Hao Wen Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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

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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 TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF SMART COURAGE LIMITED INVOLVING THE ISSUE OF PROMISSORY NOTE AND CONVERTIBLE BONDS

A letter from the board of directors of the Company is set out from pages 5 to 35 of this circular.

A notice convening the extraordinary general meeting (“EGM”) of Hao Wen Holdings Limited to be held at Unit 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong, on Thursday, 28 April 2011 at 10:00 a.m. is set out on pages 107 to 108 of this circular.

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on the website of the Growth Enterprise Market of the Stock Exchange (www.hkgem.com) and the Company (http://www.tricor.com.hk/ webservice/008019). Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon not less than 48 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be).

This circular will remain on the “Latest Company Announcement” page of the website of the Growth Enterprise Market of the Stock Exchange at www.hkgem.com and on the Company’s website at http://www.tricor.com.hk/webservice/008019 for at least 7 days from the date of its publication.

11 April 2011

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED

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 and no assurance is given that there will be a liquid market in the securities traded on GEM.

– i –

			Page
Definitions. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			5
Appendix I	–	Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . .	36
Appendix II	–	Financial information of the Target Group. . . . . . . . . . . . . . . . . . . . .	39
Appendix III	–	Financial information of Earth Buddy. . . . . . . . . . . . . . . . . . . . . . . .	61
Appendix IV	–	Valuation Report of the intellectual
		property of Earth Buddy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80
Appendix V	–	Management discussion and analysis
		on the Group and the Target Group. . . . . . . . . . . . . . . . . . . . . . . .	92
Appendix VI	–	Unaudited pro forma financial
		information of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . .	97
Appendix VII	–	General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			107

– ii –

DEFINITIONS

In this circular, unless the context otherwise requires, capitalized terms used shall have the following meanings:

“Acquisition”	the sale and purchase of the Sale Shares contemplated
	under the Agreement
“Agreement”	the sale and purchase agreement dated 24 December
	2010 entered into between Talent Keen Limited as
	vendor, Mr. Choy as vendor’s guarantor and Premium
	Stars Investments Limited, a wholly-owned subsidiary
	of the Company, as purchaser for the acquisition of the
	Sale Shares
“Announcement”	the announcement of the Company in relation to the
	Acquisition dated 27 December 2010
“associate(s)”	shall have the meaning ascribed to it under the GEM
	Listing Rules
“Board”	the board of Directors
“Bondholder”	a holder or holder(s) in whose name the Convertible
	Bonds are registered in the register, and “holder”
	in relation to the Convertible Bonds shall have the
	corresponding meaning
“Business day(s)”	a day (excluding Saturday and Sunday) on which
	licensed banks are generally open for business in Hong
	Kong throughout their regular business hours
“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 Acquisition in accordance with the
	Agreement
“connected person(s)”	has the meaning ascribed to it under the GEM Listing
	Rules

– 1 –

DEFINITIONS

“Consideration”	the total consideration of HK$180,000,000 payable by
	the Purchaser to the Vendor for the Sale Shares pursuant
	to the Agreement
“Consideration Adjustment”	the adjustment of the amount payable by the Purchaser
	on redemption of the Promissory Note on a dollar for
	dollar basis in the event that the Reference Profit is less
	than HK$12,000,000
“Conversion Shares”	those Shares to be issued upon conversion of the
	conversion rights attached to the Convertible Bonds at
	the initial conversion price of HK$0.10 per Conversion
	Share (subject to adjustment)
“Convertible Bonds”	the convertible bonds in registered form comprising a
	total principal amount of HK$120,000,000 to be issued
	by the Company to the Vendor or its nominee(s) on the
	date of Completion
“Director(s)”	the director(s) of the Company
“Earth Buddy”	Earth Buddy (Intellectual Property) Limited, a company
	incorporated in Hong Kong and the entire issued share
	capital of which is held by the Target Company as at the
	Latest Practicable Date
“EGM”	an extraordinary general meeting of the Company to
	be held at Unit 701, Tai Yau Building, 181 Johnston
	Road, Wanchai, Hong Kong, on Thursday, 28 April
	2011 at 10:00 a.m., to consider and, if appropriate, to
	approve the resolutions contained in the notice of the
	extraordinary general meeting which is set out on pages
	107 to 108 of this circular, or any adjournment thereof
“Enlarged Group”	the Group immediately after Completion
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Group”	the Company and its subsidiaries

– 2 –

DEFINITIONS

“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Last Trading Day”	23 December 2010, being the last trading day of the
	Shares on the Stock Exchange immediately prior to the
	date of the Agreement
“Latest Practicable Date”	7 April 2011, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular
“Long Stop Date”	31 May 2011, or such later date as the relevant parties to
	the Agreement may agree in writing
“Mr. Choy”	Mr. Choy Kai Chung Andy, one of the beneficial owners
	of the Vendor
“Mr. Ho”	Mr. Ho Kam Hung, one of the beneficial owners of the
	Vendor
“Mr. Ng”	Mr. Ng Kwok Wing, Michael, one of the beneficial
	owners of the Vendor
“PRC”	The People’s Republic of China, for the purpose of
	this circular excluding Hong Kong, the Macau Special
	Administrative Region and Taiwan
“PRC Operating Factory”	Ka Fook Recycle Products Limited（順德嘉福環保制
	品公司）, a company incorporated in the PRC and is
	wholly-owned by the associates of the Vendor
“Promissory Note”	a promissory note in the maximum principal amount of
	HK$30,000,000 to be issued by the Purchaser pursuant
	to the terms and conditions of the Agreement to the
	Vendor on Completion as part of the Consideration
“Purchaser”	Premium Stars Investments Limited, a company
	incorporated under the laws of the British Virgin Islands
	and is a wholly-owned subsidiary of the Company

– 3 –

DEFINITIONS

“Reference Profit”	the reference profit of HK$12,000,000 of the Target
	Group in respect of the 12 months ending 31 December
	2011
“RMB”	Renminbi, the lawful currency of the PRC
“Sale Shares”	such number of shares of US$1.00 each in the capital
	of the Target Company representing 100% issued share
	capital of the Target Company immediately before
	Completion, which are legal and beneficially owned by
	the Vendor
“SFO”	The Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.01 each in the existing share
	capital of the Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	The Code on Takeovers and Mergers and Share
	Repurchases of the Securities and Futures Commission
	of Hong Kong
“Target Company”	Smart Courage Limited, a company incorporated under
	the laws of the British Virgin Islands and the entire
	issued share capital of which is held by Vendor as at the
	Latest Practicable Date
“Target Group”	Target Company and Earth Buddy
“Vendor”	Talent Keen Limited, a company owned as to 40% by
	Mr. Ng, 40% by Mr. Ho and 20% by Mr. Choy, being
	the vendor of the Sale Shares under the Agreement
“Vendor’s Guarantor”	Mr. Choy
“%”	per cent.

– 4 –

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. Zhao Borui Mr. Hu Yangxiong Mr. Lee Cheuk Yue, Ryan Mr. Chow Yik Mr. Chung Chi Mang Mr. Leung King Fai

Independent non-executive Directors: Mr. Lam Ka Wai, Graham Ms. Yeung Mo Sheung, Ann Mr. Lam Chung Fai

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

Principal place of business in Hong Kong: 701 Tai Yau Building 181, Johnston Road Wanchai Hong Kong 11 April 2011

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF SMART COURAGE LIMITED INVOLVING THE ISSUE OF PROMISSORY NOTE AND CONVERTIBLE BONDS

INTRODUCTION

The Board announced on 27 December 2010 that the Purchaser had entered into the Agreement with the Vendor pursuant to which the Purchaser conditionally agreed to acquire from the Vendor the Sale Shares of the Target Company at the total consideration of HK$180,000,000 to be paid to the Vendor partly by cash, partly by the Purchaser’s issue of the Promissory Note and partly by the Company’s issue of the Convertible Bonds. The purpose of this circular is to provide with further information relating to (i) the Acquisition; and (ii) the notice of EGM to be convened and held for the purpose of considering and, if thought fit, approving the Agreement (including the issue of the Promissory Note and the Convertible Bonds) and the Acquisition.

– 5 –

LETTER FROM THE BOARD

THE AGREEMENT

Date

24 December 2010

Parties

Purchaser: Premium Stars Investments Limited, a company incorporated in the British Virgin Islands and is a wholly-owned subsidiary of the Company Vendor: Talent Keen Limited, a company incorporated in the British Virgin Islands and is owned as to 40% by Mr. Ng, 40% by Mr. Ho and 20% by Mr. Choy Vendor’s Guarantor: Mr. Choy, one of the ultimate beneficial owner(s) of the Vendor

Assets to be acquired

Pursuant to the Agreement, the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares, representing the entire issued share capital of the Target Company.

The Sale Shares will be acquired free of liens, encumbrances and other claims and together with all rights attaching thereto as at the date of the Agreement, including the right to receive dividends and distributions declared, made or paid after the date of the Agreement.

The Target Company is an investment holding company incorporated under the laws of the British Virgin Islands on 26 November 2010 with limited liability and is wholly-owned by the Vendor. Apart from its 100% equity interest in Earth Buddy, the Target Company does not have any operation. Upon Completion, the Target Company will become a subsidiary of the Company and the results of the Target Group will be consolidated into the financial statements of the Group. Further information on the Target Group is set out in the section headed ‘‘Information on the Target Group’’ below.

Based on the audited financial statements of the Target Company as at 31 December 2010, the audited net assets of the Target Company as at 31 December 2010 amounted to approximately HK$9,471,000. Details of the financial information of the Target Group are stated in Appendix II to this circular.

– 6 –

LETTER FROM THE BOARD

Trade Marks and Designs

Earth Buddy has registered one of its trademarks with the trademark offices in Hong Kong, the European Union and Switzerland. Its other trademark applications have been filed in the PRC, the United States of America and Canada and are still under the review with various trademark offices as at the Latest Practicable Date.

According to the Vendor, the business of the Target Group will be well covered by Classes 16 and 21. Classes 18 and 25 have been applied for future uses and can allow the Target Group to respond quickly as and when required by clients and when new product lines identified by the Target Group have more demand and a higher profit margin.

		Applicant/		Trade Mark	Date of	Renewal
Trade Mark	Place/Country	Proprietor	Status	number	registration	date
	Hong Kong	Earth Buddy	Registered (Classes 16,	301374110	29 June 2009	28 June 2019
			18, 21 and 25) (Note 1)
	European	Earth Buddy	Registered (Classes 16,	008410037	7 July 2009	7 July 2019
	Community		18, 21 and 25)
	Switzerland	Earth Buddy	Registered (Classes 16,	601313	3 July 2009	3 July 2019
			18, 21 and 25)

Earth Buddy has also registered one of its designs in Hong Kong, its other designs are also related to biodegradable food containers and disposable industrial packaging but have not been registered or applied for registration.

According to the Vendor, the industry of manufacturing biodegradable containers is customer oriented. Most of the designs of the containers are launched in order to cater customer needs. The Company has been given to understand from the Vendor that continuing orders will be made by customers on those designed products (registered or unregistered) if the design have been accepted and approved by customers.

		Applicant/		Registration	Date of
Design	Place/Country	Proprietor	Status	number	registration
	Hong Kong	Earth Buddy	Registered	0900994.5	18 June 2009

– 7 –

LETTER FROM THE BOARD

Note:

Goods covered by Class 16 include:–

Paper, cardboard and goods made from these materials, containers of paper fiber for the shopping of food products and packaging material made of paper or biodegradable fiber paper.

Goods covered by Class 18 include:–

Bags, recycle bags, beach bags and shopping bags.

Goods covered by Class 21 include:–

Household or kitchen utensils and containers, bottles, dishes, disposable plates in paper, flower pots, garbage cans and vegetable dishes.

Goods covered by Class 25 include:–

Clothing, footwear and headgear.

Consideration for the Acquisition

The total consideration of HK$180,000,000 will be satisfied in the following manner:–

(a) as to HK$30,000,000 in cash (HK$20,000,000 as a refundable deposit upon signing of the Agreement and the remaining HK$10,000,000 payable upon Completion);
(b) as to HK$30,000,000 by the issue of the Promissory Note (subject to the downward adjustment as described in the section headed “Adjustment to the principal amount” below) upon Completion; and
(c) as to the remaining balance of HK$120,000,000 by the issue of Convertible Bonds in the principal amount of HK$120,000,000 at the initial conversion price of HK$0.10 per Conversion Share to the Vendor or its nominees upon Completion.

Both parties to the Agreement have agreed that the refundable deposit of HK$20,000,000 shall be deposited with the Vendors’ solicitors who shall hold in escrow as stakeholder with the intention that such deposit shall only on the Purchaser’s instruction be applied or refunded as contemplated under the Agreement.

– 8 –

LETTER FROM THE BOARD

The refundable deposit of the Consideration has been funded by the internal resources of the Group.

Reference is made to the Announcement and an announcement of the Company dated 19 November 2010 regarding the fund raising exercise conducted by the Company. As stated in the Announcement, HK$10.62 million out of the net proceeds of approximately HK$31.25 million has been used as general working capital. According to the Directors, the Company has sufficient internal resources to settle the remaining HK$10 million cash consideration to be settled upon Completion.

It has been the intention of the Group to allot and issue new Shares and/or convertible debt securities of the Company which may be used to (i) satisfy part or all of the funding requirement of the new business segment; and (ii) reserve as general working capital. As and when considered to be appropriate, the Company may also consider raising funds by means of rights issues and/or open offers and/or otherwise as may be considered to be effective and appropriate. No terms and conditions of possible fund raising exercises have been concluded as at the Latest Practicable Date. Further announcements will be made, as and when necessary, in compliance with the requirements of the GEM Listing Rules.

It is premature at this stage for the Company to decide on a definite financing plan for the capital requirements of the Target Group, as the need for additional capital will depend on a number of factors such as the financial position of the Group, the performance of the Target Group after Completion, and the then market condition. In the event that any equity capital raising or external borrowings are required, the Directors will exercise due and careful consideration to formulate a financing plan that will best serve the Company, taking into account the effects on the Company’s gearing ratio and finance costs as well as dilution to Shareholders.

Basis of the Consideration

The Consideration is determined after arm’s length negotiations between the parties of the Agreement with reference to (a) the undertaking by the Vendor’s Guarantor that he shall transfer all his current and potential business dealings with his clients and procure the transfer of all the current and potential business dealings of all the companies that the Vendor or its associates controlled and all their subsidiaries with their clients (including but not limited to any memorandum of understanding entered into) to the Target Group; (b) the trademarks and designs owned by the Target Group (both registered, unregistered or in the course of registering); (c) the possible future earnings contribution of the Target Group to the Group; and (d) possible adjustment to the Consideration by the Consideration Adjustment.

– 9 –

LETTER FROM THE BOARD

The Directors have taken into account, the indicative price-earnings multiple of approximately 15 times represented by the Consideration over the Reference Profit, which was determined with reference to the current and potential business dealings of the Target Group with its existing customers and the production capacity of the PRC Operating Factory and the historical price-earnings multiple of comparable listed company(ies) engaging in the environmental recycling business:-

(i) Fook Woo Group Holdings Limited (923.HK) price-earnings multiple around 15 – vertically integrated waste paper management services provider and recycled paper products producer in the PRC.
(ii) Hadera Paper Ltd (Nasdaq: AIP) price-earnings multiple around 16 – manufacturer of paper and paper-related products in Israel. It operations are divided into five areas that make and sell packaging paper and corrugated board containers for consumer goods; disposable consumer products, and fine paper (printing and writing), as well as collect and recycle waste paper and plastic, and market office supplies, mainly to businesses in Israel.
(iii) DS Smith plc (London: SMDS) price-earnings multiple around 20 – engages in the supply of corrugated and plastic packaging, and recycled paper, as well as in the wholesale of office products.

Both the Company and the Vendor were not aware of any other companies listed on the Stock Exchange, operating in the same field as the Target Group (i.e. development, manufacturing and sale of, inter alia, biodegradable food containers and disposable industrial packaging for consumer products). The price-earnings multiple of comparable listed companies used for determining the Consideration were the closest match the Company and the Vendor could had found.

According to the listing document of Fook Woo Group Holdings Limited (923.HK) dated 19 March 2010, all of its waste paper packaging facilities and piers in Hong Kong are leased. According to annual report of Hadera Paper Ltd, it has principal executive offices and manufacturing and warehouse facilities located in Hadera, Israel. According to annual report of DS Smith plc, it has factories in France, Italy, Poland, Czech Republic and Slovakia.

