Hao Wen Holdings Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Hao Wen Holdings Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser or the transferee or to the bank manager, licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

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

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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)

(1) SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE; (2) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE;

(3) APPLICATION FOR THE WHITEWASH WAIVER; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser

Underwriters

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Independent Financial Adviser

Grand Vinco Capital Limited

(A wholly owned subsidiary of Vinco Financial Group Limited)

A letter from the Board is set out on pages 12 to 35 of this circular. A letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 38 to 59 of this circular. The recommendation of the Independent Board Committee to the Independent Shareholders is set out on pages 36 to 37 of this circular.

A notice convening the EGM to be held at Jasmine Room on 3/F., Ramada Hong Kong Hotel, 308 Des Voeux Road West, Hong Kong on Tuesday, 17 September 2013 at 10:00 a.m. is set out on pages EGM-1 to EGM-3 of this circular. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so desire.

The Open Offer is subject to the satisfaction of certain conditions as described under the section headed ‘‘Conditions of the Open Offer’’. In particular, it is subject to the Underwriters not terminating the Underwriting Agreement (see the section headed ‘‘Termination of the Underwriting Agreement’’ herein) on or before the Latest Time for Termination. Accordingly, the Open Offer may or may not become unconditional and may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealings in the Shares up to the date when the conditions of the Open Offer are fulfilled.

30 August 2013

CHARACTERISTICS OF GEM

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

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

– i –

		Page
Characteristics of GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		i
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Summary of	the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Termination	of the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Letter from	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Appendix I	— Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	— Unaudited pro forma financial information of
	the Remaining Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		III-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1

– ii –

DEFINITIONS

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

‘‘acting in concert’’

has the meaning ascribed to it under the Takeovers Code

‘‘Announcement’’
the announcement of the Company dated 11 July 2013 in relation to, among others, the Share Consolidation and change in board lot size, the Open Offer and the Whitewash Waiver
‘‘Application Form(s)’’ the application form(s) for use by the Qualifying Shareholders to apply for the Offer Shares
‘‘associate(s)’’ has the meaning ascribed thereto in the GEM Listing Rules
‘‘Board’’ the board of Directors
‘‘Business Day’’
a day (other than a Saturday, Sunday or public holiday) on which licensed banks in Hong Kong are generally open for business
‘‘CCASS’’
the Central Clearing and Settlement System established and operated by HKSCC
‘‘Companies Ordinance’’ the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
‘‘Company’’ Hao Wen Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the Existing Shares of which are listed on GEM
‘‘Concert Group’’ Mr. Yip Chi Fai Stevens, Beckon Investments Limited, Elegant Mark Investment Limited, Smart Galaxy Investments Limited and Mr. Wong Tin Lung, and parties acting in concert with each of them
‘‘connected person(s)’’
has the meaning ascribed thereto in the GEM Listing Rules
‘‘Consolidated Share(s)’’ ordinary share(s) of HK$0.10 each in the share capital of the Company after the Share Consolidation becoming effective
‘‘Directors’’ the directors of the Company
‘‘EGM’’
the extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving the Share Consolidation and change in board lot size, the Open Offer, the Underwriting Agreement and the Whitewash Waiver

– 1 –

DEFINITIONS

‘‘Excess Application Form(s)’’
‘‘Excluded Shareholder(s)’’
‘‘Executive’’
‘‘Existing Share(s)’’
‘‘GEM’’
‘‘GEM Listing Rules’’
‘‘Group’’
‘‘HKSCC’’
‘‘Hong Kong’’
‘‘Independent Board Committee’’
‘‘Independent Financial Adviser’’
the form(s) of application for excess Offer Shares to be used in connection with the Open Offer
Shareholder(s) whose names appear on the register of members of the Company on the Record Date and whose addresses are in places outside Hong Kong and whom the Directors are of the view that it would be necessary or expedient to exclude from the Open Offer on account either of the legal restrictions under the laws of the places of his/ her/their registered address(es) or the requirements of the relevant regulatory body or stock exchange in that place
the Executive Director of the Corporate Finance Division of the SFC or any of his delegate(s)
ordinary share(s) of HK$0.01 each in the share capital of the Company before the implementation of the Share Consolidation

the Growth Enterprise Market of the Stock Exchange

the Rules Governing the Listing of Securities on GEM
the Company and its subsidiaries
Hong Kong Securities Clearing Company Limited
the Hong Kong Special Administrative Region of the PRC
a committee of the Board (comprising Mr. Lam Kai Tai, Mr. Wong Ting Kon and Ms. Yeung Mo Sheung, Ann, all being independent non-executive Directors) established to advise the Independent Shareholders on the Open Offer, the Underwriting Agreement and the Whitewash Waiver
Grand Vinco Capital Limited, a wholly-owned subsidiary of Vinco Financial Group Limited (stock code: 8340), a licensed corporation under the SFO to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Underwriting Agreement and the Whitewash Waiver

– 2 –

DEFINITIONS

‘‘Independent Shareholder(s)’’ for the Whitewash Waiver, Shareholder(s) other than the Concert Group, Orient Securities Limited and parties acting in concert with it, and those who are involved in or interested in the Open Offer, the Underwriting Agreement or the Whitewash Waiver; for the Open Offer, the Independent Shareholder(s) shall also exclude Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates
‘‘Last Trading Day’’
30 May 2013, being the last trading day immediately before the date of the Announcement
‘‘Latest Practicable Date’’
28 August 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
‘‘Latest Time for Acceptance’’
4:00 p.m. on Friday, 11 October 2013 or such later time or date as may be agreed between the Company and the Underwriters, being the latest time for acceptance of, and payment, for, the Offer Shares
‘‘Latest Time for Termination’’
4:00 p.m. on Monday, 21 October 2013 or such other time or date as may be agreed between the Company and the Underwriters, being the latest time to terminate the Underwriting Agreement
‘‘Lender’’
Elegant Mark Investment Limited, a company incorporated in Hong Kong and a money lender licensed under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong), which is wholly owned by Smart Galaxy Investments Limited, a company incorporated in the British Virgin Islands with limited liability
‘‘Listing Committee’’
has the meaning ascribed thereto in the GEM Listing Rules
‘‘Loan Agreement’’
the loan agreement dated 30 May 2013 entered into between the Lender and Beckon Investments Limited in respect of a loan facility up to HK$122.4 million
‘‘Offer Share(s)’’
not less than 1,621,334,832 Consolidated Shares and not more than 1,657,334,832 Consolidated Shares proposed to be offered to the Qualifying Shareholders to subscribe pursuant to the Open Offer

– 3 –

DEFINITIONS

‘‘Open Offer’’
the proposed issue of the Offer Shares to the Qualifying Shareholders at the Subscription Price on the basis of eight Offer Shares for every one Consolidated Share held on the Record Date on the terms pursuant to the Prospectus Documents
‘‘Posting Date’’
Thursday, 26 September 2013 or such later date as may be agreed between the Underwriters and the Company, for the despatch of the Prospectus Documents
‘‘PRC’’ the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, Taiwan and the Macau Special Administrative Region of the People’s Republic of China
‘‘Prospectus’’ the prospectus to be issued by the Company in relation to the Open Offer
‘‘Prospectus Documents’’ the Prospectus, the Application Form(s) and the Excess Application Form(s)
‘‘Qualifying Shareholders’’ the Shareholder(s), other than the Excluded Shareholder(s), whose name(s) appear(s) on the register of members of the Company on the Record Date
‘‘Record Date’’
Wednesday, 25 September 2013, the record date for the determination of the entitlements of the Qualifying Shareholders for the Open Offer
‘‘Registrar’’
the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong
‘‘SFC’’
the Securities and Futures Commission of Hong Kong
‘‘SFO’’
Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
‘‘Share(s)’’ the Existing Share(s) and/or the Consolidated Share(s)
‘‘Share Consolidation’’ the proposed consolidation of every ten (10) issued and unissued Existing Shares into one (1) Consolidated Share in the share capital of the Company
‘‘Share Option(s)’’ the share option(s) granted under the share option scheme adopted by the Company
‘‘Shareholders’’ holders of the Shares

– 4 –

DEFINITIONS

‘‘Stock Exchange’’
‘‘Subscription Price’’
‘‘Takeovers Code’’
‘‘Trading Day’’
‘‘Underwriters’’
‘‘Underwriting Agreement’’
‘‘Underwritten Shares’’
‘‘Whitewash Waiver’’
‘‘HK$’’
‘‘%’’

The Stock Exchange of Hong Kong Limited

the subscription price per Offer Share, being HK$0.10
the Hong Kong Code on Takeovers and Mergers
the day on which the Stock Exchange is open for trading
Orient Securities Limited, a licensed corporation to carry on Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities under the SFO, and Beckon Investments Limited, an investment holding company which is incorporated in the British Virgin Islands with limited liability, being underwriters to the Open Offer
the underwriting agreement dated 11 July 2013 (as supplemented on 29 August 2013) and entered into between the Company and the Underwriters relating to the underwriting of the Offer Shares and other arrangements in respect of the Open Offer
not less than 1,474,102,832 Offer Shares and not more than 1,510,102,832 Offer Shares, being all Offer Shares after deducting the Offer Shares allotted to Beckon Investments Limited on an assured basis which have been undertaken to be accepted by it
the whitewash waiver from the obligation of the Concert Group to make a mandatory offer under Rule 26 of the Takeovers Code as a result of the underwriting of up to 999,990,095 Offer Shares under the Underwriting Agreement pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code
Hong Kong dollars, the lawful currency of Hong Kong from time to time

per cent.

– 5 –

SUMMARY OF THE OPEN OFFER

The following information is derived from, and should be read in conjunction with, the full text of this circular.

Basis of the Open Offer:

Eight (8) Offer Shares for every one (1) Consolidated Share held on the Record Date

Subscription Price:

HK$0.10 per Offer Share

Number of Existing Shares in issue 2,026,668,549 Existing Shares as at the Latest Practicable Date:
Number of Consolidated Shares upon Share Consolidation becoming effective:

202,666,854 Consolidated Shares

Number of Offer Shares:

Not less than 1,621,334,832 Offer Shares and not more than 1,657,334,832 Offer Shares

The aggregate nominal value of the Offer Shares will be not less than HK$162,133,483.2 and not more than HK$165,733,483.2

Number of Offer Shares undertaken to be subscribed by Beckon Investments Limited:

147,232,000 Offer Shares

Number of Underwritten Shares:

Not less than 1,474,102,832 Offer Shares and not more than 1,510,102,832 Offer Shares

Amount to be raised:

Not less than approximately HK$162,133,483 before costs and expenses

– 6 –

EXPECTED TIMETABLE

The expected timetable for the Open Offer set out below is for indicative purposes only and it has been prepared on the assumption that all the conditions of the Open Offer will be fulfilled. The expected timetable is subject to change, and any such change will be announced by way of a separate announcement by the Company as and when appropriate.

2013

Event

Latest time for lodging proxy forms . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . 10:00 a.m. on
	Sunday, 15 September
Expected date of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . 10:00 a.m. on
	Tuesday, 17 September
Announcement of results of the EGM . . . . . . . . . . . . . . . . . . . . .	. . Tuesday, 17 September
Effective date for the Share Consolidation . . . . . . . . . . . . . . . . . .Wednesday, 18 September
Commencement of dealings in the Consolidated Shares . . . . . . . . .	. . . . . . . . . 9:00 a.m. on
	Wednesday, 18 September
Original counter for trading in existing share certificates
in board lots of 5,000 Existing Shares temporarily closes . . . . . .	. . . . . . . . . 9:00 a.m. on
	Wednesday, 18 September
Temporary counter for trading in Consolidated Shares
in board lots of 500 Consolidated Shares (in the
form of existing share certificates) opens . . . . . . . . . . . . . . . . .	. . . . . . . . . 9:00 a.m. on
	Wednesday, 18 September
First day for free exchange of existing certificates for the
Existing Shares into new share certificates for Consolidated Shares	. . . . . . . . 9:00 a.m. on
	Wednesday, 18 September
Last day of dealings in Existing Shares and Consolidated Shares
on a cum-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . . .Wednesday, 18 September
First day of dealings in Existing Shares and Consolidated Shares
on an ex-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . . .	. Thursday, 19 September
Latest time for lodging transfer of Existing Shares and
Consolidated Shares for entitlement to the Open Offer . . . . . . . .	. . . . . . . . . 4:00 p.m. on
	Monday, 23 September
Book closure period (both days inclusive) . . . . . . . . . . . . . . . . . .	Tuesday, 24 September to
	Wednesday, 25 September
Record Date to determine the entitlements under the Open Offer . . .Wednesday, 25 September
Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . .	. Thursday, 26 September

– 7 –

EXPECTED TIMETABLE

Despatch of Prospectus Documents . . . . . . . . . . . . . . .	. . . . . . . . . Thursday, 26 September	. . . . . . . . . Thursday, 26 September	. . . . . . . . . Thursday, 26 September
Designated broker starts to stand in the market to provide
matching services for odd lots of Consolidated Shares	. . . . . . . . . . . . . . . . . 9:00 a.m. on
			Friday, 4 October
Original counter for trading in Consolidated Shares in
new board lots of 20,000 Consolidated Shares
(in the form of new share certificates) re-opens . . . . .	. . . . . . . . . . . . . . . . . 9:00 a.m. on
			Friday, 4 October
Parallel trading in Consolidated Shares (in the form of
both existing certificates in board lots of
500 Consolidated Shares and new share certificates
in board lots of 20,000 Consolidated Shares) commences		. . . . . . . . . . . . . . . 9:00 a.m. on
			Friday, 4 October
Latest time for payment for and acceptance of the Open Offer			. . . . . . . . . . . . . 4:00 p.m. on
			Friday, 11 October
Latest time for the Open Offer becomes unconditional . .	. . . . . . . . . . . . . . . . . 4:00 p.m. on
			Monday, 21 October
Announcement on results of the Open Offer . . . . . . . . .	. . . . . . . . . . . .Tuesday, 22 October
Refund cheques and share certificates of fully paid
Offer Shares to be posted . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . Wednesday, 23 October
Dealings in Offer Shares expected to commence . . . . . .	. . . . . . . . . . . . . . . . . 9:00 a.m. on
			Thursday, 24 October
Temporary counter for trading in Consolidated Shares
in board lots of 500 Consolidated Shares
(in the form of existing certificates) closes . . . . . . . .	. . . . . . . . . . . . . . . . . 4:00 p.m. on
			Friday, 25 October
Parallel trading in the Consolidated Shares (represented by
both existing share certificates in board lots of
500 Consolidated Shares and new share certificates
in board lots of 20,000 Consolidated Shares) ends . . .	. . . . . . . . . . . . . . . . . 4:00 p.m. on
			Friday, 25 October
Designated broker ceases to stand in the market
to provide matching service . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . 4:00 p.m. on
			Friday, 25 October
Last day for free exchange of existing share certificates
for new share certificates . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . Wednesday, 30 October

– 8 –

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE AND PAYMENT FOR THE OFFER SHARES

All times stated in this circular refer to Hong Kong time. The latest time for acceptance of and payment for the Offer Shares will be postponed if there is:

. a tropical cyclone warning signal number 8 or above, or
. a ‘‘black’’ rainstorm warning
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Friday, 11 October 2013. Instead the latest time for acceptance of and payment for the Open Offer will be extended to 5:00 p.m. on the same Business Day;
(ii) in force in Hong Kong at any local lime between 12:00 noon and 4:00 p.m. on Friday, 11 October 2013. Instead the latest time of acceptance of and payment for the Open Offer will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the latest time for acceptance of and payment for the Offer Shares does not take place at the Latest Time for Acceptance, the dates mentioned in the section headed ‘‘Expected Timetable’’ in this circular may be affected. The Company will notify Shareholders by way of announcements on any change to the expected timetable as soon as practicable.

– 9 –

TERMINATION OF THE UNDERWRITING AGREEMENT

The Underwriters may by notice in writing to the Company served prior to the Latest Time for Termination, terminate the Underwriting Agreement, on any of the following grounds:

the success of the Open Offer would be materially and adversely affected by the development, occurrence or enforcement of:
(a) any new law or regulation or any change in existing laws or regulations which in the reasonable opinion of the Underwriters have or are likely to have a material adverse effect on the financial position of the Group as a whole;
(b) any significant change (whether or not permanent) in local, national or international economic, financial, political or military conditions which in the reasonable opinion of the Underwriters are or would be materially adverse to the success of the Open Offer;
(c) any significant change (whether or not permanent) in local, national or international securities market conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Underwriters are or would be materially adverse to the success of the Open Offer, or makes it impracticable or inadvisable or inexpedient to proceed therewith;
(d) any suspension of dealings in the Shares for any period longer than five consecutive Business Days after the date of the Underwriting Agreement (other than as a result of the Open Offer); or
(e) any moratorium, suspension or material restriction on trading in shares or securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise at any time prior to the Latest Time for Termination; or
any breach of any of the warranties under the Underwriting Agreement by the Company comes to the knowledge of the Underwriters; or
any event occurs or any matter arises on or after the date of the Underwriting Agreement and prior to the Latest Time for Termination which if it had occurred or arisen before the date of the Underwriting Agreement would have rendered any of such representations, warranties and undertakings untrue or incorrect in any material respect in such a manner as would in the absolute opinion of the Underwriters materially and adversely affect the financial position or business of the Group as a whole; or
there is any such adverse change in the general affairs, management, business, stockholders’ equity or in the financial or trading position of the Group as a whole which in the absolute opinion of the Underwriters is materially adverse to the success of the Open Offer; or

– 10 –

TERMINATION OF THE UNDERWRITING AGREEMENT

there is any change in the composition of the Board which in the absolute opinion of the Underwriters may affect the management and general affairs of the Company.

In the event that the Underwriters terminate the Underwriting Agreement by notice in writing given to the Company on or before the Latest Time for Termination, all obligations of the Underwriters and the Company under the Underwriting Agreement shall cease and determine and no party shall have any claim against any other party in respect of any matter arising out of and in connection with the Underwriting Agreement except for, among others, any antecedent breach of any obligation under the Underwriting Agreement. In such circumstances, the Open Offer will not proceed.

– 11 –

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. Chow Yik Mr. Leung King Fai Mr. Lee Cheuk Yue, Ryan

Independent non-executive Directors: Mr. Lam Kai Tai Mr. Wong Ting Kon Ms. Yeung Mo Sheung, Ann

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

Principal place of business in Hong Kong: Unit 2707, 27/F China Resources Building, 26 Harbour Road, Wanchai Hong Kong 30 August 2013

To the Qualifying Shareholders and, for information only, the Excluded Shareholders

Dear Sir or Madam,

(1) SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE;

(2) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE;

(3) APPLICATION FOR THE WHITEWASH WAIVER; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to, among others, (i) the Share Consolidation and change in board lot size; (ii) the Open Offer on the basis of eight Offer Shares for every Consolidated Share held on the Record Date; and (iii) application for the Whitewash Waiver.

– 12 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among others, further details of the Share Consolidation and change in board lot size, the Open Offer, the Underwriting Agreement and the Whitewash Waiver, including, among others, (i) a letter from the Independent Board Committee to the Independent Shareholders setting out their advice in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver; (ii) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, together with (iii) a notice convening the EGM.

SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE

The Company proposes to implement the Share Consolidation on the basis that every ten (10) issued and unissued Existing Shares with a par value of HK$0.01 each will be consolidated into one (1) Consolidated Share with a par value of HK$0.10 each.

Effects of the Share Consolidation

As at the Latest Practicable Date, the authorised share capital of the Company is HK$200,000,000 comprising 20,000,000,000 Existing Shares of par value of HK$0.01 each, of which 2,026,668,549 Existing Shares have been issued and fully paid. The issued share capital of the Company is HK$20,266,685.49. Assuming no further Existing Shares will be issued from the Latest Practicable Date up to the date of the EGM, upon completion of the Share Consolidation there will be 202,666,854 Consolidated Shares of HK$0.10 each in issue which are fully paid or credited as fully paid following the Share Consolidation. The authorised share capital of the Company will remain at HK$200,000,000 but will be divided into 2,000,000,000 Consolidated Shares of HK$0.10 each.

Conditions of the Share Consolidation

The implementation of the Share Consolidation is conditional upon:

(i) the passing of the necessary ordinary resolution by the Shareholders at the EGM to approve the Share Consolidation; and
(ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consolidated Shares in issue and to be issued upon the Share Consolidation becoming effective.

Listing Application

Application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consolidated Shares in issue and to be issued upon the Share Consolidation becoming effective. All necessary arrangements will be made for the Consolidated Shares to be admitted into the Central CCASS. The Share Consolidation will be conducted in accordance with the provisions in the articles of association of the Company.

– 13 –

LETTER FROM THE BOARD

Change in board lot size

The Board proposes to change the board lot size for trading of the Shares from 5,000 Existing Shares to 20,000 Consolidated Shares subject to and after the Share Consolidation becoming effective.

Based on the closing price of HK$0.04 per Existing Share (equivalent to HK$0.4 per Consolidated Share) as at the Latest Practicable Date, the value of each board lot of 20,000 Consolidated Shares, assuming the Share Consolidation had already been effective, would be HK$8,000.

Status of the Consolidated Shares

The Consolidated Shares will rank pari passu in all respects with each other and the Share Consolidation will not result in any change in the relative rights of the Shareholders. Fractional Consolidated Shares will not be issued by the Company to Shareholders. Any fractional entitlement to the Consolidated Shares will be aggregated, sold and retained for the benefit of the Company.

Arrangement on odd lot trading

In order to alleviate the difficulties arising from the existence of odd lots of Consolidated Shares arising from the Share Consolidation and change in board lot size, the Company has appointed Orient Securities Limited to provide matching service, on a best effort basis, to those Shareholders who wish to acquire odd lots of the Consolidated Shares to make up a full board lot, or to dispose of their holding of odd lots of the Consolidated Shares. Shareholders who wish to utilise the service should contact Mr. Lau Wai Man of Orient Securities Limited at (852) 2123 2200 or at Room 2801–04, 28/F., Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong during the period from 4 October 2013 to 25 October 2013, both days inclusive.

Holders of odd lots of the Consolidated Shares should note that successful matching of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed. If you are in any doubt as to the above arrangements, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

Exchange of certificates for Consolidated Shares

Subject to the Share Consolidation becoming effective, which is currently expected to be on Wednesday, 18 September 2013, Shareholders may on or after Wednesday, 18 September 2013 and until 4:00 p.m. on Wednesday, 30 October 2013 (both days inclusive), submit their existing share certificates in yellow for the Existing Shares to the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for exchange for share certificates in light blue for the Consolidated Shares at the expense of the Company. It is expected that the new share certificates for the Consolidated Shares will be available for collection within 10 business days after the submission of the existing share certificates to the branch share registrar of the

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LETTER FROM THE BOARD

Company for exchange. Thereafter, a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) will be payable by the Shareholders to the Company’s branch share registrar for each share certificate for the Consolidated Shares issued or each share certificate for the Existing Shares submitted for cancellation.

With effect from Monday, 28 October 2013, trading will only be in Consolidated Shares which share certificates will be issued in light blue. Existing share certificates in yellow for the Existing Shares will cease to be valid for trading and settlement purpose, but will remain valid and effective as documents of title.

Adjustments in relation to the Share Options

The Share Consolidation will cause adjustments to the subscription price and the number of Consolidated Shares to be issued under the outstanding Share Options. As to the adjustments to the number of Consolidated Shares to be issued and the subscription price in respect of the outstanding Share Options, the Company will instruct its auditors or an independent financial adviser to review and certify the basis of such adjustments as soon as possible. Further announcement will be made by the Company in respect of such adjustments as and when appropriate.

Reasons for the Share Consolidation and change in board lot size

The proposed Share Consolidation will increase the nominal value of the Existing Shares. As such, the transaction and handling costs of the Company in relation to the dealing in the Consolidated Shares are expected to be reduced, which will be beneficial to the Company. Moreover, as the market value of each board lot upon the Share Consolidation and change in board lot size becoming effective will be higher than the market value of each existing board lot, the transaction cost as a proportion of the market value of each board lot will be lower. It is expected that the liquidity in trading of the Existing Shares will increase accordingly and the market value of the Consolidated Shares will more precisely reflect the intrinsic value of the Company. Accordingly, the Board is of the view that the Share Consolidation and change in board lot size are beneficial to the Company, the Shareholders and investors as a whole.

Save for the necessary professional expenses and printing charges for the implementation of the Share Consolidation and change in board lot size, the implementation of the Share Consolidation and change in board lot size will not alter the underlying assets, business operation, management or financial position of the Company and the interests and rights of the Shareholders.

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LETTER FROM THE BOARD

OPEN OFFER

Issue statistics

Basis of the Open Offer:

Eight (8) Offer Shares for every one (1) Consolidated Share held on the Record Date

Subscription Price: HK$0.10 per Offer Share

Number of Existing Shares in issue 2,026,668,549 Existing Shares as at the Latest Practicable Date:

Number of Consolidated Shares 202,666,854 Consolidated Shares upon Share Consolidation becoming effective:

Number of Offer Shares: Not less than 1,621,334,832 Offer Shares and not more than 1,657,334,832 Offer Shares

The aggregate nominal value of the Offer Shares will be not less than HK$162,133,483.2 and not more than HK$165,733,483.2

Number of Offer Shares 147,232,000 Offer Shares undertaken to be subscribed by Beckon Investments Limited:

Number of Underwritten Shares: Not less than 1,474,102,832 Offer Shares and not more than 1,510,102,832 Offer Shares

Amount to be raised: Not less than approximately HK$162,133,483 before costs and expenses

As at the Latest Practicable Date, the Company has 49,000,000 outstanding Share Options which entitle holders thereof to subscribe for 49,000,000 Existing Shares. Mr. Leung King Fai, a Director, holding 4,000,000 outstanding Share Options, has undertaken irrevocably to the Company that he will not exercise his rights under the Share Options to subscribe for the Existing Shares (or the Consolidation Shares) before the Record Date. Pursuant to the existing share option scheme of the Company, the said Share Options are personal to Mr. Leung King Fai and shall not be assignable and Mr. Leung King Fai shall not in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any third party over or in relation to any of his Share Options. As at the Latest Practicable Date, the Company has not received any notice from any other holders of the outstanding Share Options of their intention to exercise or not to exercise any outstanding Share Options before the Record Date. Save as disclosed above, there are no outstanding options, warrants or securities convertible or exchangeable into Existing Shares.

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LETTER FROM THE BOARD

Pursuant to the Underwriting Agreement, the Company has undertaken that it shall not, without the prior consent of the Underwriters, issue any Existing Shares, Consolidated Shares (save for the Consolidated Shares issued under Share Consolidation) or issue or grant any share options or other securities which carry rights to acquire or convert into Existing Shares or Consolidated Shares (other than the Offer Shares) or repurchase its own Existing Shares or Consolidated Shares from the date of the Underwriting Agreement until the Latest Time for Acceptance, being at 4:00 p.m. on Friday, 11 October 2013.

The Offer Shares

Assuming no outstanding Share Options will be exercised from the Latest Practicable Date to the Record Date, the total number of Offer Shares of 1,621,334,832 Consolidated Shares represents:

(i) approximately 800% of the Company’s existing issued share capital as at the Latest Practicable Date; and
(ii) approximately 88.9% of the Company’s issued share capital as enlarged by the issuance of the Offer Shares.

Assuming all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, the total number of Offer Shares of 1,657,334,832 Consolidated Shares represents:

(i) approximately 817.8% of the Company’s existing issued share capital as at the Latest Practicable Date; and
(ii) approximately 88.9% of the Company’s issued share capital as enlarged by the issuance of the Offer Shares.

Subscription Price

The Subscription Price for the Offer Share is HK$0.10 per Offer Share, payable fully in cash upon application by a Qualifying Shareholder. The Subscription Price of HK$0.10 per Offer Share represents:

(i) a discount of approximately 61.5% to the closing price of HK$0.026 per Existing Share (equivalent to HK$0.26 per Consolidated Share) as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 64.3% to the average closing price of HK$0.028 per Existing Share (equivalent to HK$0.28 per Consolidated Share) for the five consecutive trading days up to and including the Last Trading Day;
(iii) a discount of approximately 67.2% to the average closing price of HK$0.0305 per Existing Share (equivalent to HK$0.305 per Consolidated Share) for the ten consecutive trading days up to and including the Last Trading Day;

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LETTER FROM THE BOARD

(iv) a discount of approximately 15.3% to the theoretical ex-entitlement price of approximately HK$0.0118 per Existing Share (equivalent to HK$0.118 per Consolidated Share) based on the closing price as quoted on the Stock Exchange on the Last Trading Day; and
(v) a discount of approximately 75% to the closing price of HK$0.040 per Existing Share (equivalent to HK$0.40 per Consolidated Share) as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiations between the Company and the Underwriters with reference to the recent market environment, the prevailing market price of the Existing Shares and the urgent need of capital to repay the Group’s indebtedness. Each Qualifying Shareholder is entitled to subscribe for the Offer Shares at the same price in proportion to his/her/its existing shareholding in the Company held on the Record Date.

The Directors (including the independent non-executive Directors after taking into consideration the advice of the Independent Financial Adviser) consider the Subscription Price, which has been set as a discount as described above with an objective to encourage the existing Shareholders to take up their entitlements so as to participate in the potential growth of the Company, to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Status of the Offer Shares

The Offer Shares, when allotted and issued, will rank pari passu in all respects with the then Consolidated Shares in issue on the date of allotment and issuance of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid in respect thereof on or after the date of allotment and issuance of such Offer Shares.

Certificates for the Offer Shares

Subject to the fulfillment of the conditions of the Open Offer as set out in the section headed ‘‘Conditions of the Open Offer’’ below, share certificates for all fully-paid Offer Shares are expected to be posted on or before Wednesday, 23 October 2013 to those Qualifying Shareholders who have accepted and (where applicable) applied for, and paid for the Offer Shares, by ordinary post at their own risks.

Qualifying Shareholders

The Open Offer is only available to the Qualifying Shareholders. To qualify for the Open Offer, the Qualifying Shareholders must be registered as members of the Company on the Record Date and not be Excluded Shareholders. In order to be registered as a member of the Company on the Record Date, all transfer of Shares must be lodged for registration with the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by 4:00 p.m. on Monday, 23 September 2013.

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LETTER FROM THE BOARD

Closure of register of members

The Company’s register of members will be closed from Tuesday, 24 September 2013 to Wednesday, 25 September 2013, both dates inclusive, for the purpose of, among other things, establishing entitlements to the Open Offer. No transfer of Shares will be registered during this period.

Rights of Excluded Shareholders

If at the close of business on the Record Date, a Shareholder’s address on the Company’s register of members is in a place outside of Hong Kong, that Shareholder may not be eligible to take part in the Open Offer. The Prospectus Documents will not be registered under the applicable securities legislation of any jurisdiction other than Hong Kong.

The Board will make enquiries as to whether the issuance of Offer Shares to the Excluded Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange and details and results of such enquiries will be included in the Prospectus. If, after making such enquiry, the Board is of the opinion that it would be necessary or expedient, on account either of the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place, not to offer the Offer Shares to such Excluded Shareholders, the Open Offer will not be extended to such Excluded Shareholders. The Company will send the Prospectus to the Excluded Shareholders for their information only, but will not send the Application Forms and Excess Application Forms to the Excluded Shareholders.

The Company will disclose the results of the enquiry in the Prospectus regarding the legal restrictions on the issue and allotment of Offer Shares to the Excluded Shareholders. As at the Latest Practicable Date, there were no Excluded Shareholders.

Fractions of the Offer Shares

Fractional entitlements of Offer Shares will not be allotted and issued. All Offer Shares arising from the aggregation of such fractional entitlements will be firstly taken up by the Qualifying Shareholders who have applied for the excess Offer Shares and then by the Underwriters if there is any excess Offer Shares which have not been taken up by the Qualifying Shareholders.

Application for excess Offer Shares

Qualifying Shareholders are entitled to apply for any Offer Shares provisionally allotted but not accepted by the Qualifying Shareholders. However, Beckon Investments Limited has undertaken to the Company that it shall not make any application for any excess Offer Shares in respect of the entitlement of the Existing Shares or Consolidated Shares owned by it under the Open Offer.

Application may be made by completing the Excess Application Form and lodging the same with a separate remittance for the excess Offer Shares.

