venture in the PRC with RMB17,000,000 registered capital.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at Rooms 701 Tai Yau Building 181, Johnston Road, Wanchai, Hong Kong, the principal place of business of the Company, from the date of this circular up to and including the date of EGM:

• (a) the memorandum and articles of association of the Company;

• (b) the material contracts referred to in the paragraph headed “Material Contracts” of this appendix;

• (c) the letter from the Independent Board Committee, the text of which is set out on page 10 of this circular;

• (d) the letter from Independent Financial Adviser, the text of which is set out on pages 24 to 52 of this circular;

• (e) the written consents of Independent Financial Adviser, Ascenda Cachet CPA Limited and CCIF CPA Limited referred to in the section headed “Experts” in this appendix to this circular;

• (f) the annual reports of the Company for each of the financial years ended 31st December, 2008 and 31st December, 2009;

• (g) the report from Ascenda Cachet CPA Limited, the text of which is set out on pages 117 to 163 of this circular; and

• (h) the letter from CCIF CPA Limited, the text of which is set out on pages 168 to 170 of this circular..

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NOTICE OF THE EGM

==> picture [70 x 69] intentionally omitted <==

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8019)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of Hao Wen Holdings Limited (the ‘‘Company’’) will be held at 11 a.m. on Tuesday, 20 July 2010 at Unit 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

‘‘ THAT the agreement (the ‘‘Acquisition Agreement’’) dated 24 May 2010 entered into between Xian Jin Hao Asset Management Company Limited（西安金皓資產管理有限公 司）, an indirect wholly owned subsidiary of the Company as the purchaser and Shaanxi Ruide Enterprise Development Company Limited（陝西瑞德實業發展有限公司）, a connected person of the Company as the vendor, a copy of which is tabled at the meeting marked “A” and initialled by the chairman of the meeting for identification purpose, pursuant to which the Purchaser agreed to purchase and the Vendor agreed to sell the operating right of Shaanxi Ruilin Investment Management Company Limited（陝西瑞林投資 管理有限公司）, which is a 51% shareholder of Annuo Insurance Broker Company Limited （安諾保險經紀有限公司）for a term of 15 years at a consideration of RMB51,000,000 (the “Consideration”) be and is hereby approved, ratified and confirmed and the directors of the Company be and are hereby authorized to take such actions as are necessary or expedient to give effect to the transactions contemplated under the Acquisition Agreement, including but not limited to the allotment and issue of the 147,772,500 new ordinary shares of HK$0.1 each in the share capital of the Company at the issue price of HK$0.18 per share in satisfaction of 45% of the Consideration.’’

Hao Wen Holdings Limited Leung King Fai Company Secretary

Hong Kong, 30 June 2010

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NOTICE OF THE EGM

Notes:

1. Any member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and, subject to the provisions of the Articles of Association of the Company, vote instead of him. A proxy need not be a member of the Company.

2. To be valid, a form of proxy, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of that power of attorney or authority must be deposited at the Company’s Hong Kong branch share registrar, Tricor Abacus Ltd, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting.

3. For the purpose of determining the identity of members who are entitled to attend and vote at the above meeting, the register of members of the Company will be closed from Friday, 16 July 2010 to Monday, 19 July 2010 (both dates inclusive) during which period no transfer of shares will be registered. All properly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch share registrar, Tricor Abacus Ltd, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Thursday, 15 July 2010.

4. Shareholders or their proxies shall produce their identity documents when attending the EGM.

As at the date hereof, the executive directors are Mr. Chung Chi Mang, Mr. Hu Yangxiong and Mr. Zhao Borui; the independent non-executive directors are Mr. Leung Siu Kuen, Mr. Fu Wing Kwok, Ewing and Mr. Lam Chung Fai.

This notice will remain on the GEM website with the domain name of www.hkgem.com on the “Latest Company Announcements” page for at least seven days from the date of its posting.

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