– 10 –

LETTER FROM THE BOARD

Given the uniqueness of the business the Target Group plans to engage, the parties to the Agreement had put more emphasis on the business and price-earnings multiple of the comparables rather than their respective asset size and market capitalization.

In the event that the Reference Profit turns out to be zero or negative, the Company has no recourse to unwind the Consideration of HK$180,000,000 already paid to the Vendor except for a maximum amount of HK$12,000,000 on a dollar-on-dollar basis pursuant to the Consideration Adjustment.

The Directors are optimistic about the marketability of the products and the future operation and business of the Target Group and consider the Target Group will have high growth potential given (i) the increase public environmental awareness; (ii) the increase in price of plastic in recent years due to high crude oil price; (iii) the MOU (as defined below) received by the Target Group; (iv) the in depth experience and expertise of the Vendor in the industry; (v) the undertaking by the Vendor’s Guarantor; and (vi) the engaging of the PRC Operating Factory. After reviewing the status of the PRC Operating Factory (such as its production capacity) and the undertaking by the Vendor’s Guarantor that he shall transfer all his current and potential business dealings with his clients and procure the transfer of all the current and potential business dealings of all the companies that the Vendor or its associates controlled and all its subsidiaries with their clients (including but not limited to any memorandum of understanding entered into) to the Target Group, the Company is optimistic and confident about the trading prospects of the Target Group.

Earth Buddy has received a memorandum of understanding (the “ MOU ”) from its European client, Erich Müller Holding AG (“ Erich Müller ”), confirming its ordering forecast with Earth Buddy for the year 2011 that, together with its European partners, they intend to purchase 215,500,000 pieces from Earth Buddy. In addition, by leveraging on the existing client base of the Vendor and the Vendor’s extensive experience in the use of renewable agricultural residues into consumable products, the Acquisition would allow the Group to diversify into a new line of business with significant growth potential.

Although the MOU is not legally binding, according to the Vendor’s Guarantor, Erich Müller has been doing business with him or his associates for more than 5 years. It is their customers’ practice to issue memorandum of understanding (indicating the total amount of purchases in the forthcoming year) at the end or beginning of each calendar year. According to the Vendor’s Guarantor, the indicative orders from customers were based on their respective forecast in the forthcoming year and the transaction amount in recent years. Actual sales orders together with deposit will be placed by customers in accordance to their needs subsequent to the issuance of the memorandum of understanding(s).

– 11 –

LETTER FROM THE BOARD

According to the Vendor’s Guarantor, indicated units stated in the MOU can be followed by either one sales order (total indicated units) or several sales orders from customers (combined together the total indicated units) throughout the year. The said ordering pieces in the MOU are mainly food containers and fruit trays and the unit selling price is ranging from HK$0.50 to HK$1.50.

It is the plan of the Company to concentrate on the European market at first because the existing customers of the Vendor are mainly companies from Europe. The Company will also explore opportunities in the North America and Asian regions by leveraging on Mr. Choy’s in depth experience and expertise in the industry.

Based on the MOU, the potential revenue to be generated by the Target Group upon Completion will be more than HK$100 million. Given the business relationship of Erich Müller with the Vendor’s Guarantor and after taking into account the business practice as stated above, the Company is optimistic that the sales target can be met. As confirmed by the Vendor, they never experienced any problems and/or difficulties in receiving sales orders from the said European clients.

It is one of the conditions precedent to Completion that the due diligence reviews of the Target Group being completed to the satisfaction of the Purchaser in its sole discretion and that there no matter arising from the due diligence review which in the opinion of the Purchaser may adversely affect the value of the Sale Shares.

The Company has reviewed documents relating to the Target Group’s trademarks and design (registered and in progress) and has conducted valuation over them. Regarding the PRC Operating Factory, the Company has reviewed the status of the PRC Operating Factory and its production capacity. The Company may consider engaging qualified personnel or independent professional party to assist in performing a thorough check on the PRC Operating Factory’s operational status before Completion.

As to the business dealings to be transferred from the Vendor and its associates, apart from the MOU the Company has also reviewed the historical sales of the Vendor’s business and the length of the business relationships with and the background of these potential customers and discussed with the Vendor on the prospects of confirming memorandum of understanding(s). The Company considers the non-fulfillment of the MOU is remote given the above. The Directors will use its best endeavours to procure the sales orders for the Target Group for Shareholders’ interests. In the event that the MOU can not be fulfilled due to circumstances beyond the control of the Company (such as unnecessary delay and/or other matters), the Company will consult with its advisers (including but not limited to legal advisers) promptly for all necessary actions (whether legally or not) to be taken in order to protect the interest of the Company and/or its Shareholders.

– 12 –

LETTER FROM THE BOARD

The Company is satisfied with the results of its due diligence review on the potential business of the Target Group and will continue to conduct such review up to Completion.

On 24 December 2010, the Target Company acquired the entire equity interest of Earth Buddy for a total consideration of HK$9,500,000. The Company had considered the purchase cost of Earth Buddy of HK$9,500,000 with reference to the amount of intangible assets in the accounts of Earth Buddy of HK$379,389. The Company would like to reiterate that during the negotiation period the parties to the Agreement had put more emphasis on the future profitability and operation of the Target Group and considered that the Acquisition would allow the Group to diversify into a new line of business with significant growth potential.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the original owners of Earth Buddy and their associates are third parties independent of and not connected with the Company and its connected persons (as defined under the GEM Listing Rules). The original owners of Earth Buddy and their associates have no prior transaction with the Group in the last 12 months which would otherwise require aggregation under Rule 19.22 of the GEM Listing Rules.

Although the Consideration represents approximately 19 times of the original purchase cost made by the Target Company for Earth Buddy, the Directors are of the view that the 15 years’ payback period for the Group’s investment (which is calculated by dividing the Consideration by the Reference Profit) to be reasonable when compared to the price-earnings multiples of the comparable listed companies. The Directors acknowledge that in the event of a shortfall in the Reference Profit, the adjustment to the Consideration will be on a dollar-for-dollar basis (only 6% of the Consideration) instead of an adjustment mechanism based on multiples of the shortfall in the Reference Profit. However, based on the review of the MOU and the increasing public environmental awareness, the Directors are confident that the Reference Profit could be achieved. The Directors are also of the view that on balance, the risk of non-fulfillment of the Reference Profit, the overall terms of the Agreement including the Consideration and the adjustment mechanism in respect of the Consideration are acceptable, and are prepared to put forward the Acquisition for Shareholders’ consideration and approval.

Based on the above, the Directors (including the independent non-executive Directors) are confident about the prospects of the Target Group and are of the view that the terms and conditions of the Agreement including the Consideration (taking into account the possible downward adjustment of HK$12,000,000 in the event that the Target Group has no profit at all) are fair and reasonable and the Acquisition is beneficial to the Group and Shareholders as a whole.

– 13 –

LETTER FROM THE BOARD

Conditions Precedent

Completion is subject to the fulfillment of, inter alia, the following conditions precedent:–

(a) the passing by the requisite majority of Shareholders in general meeting of all resolutions required under the GEM Listing Rules (if any) or by a written shareholders certificate in lieu of holding a general meeting to approve the performance by the Purchaser or its subsidiaries (as a subsidiary of the Company) of the transactions contemplated under the Agreement, including without limitation sale and purchase of the Sale Shares and the issue of the Promissory Note and Convertible Bonds by the Company to the Vendor;
(b) the duly executed non-competition undertaking from each of the Vendor, the Vendor’s Guarantor and members of the senior management of the companies that the Vendor or its associates controlled in the form to the satisfaction of the Purchaser having been obtained;
(c) legal and financial due diligence, including but not limited to the affairs, business, assets, liabilities, operations, records, financial position, value of assets, accounts, results, legal and financial structure, of each member of the Target Group being completed to the satisfaction of the Purchaser in its sole discretion and that there no matter arising from the due diligence review which in the opinion of the Purchaser may adversely affect the value of the Sale Shares;
(d) it has not come to the attention of the Purchaser that any material adverse changes or effect on the Target Group has occurred prior to the date of Completion or are likely to occur before the date of Completion;
(e) all the representations and warranties contained in the Agreement remain true, accurate and not misleading in all respects;
(f) the Company having obtained a confirmation from the Vendor confirming that, from the date of the Agreement, there is no material adverse change or effect in respect of the financial or trading position of any member of the Target Group; and
(g) the Stock Exchange granting the listing of and permission to deal in on the Stock Exchange of the Conversion Shares.

The Purchaser shall have the right to waive in writing the conditions (except for conditions (a) and (g)) as mentioned above. Save as aforesaid, if the conditions precedent as set out in the Agreement have not been fulfilled (or where applicable, waived by the Purchaser in writing) on or before the Long Stop Date, the Purchaser has the right to terminate the Agreement by notice in writing after the Long Stop Date.

As at the Latest Practicable Date, condition (b) above had been fulfilled.

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LETTER FROM THE BOARD

Completion

Completion shall take place on the third Business Day after the date of fulfillment of the conditions precedent last in time to be fulfilled or waived by the Purchaser.

Undertakings by the Vendor’s Guarantor

Pursuant to the Agreement, the Vendor’s Guarantor guarantees to the Purchaser the due and punctual payment of all amounts payable by the Vendor under the Agreement and undertakes to the Purchaser to procure the performance by the Vendor of all its other obligations (including, inter alia, fulfilling the conditions precedent before the Long Stop Date) contained or implied in the Agreement.

Promissory Note

The terms of the Promissory Note have been negotiated on an arm’s length basis and the principal terms of which are summarised below:–

Issuer:	The Purchaser
Guarantor:	The Company
Principal amount:	HK$30,000,000 (subject to adjustment)
Interest:	5% per annum
Maturity:	The second anniversary from the date of issuance

Adjustment to the principal amount

The Vendor irrevocably warrants and guarantees to the Purchaser that the audited net profits before tax and any extraordinary or exceptional items of the Target Group will not be less than HK$12,000,000 for the year ending 31 December 2011. The Vendor and the Purchaser shall procure that the audited financial statements of the Target Group for the year ending 31 December 2011 shall be prepared in accordance with accounting principles, standards, and practices generally accepted in Hong Kong and prepared and reported on by the accounting firm to be appointed by the Purchaser.

In the event that the consolidated net profits of the Target Group for the year ending 31 December 2011 is less than HK$12,000,000, the amount payable by the Purchaser on redemption of the Promissory Note shall be reduced on a dollar for dollar basis by the amount in which such net profits is less than HK$12,000,000.

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LETTER FROM THE BOARD

In the worst case scenario that the Reference Profit turns out to be zero or negative, the Company has no recourse to unwind the Consideration of HK$180,000,000 already paid to the Vendor except for a maximum amount of HK$12,000,000 on a dollar-on-dollar basis. However, from a broader perspective, Shareholders should focus more on the future business prospects of the Target Group.

Convertible Bonds

The Consideration will be satisfied partially by the issue of the Convertible Bonds by the Company to the Vendor upon Completion. The principle terms of the Convertible Bonds are as follows: Issuer: The Company Principal amount: HK$120,000,000 Interest: 3% per annum Maturity: The second anniversary of the date of issue of the Convertible Bonds Conversion price: The initial conversion price of HK$0.10 per Conversion Share (subject to adjustments upon the occurrence of subdivision or consolidation of Shares, capitalisation issues, rights issues and other dilutive events) represents:

(a) a premium of approximately 69.49% to the closing price of HK$0.059 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(b) a discount of approximately 16.67% to the closing price of HK$0.12 per Share as quoted on the Stock Exchange on the Last Trading Day;
(c) a discount of approximately 15.25% to the average closing price of approximately HK$0.118 per Share for the last five trading days up to and including the Last Trading Day;
(d) a discount of approximately 18.70% to the average closing price of approximately HK$0.123 per Share for the last ten trading days up to and including the Last Trading Day; and

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LETTER FROM THE BOARD

(e) a premium of approximately 900% over the consolidated net assets attributable to equity holders of the Company as at 31 December 2009 of less than HK$0.01 per Share.

The conversion price was arrived at after arm’s length negotiations between the Purchaser and the Vendor, after taking into account the prevailing market price and liquidity of the Shares and the net liability position of the Company as at 30 June 2010.

Conversion Rights:

The Bondholder shall, subject to compliance with the procedures set out in the conditions to the Convertible Bonds and with the prior consent of the Company, have the right at any time during the conversion period to convert the whole or part of the outstanding principal amount of the Convertible Bonds registered in its name into Shares provided further that any conversion shall be made in amounts of not less than a whole multiple of HK$1,000,000 on each conversion save that if at any time the aggregate outstanding principal amount of the Convertible Bonds is less than HK$1,000,000, the whole (but not part only) of the outstanding principal amount of the Convertible Bonds may be converted, provided always that (i) the Bondholder and parties acting in concert (as defined in the Takeovers Code) with it will not become obliged to make a mandatory offer under Rule 26 of the Takeovers Code; and (ii) the Bondholder shall not exercise the conversion rights if such conversion would result in the Company’s non-compliance with the minimum public shareholding requirement stipulated under Rule 11.23 of the GEM Listing Rules or other requirements under the GEM Listing Rules.

Conversion Shares:

The 1,200,000,000 Conversion Shares represent (i) approximately 78.32% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 43.92% of the issued share capital of the Company as enlarged by the Consideration Shares and the Conversion Shares upon conversion of the Convertible Bonds in full.

The Conversion Shares will be issued under a specific mandate which will be sought at the EGM.

Status of the The Conversion Shares shall rank pari passu in all respects with Convertible Bonds: the Shares in issue on the date of allotment and issue of such Shares.

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LETTER FROM THE BOARD

Transferability: The Bondholder may assign or transfer the Convertible Bonds to any transferee subject to the prior consent of the Company. Voting rights: The Convertible Bonds do not confer any voting rights at any meetings of the Company.

Redemption: The Company shall have the right to redeem any portion of the Convertible Bonds outstanding at any time and from time to time prior to the maturity date by notifying the Bondholder at its own discretion.

Any amount of the Convertible Bonds which remains outstanding on the maturity date shall be redeemed at the amount equal to 100% of the principal amount of the outstanding Convertible Bonds to be redeemed.

Application for Listing: An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.

INFORMATION ON THE VENDOR

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendor and its ultimate beneficial owners, Mr. Choy, Mr. Ng and Mr. Ho, are third parties independent of and not connected with the Company and its connected persons (as defined under the GEM Listing Rules). The Vendor and its ultimate beneficial owners, Mr. Choy, Mr. Ng and Mr. Ho, have no prior transaction with the Group in the last 12 months which would otherwise require aggregation under Rule 19.22 of the GEM Listing Rules.

INFORMATION ON THE VENDOR’S GUARANTOR

The Vendor’s Guarantor has extensive experience in sustainable enterprises specializing in the renewable use of agricultural residues into consumable products. He also has extensive experience in green product development, green purchasing and green manufacturing process of various business lines. He specializes in certification programs such as ISO 14000, HACCP (Hazard Analysis Critical Control Point), GMP (Good Manufacturing Practice), LCA (Life Cycle Assessment) and other International Product Certification Program. He has also been involved in Certification Program for Hong Kong Q Mark and Green Mark by FHKI (Federation of Hong Kong Industries). He had been serving international customers and acted as purchasing agent for WalMart in South-east Asia.

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LETTER FROM THE BOARD

The Vendor’s Guarantor has been serving all the clients of himself and his associates directly. Their products include food trays, fruit trays, industrial packaging, flower pots, medical trays, meat/ chicken trays, seafood trays. These trays can be put in fridges, freezers, microwave machines and ovens. Around 200,000,000 pieces of recyclable products were produced and sold in the recent year. The Vendor’s Guarantor and his associates have been having over 20 customers over the last 5 years and the top five customers are Erich Müller, Pacovis Switzerland, Natura Packaging, Protech (Austrian Airlines), Van der Windt, Be Natural and Philips. The Vendor’s Guarantor and his associates sell products to Switzerland, Netherland, Germany, Austria and Belgium. Their current sales volume is in line with the MOU.