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LETTER FROM THE BOARD

Basis of allocation of excess Offer Shares

The Directors will allocate the excess Offer Shares at their discretion, but on a fair and equitable basis to Qualifying Shareholders who have applied for excess Offer Shares on the following principles:

preference will be given to applications for less than a board lot of Offer Shares where they appear to the Directors that such applications are made to round up oddlot holdings (in particular those already existed on the date of the Announcement or created as a result of the Open Offer) to whole-lot holdings and that such applications are not made with the intention to abuse this mechanism;
subject to availability of excess Offer Shares after allocation under principle (1) above, any remaining excess Offer Shares will be allocated to applicants with reference to their respective shareholdings in the Company as at the Record Date; and
subject to availability of excess Offer Shares after allocation under principles (1) and (2) above, any further remaining excess Offer Shares will be allocated to applicants in proportion to the number of excess Offer Shares being applied for under each application.

Shareholders with their Consolidated Shares held by a nominee company (or which are deposited into the CCASS) should note that the Board will regard the nominee company (including HKSCC Nominees Limited) as a single Shareholder according to the register of members of the Company. Accordingly, Shareholders should note that the above arrangement in relation to allocation of excess Offer Shares will not be extended to beneficial owners individually. The Shareholders with their Shares held by a nominee company (or which are deposited into CCASS) are advised to consider whether they would like to arrange for the registration of the relevant Shares in their own names prior to the Record Date.

Shareholders whose Shares are held by their nominee(s) (or which are deposited into CCASS) and who would like to have their names registered on the register of members of the Company on the Record Date, must lodge all necessary documents with the Share Registrar for completion of the relevant registration by 4:00 p.m. on Monday, 23 September 2013 (the register of members of the Company will be closed from Tuesday, 24 September 2013 to Wednesday, 25 September 2013 (both days inclusive)).

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. The Offer Shares shall have the board lot size of 20,000 Consolidated Shares per board lot.

Subject to the granting of listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement

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LETTER FROM THE BOARD

of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

UNDERWRITING AGREEMENT

Date: 11 July 2013 (as supplemented by a supplemental agreement entered by the parties to the Underwriting Agreement on 29 August 2013)

Parties: (i) the Company; (ii) Orient Securities Limited; and (iii) Beckon Investments Limited

Number of Underwritten Not less than 1,474,102,832 Offer Shares and not more than Shares: 1,510,102,832 Offer Shares, in which Orient Securities Limited and Beckon Investments Limited have agreed to underwrite 33.78% and 66.22%, respectively.

Commission: 3% of the aggregate Subscription Price of the Underwritten Shares (on the basis that all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) will be exercised before the Record Date), among which:

(i) 1% arrangement fee will be charged by Orient Securities Limited for its arrangement of the underwriting of the Offer Shares; and
(ii) 2% underwriting commission will be shared by the Underwriters in proportion to their Underwritten Shares as follows:

No. of Underwritten Shares assuming all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) will be exercised Underwriters before the Record Date Beckon Investments Limited 999,990,095 Orient Securities Limited 510,112,737

Pursuant to the Underwriting Agreement, Beckon Investments Limited has irrevocably undertaken, inter alia, (i) to subscribe for its entitlement of 147,232,000 Offer Shares under the Open Offer; and (ii) not to enter into sub-underwriting arrangement with sub-underwriter(s) or

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LETTER FROM THE BOARD

appoint any person to be sub-agent(s) on its behalf for the purpose of arranging for the placing of the Underwritten Shares with selected placees or procure any person to subscribe for any Offer Share that Beckon Investments Limited is required to take up.

On the other hand, Orient Securities Limited may enter into sub-underwriting arrangement with sub-underwriter(s) or appoint any person to be sub-agent(s) on its behalf for the purpose of arranging for the placing of the Underwritten Shares with selected placees with such authority and rights as Orient Securities Limited has pursuant to its appointment under the Underwriting Agreement.

Pursuant to the Underwriting Agreement, the Underwriters have conditionally agreed to subscribe or procure subscription for not less than 1,474,102,832 Offer Shares and not more than 1,510,102,832 Offer Shares which are not taken up by the Qualifying Shareholders, and they have also undertaken to the Company that the Underwriters will not trigger a mandatory offer obligation under Rule 26 of Takeovers Code on the part of the Underwriters in respect of performing its obligations under the Underwriting Agreement (assuming the Whitewash Waiver will be granted by the Executive).

Pursuant to the Underwriting Agreement, Orient Securities Limited has undertaken to the Company that (i) it will not acquire any Existing Shares or Consolidated Shares on or before the Record Date; and (ii) none of the subscribers procured by the Orient Securities Limited to subscribe for the Underwritten Shares will be a substantial Shareholder of the Company holding 10% or more shareholding in the Company.

The Directors (including the independent non-executive Directors after taking into consideration the advice of the Independent Financial Adviser) are of the opinion that the terms of the Underwriting Agreement and the amount of commission given to the Underwriters are fair as compared to the market practice and commercially reasonable as agreed between the Company and the Underwriters.

Orient Securities Limited is ultimately and beneficially owned as to 75% by Mr. Lam Shu Chung, 15% by Mr. Lam Shing Wan and 10% by Mr. Wong Kwan Lok. Beckon Investments Limited currently holds 184,040,000 Existing Shares (or equivalent to 18,404,000 Consolidated Shares after the Share Consolidation becoming effective), representing approximately 9.1% of the existing issued share capital of the Company. Please refer to the section headed ‘‘Information of Beckon Investments Limited’’ for the background of Beckon Investments Limited. To the best of the Directors’ knowledge, information and belief, the Underwriters and their ultimate beneficial owners are third parties independent of and not connected with the Company and its connected persons (as defined in the GEM Listing Rules).

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LETTER FROM THE BOARD

Termination of the Underwriting Agreement

The Underwriters may by notice in writing to the Company served prior to the Latest Time for Termination, terminate the Underwriting Agreement, on any of the following grounds:

the success of the Open Offer would be materially and adversely affected by the development, occurrence or enforcement of:
(a) any new law or regulation or any change in existing laws or regulations which in the reasonable opinion of the Underwriters have or are likely to have a material adverse effect on the financial position of the Group as a whole;
(b) any significant change (whether or not permanent) in local, national or international economic, financial, political or military conditions which in the reasonable opinion of the Underwriters are or would be materially adverse to the success of the Open Offer;
(c) any significant change (whether or not permanent) in local, national or international securities market conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Underwriters are or would be materially adverse to the success of the Open Offer, or makes it impracticable or inadvisable or inexpedient to proceed therewith;
(d) any suspension of dealings in the Shares for any period longer than five consecutive Business Days after the date of the Underwriting Agreement (other than as a result of the Open Offer); or
(e) any moratorium, suspension or material restriction on trading in shares or securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise at any time prior to the Latest Time for Termination; or
any breach of any of the warranties under the Underwriting Agreement by the Company comes to the knowledge of the Underwriters; or
any event occurs or any matter arises on or after the date of the Underwriting Agreement and prior to the Latest Time for Termination which if it had occurred or arisen before the date of the Underwriting Agreement would have rendered any of such representations, warranties and undertakings untrue or incorrect in any material respect in such a manner as would in the absolute opinion of the Underwriters materially and adversely affect the financial position or business of the Group as a whole; or
there is any such adverse change in the general affairs, management, business, stockholders’ equity or in the financial or trading position of the Group as a whole which in the absolute opinion of the Underwriters is materially adverse to the success of the Open Offer; or

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LETTER FROM THE BOARD

there is any change in the composition of the Board which in the absolute opinion of the Underwriters may affect the management and general affairs of the Company.

Conditions of the Open Offer

Completion of the Open Offer is conditional upon the fulfillment of each of the following conditions:

(1) the passing of the following resolutions by way of poll at the EGM:
(a) an ordinary resolution to approve the Share Consolidation by the Shareholders;
(b) an ordinary resolution to approve the Open Offer by the Independent Shareholders; and
(c) an ordinary resolution to approve the Whitewash Waiver by the Independent Shareholders,

all as contained in the notice of the EGM by not later than the Posting Date;

(2) the Share Consolidation having become effective;
(3) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) not later than the Posting Date and otherwise in compliance with the GEM Listing Rules and the Companies Ordinance;
(4) the posting of the Prospectus Documents to Qualifying Shareholders and the posting of the Prospectus stamped ‘‘For Information Only’’ to the Excluded Shareholders, if any, for information purpose only on or before the Posting Date;
(5) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked listing of and permission to deal in all the Offer Shares by no later than the first day of their dealings;
(6) compliance with and performance of all the undertakings and obligations of the Company under the Underwriting Agreement;

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LETTER FROM THE BOARD

(7) compliance with and performance of all the obligations of the Underwriters under the Underwriting Agreement;
(8) the granting of the Whitewash Waiver to Beckon Investments Limited by the Executive;
(9) the performance of the undertaking of Beckon Investments Limited to subscribe in full for all its provisional allotment of Offer Shares at or before the Latest Time of Acceptance;
(10) (if necessary) compliance with any other requirements under the applicable laws and regulations of Hong Kong and the Cayman Islands.

The conditions precedent are incapable of being waived. If the conditions precedent are not satisfied in whole or in part by the Company by the Latest Time for Termination or such other date as the Company and the Underwriters may agree, the Underwriting Agreement shall terminate and no party shall have any claim against any other party for costs, damages, compensation or otherwise save for, among others, any antecedent breaches.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

The shareholding structure of the Company immediately before and after completion of the Open Offer (assuming no outstanding Share Options will be exercised from the Latest Practicable Date to the Record Date) is set out below (for illustration purposes only):

Beckon Investments Limited The Concert Group (excluding Beckon Investments Limited) Sub-total of the Concert Group Orient Securities Limited, the sub-underwriters, and/or the subscribers to be procured by any of them Other Public Shareholders Sub-total of the Public Shareholders Total	As at the Latest Practicable Date No. of Existing Shares Approx % of the total issued shares 184,040,000 9.08 — — 184,040,000 9.08 — — 1,842,628,549 90.92 2,026,668,549 100 2,026,668,549 100.00	Immediately after completion of the Share Consolidation but before the Open Offer No. of Consolidated Shares Approx % of the total issued shares 18,404,000 9.08 — — 18,404,000 9.08 — — 184,262,854 90.92 202,666,854 100.00 202,666,854 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders subscribed for their entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued shares 165,636,000 9.08 — — 165,636,000 9.08 — — 1,658,365,686 90.92 1,824,001,686 100.00 1,824,001,686 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders other than Beckon Investments Limited subscribed for its entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued shares 1,141,786,895 62.60 — — 1,141,786,895 62.60 497,951,937 27.30 (Note) 184,262,854 10.10 682,214,791 37.40 1,824,001,686 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders other than Beckon Investments Limited subscribed for its entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued shares 1,141,786,895 62.60 — — 1,141,786,895 62.60 497,951,937 27.30 (Note) 184,262,854 10.10 682,214,791 37.40 1,824,001,686 100.00
					27.30 (Note) 10.10 37.40
					100.00

Note: As at the Latest Practicable Date, Orient Securities Limited has entered into sub-underwriting arrangements with two sub-underwriters that are independent third parties to the Company and its connected persons, pursuant to which Orient Securities Limited is entitled to call upon the subunderwriters to take up an aggregate maximum amount of 320 million Underwriting Shares, representing approximately 17.54% of the then issued share capital of the Company immediately after the completion of the Open Offer under the aforesaid circumstance. Therefore, the Company could maintain its public float to not less than the prescribed percentage under the GEM Listing Rules after the completion of the Open Offer.

FUND RAISING ACTIVITY DURING THE PAST 12 MONTHS

The Company has not conducted other equity fund raising exercise in the 12 months immediately preceding the date of the Announcement.

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LETTER FROM THE BOARD

REASONS FOR THE OPEN OFFER

The Group is principally engaged in the manufacture and sales of medicines, sale of biodegradable food containers and disposable industrial packing for consumer products.

Reference is made to the announcements of the Company dated 27 May 2013 and 28 May 2013. It was disclosed that the obligation to repay the principal amount of HK$100,542,236 of the convertible bonds was extended from 27 May 2013 to 25 October 2013. Taking also into account the promissory notes of an aggregate principal amount of HK$30 million which carries an interest rate of 5% per annum, an aggregate indebtedness of approximately HK$130.5 million is a significant financial burden to the Group as a whole. Save for the aforesaid convertible bonds and promissory notes, the Group has no other outstanding convertible bonds and promissory notes as at the Latest Practicable Date. As at the Latest Practicable Date, the holder of the aforesaid convertible bonds and promissory notes, Ms. Chu Yin Yin, is not a Shareholder. Ms. Chu Yin Yin has undertaken to the Company that she would not acquire any shares of the Company from 24 June 2013 and up to the completion date of the Open Offer. The Board considers that it is crucial to conduct a fund raising exercise as soon as possible in order to raise sufficient capital to repay all these indebtedness so as to prevent any possible legal actions against the Company and to refocus the financial resources for future development of the Group.

Upon the full subscription of the Offer Shares and assuming no further Existing Shares or Consolidated Shares have been allotted and issued from the Latest Practicable Date to the Record Date, the Company will receive gross proceeds of not less than approximately HK$162 million and not more than approximately HK$166 million. The estimated net proceeds from the Open Offer will be not less than approximately HK$156 million and not more than approximately HK$159 million (after deducting the commission and expenses in relation to the Open Offer). The net Subscription Price per Offer Share is expected to be not less than approximately HK$0.096 based on the net proceeds of approximately HK$156 million divided by the total number of Offer Shares of 1,621,334,832 under the Open Offer. The Board intends to apply the net proceeds from the Open Offer of approximately HK$156 million as to approximately HK$134 million for the settlement of the outstanding convertible notes together with accrued interests of approximately HK$103 million and promissory notes together with accrued interests of approximately HK$31 million, and as to HK$22 million for general working capital purposes.

The Board has considered other alternative fund raising methods such as issue of new shares and bank borrowings and consider that the Open Offer will provide an equal opportunity to all Qualifying Shareholders to maintain their respective shareholdings in the Company and participate in the growth and development of the Company. Considering (i) the low trading volume of the Existing Shares and (ii) the low monetary value per board lot, the Board is of the opinion that the trading of nil paid rights will either incur a high transaction cost for trading of small board of Shares, which is not economical, or not be active enough for the trading of a large board of Shares. Furthermore, compared to rights issue, the absence of trading nil paid rights in the Open Offer reduces associated administrative work and costs thus requiring less time for completion.

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Accordingly, the Directors (including the independent non-executive Directors after taking into consideration the advice of the Independent Financial Adviser) consider that the Open Offer is in the interests of the Company and the Shareholders as a whole.

In the event that the resolution approving the Open Offer or the Whitewash Waiver is not approved at the EGM and/or the Whitewash Waiver is not granted by the Executive and therefore the Open Offer cannot proceed, the Company intends to consider other equity financing alternatives to raise necessary fund to repay its debt as soon as possible.

WARNING OF THE RISK OF DEALINGS IN THE SHARES

Shareholders and potential investors should note that the Open Offer is conditional upon the Underwriting Agreement having become unconditional and the Underwriters not having terminated the Underwriting Agreement in accordance with the terms thereof. Accordingly, the Open Offer may or may not proceed. Shareholders and potential investors should exercise extreme caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

Shareholders should note that the Shares will be dealt in on an ex-entitlement basis commencing from Thursday, 19 September 2013 and that dealing in Shares will take place while the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in Shares up to the date on which all conditions to which the Open Offer are subject are fulfilled (which is expected to be at 4:00 p.m. on Monday, 21 October 2013), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares, who is in any doubt about his/her/its position, is recommended to consult his/her/its own professional adviser.

TAKEOVERS CODE IMPLICATIONS AND APPLICATION FOR THE WHITEWASH WAIVER

As at the Latest Practicable Date, Beckon Investment Limited is interested in 184,040,000 Existing Shares (or 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect), representing approximately 9.1% of the issued share capital of the Company. Beckon Investments Limited has irrevocably undertaken to the Company to accept its provisional allotments being 147,232,000 Consolidated Shares under the Open Offer, to which it will be entitled to pursuant to the terms of the Open Offer.

Pursuant to the Underwriting Agreement, Beckon Investments Limited has conditionally agreed to underwrite 66.22% of any Offer Shares not taken up by Qualifying Shareholders.

(i) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and no outstanding Share Options being exercised before the Record Date, Beckon Investments Limited will be required to take up 976,150,895 Offer Shares at a net subscription price of HK$0.098 after adjusting for the 2% underwriting commission pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares

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LETTER FROM THE BOARD

upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.6% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

(ii) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, Beckon Investments Limited will be required to take up 999,990,095 Offer Shares pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.5% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

Under the above circumstances, the Concert Group would be required to make a mandatory general offer for all the issued Shares and other securities of the Company (other than those already owned or agreed to be acquired by it) under Rule 26.1 of the Takeovers Code, unless the Whitewash Waiver is granted by the Executive.

Pursuant to the Underwriting Agreement, Orient Securities Limited has conditionally agreed to underwrite 33.78% of the Underwritten Shares which are not subscribed by the Qualifying Shareholders on or before the Latest Time for Acceptance.

(i) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer, and no outstanding Share Options being exercised before the Record Date, 33.78% of the Underwritten Shares to be underwritten by Orient Securities Limited only represent approximately 27.30% of the issued share capital of the Company immediately after the completion of the Open Offer.
(ii) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer, and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, 33.78% of the Underwritten Shares to be underwritten by Orient Securities Limited only represent approximately 27.36% of the issued share capital of the Company immediately after the completion of the Open Offer.

Under the above circumstances, even if Orient Securities Limited could not find any subunderwriter for the placing of the Underwritten Shares or any subscriber for the subscription of the Underwritten Shares, pursuant to the Underwriting Agreement, the shareholding of Orient Securities Limited in the Company immediately after the completion of the Open Offer will not exceed 27.36%. Therefore, there is no need for Orient Securities Limited to make a mandatory general offer for all the issued Shares and other securities of the Company (other than those already owned or agreed to be acquired by it) under Rule 26.1 of the Takeovers Code, or apply for a whitewash waiver to be granted by the Executive in that respect pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code.

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LETTER FROM THE BOARD

Accordingly, based on the underwriting arrangement under the Underwriting Agreement, only Beckon Investments Limited needs to make an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. If the Whitewash Waiver is not granted, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed.

Beckon Investments Limited has made an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code.

The Executive has agreed, subject to, among others, approval by the Independent Shareholders, to grant the Whitewash Waiver. The Whitewash Waiver shall be approved by the Independent Shareholders at the EGM by way of poll, which the Concert Group, Orient Securities Limited and parties acting in concert with it together with those who are interested in or involved in the Open Offer, the Underwriting Agreement or the Whitewash Waiver will abstain from voting on the relevant resolution(s). It is a condition precedent to the completion of the Open Offer that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive, the Open Offer will not proceed.

The Directors (including the independent non-executive Directors after taking into account the advice of the Independent Financial Adviser) believe that the Whitewash Waiver is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

Shareholders and potential investors should be aware that there is a possibility that, upon completion of the Open Offer, the Concert Group will hold more than 50% of the voting rights in the Company. Hence, the Concert Group may increase their holding of voting rights in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer.

INFORMATION OF BECKON INVESTMENTS LIMITED

Beckon Investments Limited is an investment holding company which is incorporated in the British Virgin Islands with limited liability. It is not engaged in the business of underwriting. Beckon Investments Limited is wholly and beneficially owned by Mr. Yip Chi Fai Stevens who is also its sole director. Mr. Yip Chi Fai Stevens is a director and a shareholder of Champion Ease Limited, a private limited company engaged in the trading of electronic components. Beckon Investments Limited first became a substantial shareholder of the Company on 17 November 2010 by acquiring 193,975,000 Existing Shares from Mr. Hu Yangxiong, a former Director, as a result of its intention of long term investment in the Company. Other than his interest in the Existing Shares through Beckon Investments Limited, Mr. Yip Chi Fai Stevens has not been interested in any Existing Shares, convertible securities, warrants, options or other derivatives of the Company on or before the Latest Practicable Date. From 17 November 2010 to 26 March 2013, the Concert Group did not acquire or dispose of any Existing Shares. From the six months period prior to the date of the Announcement to the Latest Practicable Date, Beckon Investments Limited disposed of 7,490,000 and 2,445,000 Existing Shares at an average price of HK$0.0422 and HK$0.0440 on 27 March 2013 and 7 May 2013, respectively. The monetary value of the two disposals were HK$316,320 and HK$107,525 respectively, which were considered to be not material as compared to

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LETTER FROM THE BOARD

underwriting commitment of Beckon Investments Limited under the Underwriting Agreement. Beckon Investments Limited made the disposal on 27 March 2013 due to the resumption of trading of the Existing Shares of the Company after a suspension for approximately 2 years, and it further made the disposal on 7 May 2013 in order to realize its investment at a relatively high price of the Existing Shares of the Company. As at the Latest Practicable Date, Beckon Investments Limited holds 184,040,000 Existing Shares, representing approximately 9.08% of the issued share capital of the Company. Save for such shares, none of members of the Concert Group is holding, owning or controlling any shares, convertible securities, warrants, options or other derivatives of the Company as at the Latest Practicable Date. The Concert Group had no knowledge of the intention of the Company to propose the Open Offer at the time when Beckon Investments Limited disposed of the aforesaid Existing Shares. Mr. Yip Chi Fai Stevens considered it will be a good investment opportunity to act as an underwriter in the Open Offer because he could average down the average investment cost of approximately HK$0.155 per Existing share (equivalent to approximately HK$1.55 per Consolidated Share) held by Beckon Investments Limited.

Save for the dealings in the Existing Shares by Beckon Investments limited as disclosed above and the transactions under the Underwriting Agreement and the Loan Agreement, none of the Concert Group and Orient Securities Limited had dealt for value in any shares, convertible securities, warrants, options or other derivatives of the Company during the six months prior to the date of the Announcement and up to the Latest Practicable Date.

It is the intention of Beckon Investments Limited to continue to carry on the businesses of the Group and to continue the employment of the employees of the Group after the completion of the Open Offer. Beckon Investments Limited has no intention to introduce any changes to the businesses of the Group including redeployment of the fixed assets of the Group.

As at the Latest Practicable Date, the Concert Group has not received any irrevocable commitment to vote for or against the proposed resolution approving the Open Offer, the Underwriting Agreement and the Whitewash Waiver at the EGM.

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LETTER FROM THE BOARD

LOAN FACILITY

On 30 May 2013, Beckon Investments Limited as borrower entered into the Loan Agreement with the Lender. The principal terms of the Loan Agreement are summarized below:

Borrower : Beckon Investments Limited
Lender : Elegant Mark Investment Limited
Facility : Up to HK$122.4 million
Purpose : Solely for the purpose of financing the subscription for the Offer Shares by Beckon Investments Limited under the Open Offer
Maturity : Three months from the date of the Loan Agreement subject to extension of another three months as agreed by Beckon Investments Limited and the Lender
Interest : During the first three months from the date of the Loan Agreement, the interest on the aggregate principal amount drawn down shall accrue at 2% per month and be payable on the maturity date.

If the loan facility is extended for another three months, the interest on the aggregate principal amount drawn down shall accrue at 3% per month.

Arrangement Fee : Non-refundable arrangement fee in the sum of HK$2.4 million payable upon the execution of the Loan Agreement
Security : (1) Share charge of all of Beckon Investments Limited’s shares of the Company (including the Existing Shares and any other shares of the Company owed by it from time to time) to be executed by Beckon Investments Limited in favour of the Lender; and
(2) Personal guarantee to be executed by Mr. Yip Chi Fai Stevens in favour of the Lender as primary obligor to duly observe and perform Beckon Investments Limited’s obligations and liabilities to the Lender under the Loan Agreement.

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LETTER FROM THE BOARD

INFORMATION ON THE LENDER

The Lender is a company incorporated in Hong Kong and a money lender licensed under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong). The Lender is wholly owned by Smart Galaxy Investments Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Wong Tin Lung.

DEALING IN SHARES BY DIRECTORS OVER THE PAST SIX MONTHS

During the six months period prior to the date of the Underwriting Agreement and up to the Latest Practicable Date,

Mr. Leung King Fai, an Executive Director, disposed of 660,000 Existing Shares at an average price of approximately HK$0.0364 on 27 March 2013. The monetary value of the disposal was HK$24,040. Save for the 4,000,000 Share Options, Mr. Leung King Fai is not holding any other Existing Shares, convertible securities, warrants, options or other derivatives of the Company as at the Latest Practicable Date; and
Based on the search in the disclosure of interests section on the website of the Stock Exchange, Mr. Hu Yangxiong, who resigned as an Executive Director and the chief executive officer of the Company with effect on 31 May 2013 so as to devote more time to pursuing his other business commitments, disposed of 44,000,000 and 10,000,000 Existing Shares at an average price of HK$0.027 and HK$0.025 on 29 May 2013 and 30 May 2013, respectively. The aggregate monetary value of the disposals was HK$1,438,000. Based on the said search, as at the Latest Practicable Date, Mr. Hu Yangxiong is still interested in 37,000,000 Existing Shares, representing approximately 1.8% of the issued share capital of the Company. Based on the Company’s internal record, save as disclosed above, Mr. Hu Yangxiong is not holding any other Existing Shares, convertible securities, warrants, options or other derivatives of the Company as at the Latest Practicable Date.

Save for the above, none of the Directors had dealt for value in any shares, convertible securities, warrants, options or other derivatives of the Company during the six months period prior to the date of the Announcement and up to the Latest Practicable Date.

LISTING RULES IMPLICATIONS

In accordance with Rule 10.39 of the GEM Listing Rules, as the Open Offer will increase the issued share capital of the Company by more than 50% within the 12 month period immediately preceding the date of the Announcement, the Open Offer must be made conditional on approval by Shareholders in general meeting by a resolution on which any controlling Shareholders and their associates or, where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the Open Offer. As there is no controlling Shareholder, the Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the Open Offer according to Rule 10.39 of the GEM Listing Rules.

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LETTER FROM THE BOARD

EGM

A notice convening the EGM to be held at Jasmine Room on 3/F., Ramada Hong Kong Hotel, 308 Des Voeux Road West, Hong Kong on Tuesday, 17 September 2013 is set out on pages EGM-1 to EGM-3 of this circular. A form of proxy for the EGM is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Registrar at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as practicable but in any event not later than 48 hours before the time appointed for the holding of the EGM or the adjourned meeting thereof (as the case may be). Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof (as the case may be) should you so desire and in such event, the instrument appointing the proxy shall be deemed to be revoked.

No Shareholder has a material interest in the Share Consolidation and change in board lot size other than being a Shareholder, and therefore no Shareholder was required to abstain from voting on the resolution to be proposed at the EGM in relation to that matter.

Pursuant to the Note 1 on dispensations from Rule 26 of the Takeovers Code, as Beckon Investments Limited is interested in the Whitewash Waiver and Orient Securities Limited is involved in the Open Offer, the Concert Group, Orient Securities Limited and its party acting in concert with it and those who are involved in or interested in the Open Offer, the Underwriting Agreement or the Whitewash Waiver are required to abstain from voting on the resolution to be proposed at the EGM in relation to the Whitewash Waiver. Beckon Investments Limited controlled the voting rights in respect of 184,040,000 Existing Shares as at the Latest Practicable Date.

Voting at the EGM will be taken by poll, the results of which will be announced after the EGM.

RECOMMENDATIONS

An Independent Board Committee has been established to advise the Independent Shareholders as to whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interest of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote at the EGM.

Grand Vinco Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders as to whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders on how to vote at the EGM. The appointment of Grand Vinco Capital Limited has been approved by the Independent Board Committee in accordance with Rule 2.1 of the Takeovers Code.

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LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee set out on pages 36 to 37 of this circular which contains its recommendation to the Independent Shareholders as to voting at the EGM in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver.

Your attention is also drawn to the letter from the Independent Financial Adviser which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver and the principal factors and reasons considered by it in arriving thereat. The text of the letter from the Independent Financial Adviser is set out on pages 38 to 59 of this circular.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, is of the opinion that the Open Offer, the Underwriting Agreement and the Whitewash Waiver are in the interests of the Company and the Independent Shareholders as a whole and the terms of which are fair and reasonable insofar as the Company and the Independent Shareholders are concerned and recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

The Directors believe that the Share Consolidation and change in board lot size, the Open Offer, the Underwriting Agreement and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole, therefore, the Directors recommend the Shareholders and/or the Independent Shareholders (as the case may be) to vote in favour of all the 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.

Yours faithfully By Order of the Board Hao Wen Holdings Limited Leung King Fai Executive Director and Company Secretary

– 35 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver for the purpose of incorporation in this circular.

==> picture [54 x 54] intentionally omitted <==

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8019)

30 August 2013

To the Independent Shareholders

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER ON THE BASIS OF

EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE; AND (2) APPLICATION FOR THE WHITEWASH WAIVER

We refer to the circular of the Company dated 30 August 2013 (the ‘‘Circular’’) of which this letter forms part. Unless the context specifies otherwise, capitalised terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders as to whether the Open Offer, the Underwriting Agreement and the Whitewash Waiver are in the interests of the Company and the Independent Shareholders as a whole and their terms are fair and reasonable so far as the Company and the Independent Shareholders are concerned and to recommend the Independent Shareholders whether to vote for or against the Open Offer, the Underwriting Agreement and the Whitewash Waiver. Grand Vinco Capital Limited has been appointed as the independent financial adviser to advise you and us in this respect.

We wish to draw your attention to the letter from the Independent Financial Adviser which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver and the principal factors and reasons considered by it in arriving thereat. The text of the letter from the Independent Financial Adviser is set out on pages 38 to 59 of this circular.

Having taken into account the principal reasons and factors considered by, and the advice from the Independent Financial Adviser, as set out in its letter of advice to you and us on pages 38 to 59 of the Circular, we are of the opinion that the Open Offer, the Underwriting

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Agreement and the Whitewash Waiver are in the interests of the Company and the Independent Shareholders as a whole and the terms of which are fair and reasonable insofar as the Company and the Independent Shareholders are concerned.

Accordingly, we recommend you to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Lam Kai Tai Mr. Wong Ting Kon Ms. Yeung Mo Sheung, Ann Independent non-executive Independent non-executive Independent non-executive Director Director Director

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from Grand Vinco Capital Limited to the Independent Board Committee and Independent Shareholders in connection with the Open Offer, the Underwriting Agreement and the Whitewash Waiver which has been prepared for the purpose of incorporation in this circular.

==> picture [48 x 32] intentionally omitted <==

Grand Vinco Capital Limited Units 4909–4910, 49/F., The Center 99 Queen’s Road Central, Hong Kong

30 August 2013

To the Independent Board Committee and the Independent Shareholders of Hao Wen Holdings Limited

Dear Sirs,

(1) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE; AND (2) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of Open Offer, the Underwriting Agreement and the Whitewash Waiver, details of which are set out in the circular of the Company dated 30 August 2013 (the ‘‘Circular’’) to the Shareholders, of which this letter forms part. Capitalized terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

On 11 July 2013, the Board announced, subject to the Share Consolidation becoming effective, that the Company proposed to raise not less than approximately HK$162 million and not more than approximately HK$166 million (before expenses) by way of an open offer of not less than 1,621,334,832 Offer Shares and not more than 1,657,334,832 Offer Shares at the Subscription Price of HK$0.10 per Offer Share on the basis of eight Offer Shares for every one Consolidated Share held on the Record Date.

The estimated net proceeds from the Open Offer will be not less than approximately HK$156 million and not more than approximately HK$159 million. The Board intends to apply the net proceeds from the Open Offer of approximately HK$156 million as to approximately HK$134 million for the settlement of the outstanding convertible notes together with accrued interests of approximately HK$103 million and promissory notes together with accrued interests of approximately HK$31 million, and as to approximately HK$22 million for general working capital purposes.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Underwriting Agreement, Beckon Investments Limited has conditionally agreed to underwrite 66.22% of any Offer Shares not taken up by Qualifying Shareholders.

(i) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and no outstanding Share Options being exercised before the Record Date, Beckon Investments Limited will be required to take up 976,150,895 Offer Shares at a net subscription price of HK$0.098 after adjusting for the 2% underwriting commission pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.6% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.
(ii) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, Beckon Investments Limited will be required to take up 999,990,095 Offer Shares pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.5% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

If the Whitewash Waiver is not granted, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed.

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising Mr. Lam Kai Tai, Mr. Wong Ting Kon and Ms. Yeung Mo Sheung, Ann, all being the independent non-executive Directors, has been formed to advise the Independent Shareholders as to whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interest of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote at the EGM.