The Vendor’s Guarantor will be assisting the Company in the production of the biodegradable food containers and disposable industrial packaging for consumer products. It is not a condition precedent for the Acquisition that the Vendor’s Guarantor will procure his dients to enter into new memorandum of understandings with the Target Group, however, the Vendor’s Guarantor has undertaken that he shall transfer all his current and potential business dealings with his clients and procure the transfer of all the current and potential business dealings of all the companies that the Vendor or its associates controlled and all their subsidiaries with their clients (including but not limited to any memorandum of understanding entered into) to the Target Group.

Earth Buddy has entered into agreement with the Vendor’s Guarantor to retain him as a director and a senior executive of Earth Buddy for a term of three years after Completion. The Vendor’s Guarantor shall be responsible for overseeing and assisting the Company in developing its biodegradable food containers and industrial packaging products business.

INFORMATION ON THE GROUP

The Company is an investment holding company and the Group is principally engaged in the manufacture, trading and distribution of pharmaceutical product, leisure and health spa business, the distribution of health care products and securities investments.

INFORMATION ON THE TARGET GROUP

The Target Group plans to engage principally in the development, manufacturing and sale of, inter alia, biodegradable food containers and disposable industrial packaging for consumer products to multi-national corporations, supermarket chains and restaurants located across North America, Europe and Asia. The Directors are of the view that there will be no impact on the Target Group’s business, production and selling plan even if the Target Group doesn’t have trademark registration in US, Canada etc, because the products of the Target Group can still be marketed and sold there.

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LETTER FROM THE BOARD

Immediately prior to the entering of the Agreement, Mr. Ng, one of the beneficial owners of the Vendor, and the Vendor had waived and released the Target Company from all its obligations over the shareholder’s loan. Such effect of waiver has been reflected in note 4 and note 9 to the financial information of the Target Group as disclosed in Appendix II to this Circular.

Earth Buddy is a private limited liability company incorporated in Hong Kong on 20 November 2007, the net losses (before and after taxation and extraordinary items), based on its audited financial statements, attributable to the shareholders of Earth Buddy for the two financial years immediately preceding the date of the Agreement are as follows:

	Year ended	Year ended
	31 March 2009	31 March 2010
	HK$	HK$
Turnover	–	–
Loss for the year	–	(12,450)
Net assets/(liabilities)	1	(12,449)

Earth Buddy did not record any turnover and has not carried out any business since the date of its incorporation. Earth Buddy is the holder of certain trademarks and designs registered in Hong Kong and other countries.

THE INTELLECTUAL PROPERTY OF EARTH BUDDY

The portfolio of intellectual property of Earth Buddy is comprised of trademarks and designs. The Vendor, together with the Guarantor have developed over many years core technologies include fibre materials and coloring, biodegradable polyethene/polyethylene terephthalate laminations, production machineries and manufacturing process, development of energy and cost efficient tools and design. Moreover, the Vendor, together with the Guarantor have also developed design principles, engineering practices and related technologies for factory design and office layout, manufacturing processes and production technologies that are energy efficient and environmentally friendly.

The Vendor, together with the Vendor’s Guarantor, possess the know-how to produce colored, other than bleached, and fully custom-shaped products. The hybrid product has a temperature resistance up to 270 degrees Celsius. Also, the Vendor, together with the Vendor’s Guarantor, have developed biodegradable thin film lamination techniques that are suitable for special food storage and container uses. The molding tools are energy and cost efficient and reliable for high volume product production and manufacturing setting.

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LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE AGREEMENT

According to the Vendor, the current majority of disposable packaging products are made from plastic, paper or polystyrene, which are typically non-recyclable and non-biodegradable. Consequently, millions of tons of plastic, paper, or polystyrene disposable packaging products are discarded in landfills across the world each year. Because of this environmental concern, governments around the world have begun to adopt regulations intended to restrict and in some cases even ban the use of plastic, paper, or polystyrene disposable packaging products and multinational corporations, acknowledging the need for environmentally sound solutions, have begun to seek alternatives to plastic, paper, or polystyrene disposable packaging products that are less harmful to the environment. As these trends continue, the Directors believe that market for biodegradable food containers and industrial packaging products will face high growth potential.

The PRC has banned shops from giving out free plastic bags and has called on consumers to use baskets and cloth sacks instead to reduce environmental pollution in 2008. In addition, about 100 cities in the USA have adopted measures, including Portland, Ore. Oakland and Berkeley, which banned Styrofoam or polystyrene food packaging and require restaurants and cafes to switch to disposable food containers that are biodegradable if added to food compost. Starting from 1 January 2011, single-use non-biodegradable plastic bags will be outlawed in Italy. Bulgaria will impose a tax on plastic bags as of 1 July 2011.

Sources:

PRC: (China Daily) http://www.chinadaily.com.cn/opinion/2009-12/01/content_9082799.htm

USA: (SF Gate) http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/06/28/MNG65JLQJ411.DTL

Italy: (CNN) http://articles.cnn.com/2010-12-31/world/italy.plastic.bags_1_plastic-bags-new-ban-shoppingcarts?_s=PM:WORLD

The Directors consider those sources are reliable as they were reported from reliable and independent news groups or newspapers.

According to the Vendor, in 2006 Wal-Mart Stores, Inc. released a packaging scorecard to continue its commitment of reducing packaging across its global supply chain by 5% by 2013. The scorecard measures a package’s sustainability according to various factors, including production, material value, product-to-package ratio, recycled content, renewable energy, innovation and transportation, among other criteria. Suppliers can evaluate their packaging solutions relative to other suppliers and become motivated to actively seek out greener packaging solutions.

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LETTER FROM THE BOARD

In addition, taking into account the increase in price of plastic in recent years due to high crude oil price. The Directors are of the view that the expected continuous growth in demand for environmental-friendly resources would benefit the Target Group and are optimistic about the marketability of the products.

The Company had performed due diligence work in respect of, among other things, the trading prospects of the Target Group. Based on the information provided by the Vendor, the MOU issued to Earth Buddy indicating interest to order biodegradable food containers and disposable industrial packaging for consumer products amounted to over 200,000,000 units. The Company understands that the Vendor has maintained good business relationships with its customers and is confident the marketability of the biodegradable food containers and disposable industrial packaging for consumer products.

NON-COMPETITION

The Vendor will provide details of its existing and previous customers and assist the Target Group in selling its products to such customers. Pursuant to the Agreement, it is a condition precedent that the duly executed non-competition undertaking from each of the Vendor, Mr. Choy and members of the senior management of the companies that the Vendor or its associates controlled in the form to the satisfaction of the Purchaser be obtained before Completion. The Company expects to receive such non-competition undertakings pursuant to which each of the Vendor, Mr. Choy and members of the senior management of the companies that the Vendor or its associates controlled undertakes that save as with the prior written consent of the Company and/ or the Purchaser, it/he cannot conduct any business, which the Target Group will engage (including sales and manufacturing or production of the biodegradable food containers and disposable industrial packaging for consumer products), with any third party.

According to the Vendor, the PRC Operating Factory will agree to become Earth Buddy’s exclusive production factory upon Earth Buddy undertaking to purchase its full production capacity, as such, the Company will also require the PRC Operating Factory to provide non-competition undertaking to the Company.

The Company shall require the Vendor and members of the senior management of the companies that the Vendor or its associates controlled to provide an undertaking that, for a period of five (5) years after Completion, it will not engage or be engaged in whether directly or indirectly in any business in Hong Kong, the PRC, Switzerland, Canada, the United States of America or the member states of the European Union (the “ Restricted Areas ”), which is in competition with or similar to intellectual properties holding and licensing (the “ Business ”) in the Restricted Areas or take employment with any person, firm, company or organisation engaged in or operating, whether directly or indirectly, such Business in or assist any such person, firm, company or organisation with technical, commercial or professional advice in relation to such Business.

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LETTER FROM THE BOARD

The Directors have confidence in the products to be produced by the Target Group given (i) the Vendor’s expertise in the industry and solid relationship with its clients; (ii) most of the products of the Target Group have been designed and produced based on customers’ specification; (iii) the technical knowhow possessed by the Vendor’s Guarantor (such as green and black colouring used in its biodegradable food containers); (iv) the non-competition from the Vendor; and (v) the agreement entered into between Mr. Choy and the Company regarding his management role in the Target Group upon Completion.

BUSINESS PLAN REGARDING THE TARGET GROUP

In respect of the business of the Target Group, it is intended that the production of the biodegradable food containers and disposable industrial packaging for consumer products will be undertaken by the PRC Operating Factory at the early stage of the operation of the Target Group. To this end, the Directors has identified the Target Group as an appropriate acquisition target to the Group and are of the view that the Acquisition would allow the Group to diversify into a new line of business with significant growth potential. The Directors are of the view that the expected continuous growth in demand for environmental-friendly resources would benefit the Target Group and are optimistic about the marketability of the products.

The Company will concentrate on the European market at first because the existing customers of the Target Group are mainly companies from Europe. The Company will also explore opportunities in the North America and Asian Regions by leveraging on the Vendor’s Guarantor’s in depth experience and expertise in the industry. In addition, the Target Group has already filed for trademark applications in the PRC (Class 21) on 20 October 2007, the USA (Classes 16, 18, 21 and 25) on 2 July 2009 and Canada (Classes 16, 18, 21 and 25) on 2 July 2009. Given the increasing public environmental awareness and the Target Group’s products can still be marketed and sold in countries where its trademarks have not been registered, the Directors are optimistic about the future operation and business of the Target Group and are of the view that there will be no impact on the Target Group’s business, production and selling plan.

The Company had performed due diligence work in respect of, among other things, the trading prospects of the Target Group. The Company had reviewed the status of the PRC Operating Factory and the undertaking by the Vendor’s Guarantor that he shall transfer all his current and potential business dealings with his clients and procure the transfer of all the current and potential business dealings of all the companies that the Vendor or its associates controlled and all its subsidiaries with their clients (including but not limited to any memorandum of understanding entered into) to the Target Group. The Company had also reviewed the MOU to assess the marketability of the biodegradable food containers and disposable industrial packaging for consumer products as well as the future profitability of the Target Group. Based on such reviews, the Company understands that the Vendor has maintained good business relationships with its customers.

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LETTER FROM THE BOARD

As confirmed by the Vendor, the existing customers of the Vendor and its associates are mainly companies from Europe. According to the Vendor, most of the existing customers of itself and its associates have business relationship with them for more than 5 years.

The Target Group does not own any patent rights, all of its intellectual property rights (trademarks and design) have been disclosed in this circular. According to the Vendor, coloured biodegradable food containers generally have higher production costs and require special technology to ensure colour consistency, therefore, it is more difficult to produce coloured biodegradable food containers and most of the biodegradable food containers produced by other manufacturers are white in colour.

The Vendor’s Guarantor possesses the technological know-how to produce green or black biodegradable food containers without compromising product stability and consistency. Also, the technology used in the biodegradable food containers and disposable industrial packaging for consumer products was developed gradually over the years by the Vendor and its associates in collaboration with its customers which had continuously provided with feedback and suggestions for improving and refining the products. According to the Vendor, there is no regulation in relation to products’ colouring. As such, the green and black colouring used in the biodegradable food containers made by the Target Group provides competitive advantage and they have distinctive appearance and offer alternatives to customers.

According to the Vendor, there are measures and regulations on biodegradable food container according to European Council Directive. Measures such as food safety; microbiological contents (Coliform, Mould and Yeast); paper-extractable heavy metals contents (lead, cadmium and mercury) in accordance with Council of Europe Resolution AP(2002); and pesticide residue content such organochlorine, pyrethroid and organophosphorous. As confirmed by the Vendor, the products produced by it have never been found harmful and breached any of those regulations. Products marketed and/or produced by the Vendor (mostly under the PRC Operating Factory) have never been perceived as being harmful to the environment. Through certifications program, the Vendor has improved its products’ quality to highest level that can meet any international requirements and food safety tests according to European Council Directive promulgated by the European Union. The Vendor has engaged SGS-CSTC Standards Technical Services Co., Ltd, a renowned inspection, verification, testing and certification company, to perform tests on the biodegradable products it produced on the aspects such as food safety; microbiological contents (Coliform, Mould and Yeast); paper-extractable heavy metals contents (lead, cadmium and mercury). The test results were positive and the products Vendor produced met all necessary requirements.

Based on the results of the due diligence review performed by the Company so far, the Directors are optimistic about the trading prospects of the Target Group.

It is the Company’s intention to save production costs and have its own operating factory, however, it is now too early a stage for the Company to consider building or acquiring its own factory premises and equipment. Since the PRC Operating Factory has established a stable relationship with the Vendor’s Guarantor, the Company intends to engage the PRC Operating Factory to continue to manufacture biodegradable food containers for the Target Group after Completion.

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LETTER FROM THE BOARD

The PRC Operating Factory has been in operation for more than 10 years, it has been solely manufacturing biodegradable food containers and disposable industrial packaging. It has production capacity of 100million units of biodegradable containers per year. Given its operating history and relationship with the Vendor, the parties to the Agreement considered the early stage production of the Target Group would be best to be undertaken by the PRC Operating Factory. The Company also intends to engage other production factory to manufacture biodegradable food containers for the Target Group after Completion should orders from customers exceed its production capacity.

Given the fact that the Vendor’s Guarantor will be retaining as a director and a senior executive of Earth Buddy for a term of three years after Completion; the PRC Operating Factory already equipped with all the necessary machineries to supply products for the Target Group immediately after Completion; the PRC Operating Factory has been producing products for the Vendor only; all of the production orders of the PRC Operating Factory will be coming from the Target Group upon Completion and; the transference of all business dealings from the Vendor. The Directors consider such arrangement will enable the Target Group’s possession of the technical knowhow and will give the Target Group distinct competitive advantage by offering alternatives to customers. However, the Company has no current intention to charge the board composition after the Acquisition.

The Target Group’s products shall be mainly driven by customer orders. The Company anticipates that the products produced by the Target Group after Completion will be no difference from those currently manufactured by the PRC Operating Factory through its customer orders as all existing customers of the Vendor’s Guarantor and its associates will be transferred to the Target Group and the Vendor is not allow to conduct any business that the Target Group will engage.

Upon Completion and the transfer of the Vendor’s current and potential business dealings with its clients to the Target Group. The Company will enter into an agreement with the Vendor’s associates regarding the engagement of the PRC Operating Factory to produce products for the Target Group as and when appropriate. The Company will comply with the relevant GEM Listing Rules as and when appropriate. It is the Company’s intention to save production costs and have its own operating factory, however, it is now too early a stage for the Company to consider building or acquiring its own factory premises and equipment. Since the PRC Operating Factory has established a stable relationship with the Vendor’s Guarantor, the Company intends to engage the PRC Operating Factory to continue to manufacture biodegradable food containers for the Target Group after Completion. The Company will also consider working with other independent manufacturers as an alternative plan when customer orders exceed the PRC Operating Factory’s production capacity.

In the event that any equity capital raising or external borrowings are required, the Directors will exercise due and careful consideration to formulate a financing plan that will best serve the Company, taking into account the effects on the Company’s gearing ratio and finance costs as well as dilution to Shareholders.

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LETTER FROM THE BOARD

Based on the above, the Directors (including the independent non-executive Directors) consider that the Acquisition is in the interests of the Company and the Shareholders as a whole and that the terms of the Agreement are fair and reasonable.