We have been appointed, and approved by the Independent Board Committee, as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Open Offer and the Whitewash Waiver. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders for the purposes of the Takeovers Code and the Listing Rules, our role is to give an independent opinion as to whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole and whether the Independent Board Committee should recommend the Independent Shareholders to vote, in favour of the relevant resolutions to be proposed at the EGM to approve the Open Offer and the Whitewash Waiver.

BASIS OF OUR OPINION AND RECOMMENDATION

In forming our opinion and recommendation, we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, management of the Company and its subsidiaries. We have assumed that all information, facts, opinions and representations made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true, accurate and complete up to the Latest Practicable Date. Independent Shareholders will be notified of material changes as soon as possible, if any, to the information and representations provided and made to us after the Latest Practicable Date and throughout the offer period (as defined under the Takeovers Code). We have also assumed that all expectations and intentions of the Directors, management of the Company and its subsidiaries, will be met or carried out as the case may be. We have no reason to doubt the truth, accuracy and completeness of the information, facts, opinions and representations provided to us by the Directors, management of the Company and its subsidiaries. The Directors have confirmed to us that no material facts have been omitted from the information supplied and opinions expressed. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Directors, management of the Company and its subsidiaries.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have relied on such information and opinions and have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or its future prospect.

In formulating our opinion, we have not considered the taxation implications on Independent Shareholders in relation to the subscription for, holding or disposal of the Offer Shares or otherwise, since these are particular to their individual circumstances. It is emphasized that we will not accept responsibility for any tax effects on, or liabilities of any person resulting from the subscription for, holding or disposal of the Offer Shares or otherwise. In particular, Independent Shareholders subject to overseas taxation or Hong Kong taxation on securities dealings should consider their own tax position and, if in any doubt, should consult their own professional advisers.

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the terms of Open Offer, the Underwriting Agreement and the Whitewash Waiver and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, we have considered the principal factors and reasons set out below:

1. Background and reasons for the Open Offer

Information of the Group

The Group is primarily engaged in the manufacture and sales of medicines, sale of biodegradable food containers and disposable industrial packaging for consumer products. During the year ended 31 December 2012, the Group discontinued the production and sales of the medicines known as ‘‘Plasmin Capsule’’ and ‘‘Puli Capsule’’ in the PRC, which led to termination of the Group’s manufacture and sales of medicines activities. The Group continued to engage in sale of biodegradable food containers and disposable industrial packaging for consumer products.

Set out below is a summary of the audited consolidated financial results of the Group for the two years ended 31 December 2012, as extracted from the annual report of the Group for the year ended 31 December 2012 (‘‘Annual Report 2012’’) and the unaudited consolidated financial results of the Group for the six months

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

ended 30 June 2013 as extracted from the Company’s interim report for the six months ended 30 June 2013 (the ‘‘Interim Report 2013’’):

		Year	ended	Six months ended	Six months ended
		31 December		30 June
		2012	2011	2013	2012
	RMB’000		RMB’000	RMB’000	RMB’000
	(Audited)		(Audited)	(Unaudited)	(Unaudited)
Turnover	78,212		41,165	42,471	52,466
Gross profit		7,772	5,318	2,125	6,482
(Loss)/Profit
attributable to the
equity holders of
the Company	17,606		(47,543)	(21,875)	(25,524)
					As at
			As at 31	December	30 June
			2012	2011	2013
			RMB’000	RMB’000	RMB’000
			(Audited)	(Audited)	(Unaudited)
Net assets/(liabilities) attributable
to the equity holders	of the
Company			(3,766)	2,339	(9,146)

As disclosed in the Annual Report 2012, we noted that for the year ended 31 December 2012, the turnover for the Group was approximately RMB78,212,000, which represented an increase of approximately 90% as compared with that of 2011. The Group also recorded a profit of approximately RMB17,606,000 for the year. These improvements in financial performance are mainly due to (i) the discontinuation of the production and sales of the medicines known as ‘‘Plasmin Capsule’’ and ‘‘Puli Capsule’’ in the PRC; (ii) decreased in advertising and promotion expenses; (iii) stricter control on the Group’s office expenses; and (iv) offset by increase in interest on convertible notes and promissory notes.

As disclosed in the Interim Report 2013, for the six months ended 30 June 2013, the Group recorded turnover of approximately RMB42,471,000, representing approximately 19% decrease as compared with that of the corresponding period in 2012. Due to increase in subcontracting charges of the Group’s biodegradable food containers and disposable industrial packaging for consumer products, the price of the Group’s products have been adjusted upward to reflect the increase in subcontracting charges and the total quantity of the Group’s products sold have been declined. As a result, the turnover of the Group decreased as the price increase deteriorated the price competitiveness of the Group. The increase in subcontracting charges was due to the increase in price of raw materials for biodegradable food containers and disposable industrial packaging for consumer products and the rental

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

charges and general direct labour cost in Guangdong Province have increased. The Group has commenced in trading of raw materials for biodegradable industrial packaging in June 2013 as an alternative source of revenue. The loss attributable to shareholders of the Company for the six months ended 30 June 2013 amounted to approximately RMB21,875,000, which represented approximately 14.3% decrease in loss as compared with the corresponding period in 2012. The decrease in loss for the period was due to the Group had sold its loss making medicine business which had generated loss of approximately RMB13,619,000 for the six months ended 30 June 2012 offset by (i) increase in proportional cost of sales due to increase in subcontracting charges; and (ii) increase in general and administrative expenses as a result of impairment of intangible assets of approximately RMB9,585,000.

Industry and trading prospects of the Group

According to a report published by World Bank in March 2012, namely ‘‘What a Waste: A Global Review of Solid Waste Management’’, the most preferred option for Wastes treatment is to reduce wastes, followed by reuse, recycle and recover. The least preferred waste treatment option is landfill, incineration and controlled dump. In addition, the report also states that improper waste disposal method can have detrimental impact on several issues such as public health and environment.

According to the statistic table namely ‘‘Municipal Waste — Generation and Treatment’’ produced by Organisation for Economic Co-operation and Development (‘‘OECD’’)[1] , the annual municipal waste generated by its European members has experienced a decreasing trend from approximately 283 million tonnes in 2007 to approximately 277 million tonnes in 2012. In addition, the intensity of municipal waste generated for OECD Europe members also experienced a decreasing trend with approximately 520 kilograms waste generated per capita in 2007 to approximately 500 kilograms waste generated per capita in 2011.

Further, according to the OECD statistics table, there was an increasing portion of treating municipal waste by using material recovery method (which includes recycling and composting) as a waste treatment method. In 2005, the portion of treating municipal waste by using material recovery method was approximately 33%. Such portion increased to approximately 38% in 2011.

1 OECD, established at 1961, with its 34 member countries across the globe, uses its wealth of information on a broad range of topics to help governments foster prosperity and fight poverty through economic growth and financial stability. Its mission is to promote policies that will improve the economic and social well-being of people around the world. OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems. As per the website of OECD (www.oecd.org), it is one of the world’s largest publishers of books in the fields of economics and public affairs. It publishes more than 250 new books, 40 updated statistical databases, and thousands of new statistical tables, working papers, and journal articles each year.

As the governments would use the research reports and implement the policies produced and suggested by the OECD, we believe the research reports produced by it is a reliable source for us to assess the industry prospects for biodegradable products in Europe.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the aforesaid, OECD’s European members is reducing their municipal waste generation which is the most preferred option for waste treatment. In addition, the portion of using material recovery as a waste treatment method also increased. This can show that those European members have proper waste treatment methods and hence the awareness on environmental issues as improper waste treatment will lead to, among other things, environmental issues.

The Directors believe, after the disposal of medicine business and with sufficient working capital, the future operation of the business in the sales of biodegradable food containers and disposable industrial packaging for consumer products will have high growth potential as a result of (i) the increase in the public’s awareness of environmental protection; (ii) the increase in the price of the raw material (i.e. plastic) of some competitors of the Group in recent years due to higher crude oil price; and (iii) the good quality of the Group’s biodegradable products. Therefore, the Group will concentrate on its business in sales of biodegradable food containers and disposable industrial packaging for consumer products. The biodegradable containers and packaging products are traded under the brand name ‘‘Earth Buddy’’. The materials used to produce such products are mainly agricultural waste, which meant the products are fully biodegradable and environmentally friendly.

The Directors intend to focus on the biodegradable products business by penetrating and developing the European market that has a population which, on average, has a higher level of awareness of environmental issues. The Group has intention to develop the worldwide market for its biodegradable products. The Group is actively seeking strategic partner agents through the Group’s own network in different geographical regions, especially the European region, to expand its business through business cooperation in various forms including technology transfer and business joint ventures. The goal of the Group is to build a sustainable and profitable global business while help protect and enhance the global environment. However, the Group has no concrete plan at this moment.

At present, the Group’s biodegradable products are manufactured by a subcontracting factory located in Shenzhen. In the event that the Group has adequate financial resources, the Group has intention to acquire or set up its own factory for the manufacturing of the biodegradable products. In order to improve the operation results, the Group will continue to improve the quality of existing products (i.e. biodegradable food containers and disposable industrial packaging for consumer products). However, as the European markets are still recovering from the European debt crisis, the slow recovery from the European markets may affect the demand of the Group’s biodegradable products in the short term. In addition, the Group will continue to look for other new investment and cooperation opportunities so as to broaden the income base, as well as minimising the performance risk of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reasons for the Open Offer and the proposed use of proceeds

As confirmed by the Directors, the Company had not carried out other equity fund raising activities during the past 12 months immediately prior to the Latest Practicable Date.

As noted from Annual Report 2012, trading of the shares of the Company was suspended from 1 April 2011 due to the Company’s former auditors, KLC Kennic Lui & Co. Ltd. (‘‘KLC’’), expressed a disclaimer of opinion on the financial statements of the Group for the year ended 31 December 2010 because they were unable to obtain sufficient audit evidence on a number of significant matters. The Company has engaged an independent professional firm to investigate the qualified opinions of KLC and to review the Group’s internal controls and financial reporting procedures. We also noted from the announcement of the Company dated 25 March 2013, the Company has satisfied all the resumption conditions set by the Stock Exchange i.e. (i) investigate and address the issues raised by KLC; (ii) demonstrate that the Group has effective internal controls and financial reporting procedures to meet its obligations under the GEM Listing Rules; and (iii) publish all outstanding financial results and address audit qualifications, and trading of the shares of the Company was resumed on 27 March 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the total number of Offer Shares of 1,621,334,832 under the Open Offer. The Board intends to apply the net proceeds from the Open Offer of approximately HK$156 million as to approximately HK$134 million for the settlement of the outstanding convertible notes together with accrued interests of approximately HK$103 million and promissory notes together with accrued interests of approximately HK$31 million, and as to HK$22 million for general working capital purposes.

In the event that the resolution approving the Whitewash Waiver is not approved at the EGM and/or the Whitewash Waiver is not granted by the Executive and therefore the Open Offer cannot proceed, the Company intends to consider other equity financing alternatives to raise necessary fund to repay its debt as soon as possible.

Having taken into account that (i) the prolonged suspension in the trading of the Shares since 1 April 2011 until 27 March 2013 and that all the resumption conditions have been fulfilled; (ii) the Group’s intention to strengthen its sustainable competitiveness; (iii) the Group’s intention to enhance its liquidity position; and (iv) the Group’s urgent need for fund raising to fulfill its debt obligations, we are of the view that the Open Offer is in the interest of Shareholders and the Company as a whole.

Alternative financing channels

After discussing with the Directors, we noted that the Board has considered other means of fund raising, including debt financing, the placement of Shares and rights issue.

Debt financing is not viable since the major reason to conduct this fund raising activity is to reduce the Group’s indebtedness. If the Company does not reduce its current indebtedness, the Company may face possible legal actions which would disrupt the Group’s normal business operation. On the other hand, equity financing such as an open offer, rights issue or the placement of shares, will not incur an extra burden on the Group’s indebtedness.

However, with raising fund through the placement of Shares, any form of placement of new Shares without first offering the existing Shareholders the opportunity to participate in the Company’s equity raising exercise will inevitably prejudice the existing Shareholders in sharing the results of the Group and possibly result in an immediate dilution of existing Shareholders’ interests in the Company.

Lastly, although rights issue is similar to an open offer where the Shareholders are allowed to maintain their respective shareholdings in the Company, considering that (i) the low trading volume of the Existing Shares and (ii) the low monetary value per board lot, the Board is of the opinion that the trading of nil paid rights will either incur a high transaction cost for trading of small board of Shares, which is not economical, or not be active enough for the trading of a large board of Shares. Furthermore, compared to rights issue, the absence of trading nil paid rights in the Open Offer reduces associated administrative work and costs thus requiring less time

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for completion. The Board also considers that the Open Offer will provide an equal opportunity to all Qualifying Shareholders to maintain their respective shareholdings in the Company and participate in the growth and development of the Company.

Accordingly, we concur with the Directors’ view and we are of the view that the Open Offer would provide an opportunity for the Group to raise additional fund to enhance the Group’s capital base and is a preferred source of financing over debt financing or placing.

2. Terms of the Open Offer

(i) a discount of approximately 61.5% to the closing price of HK$0.026 per Existing Share (equivalent to HK$0.26 per Consolidated Share) as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 64.3% to the average closing price of HK$0.028 per Existing Share (equivalent to HK$0.28 per Consolidated Share) for the five consecutive trading days up to and including the Last Trading Day;
(iii) a discount of approximately 67.2% to the average closing price of HK$0.0305 per Existing Share (equivalent to HK$0.305 per Consolidated Share) for the ten consecutive trading days up to and including the Last Trading Day;
(iv) a discount of approximately 15.3% to the theoretical ex-entitlement price of approximately HK$0.0118 per Existing Share (equivalent to HK$0.118 per Consolidated Share) based on the closing price as quoted on the Stock Exchange on the Last Trading Day;
(v) a discount of approximately 75% to the closing price of HK$0.040 per Existing Share (equivalent to HK$0.4 per Consolidated Share) as quoted on the Stock Exchange on the Latest Practicable Date; and
(vi) a premium of approximately 275.4% over the unaudited consolidated net liabilities per Existing Share of approximately HK$0.0057 (equivalent to HK$0.057 per Consolidated Share) as at 30 June 2013 (based on the Company’s unaudited consolidated net liabilities of approximately RMB9.146 million (equivalent to approximately HK$11,523,960[2] ) as at 30 June 2013 and 202,666,854 Consolidated Shares in issue upon the Share Consolidation becoming effective).

2 Using the exchange rate of RMB1.00 against HK$1.26 as at 30 June 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group’s indebtedness. Each Qualifying Shareholder is entitled to subscribe for the Offer Shares at the same price in proportion to his/her/its existing shareholding in the Company held on the Record Date.

Set out below are the graphs showing the daily closing Share prices and the daily trading volume of the Shares quoted on the Stock Exchange since 27 March 2013 up to the Latest Practicable Date. For stock price comparison purpose, the Subscription Price has been adjusted as if the Share Consolidation has not been taken place. It is noted that the trading of shares had been suspended from 1 April 2011 to 27 March 2013[3] , therefore, only the share prices from 27 March 2013 to the Last Trading Day and during the period from 12 July 2013 to the Latest Practicable Date (the ‘‘Review Period’’) are shown for the analysis of the historical share price and share trading volume for the past 12 months.

Chart 1: Historical Share Price

==> picture [393 x 176] intentionally omitted <==

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

0.045
Share Price
0.040
0.035
0.030
Trading of shares was
0.025
suspended from
0.020 3 June 2013 to 10 July 2013
0.015
0.010
Subscription Price
0.005
0.000
Date
27/3/20136/4/201316/4/201326/4/20136/5/201316/5/201326/5/20135/6/201315/6/201325/6/20135/7/201315/7/201325/7/201314/8/201328/8/2013
Price in HK$
----- End of picture text -----

3 The suspension of the trading of shares was due to the Company’s former auditors, KLC, expressed a disclaimer of opinion on the financial statements of the Group for the year ended 31 December 2010 because they were unable to obtain sufficient audit evidence on a number of significant matters. KLC resigned as auditors of the Company with effect from 14 June 2011. HLB Hodgson Impey Cheng was appointed as auditors of the Company for the year ended 31 December 2010 to fill the causal vacancy following the resignation of KLC and to hold the office until the conclusion of the next annual general meeting of the Company. An independent professional firm, KL CPA Limited was appointed to review the Group’s internal controls and financial reporting procedures. The Stock Exchange subsequently allowed the Company to resume the trading of its shares on 27 March 2013 upon satisfaction of all the resumption conditions set by it.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Chart 2: Share Trading Volume

==> picture [405 x 221] intentionally omitted <==

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

350,000
300,000
250,000
200,000
Trading of shares was
150,000 suspended from
3 June 2013 to 10 July 2013
100,000
50,000
0
Date
Source: Hong Kong Stock Exchange
27/3/20136/4/201316/4/201326/4/20136/5/201316/5/201326/5/20135/6/201315/6/201325/6/20135/7/201315/7/201325/7/201314/8/201328/8/2013
Volume ’000
----- End of picture text -----

During the Review Period, we noted that the Share price had fluctuated within in a range of HK$0.015 to HK$0.042. As per our discussion with the Directors, the Share price fluctuation was possibly due to (i) the release of quarterly report for the three months ended 31 March 2013 in which the Company has made less loss for the first quarter due to disposal of the loss-making medicine business; and (ii) the Company’s announcement on the deferred payment of convertible bonds from 27 May 2013 to 25 October 2013 which relieved the Company from immediate financial burden.

We also noted that the Subscription Price represents a discount to all of the share market prices during the Review Period. The Subscription Price represents (i) a discount of approximately 76.19% to the highest closing price of the Shares; (ii) a discount of approximately 63.47% to the average closing price of the Shares; and (iii) a discount of approximately 33.33% over the lowest closing price of the Shares during the Review Period after Share Consolidation.

During the Review Period, the daily trading volume of the Shares ranged from 2,280,000 shares to 317,360,000 shares. The average daily trading volume during the Review Period was approximately 47,827,749 shares, representing approximately 2.36% of the entire issued capital of the Company and approximately 2.60% of the public shareholding of the Company other than the shareholding of Beckon Investments Limited as at the Latest Practicable Date. Therefore, we are of the view that the shares of the Company were traded at extremely thin liquidity during the Review Period.

Comparison of the Subscription Price

To further assess the fairness and reasonableness of the Subscription Price, we have reviewed other companies’ fund raising exercises that are (i) announced by companies that are listed on the Hong Kong Stock Exchange; (ii) by way of open offer of ordinary shares; (iii) during the six-month period prior to the Last Trading

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Day. We have identified 4 companies (the ‘‘Comparables’’) which meet the aforesaid criteria and which have also incurred (i) loss for the previous interim period and (ii) net liabilities position as per the last date of interim period. We believe that they are exhaustive and each of them represents a fair and reasonable comparable of the Company on the basis that those comparables have similar financial position as the Company, i.e. the Company has incurred loss for the six months ended 30 June 2013 and net liabilities position as at 30 June 2013. We also consider that the selection of such six months period to be sufficient and appropriate for our analysis as the market sentiment at the relevant time in general plays an important role in determinating the offer price. The purpose of the Comparables is to provide a general reference for the common market practice in recent open offers conducted by listed companies in Hong Kong regardless of their respective businesses, operations and prospects. Our relevant finding is summarized in the table below:

		Premium/
		(Discount) of the
		offer price over/to
		the closing price		Excess
		per share on the		application
	Date of	respective last	Underwriting	arrangement	Ratio for
Company Name (Stock Code)	Announcement	trading day	commission	(Yes/No)	allotment
		Approximate %	%
Aurum Pacific (China) Group	21 Dec 2012	(75.81)	2.50	No	4 for 1
Limited (8148)
FU JI Food and Catering	21 Jan 2013	(99.03)	Nil	Yes	1 for 1
Services Holdings Limited
(1175)
TLT Lottotainment Group	7 Feb 2013	49.25	3.00	No	2 for 1
Limited (8022)
Warderly International Holdings	21 Mar 2013	(89.58)	N/A	N/A	4 for 1
Limited (607)			(Note 1)	(Note 1)
Minimum		(99.03)	Nil
Maximum		49.25	3.00
Mean		(53.79)	1.83
Median		(82.70)	2.50
The Open Offer		(61.50)	3.00	Yes	8 for 1
		(Note 2)			(Note 3)
Notes:

Certain terms of the open offer and the underwriting agreement are not yet disclosed.
The discount is based on the Consolidated Share price after the Share Consolidation.
The ratio is calculated assuming the Share Consolidation becomes effective.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that, in general, it is common for listed issuers in Hong Kong to issue offer shares at a discount to the market price in order to increase the attractiveness of an open offer. As shown in the above table, apart from the company called TLT Lottotainment Group Limited, the rest of the comparable companies issued their offer shares at a discount to the market price. The Subscription Price’s discount falls within the range of the Comparables, and it is also a higher discount than the mean of the discount of the Comparables.

Having considered (i) the thin liquidity in the trading of the shares under the Review Period; (ii) the Subscription Price was determined at after arm’s length negotiations between the Company and the Underwriters with reference to the recent market environment; and (iii) the setting of the Subscription Price at deep discount to prevailing market price would be able to enhance their attractiveness to the Shareholders, we are of the view that the Subscription Price of the Open Offer is fair and reasonable and in the interests of the Company and Shareholders as a whole.

3. Underwriting Agreement

Underwriting commission

Pursuant to the Underwriting Agreement, the Underwriters have conditionally agreed to underwrite not less than 1,474,102,832 Offer Shares and not more than 1,510,102,832 Offer Shares, in which Orient Securities Limited and Beckon Investments Limited have agreed to underwrite 33.78% and 66.22%, respectively.

The Company will pay the Underwriters an underwriting commission of 3% of the aggregate Subscription Price of the Underwritten Shares (on the basis that all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) will be exercised before the Record Date), among which:

(i) 1% arrangement fee will be charged by Orient Securities Limited for its arrangement of the underwriting of the Offer Shares; and
(ii) 2% underwriting commission will be shared by the Underwriters in proportion to their Underwritten Shares as follows:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors are of the opinion that the amount of commission given to the Underwriters is fair as compared to the market practice and commercially reasonable as agreed between the Company and the Underwriters. Meanwhile, we have reviewed the announcements published by the companies listed on the Stock Exchange which have announced open offer issues in the past six-month period prior to the Last Trading Day and noted that the underwriting commission of such open offers for all the underwriters showed a range of nil to 4.5%. Accordingly, we are of the view that the underwriting commission charged by the Underwriters is fair and reasonable so far as the Company and the Independent Shareholders as a whole are concerned.

Termination of the Underwriting Agreement

Subject to the fulfillment of the conditions of the Underwriting Agreement, the Open Offer will not proceed if the Underwriters exercise their termination rights under the Underwriting Agreement, details of the provisions are set out in the section headed ‘‘Termination of the Underwriting Agreement’’ in the Letter from the Board. As it is common to have termination clause in the underwriting agreements, we consider such provisions are normal commercial terms and in line with market practice.

Save as aforesaid, we have also reviewed other major terms of the Underwriting Agreement and we are not aware of any terms which are unusual. Consequently, we are of the view that the terms of the Underwriting Agreement are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

4. Application for excess Offer Shares and basis of allocating of excess Offer Shares

As stated in the Letter from the Board, we noted that Qualifying Shareholders are entitled to apply for any Offer Shares provisionally allotted but not accepted by the Qualifying Shareholders. However, Beckon Investments Limited has undertaken to the Company that it shall not make any application for any excess Offer Shares in respect of the entitlement of the Existing Shares or Consolidated Shares owned by it under the Open Offer.

preference will be given to applications for less than a board lot of Offer Shares where they appear to the Directors that such applications are made to round up odd-lot holdings (in particular those already existed on the date of the Announcement or created as a result of the Open Offer) to whole-lot holdings and that such applications are not made with the intention to abuse this mechanism;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

subject to availability of excess Offer Shares after allocation under principle (1) above, any remaining excess Offer Shares will be allocated to applicants with reference to their respective shareholdings in the Company as at the Record Date; and
subject to availability of excess Offer Shares after allocation under principles (1) and (2) above, any further remaining excess Offer Shares will be allocated to applicants in proportion to the number of excess Offer Shares being applied for under each application.

Save for the principle (2) above, we are of the view that the other two allocation principles stated above are in line with common market practice and they are fair and reasonable to the Company and the Independent Shareholders as a whole. As for the allocation principle (2) above, we noted that since the allocation basis adopted by the Company allows the shareholding of each Qualifying Shareholder, except for those who do not take up their rights entitlements under the provisional allotment, be largely maintained after the completion of the Open Offer and is in conformity with the principle that new shares shall be offered to shareholders pro-rated to their existing shareholdings, we are of the view that the basis of allocation of the excess Offer Shares is also fair and reasonable so far as the Independent Shareholders are concerned.

5. Financial effects on the Group

Net liabilities

The consolidated net liabilities attributable to the equity holders of the Company as at 30 June 2013, as extracted from the Interim Report 2013, was approximately RMB9,146,000 (equivalent to approximately HK$11,523,960).

Immediately after the completion of the Open Offer, the assets of the Group would be increased by not less than approximately HK$156 million and not more than approximately HK$159 million, which is the expected net proceeds from the Open Offer. Also, the net liabilities position of the Company would turnaround to net assets position of approximately HK$10 million. Based on 202,666,854 Consolidated Shares in issue upon the Share Consolidation becoming effective and 1,621,334,832 Offer Shares to be issued upon the Open Offer, the net assets value per share immediately after the completion of the Open Offer would be approximately HK$0.0055 per share (compared to net liabilities per share of approximately HK$0.057 before the Open Offer). Therefore, the Open Offer will strengthen the Group’s net assets position.

Working capital

The Group has incurred net current liabilities of RMB69,930,000 (equivalent to approximately HK$88,111,800) as at 30 June 2013, as extracted from the Interim Report 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Immediately after the completion of the Open Offer, the net current assets of the Group would be increased by not less than approximately HK$156 million and not more than approximately HK$159 million. Therefore, the Open Offer will strengthen the Group’s working capital and the Group would restore back to net current assets position.

Gearing (total liabilities divided by total assets)

As mentioned in the Letter from the Board, the major reason for the Open Offer is to reduce the Group’s indebtedness. The gearing ratio of the Group as at 30 June 2013, as extracted from the Interim Report 2013, was approximately 109.2%.

Immediately after the completion of the Open Offer, the gearing of the Group would be lowered to approximately 48.6%. Therefore, the Open Offer will improve the Group’s gearing and reduces the Group’s indebtedness.

Based on the foregoing, the Open Offer would have immediate positive financial effects on the Group.

6. Dilution to shareholders of the Independent Shareholders

All Qualifying Shareholders are entitled to subscribe for the Offer Shares. For those Qualifying Shareholders who subscribe their entitlements in full under the Open Offer, their shareholding interests in the Company will remain unchanged after the Open Offer.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Beckon Investments Limited The Concert Group (excluding Beckon Investments Limited) Sub-total of the Concert Group Orient Securities Limited and/or the subscribers to be procured by it Other Public Shareholders Sub-total of the Public Shareholders Total	As at the Latest Practicable Date No. of Existing Shares Approx % of the total issued Shares 184,040,000 9.08 — — 184,040,000 9.08 — — 1,842,628,549 90.92 2,026,668,549 100.00 2,026,668,549 100.00	Immediately after completion of the Share Consolidation but before the Open Offer No. of Consolidated Shares Approx % of the total issued Shares 18,404,000 9.08 — — 18,404,000 9.08 — — 184,262,854 90.92 202,666,854 100.00 202,666,854 100.00	Immediately after completion of the Open Offer (assuming all Qualifying Shareholders subscribed for their entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued Shares 165,636,000 9.08 — — 165,636,000 9.08 — — 1,658,365,686 90.92 1,824,001,686 100.00 1,824,001,686 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders other than Beckon Investments Limited subscribed for its entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued Shares 1,141,786,895 62.60 — — 1,141,786,895 62.60 497,951,937 27.30 184,262,854 10.10 682,214,791 37.40 1,824,001,686 100.00	Immediately after completion of the Open Offer (assuming no Qualifying Shareholders other than Beckon Investments Limited subscribed for its entitlements under the Open Offer) No. of Consolidated Shares Approx % of the total issued Shares 1,141,786,895 62.60 — — 1,141,786,895 62.60 497,951,937 27.30 184,262,854 10.10 682,214,791 37.40 1,824,001,686 100.00
					27.30 10.10 37.40
					100.00

The Independent Shareholders who are Qualifying Shareholders should note that if they do not wish to take up all or part of their respective entitlements to the proposed Offer Shares, their corresponding shareholdings in the Company will be diluted. In the event that all the Qualifying Shareholders (other than the Underwriters) decide not to take up the provisional allotments of the Open Offer and the Underwriters have taken up all the provisional allotments in its capacity as the underwriters, the percentage of shareholding of the public Shareholders will be reduced from approximately 90.92% to approximately 10.10%.

We noted that the potential dilution effect as discussed above. Having considered that (i) the Qualifying Shareholders are free to choose to participate in the Open Offer; (ii) the Open Offer offers an equal opportunity for the Qualifying Shareholders to subscribe for their proportionate Offer Shares in the Company; (iii) the dilution effect will not be prejudicial to the Independent Shareholders’ interests in the Company as long as

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

they choose to subscribe for their full allotment entitlements of the Offer Shares; (iv) the Open Offer would enhance the Group’s financial position from net liabilities to net assets; (v) the Open Offer gives an opportunity for the Group to settle the Group’s debt burden in full; and (vi) should the Group fails to meet its financial obligation due without the proceeds from the Open Offer, the Shareholders may lose more value on their investment than that of the dilution effects since the Company may possibly face legal actions from the convertible bonds and promissory notes holder, we consider that the potential dilution of the shareholding interests of the existing Independent Shareholders to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

WHITEWASH WAIVER

Pursuant to the Underwriting Agreement, Beckon Investments Limited has conditionally agreed to underwrite 66.22% of any Offer Shares not taken up by Qualifying Shareholders.

(i) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and no outstanding Share Options being exercised before the Record Date, Beckon Investments Limited will be required to take up 976,150,895 Offer Shares at a net subscription price of HK$0.098 after adjusting for the 2% underwriting commission pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.6% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.
(ii) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, Beckon Investments Limited will be required to take up 999,990,095 Offer Shares pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total shareholding of the Concert Group upon completion of the Open Offer to approximately 62.5% of the then issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, Beckon Investments Limited needs to make an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. If the Whitewash Waiver is not granted, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed. Beckon Investments Limited has made an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code.

The Executive has agreed, subject to, among others, approval by the Independent Shareholders to grant the Whitewash Waiver. The Whitewash Waiver shall be approved by the Independent Shareholders at the EGM by way of poll. The Concert Group, Orient Securities Limited and parties acting in concert with it, and those who are involved in or interested in the Open Offer, the Underwriting Agreement and the Whitewash Waiver will abstain from voting on the Whitewash Waiver. It is a condition precedent to the completion of the Open Offer that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive, the Open Offer will not proceed.

Having considered that (i) approving Whitewash Waiver at the EGM is one of the conditions precedent so as to implement the Open Offer; (ii) the terms of the Open Offer is fair and reasonable to the Company and the Independent Shareholders as a whole; and (iii) the Open Offer will reduce the Group’s indebtedness and improve the overall financial position of the Group, we are of the view that it is fair and reasonable for the Independent Shareholders to vote in favour of the Whitewash Waiver.

Information of Beckon Investments Limited

– 57 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

any Existing Shares. From the six months period prior to the date of the Announcement to the Latest Practicable Date, Beckon Investments Limited disposed of 7,490,000 and 2,445,000 Existing Shares at an average price of HK$0.0422 and HK$0.0440 on 27 March 2013 and 7 May 2013, respectively. The monetary value of the two disposals were HK$316,320 and HK$107,525 respectively, which were considered to be not material as compared to underwriting commitment of Beckon Investments Limited under the Underwriting Agreement. Beckon Investments Limited made the disposal on 27 March 2013 due to the resumption of trading of the Existing Shares of the Company after a suspension for approximately 2 years, and it further made the disposal on 7 May 2013 in order to realize its investment at a relatively high price of the Existing Shares of the Company. As at the Latest Practicable Date, Beckon Investments Limited holds 184,040,000 Existing Shares, representing approximately 9.08% of the issued share capital of the Company. Save for such shares, none of members of the Concert Group is holding, owning or controlling any shares, convertible securities, warrants, options or other derivatives of the Company as at the Latest Practicable Date. The Concert Group had no knowledge of the intention of the Company to propose the Open Offer at the time when Beckon Investments Limited disposed of the aforesaid Existing Shares. Mr. Yip Chi Fai Stevens considered it will be a good investment opportunity to act as an underwriter in the Open Offer because he could average down the average investment cost of approximately HK$0.155 per Existing share (equivalent to approximately HK$1.55 per Consolidated Share) held by Beckon Investments Limited.