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND UPON COMPLETION

Details of the shareholding structure of the Company (i) as at the Latest Practicable Date and (ii) upon Completion and the conversion of the Convertible Bonds by the Vendor assuming that there is no other change in the share capital of the Company set out below:

Mr. Liu Yinxiao (former executive Director) Public: Beckon Investments Limited (Note 3) Mr. Zhang Jinxing The Vendor Other public Shareholders Subtotal Total	As at the Latest Practicable Date No. of Shares Approximate % 110,000,000 7.18% 193,975,000 12.66% 86,350,000 5.64% – 0.00% 1,141,765,909 74.52% 1,422,090,909 92.82% 1,532,090,909 100.00%	Upon Completion, assuming conversion of the Convertible Bonds to the extent that the Bondholder holds or controls 29.90% of the issued share capital of the Company No. of Shares Approximate % 110,000,000 5.03% 193,975,000 8.88% 86,350,000 3.95% 653,488,134 29.90% 1,141,765,909 52.24% 2,075,579,043 94.97% 2,185,579,043 100.00%	Upon Completion, assuming full conversion of the Convertible Bonds at the conversion price of HK$ 0.10 per Conversion Share (Note 2) No. of Shares Approximate % 110,000,000 4.03% 193,975,000 7.10% 86,350,000 3.16% 1,200,000,000 43.92% 1,141,765,909 41.79% 2,622,090,909 95.97% 2,732,090,909 100.00%	Upon Completion, assuming full conversion of the Convertible Bonds at the conversion price of HK$ 0.10 per Conversion Share (Note 2) No. of Shares Approximate % 110,000,000 4.03% 193,975,000 7.10% 86,350,000 3.16% 1,200,000,000 43.92% 1,141,765,909 41.79% 2,622,090,909 95.97% 2,732,090,909 100.00%
				100.00%

Note 1: Mr. Liu Yinxiao is a former executive Director. His shareholding in the Company is not considered as public shareholding.
Note 2: The column in respect of the full conversion of the Convertible Bonds is for illustrative purpose only. Pursuant to the terms of the Convertible Bonds conversion shall not be exercised by the Bondholder(s) if, immediately following the conversion, (i) the relevant Bondholder(s) and parties acting in concert (as defined in the Takeovers Code) with it will not become obliged to make a mandatory offer under Rule 26 of the Takeovers Code, and (ii) the Bondholder shall not exercise the conversion rights if such conversion would result in the Company’s non-compliance with the minimum public shareholding requirement stipulated under Rule 11.23 of the GEM Listing Rules or other requirements under the GEM Listing Rules.
Note 3: Beckon Investments Limited is an investment holding company incorporated in the British Virgin Islands and is wholly-owned by Mr. YIP Chi Fai, Stevens.
Mr. YIP Chi Fai, Stevens is deemed to be interested in all of the 193,975,000 shares of the Company held by Beckon Investments Limited.

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LETTER FROM THE BOARD

RISK FACTORS

New business segment of the Group

The Acquisition constitutes an investment in a new business sector for the Group. The new business, coupled with the regulatory environment, may pose significant challenges to the Company’s administrative, financial and operational resources. Since the Company does not have experience in the new business, it is not in a position to ascertain the timing and amount of any return or benefits that may be received from the new business. If the proposed business plan in which the Company attempts to develop does not progress as planned, the Company may not recover the funds and resources it has spent, and this may adversely affect the Group’s financials.

Although the Group does not have significant experience in this new business, the Directors consider the introduction of the Vendor’s Guarantor as a member of the management of the Target Group allows the Group to leverage on his expertise in innovative research and development in biodegradable raw materials, production design and manufacturing process.

Failure to compete effectively may adversely affect Target Group’s ability to generate revenue

The biodegradable food containers and disposable industrial packaging for consumer products industry is competitive and subject to frequent product introductions with improved price and/or performance characteristics. Many companies have greater financial, research and development, marketing and sales resources, offer a broader product line, have better brand recognition and have a larger customer base. Increased competition could result in significant price competition, reduced profit margins or loss of market share, any one of which could have an adverse effect on Target Group’s ability to generate revenues and successfully operate its business.

The Directors are optimistic and confident about the trading prospects of the Target Group given (i) the MOU provided by the Vendor’s Guarantor; (ii) expertise in innovative research and development in biodegradable raw materials, production design and manufacturing process, such as sprays that can apply on trays to withstand moisture and heat; and (iii) the Vendor has maintained good business relationships with its customers, some of which have been doing business with the Vendor or its associates for over 5 years.

The Directors consider the introduction of the Vendor’s Guarantor as a management of the Target Group should help the Company minimizing the risk in the future business and operation of the Target Group.

It is the Company’s plan that upon Completion, the Company (together with Mr. Choy) will review regularly and closely monitor the market trend of the industry and performance of the Target Group.

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LETTER FROM THE BOARD

Target Group’s ability to hire and retain qualified personnel will be an important factor in the success of its business and a failure to hire and retain key personnel may result in its inability to manage and implement the business plan

The ability to hire and retain qualified personnel will be an important factor in the success of Target Group’s business. If the Company is unable to retain or to hire qualified personnel as required, it may not be able to adequately manage and implement Target Group’s business plan.

The Vendor’s Guarantor will be retained as a director and a senior executive of Earth Buddy for a term of 3 years upon Completion. Also, the Company will assign some of its staff to learn the operations of the Target Group’s business as well as recruit suitable personals to join the Group upon Completion should opportunities arise. Since the Vendor’s Guarantor will be responsible for overseeing the Target Group and assisting the Company in developing biodegradable food containers and industrial packaging products, the Company, together with the Vendor’s Guarantor, will monitor and review closely the market trend of the industry and the performance of the Target Group. The Directors consider there should be no material adverse effect on the business and operational results of the Company and such measures are sufficient for the Company to minimizing such risk.

Disposable packaging products may be perceived poorly by environmental groups and customers, which could have an adverse effect on Target Group’s business, causing it to cease operation

The Target Group’s success depends substantially on its ability to manufacture disposable packaging products that are less harmful to the environment than disposable packaging products made from plastic, paper or polystyrene. Environmental groups, customers, and/or governmental regulators may not agree that Target Group’s disposable packaging products have an advantage over other disposable packaging products, which are made from plastic, paper or polystyrene. If Target Group’s disposable packaging products are perceived as being harmful to the environment, its revenues will likely suffer and as a result it could go out of business. As most of the customers has been doing business with the Vendor for over 5 years and products marketed and/or produced by the Vendor (mostly under the PRC Operating Factory) have never been perceived as being harmful to the environment. Given the Vendor’s Guarantor shall be responsible for overseeing and assisting the Company in developing its biodegradable food containers and industrial packaging products business, the Directors consider there should be no material adverse effect on the business and operational results of the Company and such measures are sufficient for the Company to minimizing such risk.

– 28 –

LETTER FROM THE BOARD

Possibility of lack of funding and future dilution effect of equity fund raising activities

The Directors will, from time to time, review and monitor the financial status of the Company and progress and status of the Target Group in order to formulating appropriate strategy to maximizing returns to Shareholders. The Board will consider each funding options carefully and will choose the most appropriate option which will be in the best interest of the Company and its Shareholders.

Failure to protect intellectual property rights

The Company may not be able to protect its intellectual property rights and industrial knowhow effectively.

The Company will try to ensure protection over the Target Group’s intellectual properties after Completion and will monitor the registration process of the intellectual properties rights pending registration. Should opportunities arise, the Company may consider applying for other trademarks designs and patents. Since the Target Group plans to development, manufacturing and sale of, inter alia, biodegradable food containers and disposable industrial packaging for consumer products to multi-national corporations, supermarket chains and restaurants located across North America, Europe and Asia. The Company can leverage on the experience of the Vendor given it has been selling products to USA and Canada through its North American agent.

Reliance on a few major customers and suppliers

As stated before, the Company will concentrate on the European market at first because the existing customers of the Vendor are mainly companies from Europe. The Company will also explore opportunities in the North America and Asian regions by leveraging on Mr. Choy’s in depth experience and expertise in the industry.

It is the Company’s intention to save production costs and have its own operating factory. The Company will consider working with other independent manufacturers as an alternative plan as the Vendor has experience working with manufacturers other than the PRC Operating Factory.

– 29 –

LETTER FROM THE BOARD

The Directors consider there should be no material adverse effect on the business and operational results of the Company and such measures are sufficient for the Company to minimizing such risk.

Foreign exchange fluctuations

As advised by the Vendor, all of its customers in Europe settled their orders in US dollars. Exchange rates between Euro and US dollars is fixed at the date of the sale order in order to control subsequent appreciation of Euro and minimizing the foreign currency exchange exposure. To minimise the Target Group’s foreign exchange exposure regarding the RMB, the Company may consider entering into foreign currency forward contracts to reduce foreign exchange risk. As confirmed by the Vendor, the Target Group has not experienced any delay and/or default in payments in the past.

The Target Group’s strength and weakness in fact of competition as the Target Group currently only has a few trademarks and a registered design

Strength

Weakness

The trend and need for environmentally sound solutions with significant growth potential

Target Group has no trading record

The technology used in the biodegradable food containers and disposable industrial packaging for consumer products was developed gradually over the years by the Vendor (such as green and black colouring used in its biodegradable food containers).
The Vendor’s Guarantor has extensive experience in enterprise specializing in the renewable use of agricultural residues into consumable products.

– 30 –

LETTER FROM THE BOARD

The Company has not entered into an agreement with the Vendor’s associates regarding the engagement of the PRC Operating Factory

Given the operating history of the PRC Operating Factory and its relationship with the Vendor, the Directors considers that the early stage production of the Target Group would be best to be undertaken by the PRC Operating Factory. The Company intends to enter into an agreement with the Vendor’s associates regarding the engagement of the PRC Operating Factory to produce products for the Target Group as and when appropriate. The Company will comply with the relevant GEM Listing Rules as and when appropriate.

The Company will consider working with other independent manufacturers as an alternative plan as the Vendor has experience working with manufacturers other than the PRC Operating Factory (when orders from customers exceed its production capacity).

The PRC Operating Factory will agree to become Earth Buddy’s exclusive production factory upon Earth Buddy undertaking to purchase its full production capacity. The Directors consider there should be no material adverse effect on the business and operational results of the Company and such measures are sufficient for the Company to minimizing such risk.

DISCLOSURE ON CHANGES IN ISSUED SHARE CAPITAL

The Company will make disclosure relating to the change in its issued capital (including any conversion of the Convertible Bonds) in the Next Day Disclosure(s) and Monthly Return(s) in compliance with Rules 17.27A and 17.27B of the GEM Listing Rules as and when required.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

– 31 –

LETTER FROM THE BOARD

The Group is principally engaged in the production and sale of the medicines known as “Plasmin Capsule” and “Puli Capsule” in the PRC. “Plasmin Capsule’’ is classified as a “State Class 2 Protected Product of Chinese Medicine’’ and is entitled to an administrative protection period of seven years commencing from 19 December 2006 and expiring on 29 September 2013. During the corresponding administrative protection period, the prescription and the production technology used by the Group in producing “Plasmin Capsule” are protected and no other manufacturers in Mainland China may produce or imitate this product in Mainland China. “Puli Capsule” is classified as a “State Class 4 Protected Product of Chemical Medicine’’.

Up to the Latest Practicable Date, the conditions precedent for the completion of the acquisition (the “ SRI Acquisition ”) of operating right of Shaanxi Ruilin Investment Management Company Limited (“ SRI ”) have not been fulfilled. The due diligence review is still being conducted on the operations and affairs of SRI and Annuo Insurance Broker Company Limited (“ Annuo ”). Certificate from independent capital verification organization that the shares of SRI have been fully paid up including 51% shareholding rights of Annuo has not been obtained because the share capital of SRI has not been fully paid up by the vendor. In addition, SRI’s articles of association of in relation to the rights of the Company have not been amended by the vendor of the SRI Acquisition. The completion of the SRI Acquisition is subject to the fulfillment of the above conditions precedent. In other words, there is a chance that the SRI Acquisition may not proceed.

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.

The Directors has continued to review its existing businesses from time to time and to strive to improve the business operation and financial position of the Group. The Company has no current intention, agreement, arrangement, understanding or negotiation about any disposal, termination or scaling down of the Group’s existing business.

– 32 –

LETTER FROM THE BOARD

As mentioned in the paragraph headed “Reasons for entering into the Agreement”, the Directors consider that the Acquisition provides an excellent opportunity for the development of future business of the Group and broadens its revenue base. The Directors consider that the Acquisition represents a good opportunity for the Group to diversify the existing business into a new line of business and the market for biodegradable food containers and industrial packaging products will face high growth potential.

The Directors had considered (i) that the existing internal financial resources of the Company are insufficient to settle the Consideration; (ii) the Company could have difficulties (or it may take time, costs and efforts by the Company) in obtaining funding from banks; (iv) the issue of the Convertible Bonds will enable the Company to acquire the Target Group without substantial cash outlay other than HK$30,000,000; (v) the issue of the Convertible Bonds will not cause immediate dilution to the Shareholders; and (vi) in the event that the Convertible Bonds are converted, the capital base of the Company will be enlarged and strengthened, the Directors concluded that the issue of the Convertible Bonds is currently one of the best funding alternatives available to the Company.

Upon Completion and the conversion of the Convertible Bonds in full (for illustrative purposes only as it would trigger a change in control of the Company and thereby triggering certain regulatory provisions under the Takeovers Code and/or the Listing Rules where applicable), the shareholding of the existing public Shareholders will be diluted from existing 74.52% to approximately 41.79%.

However, the Directors consider the aforesaid shareholding dilution has to be balanced with the Company’s intention to diversify its business in the context of its loss-making historical financial performance in recent 2 years by tapping into a fast growing industry.

EFFECT OF THE ACQUISITION ON THE EARNINGS AND ASSETS AND LIABILITIES OF THE GROUP

Assets

As at 30 June 2010, the consolidated total assets of the Group were approximately RMB153.0 million.

As set out in the section headed “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix VI of this circular, assuming the Acquisition was completed on 30 June 2010, the unaudited pro forma consolidated total assets of the Enlarged Group will be increased by approximately RMB157.3 million to approximately RMB310.4 million.

– 33 –

LETTER FROM THE BOARD

Liabilities

As at 30 June 2010, the consolidated total liabilities of the Group were approximately RMB156.2 million. As set out in the section headed “Unaudited Pro Forma Financial Information of the Enlarged Group” in Appendix VI of this circular, assuming the Acquisition was completed on 30 June 2010, the unaudited pro forma consolidated total liabilities of the Enlarged Group will be increased by approximately RMB142.4 million to approximately RMB298.6 million.

Profits

For the year ended 31 December 2009, the consolidated loss before taxation of the Group from continuing operation was approximately RMB32.1 million. As set out in the section headed “Financial information of the Target Group” in Appendix II of this Circular, the profit of the Target Group for the period from 26 November 2010 (date of incorporation) to 31 December 2010 was approximately HK$179.6 million. The consolidated results of the Target Group will be consolidated into the financial statements of the Group upon Completion.

IMPLICATIONS UNDER THE GEM LISTING RULES

As the applicable percentage ratios of the Acquisition exceed 25% but less than 100%, the Acquisition constitutes a major transaction for the Company under Chapter 19 of the GEM Listing Rules and will be subject to the reporting and the approval of the Shareholders at the EGM. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has an interest in the Acquisition, no Shareholder is therefore required to abstain from voting on the resolution(s) to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder including the allotment and issue of the Consideration Shares. As at the Latest Practicable Date, the Company had no intention to change the composition of the Board after Completion.

GENERAL

The EGM will be held to consider and, if thought fit, approve the ordinary resolutions in respect of the Agreement and the transactions contemplated thereunder.

Shareholders and investors should note that Completion is subject to various conditions as stated in the section headed “Conditions precedent” above. Investors and Shareholders are therefore urged to exercise caution when dealing in the Shares.

– 34 –

LETTER FROM THE BOARD

EGM

A notice convening the EGM to be held at Unit 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong, on Thursday, 28 April 2011 at 10:00 a.m. is set out from pages 107 to 108 of this circular.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy to the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited on 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time for holding the EGM or adjourned meeting (as the case may be). Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM should you so wish.

RECOMMENDATION

The Board considers that the terms of the Agreement and the transactions contemplated thereunder, including the issue of the Promissory Notes and the Convertible Bonds, are on normal commercial terms and are fair and reasonable so far as the Shareholders are concerned. In addition, the Board considers that the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

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

By Order of the Board Hao Wen Holdings Limited Leung King Fai Executive Director

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. THREE-YEAR FINANCIAL INFORMATION

The Company is required to set out in this circular the information for the last three financial years with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited balance sheet together with the notes on the annual accounts for the last financial year for the Group.

The financial information of the Group for the past three years ended 31 December 2007, 2008 and 2009 has been published in the annual reports per below:

(i) the financial information of the Group for the year ended 31 December 2009 is disclosed in the annual report of the Company for the year ended 31 December 2009 published on 23 April 2010, from pages 33 to 92. Such information has been published on the website of the Stock Exchange (http://www.hkexnews.hk/listedco/ listconews/gem/20100423/GLN20100423027.pdf);
(ii) the financial information of the Group for the year ended 31 December 2008 is disclosed in the annual report of the Company for the year ended 31 December 2008 published on 1 April 2009, from pages 27 to 72. Such information has been published on the website of the Stock Exchange (http://www.hkexnews.hk/listedco/listconews/ gem/20090401/GLN20090401087.pdf); and
(iii) the financial information of the Group for the year ended 31 December 2007 is disclosed in the annual report of the Company for the year ended 31 December 2007 published on 3 April 2008, from pages 27 to 74. Such information has been published on the website of the Stock Exchange (http://www.hkexnews.hk/listedco/listconews/ gem/20080403/GLN20080403063.pdf).

All of the above information has been also published on the website of the Company (www. tricor.com.hk/webservice/008019)

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 28 February 2011, 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 31,140 3,060 2,500
	36,700

Securities and guarantees

As at 28 February 2011, the secured interest-bearing loans of approximately RMB 36,700,000 of Enlarged Group were secured by:.

i) corporate guarantees from independent third parties; and
ii) property owned by independent third parties.

Disclaimers

Save as aforesaid and apart from intra-group liabilities and normal trade payables, at the close of business on 28 February 2011, 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 28 February 2011.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. WORKING CAPITAL

The Directors, are of opinion that, taking into account of its internal resources of the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this Circular.

IV. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were 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 information of the Company were made up.

– 38 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of an accountant’s report on the Target Group, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountant, KLC Kennic Lui & Co. Ltd. Certified Public Accountants (Practising).

==> picture [119 x 72] intentionally omitted <==

5/F, Ho Lee Commercial Building, 38-44 D’Aguilar Street, Central, Hong Kong 香港中環德己立街38-44號好利商業大廈5字

11 April 2011

The Directors

Unit 701, Tai Yau Building 181 Johnston Road

Wan Chai Hong Kong

Dear Sirs

INTRODUCTION

We set out below our report on the financial information relating to Smart Courage Limited (“Smart Courage”) and its subsidiary (the “Smart Courage Group”), including the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period from 26 November 2010 (date of incorporation) to 31 December 2010 (the “Relevant Period”), and the consolidated balance sheet of Smart Courage Group and the balance sheet of Smart Courage as at 31 December 2010 (collectively, the “Financial Information”), prepared for inclusion in the circular of Hao Wen Holdings Limited (the “Company”) dated 11 April 2011 (the “Circular”).

Smart Courage was incorporated on 26 November 2010 as a limited liability company in the British Virgin Islands (“BVI”). It did not record any turnover since the date of its incorporation. The entire issued share capital of Smart Courage is wholly and beneficially owned by Talent Keen Limited (“Talent Keen”) (the “Vendor”).

– 39 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Pursuant to the sale and purchase agreement dated 24 December 2010 entered into between Premium Stars Investments Limited (“Premium Stars”), a directly held wholly-owned subsidiary of the Company as at the date of this report, and the Vendor, Premium Stars will acquire the 100% equity interest in Smart Courage (the “Acquisition Agreement”).

BASIS OF PREPARATION

The Financial Information has been prepared by the directors of Smart Courage based on the unaudited management financial statements for the Relevant Period. The Financial Information is prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

DIRECTORS’ RESPONSIBILITY

The directors of Smart Courage are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with the HKFRSs, and for such internal control as the directors determine is necessary to enable the preparation of Financial Information that are free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the contents of the Circular in which this report is included.

REPORTING ACCOUNTANT’S RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information based on our examination and to report our opinion to you. We have carried out appropriate audit procedures in respect of the Financial Information in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as are necessary in accordance with the Auditing guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

OPINION

In our opinion, the Financial Information set out below, for the purpose of this report, gives a true and fair view of the results and cash flows of Smart Courage Group for the Relevant Period and of the state of affairs of Smart Courage Group and Smart Courage as at 31 December 2010.

– 40 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

A. FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Note Turnover 3 Other revenue 4 Administrative expenses Profit before taxation Taxation 6 Profit for the period Other comprehensive income for the period Total comprehensive income for the period	Period from 26 November 2010 (date of incorporation) to 31 December 2010 HK$ – 179,618,153 (29,314) 179,588,839 – 179,588,839 – 179,588,839

The accompanying notes form part of the financial information.

– 41 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

CONSOLIDATED BALANCE SHEET

Note Non-current assets Intangible assets 7 Current assets Deposit Cash on hand Current liabilities Other payables Amount due to a shareholder 10 Net current liabilities Net assets Capital and reserves Share capital 11 Retained profits Total equity	As at 31 December 2010 HK$ 180,000,000 24,550 10,000 34,550 (426,703) (19,000) (445,703) (411,153) 179,588,847 8 179,588,839 179,588,847

The accompanying notes form part of the financial information.

– 42 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

BALANCE SHEET Note Non-current assets Investment in subsidiary 8 Current liabilities Other payables Amount due to a shareholder 10 Net current liabilities Net assets Capital and reserves Share capital 11 Retained profits Total equity	As at 31 December 2010 HK$ 9,500,000 (10,314) (19,000) (29,314) 9,470,686 8 9,470,678 9,470,686

The accompanying notes form part of the financial information.

– 43 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Note Issue of shares upon incorporation 11 Total comprehensive income for the period Balance at 31 December 2010	Share capital HK$ 8 – 8	Retained profits HK$ – 179,588,839 179,588,839	Total HK$ 8 179,588,839
			179,588,847

The accompanying notes form part of the financial information.

– 44 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS

Note
Cash flows from operating activities
Profit before taxation
Adjustments:
Waiver of loan from a shareholder
9
Gain on a bargain purchase
9
Operating loss before changes in working capital
Increase in other payables
Increase in amount due to a shareholder
Cash generated from operations and
net cash from operating activities
Cash flows from investing activities
Net cash inflow on acquisition of subsidiary
7
Net cash from investing activities
Cash flows from financing activities
Net increase in cash and cash equivalents and
balances of cash and cash equivalents at end of
the period
Analysis of cash and cash equivalents
Cash on hand

Period from
26 November 2010
(date of
incorporation) to
31 December 2010
HK$ 179,588,839
(9,499,992)
(170,118,161)
(29,314)
10,314
19,000
–
10,000
10,000
–
10,000
10,000

The accompanying notes form part of the financial information.

– 45 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

B. NOTES TO THE FINANCIAL INFORMATION

1. General

Smart Courage is a private limited liability company incorporated in the British Virgin Islands (“BVI”). The address of its registered office is P. O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands and its principal place of business is 5/F, Ka Wah Bank Centre, 232 Des Voeux Road Central, Hong Kong.

The principal activity of Smart Courage is investment holding. The principal activities and other particulars of the subsidiary of Smart Courage are set out in note 8.

The Financial Information is presented in Hong Kong dollars (“HKD”), which is the functional currency of Smart Courage Group.

2. Significant accounting policies

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs issued by the HKICPA and accounting principles generally accepted in Hong Kong. A summary of the significant accounting policies adopted by Smart Courage Group is set out below.

(b) Basis of preparation

The measurement basis used in the preparation of the Financial Information is the historical cost basis except intangible assets as stated in note 2(e).

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

– 46 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 14.

(c) Subsidiary and group financial information

Subsidiaries are entities controlled by Smart Courage. Control exists when Smart Courage 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 presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial information from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intragroup transactions are eliminated in full in preparing the consolidated financial information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the balance sheet of Smart Courage, investments in subsidiaries are stated at cost less impairment losses.

(d) Business combination and goodwill

The purchase method of accounting is used to account for the acquisition of subsidiaries by Smart Courage. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities of the subsidiaries in an acquisition are measured at their fair values at the acquisition date.

– 47 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Smart Courage Group’s previously held equity interest in the acquiree; over
(ii) the Smart Courage Group’s interest in the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment.

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(e) Intangible assets (other than goodwill)

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and Smart Courage Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour, and an appropriate proportion of overheads and borrowing costs, where applicable. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

Intangible assets acquired in a business combination are recognised at fair value at the acquisition date.

– 48 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Other intangible assets that are acquired by Smart Courage Group are stated in the consolidated balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

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

– Intellectual properties 10 years

Both the period and method of amortisation are reviewed annually.

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the intangible assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

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

– 49 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(f) Other receivables

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

Impairment losses for bad and doubtful debts are recognised when there is objective evidence of impairment and are measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the asset’s original effective interest rate where the effect of discounting is material. Objective evidence of impairment includes observable data that comes to the attention of the Smart Courage Group about events that have an impact on an asset’s estimated future cash flows such as significant financial difficulty of the debtor.

– 50 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(g) Other payables

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

(h) Taxation

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

Current tax is the expected tax payable on the taxable income for the Relevant Period, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from differences which arise on initial recognition of assets and liabilities, all deferred tax liabilities, and all deferred tax assets to the extent it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

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

(i) Provisions and contingent liabilities

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

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FINANCIAL INFORMATION OF THE TARGET GROUP

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.

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks 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.

(k) Related parties

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

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control Smart Courage Group or exercise significant influence over Smart Courage Group in making financial and operating policy decisions, or has joint control over Smart Courage Group;
(ii) Smart Courage Group and the party are subject to common control;
(iii) the party is a subsidiary, an associate of Smart Courage Group or a joint venture in which Smart Courage Group is a venturer;
(iv) the party is a member of key management personnel of Smart Courage Group or its 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 Smart Courage Group or of any entity that is a related party of Smart Courage Group.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET 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.

3. Turnover

Smart Courage Group has not yet commenced operations and, therefore, did not generate any turnover during the Relevant Period.

4. Other revenue

Waiver of loan from a shareholder (note 9) Gain on a bargain purchase (note 9)	Period from 26 November 2010 (date of incorporation) to 31 December 2010 HK$ 9,499,992 170,118,161 179,618,153

5. Directors’ remuneration

Smart Courage Group did not pay any directors’ remuneration and did not incur any staff costs during the Relevant Period. There were no arrangements under which the directors waived or agreed to waive any remuneration during the Relevant Period.

6. Taxation

(a) No provision for Hong Kong Profits Tax has been made as Smart Courage Group did not have any assessable profits for the period chargeable to Hong Kong Profits Tax.

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FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Reconciliation between taxation for the period and profit before taxation at applicable tax rate:

Profit before taxation Notional tax on profit before taxation Tax effect of non-taxable income Tax effect of non-deductible expenses Taxation for the period	Period from 26 November 2010 (date of incorporation) to 31 December 2010 HK$ 179,588,839 29,632,158 (29,636,995) 4,837 –

7. Intangible assets

Smart Courage Group

Intellectual properties

Cost Additions through acquisition of a subsidiary (note 9) Carrying amounts	As at 31 December 2010 HK$ 180,000,000 180,000,000

Smart Courage acquired the intellectual properties through acquisition of Earth Buddy (Intellectual Property) Limited (“Earth Buddy”) as disclosed in note 9 during the Relevant Period.

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Amortisation of intellectual properties is charged to profit or loss on the straight-line basis over the assets’ estimated useful life of 10 years. No amortisation of intellectual properties was made for the Relevant Period as Earth Buddy was acquired on 24 December 2010.

At 31 December 2010, the directors of Smart Courage reviewed the carrying values of the intellectual properties, taking into account an independent valuation report prepared by a professional valuer on 31 December 2010. Based on the assessment and the valuation report, the directors of Smart Courage are of the opinion that there are currently no indications that the values of the intellectual properties may be impaired.

8. Investment in subsidiary

Unlisted shares, at cost

As at 31 December 2010 HK$ 9,500,000

Particulars of the subsidiary are as follows:

Proportion of equity interest attributable to and Name of Place and date of Issued and held by Smart subsidiary incorporation fully paid capital Courage directly Principal activities Earth Buddy Hong Kong, 20 10,000 ordinary 100% Engage in the development, November 2007 shares of HK$1 manufacturing and sale each of biodegradable food containers and disposable industrial packaging for consumer products

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

9. Acquisition of subsidiary

On 24 December 2010, Smart Courage acquired the entire equity interest of Earth Buddy for a total consideration of HK$9,500,000. The fair values of the net assets acquired were as follows:

Deposits Cash on hand Intangible assets – Intellectual properties (note 7) Other payables Net assets acquired	Fair value of Earth Buddy HK$ 24,550 10,000 180,000,000 (416,389) 179,618,161

The above acquisition has been accounted for as acquisition of assets. The Vendor had waived and released Smart Courage from all its obligations over the shareholder’s loan of HK$9,499,992, being the purchase consideration less the amount of issued share capital of Smart Courage.

The excess of Smart Courage’s consideration transferred over the interest in the fair value of Earth Buddy’s identifiable assets and liabilities on 24 December 2010 amounted to HK$170,118,161. Such amount was recognised in profit or loss as a gain on bargain purchase (note 4).

10. Amount due to a shareholder

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

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

11. Share capital

Authorised 50,000 ordinary shares of USD1 each Issued and fully paid 1 ordinary share of USD1 each	As at 31 December 2010 HK$ 390,000 8

On incorporation, the authorised share capital of Smart Courage was fixed at USD50,000 divided into 50,000 shares in which each share has a face value of USD1. One ordinary share was subscribed and allotted on incorporation.

12. Capital management

The primary objectives of Smart Courage Group when managing capital are to safeguard the ability to continue as a going concern, in order to provide returns for Smart Courage’s shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

Smart Courage Group monitors its capital structure by regularly monitoring its current and expected liquidity requirements. Smart Courage Group is not subject to either internally or externally imposed capital requirements.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

13. Financial instruments

(a) Categories of financial instruments Smart Courage Group Financial assets Cash on hand Financial liabilities Other payables Amount due to a shareholder Financial liabilities measured at amortised cost Smart Courage Financial liabilities Other payables Amount due to a shareholder Financial liabilities measured at amortised cost	As at 31 December 2010 HK$ 10,000 426,703 19,000 445,703 As at 31 December 2010 HK$ 10,314 19,000 29,314

(b) Financial risk management

Exposure to liquidity risk may arise in the normal course of Smart Courage Group’s business. The exposure to such risk and Smart Courage Group’s financial management practices to manage this risk are described below.

Liquidity risk

Smart Courage Group’s policy is to regularly monitor its liquidity requirements and to ensure that it maintains sufficient funding to meet its liquidity requirements in the short and longer term.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

As shown in the consolidated balance sheet, the most significant amount due for repayment in the next year to be other payables. The short-term liquidity risk inherent in this contractual maturity date has been considered as insignificant.

14. Accounting judgments and estimates

In the application of the Smart Courage Group’s accounting policies, which are described in note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which an estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets:

(i) Impairment of intangible assets

In considering the impairment losses that may be required for Smart Courage Group’s intangible assets intellectual properties, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price for such assets and the value in use. It is difficult to estimate the selling price because there are no quoted market prices for such assets. In determining the value in use, expected cash flows generated by the assets are discounted to their present value, which requires significant judgments relating to items such as level of sale volumes, selling prices and amounts of operating costs. Smart Courage Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volumes, selling prices and amounts of operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in impairment charges in future periods.

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FINANCIAL INFORMATION OF THE TARGET GROUP

(ii) Depreciation and amortisation

Management reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation and amortisation expense charge for the Relevant Period. Management determined that the useful life of the intellectual property is 10 years based on management’s expertise in the industry. This could change significantly as a result of changes in such market. The depreciation and amortisation expenses for future periods will be adjusted if there are significant changes from previous estimates.

15. Possible impact of amendments, new standards and interpretations issued but not yet effective

The HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective and have not been adopted in the Financial Information.

Smart Courage 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 their adoption is unlikely to have a significant impact on the results of operations and financial position of Smart Courage Group.

C. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements have been prepared by Smart Courage Group in respect of any period subsequent to 31 December 2010.

Yours faithfully

KLC Kennic Lui & Co. Ltd.

Certified Public Accountants (Practising)

Choy Po Fong

Practising certificate number: P04688 Hong Kong

– 60 –

FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

The following is the text of an accountant’s report on Earth Buddy (Intellectual Property) Limited, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountant, KLC Kennic Lui & Co. Ltd. Certified Public Accountants (Practising).