On 30 May 2013, Beckon Investments Limited as borrower entered into the Loan Agreement with the Lender, Elegant Mark Investment Limited which is wholly owned by Smart Galaxy Investments Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Wong Tin Lung, an independent third party to the Company and Beckon Investments Limited, to finance the subscription of the Open Offer. Please refer to the section headed ‘‘Loan Facility’’ in the Circular for the principal terms of the Loan Agreement.

As per our discussion with the Directors, Beckon Investments Limited would like to participate in the Open Offer but does not have enough financial resources to do so, therefore, it entered into the Loan Agreement with the Lender to finance the subscription of Shares under Open Offer. Considering that (i) the terms of the Loan Agreement are set based on arm’s length negotiation between Beckon Investments Limited and the Lender; (ii) the Loan Agreement is secured by Beckon Investments Limited’s own shares of the Company and personal guarantee of Mr. Yip Chi Fai; and (iii) all the loan repayments and related fees will be paid by Beckon Investments Limited, we are of the view that it is reasonable for Beckon Investments Limited to enter into the Loan Agreement with the Lender.

– 58 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into consideration of the above principal factors and reasons regarding the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, we are of the view that the Open Offer is on normal commercial terms and is fair and reasonable and is in the interests of the Company and the Independent Shareholders as a whole. Accordingly, further taking into consideration the Open Offer is conditional upon the grant of the Whitewash Waiver, we recommend the Independent Board Committee to advise the Independent Shareholders, and the Independent Shareholders, to vote in favour of the resolution to be proposed at the EGM to approve the Open Offer and the Whitewash Waiver.

The Independent Shareholders are however reminded to note that there is no guarantee that the current market price will or will not sustain; or will or will not be higher than the Subscription Price from the Latest Practicable Date to immediately prior to the Latest Time for Acceptance and after the dealing of the Offer Shares commences. The Independent Shareholders, especially those who intend to subscribe for the Offer Shares, are also reminded to closely monitor the market price and the liquidity of the Shares.

Yours faithfully For and on behalf of Grand Vinco Capital Limited Alister Chung Managing Director

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

Financial information of the Group for the three years ended 31 December 2012 is set out in the annual reports of the Company for the three years ended 31 December 2012 respectively. The unaudited financial information of the Group for the six months ended 30 June 2013 is disclosed in the interim report of the Company for such period. The said annual reports and interim report of the Company are available on the website of the Stock Exchange (http://www.hkex.com.hk) and the website of the Company (http://www.tricor.com.hk/ webservice/008019).

The following is a summary of the consolidated financial information of the Group for the six months ended 30 June 2013 and each of the three years ended 31 December 2010, 2011 and 2012, as extracted from the relevant interim and annual reports of the Company.

Save as disclosed on the face of the financial information below, there were no items which were extraordinary or exceptional because of size, nature or incidence for the consolidated statement of comprehensive income of the Group for the each of the years ended 31 December 2010, 2011 and 2012.

The Company published an announcement dated 8 April 2011 relating to the annual results of the Group for the year ended 31 December 2010 (the ‘‘2010 Results Announcement’’). Such 2010 Results Announcement contained qualified audit opinion from the Company’s former auditors, KLC Kennic Lui & Co. Ltd., (the ‘‘Former Auditors’’) due to the reason that they had not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. The Former Auditors resigned on 14 June 2011 and the Company appointed the current auditor HLB Hodgson Impey Cheng Limited on the same date. The Company subsequently gathered from its associated companies and subsidiaries additional relevant information and documents and revised the 2010 Results Announcement on 15 September 2011. The Company issued the annual report for the financial year ended 31 December 2010 on 30 September 2011.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company’s auditors, HLB Hodgson Impey Cheng Limited, have not issued any qualified opinion on the Group’s financial statements for the three years ended 31 December 2010, 2011 and 2012, however, significant doubt on the Group’s ability to continue its operation on a going concern basis were emphasized in the independent auditors’ report for the financial years ended 31 December 2011 and 2012.

Revenue Loss before taxation Taxation Discontinued operation Profit/(loss) from discontinued operation Profit/(loss) before non- controlling interests Non-controlling interests (Note) Profit/(loss) attributable to: Shareholders of the Company Earnings per share Dividend per share Amount absorbed by dividend	For the six month ended 30 June 2013 RMB’000 (unaudited) 42,471 (21,869) — (6) (21,875) — (21,875) (1.14) cent Nil Nil	For the year ended 31 December 2012 2011 2010 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 78,212 41,165 89,226 (29,958) (35,230) (37,703) (1,068) — (331) 48,632 (12,313) — 17,606 (47,543) (38,034) — — — 17,606 (47,543) (38,034) 0.96 cent (2.74) cent (3.33) cent Nil Nil Nil Nil Nil Nil

Note: Since all subsidiaries are wholly owned by the Company, the Group does not record any noncontrolling interests.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITORS’ REPORTS FOR THE THREE YEARS ENDED 31 DECEMBER 2012

(A) The following paragraphs extracted from the independent auditors’ report on the Group’s Financial statement for the year ended 31 December 2010 prepared by KLC Kennic Lui & Co. Ltd.

Basis for Disclaimer of Opinion

(1) Intangible assets

During the year ended 31 December 2010, one of the subsidiaries of the Company acquired the exclusive distribution right to distribute, sell and market skin care products for a consideration of approximately RMB7,188,000. As detailed in notes to the consolidated financial statements, the directors considered that it was not feasible nor practicable to value the exclusive right and, accordingly, full impairment on the carrying value of the exclusive right in the amount of RMB5,990,000 (being cost net of amortisation for the year of RMB1,198,000) was charged to profit or loss during the year. Due to the absence of reliable information for us to assess the value of the exclusive right, we were unable to satisfy ourselves as to whether the recognition of the impairment loss of RMB5,990,000 is appropriate

(2) Interests in associate

During the year ended 31 December 2010, the Group acquired an equity interest in an associated company, 北京和陽傳媒科技有限公司 (Beijing He Yang Media Technology Co., Ltd.* (‘‘Beijing He Yang’’)). Due to lack of adequate financial information covering the results of Beijing He Yang and its subsidiary, the interest therein was stated in the consolidated statement of financial position at cost less any impairment loss, and the results of Beijing He Yang were accounted for on the basis of dividends received and receivable during the year. The carrying value of the interest in Beijing He Yang as stated on the consolidated statement of financial position at 31 December 2010 amounted to approximately RMB4,819,000 and no dividends had been received during the year. The Group’ s interest in Beijing He Yang (including its subsidiary) was not accounted for using the equity method and this is not in accordance with the requirements of International Accounting Standard 28‘‘Investments in Associates’’ issued by the International Accounting Standard Board which requires the Group to account for its share of net assets of associates in the financial statements. We were, therefore, unable to assess the carrying value of the interest in Beijing He Yang as stated on the consolidated statement of financial position at 31 December 2010.

(3) Investment in subsidiary

During the year ended 31 December 2010, the Group engaged in health spa business by setting up a wholly foreign-owned subsidiary, 珠海市奧美斯美容有限公司 (Zhuhai Aomeisi Beauty Treatment Company Limited* (‘‘Zhuhai Aomeisi’’)), in the PRC. Due to lack of adequate financial information and accounting documents for Zhuhai Aomeisi, its financial results for the year ended 31 December 2010 were

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

not consolidated into the Group’s financial statements. The Group’s investment in Zhuhai Aomeisi was stated on the consolidated statement of financial position at 31 December 2010 at cost less impairment loss and the results were accounted for on the basis of dividends received and receivable during the year. The carrying value of investment in Zhuhai Aomeisi as stated in the consolidated statement of financial position at 31 December 2010 amounted to approximately RMB1,270,000 and no dividends were received from Zhuhai Aomeisi during the year. The Group’s investment in Zhuhai Aomeisi wa s not consolidated under the acquisition method and this is not in accordance with the requirements of International Accounting Standard 27 ‘‘Consolidated and Separate Financial Statements’’ issued by the International Accounting Standard Board. We were, therefore, unable to assess the carrying value of the investment in subsidiary as stated in the consolidated statement of financial position at 31 December 2010 and also no disclosure of information of Zhuhai Aomeisi was made available in the notes to the financial statements and this is not in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

(4) Trade and other receivables

At 31 December 2010, the Group had trade and other receivables of approximately RMB185,664,000 against which an impairment allowance of approximately RMB58,070,000 had been made in prior years. There was insufficient evidence for us to verify the balances of trade and other receivables and we were unable to carry out adequate audit procedures that we considered necessary to confirm the accuracy, existence and recoverability of the balances. Any adjustments to the amount of trade and other receivables may have a consequential effect on the balances of sales of the Group of the year ended 31 December 2010.

(5) Trade and other payables

At 31 December 2010, the Group had trade and other payables of approximately RMB95,177,000. There was insufficient evidence for us to verify the balances of trade and other payables and we were unable to carry out adequate audit procedures that we considered necessary to confirm the accuracy, completeness and existence of the balances.

Any adjustment to the amount of trade and other payables may have a consequential effect in the balances of cost of sales and expenses of the Group for the year ended 31 December 2010.

(6) Loans and borrowings

Included in the Group’s loans and borrowings as stated in the consolidated statement of financial position at 31 December 2010 is an amount of approximately RMB6,697,000 reported to have been borrowed from non-financial institution entities. There was insufficient evidence for us to verify such balances and we were

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

unable to carry out audit procedures that we considered necessary to confirm the accuracy, completeness and existence of the balances and other related contingent liabilities.

(7) Write-off of property, plant and equipment

Included in the consolidated statement of comprehensive income for the year ended 31 December 2010 is a written off of property, plant and equipment of approximately RMB10,749,000. The related property, plant and equipment items were written off by one of the Company’s subsidiaries, Shanxi Everpride Pharmaceutical Company Limited (‘‘Shanxi Everpride’’). No detailed information in connection with the items of property, plant and equipment being written off by Shanxi Everpride was made available to us. There was, therefore, insufficient evidence for us to verify the accuracy of the write-off and we were unable to carry out certain audit procedures that we considered necessary to confirm whether the write-off of property, plant and equipment was properly recorded.

Disclaimer of Opinion

Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs above, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements.

(B) The following paragraphs extracted from the independent auditors’ report on the Group’s annual report for the year ended 31 December 2010 prepared by HLB Hodgson Impey Cheng.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010, and of its loss and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Other matters

(1) The consolidated financial statements of the Group for the year ended 31 December 2009, were audited by another auditor who expressed a modified opinion on those statements on 20 April 2010.
(2) Without qualifying our opinion, the Company published an announcement dated 8 April 2011 relating to the annual results of the Group for the year ended 31 December 2010 (the ‘‘Results Announcement’’), to fulfill the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Results Announcement contained qualified audit opinion

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

from the Company’s former auditors (the ‘‘Former Auditors’’) due to the reason that they had not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Since after the resignation of the Former Auditors on 14 June 2011, the Company has gathered from its associated companies and subsidiaries additional relevant information and documents. The Company subsequently revised the Results Announcement on 15 September 2011.

(C) The following paragraphs extracted from the independent auditors’ report on the Group’s annual report for the year ended 31 December 2011 prepared by HLB Hodgson Impey Cheng.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2011, and of its loss and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Material Uncertainty Concerning Going Concern Basis of Accounting

Without qualifying our opinion, we draw attention to note 2(b) to the consolidated financial statements which indicates that the Group incurred a net loss of approximately RMB47,543,000 during the year ended 31 December 2011 and, as of that date, the Group’s consolidated current liabilities exceeded its consolidated current assets by approximately RMB60,343,000. These conditions, along with other matters as set forth in note 2(b), indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

(D) The following paragraphs extracted from the independent auditors’ report on the Group’s annual report for the year ended 31 December 2012 prepared by HLB Hodgson Impey Cheng Limited.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2012, and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 2(b) to the consolidated financial statements which indicates that the Group’s consolidated current liabilities exceeded its consolidated current assets by approximately RMB115,043,000 and consolidated total liabilities exceeded its consolidated total assets by approximately RMB3,766,000. These conditions, along with other matters as set forth in note 2(b), indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2012

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

Notes Turnover 4 Cost of sales Gross profit Other gains and losses 6 Selling and distribution expenses General and administrative expenses Impairment loss on intangible assets Loss from operations Share of results of associates 19 Gain on disposal of subsidiaries Finance costs 7(a) Loss before taxation 7 Income tax expenses 8(a) Loss for the year from continuing operations Discontinued operation (Profit)/loss for the year from discontinued operation 11 Profit/(loss) for the year Other comprehensive income/(loss), net of income tax Exchange differences on translating foreign operations Total comprehensive income/(loss) for the year Profit/(loss) for the year attributable to owners of the Company Total comprehensive income/(loss) for the year attributable to owners of the Company Earnings/(loss) per share 14 For continuing and discontinued operations Basic (cents) Diluted (cents) For continuing operations Basic (cents) Diluted (cents)	2012 RMB’000 78,212 (70,440) 7,772 4,026 (4) (27,517) (2,083) (17,806) (9) — (12,143) (29,958) (1,068) (31,026) 48,632 17,606 77 17,683 17,606 17,683 0.96 0.96 (1.69) (1.69)	2011 RMB’000 (restated) 41,165 (35,847) 5,318 (1,827) (829) (31,196) — (28,534) (801) 1,156 (7,051) (35,230) — (35,230) (12,313) (47,543) (1,322) (48,865) (47,543) (48,865) (2.74) (2.74) (2.03) (2.03)

The accompanying notes form an integral part of these consolidated financial statements.

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Financial Position

At 31 December 2012

Notes Non-current assets Plant and equipments 15 Investment properties 16 Intangible assets 17 Goodwill 18 Interests in associates 19 Investments in subsidiaries 20 Trade and other receivables 22 Current assets Inventories 21 Trade and other receivables, prepayments and deposits 22 Financial assets at fair value through profit or loss 23 Cash and bank balances 24 Current liabilities Trade and other payables 25 Bank and other borrowings 26 Convertible notes 27 Promissory notes 28 Tax payables 29 Net current (liabilities)/assets Total assets less current liabilities	The Group 2012 2011 RMB’000 RMB’000 2,038 51,346 1,900 1,670 98,517 118,081 6,821 6,821 — 9 — — 2,038 — 111,314 177,927 — 7,930 11,311 16,683 — 6,880 4,569 12,010 15,880 43,503 8,192 48,846 — 55,000 97,822 — 23,932 — 977 — 130,923 103,846 (115,043) (60,343) (3,729) 117,584	The Company 2012 2011 RMB’000 RMB’000 45 80 — — — — — — — — 13,714 14,677 — — 13,759 14,757 — — 82,842 83,148 — — 140 384 82,982 83,532 4,395 3,899 — — 97,822 — — — — — 102,217 3,899 (19,235) 79,633 (5,476) 94,390	The Company 2012 2011 RMB’000 RMB’000 45 80 — — — — — — — — 13,714 14,677 — — 13,759 14,757 — — 82,842 83,148 — — 140 384 82,982 83,532 4,395 3,899 — — 97,822 — — — — — 102,217 3,899 (19,235) 79,633 (5,476) 94,390
			14,757
			— 83,148 — 384
			83,532
			3,899 — — — —
			3,899
			79,633
			94,390

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Non-current liabilities Deferred tax liabilities 29 Convertible notes 27 Promissory notes 28 Net (liabilities)/assets Capital and reserves attributable to owners of the Company Share capital 30 Reserves Total equity	The Group 2012 2011 RMB’000 RMB’000 37 — — 92,499 — 22,746 37 115,245 (3,766) 2,339 17,122 17,122 (20,888) (14,783) (3,766) 2,339	The Company 2012 2011 RMB’000 RMB’000 — — — 92,499 — — — 92,499 (5,476) 1,891 17,122 17,122 (22,598) (15,231) (5,476) 1,891

The accompanying notes form an integral part of these consolidated financial statements.

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2012

At 1 January 2011 Loss for the year Other comprehensive loss for the year Exchange differences on translating foreign operations Total comprehensive loss for the year Issue of share upon placing, net of transaction costs At 31 December 2011 At 1 January 2012 Profit for the year Other comprehensive income for the year Exchange differences on translating foreign operations Total comprehensive income for the year Release upon disposal of subsidiaries At 31 December 2012	Share capital RMB’000 14,607 — — — 2,515 17,122 17,122 — — — — 17,122	Share premium RMB’000 61,210 — — — 10,870 72,080 72,080 — — — — 72,080	Capital reserve RMB’000 7,195 — — — — 7,195 7,195 — — — (7,195) —	Capital reduction reserve RMB’000 92,489 — — — — 92,489 92,489 — — — — 92,489	Share-based compensation reserve RMB’000 20,103 — — — — 20,103 20,103 — — — — 20,103	General fund reserve RMB’000 9,025 — — — — 9,025 9,025 — — — (9,025) —	Exchange reserve RMB’000 (1,464) — (1,322) (1,322) — (2,786) (2,786) — 77 77 (7,568) (10,277)	Accumulated losses RMB’000 (165,346) (47,543) — (47,543) — (212,889) (212,889) 17,606 — 17,606 — (195,283)	Total RMB’000 37,819 (47,543 (1,322
									(48,865 13,385
									2,339
									2,339 17,606 77
									17,683 (23,788
									(3,766

The accompanying notes form an integral part of these consolidated financial statements.

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Cash Flows

For the year ended 31 December 2012

Notes Operating activities Profit/(loss) before taxation From continuing operations From discontinued operation Adjustments for: Depreciation 7(c) Fair value gain on investment properties 6 Amortisation of intangible assets 7(c) Realised loss on financial assets at fair value through profit or loss 6 Impairment loss of intangible assets 7(c) Share of loss of associates Unrealised loss on financial assets at fair value through profit or loss 6 Fair value (gain)/loss on convertible notes Interest expense 7(a) Interest income 7(a) Gain on disposal of subsidiaries Operating loss before working capital changes Increase in inventories (Increase)/decrease in trade and other receivables, prepayments and deposits Increase/(decrease) in trade and other payables Cash used in operations Purchase of financial assets at fair value through profit or loss Proceeds of disposal financial assets at fair value through profit or loss Tax paid Net cash generated from/(used in) operating activities Cash flows from investing activities Purchase of plant and equipments Net cash outflow from acquisition of subsidiaries Net cash (outflow)/inflow from disposal of subsidiaries Interest received Net cash used in investing activities	2012 RMB’000 (29,958) 48,632 18,674 3,940 (230) 17,114 1,801 2,083 9 — (1,103) 19,555 (1) (66,344) (4,502) (1,079) (32,253) 64,774 26,940 (2,717) 7,774 (54) 31,943 (23,429) — (12,705) 1 (36,133)	2011 RMB’000 (35,230) (12,062) (47,292) 4,287 — 17,398 — — 801 (1,803) 3,928 14,672 (12) (1,156) (9,177) (3,201) 10,266 (11,429) (13,541) (56,467) 53,973 (380) (16,415) (2,614) (25,004) 4,892 12 (22,714)

– I-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Cash flows from financing activities Repayment of bank and other borrowings Proceeds from new bank and other borrowings Net proceeds from shares issued upon placing, net of share issuance expense Interest paid Net cash (used in)/generated from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of year 24 Effect of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at the end of the year 24	2012 RMB’000 (42,000) 49,000 — (10,353) (3,353) (7,543) 12,010 102 4,569	2011 RMB’000 (32,768) 53,800 13,385 (10,135) 24,282 (14,847) 27,692 (835) 12,010

The accompanying notes form an integral part of these consolidated financial statements.

– I-12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2012

1. GENERAL INFORMATION

Hao Wen Holdings Limited (the ‘‘Company’’) was incorporated in the Cayman Islands on 1 August 2000 as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands, and its shares are listed on the Growth Enterprise Market (the ‘‘GEM’’) of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) with effect from 20 July 2001. The address of the registered office and principal place of business of the Company are disclosed in the corporate information of the annual report.

The consolidated financial statements of the Company as at and for the year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’). The Group is primarily engaged in the manufacture and sales of medicines, sale of biodegradable food containers and disposable industrial packaging for consumer products. During the year, the manufacture and sales of medicines business was discontinued (note 11).

2. BASIS OF PREPARATION

(a) Statement of compliance

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

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

(b) Going concern basis

In preparing the consolidated financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group notwithstanding that:

the Group had consolidated net current liabilities of approximately RMB115,043,000 and net liabilities RMB3,766,000 as at 31 December 2012; and
the Group had convertible notes of approximately RMB97,822,000 and promissory notes of approximately RMB23,932,000 is due within the next twelve months after 31 December 2012.

The directors adopted the going concern basis in the preparation of the financial statements and implemented the following measures in order to improve the working capital and liquidity and cash flow position of the Group:

(1) Financial supports

Beckon Investments Limited, one of the major shareholders of the Company has confirmed to provide continuing financial support to the Group to enable it to continue as a going concern and to settle liabilities as and when they fall due.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(2) Conversion of convertible notes

Subsequent to 31 December 2012, the Group received a written confirmation dated 25 March 2013 from convertible note holder, Talent Keen Limited (‘‘Talent Keen’’), stated that Talent Keen intends to convert the convertible notes to ordinary share of the Company by the maturity date at 27 May 2013.

(3) Extension of the maturity date of promissory notes

The Group received a written confirmation dated 25 March 2013 from promissory notes holder, Talent Keen agreed to extend the maturity date on promissory notes from 27 May 2013 to 27 May 2015, bearing interest at 5% per annum.

In the opinion of the directors, in light of the various measures/arrangements implemented after the end of reporting period, the Group will have sufficient working capital for its current requirements and it is reasonable to expect the Group to remain a commercially viable concern. Accordingly, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

Should the Group be unable to continue to operate as a going concern, adjustments would have to be made to write down the value of assets to their recoverable amounts, to provide for any future liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities respectively. The effect of these adjustments has not been reflected in the financial statements.

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the investment properties and certain financial instruments, which are measured at fair value, as explained in accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

(d) Functional and presentation currency

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

(e) Use of estimates and judgements

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

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

Judgements made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are disclosed in note 38.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) Application of New and Revised International Financial Reporting Standards

The Group has adopted the following revised IFRSs for the first time for the current year’s consolidated financial statements.

IFRS 1 Amendments Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards — Severe Hyperinflation and Removal of Fixed Dates for First-time Adopter IFRS 7 Amendments Amendments to IFRS 7 Financial Instruments: Disclosures — Transfers of Financial Assets IAS 12 Amendments Amendments to IAS 12 Income Taxes — Deferred Tax: Recovery of Underlying Assets

The adoption of the revised IFRSs has had no significant financial effect on these consolidated financial statements.

The Group has not early applied the following new or revised standards, amendments and interpretations that have been issued but are not yet effective:

IFRS 9	Financial instruments4
IFRS 10	Consolidated Financial Statements2
IFRS 11	Joint Arrangements2
IFRS 12	Disclosure of Interest in Other Entities2
IFRS 13	Fair Value Measurement2
Amendments to IFRS 7	Disclosures — Offsetting Financial Assets and Financial
	Liabilities2
Amendments to IFRS 9	Mandatory Effective Date of IFRS 9 and Transition Disclosures4
and IFRS 7
Amendments to IFRS10, IFRS 11	Consolidated Financial Statements, Joint arrangements Disclosure
and IFRS 12	of Interests in Other Entities: Transition Guidance2
Amendment to IFRS 10, IFRS 12	Investment Entities3
and IAS 27
IAS 19 (as revised in 2011)	Employee Benefits2
IAS 27 (as revised in 2011)	Separate Financial Statements2
IAS 28 (as revised in 2011)	Investments in Associates and Joint Ventures2
Amendments to IAS 1	Presentation of Items of Other Comprehensive Income1
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities3
Amendments to IFRSs	Annual Improvements to IFRSs 2009–20111
IFRIC Int 20	Stripping Costs in the Production Phase of Surface Mine2

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

2 Effective for annual periods beginning on or after 1 January 2013.

3 Effective for annual periods beginning on or after 1 January 2014.

4 Effective for annual periods beginning on or after 1 January 2015.

IFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 amended in 2010 to include the requirements for the classification and measurement of financial liabilities and for derecognition.

Key requirements of IFRS 9 are described as follows:

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

of subsequent accounting periods. In addition, under IFRS9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

With regard to the measurement of financial liabilities designed as at fair value through profit or loss, IFRS 9 requires that the amount of change in fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’ credit risk not subsequently reclassified to profit or loss. Previously, under IFRS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss.

IFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.

The directors anticipate that IFRS 9 that will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2015 and that the application of new standard may have a significant impact on amounts reported in respect of Group’s financial assets. However, it is not practical to provide a reasonable estimate of that effect until a detailed review has been completed.

In June 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (as revised in 2011) and IAS 28 (as revised in 2011).

Key requirements of these five standards are described below.

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC – Int 12 Consolidation — Special Purpose Entities. IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in IFRS 10 to deal with complex scenarios.

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC – Int 13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. Under IFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under IAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations.

In addition, joint ventures under IFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 can be accounted for using the equity method of accounting or proportionate accounting.

IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than those in the current standards.

In July 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the application of these five IFRS for the first time.

The directors do not anticipate that the amendments will significant effect on the Group’s consolidated financial statements.

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The Standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of IFRS 13 is broad; it applies to both financial

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APPENDIX I

instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in IFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only under IFRS 7 Financial Instruments: Disclosures will be extended by IFRS 13 to cover all assets and liabilities within its scope.

IFRS 13 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

The directors do not anticipate that the amendments will significant effect on the Group’s consolidated financial statements.

The amendments to IAS 32 clarify existing application issues relating to the offset of financial assets and financial liabilities requirements. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’.

The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement.

The amendments to IFRS7 are effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. The disclosures should be provided retrospectively for all comparative periods. However, the amendments to IAS 32 are not effective until annual periods beginning on or after 1 January 2014, with retrospective application required.

The directors anticipate that the application of these amendments to IAS 32 and IFRS 7 may result in more disclosure being made with regards to offsetting financial assets and financial liabilities in the future.

The amendments to IAS 1 introduce new terminology for the statement of comprehensive income and income statement. Under the amendments to IAS 1, a statement of comprehensive income is renamed as a statement of profit or loss and other comprehensive income and an income statement is renamed as a statement of profit or loss. The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. The amendments do not change the option to present items of other comprehensive income either before tax or net of tax.

The amendments to IAS 1 are effective for annual periods beginning on or after 1 July 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in the future accounting periods.

The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus.

The amendments to IAS 19 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application with certain exceptions. The directors anticipate that the amendments to IAS 19 will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of the amendments to IAS 19 may have impact on amounts reported in respect of the Group’s defined benefit plans. However, the directors have not yet performed a detailed analysis of the impact of the application of the amendments and hence have not yet quantified the extent of the impact.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The amendments to IAS 1 require an entity that changes accounting policies retrospectively, or make a retrospective restatement or reclassification to present a statement of financial position as at the beginning of the preceding period (third statement of financial position). The amendments to IAS 1 clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position.

The Annual Improvements to IFRSs 2009-2011 Cycle include a number of amendments to various IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2013. Amendments to IFRSs include:

The amendments to IAS 16 clarify that spare parts, stand-by equipment and servicing equipment should be classified as property, plant and equipment when they meet the definition of property, plant and equipment in IAS 16 and as inventory otherwise. The directors do not anticipate that the amendments to IAS 16 will have a significant effect on the Group’s consolidated financial statements.

The amendments to IAS 32 clarify that income tax on distribution to holders of an equity instrument and transaction costs of an equity transaction should be accounted for in accordance with IAS 12 Income Taxes. The directors anticipate that the amendments to IAS 32 will have no effect on the Group’s consolidated financial statements as the Group has already adopted this treatment.

3. SIGNIFICANT ACCOUNTING POLICIES

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

(a) Basis of consolidation

(i) Subsidiaries

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

(ii) Transactions eliminated on consolidation

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

(iii) Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the related assets (i.e. reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

(iv) Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

(i) deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
(ii) liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and
(iii) assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction by transaction basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on the basis specified in another IFRS.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘‘measurement period’’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

(b) Investments in subsidiaries

In the Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment losses.

(c) Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associates. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Upon disposal of an associate that results in the Group losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with IAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associate.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’ consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

(d) Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see the accounting policy above) less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cashgenerating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(e) Plant and equipments

(i) Recognition and measurement

Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

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

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Subsequent costs

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

(iii) Depreciation

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

— Machinery and equipment 8–10 years — Furniture and office equipment 5–8 years — Motor vehicles 5–8 years

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

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

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

(f) Leasing

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

The Group as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group as lessee

Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(g) Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

(h) Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straightline basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Internally-generated intangible assets — research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

(i) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(ii) the intention to complete the intangible asset and use or sell it;
(iii) the ability to use or sell the intangible asset;
(iv) how the intangible asset will generate probable future economic benefits;
(v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
(vi) the ability to measure reliably the expenditure attributable to the intangible asset during its development.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Inventories

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

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

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

(j) Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

Financial assets are classified into the following specified categories: financial assets ‘‘at fair value through profit or loss’’, ‘‘held-to-maturity’’ investments, ‘‘available-for-sale’’ financial assets and ‘‘loans and receivables’’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Effective interest method

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

Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at financial asset at fair value through profit or loss.

Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

A financial asset is classified as held for trading if:

(a) it has been acquired principally for the purpose of selling it in the near future; or
(b) on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

– I-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

(a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
(b) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
(c) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the consolidated statement of comprehensive income.

Loan and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, prepayments and deposits and cash and bank balances) are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (see out above). At the end of each reporting period subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. Where the financial asset is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below).

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of the reporting period (see the accounting policy in respect of impairment loss on financial assets below).

Impairment of financial assets

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

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(a) significant financial difficulty of the issuer or counterparty; or
(b) breach of contract, such as a default or delinquency in interest or principal payments; or
(c) it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
(d) the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

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

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

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

In respect of available-for-sale equity investments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt investments, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity instruments

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

– I-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including trade and other payables, bank and other borrowings, convertible notes, and promissory notes are subsequently measured at amortised cost, using the effective interest rate method. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue cost.

Effective interest method

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

Interest expense is recognised on an effective interest basis other than financial liabilities classified as at fair value though profit or loss.

Convertible notes

Convertible notes issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity will be transferred to convertible notes reserves. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to convertible notes reserves. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the convertible notes using the effective interest method.

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

(k) Cash and cash equivalents

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

(l) Borrowings

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

(m) Revenue

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

(i) Sale of goods

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Interest income

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

(n) Employee benefits

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

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

(ii) Share-based payments

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

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

(o) Finance income and costs

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

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

Foreign currency gains and losses are reported on a net basis.

(p) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit/(loss) before taxation’ as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax

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

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

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

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

Current and deferred tax for the year

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

(q) Provisions and contingent liabilities

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

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(r) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:

. exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
. exchange differences on transactions entered into in order to hedge certain foreign currency risks; and
. exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve.

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in equity under the heading of exchange reserve.

– I-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(s) Related party transactions
(a) A person, or a close member of that person’s family, is related to the Group if that person:
- (i) has control or joint control over the Group;
- (ii) has significant influence over the Group; or
- (iii) is a member of the key management personnel of the Group or of a parent of the Group;
(b) An entity is related to the Group if any of the following conditions applies:
- (i) the entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);
- (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group which the other entity is a member);
- (iii) both entities are joint ventures of the same third party;
- (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
- (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
- (vi) the entity is controlled or jointly controlled by a person identified in (a); or
- (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

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

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

(t) Segment reporting

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

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

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. TURNOVER

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

Continuing operations: Sale of biodegradable products Distribution of skin care products Discontinued operation: Sale of pharmaceutical products Total	2012 RMB’000 78,127 85 78,212 56,450 134,662	2011 RMB’000 (restated) 40,336 829
		41,165 80,541
		121,706

5. SEGMENT REPORTING

Information reported to the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on types of goods delivered or provided. The segmentations are based on the information about the operation of the Group that management uses to make decision and regularly review by the chief operating decision maker for the purpose of allocating resources to segments and assessing their performance.