==> picture [119 x 72] intentionally omitted <==

5/F, Ho Lee Commercial Building, 38-44 D’Aguilar Street, Central, Hong Kong 香港中環德己立街38-44號好利商業大廈5字

11 April 2011

The Directors

Hao Wen Holdings Limited

Unit 701, Tai Yau Building 181 Johnson Road Wan Chai Hong Kong

Dear Sirs

INTRODUCTION

We set out below our report on the financial information relating to Earth Buddy (Intellectual Property) Limited (“Earth Buddy”), including the statement of comprehensive income, statement of changes in equity and statement of cash flows for the period from 20 November 2007 (date of incorporation) to 31 March 2008, each of the two years ended 31 March 2010, and the nine months ended 31 December 2010 (the “Relevant Periods”), and the balance sheets as at 31 March 2008, 2009, 2010 and 31 December 2010 (collectively, the “Financial Information”), and the comparative financial information of Earth Buddy for the nine months ended 31 December 2009 (the “2009 Comparative Information”), prepared for inclusion in the circular of Hao Wen Holdings Limited (the “Company”) dated 11 April 2011 (the “Circular”).

Earth Buddy was incorporated on 20 November 2007 as a private limited liability company in Hong Kong. It did not record any turnover and has not carried out any active business since the date of its incorporation. Earth Buddy is the holder of certain trade marks registered in Hong Kong and other countries.

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APPENDIX III

BASIS OF PREPARATION

The Financial Information has been prepared by the directors of Earth Buddy based on the unaudited management financial statements for the Relevant Periods. The Financial Information is prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

DIRECTORS’ RESPONSIBILITY

The directors of Earth Buddy during the Relevant Periods are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with the HKFRSs, and for such internal control as the directors determine is necessary to enable the preparation of Financial Information that are free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the contents of the Circular in which this report is included.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

In respect of the 2009 Comparative Information, it is our responsibility to form an independent conclusion based on our review and to report our opinion to you. We conducted our review of the 2009 Comparative Information in accordance with Hong Kong Standard on Review Engagements 2400 “Engagements to Review Financial Statements” issued by the HKICPA. Our review consisted of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 2009 Comparative Information.

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APPENDIX III

OPINION

In our opinion, the Financial Information set out below, for the purpose of this report, gives a true and fair view of the state of affairs of Earth Buddy as at 31 March 2008, 2009, 2010 and 31 December 2010, and of its results for the Relevant Periods in accordance with HKFRSs.

In respect of the 2009 Comparative Information, on the basis of our review, which does not constitute an audit, nothing has come to our attention that causes us to believe that the 2009 Comparative Information is not prepared, in all material respects, in accordance with HKFRSs.

A. FINANCIAL INFORMATION

STATEMENT OF COMPREHENSIVE INCOME

Note Turnover 3 Administrative expenses Loss before taxation Taxation 5 Loss for the year/period Other comprehensive income for the year/period Total comprehensive income for the year/period	Period from 20 November 2007 (date of incorporation) to 31 March 2008 HK$ – – – – – – –	Year ended 31 March 2009 HK$ – – – – – – –	Year ended 31 March 2010 HK$ – (12,450) (12,450) – (12,450) – (12,450)	Period from 1 April to 31 December 2009 2010 HK$ HK$ – – (450) – (450) – – – (450) – – – (450) –	Period from 1 April to 31 December 2009 2010 HK$ HK$ – – (450) – (450) – – – (450) – – – (450) –
					– –
					– –
					–

The accompanying notes form part of the financial information.

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APPENDIX III

BALANCE SHEET

Note Non-current assets Intangible assets 6 Current assets Deposits Cash on hand Current liabilities Other payables 7 Net current assets/ (liabilities) Net assets/(liabilities) Capital and reserves Share capital 8 Accumulated losses Total equity/ (Deficiencies in shareholders’ funds)		As at 31 March 2009 2010 HK$ HK$ – 214,534 – – 1 1 1 1 – (226,984) 1 (226,983) 1 (12,449) 1 1 – (12,450) 1 (12,449)	As at 31 December 2010 HK$ 379,389 24,550 10,000 34,550 (416,389) (381,839) (2,450) 10,000 (12,450) (2,450)
	2008 HK$ – – 1 1 – 1 1 1 – 1	2009 HK$ – – 1 1 – 1 1 1 – 1

The accompanying notes form part of the financial information.

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APPENDIX III

STATEMENTS OF CHANGES IN EQUITY

Note Issue of shares on incorporation 8 Total comprehensive income for the period Balance at 31 March 2008 Total comprehensive income for the year Balance at 31 March 2009 Total comprehensive income for the year Balance at 31 March 2010 Issue of shares during the period 8 Total comprehensive income for the period Balance at 31 December 2010	Share capital HK$ 1 – 1 – 1 – 1 9,999 – 10,000	Accumulated losses HK$ – – – – – (12,450) (12,450) – – (12,450)	Total HK$ 1 – 1 – 1 (12,450) (12,449) 9,999 – (2,450)

The accompanying notes form part of the financial information.

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FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

STATEMENTS OF CASH FLOWS

Note Cash flows from operating activities Loss before taxation and operating loss before changes in working capital Increase in deposits Increase in other payables Cash generated from operations and net cash from operating activities Cash flows from investing activities Expenditure on intellectual properties Net cash used in investing activities Cash flows from financing activities Issue of shares 8 Net cash from financing activities Net increase in cash and cash equivalents Balances of cash and cash equivalents at beginning of the year/period Balances of cash and cash equivalents at end of the year/period Analysis of cash and cash equivalents Cash on hand	Period from 20 November 2007 (date of incorporation) to 31 March 2008 HK$ – – – – – – 1 1 1 – 1 1	Year ended 31 March 2009 HK$ – – – – – – – – – 1 1 1	Year ended 31 March 2010 HK$ (12,450) – 226,984 214,534 (214,534) (214,534) – – – 1 1 1	Period from 1 April to 31 December 2009 2010 HK$ HK$ (450) – – (24,550) 171,411 189,405 170,961 164,855 (170,961) (164,855) (170,961) (164,855) – 9,999 – 9,999 – 9,999 1 1 1 10,000 1 10,000	Period from 1 April to 31 December 2009 2010 HK$ HK$ (450) – – (24,550) 171,411 189,405 170,961 164,855 (170,961) (164,855) (170,961) (164,855) – 9,999 – 9,999 – 9,999 1 1 1 10,000 1 10,000
					164,855
					(164,855)
					(164,855)
					9,999
					9,999
					9,999 1
					10,000

					10,000

The accompanying notes form part of the financial information.

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FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

B. NOTES TO THE FINANCIAL INFORMATION

1. General

Earth Buddy is a private limited liability company incorporated in Hong Kong. The address of its registered office and principal place of business is 5/F, Ka Wah Bank Centre, 232 Des Voeux Road Central, Hong Kong.

The principal activity of Earth Buddy is investment holding.

The Financial Information is presented in Hong Kong dollars (“HKD”), which is the functional currency of Earth Buddy.

2. Significant accounting policies

(a) Statement of compliance

(b) Basis of preparation

(i) Measurement basis, judgments, estimates and assumptions

The measurement basis used in the preparation of the Financial Information is the historical cost basis.

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FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

Judgments made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are set out in note 11.

(ii) Going concern assumption

Earth Buddy had net current liabilities of HK$381,839 and net liabilities of HK$2,450 at 31 December 2010. These conditions indicate the existence of a material uncertainty which may cast significant doubt about Earth Buddy’s ability to continue as a going concern.

The directors of Earth Buddy consider that Earth Buddy will be able to meet its liabilities and financial obligations in full as they fall due for the foreseeable future because Earth Buddy has received a financial support undertaking from its holding company who agreed to provide adequate funds and will not demand repayment of the amounts until Earth Buddy has the ability to do so. Accordingly, the Financial Information has been prepared on a going concern basis. The Financial Information does not include any adjustments relating to the carrying amounts and reclassification of assets and liabilities that might be necessary should Earth Buddy be unable to continue as a going concern.

– 68 –

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APPENDIX III

(c) Intangible assets (other than goodwill)

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and Earth Buddy has sufficient resources and the intention to complete development. The expenditure capitalised includes the costs of materials, direct labour, and an appropriate proportion of overheads and borrowing costs, where applicable. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

Other intangible assets that are acquired by Earth Buddy are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

– Intellectual properties 10 years

Both the period and method of amortisation are reviewed annually.

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FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

–

Calculation of recoverable amount

– Recognition of impairment losses

– Reversals of impairment losses

– 70 –

FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

(d) Other payables

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

(e) Taxation

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

Current tax is the expected tax payable on the taxable income for the Relevant Periods, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences, respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from differences which arise on initial recognition of assets and liabilities, all deferred tax liabilities, and all deferred tax assets to the extent it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

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APPENDIX III

(f) Provisions and contingent liabilities

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

(g) Cash and cash equivalents

(h) Related parties

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

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control Earth Buddy or exercise significant influence over Earth Buddy in making financial and operating policy decisions, or has joint control over Earth Buddy;
(ii) Earth Buddy and the party are subject to common control;

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APPENDIX III

(iii) the party is a subsidiary, an associate of Earth Buddy or a joint venture in which Earth Buddy is a venturer;
(iv) the party is a member of key management personnel of Earth Buddy or its 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 Earth Buddy or of any entity that is a related party of Earth Buddy.

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.

3. Turnover

Earth Buddy has not yet commenced active operations and, therefore, did not generate any turnover during the Relevant Periods.

4. Directors’ remuneration

Earth Buddy did not pay any directors’ remuneration and did not incur any staff costs during the Relevant Periods. There were no arrangements under which the directors waived or agreed to waive any remuneration during the Relevant Periods.

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APPENDIX III

5. Taxation

(a) No provision for Hong Kong Profits Tax has been made as Earth Buddy did not have any assessable profits for the years/period chargeable to Hong Kong Profits Tax.
(b) Reconciliation between taxation and loss before taxation at the applicable tax rate:

Loss before taxation Notional tax on loss before taxation Tax effect of non-deductible expenses Taxation for the year/period	Period from 20 November 2007 (date of incorporation) to 31 March 2008 HK$ – – – –	Year ended 31 March 2009 HK$ – – – –	Year ended 31 March 2010 HK$ (12,450) (2,054) 2,054 –	Period from 1 April to 31 December 2009 2010 HK$ HK$ (450) – (74) – 74 – – –	Period from 1 April to 31 December 2009 2010 HK$ HK$ (450) – (74) – 74 – – –

					– –
					–

6. Intangible assets

Intellectual properties At beginning of the year/period Additions At end of the year/period		As at 31 March	2010 HK$ – 214,534 214,534	As at 31 December 2010 HK$ 214,534 164,855
	2008 HK$ – – –	2009 HK$ – – –
				379,389

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APPENDIX III

Amortisation of intellectual properties is charged to profit or loss on the straightline basis over the assets’ estimated useful life of 10 years. No amortisation of intellectual properties was made for the Relevant Periods.

At 31 December 2010, the directors of Earth Buddy reviewed the carrying values of the intellectual properties, taking into account an independent valuation report prepared by a professional valuer. Based on the assessment and the valuation report, the directors of Earth Buddy are of the opinion that there are currently no indications that the values of the intellectual properties may be impaired.

7. Other payables

The amount mainly represented the costs for the application of registration for intellectual properties.

8. Share capital

Authorised 10,000 ordinary shares of HK$1 each Issued and fully paid Allotment on – 20 November 2007 – 24 September 2010		As at 31 March	2010 HK$ 10,000 1 – 1	As at 31 December 2010 HK$ 10,000 1 9,999 10,000
	2008 HK$ 10,000 1 – 1	2009 HK$ 10,000 1 – 1

On incorporation, the authorised share capital of Earth Buddy was fixed at HK$10,000 divided into 10,000 shares in which each share has a face value of HK$1. 1 ordinary share was subscribed and allotted at the date of incorporation. Pursuant to a board resolution passed on 24 September 2010, a further 9,999 ordinary shares of HK$1 each were subscribed and allotted.

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APPENDIX III

9. Capital management

The primary objectives of Earth Buddy when managing capital are to safeguard the ability to continue as a going concern, in order to provide returns for Earth Buddy’s shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

Earth Buddy’s capital structure is regularly reviewed and managed with due regard to the capital management practices of the group to which Earth Buddy belongs. Adjustments are made to the capital structure in light of changes in economic conditions affecting Earth Buddy or the group, to the extent that these do not conflict with the directors’ fiduciary duties towards Earth Buddy or the requirements of the Hong Kong Companies Ordinance.

Consistent with the capital management practices of the group to which Earth Buddy belongs, Earth Buddy’s capital structure is monitored by its current and expected liquidity requirements rather than using debt/equity ratio analyses.

Earth Buddy is not subject to either internally or externally imposed capital requirements.

10. Financial instruments

(a) Categories of financial instruments

Financial assets Cash on hand Financial liabilities Other payables Financial liabilities measured at amortised cost		As at 31 March	2010 HK$ 1 226,984 226,984	As at 31 December 2010 HK$ 10,000 416,389 416,389
	2008 HK$ 1 – –	2009 HK$ 1 – –

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APPENDIX III

(b) Financial risk management

Exposure to liquidity risk may arise in the normal course of Earth Buddy’s business. The exposure to such risk and Earth Buddy’s financial management practices to manage this risk are described below.

Liquidity risk

Earth Buddy’s policy is to regularly monitor its liquidity requirements and to ensure that it maintains sufficient funding to meet its liquidity requirements in the short and longer term.

As shown in the balance sheet, the most significant amount due for repayment in the next year is other payables. The short-term liquidity risk inherent in this contractual maturity date has been addressed as disclosed in note 2(b)(ii).

11. Accounting judgments and estimates

In the application of the accounting policies, which are described in note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets.

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APPENDIX III

(i) Impairment of intangible assets

In considering the impairment losses that may be required for Earth Buddy’s intangible assets, intellectual properties, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price for such assets and the value in use. It is difficult to estimate the selling price because there are no quoted market prices for such assets. In determining the value in use, expected cash flows generated by the assets are discounted to their present value, which requires significant judgments relating to items such as level of sale volumes, selling prices and amounts of operating costs. Earth Buddy uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volumes, selling prices and amounts of operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in impairment charges in future periods.

(ii) Depreciation and amortisation

Management reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation and amortisation expense charge for the Relevant Periods. Management determined that the useful life of the intellectual property is 10 years based on management’s expertise in the industry. This could change significantly as a result of changes in such market. The depreciation and amortisation expenses for future periods will be adjusted if there are significant changes from previous estimates.

12. Possible impact of amendments, new standards and interpretations issued but not yet effective

The HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective and have not been adopted in the Financial Information.

Earth Buddy 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 their adoption is unlikely to have a significant impact on the results of operations and financial position of Earth Buddy.

– 78 –

FINANCIAL INFORMATION OF EARTH BUDDY

APPENDIX III

C. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements have been prepared by Earth Buddy in respect of any period subsequent to 31 December 2010.

Yours faithfully

KLC Kennic Lui & Co. Ltd. Certified Public Accountants (Practising)

Choy Po Fong

Practising certificate number: P04688 Hong Kong

– 79 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

==> picture [97 x 56] intentionally omitted <==

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

11 April 2011

Hao Wen Holdings Limited

Room 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong.

Case Ref: KY/IA513/FEB11

Dear Sir/Madam,

Re: Valuation of Fair Value of the Intellectual Property of Earth Buddy (Intellectual Property) Limited

In accordance with the instructions from Hao Wen Holdings Limited (hereinafter referred to as the “Company”) to us to conduct a valuation on the Intellectual Property (hereinafter referred to as the “Intellectual Property”), including trademarks registered with the trademark offices in Hong Kong, the European Union, and Switzerland, owned by the Earth Buddy (Intellectual Property) Limited (Earth Buddy), we are pleased to report that we have made relevant enquiries and obtained other information which we considered relevant for the purpose of providing our opinion on the fair value of the Intellectual Property as at 28 February 2011 (hereinafter referred to as the “Date of Valuation”).

This report states the purpose and basis of valuation, scope of work, economic and industry overview, an overview of the Intellectual Property, major assumptions, valuation methodology, limiting conditions, and presents our estimate of value.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the Company. In addition, Roma Appraisals Limited (hereinafter referred to as “Roma Appraisals”) acknowledges that this report may be made available to the Company for public documentation purpose and included in the Company’s circular.

– 80 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

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

2. SCOPE OF WORK

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

In preparing this report, we have had discussions with the Management and the Company in relation to the development and prospect of the green food container and packaging industry, and the development, operations and other relevant information of the Intellectual Property. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Intellectual Property provided to us by the Management and have considered such information and data as attainable and reasonable.