The Group’s reportable and operating segment under IFRS 8 are as follows:

(a) sale of biodegradable food containers and disposable industrial packaging for consumer products; and
(b) distribution of skin care products.

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s manufacturing and sale of pharmaceutical products operation was discontinued during the year ended 31 December 2012.

Segment revenues and results

Turnover External sales Result Segment result Unallocated corporate expenses Impairment loss on intangible assets Profit/(loss) from operations Share of results of associates Gain on disposal of subsidiaries Finance costs Profit/(loss) before taxation Income tax expense Profit/(loss) for the year	Continuing Biodegradable products 2012 2011 RMB’000 RMB’000 78,127 40,336 (8,828) (12,718) — —	operations Skin care 2012 RMB’000 85 (616) (2,083)	products 2011 RMB’000 829 129 —	Discontinued operation Pharmaceutical products 2012 2011 RMB’000 RMB’000 56,450 80,541 48,632 (9,350) — —	Consolidated 2012 2011 RMB’000 RMB’000 134,662 121,706 39,188 (21,939 (6,279) (11,048 (2,083) — 30,826 (32,987 (9) (801 — 1,156 (12,143) (14,660 18,674 (47,292 (1,068) (251 17,606 (47,543	Consolidated 2012 2011 RMB’000 RMB’000 134,662 121,706 39,188 (21,939 (6,279) (11,048 (2,083) — 30,826 (32,987 (9) (801 — 1,156 (12,143) (14,660 18,674 (47,292 (1,068) (251 17,606 (47,543
						(21,939 (11,048 —
						(32,987 (801 1,156 (14,660
						(47,292 (251
						(47,543

Segment revenue reported above represents revenue generated from external customers. There were no intersegment sales in the current year (2011: Nil).

The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of central administration costs including directors’ emoluments, share of results of associates, gain on disposal of subsidiaries, finance costs and income tax expenses. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment assets and liabilities

Continuing operations Discontinued operation Biodegradable products Skin care products Pharmaceutical products 2012 2011 2012 2011 2012 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Assets Segment assets 104,992 137,994 — 3,510 — 39,044 Unallocated corporate assets Liabilities Segment liabilities 1,323 5,482 — — — 82,892 Unallocated corporate liabilities	Consolidated 2012 2011 RMB’000 RMB’000 104,992 180,548 22,202 40,882 127,194 221,430 1,323 88,374 129,637 130,717 130,960 219,091	Consolidated 2012 2011 RMB’000 RMB’000 104,992 180,548 22,202 40,882 127,194 221,430 1,323 88,374 129,637 130,717 130,960 219,091
		221,430
		88,374 130,717
		219,091

For the purposes of monitoring segment performance and allocating resources between segments:

All assets are allocated to operating segments other than interests in associates, investment properties, financial assets at fair value through profit or loss and other corporate assets.

All liabilities are allocated to operating segments other than convertible notes, promissory notes and corporate liabilities.

Other segment information

The following is an analysis of the Group’s other segment information:

Capital expenditure — intangibles assets — others Depreciation and amortisation Impairment loss on intangible assets	Continuing Biodegradable products 2012 2011 RMB’000 RMB’000 — 134,338 — — 16,420 16,704 — —	operations Skin care 2012 RMB’000 — — 694 2,083	products 2011 RMB’000 — — 694 —	Discontinued operation Pharmaceutical products 2012 2011 RMB’000 RMB’000 — — 23,422 42,114 3,014 3,521 — —	Unallocated 2012 2011 RMB’000 RMB’000 — — 7 1,285 926 766 — —	Consolidated 2012 2011 RMB’000 RMB’000 — 134,338 23,429 43,399 21,054 21,685 2,083 —

The Group’s revenue from its major products were disclose in note 4 to the consolidated financial statements.

– I-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical information

The Group operates in two principal geographical areas, the PRC (excluding Hong Kong) and Hong Kong. The Group’s revenue from the external customers by location of operations and information about its non-current assets are detailed below.

The PRC Hong Kong	Revenue Year ended 31 December Year ended 31 December 2012 2011 RMB$’000 RMB$’000 (restated) — — 78,212 41,165 78,212 41,165	Non-current assets At 31 December At 31 December 2012 2011 RMB$’000 RMB$’000 4,859 53,025 106,455 124,902 111,314 177,927	Non-current assets At 31 December At 31 December 2012 2011 RMB$’000 RMB$’000 4,859 53,025 106,455 124,902 111,314 177,927
			177,927

Information about major customers

Included in revenue arising from continuing operations biodegradable products of approximately RMB78,127,000 (2011: RMB40,336,000) of approximately RMB76,641,000 (2011: RMB30,776,000), which arose five (2011: three) single external customers.

Included in revenue arising from sale of discontinued operation pharmaceutical products of approximately RMB56,450,000 (2011: RMB80,541,000) of approximately RMB50,012,000 (2011: RMB61,779,000), which arose from one (2011: one) single external customers.

6. OTHER GAINS AND LOSSES

Continuing operations: Sample income Sundry income Rental income Distribution income Fair value gain on investment properties Fair value gain/(loss) of financial assets at fair value through profit or loss Realised loss on of financial assets at fair value through profit or loss Fair value gain/(loss) on convertible notes Discontinued operation: Sample income Sundry income Total	2012 RMB’000 5 718 36 3,735 230 — (1,801) 1,103 4,026 267 7 4,300	2011 RMB’000 (restated) 22 276 — — — 1,803 — (3,928
		(1,827 590 62
		(1,175

– I-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. LOSS BEFORE TAXATION

Loss before taxation is arrived after charging/(crediting):

(a) Net finance costs/(income)

Continuing operations: Interest on convertible notes Interest on promissory notes Bank interest income Discontinued operations: Interest on bank and other borrowings wholly repayable within five years Net financial costs recognised in consolidated statement of comprehensive income The following is an analysis of net finance costs/(income): Total interest income earned on financial assets that are not designated as at fair value through profit or loss — Loans and receivables (including cash and bank balances) Total interest expenses for financial liabilities that are not designated as at fair value through profit or loss (b) Staff costs (including directors’ emoluments) Continuing operations: Contributions to defined contribution plans Salaries, wages and other benefits Discontinued operations: Contributions to defined contribution plans Salaries, wages and other benefits Total staff costs	2012 RMB’000 9,662 2,482 (1) 12,143 7,411 19,554 2012 RMB’000 1 19,555 2012 RMB’000 59 2,199 2,258 1,175 6,345 7,520 9,778	2011 RMB’000 (restated) 5,605 1,458 (12) 7,051 7,609 14,660 2011 RMB’000 12 14,672 2011 RMB’000 (restated) 129 2,446 2,575 1,494 9,664 11,158 13,733

– I-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Other items

Continuing operations: Amortisation of intangible assets Depreciation Operating lease charges in respect of property rentals: Minimum lease payments Auditors’ remuneration — audit services Cost of inventories sold Impairment loss on intangible assets Discontinued operation: Depreciation Operating lease charges in respect of property rentals: Minimum lease payments Advertising and promotion expenses Cost of inventories sold	2012 RMB’000 17,114 926 1,590 995 70,440 2,083 3,014 1,500 31,011 17,649	2011 RMB’000 (restated) 17,398 766 1,910 995 35,847 — 3,521 2,000 40,002 24,630

8. INCOME TAX IN THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Continuing operations

(a) Taxation in the consolidated statement of comprehensive income represents:

Current tax Hong Kong PRC Enterprise Income Tax Under provision in prior year Hong Kong Deferred tax Charged to the consolidated statement of comprehensive income	2012 RMB’000 91 886 977 54 37 1,068	2011 RMB’000 — —
		— — —
		—

(i) Hong Kong profits tax

Hong Kong profit tax has been provided at the rate of 16.5% (2011: Nil) on the estimated assessable profit for the year ended 31 December 2012.

(ii) Income taxes outside Hong Kong

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

– I-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The subsidiary of the Group established in the PRC is generally subject to PRC enterprise income tax on its taxable income at an income tax rate of 25% in respect of the year ended 31 December 2012 (2011: 25%).

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

Loss before taxation Notional tax on profit/loss before taxation calculation at the PRC enterprise income tax rate of 25% (2011: 25%) Tax effect non-taxable income Tax effect non-deductible expenses Tax effect of unused tax losses not recognised Under provision of profit tax for prior year Tax effect of different tax rates in other jurisdictions Income tax expenses for the year	2012 RMB’000 % (29,958) (7,490) (25.0) (144) (0.5) 2,279 7.6 4,543 15.2 54 0.2 1,826 6.1 1,068 3.6	2011 RMB’000 % (35,230) (8,808) (25.0 — — 5,073 14.4 1,263 3.6 — — 2,472 7 — —	2011 RMB’000 % (35,230) (8,808) (25.0 — — 5,073 14.4 1,263 3.6 — — 2,472 7 — —
			—

Discontinued operation

(a) Taxation in the consolidated statement of comprehensive income represents:

Current tax PRC enterprise income tax for the year	2012 RMB’000 —	2011 RMB’000 251

(i) Hong Kong profits tax

No provision for Hong Kong profits tax has been made as the Group had no estimated assessable profits arising from Hong Kong during the years ended 31 December 2012 and 2011.

(ii) Income taxes outside Hong Kong

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

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Loss before taxation Notional tax on loss before taxation calculation at the PRC enterprise income tax rate of 25% (2011: 25%) Tax effect non-deductible expenses Tax effect of different tax rates in other jurisdictions Income tax expenses for the year	2012 RMB’000 % (17,712) (4,428) (25.0) 4,430 25.0 (2) — — —	2011 RMB’000 % (12,062) (3,015) (25.0 3,233 26.8 33 0.3 251 2.1	2011 RMB’000 % (12,062) (3,015) (25.0 3,233 26.8 33 0.3 251 2.1
			2.1

9. DIRECTORS’ REMUNERATION

Details of remuneration of the directors’ remuneration of the Company for the year, disclosed pursuant to Listing Rules and Section 161 of the Hong Kong Companies Ordinance, are as follows:

Executive directors: Hu Yangxiong Zhao Borui (resigned on 04/05/2012) Leung King Fai Lee Cheuk Yue Chow Yik Independent non-executive directors: Yeung Mo Sheung, Ann Lam Kai Tai Wong Ting Kon	Directors’ Fees RMB’000 — — — — — 147 106 98 351	Salaries, allowances and benefits in kind RMB’000 288 34 371 159 242 — — — 1,094	Retirement scheme contributions RMB’000 10 — 11 — 11 — — — 32	2012 Total RMB’000 298 34 382 159 253 147 106 98
				1,477

– I-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Executive directors: Chung Chi Mang (resigned on 03/11/2011) Hu Yangxiong Zhao Borui Liu Yinxiao (appointed on 28/09/2010 and resigned on 11/01/2011) Leung King Fai Lee Cheuk Yue Chow Yik (appointed on 11/01/2011) Independent non-executive directors: Fu Wing Kwok, Ewing (resigned on 11/01/2011) Lam Chung Fai (resigned on 11/01/2011) Lam Ka Wai, Graham (appointed on 17/11/2010 and resigned on 17/05/2011) Yeung Mo Sheung, Ann (appointed on 11/01/2011) Lam Kai Tai (appointed on 21/04/2011) Wong Ting Kon (appointed on 21/04/2011)	Directors’ Fees RMB’000 — — — — — — — 2 39 36 124 75 69 345	Salaries, allowances and benefits in kind RMB’000 — 569 99 3 377 162 180 — — — — — — 1,390	Retirement scheme contributions RMB’000 — 10 — — 10 — 6 — — — — — — 26	2011 Total RMB’000 — 579 99 3 387 162 186 2 39 36 124 75 69
				1,761

The details of those benefits in kind, including the principal terms and number of options granted, are disclosed in note 31.

For the years ended 31 December 2012 and 2011, no emolument was paid to the directors as an inducement to join or upon joining the Company or as compensation for loss of office. There was no arrangement under which a director waived or agreed to waive any remuneration for the years ended 31 December 2012 and 2011.

10. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, four (2011: four) are directors whose emoluments are disclosed in note 9. The aggregate of the emoluments in respect of the other one individual (2011: one) are as follows:

Salaries and other emoluments Retirement scheme contributions	2012 RMB’000 254 12 266	2011 RMB’000 127 6
		133

The emoluments of the other one individual (2011: one individual) with the highest emoluments are within the following bands:

Nil–HK$1,000,000	Number of individuals 2012 2011 1 1

For the years ended 31 December 2012 and 2011, no emolument was paid by the Group to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

– I-42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. DISCONTINUED OPERATION

On 16 June 2012, the Company entered into the conditional sale and purchase agreement that the manufacture and sales of medicines business were discontinued following the disposal of Garner International Limited (‘‘Garner’’), a directly wholly-owned subsidiary of the Company and its subsidiaries (collectively known as the ‘‘Garner Group’’), which carried out all of the Group’s manufacture and sales of medicines operation. The disposal of the manufacture and sales of medicines business is consistent with the Group’s long-term policy to focus its activities in remaining business and The Directors believe that inputs of further managerial, operational and financial and sales resources to these businesses will enhance the performance of the Remaining Group. The disposal was completed on 10 October 2012, on which date control of pharmaceutical products operation passed to the acquirer. Details of the assets and liabilities disposed of, and the calculation of the profit on disposal, are disclosed in note 37.

Analysis of profit/(loss) for the year from discontinued operation

The comparative loss and cash flows from discontinued operation have been re-presented to include those operations classified as discontinued in the current year.

Profit/(loss) for the year from discontinued operation: Turnover Cost of sales Gross profit Other gains and losses Selling and distribution expenses General and administrative expenses Loss from operations Finance costs Loss before taxation Income tax expenses Gain on disposal of operation (Note 37) Gain/(loss) for the year from discontinued operation Profit/(loss) for the year from discontinued operation include the following: Depreciation Auditor’s remuneration Cash flow from discontinued operation Net cash inflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net cash inflow/(outflow)	2012 RMB’000 56,450 (17,649) 38,801 274 (38,223) (11,153) (10,301) (7,411) (17,712) — (17,712) 66,344 48,632 3,014 — 31,097 (23,409) 7,000 14,688	2011 RMB’000 80,541 (24,630) 55,911 652 (45,695) (15,321) (4,453) (7,609) (12,062) (251) (12,313) — (12,313) 3,521 — 20,139 (41,671) 21,032 (500)

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. LOSS ATTRIBUTABLE TO OWNERS OF THE COMPANY

The consolidated loss attributable to owners of the Company includes a loss of RMB7,603,000 (2011: RMB37,894,000) which has been dealt with in the financial statements of the Company.

13. DIVIDEND

The board of directors do not recommend the payment of any dividend for the year ended 31 December 2012 (2011: Nil).

14. EARNINGS/(LOSS) PER SHARE

(a) Basic earnings/(loss) per share

For continuing and discontinued operations

The calculation of basic earnings/(loss) per share is based on the profit for the year attributable to owners of the Company of approximately RMB17,606,000 (2011: loss for the year approximately RMB47,543,000) and weighted average number of approximately 1,832,091,000 (2011: approximately 1,737,570,000) ordinary share.

For continuing operations

The calculation of basic loss per share is based on the loss for the year attributable to owners of the Company of approximately RMB31,026,000 (2011: approximately RMB35,230,000) and weighted average number of approximately 1,832,091,000 (2011: approximately 1,737,570,000) ordinary share.

For discontinued operation

Basic earnings per share for discontinued operation is RMB2.65 cents (2011: loss RMB0.7 cents). The calculation of basic loss per share is based on the earnings/(loss) for the year attributable to owners of the Company of approximately RMB48,632,000 (2011: loss for the year approximately RMB12,313,000) and weighted average number of approximately 1,832,091,000 (2011: approximately 1,737,570,000) ordinary share.

(b) Diluted earnings/(loss) per share

Diluted earnings/(loss) per share for the years ended 31 December 2012 and 2011 were same as the basic earnings/(loss) per share. The Company’s outstanding share options were not included in the calculation of diluted earnings/(loss) per share because the effects of the Company’s outstanding share option were antidilutive.

– I-44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. PLANT AND EQUIPMENTS

Movements in plant and equipments are as follows:

		The Group		The Company
Machinery and equipment RMB’000 11,110 — 536 — 11,646 — — (11,646) — 7,387 — 1,435 — 8,822 — 1,435 (10,257) — — 2,824	Furniture and office equipment RMB’000 7,197 (28) 2,078 — 9,247 (5) 435 (8,041) 1,636 4,286 (11) 1,059 — 5,334 (1) 1,300 (5,793) 840 796 3,913	Motor vehicles RMB’000 11,851 (72) — (220) 11,559 (3) — (9,478) 2,078 6,233 (71) 1,793 (220) 7,735 (3) 1,205 (8,101) 836 1,242 3,824	Construction- in-progress RMB’000 — — 40,785 — 40,785 — 22,994 (63,779) — — — — — — — — — — — 40,785	Furniture and office equipment RMB’000 163 (4 — —
				159 (2 — —
				157
				45 (3 37 —
				79 (1 34 —
				112
				45
				80

– I-45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. INVESTMENT PROPERTIES

Completed investment properties at fair value: At 1 January Additions Fair value gain At 31 December	The Group 2012 2011 RMB’000 RMB’000 1,670 1,670 — — 230 — 1,900 1,670	The Group 2012 2011 RMB’000 RMB’000 1,670 1,670 — — 230 — 1,900 1,670
		1,670

(a) Valuation of investment properties

The investment properties amounted to approximately RMB1,900,000 (2011: RMB1,670,000) of the Group were stated at fair value as at 31 December 2012. The fair value were arrived at based on the valuations carried out by an independent firm of qualified professional valuers, Asset Appraisal Limited, (‘‘AAL’’), who have among their staff members of the Hong Kong Institute of Surveyors with recent experience in the location and category of the properties being valued. The valuations conform to the Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.

(b) The analysis of the carrying amount of investment properties is as follows:

In the PRC — medium-term leases	2012 RMB’000 1,900	2011 RMB’000 1,670

– I-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTANGIBLE ASSETS

Movements in intangible assets of the Group are as follows:

Cost At 1 January 2011 Acquisition (note 36) Exchange adjustments At 31 December 2011 and 1 January 2012 Exchange adjustments Disposal of subsidiaries At 31 December 2012 Accumulated amortisation and impairment At 1 January 2011 Amortisation expenses Exchange adjustments At 31 December 2011 and 1 January 2012 Amortisation expenses Exchange adjustments Impairment loss Disposal of subsidiaries At 31 December 2012 Carrying amounts At 31 December 2012 At 31 December 2011	Intellectual properties RMB’000 (note c) — 134,338 (2,563) 131,775 (419) — 131,356 — 16,704 (232) 16,472 16,420 (53) — — 32,839 98,517 115,303	Exclusive rights RMB’000 (note a) 5,000 — — 5,000 — (5,000) — 5,000 — — 5,000 — — — (5,000) — — —	Exclusive skin care products distribution license RMB’000 (note b) 7,193 — — 7,193 — — 7,193 3,721 694 — 4,415 694 1 2,083 — 7,193 — 2,778	Total RMB’000 12,193 134,338 (2,563) 143,968 (419) (5,000) 138,549 8,721 17,398 (232) 25,887 17,114 (52) 2,083 (5,000) 40,032 98,517 118,081

(a) Intangible assets represents exclusive rights acquired by the Group to produce and sell the products of ‘‘Plasmin Capsule’’ and ‘‘Puli Capsule’’ within and outside the PRC.
(b) The exclusive skin care products distribution license’s useful life used in the calculation of amortisation is 6 years During the year ended 31 December 2012, as the result of the unexpected poor performance of the distribution of skin care products in the PRC, the Group carried out a review of the recoverable amount of the exclusive skin care products distribution license. The value-in-use at 31 December 2012 was calculated to be lower than the carrying amount of the exclusive skin care products distribution license and accordingly an impairment loss of approximately RMB2,083,000 was recognised during the year ended 31 December 2012.

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The recoverable amount of exclusive skin care products distribution license for the year ended 31 December 2012 was determined based on value-in-use calculations. The impairment review of the distribution skin care product license is based on the expected future cash flows and based on the financial budgets approved by management covering a 5-year period. Discount rate of 11.05% was applied on the value-in-use calculations.

(c) The intellectual property’s useful life used in the calculation of amortization is 8 years.
(d) The amortisation charge for the year is included in ‘‘general administrative expenses’’ in the consolidated statement of comprehensive income.

18. GOODWILL

Cost: At 1 January and 31 December Accumulated impairment loss: At 1 January and 31 December Carrying amounts: At 31 December	The Group 2012 2011 RMB’000 RMB’000 6,821 6,821 — — 6,821 6,821	The Group 2012 2011 RMB’000 RMB’000 6,821 6,821 — — 6,821 6,821
		—
		6,821

Particular of impairment testing on goodwill are disclosed below:

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

—

Health spa business

Before recognition of impairment losses, the carrying amount of goodwill was allocated to cash-generating units as follows:

Health spa business	2012 RMB’000 6,821	2011 RMB’000 6,821

The recoverable amount of this cash-generating units has been determined based on a value in use calculation which uses cash flow projection based on financial budgets approved by the directors covering a five year period, and discount rate of 17.31% per annum. Cash flows beyond that five-year period have been extrapolated using a steady 3% growth rate. This growth rate does not exceed the long-term average growth rate for the market. The directors believe that any reasonably possible further change in the key assumptions on which the recoverable amount is based would not cause the carrying amount of the unit to exceed its recoverable amount.

The key assumptions used in the value in use calculations as follows:

Budgeted market share

Average market share in the period immediately before the budget period. The values assigned to the assumption reflect past experience.

Budgeted gross margin

Average gross margins achieved in the period immediately before the budget period which reflects past experience.

– I-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INTERESTS IN ASSOCIATES

Cost of investments in associates Share of results of associates Disposed during the year Impairment loss recognised (note) At 31 December	The Group 2012 2011 RMB’000 RMB’000 3,400 8,400 (410) (1,553 2,990 6,847 — (3,848 (2,990) (2,990 — 9	The Group 2012 2011 RMB’000 RMB’000 3,400 8,400 (410) (1,553 2,990 6,847 — (3,848 (2,990) (2,990 — 9
		6,847 (3,848 (2,990
		9

Note:

During the year ended 31 December 2011, the Group disposed its 29.41% interest in 中視和陽傳媒科技(北京)有限公司 upon the disposal of subsidiaries.

During the year ended 31 December 2012, the associate was deregistered.

During the year ended 31 December 2012, the Group had interests in the following associates:

			Proportion
			of nominal
	Form of entity,		vale of
	place of		issued
	incorporation/	Particulars of	capital held	Proportion
	registration	issued share	by the	of voting	Principal
Name of entity	and operations	capital	Group	power hold	activities
江油市元神醫葯科技	Incorporated	Registered	41%	41%	Research and
開發有限公司	in PRC	capital of			development
		RMB1,000,000			on Chinese
					herbal
					medicine

The summarised financial information in respect of the Group’s associates is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of associates Turnover Loss for the year Group’s share of loss of associates Group’s share of other comprehensive expenses	The Group 2012 2011 RMB’000 RMB’000 — 22 — — — 22 — 9 — 264 20 2,465 9 801 — —	The Group 2012 2011 RMB’000 RMB’000 — 22 — — — 22 — 9 — 264 20 2,465 9 801 — —
		22
		9
		264
		2,465
		801
		—

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INVESTMENTS IN SUBSIDIARIES

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

Unlisted shares, at cost Less: Impairment loss recognised	The Company 2012 2011 RMB’000 RMB’000 14,677 70,841 (963) (56,164) 13,714 14,677

Note:

During the year, the subsidiaries incurred losses continuously and the directors of the Company carried out a review on the recoverable amounts of the investments in subsidiaries. The carrying amounts of the investments in subsidiaries are reduced to their recoverable amounts which are determined by reference to the estimation of future cash flows expected to be generated from the respective subsidiaries. Accordingly, Impairment losses of approximately RMB963,000 (2011: Nil) were made during the year.

During the year, the Group disposed of 100% of its interest in Garner International Limited and the proceeds from disposal amounted to approximately RMB2,445,000 (Equivalent to HK$3,000,000) were received in cash on completion date. Details please refer (note 37).

The particulars of all subsidiaries of the Company at 31 December 2012 were as follows:

		Particulars of
		issued and		Proportion of
	Place of	fully paid	ownership interest
	incorporation/	share capital/	and		voting power
	registration	registered	held by the Company					Principal
Name of company	operation	capital	Directly			Indirectly		activities
西安金皓資產管理有限	PRC	HK$3,000,000			—		100%	Investment holding
公司(note i)
Premium Stars	BVI	50,000		100%			—	Investment holding
Investments Limited		ordinary of
		US$1 each
Jin Hao Limited (‘‘Jin	BVI	100 ordinary		100%			—	Investment holding
Hao’’)		of US$1 each
Merry Sky Limited	BVI	1 ordinary of		100%			—	Cosmetic license
(‘‘Merry Sky’’)		US$1 each						holding
Smart Courage Limited	BVI	1 ordinary of			—		100%	Investment holding
		US$1 each
Earth Buddy	Hong Kong	10,000			—		100%	Sale of
(Intellectual property)		ordinary shares						biodegradable
Limited		of HK$1 each						products
Earth Buddy	Hong Kong	10,000			—		100%	Sale of
Environmental		ordinary shares						biodegradable
Limited		of HK$1 each						products

– I-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Particulars of
		issued and	Proportion of
	Place of	fully paid	ownership interest
	incorporation/	share capital/	and voting power
	registration	registered	held by the Company			Principal
Name of company	operation	capital	Directly	Indirectly		activities
Famous Reliance	BVI	50,000	100%		—	Investment holding
Limited		ordinary of
		US$1 each
Create Profit Enterprises	Hong Kong	10,000	—		100%	Finance and money
Limited		ordinary shares				lending
		of HK$1 each

Note:

(i) Registered as wholly-owned foreign enterprise under the law of the PRC.

The above table lists the subsidiaries of the Group, which, in the opinion of the directors, principally affected the results or assets of the Group. The directors are of the opinion that a complete list of the particulars of all subsidiaries would be of excessive length.

21. INVENTORIES

Raw materials Finished goods Consignment goods Less: Write-down of inventories	The Group 2012 2011 RMB’000 RMB’000 — 3,809 — 1,384 — 4,537 — 9,730 — (1,800) — 7,930

– I-51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. TRADE AND OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS

Trade debtors Less: allowance for doubtful debts (note 22(b)) Other receivables Trade deposit Rental and other deposits Prepayments Amounts due from subsidiaries* Less: Loan receivables — non-current portion	The Group 2012 2011 RMB’000 RMB’000 3,798 68,943 — (62,419) 3,798 6,524 8,119 9,542 778 — 530 615 124 2 — — 13,349 16,683 (2,038) — 11,311 16,683	The Company 2012 2011 RMB’000 RMB’000 — — — — — — 382 383 — — 519 595 123 1 81,818 82,169 82,842 83,148 — — 82,842 83,148	The Company 2012 2011 RMB’000 RMB’000 — — — — — — 382 383 — — 519 595 123 1 81,818 82,169 82,842 83,148 — — 82,842 83,148
			— 383 — 595 1 82,169
			83,148 —
			83,148

The amounts due from subsidiaries are non-trade nature, unsecured, interest free and repayable on demand. Due to the prolonged poor financial performance of the subsidiaries, the carrying amounts due from subsidiaries are reduced to their recoverable amounts which are determined by reference to the estimation of future cash flows reference to be generated from the respective subsidiaries.

a) Ageing analysis

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

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days Less: allowance for doubtful debts	The Group 2012 2011 RMB’000 RMB’000 3,283 5,436 440 854 2 234 73 — — — — 62,419 3,798 68,943 — (62,419 3,798 6,524	The Group 2012 2011 RMB’000 RMB’000 3,283 5,436 440 854 2 234 73 — — — — 62,419 3,798 68,943 — (62,419 3,798 6,524
		68,943 (62,419
		6,524

Customers are generally granted with credit term of 90 days. Further details on the Group’s policy are set out in note 35(a)(i).

b) Impairment of trade debtors

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

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

At January Disposal of subsidiaries At 31 December	The Group 2012 2011 RMB’000 RMB’000 62,419 62,419 (62,419) — — 62,419	The Group 2012 2011 RMB’000 RMB’000 62,419 62,419 (62,419) — — 62,419
		62,419

In determining the recoverability of trade debtors, the Group considers any change in the credit quality of the trade receivables.

At 31 December 2012, the Group’s trade debtors of approximately RMB Nil (2011: RMB62,419,000) were individually determined to be impaired. The individually impaired receivables related to customers that were in financial difficulties and management assessed that only a portion of the receivables is expected to be recovered. The Group holds sales deposits from the relevant customers over these balances.

Ageing of impaired trade debtors

Overdue by: Less than 6 months More than 6 months	The Group 2012 2011 RMB’000 RMB’000 — — — 62,419 — 62,419	The Group 2012 2011 RMB’000 RMB’000 — — — 62,419 — 62,419
		62,419

c) Trade debtors that are not impaired

The ageing analysis of trade debtors that are neither past due nor impaired and that are past due but not impaired are as follows:

Neither past due nor impaired Less than 6 months past due More than 6 months past due Total	The Group 2012 2011 RMB’000 RMB’000 3,725 6,524 73 — — — 73 — 3,798 6,524	The Group 2012 2011 RMB’000 RMB’000 3,725 6,524 73 — — — 73 — 3,798 6,524
		— —
		—
		6,524

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

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

– I-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Listed investments: Equity securities listed in Hong Kong and stated at fair value	The Group 2012 2011 RMB’000 RMB’000 — 6,880

All financial assets at fair value through profit or loss are stated at fair values. Fair values of the listed investments are determined by reference on the quoted market bid prices available on the Stock Exchange.

24. CASH AND BANK BALANCES

Cash at bank and in hand, denominated in — Hong Kong dollars and United Sates dollars — Renminbi Cash and cash equivalents in statements of financial position and consolidated statement of cash flows	The Group 2012 2011 RMB’000 RMB’000 4,197 10,559 372 1,451 4,569 12,010	The Company 2012 2011 RMB’000 RMB’000 140 384 — — 140 384	The Company 2012 2011 RMB’000 RMB’000 140 384 — — 140 384
			384

Cash and bank balances of approximately RMB372,000 (2011:RMB1,451,000) are denominated in Renminbi. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restriction imposed by the PRC government. Cash at banks earn interest at floating rates based on daily bank deposits rate.

25. TRADE AND OTHER PAYABLES

Trade creditors Accrued expenses and other payables Amount due to subsidiary Amount due to directors	The Group 2012 2011 RMB’000 RMB’000 856 3,331 6,339 40,590 — — 997 4,925 8,192 48,846	The Company 2012 2011 RMB’000 RMB’000 — — 3,602 3,585 793 314 — — 4,395 3,899	The Company 2012 2011 RMB’000 RMB’000 — — 3,602 3,585 793 314 — — 4,395 3,899
			3,899

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days	The Group 2012 2011 RMB’000 RMB’000 856 1,028 — 155 — 136 — 46 — — — 1,966 856 3,331	The Group 2012 2011 RMB’000 RMB’000 856 1,028 — 155 — 136 — 46 — — — 1,966 856 3,331
		3,331

The average credit period on purchases of goods is 30 days.

26. BANK AND OTHER BORROWINGS

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

Notes Unsecured interest-bearing bank loan (a) Unsecured interest-bearing other loans — Loan A (b) — Loan B (c) Amounts shown under current liabilities, on demand or within one year	The Group 2012 2011 RMB’000 RMB’000 — 5,000 — 27,000 — 23,000 — 55,000	The Group 2012 2011 RMB’000 RMB’000 — 5,000 — 27,000 — 23,000 — 55,000
		55,000

Notes:

(a) The weighted averaged effective interest rate on unsecured interest-bearing bank loan is 10.44% per annum.
(b) During the year ended 31 December 2011, the Group entered into a loan agreement with a financial institution (the ‘‘Party A’’) whereby the Group borrowed a loan of RMB27,000,000 (the ‘‘Loan A’’) from the Party A for the period from 18 July 2011 to 20 June 2012. The Loan A is unsecured an bearing interest 10.89% per annum.
(c) During the year ended 31 December 2011, the Group entered into the five loan agreements with independent third parties. The loans were unsecured and bearing interest range from 2% to 4% per month.

27. CONVERTIBLE NOTES

The Group and the Company

On 27 May 2011, the Company issued 3% coupon convertible notes the (‘‘Convertible Notes’’) with a principal amount of HK$120,000,000 (equivalent to approximately RMB100,020,000). Each note entitled the holder to convert to ordinary share of the Company at a conversion price of HK$0.10 per conversion share. The convertible notes were issued as part of the consideration for acquisition of Smart Courage Limited and

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

its subsidiaries (‘‘Smart Courage Group’’) (note 36). The maturity date of the Convertible Notes is the date immediately preceding the second anniversary of the date of issue of the Convertible Notes. The effective interest rate of the liability component on initial recognition is 10.913% per annum.

The Convertible Notes recognised in the statement of financial position was calculated, as follows:

At 1 January Initial recognition Interest charged calculated at an effective interest rate of 10.913% Interest paid Exchange adjustments Fair value changes At 31 December	2012 RMB’000 92,499 — 9,662 (2,942) (294) (1,103) 97,822	2011 RMB’000 — 86,450 5,605 (1,783) (1,701) 3,928 92,499

Interest expense on the Convertible Notes is calculated using the effective interest method by applying the effective interest rate of 10.913% to the liability component. The fair values of the convertible notes has been arrived on the basis of a valuation carried out on the date of issue and at the end of the reporting period by independent professional valuers not connected with the Group. The effective interest rate range from 7.556% to 10.931% per annual.

28. PROMISSORY NOTES

The Group

On 27 May 2011, Premium Stars Investment Limited, a wholly owned subsidiary of the Company issued promissory notes with a principal amount of HK$30,000,000 (equivalent to approximately RMB25,005,000) for acquiring the entire issued share capital of Smart Courage Group (the ‘‘Promissory Notes’’). The fair value of Promissory Notes was approximately HK$26,959,000 (equivalent to approximately RMB22,470,000) on 27 May 2011. The Promissory Notes bear interest at 5% per annum and are repayable in the second anniversary from the date of issue of Promissory Notes. The effective interest rate is 10.913%.

The movement of the carrying amount of the Promissory Notes during the year ended 31 December 2012 is set out below:

At 1 January Consideration for acquisition of intangible assets through acquisition of subsidiaries (note 36) Interest charged calculated at an effective interest rate of 10.913% Interest paid Exchange adjustments At 31 December	2012 RMB’000 22,746 — 2,482 (1,223) (73) 23,932	2011 RMB’000 — 22,470 1,458 (743) (439) 22,746

As at 31 December 2012, the fair value of promissory notes was approximately HK$30,590,000 (equivalent to approximately RMB24,931,000) (2011:HK$29,395,000 (equivalent to approximately RMB24,033,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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

Provision for PRC enterprise income tax for the year Provision for Hong Kong profit tax	The Group 2012 2011 RMB’000 RMB’000 886 — 91 — 977 —	The Group 2012 2011 RMB’000 RMB’000 886 — 91 — 977 —
		—

(b) Deferred taxation recognised

The Group has been provided deferred tax liabilities for the temporary difference for the fair value adjustment of investment properties of approximately RMB37,000 (2011: Nil).

At the end of the reporting period, no deferred tax assets has been recognised in relation to the deductible temporary difference and tax losses as it is not probable that taxable profit will be available against which the deductible temporary difference and tax losses can be utilised (2011: Nil). The Group and the Company has tax losses of approximately RMB11,475,000 (2011: RMB6,876,000), which do not expire under current tax legislation.

30. CAPITAL AND RESERVES

(a) Movements in components of equity

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

The Company

At 1 January 2011 Loss for the year Other comprehensive income Exchange difference translating into presentation currency Total comprehensive loss Issue of shares upon placing, net of share issuance expenses At 31 December 2011 and 1 January 2012 Loss for the year Other comprehensive income Exchange difference translating into presentation currency Total comprehensive loss At 31 December 2012	Share capital RMB’000 14,607 — — — 2,515 17,122 — — — 17,122	Share premium RMB’000 61,210 — — — 10,870 72,080 — — — 72,080	Contributed surplus RMB’000 56,774 — — — — 56,774 — — — 56,774	Capital reduction reserve RMB’000 92,489 — — — — 92,489 — — — 92,489	Share-based compensation RMB’000 20,103 — — — — 20,103 — — — 20,103	Exchange reserve RMB’000 (1,390) — 228 228 — (1,162) — 236 236 (926)	Accumulated losses RMB’000 (217,621) (37,894) — (37,894) — (255,515) (7,603) — (7,603) (263,118)	Total RMB’000 26,172 (37,894 228
								(37,666 13,385
								1,891 (7,603 236
								(7,367
								(5,476

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Share capital

(i) Authorised and issued share capital

Notes Authorised: Ordinary shares of HK$0.01 each Ordinary share, issued and fully paid Shares issued upon placing (ii)	2012 Number of shares Nominal value ’000 HK$’000 20,000,000 200,000 2012 Number of shares Nominal value of ordinary shares ’000 HK$’000 RMB’000 1,832,091 18,320 17,122 — — — 1,832,091 18,320 17,122	2011 Number of shares Nominal value ’000 HK$’000 20,000,000 200,000 2011 Number of shares Nominal value of ordinary shares ’000 HK$’000 RMB’000 1,532,091 15,320 14,607 300,000 3,000 2,515 1,832,091 18,320 17,122	2011 Number of shares Nominal value ’000 HK$’000 20,000,000 200,000 2011 Number of shares Nominal value of ordinary shares ’000 HK$’000 RMB’000 1,532,091 15,320 14,607 300,000 3,000 2,515 1,832,091 18,320 17,122
			17,122

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

(ii) Share issued upon placing as follow:

On 29 March 2011, the Company entered into the placing agreement with the placing agent pursuant to which the placing agent agreed to place, on a best effort basis, 300,000,000 new shares to independent investors at the placing price of HK$0.055 per placing share. The net proceeds from the placing of approximately HK$15,900,000 (equivalent to approximately RMB13,385,000) was raised for general working capital of the Group. The placing was completed on 21 April 2011.

(c) Nature and purpose

(i) Share premium

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

(ii) Capital reserve

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Share-based compensation reserve

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

(iv) General fund reserve

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

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

(v) Exchange reserve

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

(vi) Contributed surplus

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

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

(d) Distributability of reserves

In the opinion of the Company’s directors, as at 31 December 2012 and 2011, the Company has no reserves available for distribution to its shareholders.

(e) Capital management

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The Group monitors its capital structure on the basis of gearing ratio. The Group’s gearing ratio as at 31 December 2012 is 103% (2011: 99%), which is calculated by dividing total liabilities of approximately RMB130,960,000 (2011: RMB219,091,000) over the total assets of approximately RMB127,194,000 (2011: RMB221,430,000).

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

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

31. EQUITY SETTLED SHARE-BASED TRANSACTIONS

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

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

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

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

2012 Options granted to directors of the Company: On 22 January 2010 On 11 November 2009 Total share options granted 2011 Options granted to directors of the Company: On 22 January 2010 On 11 November 2009 Total share options granted	Number of instruments Vesting conditions Contractual life of options 86,760,000 Immediately from the date of grant 10 years 65,000,000 Immediately from the date of grant 10 years 151,760,000 86,760,000 Immediately from the date of grant 10 years 65,000,000 Immediately from the date of grant 10 years 151,760,000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Outstanding at the beginning of the year Granted during the year Outstanding at the end of the year Exercisable at the end of the year	2012 Weighted average exercise price Number of options HK$0.211 65,000,000 HK$0.2488 86,760,000 — — HK$0.2326 151,760,000 HK$0.2326 151,760,000	2011 Weighted average exercise price Number of options HK$0.211 65,000,000 HK$0.2488 86,760,000 — — HK$0.2326 151,760,000 HK$0.2326 151,760,000	2011 Weighted average exercise price Number of options HK$0.211 65,000,000 HK$0.2488 86,760,000 — — HK$0.2326 151,760,000 HK$0.2326 151,760,000
			151,760,000
			151,760,000

The weighted average share price at the date of exercise for shares options exercised during the year was HK$0.2326 (2011: HK$0.2326) and a weighted average remaining contractual life of 7 years (2011: 8 years).

No options have been granted, exercised or cancelled during the year ended 31 December 2012.

(c) Fair value of share options and assumptions

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

Fair value at measurement date	HK$0.1365
Share price	HK$0.2488
Exercise price	HK$0.2488
Expected volatility (expressed as weighted average volatility
used in the modeling under binomial model)	118.795%
Option life (expressed as weighted average life
used in the modeling under binomial model)	4 years
Expected dividends	0.000%
Risk-free interest rate (based on Hong Kong Exchange Fund Notes)	1.51%

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

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

32. RETIREMENT BENEFITS SCHEME

The Group operates a Mandatory Provident Fund Scheme (‘‘the MPF scheme’’) under the Hong Kong Mandatory Provident Fund Scheme Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement scheme administered by independent

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap monthly relevant income of HK$20,000. Contributions to the scheme vest immediately.

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

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

For the year ended 31 December 2012, the aggregate amount of the Group’s contributions to the aforementioned schemes was approximately RMB1,234,000 (2011: RMB1,623,000) which was included in the staff costs.

33. MATERIAL RELATED PARTY TRANSACTIONS

Save as disclosed else where in the consolidated financial statements, the Group has the following material related party transactions:

(a) Key management personnel remuneration

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

Short-term employees benefit Retirement scheme contributions Total	2012 RMB’000 1,445 32 1,477	2011 RMB’000 1,735 26
		1,761

Total remuneration is included in ‘‘staff cost’’ (see note 7(b)).

34. COMMITMENTS

(a) Capital commitments outstanding at 31 December 2012 not provided for in the financial statements were as follows:

Capital expenditure authorised and contracted for in respect of acquisition of: — property, plant and equipment	The Group 2012 2011 RMB’000 RMB’000 — 28,038

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) At 31 December 2012, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within 1 year After 1 year but within 5 years	The Group 2012 2011 RMB’000 RMB’000 1,354 3,499 — 2,858 1,354 6,357	The Company 2012 2011 RMB’000 RMB’000 1,354 1,499 — 1,359 1,354 2,858	The Company 2012 2011 RMB’000 RMB’000 1,354 1,499 — 1,359 1,354 2,858
			2,858

The Group leases a number of properties under operating leases. The leases typically run for an initial period of one to three years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.

35. FINANCIAL RISK MANAGEMENT AND FAIR VALUES

(a) Financial risk factors

The Group’s financial assets include cash and cash equivalents, trade and other receivables, prepayments and deposits and financial assets at fair value through profit or loss. The Group’s financial liabilities include bank and other borrowings, trade and other payables, convertible notes and promissory notes.

The Group does not have nor has issued financial instruments for trading purposes. Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. These risks are limited by the Group’s financial management policies and practices described below.

(i) Credit risk

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

In respect of trade and other receivables, credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer. In this regard, the Directors of the Company consider the Group’s and the Company’s credit risk is reduced.

The Group has a concentration of credit risk in certain individual customers. At the end of each reporting period, the five largest receivable balances accounted for approximately 99% (2011: approximately 91%) of the trade receivable and the largest trade receivable was approximately RMB1,541,326 (2011: RMB4,701,000) and was approximately 41% (2011: approximately 72%) of the Group’s total trade receivables. The Group seeks to minimize its risk by dealing with counterparties which have good credit history. Majority of the trade receivables that are neither past due nor impaired have no default payment history.

The Group has a concentration of risk by geographical location mainly in Hong Kong.

In relation to the Group’s deposit with bank, the Group limits its exposure to credit risk by placing deposits with financial institution with high credit rating and no recent history of default. The directors consider that the Group’s credit risk on the bank deposits is low. Management continues to monitor the position and will take appropriate action if their ratings are changed. As at 31 December 2012 and 2011, the Group has no significant concentration of credit risk in relation to deposit with bank.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in notes 22.

(ii) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions and other lenders to meet its liquidity requirements in the short and longer term.

The following tables show the remaining contractual maturities at the end of the reporting period of Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay:

The Group

Trade and other payables Convertible notes Promissory notes Trade and other payables Loans and borrowings Convertible notes Promissory notes	Carrying Amount RMB’000 8,192 97,822 23,932 129,946 Carrying Amount RMB’000 48,846 55,000 92,499 22,746 219,091	Total Contractual undiscounted cash flow RMB’000 8,192 98,112 24,528 130,832 Total Contractual undiscounted cash flow RMB’000 48,846 55,000 98,112 24,528 226,486	2012 Within 1 year or on demand RMB’000 8,192 98,112 24,528 130,832 2011 Within 1 year or on demand RMB’000 48,846 55,000 2,943 1,226 108,015	More than 1 year but less than 2 years RMB’000 — — — — More than 1 year but less than 2 years RMB’000 — — 95,169 23,302 118,471	More than 2 years but less than 5 years RMB’000 — — —
					—
					More than 2 years but less than 5 years RMB’000 — — — —
					—

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

Trade and other payables Convertible notes Trade and other payables Convertible notes	Carrying Amount RMB’000 4,395 97,822 102,217 Carrying Amount RMB’000 3,899 92,499 96,398	Total Contractual undiscounted cash flow RMB’000 4,395 98,112 102,507 Total Contractual undiscounted cash flow RMB’000 3,899 98,112 102,011	2012 Within 1 year or on demand RMB’000 4,395 98,112 102,507 2011 Within 1 year or on demand RMB’000 3,899 2,943 6,842	More than 1 year but less than 2 years RMB’000 — — — More than 1 year but less than 2 years RMB’000 — 95,169 95,169	More than 2 years but less than 5 years RMB’000 — —
					—
					More than 2 years but less than 5 years RMB’000 — —
					—

(iii) Interest rate risk

The Group’s interest rate risk arises primarily from bank and other borrowings, promissory notes and convertible notes. The interest rates and maturity information of the Group’s bank and other borrowings, promissory notes and convertible notes are disclosed in notes 26, 27 and 28.

The Group currently does not have any interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant fixed-rate bank and other borrowings should the need arise.

Sensitivity analysis

At 31 December 2012, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s loss after tax and accumulated losses by approximately RMB1,172,000 (2011: approximately RMB1,582,000). Other components of equity would not be affected (2011: nil) in response to the general increase/decrease in interest rates.

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the end of reporting period and had been applied to the exposure to interest rate risk for non-derivative financial instruments in existence at that date. The 100 basis point increase or decrease represents management’s assessment of a reasonably possible change in the respective interest rates over the period until the next annual reporting period.

(iv) Currency risk

Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place through the People’s Bank of China (‘‘PBOC’’) or other institutions authorised to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC that would be subject to a managed float against an unspecified basket of currencies.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As most of the Group’s monetary assets and liabilities are denominated in Renminbi and Hong Kong dollars and the Group conducts its business transactions principally in Renminbi and Hong Kong dollars, the exchange rate risk of the Group is not significant and the Group does not employ any financial instruments for hedging purposes.

(v) Equity price risk

The Group is exposed to equity price risk mainly through its investment in listed equity securities. The management manages this exposure by maintaining a portfolio of investments with difference risk and return profiles. The Group exposed to equity price risk arising from changes in the Group’s financial assets at fair value through profit or loss.

Sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to equity price risk at the reporting date. If equity price had been 5% higher/lower, the Group’s net profit/(loss) for the year would increase/decrease by approximately RMBNil (2011: RMB334,000). This is mainly due to the changes in financial assets at fair value through profit or loss.

(vi) Fair values of financial instrument

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

i) the fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and
ii) the fair values of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The carrying amount of other financial assets and liabilities carried at amortised cost, approximate their respective fair values due to the relatively short-term nature of these financial instruments.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable as at 31 December 2012 and 2011.

. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities.
. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
. Level 3 fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable market data (unobservable inputs).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2012 Financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets Financial liabilities Convertible notes At 31 December 2011 Financial assets Financial assets at fair value through profit or loss Available-for-sale financial assets Financial liabilities Convertible notes	Level 1 RMB’000 — — — Level 1 RMB’000 6,880 — —	Level 2 RMB’000 — — — Level 2 RMB’000 — — —	Level 3 RMB’000 — — 97,822 Level 3 RMB’000 — — 92,499	Total RMB’000 — — 97,822
				Total RMB’000 6,880 — 92,499

Reconciliation of Level 3 fair value measurements of financial assets

1 January Impairment loss recognised 31 December	Unquoted equity investments 2012 2011 RMB’000 RMB’000 1,200 1,200 (1,200) (1,200 — —	Unquoted equity investments 2012 2011 RMB’000 RMB’000 1,200 1,200 (1,200) (1,200 — —
		—

These were no transfer between Level 1, 2 and 3 in both years.

36. ACQUISITION OF INTANGIBLE ASSET THROUGH ACQUISITION OF SUBSIDIARIES

On 24 December 2010, the Group entered into a sale and purchase agreement (‘‘Smart Courage Acquisitions’’) with an independent third party (the ‘‘Smart Courage Vendor’’) whereby the Group conditionally agreed to acquire the entire issued share capital of Smart Courage Group for a total contracted consideration of HK$180,000,000.

The total consideration of HK$180,000,000, HK$30,000,000 was satisfied by cash, HK$120,000,000 was satisfied by the issue of the Convertible Notes (note 27) and HK$30,000,000 was satisfied by issuance of Promissory Note (note 28) with fair values of HK$30,000,000 (equivalent to approximately RMB25,005,000), HK$103,719,000 (equivalent to approximately RMB86,450,000) and HK$26,959,000 (equivalent to approximately RMB22,470,000) (‘‘Consideration’’).

The total consideration of HK$180,000,000 is subject to adjustments based on the net profit of the Smart Courage Group for the year ending 30 September 2012 which is less than HK$12,000,000 (‘‘Reference Profit’’), the amount payable by the Premium Stars Investments Limited 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. The acquisition was completed on 27 May 2011.

– I-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Smart Courage Group has not carried out any significant business transactions on acquisition date. In the opinion of the directors, the acquisition did not constitute an acquisition of business in substance. The acquisition of the intangible assets was then considered as acquisition of assets through acquisition of subsidiaries, Therefore, the acquisition was not accounted for as a business combination in accordance with the requirement of IFRS 3 Business Combination.

Details of assets acquired and liabilities assumed as at the acquisition date were as follows:

Net assets acquired: Intangible assets Other receivables Cash and bank balances Other payables Total consideration Satisfied by: Consideration paid in cash Fair value of convertible notes Fair value of promissory notes Net cash outflow arising on acquisition: Consideration paid in cash Cash and bank balance acquired	RMB’000 134,338 8 1 (422) 133,925 25,005 86,450 22,470 133,925 25,005 (1) 25,004

Note:

(i) The fair value of the promissory notes and convertible bonds issued has been arrived at on the basis of a valuation carried out on the completion date of the acquisition by an independent qualified professional valuer and not connected with the Group.

37. DISPOSAL OF SUBSIDIARIES

On 16 June 2012, the Group entered into sale and purchase agreement (‘‘S&P’’) to disposal of its 100% equity interest in Garner International Investments Limited and its subsidiaries to an independent third party (the ‘‘Purchaser’’) for cash consideration of HK$3,000,000 (equivalent to approximately RMB2,445,000). The disposal was completed on 10 October 2012. Summary of the effects of the disposal is as follows:

Net liabilities disposed of: Plant and equipments Inventories Trade and other receivables Cash and bank balances Trade and other payables Bank and other other borrowings Amounts due to the Group Net liabilities disposed of	RMB’000 68,794 9,009 35,587 15,150 (106,651) (62,000) (32,894) (73,005)

– I-68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Gain on disposal of subsidiaries

Consideration received Sale loan Net liabilities disposed Release of capital reserve Release of general fund reserve Release of exchange reserve Gain on disposal	RMB’000 2,445 (32,894) 73,005 7,195 9,025 7,568 66,344

The gain on disposal is included in the loss for the year from discounted operations in the consolidated statement of comprehensive income (note 11).

Net cash outflow from disposal of subsidiaries

Consideration received in cash and cash equivalents Less: cash and cash equivalent balances disposed of Net cash outflow from disposal of subsidiaries	RMB’000 2,445 (15,150) (12,705)

38. ACCOUNTING ESTIMATES AND JUDGEMENTS

The methods, estimates and judgements the directors used in applying the Group’s accounting policies have a significant impact on the Group’s financial position and operating results. Some of the accounting policies require the Group to apply estimates and judgements, on matters that are inherently uncertain. The critical accounting judgements in applying the Group’s accounting policies are described below.

(a) Impairment for bad and doubtful debts

The Group estimates impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. The Group bases the estimates on the aging of the trade debtors, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write offs would be higher than estimated.

(b) Impairment for non-current assets

If circumstances indicate that the carrying amount of a non-current asset may not be recoverable, the asset may be considered ‘‘impaired’’, and an impairment loss may be recognised in accordance with IAS 36 ‘‘Impairment of Assets’’. The carrying amounts of non-current assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Depreciation and amortisation

Plant and equipments are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. Intangible assets except for those with indefinite lives are amortised on a straight-line basis over the estimated useful lives. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation and amortisation expenses to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation and amortisation expenses for future periods are adjusted prospectively if there are significant changes from previous estimates.

(d) Write-down of inventories

If the costs of inventories fall below their net realisable values, write-down of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. The Group bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion and other distribution costs were to be higher than estimated, the write-down of inventories could be higher than estimated.

(e) Provision for income tax

Determining income tax provisions involves judgement on the future tax treatment of certain transactions. The management evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation. Deferred tax assets are recognised for tax losses not yet used and temporary deductible differences. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised, the management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax asset to be recovered.

(f) Impairment for goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been allocated. The value in use calculation requires the Group estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. At 31 December 2012, the carrying amount of goodwill of approximately RMB6,821,000. Details of the recoverable amount calculation are disclosed in note 18.

(g) Valuation of investment properties

Investment properties are included in the statement of financial position at their fair value, which is assessed annually by independent qualified valuers, after taking into consideration all readily available information and current market environment.

The methodology and assumptions adopted in the property valuations are mentioned in note 16.

(h) Impairment of intangible assets

Determining whether intangible assets is impaired requires an estimation of the value in use of the cashgenerating units. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate present value.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. NON-CASH TRANSACTIONS

During the year ended 31 December 2011, the Group acquired the entire share capital of Smart Courage Group for a total consideration of HK$180,000,000 (equivalent to approximately RMB150,030,000), the consideration was satisfied by promissory note of approximately HK$30,000,000 (equivalent to approximately RMB25,005,000) and convertible bonds HK$120,000,000 (equivalent to approximately RMB100,020,000).

40. EVENTS AFTER THE REPORTING PERIOD

(a) On 22 February 2013, Lucky River entered sales and purchase agreement to dispose 100% interest in Zhuhai WFOE to San Cheng Song at a consideration of HK$8,500,000 (equivalent to approximately RMB6,932,000). The directors consider that the Group shall streamline its business and it is beneficial to the Company to dispose its interest in Zhuhai WFOE so as to focus its financial resources in other business of the Group. The disposal was completed on 19 March 2013.

Trade and other receivables, prepayments and deposits Cash and bank balances Goodwill Tax payables Estimated net assets Less: consideration Estimated loss on disposal	RMB’000 (unaudited) 3,479 2 6,821 (886) 9,416 (6,932) 2,484

The disposal does not constitute a discontinued operation as it does not represent a major line of business or geographical area of operation of the Group.

(b) On 25 March 2013, the Group received a written confirmation from Talent Keen agreed to extend the maturity date on promissory notes from 27 May 2013 to 27 May 2015 and bear interest at 5% per annum. Further details refer to Company’s announcement date 25 March 2013.

41. COMPARATIVE FINANCIAL INFORMATION

Certain comparative figures have been restated to confirm with current year presentation.

42. AUTHORISATION FOR ISSUE OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 25 March 2013.

– I-71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED FINANCIAL INFORMATION OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2013

Consolidated Statement of Comprehensive Income (Unaudited) For the six months ended 30 June 2013

Notes Turnover 3 Cost of sales Gross profit Other gains and losses 5 General and administrative expenses Loss from operations Share of results of associates Finance costs 6(a) Loss before taxation 6 Income tax expenses 7 Loss for the period from continuing operation Discontinued operation Loss for the period from discontinued operation Loss for the period Other comprehensive income/(loss), net of tax Exchange differences on translation into presentation currency Total comprehensive loss for the period Loss for the period attributable to owners of the Company Total comprehensive loss attributable to owners of the Company Loss per share For continuing and discontinued operations — Basic and diluted 8 For continuing operations — Basic and diluted 8	Six months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) 42,471 52,466 (40,346) (45,984) 2,125 6,482 4,574 758 (23,536) (13,322) (16,837) (6,082) — (8) (5,032) (5,815) (21,869) (11,905) — — (21,869) (11,905) (6) (13,619) (21,875) (25,524) 1,049 464 (20,826) (25,060) (21,875) (25,524) (20,826) (25,060) (RMB1.14 cent) (RMB1.39 cent) (RMB1.14 cent) (RMB0.66 cent)	Three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) 32,825 24,799 (31,090) (22,127 1,735 2,672 6,713 1,301 (17,120) (6,693 (8,672) (2,720 — (8 (3,993) (4,780 (12,665) (7,508 — — (12,665) (7,508 — (7,349 (12,665) (14,857 1,139 (105 (11,526) (14,962 (12,665) (14,857 (11,526) (14,962 (RMB0.63 cent) (RMB0.81 cent (RMB0.63 cent) (RMB0.42 cent	Three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) 32,825 24,799 (31,090) (22,127 1,735 2,672 6,713 1,301 (17,120) (6,693 (8,672) (2,720 — (8 (3,993) (4,780 (12,665) (7,508 — — (12,665) (7,508 — (7,349 (12,665) (14,857 1,139 (105 (11,526) (14,962 (12,665) (14,857 (11,526) (14,962 (RMB0.63 cent) (RMB0.81 cent (RMB0.63 cent) (RMB0.42 cent
			2,672 1,301 (6,693
			(2,720 (8 (4,780
			(7,508 —
			(7,508 (7,349
			(14,857 (105
			(14,962
			(14,857
			(14,962
			(RMB0.81 cent (RMB0.42 cent

– I-72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Financial Position

Notes NON-CURRENT ASSETS Investment properties Plant and equipment Intangible assets Goodwill Trade and other receivables CURRENT ASSETS Trade and other receivables 10 Cash and bank balances CURRENT LIABILITIES Trade and other payables 11 Other borrowings 12 Promissory notes 13 Convertible notes 14 Tax payable Net current liabilities Total assets less current liabilities Non-current liabilities Promissory notes 13 Deferred tax liabilities NET LIABILITIES CAPITAL AND RESERVES Share capital Reserves	(Unaudited) As at 30 June 2013 RMB’000 — 491 80,714 — 1,990 83,195 8,978 7,091 16,069 5,878 80,032 — — 89 85,999 (69,930) 13,265 22,411 — 22,411 (9,146) 18,686 (27,832) (9,146)	(Audited) As at 31 December 2012 RMB’000 1,900 2,038 98,517 6,821 2,038 111,314 11,311 4,569 15,880 8,192 — 23,932 97,822 977 130,923 (115,043) (3,729) — 37 37 (3,766) 17,122 (20,888) (3,766)

– I-73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity (Unaudited)

At 1 January 2012 Total comprehensive loss for the six months ended 30 June 2012 At 30 June 2012 At 1 January 2013 Conversion of Convertible notes Cancellation of share options Total comprehensive loss for the six months ended 30 June 2013 At 30 June 2013	Share capital RMB’000 17,122 — 17,122 17,122 1,564 — — 18,686	Share premium RMB’000 72,080 — 72,080 72,080 13,882 — — 85,962	Capital reserve RMB’000 7,195 — 7,195 — — — — —	Share option reserve RMB’000 20,103 — 20,103 20,103 — (12,788) — 7,315	Capital reduction reserve RMB’000 92,489 — 92,489 92,489 — — — 92,489	General reserve fund RMB’000 9,025 — 9,025 — — — — —	Foreign currency Translation reserve RMB’000 (2,786) 464 (2,322) (10,277) — — 1,049 (9,228)	Accumu- lated losses RMB’000 (212,889) (25,524) (238,413) (195,283) — 12,788 (21,875) (204,370)	Total RMB’000 2,339 (25,060
									(22,721
									(3,766 15,446 — (20,826
									(9,146

– I-74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement (Unaudited)

Net cash (used in)/generated from operating activities Net cash generated from/(used in) investing activities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents, at 1 January Cash and cash equivalents, at 30 June Analysis of the balances of cash and cash equivalents cash and bank balances	Six months ended 30 June 2013 2012 RMB’000 RMB’000 (3,848) 62,860 8,272 (6,677) (1,902) (42,871) 2,522 13,312 4,569 12,010 7,091 25,322 7,091 25,322

– I-75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to Financial Statements

1. CORPORATION INFORMATION

The Company was incorporated in the Cayman Islands on 1 August 2000 as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands, and its shares have been listed on the GEM of the Stock Exchange with effect from 20 July 2001.

The consolidated financial statements of the Company as at and for the six months ended 30 June 2013 comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’). The Group is primarily engaged in trading of biodegradable food containers and disposal industrial packaging for consumer products.

2. BASIS OF PREPARATION

(a) Statement of compliance

The unaudited financial statements have been prepared in accordance with International Accounting Standard 34 (IAS 34) Interim Financial Reporting and with the applicable disclosure requirements of Chapter 18 of the GEM Listing Rules. The principal accounting policies adopted in these condensed financial statements are consistent with those used in the preparation of the Group’s audited consolidated financial statements for the year ended 31 December 2012, except for the adoption of new interpretations and amendments to IFRSs and the accounting policies adopted for new transactions, noted below.

The Group has adopted the following new or revised IFRSs which are relevant to its business for the first time for these consolidated quarterly results:

IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interest in Other Entities IFRS 13 Fair Value Measurement Amendments to IFRS 7 Disclosures — Offsetting Financial Assets and Financial Liabilities Amendments to IFRS10, Consolidated Financial Statements, Joint arrangements Disclosure of IFRS 11 and IFRS 12 Interests in Other Entities: Transition Guidance IAS 19 (as revised in 2011) Employee Benefits IAS 27 (as revised in 2011) Separate Financial Statements IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures Amendments to IAS 1 Presentation of Items of Other Comprehensive Income Amendments to IFRSs Annual Improvements to IFRSs 2009–2011 IFRIC Int 20 Stripping Costs in the Production Phase of Surface Mine

– I-76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group has not early applied the following new or revised standards, amendments and interpretations that have been issued but are not yet effective:

IFRS 9 Financial instruments[2] Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures[2] and IFRS 7 Amendment to IFRS 10, Investment Entities[1] IFRS 12 and IAS 27 Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities[1]

1 Effective for annual periods beginning on or after 1 January 2014.

2 Effective for annual periods beginning on or after 1 January 2015.

Key requirements of IFRS 9 are described as follows:

All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent reporting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. In addition, under IFRS9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

IFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.

The directors of the Company anticipate that the application of these new and revised standards, amendments and interpretations will have no material impact on the consolidated financial statements.

(b) Going concern

In preparing the consolidated financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group notwithstanding that:

the Group had consolidated loss attributable to owners of the Company of approximately RMB21,869,000 for the period ended 30 June 2013;

– I-77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

the Group had consolidated net current liabilities of approximately RMB69,930,000 as at 30 June 2013;
the Group had consolidated net liabilities of approximately RMB9,146,000 as at 30 June 2013.

(1) Financial supports

(2) Attainment of profitable and positive cash flow operations

The Group is taking measures to tighten cost controls over various costs and expenses and to seek new investment and business opportunities with an aim to attain profitable and positive cash flow operations. In the opinion of the directors, in light of the various measures/arrangements implemented after the end of reporting period, the Group will have sufficient working capital for its current requirements and it is reasonable to expect the Group to remain a commercially viable concern. Accordingly, the directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

(3) Open offer

The Company proposes to raise not less than approximately HK$162 million (before expenses) by way of an open offer of not less than 1,621,334,832 consolidated shares and not more than 1,657,334,832 consolidated shares at a subscription price of HK$0.10 per consolidated share on the basis of eight (8) consolidated shares for every one (1) consolidated share held on the record date by qualifying shareholders.

The estimated net proceeds from the open offer will be not less than approximately HK$156 million. The Board intends to apply the net proceeds from the open offer as to approximately HK$134 million for the settlement of the outstanding convertible notes together with accrued interests of approximately HK$103 million and promissory notes together with accrued interests of approximately HK$31 million, and as to approximately HK$22 million for general working capital purposes. Details of the proposed open offer are set out in the Company’s announcement dated 11 July 2013.