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

3. ECONOMIC AND INDUSTRY OVERVIEW

3.1 Overview on the Economy of China

According to the National Bureau of Statistics of China, the nominal Gross Domestic Product (“GDP”) in 2010 was RMB 39,798.3 billion, an increase of 10.3% in real term over the previous year. China is the third largest economy in the world, ranked after the European Union and United States, in terms of nominal GDP measured by the International Monetary Fund in 2010. Despite the global financial crisis in late 2008, the Chinese economy continued to be supported by the Chinese government through spending in infrastructure and real estates.

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

– 81 –

APPENDIX IV VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

Compound annual growth rate of China’s GDP over the past decade from 2001 to 2010 was 9.3% and in the government’s latest plan, it is targeted to grow at 7% for the period from 2011 to 2015. Figure 1 shows China’s gross domestic product from 2006 to 2010.

Figure 1 – China’s Gross Domestic Product in 2006 – 2010

==> picture [299 x 206] intentionally omitted <==

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

RMB (billion)
45,000
39,798.3
40,000
35,000 34,090.3
31,404.5
30,000
26,581.0
25,000
21,631.4
20,000
15,000
10,000
5,000
0
2006 2007 2008 2009 2010
----- End of picture text -----

Source: National Bureau of Statistics of China

For sales of such environmental-friendly product covered in the Intellectual Property, after concentrating on the European market at first, it will also explore opportunities in the North America and Asian regions by leveraging on the management’s in depth experience and expertise in the industry. For production, it is to be engaged to a factory in China and all business dealings will be transfer to such factory.

3.2 Overview of Green Food Container and Packaging Industry

According to World Food Containers, a study in February 2010 by The Freedonia Group, Inc., a Cleveland-based industry research firm, the world demand for food containers is forecasted to increase 3.9% per year to US$124 billion in 2013. Factors contributing to rising demand include growth in global food output and consumers’ fast-paced lifestyle which leads to more reliance on convenience-oriented food. Figure 2 shows the forecasted food container demand in 2013 by region.

– 82 –

APPENDIX IV VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

Figure 2 – Forecasted Food Container Demand in 2013 by Region

==> picture [268 x 176] intentionally omitted <==

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

Other Regions,
18%
Asia/Pacific
31%
Western Europe,
24%
North America,
27%
----- End of picture text -----

Source: World Food Containers

Products, such as food containers, which made from biodegradable material are expected to have robust advancement due to increasing pressure on packaging producers to reduce their impacts to the environment.

Packaging industry for a variety of consumer, commercial, and industrial goods is not a high-profile industry for most people. However, it continues to grow rapidly, due to the increase in demand for consumer goods in developing countries. According to a report with title “Sustainable Packaging Market to Reach $170 Billion Worldwide by 2014” published in January 2010 by Pike Research, an independent research firm that provides in-depth analysis of global clean technology markets, it is estimated that the worldwide packaging industry revenue will increase from US$429 billion in 2009 to US$530 billion by 2014.

In addition, Pike Research forecasted that the sustainable packaging sector is growing much faster than the overall packaging industry, and the clean-tech market intelligence firm anticipates that eco-friendly packaging will nearly double in revenues between 2009 and 2014, from US$88 billion to US$170 billion. Figure 3 illustrates the world’s sustainable packaging market forecast from 2009 to 2014.

– 83 –

APPENDIX IV VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

Figure 3 – World’s Sustainable Packaging Market Forecast from 2009 to 2014

==> picture [350 x 223] intentionally omitted <==

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

600
500
Total Packaging
Market
400
Sustainable
Packaging
300
200
100
0
2009 2010 2011 2012 2013 2014
($ Billions)
----- End of picture text -----

Source: Pike Research

4. THE INTELLECTUAL PROPERTY OF EARTH BUDDY

The portfolio of Intellectual Property is comprised of trademarks and designs of Earth Buddy. Earth Buddy and its shareholders have developed over many years core technologies including fibre materials and coloring, biodegradable polyethene (“PE”)/polyethylene terephthalate (“PET”) laminations, production machineries and manufacturing process, development of energy and cost efficient tools and design. Moreover, Earth Buddy and its shareholders have also developed design principles, engineering practices and related technologies for factory design and office layout, manufacturing processes and production technologies that are energy efficient and environmentally friendly.

Earth Buddy and its shareholders possess the know-how to produce colored, other than bleached, and fully custom-shaped products. The hybrid product to be developed by Earth Buddy has a temperature resistance up to 270 degrees Celsius. Also, Earth Buddy and its shareholders have developed biodegradable thin film lamination techniques that are suitable for special food storage and container uses. The molding tools are energy and cost efficient and reliable for high volume product production and manufacturing setting.

– 84 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

5. INTELLECTUAL PROPERTY

Intellectual property is a special category in intangible assets and the International Valuation Standards define intangible assets as “assets that manifest themselves by their economic properties; they do not have physical substance; they grant rights and privileges to their own; and usually generate income for their owner. Intangible assets can be categorized as arising from: technology; relationships; grouped intangibles; or intellectual property”. Moreover, an intangible asset can also be defined as “a claim to future benefits that does not have a physical or financial embodiment.” As a special category in intangible assets, intellectual property is usually protected by law from unauthorized use by others. Examples are brand names, or trade names; copyrights; patents; trademarks; trade secrets, or know-how; among others.

6. BASIS OF VALUATION

We have valued the Intellectual Property on the basis of fair value. Fair value is defined as “the estimated amount for which an asset could be exchanged, or a liability settled, between willing parties in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

7. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management in relation to the development, operations and other relevant information of the Intellectual Property. In addition, we have made relevant inquiries and obtained further information and statistical figures regarding the economy of China as we considered necessary for the purpose of the valuation.

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

The valuation of the Intellectual Property requires consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered in our valuation include, but not necessarily limited to, the following:

The nature and prospect of the Intellectual Property;
The economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;

– 85 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

Relevant licences and agreements;
The risks of the Intellectual Property such as various competition within the industry and threat of new entrants; and
Investment returns and market transactions of entities engaged in similar lines of business.

8. VALUATION METHODOLOGY

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

8.1 Market-Based Approach

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

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

8.2 Income-Based Approach

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

– 86 –

APPENDIX IV VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

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

8.3 Asset-Based Approach

The Asset-Based Approach values an intellectual property by aggregating the costs of developing the asset to its current condition, or replacing that asset.

8.4 Intellectual Property Valuation

In the process of valuing the Intellectual Property, we have taken into account of the uniqueness of the operation and the industry in which the Company is participating. The Market-Based Approach is not adopted in this case because most of the important assumptions in the comparable transactions, such as discount or premium on the transaction considerations, are hidden. The Asset-Based Approach is not adopted because it cannot reflect the fair value of the Intellectual Property. We have therefore considered the adoption of Income-Based Approach to determine the fair value of the Intellectual Property.

We had adopted the Income-based Approach in determining the fair value of the Intellectual Property. In particular, we considered that the Relief-from-Royalty method as the most appropriate method to value the Intellectual Property. Accordingly, net sales amount multiplying by the royalty rate and then deducting the corresponding tax amount paid is equal to the after-tax royalty that would have been paid for use of the Intellectual Property. The value of the Intellectual Property is derived by discounting the future after-tax royalty attributable to the Intellectual Property to present value using a discount rate that is appropriate for the expected risks associated with realizing the royalty.

In applying the Relief-from-Royalty method, we had to determine the net sales and fair royalty rate for the Intellectual Property. The net sales figures are arrived at after research in the market of environment friendly products, the attractiveness of the products covered in the Intellectual Property, and the Company’s business development plan. For royalty rate, the best evidence is to inquire whether the Earth Buddy, as owner of the Intellectual Property, has granted any licences to other companies to use the Intellectual Property.

However, there may not be any licensing agreements or prevailing rates for granting licences, which can provide guidelines to the Intellectual Property under valuation. In such situation, an estimate of a reasonable royalty rate must be made assuming that the Intellectual Property was licensed at a fair rate as a result of arm’s length negotiations.

– 87 –

APPENDIX IV VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

In determining the value of the Intellectual Property, two specific assumptions had been considered together with the aforesaid major assumptions, which are listed below:

The royalty rate of 3.58% is adopted by taking the average of royalty rates on the licensing of intellectual property regarding bio-gradable/recycle products with source data from RoyaltySource Intellectual Property Database; and
With reference to trade mark registration filed, the economic life of the Intellectual Property is assumed to be eight years.

8.4.1 Discount Rate

In calculating the discount rate, we first obtained the weighted average cost of equity (“WACC”), which was calculated by the formula below:

WACC = We x Re + Wd x Rd x (1 – Tc)

In which

Re = Cost of equity; Rd = Cost of debt;

We = Weight of equity value to enterprise value;

Wd = Weight of debt value to enterprise value; and

Tc = Corporate tax rate.

The cost of equity was calculated by using the following formula:

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

In which

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

The discount rate for the Intellectual Property was calculated by the following formula:

Discount Rate = WACC for Equity + Additional Premium for Intellectual Property

– 88 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

We arrived at 15.53% for cost of equity by adopting 4.03% 10-year China government bond yield rate as the risk-free rate, 11.67% as the market risk premium which is the difference between market return and risk free rate extracted from Bloomberg, and a beta estimate of 0.64 which is the average of beta coefficients of the comparable companies, and other risk premium of 3.99% which is the size premium for micro-cap companies based on a study conducted by Ibbotson Associates, Inc. In addition, we have adopted China’s tax rate of 25.00% as extracted from Bloomberg, 5.96% 3 to 5-year best lending rate of China as the cost of debt and the average of debt-to-equity ratios of the comparable companies, which is 44.80% as the debt-toequity ratio. An additional premium for intellectual property of 2.00% was added to reflect the risks in relation to the Intellectual Property. Hence, we concluded a discount rate of 14.11% in valuing the Intellectual Property as at the Date of Valuation.

9. MAJOR ASSUMPTIONS

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

All relevant legal approvals and business certificates or licences to operate the business in the localities in which the Intellectual Property operates or intends to operate would be officially obtained and renewable upon expiry;
There will be sufficient supply of technical staff in the industry in which the Intellectual Property operates, and the Company will retain competent management, key personnel and technical staff to support its ongoing operations and developments;
There will be no major change in the current taxation laws in the localities in which the Intellectual Property operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
There will be no major change in the political, legal, economic or financial conditions in the localities in which the Intellectual Property operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Intellectual Property; and
Interest rates and exchange rates in the localities for the operation of the Intellectual Property will not differ materially from those presently prevailing.

– 89 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

10. INFORMATION REVIEWED

Our estimate requires consideration of relevant factors affecting the fair value of the Intellectual Property. The factors considered included, but not necessarily limited to, the following:

Historical information of the Intellectual Property;
Market trends of the container and packaging industry and other dependent industries;
General descriptions in relation to the Intellectual Property; and
Economic outlook in China.

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

11. LIMITING CONDITIONS

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

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

We have relied to a considerable extent on information provided by the Management in arriving at our opinion of value. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reasons to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibilities for the operation and financial information that have not been provided to us are accepted.

– 90 –

APPENDIX IV

VALUATION REPORT OF THE INTELLECTUAL PROPERTY OF EARTH BUDDY

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

Our conclusion of the fair value was derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

12. REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in United States dollar (US$).

We hereby confirm that we have neither present nor prospective interests in the Company and the associated companies, the Intellectual Property or the values reported herein.

13. OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, the fair value of the Intellectual Property as at the Date of Valuation, in our opinion, is reasonably estimated as US$22,100,000 (UNITED STATES DOLLARS TWENTY-TWO MILLION ONE HUNDRED THOUSAND ONLY).

Yours faithfully,

For and on behalf of

Roma Appraisals Limited

Kelvin Luk	H. C. Kwan
MIBA	CFA
Director	Director

Note:

Mr. Luk is a member of the Institute of Business Appraisers. He has over 5 years of experience in valuation and consultation related to similar assets or companies engaged in similar business activities worldwide as that of the Business Enterprise.

Mr. Kwan is a member of the CFA Institute. He has over 10 years of experience in valuation of similar assets or companies engaged in similar business activities as that of the Business Enterprise.

– 91 –

APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

A. MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW AND PROSPECTS OF THE GROUP

The Directors still anticipate that fierce competition in the pharmaceutical industry in Mainland China will continue to strongly affect adversely the future earnings and prospects of the Group.

In order to improve the market share of the Group’s products, the Group will continue to engage in research on both new products development and quality enhancements on existing products. The Directors believe that the introduction of “Plasmin Tablet” will help the Group in developing the prescription medicine market which in turn will enhance the recognition of the Group and its products. Together with Staphylokinese Project if once approved and introduced into the market, the income base of the Group will be broadened and the turnover and operating results will be improved.

Going forward, the Board will make every effort to improve the operation results of the Group and continue to look for other pharmaceutical manufacturers for possible synergetic alliances through means including but not limited to merger and acquisition, so as to strengthen the profitability and minimize the performance risk of the Group. The newly acquired health SPA and exclusive skin-care products rights, operating licenses and distribution rights will consolidate and continue with their organic growth. Together they will generate revenues and returns to the Group and its shareholders.

B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The Target Company

The Target Company is an investment holding company incorporated under the laws of the British Virgin Islands on 26 November 2010 with limited liability and is wholly owned by the Vendor as at the Latest Practicable Date. The Target Company is principally engaged in investment holding. Apart from its 100% equity interest in Earth Buddy, the Target Company does not have any operation as at the Latest Practicable Date.

– 92 –

APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

For the period from 26 November 2010 (date of incorporation) to the Latest Practicable Date

Capital structure

As at the Latest Practicable Date, the issued share capital of the Target Company was US$1 (equivalent to approximately HK$8), comprising 1 issued and fully paid ordinary share of US$1.

Employee information

The Target Company had no employees as at the Latest Practicable Date.

The Target Group

Earth Buddy is a company incorporated in Hong Kong and the entire issued share capital of which is held by the Target Company as at the Latest Practicable Date.

Capital structure

As at the Latest Practicable Date, the issued share capital of Earth Buddy was HK$10,000 comprising 10,000 issued and fully paid ordinary share of HK$1.

– 93 –

APPENDIX VI

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 after completion of the Acquisition of the Target Group. 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.

(I) UNAUDITED PRO FORMA FINANCIAL INFORMATION

The accompanying unaudited pro forma statement of consolidated assets and liabilities of the Enlarged Group gives effect to the Acquisition as if the Acquisition had been completed on 30 June 2010 (the “Unaudited Pro Forma Financial Information”).

The Unaudited Pro Forma Financial Information has been prepared on the basis of the notes set out below and for illustrative purposes only. Because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Acquisition been completed as at 30 June 2010 or at any future date.

I. UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Pro	forma adjustments Other adjustments #1 #2 (Note 2(i)) (Note 2(ii)) RMB’000 RMB’000 – – – – 156,967 (156,967) – 358 – – 156,967 (156,609) – – – – – – – – – – (26,161) – (26,161) – – – (52,322) – (52,322) – 104,645 (156,609) (89,710) – 14,935 (156,609)	Unaudited pro forma statement of consolidated assets and liabilities of the Enlarged Group RMB’000 94,163 12,643 – 157,325 5,000
Statement of consolidated assets and liabilities of the Target Group as at 31 December 2010 (Note 1) RMB’000 – – – 156,967 – 156,967 – 22 9 31 (389) – – – (389) (358) 156,609 – 156,609
	#1 (Note 2(i)) RMB’000 – – 156,967 – – 156,967 – – – – – (26,161) (26,161) – (52,322) (52,322) 104,645 (89,710) 14,935
		269,131
		3,055 28,144 10,071
		41,270
		(97,367) (73,606) (26,161) (11,756)
		(208,890)
		(167,620)
		101,511 (89,710)
		11,801

– 94 –

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

II. NOTES TO THE CONSOLIDATED ASSETS AND LIABILITIES OF THE ENLARGED GROUP

1. Basis of preparation

The Unaudited Pro Forma Financial Information is prepared based on the consolidated statement of financial position as at 30 June 2010 of the Group extracted from the Group’s published interim report 2010, and the audited consolidated balance sheet as at 31 December 2010 of the Target Group extracted from the Accountant’s Report set out in Appendix II to this Circular, after making certain pro forma adjustments that are summarised in note 2 below.

For the purpose of preparing the Unaudited Pro Forma Financial Information, the audited consolidated balances as at 31 December 2010 of the Target Group were translated at the exchange rate of RMB 1 = HK$1.1467 which approximates the exchange rate as at 30 June 2010.

2. Pro forma adjustments

(i) Funding for the Acquisition

The total funding for the Acquisition is HK$180,000,000 (equivalent to approximately RMB156,967,000) which is proposed to be satisfied as to HK$30,000,000 in cash (equivalent to approximately RMB26,161,000), HK$30,000,000 by the issue of the Promissory Note (equivalent to approximately RMB26,161,000) and the remaining balance as to HK$120,000,000 (equivalent to approximately RMB104,645,000) by the issue of convertible bonds due on the second anniversary of the date of issue at the initial conversion price of HK$0.10 per conversion share (the “Convertible Bonds”).

The fair values of the liability component and the equity conversion component of the Convertible Bonds are determined as if the Convertible Bonds had been issued at 30 June 2010. The fair value of the liability component, included in non-current liabilities, was calculated using a market interest rate for similar convertible bonds. The residual amount, amounting to RMB14,935,000, representing the value of the equity conversion, is included in reserves.

The fair value of the liability component of the Convertible Bonds at 30 June 2010, amounting to RMB89,710,000, was calculated by using cash flows discounted at a rate based on the borrowing rate of approximately 11%.

– 95 –

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(ii) Elimination of investment in Smart Courage Group

On consolidation, the related investment cost of the Group in the Target Group amounting to HK$180,000,000 (equivalent to approximately RMB156,967,000) is eliminated against the Group’s entire equity interest in the Target Group, being the net asset value of the Target Group of approximately RMB156,608,000. Accordingly, estimated goodwill amounting to approximately RMB358,000, is recognised as a result of the Acquisition. In view of the substance of the Acquisition in the Target Group, represented by the intellectual properties, the amount is recognised as an intangible asset of the Enlarged Group, versus recognising it as goodwill.

The Group has applied the purchase method to account for the Acquisition whereby the identifiable assets and liabilities of the Target Group will be recorded at their fair values at the date of completion.

3. Impairment assessment on the intangible assets of the Enlarged Group

The directors of the Company have reviewed the carrying values of the intangible assets of the Enlarged Group, taking into account the independent valuation report as disclosed in Appendix IV to this Circular. Based on their assessment and the valuation report, the directors of the Company are of the opinion that there are no indications that the values of the intangible assets of the Enlarged Group may be impaired.

In the future, the Company will carry out impairment reviews of the intangible assets of the Enlarged Group with reference to independent valuation reports, which will be prepared under the same principal assumptions as disclosed in Appendix IV to this Circular.

– 96 –

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(II) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of an accountants’ report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountant, KLC Kennic Lui & Co. Ltd. Certified Public Accountants (Practising)

==> picture [119 x 72] intentionally omitted <==

5/F, Ho Lee Commercial Building, 38-44 D’Aguilar Street, Central, Hong Kong 香港中環德己立街38-44號好利商業大廈5字

11 April 2011

The Directors

Hao Wen Holdings Limited

Unit 701, Tai Yau Building 181 Johnson Road Wan Chai Hong Kong

Dear Sirs

We report on the unaudited pro forma statement of consolidated assets and liabilities (the “Unaudited Pro Forma Financial Information”) as set out in Section (I) of Appendix VI to the shareholders’ circular of Hao Wen Holdings Limited (the “Company”) dated 11 April 2011 (the “Circular”),which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of a 100% equity interest of Smart Courage Limited and its subsidiaries (the “Smart Courage Group”) might have affected the consolidated assets and liabilities of the Company and its subsidiaries (hereinafter, collectively, referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Section (I) of Appendix VI of the Circular.

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APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 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 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 (“HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 7.31(7) of the GEM 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 such reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information contained 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 performed in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and, accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the 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 Rules.

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APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 30 June 2010 or any future date.

OPINION

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the 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 Rules.

Yours faithfully

KLC Kennic Lui & Co. Ltd.

Certified Public Accountants (Practising)

Choy Po Fong

Practising certificate number: P04688 Hong Kong

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GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorized and issued capital of the Company as at the Latest Practicable Date and following the Completion were and are expected to be as follows:

Authorized: 20,000,000,000 Shares Issued and fully paid: 1,532,090,909 Shares as at the Latest Practicable Date 1,200,000,000 Conversion Shares to be issued upon the exercise of the Convertible Bonds in full at the initial conversion price 2,732,090,909 Total (for illustrative purpose)	HK$ 200,000,000

	15,320,909.09 12,000,000 27,320,909.09

All of the Shares in issue and Conversion Shares to be issued will rank pari passu in all respects with each other, including, in particular, as to dividends, voting rights and return of capital. The Conversion Shares to be issued will be listed on the Stock Exchange.

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GENERAL INFORMATION

APPENDIX VII

3. DISCLOSURE OF INTERESTS

Directors’ interests and short positions in the securities of the Company and its associated corporations

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 rules 5.46 to 5.67 of the GEM Listing Rules and the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange:

I Interests in issued ordinary shares and underlying shares of the Company

			Approximate
	Capacity/Nature of	No. of Shares	Percentages of
Name of Director	interest	(Note 1)	interest
Mr. Leung King Fai	Beneficial owner	660,000 (L)	0.043%

Note:

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

II Interests in the shares options of the Company

					Approximate
		Exercise price		No. of share	percentage
Name of director	Date of grant	per Share	Exercisable period	options	held
		(HK$)
Zhao Borui	11 November 2009	0.211	11 November 2009 to	7,000,000	0.55%
			10 November 2019
Leung King Fai	11 November 2009	0.211	11 November 2009 to	4,000,000	0.26%
			10 November 2019
Hu Yangxiong	22 January 2010	0.249	22 January 2010 to	86,760,000	6.79%
			21 January 2020

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GENERAL INFORMATION

APPENDIX VII

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/Nature of	No. of Shares	percentages of
Name	interest	(Note 1)	interest
Beckon Investments Limited	Beneficial owner	193,975,000(L)	15.19%
Mr. Yip Chi Fai, Stevens (Note 2)	Interest of a controlled	193,975,000(L)	15.19%
	corporation
Mr. Liu Yinxiao	Beneficial owner	110,000,000(L)	8.61%
Mr. Zhang Jinxing	Beneficial owner	86,350,000(L)	7.64%

Note:

The letter “L” denotes a long position in shares.
Beckon Investments Limited is an investment holding company incorporated in the British Virgin Islands and is wholly owned by Mr. YIP Chi Fai, Stevens.

Mr. YIP Chi Fai, Stevens is deemed to be interested in all of the 193,975,000 shares of the Company held by Beckon Investments Limited.

5. DIRECTORS’ INTERESTS IN CONTRACTS

(a) As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or is not determinable by the Group within one year without payment of compensation (other than statutory compensation).
(b) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2009, the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX VII

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates had any interest in a business which competes or may compete with the businesses of the Group and the Enlarged Group (as would be required to be disclosed under Rule 11.04 of the GEM Listing Rules if each of them was a controlling shareholder).

7. LITIGATION

So far as the Directors are aware, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or claims of material importance and no litigation or claims of material importance was pending or threatened against the Company or any of its subsidiaries.

8. MATERIAL CONTRACTS

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

(a) the Agreement;
(b) the agreement dated 30 August 2010 entered into between Shanxi Huizhong Animation Technology Development Company Limited[#] （山西滙眾動漫科技開發有限公司）as purchaser and Shanxi Everpride Pharmaceutical Company Limited#（山西中遠威藥業有限公司）as vendor in respect of the disposal of the factory buildings and the land located at Taigu County, Shanxi Province PRC and the seven properties in Shanghai;
(c) the tenancy agreement dated 30 August 2010 between Shanxi Huizhong Animation Technology Development Company Limited[#] （山西滙眾動漫科技開發有限公司）as landlord and Shanxi Everpride Pharmaceutical Company Limited[#] （山西中遠威藥業有限公司）as tenant in relation to the factory building and the land located at Taigu County, Shanxi Province PRC;
(d) two subscription agreements both dated 12 August 2010 between the Company as issuer and separately with two subscribers namely: Liu Yinxiao and Wu Zhendong in relation to subscription for an aggregate of 146,590,009 new Shares at price of 0.10 each;

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GENERAL INFORMATION

APPENDIX VII

(e) the agreement dated 7 June 2010 between the Company as issuer and the subscriber Charles Chi in relation to the subscription for an aggregate of 98,090,009 new Shares at price of HK$0.168 each together with the cancellation agreement between the aforesaid parties dated 16 July 2010;
(f) the agreement dated 24 May 2010 between Xian Jin Hao Asset Management Company Limited (as purchaser) and Shaanxi Ruide Enterprise Development Company Limited (as vendor) in relation to acquisition of the operating right of SRI at consideration of RMB51,000,000 together with the supplemental agreement between the aforesaid parties dated 15 June 2010;
(g) four subscription agreements all dated 5 March 2010 between the Company as issuer and separately with four subscribers namely: Hope Spirit Limited, Ng Oi Yee Elly, Zhao Ruotian and Zhang Jinxing in relation to the subscription for an aggregate of 196,181,818 new Shares at price of HK$0.168 each together with the supplemental agreements between the Company and Zhao Ruotian and Hope Spirit Limited dated 30 March 2010 and the cancellation agreement between the Company and Hope Spirit Limited dated 28 May 2010;
(h) the 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;
(i) the agreement dated 14 December 2009 between Wu Ching Por (as vendor) and the Company (as purchaser) in relation to the acquisition of the entire issued share capital of Jin Hao Limited at consideration of HK$9,000,000;
(j) the agreement dated 14 December 2009 between Cosmetics Holdings Limited (as vendor) and the Company (as purchaser) in relation to the acquisition of the entire issued share capital of Merry Sky Holdings Limited at consideration of HK$10,000,000;
(k) 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
(l) the agreement dated 4 August 2009 between the Company as issuer and Chan Oi Ming as subscriber in relation to the subscription for 144,000,000 warrants at price of HK$0.003 each which entitle the holder thereof to subscribe for up to 144,000,000 shares at exercise price of HK$0.104 each for 2 years commencing from the date of issue of the warrants.

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GENERAL INFORMATION

APPENDIX VII

9. EXPERT AND CONSENT

The following is the name and the qualification of the professional adviser who has given opinion or advice which is contained or referred to in this circular:

Name

Qualification

KLC Kennic Lui & Certified Public Accountants Co. Ltd. (“ KLC ”)

As at the Latest Practicable Date, KLC had no beneficial interest in the share capital of any member of the Enlarged Group nor did they have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group or have any interest, either directly or indirectly, in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group. KLC has given and has not withdrawn its written letter of consent to the issue of this circular with the inclusion herein of references to its name in the form and context in which they respectively appear.

10. GENERAL INFORMATION

(a) The registered address of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111.
(b) The head office and principal place of business of the Company in Hong Kong is at 701 Tai Yau Building, 181, Johnston Road, Wanchai, Hong Kong.
(c) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Abacus Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The company secretary and financial controller of the Company is Mr. Leung King Fai. Mr. Leung joined the Group in November 2005 and has extensive experience in accounting and financial management. Mr. Leung is a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants. He graduated from Deakin University with a Bachelor’s degree in Commerce.
(e) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

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GENERAL INFORMATION

APPENDIX VII

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the head office and principal place of business of the Company at 701 Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong from the date of this circular up to and including the date of EGM:

(a) the memorandum of association of the Company;
(b) the articles of association of the Company;
(c) the Agreement;
(d) the report on unaudited pro forma financial information on the Enlarged Group as set out in Appendix IV to this circular;
(e) all the agreements/contracts as referred to under the section “Material Contracts” as set out in this appendix;
(f) the letters of consent referred to under the paragraph headed “Expert and Consents” in this appendix;
(g) the annual reports of the Company for the two years ended 31 December 2009; and
(h) this circular.
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.

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NOTICE OF 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 (the “ EGM ”) of Hao Wen Holdings Limited (the “ Company ”) will be held at Unit 701, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong, on Thursday, 28 April 2011 at 10:00 a.m. to consider and, if thought fit, passing with or without modifications, the following resolutions of the Company:

ORDINARY RESOLUTIONS

1. THAT

(a) “the sale and purchase agreement (the “ Agreement ”) dated 24 December 2010 entered into between Talent Keen Limited as vendor (the “ Vendor ”), Premium Stars Investments Limited, a wholly owned subsidiary of the Company as purchaser, Mr. Choy Kai Chung Andy as the Vendor’s Guarantor regarding the acquisition of 100% of the issued share capital in Smart Courage Limited, a copy of which has been produced to the Meeting marked “A” and signed by the chairman of the Meeting for the purpose of identification and all the transactions contemplated thereunder, including but not limited to the issue of the promissory notes in the principal amount of up to HK$30,000,000, subject to the adjustment method in accordance with the Agreement and the issue of the convertible bonds in the principal amount of HK$120,000,000, and the issue and allotment of up to 120,000,000 new ordinary share(s) of HK$0.10 each in the share capital of the Company at the initial conversion price of HK$0.10 each (the “ Conversion Price ”) (subject to usual provisions for adjustments and Conversion Price reset) which may fall to be issued and allotted upon exercise of the conversion right attaching to the Convertible Bonds to the Vendor or his nominee(s) in settlement of the consideration under the Agreement, be and are hereby approved, confirmed and ratified; and

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NOTICE OF EGM

(b) any one or more of the directors (“ Directors ”) of the Company be and is/are hereby authorized to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things, as the case may be, as they may in their discretion consider necessary desirable or expedient to carry and implement the Agreement and all the transactions completed thereunder into full effect.”

By Order of the Board Hao Wen Holdings Limited Leung King Fai Executive Director

Hong Kong, 11 April 2011

Notes:

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.
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 Limited, 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.
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 Tuesday, 26 April 2011 to Wednesday, 27 April 2011 (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 Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Monday, 25 April 2011.
Shareholders or their proxies shall produce their identity documents when attending the EGM.

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AI assistant

Hao Wen Holdings Limited — Proxy Solicitation & Information Statement 2011

51217_rns_2011-04-11_4122993e-b3f4-4c7a-b84a-9bdc1b10c59c.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF SMART COURAGE LIMITED INVOLVING THE ISSUE OF PROMISSORY NOTE AND CONVERTIBLE BONDS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Date

Parties

Assets to be acquired

LETTER FROM THE BOARD

Trade Marks and Designs

LETTER FROM THE BOARD

Consideration for the Acquisition

LETTER FROM THE BOARD

Basis of the Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions Precedent

LETTER FROM THE BOARD

Completion

Undertakings by the Vendor’s Guarantor

Promissory Note

Adjustment to the principal amount

LETTER FROM THE BOARD

Convertible Bonds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INFORMATION ON THE VENDOR

INFORMATION ON THE VENDOR’S GUARANTOR

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

THE INTELLECTUAL PROPERTY OF EARTH BUDDY

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE AGREEMENT

LETTER FROM THE BOARD

NON-COMPETITION

LETTER FROM THE BOARD

BUSINESS PLAN REGARDING THE TARGET GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND UPON COMPLETION

LETTER FROM THE BOARD

RISK FACTORS

New business segment of the Group

Failure to compete effectively may adversely affect Target Group’s ability to generate revenue

LETTER FROM THE BOARD

Target Group’s ability to hire and retain qualified personnel will be an important factor in the success of its business and a failure to hire and retain key personnel may result in its inability to manage and implement the business plan

Disposable packaging products may be perceived poorly by environmental groups and customers, which could have an adverse effect on Target Group’s business, causing it to cease operation

LETTER FROM THE BOARD

Possibility of lack of funding and future dilution effect of equity fund raising activities

Failure to protect intellectual property rights

Reliance on a few major customers and suppliers

LETTER FROM THE BOARD

Foreign exchange fluctuations

Strength

Weakness

LETTER FROM THE BOARD

The Company has not entered into an agreement with the Vendor’s associates regarding the engagement of the PRC Operating Factory

DISCLOSURE ON CHANGES IN ISSUED SHARE CAPITAL

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

EFFECT OF THE ACQUISITION ON THE EARNINGS AND ASSETS AND LIABILITIES OF THE GROUP

Assets

Hao Wen Holdings Limited Proxy Solicitation & Information Statement 2011