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the investment properties and certain financial instruments, which are measured at fair values.

(d) Functional and presentation currency

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

– I-78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Use of estimates and judgements

3. TURNOVER

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

Continuing operations: Sale of biodegradable raw materials and products Discontinued operation: Sale of pharmaceutical products Distribution of skin care products Total	2013 RMB’000 42,471 42,471 — — 42,471	2012 RMB’000 (restated) 52,466
		52,466
		39,563 84
		92,113

– I-79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SEGMENT REPORTING

Segment revenues and results

(Unaudited)

For the six months ended 30 June

Turnover External sales Result Segment result Unallocated corporate expenses Loss from operations Share of results of associates Finance costs Loss before taxation Income tax expenses Loss for the period Turnover External sales Result Segment result Unallocated corporate income/(expenses) Loss from operations Share of results of associates Finance costs Loss before taxation Income tax expenses Loss for the period	Continuing Operations Biodegradable raw materials and products 2013 2012 RMB’000 RMB’000 42,471 52,466 (15,687) (1,943) 32,825 24,799 (11,971) (1,517)	Discontinued operation Skin care products Pharmaceutical products 2013 2012 2013 2012 RMB’000 RMB’000 RMB’000 RMB’000 — 84 — 39,563 (6) (269) — (10,033) — — — 18,922 — (173) — (5,917)	Consolidated 2013 2012 RMB’000 RMB’000 42,471 92,113 (15,693) (12,245) (1,150) (3,730) (16,843) (15,975) — (8) (5,032) (9,541) (21,875) (25,524) — — (21,875) (25,524) 32,825 43,721 (11,971) (7,607) 3,299 (776) (8,672) (8,383) — (8) (3,993) (6,466) (12,665) (14,857) — — (12,665) (14,857)

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current year (2012: Nil).

– I-80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment assets and liabilities

Continuing Operations Discontinued operation Biodegradable raw materials and products Skin care products Pharmaceutical products 2013 2012 2013 2012 2013 2012 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Assets Segment assets 89,290 104,992 — — — — Unallocated corporate assets Liabilities Segment liabilities 1,292 1,323 — — — — Unallocated corporate liabilities	Consolidated 2013 2012 RMB’000 RMB’000 89,290 104,992 9,974 22,202 99,264 127,194 1,292 1,323 107,118 129,637 108,410 130,960	Consolidated 2013 2012 RMB’000 RMB’000 89,290 104,992 9,974 22,202 99,264 127,194 1,292 1,323 107,118 129,637 108,410 130,960
		127,194
		1,323 129,637
		130,960

For the purposes of monitoring segment performance and allocating resources between segments:

All assets are allocated to operating segments other than interests in associates, investment properties, financial assets at fair value through profit or loss and other corporate assets.

All liabilities are allocated to operating segments other than convertible notes, promissory notes and corporate liabilities.

5. OTHER GAINS AND LOSSES

Continuing operations: Distribution income Fair value (loss)/gain on financial assets at fair value through profit or loss (Loss)/gain on disposal of financial assets at fair value through profit or loss Sample income Sundry income Gain on disposal of subsidiaries Gain on extension of Promissory notes Fair value gain on convertible notes Discontinued operation: Sample income Sundry income	(Unaudited) For the six months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — 1,867 — (514) — (950) — 3 254 352 23 — 1,484 — 2,813 — 4,574 758 — 266 — 102 4,574 1,126	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — 1,867 — (393 — (201 — 4 (1) 24 2,417 — 1,484 — 2,813 — 6,713 1,301 — 264 — 94 6,713 1,659	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — 1,867 — (393 — (201 — 4 (1) 24 2,417 — 1,484 — 2,813 — 6,713 1,301 — 264 — 94 6,713 1,659
			1,301
			264 94
			1,659

– I-81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. (LOSS)/PROFIT BEFORE TAXATION

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

(a) Net finance (costs)/income Continuing operations: Interest on bank and other borrowings wholly repayable within five years Interest on convertible notes Interest on promissory notes Discontinued operation: Interest on bank and other borrowings wholly repayable within five years Net financial costs recognised in consolidated statement of comprehensive income (b) Staff costs Continuing operations: Contributions to defined contribution retirement plans Salaries, wages and other benefits Discontinued operation: Salaries, wages and other benefits Total staff costs (c) Other items Continuing operations: Amortisation of intangible assets Depreciation Auditors’ remuneration Impairment of intangible assets Cost of inventories sold Discontinued operation: Depreciation Advertising and promotion expenses Cost of inventories sold	(Unaudited) For the six months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) (230) — (3,688) (4,619) (1,114) (1,196) (5,032) (5,815) — (3,726) (5,032) (9,541) 30 27 910 943 — 7,673 940 8,643 8,210 8,699 244 393 796 816 9,585 — 40,346 45,984 — 634 — 12,570 — 12,101	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) (230) — (2,955) (3,889) (808) (892) (3,993) (4,781) — (1,685) (3,993) (6,466) 14 14 411 462 — 4,491 425 4,967 3,932 4,349 46 195 385 410 9,585 — 31,090 22,127 — 316 — 11,220 — 5,882

– I-82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. INCOME TAX EXPENSES

Income tax expenses in the consolidated statement of comprehensive income represents:

Continuing operations: Current tax Hong Kong PRC enterprise income tax Discontinued operation: Current tax PRC enterprise income tax	(Unaudited) For the six months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — — — — — — — —	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — — — — — — — –	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) — — — — — — — –
			—
			–

(i) Hong Kong profits tax

Hong Kong income tax has been provided at the rate of 16.5% (2012: 16.5%) on the estimated assessable profit for the period ended 30 June 2013.

(ii) Income taxes outside Hong Kong

The subsidiary of the Group established in the PRC is generally subject to PRC enterprise income tax on its taxable income at an income tax rate of 25% in respect of the Period (2012: 25%).

8. DIVIDEND

The Directors do not recommend the payment of an interim dividend for the Period (2012: Nil).

9. LOSS PER SHARE

(a) Basic loss per share

Loss for the period — For continuing and discontinued operations — For continuing operations Weighted average number of ordinary share	(Unaudited) For the six months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) (21,874) (25,524) (21,868) (12,174) 1,925,617,178 1,832,090,909	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) (12,665) (14,857 (12,665) (7,681 2,018,115,686 1,832,290,909	(Unaudited) For the three months ended 30 June 2013 2012 RMB’000 RMB’000 (restated) (12,665) (14,857 (12,665) (7,681 2,018,115,686 1,832,290,909
			1,832,290,909

– I-83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Diluted loss per share

Diluted loss per share for the six months ended 30 June 2013 and 2012 was the same as basic loss per share because the effects of the Company’s share options were anti dilutive.

10. TRADE AND OTHER RECEIVABLES

Trade debtors Less: allowance for doubtful debts Other receivables Trade deposit Rental and other deposits Prepayments Less: loan receivables — non-current portion	(Unaudited) As at 30 June 2013 RMB’000 6,031 — 6,031 2,946 1,592 398 1 10,968 (1,990) 8,978	(Audited) As at 31 December 2012 RMB’000 3,798 —
		3,798 8,119 778 530 124
		13,349
		(2,038
		11,311

Customers are generally granted with credit term of 90 days.

Ageing analysis

An ageing analysis of trade receivables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days Less: allowances for doubtful debts	(Unaudited) As at 30 June 2013 RMB’000 1,253 1,033 962 2,783 — — 6,031 — 6,031	(Audited) As at 31 December 2012 RMB’000 3,283 440 2 73 — —
		3,798 —
		3,798

– I-84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. TRADE AND OTHER PAYABLES

Trade creditors Accrued expenses and other payables	(Unaudited) As at 30 June 2013 RMB’000 837 5,041 5,878	(Audited) As at 31 December 2012 RMB’000 856 7,336
		8,192

The average credit period on purchases of goods is 30 days.

Ageing analysis

An ageing analysis of trade payables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days	(Unaudited) As at 30 June 2013 RMB’000 837 — — — — — 837	(Audited) As at 31 December 2012 RMB’000 856 — — — — —
		856

12. OTHER BORROWINGS

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

Notes Unsecured interest-bearing other loans (a) Amounts shown under current liabilities, on demand or within one year	(Unaudited) As at 30 June 2013 RMB’000 80,032 80,032	(Audited) As at 31 December 2012 RMB’000 —
		—

Notes:

(a) During the period, the convertible notes matured. The bondholders agreed to defer the payment to 25 October 2013. The amount is reclassified as other loan. The loan was unsecured and bearing interest 3% p.a..

– I-85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PROMISSORY NOTES

On 27 May 2011, Premium Stars Investment Limited, a wholly owned subsidiary of the Company, issued promissory notes with a principal amount of HK$30,000,000 (equivalent to approximately RMB25,005,000) for acquiring the entire issued share capital of Smart Courage Group (the ‘‘Promissory Notes’’). The fair value of Promissory Notes was approximately HK$26,959,000 (equivalent to approximately RMB22,470,000) on 27 May 2011. The Promissory Notes bear interest at 5% per annum and are repayable in second anniversary from the date of issue of Promissory Notes. The effective interest rate is 10.913%.

On 25 March 2013, the Vendor of the Promissory Note is willing to postpone the maturity date of the Promissory Note to 27 May 2015. Other terms and conditions of the Promissory Note remain unchanged.

The movement of the carrying amount of the Promissory Notes during the period ended 30 June 2013 is set out below:

At 31 December 2012 Interest charged calculated at an effective interest rate of 10.913% Interest paid Gain on extension of Promissory notes Exchange adjustments At 30 June 2013	RMB’000 23,932 1,114 (597) (1,484) (554) 22,411

As at 30 June 2013, the fair value of Promissory Notes was approximately HK$28,154,000 (equivalent to approximately RMB22,411,000).

14. CONVERTIBLE NOTES

On 27 May 2011, the Company issued 3% coupon convertible notes (the ‘‘Convertible Notes’’) with a principal amount of HK$120,000,000 (equivalent to approximately RMB100,020,000). Each note entitled the holder to convert to ordinary share of the Company at a conversion price of HK$0.10 per conversion share. The Convertible Notes were issued as part of the consideration for acquisition of Smart Courage Limited and its subsidiaries. The maturity date of the Convertible Notes is the date immediately preceding the second anniversary of the date of issue of the Convertible Notes. The effective interest rate of the liability component on initial recognition is 10.913% per annum.

The Convertible Notes recognised in the statement of financial position was calculated, as follows:

At 31 December 2012 Conversion rights exercised Interest charged calculated at an effective interest rate of 10.913% Interest paid Fair value charges Exchange adjustments Matured during the period At 30 June 2013	RMB’000 97,822 (15,446) 3,685 (1,091) (2,813) (2,125) (80,032) —

Interest expense on the Convertible Notes is calculated using the effective interest method by applying the effective interest rate of 10.913% to the liability component. The fair values of the Convertible Notes has been arrived on the basis of a valuation carried out on date of issue and at end of the reporting period by independent professional valuers not connected with the Group. The effective interest rate range from 8.82% to 10.913% per annum.

– I-86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 5 April 2013, Alpha Tycoon Limited and Talent Keen Limited (collectively, the ‘‘Bondholders’’) requested for the conversion of the Convertible Bonds in the principal amount of HK$4,457,764 and HK$15,000,000 respectively.

The 194,577,640 Conversion Shares to be issued represent approximately 9.60% of the existing issued share capital of the Company as enlarged by the allotment and issuance of the 194,577,640 Conversion Shares.

The Convertible Bonds is matured on 27 May 2013. The Bondholders in the principal amount of HK$100,542,236 (equivalent to approximately RMB80,032,000) of the Convertible Bonds have agreed to defer the repayment of the principal amount to 25 October 2013. The amount is reclassified as other borrowings and bearing interest 3% p.a..

15. MAJOR ACQUISITIONS AND DISPOSALS DURING THE PERIOD

On 15 May 2013, the Company entered into a sale and purchase agreement with an independent third party, the Company agreed to sell the entire share capital of Merry Sky Limited (a wholly owned subsidiary of the Group) at a total consideration of HK$2,200,000. The transaction was completed on 15 June 2013.

On 27 June 2013, the Company entered into a sale and purchase agreement with an independent third party, the Company agreed to sell the entire share capital of Jin Hao Limited (a wholly owned subsidiary of the Group) at a total consideration of HK$200,000. The transaction was completed on 30 June 2013.

– I-87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

UNAUDITED FIRST QUARTERLY REPORT FOR THE THREE MONTHS ENDED 31 MARCH 2013

Consolidated Statement of Comprehensive Income (Unaudited) For the three months ended 31 March 2013

Notes
Turnover
3
Cost of sales
Gross profit
Other gains and losses
5
General and administrative expenses
Loss from operations
6
Finance costs
6(a)
Loss before taxation
6
Income tax expenses
7
Loss for the period from continuing
operations
Discontinued operation
Loss for the period from discontinued operation
Loss for the period
Other comprehensive gain/(loss), net of tax
Exchange differences on translation into
presentation currency
Total comprehensive loss for the period
Loss for the period attributable to owners
of the Company
Total comprehensive loss for the period
attributable to owners of the Company
Loss per share
8
For continuing and discontinued operations
— Basic and diluted
For continuing operations
— Basic and diluted

(Unaudited)
For the three months ended
31 March
2013
2012
RMB’000
RMB’000
(restated)
9,646
27,751
(9,256)
(23,857)
390
3,894
(2,139)
(543)
(6,422)
(6,809)
(8,171)
(3,458)
(1,039)
(1,035)
(9,210)
(4,493)
—
—
(9,210)
(4,493)
—
(6,174)
(9,210)
(10,667)
(90)
569
(9,300)
(10,098)
(9,210)
(10,667)
(9,300)
(10,098)
RMB(0.50) cents
RMB(0.58) cents
RMB(0.50) cents
RMB(0.25) cents

– I-88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. CORPORATE INFORMATION

The Company was incorporated in the Cayman Islands on 1 August 2000 as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands. Its shares have been listed on GEM since 20 July 2001. The Group is primarily engaged in trading of biodegradable food containers and disposable industrial packaging for consumer products.

Going concern basis

In preparing the consolidated financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group notwithstanding that:

the Group had consolidated loss attributable to owners of the Company of approximately RMB9,210,000 for the period ended 31 March 2013;
the Group had consolidated net current liabilities of approximately RMB115,043,000 as at 31 December 2012.

(1) Financial supports

(2) Attainment of profitable and positive cash flow operations

2. BASIS OF PREPARATION

(a) Statement of compliance

The consolidated results have been prepared in accordance with International Financial Reporting Standards published by the International Accounting Standards Board, and are supplemented by the disclosure requirements of the Hong Kong Companies Ordinance and the GEM Listing Rules. The accounting policies adopted are consistent with those followed in the preparation of the Group’s audited consolidated financial statements for the year ended 31 December 2012, except for the adoption of new interpretations and amendments to IFRSs and the accounting policies adopted for new transactions, noted below.

– I-89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group has adopted the following new or revised IFRSs which are relevant to its business for the first time for these consolidated quarterly results:

IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interest in Other Entities IFRS 13 Fair Value Measurement Amendments to IFRS 7 Disclosures — Offsetting Financial Assets and Financial Liabilities Amendments to IFRS10, IFRS 11 Consolidated Financial Statements, Joint arrangements Disclosure and IFRS 12 of Interests in Other Entities: Transition Guidance IAS 19 (as revised in 2011) Employee Benefits IAS 27 (as revised in 2011) Separate Financial Statements IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures Amendments to IAS 1 Presentation of Items of Other Comprehensive Income Amendments to IFRSs Annual Improvements to IFRSs 2009–2011 IFRIC Int 20 Stripping Costs in the Production Phase of Surface Mine

The Group has not early applied the following new or revised standards, amendments and interpretations that have been issued but are not yet effective:

IFRS 9	Financial instruments2
Amendments to IFRS 9 and	Mandatory Effective Date of IFRS 9 and Transition Disclosures2
IFRS 7
Amendment to IFRS 10, IFRS 12	Investment Entities1
and IAS 27
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities1

1 Effective for annual periods beginning on or after 1 January 2014.

2 Effective for annual periods beginning on or after 1 January 2015.

Key requirements of IFRS 9 are described as follows:

IFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.

– I-90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The directors of the Company anticipate that the application of these new and revised standards, amendments and interpretations will have no material impact on the consolidated financial statements.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the investment properties and certain financial instruments, which are measured at fair value.

(c) Functional and presentation currency

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

(d) Use of estimates and judgements

3. TURNOVER

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

Continuing operations: Sale of biodegradable products Distribution of skin care products Discontinued operation: Sale of pharmaceutical products Total	2013 RMB’000 9,646 — 9,646 — 9,646	2012 RMB’000 (restated) 27,667 84
		27,751
		20,641
		48,392

– I-91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SEGMENT REPORTING

Segment Revenues and Results

Turnover
External sales
Result
Segment result
Unallocated corporate
expenses
Loss from operations
Finance costs
Loss before taxation
Income tax expenses
Loss for the period from
continuing operations
Loss for the period from
discontinued operation
Loss for the period

(Unaudited)
For the three months ended 31 March
Biodegradable
products
Skin care
products
Consolidated
2013
2012
2013
2012
2013
2012
RMB’000
RMB’000
(restated)
RMB’000
RMB’000
(restated)
RMB’000
RMB’000
(restated)
9,646
27,667
—
84
9,646
27,751
(3,716)
(426)
(181)
(96)
(3,897)
(522)
(4,274)
(2,936)
(8,171)
(3,458)
(1,039)
(1,035)
(9,210)
(4,493)
—
—
(9,210)
(4,493)
—
(6,174)
(9,210)
(10,667)

Segment revenue reported above represents revenue generated from external customers. There were no intersegment sales in the current year (2012: Nil).

Segment profit represents the profit earned by each segment without allocation of central administration costs including directors’ emoluments, impairment loss on available-for-sale investments, impairment loss on intangible assets, impairment loss recognised in respect of trade receivables, impairment loss on interests in associates, share of results of associates, gain on disposal of subsidiaries, finance costs and income tax expenses. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

– I-92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. OTHER GAINS AND LOSSES

Continuing operations: Fair value loss on financial assets at fair value through profit or loss Loss on disposal of financial assets at fair value through profit or loss Loss on disposal of subsidiary Sample income Sundry income Discontinued operation: Sample income Sundry income Total 6. LOSS BEFORE TAXATION	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) — (121 — (749 (2,394) — — (1 255 328 (2,139) (543 — 2 — 8 (2,139) (533	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) — (121 — (749 (2,394) — — (1 255 328 (2,139) (543 — 2 — 8 (2,139) (533
		(543 2 8
		(533

Loss before taxation is arrived at after charging:

(a) Net finance (costs)/income Continuing operations: Interest on convertible notes Interest on promissory notes Bank interest income Discontinued operation: Interest on bank and other borrowings wholly repayable within five years Net financial cost recognised in consolidate statement of comprehensive income	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) (734) (730) (306) (305) 1 — (1,039) (1,035) — (2,040) (1,039) (3,075)	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) (734) (730) (306) (305) 1 — (1,039) (1,035) — (2,040) (1,039) (3,075)
		(1,035) (2,040)
		(3,075)

– I-93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Staff costs Continuing operations: Contributions to defined contribution retirement plans Salaries, wages and other benefits Discontinued operation: Salaries, wages and other benefits Total staff costs (c) Other items Continuing operations: Amortisation of intangible assets Depreciation of property, plant and equipment Auditors’ remuneration Cost of inventories sold Discontinued operation: Depreciation Advertising and promotion expense Cost of inventories sold	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) 16 13 499 481 515 494 — 3,182 515 3,676 4,278 4,350 198 198 411 406 9,256 23,857 — 318 — 1,350 — 6,219	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) 16 13 499 481 515 494 — 3,182 515 3,676 4,278 4,350 198 198 411 406 9,256 23,857 — 318 — 1,350 — 6,219
		494 3,182
		3,676
		4,350 198 406 23,857
		318 1,350 6,219

7. INCOME TAX EXPENSES

Income tax expenses in the consolidated statement of comprehensive income represents:

Continuing operations: Current tax Hong Kong PRC enterprise income tax Discontinued operation: Current tax PRC enterprise income tax	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) — — — — — — — —	(Unaudited) For the three months ended 31 March 2013 2012 RMB’000 RMB’000 (restated) — — — — — — — —
		—
		—

(i) Hong Kong profits tax

Hong Kong income tax has been provided at the rate of 16.5% (2012: 16.5%) on the estimated assessable profit for the period ended 31 March 2013.

– I-94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Income taxes outside Hong Kong

The subsidiary of the Group established in the PRC is generally subject to PRC enterprise income tax on its taxable income at an income tax rate of 25% in respect of the Period (2012: 25%).

8. LOSS PER SHARE

For continuing and discontinued operations

The calculations of basic loss per share for the three months ended 31 March 2013 are based on the loss attributable to shareholders of approximately RMB9,210,000 (2012: RMB10,667,000) respectively, and on the weighted average number of 1,832,090,909 (2012: 1,832,090,909) ordinary shares in issue during the Period.

For continuing operations

The calculations of basic loss per share for the three months ended 31 March 2013 are based on the loss attributable to shareholders of approximately RMB9,210,000 (2012: RMB4,493,000) respectively, and on the weighted average number of 1,832,090,909 (2012: 1,832,090,909) ordinary shares in issue during the Period.

Diluted loss per share for the three months ended 31 March 2013 and 2012 were the same as basic loss per share as the effects of the Company’s convertible notes and share options were anti-dilutive.

9. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

Share capital RMB’000 17,122 —	Share premium RMB’000 72,080 —	Capital reserve RMB’000 7,195 —	Capital reduction reserve RMB’000 92,489 —	Share option reserve RMB’000 20,103 —	General reserve fund RMB’000 9,025 —	Foreign currency translation reserve RMB’000 (2,786) 569	Accumulated losses RMB’000 (212,889) (10,667)	Total RMB’000 2,339 (10,098)
17,122	72,080	7,195	92,489	20,103	9,025	(2,217)	(223,556)	(7,759)
17,122 —	72,080 —	— —	92,489 —	20,103 —	— —	(10,277) (90)	(195,283) (9,210)	(3,766) (9,300)
17,122	72,080	—	92,489	20,103	—	(10,367)	(204,493)	(13,066

10. DIVIDEND

The Directors do not recommend the payment of any interim dividend for the Period (2012: Nil).

11. COMPARATIVE FINANCIAL INFORMATION

Certain comparative figures have been restated to confirm with current year presentation.

– I-95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 July 2013, being the latest practicable date for ascertaining information regarding this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$131 million comprising other borrowings of approximately HK$101 million and a promissory note with outstanding principle amount of approximately HK$30 million.

As at the close of business on 31 July 2013, the Group had no contingent liability arising in the ordinary course of business.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into HK$ at the approximate rates of exchange prevailing at the close of business on 31 July 2013.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any other bank loans, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding as at the close of business on 31 July 2013.

5. WORKING CAPITAL

The Directors are of the opinion that the Group has sufficient working capital for its present requirements for at least 12 months from the date of this circular after taking into account its internal resources together with the estimated net proceeds from the Open Offer.

6. MATERIAL CHANGE

As at the Latest Practicable Date, save as disclosed in the interim report of the Company for the six months ended 30 June 2013, in particular, the decrease in turnover by approximately 19% which was mainly attributable to the adverse effect on the significant increased production costs and subcontracting charges, which have weakened the competitiveness of the Company’s products, the Board confirms that there had been no material change in the financial or trading position or outlook of the Group since 31 December 2012 (the date to which the latest audited consolidated financial statements of the Group were made up) and up to and including the Latest Practicable Date.

– I-96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Notwithstanding that measures (i.e. the development of new pharmaceutical products, the improvement of the quality of the pharmaceutical products and the development of new markets) had been implemented in the past years to promote and improve the sales of the Group’s pharmaceutical products, the results were not satisfactory due to the substantial increase of advertisement expenses and sales commission of the pharmaceutical products business and the fierce competition in the pharmaceutical industry in the PRC. The Group’s pharmaceutical products business had incurred losses for years. Apart from this, the Group also encountered difficulties in obtaining approvals for its new pharmaceutical products from the relevant authorities in the PRC that has tightened the approval standards. In view of such difficulties, the Directors are not sure when the pharmaceutical products business will turn around. As such, the Group disposed its subsidiaries involved in the business of the manufacturing and sales of pharmaceutical products during the year ended 31 December 2012. The Directors believe, after the said disposal and with sufficient working capital, the future operation of the business in the sales of biodegradable food containers and disposable industrial packaging for consumer products will have high growth potential as a result of (i) the increase in the public’s awareness of environmental protection; (ii) the increase in the price of the raw material (i.e. plastic) of some competitors of the Group in recent years due to higher crude oil price; and (iii) the good quality of the Group’s biodegradable products. Therefore, the Group will concentrate on its business in sales of biodegradable food containers and disposable industrial packaging for consumer products. The biodegradable containers and packaging products are traded under the brand name ‘‘Earth Buddy’’. The materials used to produce such products are mainly agricultural waste, which meant that the products are fully biodegradable and environmentally friendly.

The Directors intend to focus on the biodegradable products business by penetrating and developing the European market that has a population which, on average, has a higher level of awareness of environmental issues. The Group has intention to develop the worldwide market for its biodegradable products. The Group is actively seeking strategic partners in different geographical regions to expand its business through business cooperation in various forms including technology transfer and business joint ventures. The goal of the Group is to build a sustainable and profitable global business while help protect and enhance the global environment. However, the Group has no concrete plan at this moment. At present, the Group’s biodegradable products are manufactured by subcontracting factories. In the event that the Group has adequate financial resources, the Group has intention to acquire or set up its own factory for the manufacturing of the biodegradable products.

In order to improve the operation results, the Group will continue to improve the quality of existing products (i.e. biodegradable food containers and disposable industrial packaging products). However, as the European markets are still recovering from the European debt crisis, the slow recovery from the European markets may affect the demand of the Group’s biodegradable products in the short term. In addition, the Group will continue to look for other new investment and cooperation opportunities so as to broaden the income base, as well as minimising the performance risk of the Group.

– I-97 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

A. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN AN INVESTMENT CIRCULAR

The following is the text of the unaudited pro forma financial information prepared for the purpose of inclusion in this circular received from the independent reporting accountants of the Company, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong.

==> picture [253 x 51] intentionally omitted <==

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

30 August 2013

The Board of Directors Hao Wen Holdings Limited Unit 2707, China Resources Building 26 Harbour Road Wanchai Hong Kong

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN AN INVESTMENT CIRCULAR

TO THE DIRECTORS OF HAO WEN HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of Hao Wen Holdings Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’) by the directors for illustrative purposes only. The pro forma financial information consists of the unaudited pro forma consolidated net tangible assets of the Group as at 30 June 2013, and related notes as set out in Appendix II of the circular dated 30 August 2013 (the ‘‘Circular’’). The applicable criteria on the basis of which the directors have compiled the pro forma financial information are described in Section B of Appendix II of the Circular.

The pro forma financial information has been compiled by the directors to illustrate the impact of the proposed open offer on the basis of eight offer shares for every one consolidated shares (the ‘‘Open Offer’’) on the Group’s net tangible assets as at 30 June 2013 as if the Open Offer had taken place at 30 June 2013. As part of this process, information about the Group’s net tangible liabilities has been extracted by the directors from the Group’s financial statements for the six months ended 30 June 2013, on which no audit report has been published.

– II-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Directors’ Responsibility for the Pro Forma Financial Information

The directors are responsible for compiling the 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 AG 7, ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM Rules, on the 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 pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (HKSAE) 3420, ‘‘Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus’’, issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors have compiled the pro forma financial information in accordance with paragraph 7.31 of the GEM Rules and with reference to AG 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Open Offer as at 30 June 2013 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

. The related pro forma adjustments give appropriate effect to those criteria; and

– II-2 –

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

. The pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

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

Opinion

In our opinion:

(a) the pro forma financial information has been properly compiled 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 pro forma financial information as disclosed pursuant to paragraph 7.31(1) of the GEM Rules.

Yours faithfully HLB Hodgson Impey Cheng Limited Certified Public Accountants Hon Koon Fai, Alex

Practising Certificate Number: P05029

Hong Kong, 30 August 2013

– II-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

B. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP ATTRIBUTABLE TO OWNERS OF THE COMPANY

The unaudited pro forma statement of adjusted consolidated net tangible assets attributable to owners of the Company has been prepared in accordance with paragraph 31(1) of Chapter 7 of the GEM Listing Rules set out below to illustrate the effect of the Open Offer on the unaudited consolidated net tangible assets of the Group as if it had taken place on 30 June 2013.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to owners of the Company has been prepared for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the consolidated net tangible assets of the Group attributable to owners of the Company had the Open Offer been completed as at 30 June 2013 or at any future date.

The following unaudited pro forma statement of the adjusted consolidated net tangible assets of the Group attributable to owners of the Company is prepared based on the unaudited consolidated net tangible liabilities of the Group attributable to owners of the Company as at 30 June 2013, extracted from the published interim report of the Group for the six months ended 30 June 2013, with adjustment described below:

					Unaudited pro
				Unaudited pro	forma adjusted
				forma adjusted	consolidated net
	Unaudited		Unaudited pro	consolidated net	tangible assets
	consolidated net		forma adjusted	tangible (liabilities)	attributable to
	tangible		consolidated net	attributable to	owners of the
	liabilities		tangible assets	owners of the	Company per
	attributable to		attributable to	Company per	Share immediately
	owners of the	Estimated net	owners of the	Share before the	after the
	Company as at	proceeds from the	Company as at	completion of the	completion of the
	30 June 2013	Open Offer	30 June 2013	Open Offer	Open Offer
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Note 2)	(Note 3)		(Note 5)	(Note 6)
Based on 1,621,334,832 Offer
Shares at offer price of
HK$0.1 per Offer Share
(‘‘Minimum Open Offer’’)	(89,860)	123,973	34,113	(0.44)	0.02
Based on 1,657,334,832 Offer
Shares at offer price of
HK$0.1 per Offer Share
(‘‘Maximum Open Offer’’)	(89,860)	126,751	36,891	(0.44)	0.02

Notes:

For the calculation purpose, HKD will be converted into RMB under the exchange rate of RMB1.0 to HKD1.2563 (exchange rate as at 30 June 2013).

– II-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

The unaudited consolidated net tangible liabilities attributable to the owners of the Company as at 30 June 2013 has been extracted from the published interim report of the Company for the six months ended 30 June 2013 after deducting intangible assets of approximately RMB80,714,000.
The estimated net proceeds from the Open Offer represented:
(i) Minimum Open Offer is approximately RMB123,973,000 (approximately HK$155,747,000) are based on the minimum number of 1,621,334,832 Offer Shares to be issued at the Offer Price of HK$0.10 per Offer Share (assuming outstanding Share Options are not exercised on or before the Record Date) and after deducting estimated expenses of approximately RMB5,083,000 (approximately HK$6,386,000) attributable to the Open Offer.
(ii) Maximum Open Offer is approximately RMB126,751,000 (approximately HK$159,237,000) are based on maximum number of 1,657,334,832 Offer Shares to be issued at the Offer Price of HK$0.10 per Offer Share (assuming other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai, all outstanding Share Options are fully exercised on or before the Record Date) and after deducting estimated expenses of approximately RMB5,171,000 (approximately HK$6,496,000) attributable to the Open Offer.
Subsequent to the year ended 31 December 2012, the Company proposed to implement the Share Consolidation on the basis that every ten (10) issued and unissued Existing Shares with a par value of HK$0.01 each will be consolidated into one (1) Consolidated Share with a par value of HK$0.1 each.
The unaudited pro forma adjusted consolidated net tangible liabilities of the Group per share attributable to the owners of the Company before the completion of the Open Offer is determined based on the unaudited consolidated net tangible (liabilities) of the Group attributable to the owners of the Company as at 30 June 2013 of approximately RMB89,860,000 as disclosed in note 2 above, divided by 202,666,854 Consolidated Shares of the Company in issue (assuming the Share Consolidation has been effective) as at 30 June 2013.
The unaudited pro forma adjusted consolidated net tangible assets of the Group after the completion of the Open Offer per share for:
(i) Minimum Open Offer is determined based on the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2013 for Minimum Open Offer of approximately RMB34,113,000 divided by 1,824,001,686 shares which comprise 202,666,854 Consolidated Shares in issue (assuming the Share Consolidation has been effective) as at 30 June 2013 and 1,621,334,832 Offer Shares (assuming no exercise of the outstanding Share Options on or before the Record Date) assume to be issued after the completion of the Open Offer.
(ii) Maximum Open Offer is determined based on the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company as at 30 June 2013 for Maximum Open Offer of approximately RMB36,891,000 divided by 1,860,001,686 shares which comprise 202,666,854 Consolidated Shares in issue (assuming the Share Consolidation has been effective) as at 30 June 2013 and 1,657,334,832 Offer Shares (assuming other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai, all outstanding Share Options are fully exercised on or before the Record Date) assume to be issued after the completion of the Open Offer.

– II-5 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the GEM Listing Rules and the Takeovers Code for the purpose of giving information with regard to the Company.

The Directors jointly and severally accept full responsibility for the accuracy of information contained in this circular (other than information relating to the Concert Group) and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular (other than those expressed by the Concert Group) have been arrived at after due and careful consideration, and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

Mr. Yip Chi Fai Stevens, the sole director of Beckon Investments Limited, accepts full responsibility for the accuracy of the information relating to the Concert Group in this circular and confirm, having made all reasonable inquiries, that to the best of his knowledge, opinions expressed by the Concert Group in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statements in this circular misleading.

The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular (other than information relating to the Concert Group) 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.

Mr. Yip Chi Fai Stevens, the sole director of Beckon Investments Limited, having made all reasonable enquiries, confirms that to the best of his knowledge and belief the information contained in this circular relating to the Concert Group 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.

– III-1 –

GENERAL INFORMATION

APPENDIX III

2. SHARE CAPITAL

(a) Share Capital

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; (ii) immediately following the Share Consolidation becoming effective (assuming that there is no change in the issued share capital of the Company other than the Share Consolidation between the Latest Practicable Date up to the effective date of the Share Consolidation); (iii) immediately following the completion of the Open Offer (assuming that there is no change in the issued share capital of the Company other than the Share Consolidation between the Latest Practicable Date up to the completion of the Open Offer).

(i) As at the Latest Practicable Date

Authorised capital: HK$ 20,000,000,000 Existing Shares of HK$0.01 each 200,000,000.00

Issued and fully paid:

2,026,668,549 Existing Shares of HK$0.01 each

20,266,685.49

– III-2 –

GENERAL INFORMATION

APPENDIX III

(ii) Immediately following the Share Consolidation becoming effective

(iii)	Authorised capital: 2,000,000,000 Consolidated Shares of HK$0.10 each Issued and fully paid: 202,666,854 Consolidated Shares of HK$0.10 each immediately following the completion of the Open Offer Authorised capital: 2,000,000,000 Consolidated Shares of HK$0.10 Issued and fully paid: 1,621,334,832 Offer Shares to be issued 1,824,001,686	HK$ 200,000,000.00
		20,266,685.40
		HK$ 200,000,000.00
		162,133,483.20
		182,400,168.60

All the Existing Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital. Since 31 December 2012, being the date to which the latest published audited consolidated financial statements of the Group were made up, and up to the Latest Practicable Date, 194,577,640 Existing Shares have been issued as a result of the conversion of convertible bonds of the Company by Alpha Tycoon Limited and Talent Keen Limited in the principal amount of HK$4,457,764 and HK$15,000,000 respectively at the conversion price of HK$0.1 per conversion share on 15 April 2013. None of Alpha Tycoon Limited and Talent Keen Limited are related to any member of the Concert Group.

The Offer Shares to be allotted and issued will, when issued and fully paid, rank pari passu in all respects with all the Shares in issue as at the date of allotment and issue of the Offer Shares, including the right to any dividends or distributions made or declared on or after the date of allotment and issue of the Offer Shares.

The Existing Shares in issue are listed on the Stock Exchange. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

– III-3 –

GENERAL INFORMATION

APPENDIX III

(b) Share Options

As at the Latest Practicable Date, there were a total of 49,000,000 Share Options outstanding and unexercised, which entitle their respective holders to subscribe for a total of 49,000,000 Existing Shares (representing approximately 2.42% of the issued share capital of the Company as at the Latest Practicable Date).

Mr. Leung King Fai, a Director, holding 4,000,000 outstanding Share Options, has undertaken irrevocably to the Company that he will not exercise their rights under the Share Options to subscribe for the Existing Shares (or the Consolidation Shares) before the Record Date. As at the Latest Practicable Date, the Company has not received any notice from any other holders of the outstanding Share Options of their intention to exercise or not to exercise any outstanding Share Options before the Record Date.

Save as disclosed above, there are no outstanding options, warrants or securities convertible or exchangeable into Existing Shares.

3. DISCLOSURE OF INTERESTS BY DIRECTORS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) pursuant to the rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors, to be notified to the Company and the Stock Exchange.

Interests in the Share Options

			Exercise			No. of	No. of
			price per			Existing	Consolidated	% of the
			Existing		No. of Share	Share	Share	issued share
Name	of director	Date of grant	Share	Exercisable period	Options	issuable	issuable	capital
			(HK$)
Leung	King Fai	11 November 2009	0.211	11 November 2009 to	4,000,000	4,000,000	400,000	0.20%
				10 November 2019

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, the following persons (other than a Director or chief executives of the Company) had interests or short positions in the shares or underlying shares 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 in all circumstances at general meetings of any member of the Group.

– III-4 –

GENERAL INFORMATION

APPENDIX III

Interests in the Company

		Number of
		Existing	Approximately
		Shares/	percentage of
		underlying	the Company’s
	Capacity and nature of	Existing Shares	issued share
Name	interest	held	capital
Beckon Investments Limited	Beneficial owner	11,656,260,950	575.14%
(Note 1)
Mr. Yip Chi Fai Stevens	Interest in a controlled	11,656,260,950	575.14%
(Note 1)	corporation
Orient Securities Limited	Beneficial owner	5,101,127,370	251.70%
(Note 2)
Orient Securities Holdings	Interest in a controlled	5,101,127,370	251.70%
Limited (Note 3)	corporation
Capital Business	Interest in a controlled	5,101,127,370	251.70%
International Limited	corporation
(Note 3)
Orient Securities	Interest in a controlled	5,101,127,370	251.70%
International Holdings	corporation
Limited (Note 3)
Time Era Limited (Note 3)	Interest in a controlled	5,101,127,370	251.70%
	corporation
Mr. Lam Shu Chung	Interest in a controlled	5,101,127,370	251.70%
(Note 3)	corporation
Tanrich Securities Company	Beneficial owner	2,000,000,000	98.68%
Limited (Note 4)
Avant Capital Eage Fund	Investment Manager	1,200,000,000	59.21%
(Note 5)
Unity Investments Holdings	Interest in a controlled	150,000,000	7.40%
Limited (Note 6)	corporation

– III-5 –

GENERAL INFORMATION

APPENDIX III

Notes:

(1) Assuming no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date, Beckon Investments Limited will be required to take up 999,990,095 Offer Shares pursuant to its underwritten obligation and 147,232,000 Offer Shares pursuant to its irrevocable undertaking to the Company, which together with its existing shareholding of 18,404,000 Consolidated Shares upon the Share Consolidation coming into effect will make the total Consolidated Shares held by Beckon Investments Limited immediately after the completion of the Open Offer to 1,165,626,095 (equivalent to 11,656,260,950 Existing Shares). As Beckon Investments Limited is wholly owned by Mr. Yip Chi Fai Stevens, Mr. Yip is deemed to be interested in such Shares.
(2) This represents 510,112,737 Offer Shares (equivalent to 5,101,127,370 Existing Shares) in which Orient Securities Limited is interested under the Underwriting Agreement on the assumption of no acceptance by the Qualifying Shareholders (except Beckon Investments Limited) under the Open Offer, and all outstanding Share Options (other than 4,000,000 outstanding Share Options hold by Mr. Leung King Fai) being exercised before the Record Date.
(3) Orient Securities Limited is wholly owned by Orient Securities Holdings Limited which is in return wholly owned by Capital Business International Limited. Capital Business International Limited is the wholly owned subsidiary of Orient Securities International Holdings Limited which is wholly owned by Time Era Limited. Mr. Lam Shu Chung holds 75% of the issued shares of Time Era Limited. Accordingly, each of Orient Securities Holdings Limited, Capital Business International Limited, Orient Securities International Holdings Limited, Time Era Limited and Mr. Lam Shu Chung is deemed to be interested in Offer Shares to be underwritten by Orient Securities Limited under the Underwriting Agreement.
(4) Tanrich Securities Company Limited entered into a sub-underwriting arrangement with Orient Securities Limited on 12 August 2013, pursuant to which Tanrich Securities Company Limited agreed to subunderwrite a maximum of 200,000,000 Underwritten Shares (equivalent to 2,000,000,000 Existing Shares).
(5) Avant Capital Management (HK) Limited entered into a sub-underwriting arrangement with Orient Securities Limited on 12 August 2013, pursuant to which Avant Capital Management (HK) Limited agreed to sub-underwrite a maximum of 120,000,000 Underwritten Shares (equivalent to 1,200,000,000 Existing Shares). According to the Corporate Substantial Shareholder Notice of Avant Capital Eage Fund filed on 15 August 2013, Avant Capital Eage Fund is the investment manager of Avant Capital Management (HK) Limited.
(6) According to the Corporate Substantial Shareholder Notice of Unity Investments Holdings Limited filed on 16 August 2013, Great Panorama International Limited directly holds 150,000,000 Existing Shares and is wholly owned by Gufalore Investments Limited, a wholly-owned subsidiary of Unity Investments Holdings Limited. As such, Great Panorama International Limited is interested and Gufalore Investments Limited and Unity Investments Holdings Limited are deemed to be interested in 150,000,000 Existing Shares. None of Great Panorama International Limited, Gufalore Investments Limited and Unity Investments Holdings Limited is related to any member of the Concert Group.

Save as disclosed above, as at the Latest Practicable Date, the Company has not been notified by any person (other than a Director or chief executive of the Company) who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group, or had interests or short positions in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– III-6 –

GENERAL INFORMATION

APPENDIX III

5. INTEREST OF DIRECTORS

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors has or had any direct or indirect interest in any assets which have been acquired or disposed by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2012, being the date to which the latest published audited consolidated financial statements of the Group were made up.

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors or their respective associates were interested in any business which competes or is likely to compete, whether directly or indirectly, with the businesses of the Group.

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group (excluding contracts expiring or determinable by the relevant member of the Group within one year without payment of compensation (other than statutory compensation)), nor has any of the Directors entered into any service contract with any member of the Group or associated companies of the Company in force which:

(a) (including both continuous and fixed term contracts) have been entered into or amended within 6 months before 11 July 2013, being the date of the Announcement;
(b) are continuous contracts with a notice period of 12 months or more; or
(c) are fixed term contracts with more than 12 months to run irrespective of the notice period.

8. LITIGATION

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

– III-7 –

GENERAL INFORMATION

APPENDIX III

9. EXPERTS AND CONSENTS

The following is the qualifications of the expert who has given opinions or advice, which is contained in this circular:

Name

Qualifications

Grand Vinco Capital Limited

a licensed corporation to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

HLB Hodgson Impey Cheng Limited

Certified Public Accountants

Each of Grand Vinco Capital Limited and HLB Hodgson Impey Cheng Limited has given and has not withdrawn their written consent to the issue of this circular with the inclusion therein of their letters and references to their name and/or their advice in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of the experts:

(a) did not have any direct or indirect interest in any assets which have been since 31 December 2012 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and
(b) did not have any shareholding in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

10. MATERIAL CONTRACTS

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

(i) the Underwriting Agreement;
(ii) the sale and purchase agreement dated 27 June 2013 entered into between the Company as vendor and Ms. Ng Oi Yee as purchaser in connection with the disposal of the entire issued share capital of Jin Hao Limited for a total consideration of HK$200,000;

– III-8 –

GENERAL INFORMATION

APPENDIX III

(iii) the sale and purchase agreement dated 16 May 2013 entered into between the Company as vendor and I-Cloud Investments Limited as purchaser in connection with the disposal of the entire issued share capital of Merry Sky Holdings Limited for a total consideration of HK$2.2 million;
(iv) the sale and purchase agreement dated 22 February 2013 entered into between Lucky River Limited, a wholly-owned subsidiary of the Company as vendor and San Cheng Song Investment Company Limited (新正信投資有限公司) as purchaser in connection with the disposal of the entire issued share capital of Zhuhai Aomeisi Beauty Treatment Company Limited[#] (珠海奧美斯美容有限公司) for a total consideration of HK$8.5 million;
(v) the deed of waiver dated 10 October 2012 entered into between the Company as vendor and Shanxi Chang Chun Teng Medical Technology Development Company Limited[#] (山西常春藤醫藥科技發展有限公司) in relation to the waiver of the outstanding amount owing by Garner International Investments Limited and its subsidiaries to the Company; and
(vi) the sale and purchase agreement dated 15 June 2012 entered into between the Company as vendor and Shanxi Chang Chun Teng Medical Technology Development Company Limited[#] (山西常春藤醫藥科技發展有限公司) as purchaser in connection with the disposal of the entire issued share capital of Garner International Investments Limited, a wholly-owned subsidiary of the Company, and the waiver of the outstanding amount owing by Garner International Investments Limited and its subsidiaries to the Company for a total consideration of HK$3 million.

Save as disclosed above, no material contract (not being contracts entered into in the ordinary course of business) was entered into by any member of the Group within the two years immediately preceding the date of the Announcement and up to the Latest Practicable Date.

11. CORPORATE INFORMATION AND PARTIES INVOLVED

The Company

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

Headquarters and principal place Unit 2707, China Resources Building, of business in Hong Kong and 26 Harbour Road, Wanchai, Hong Kong office address of all Directors

Authorised representative

Mr. Chow Yik Mr. Leung King Fai

– III-9 –

GENERAL INFORMATION

APPENDIX III

Executive Directors Mr. Chow Yik Mr. Leung King Fai Mr. Lee Cheuk Yue, Ryan
Independent non-executive Mr. Lam Kai Tai Directors Mr. Wong Ting Kon Ms. Yeung Mo Sheung, Ann
Company secretary Mr. Leung King Fai

He is a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants

Compliance officer Mr. Chow Yik Principal share registrar and Royal Bank of Canada Trust Company (Cayman) transfer office in Cayman Limited Islands 4th Floor, Royal Bank House 24 Shedden Road George Town Grand Cayman KY1-1110 Cayman Islands
Branch share registrar Tricor Abacus Limited 26th Floor, Tesbury Centre 28 Queen’s Road East Wanchai Hong Kong
Principal Banker The Hongkong and Shanghai Banking Corporation Limited
HSBC Main Building 1 Queen’s Road Central Hong Kong
Legal advisor as to Hong Kong Patrick Mak & Tse Laws (in relation to the Open 16/F., Nan Fung Tower Offer) 173 Des Voeux Road Central Hong Kong

– III-10 –

GENERAL INFORMATION

APPENDIX III

Underwriters Beckon Investments Limited Quastisky Building P.O. BOX 4389, Road Town Tortola, British Virgin Islands Orient Securities Limited Room 2801–4, 28/F Dah Sing Financial Centre No. 108 Gloucester Road Wanchai, Hong Kong Financial advisor to the Amasse Capital Limited Company Room 1201, 12th Floor Prosperous Building 48–52 Des Voeux Road Central Hong Kong Independent Financial Adviser Grand Vinco Capital Limited Units 4909–10, 49/F, The Center 99 Queen’s Road Central Hong Kong Auditors and reporting HLB Hodgson Impey Cheng Limited accountants Certified Public Accountants 31/F, Gloucester Tower The Landmark 11 Pedder Street Central, Hong Kong

12. PROFILE OF DIRECTORS

Executive Directors

Mr. Chow Yik, aged 31, is the chairman of the Board. Mr. Chow obtained the degree of Bachelor of Engineering, majoring in Electronic and Communication Engineering, from the City University of Hong Kong. He is highly experienced in commercial businesses. He founded the Vision Century Company in 2003. Moreover, since 2005, Mr. Chow has been the sales director and executive director of the British electronic company, Air Audio Distribution (HK) Ltd.

Mr. Leung King Fai, aged 41, graduated from Deakin University with a Bachelor’s degree in Commerce. Mr. Leung is a member of CPA Australia and the Hong Kong Institute of Certified Public Accountants. He joined the Group in November 2005. He is an independent director of Biostar Pharmaceuticals Inc., a company listed on NASDAQ Stock Market.

– III-11 –

GENERAL INFORMATION

APPENDIX III

Mr. Lee Cheuk Yue, Ryan, aged 30, graduated with distinction from the University of Virginia McIntire School of Commerce with a Bachelor of Science in Commerce degree concentrating in Finance and Accounting and second major in Economics from the College of Arts and Science. Mr. Lee has over 6 years’ experience in the investment banking industry and had held various structuring and marketing sales positions in Banc of America Securities LLC in New York and Deutsche Bank AG in Hong Kong. Mr. Lee is also a Chartered Financial Analyst holder since 2007.

Independent Non-Executive Directors

Mr. Lam Kai Tai, aged 45, was educated at U.C. Berkeley and University of San Francisco with major in finance in 1997, Mr. Lam joined First Yuanta Securities Ltd. in 2003. Mr. Lam joined Galaxy Entertainment Group (Macau) as Project Manager to oversee the construction and development of Waldo Hotel, Grand Waldo Hotel, Starworld Hotel and Galaxy Macau. Mr. Lam has more than 10 years of experience in project management and merger and acquisition.

Mr. Wong Ting Kon, aged 42, holds a Bachelor degree in Commerce from University of Windsor, Canada. He is a Certified Public Accountant (Practising) of The Hong Kong Institute of Certified Public Accountants and a fellow member of The Association of Chartered Accountants. He is currently a Partner of Chan Wong & Company C.P.A.

Ms. Yeung Mo Sheung, Ann, aged 48, joined the Group in 2011. Ms. Yeung holds a Bachelor degree of Retail Marketing with honours in the United Kingdom and a Diploma in Marketing from The Chartered Institute of Marketing. She pursued her further study on legal course and has been awarded a Diploma in Legal Practice in the United Kingdom in 1998 and is presently a solicitor of Messrs. Wong & Wong, a legal firm in Hong Kong. Ms. Yeung currently is an independent non-executive director of Success Universe Group Limited (formerly known as Macau Success Limited) and Merdeka Resources Holdings Limited, both companies are listed on The Stock Exchange of Hong Kong Limited.

The Company has set up an audit committee, comprising all independent non-executive Directors, with written terms of reference in compliance with the GEM Listing Rules. The principal duties of the audit committee included reviewing the Company’s financial controls, internal control and risk management system, annual report, accounts and quarterly and half yearly report.

– III-12 –

GENERAL INFORMATION

APPENDIX III

13. MARKET PRICES

The table below shows the closing prices of the Shares as recorded on the Stock Exchange on (i) the last day on which dealings took place in each of the six months immediately preceding the date of the Announcement; (ii) the Last Trading Day; and (iii) the Latest Practicable Date.

Date	Closing price of the Shares
	(HK$)
31 January 2013	Not applicable (trading in the Shares was suspended)
28 February 2013	Not applicable (trading in the Shares was suspended)
28 March 2013	0.027
30 April 2013	0.033
30 May 2013
(being the Last Trading Date)	0.026
30 June 2013	Not applicable (trading in the Shares was suspended)
31 July 2013	0.033
28 August 2013
(being the Latest Practicable
Date)	0.040

The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the period commencing from 11 January 2013, being the date six months preceding the date of the Announcement, and ending on the Latest Practicable Date were HK$0.015 as quoted on 16, 18 and 19 April 2013 and HK$0.042 as quoted on 7 and 13 May 2013 and 5 August 2013 respectively.

14. MISCELLANEOUS

(i) The business address of the Directors is Unit 2707, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong.
(ii) The expenses in connection with the Open Offer, including the underwriting commission and professional fees payable to financial advisors, lawyers and financial printer, are estimated to be not more than approximately HK$6.5 million and will be payable by the Company.
(iii) The principal members of the Concert Group are Beckon Investments Limited, Mr. Yip Chi Fai Stevens, Elegant Mark Investment Limited, Smart Galaxy Investments Limited and Mr. Wong Tin Lung.
(iv) The registered office address of Beckon Investments Limited is Quastisky Building, P.O. 4389, Road Town, Tortola, British Virgin Islands. The correspondence address of Beckon Investments Limited is Room 1104, 11/F, Crawford House, 70 Queen’s Road Central, Central, Hong Kong. Mr. Yip Chi Fai Stevens is the sole director and the sole member of Beckon Investments Limited.

– III-13 –

GENERAL INFORMATION

APPENDIX III

(v) The address of Mr. Yip Chi Fai Stevens is Room 1104, 11/F, Crawford House, 70 Queen’s Road Central, Central, Hong Kong.
(vi) The registered office address of Elegant Mark Investment Limited is Room 2101, 21/ F, West Tower Shun Tak Centre, 168–200 Connaught Road Central, Sheung Wan, Hong Kong. Mr. Wong Tin Lung is the sole director of Elegant Mark Investment Limited which is wholly owned by Smart Galaxy Investments Limited.
(vii) The registered office address of Smart Galaxy Investments Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The correspondence address of Smart Galaxy Investments Limited is Room 2101, 21/F, West Tower Shun Tak Centre, 168–200 Connaught Road Central, Sheung Wan, Hong Kong. Mr. Wong Tin Lung is the sole director and the sole member of Smart Galaxy Investments Limited.
(viii)The address of Mr. Wong Tin Lung is Room 2101, 21/F, West Tower Shun Tak Centre, 168–200 Connaught Road Central, Sheung Wan, Hong Kong.
(ix) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

15. ADDITIONAL DISCLOSURE

As at the Latest Practicable Date,

(i) there is no benefit that was given or will be given to any Director as compensation for loss of office or otherwise in connection with the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(ii) no persons had irrevocably committed themselves to vote for or against the resolutions to be proposed at the EGM to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(iii) save for the Loan Agreement, the Underwriting Agreement and the transactions contemplated thereunder, there was no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code existed between any member of the Concert Group and other person;
(iv) there was no agreement, arrangement or undertaking between any Director and any other person which was conditional or dependent on completion of or otherwise connected with the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(v) there were no shares, convertible securities, warrants, options and derivatives in the Company which any member of the Concert Group, the Company or the Directors had borrowed or lent;

– III-14 –

GENERAL INFORMATION

APPENDIX III

(vi) save for the transactions contemplated under the Loan Agreement, there was no agreement, understanding or arrangement that any securities to be acquired in pursuance of the Open Offer will be transferred, charged or pledged to any other persons;
(vii) there was no agreement, arrangement or understanding (including any compensation arrangement) existed between any member of the Concert Group and any Director, recent Director, Shareholder or recent Shareholder which had any connection with or dependence upon the Open Offer, the transactions contemplated under the Underwriting Agreement and the Whitewash Waiver;
(viii) none of the Company and the Directors owned, controlled, or had any interest in the shares, convertible securities, warrants, options or derivatives of the shares of Beckon Investments Limited;
(ix) there were no material contract which had been entered into by any member of the Concert Group in which any of the Directors has a material personal interest;
(x) none of the Directors held any Shares and, therefore, they would not vote at the EGM;
(xi) save for 1,300,000 Existing Shares (representing approximately 0.06% of the issued share capital of the Company as at the Latest Practicable Date) held by Ms. Tse Fung Sum Flora, the sole ultimate beneficial owner of Amasse Capital Limited (the financial advisor to the Company), no shares, convertible securities, warrants, options and derivatives of the Company was owned or controlled by any subsidiary of the Company or by a pension fund of any member of the Group or by any adviser to the Company as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code;
(xii) there were no shares, convertible securities, warrants, options and derivatives in the Company which the Company or the Directors had borrowed or lent;
(xiii) no shares, convertible securities, warrants, options and derivatives of the Company were managed on a discretionary basis by fund managers connected with the Company; and
(xiv) other than the Underwriters, no persons had irrevocably committed themselves to accept or reject their entitlements under the Open Offer.
During the period commencing from 6 months prior to 11 July 2013, being the date of the
Announcement, and ending on the Latest Practicable Date:
(i) save for the transactions contemplated under the Underwriting Agreement and the Loan Agreement and those disclosed under the section headed ‘‘Information of Beckon Investments Limited’’ in the letter from the Board, none of (i) the members

– III-15 –

GENERAL INFORMATION

APPENDIX III

of the Concert Group; (ii) the directors of the companies in the Concert Group; and (iii) Orient Securities Limited had dealt for value in any shares, convertible securities, warrants, options or derivatives of the Company;

(ii) save as disclosed in the section headed ‘‘Dealing in Shares by Directors over the Past Six Months’’ in the letter from the Board, none of the Directors had dealt for value in any shares, convertible securities, warrants, options or other derivatives of the Company; and
(iii) none of the Company and the Directors had dealt for value in any shares, convertible securities, warrants, options or derivatives of Beckon Investments Limited.

During the period commencing from 11 July 2013, being the date of the Announcement, and ending on the Latest Practicable Date:

(i) none of the Company’s subsidiaries, pension fund of any member of the Group or adviser to the Company as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code had dealt for value in any shares, convertible securities, warrants, options and derivatives of the Company;
(ii) there had been no arrangement of the kind referred in Note 8 to Rule 22 of the Takeovers Code existed between any person and the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of ‘‘associate’’ under the Takeovers Code; and
(iii) no fund manager connected with the Company had dealt for value in any shares, convertible securities, warrants, options and derivatives of the Company, which were managed on a discretionary basis.

16. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) during normal business hours from 9:30 a.m. to 5:00 p.m. on any weekday (except for public holidays) at the principal place of business of the Company in Hong Kong at Unit 2707, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong (ii) on the website of the Company (http://www.tricor.com.hk/webservice/008019), and (iii) on the website of the SFC (www.sfc.hk) from the date of this circular up to and including the date of the EGM:

(i) this circular;
(ii) the memorandum and articles of association of the Company;
(iii) the first quarterly report of the Company for the three months period ended 31 March 2013, the interim report of the Company for the six months period ended 30 June 2013 and the annual reports of the Company for the three financial years ended 31 December 2012;

– III-16 –

GENERAL INFORMATION

APPENDIX III

(iv) the written consents as referred to in the paragraph headed ‘‘Experts and Consents’’ in this Appendix;
(v) the material contracts as referred to in this paragraph headed ‘‘Material Contracts’’ in this Appendix;
(vi) the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group, the text of which is set out in Appendix II to this circular;
(vii) the letter from HLB Hodgson Impey Cheng Limited in respect of the unaudited pro forma consolidated net tangible assets of the Group, the text of which is set out on pages II-1 to II-3 of this circular;
(viii) the letter from the Independent Board Committee, the text of which is set out on page 36 to 37 of this circular;
(ix) the letter of advice from the Independent Financial Adviser, the text of which is set out on pages 38 to 59 of this circular;
(x) the letter from the Board, the text of which is set out on pages 12 to 35 of this circular;
(xi) the Loan Agreement; and
(xii) the memorandum and articles of association of Beckon Investments Limited.

– III-17 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [54 x 54] 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 IS HEREBY GIVEN that an extraordinary general meeting of Hao Wen Holdings Limited (the ‘‘Company’’) will be held at Jasmine Room on 3/F., Ramada Hong Kong Hotel, 308 Des Voeux Road West, Hong Kong on Tuesday, 17 September, 2013 at 10:00 a.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

‘‘THAT subject to and conditional upon, among others, the granting by the Listing Committee of the Stock Exchange of the listing of, and permission to deal in, the issued ordinary shares of the Company consolidated in the manner as set out in paragraph (a) of this resolution below (the ‘‘Share Consolidation’’):
(a) with effect from the day immediately following the date on which this resolution is passed, being a day on which shares are traded on the Stock Exchange, every ten (10) ordinary shares of HK$0.01 each in the issued and unissued share capital of the Company be consolidated into one (1) share of HK$0.10 (each a ‘‘Consolidated Share’’), such Consolidated Shares shall rank pari passu in all respects with each other and have the rights and privileges and be subject to the restrictions in respect of ordinary shares contained in the memorandum and articles of association of the Company; and
(b) the directors of the Company be and are generally authorised to do all such acts and things and execute all such documents, including under seal where applicable, as they consider necessary, desirable or expedient to give effect to the foregoing arrangements for the Share Consolidation.’’
‘‘THAT, subject to the passing of the resolution no. 1 set out in the Notice of Extraordinary General Meeting (the ‘‘Notice’’) of which this resolution forms part, and the fulfilment of other conditions in the Underwriting Agreement (as defined and more particularly described in the circular of the Company dated 30 August 2013 (‘‘Circular’’, a copy of which has been tabled at the meeting, marked ‘‘A’’ and initialed by the Chairman of the meeting for the purpose of identification) and upon the Share Consolidation (as defined in the said resolution no. 1) taking effect:
(a) the issue by way of open offer (the ‘‘Open Offer’’) of not less than 1,621,334,832 Consolidated Shares (as defined in the resolution no. 1 set out in the Notice) and not more than 1,657,334,832 Consolidated Shares of HK$0.10

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

each in the capital of the Company (‘‘Offer Shares’’) to those shareholders of the Company whose names appear on the register of members of the Company at the close of business on a date to be fixed by the Directors (the ‘‘Record Date’’), other than Excluded Shareholders (as defined in the Circular) in the proportion of 8 Offer Shares for every 1 Consolidated Share held on the Record Date at the subscription price of HK$0.10 per Offer Share and on the terms and conditions as set out in the Circular, be and is hereby approved;

(b) the Underwriting Agreement be and is hereby approved, confirmed and ratified and any Director be and is hereby authorised to do such acts or execute such other document which may be necessary, desirable or expedient in his opinion to carry into effect or to give effect to the terms of the Underwriting Agreement; and
(c) the Directors, acting together, individually or by committee, be and are hereby authorised to take such actions, do such things and execute such further documents or deeds for and on behalf of the Company as such Directors may, in their opinion, consider necessary, desirable or expedient to carry out or give effect to any or all the transactions contemplated in this resolution.’’
‘‘THAT, subject to the passing of the resolution nos. 1 and 2 set out in the Notice of which this resolution forms part, the waiver (the ‘‘Whitewash Waiver’’) granted or to be granted by the Executive Director (including his delegates) of the Corporate Finance Division of the Securities and Futures Commission pursuant to Note 1 on Dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers waiving any obligation on the part of Mr. Yip Chi Fai Stevens, Beckon Investments Limited, Elegant Mark Investment Limited, Smart Galaxy Investments Limited, Mr. Wong Tin Lung, and parties acting in concert with each of them (collectively, ‘‘Concert Group’’), to make a general offer for all the securities of the Company not already owned or agreed to be acquired by the Concert Group as a result of the Open Offer and any Offer Shares (as defined in the Circular) to be taken up under the Underwriting Agreement (as defined in the Circular) and the transactions contemplated thereunder, be and is hereby approved and any Director be and is hereby authorised to do all such things and take all such action as he may consider to be necessary or desirable to give effect to any of the matters relating to, or incidental to, the Whitewash Waiver.’’

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

Hong Kong, 30 August 2013

– EGM-2 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered office in Cayman Islands: Head office and principle place Crickets Square of business in Hong Kong: Hutchins Drive Unit 2707, China Resources Building P.O. Box 268 26 Harbour Road Grand Cayman KY1-1111 Wanchai Cayman Islands Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the extraordinary general meeting of the Company (‘‘EGM’’) may appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a member of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at the EGM, either personally or by proxy, in respect of such share of the Company as if he was solely entitled thereto; but if more than one or such joint holders be present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
In order to be valid, the proxy form duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the Company’s branch registrar and transfer office in Hong Kong, 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 holding the EGM or any adjournment thereof.
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, 24 September 2013 to Wednesday, 25 September 2013 (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 4:00 p.m. on Monday, 23 September 2013.
Whether or not you are able to attend the EGM in person, you are strongly urged to complete and return the proxy form in accordance with the instructions printed thereon. Completion and return of the proxy form will not preclude you from attending the EGM and voting in person if you so wish. In the event that you attend the EGM after having lodged the proxy form, it will be deemed to have been revoked.

As at the date hereof, the executive Directors are Mr. Chow Yik, Mr. Lee Cheuk Yue, Ryan and Mr. Leung King Fai; the independent non-executive Directors are Mr. Lam Kai Tai, Mr. Wong Ting Kon and Ms. Yeung Mo Sheung, Ann.

– EGM-3 –

AI assistant

Hao Wen Holdings Limited — Proxy Solicitation & Information Statement 2013

51217_rns_2013-08-29_4e86fe6c-f20c-4e07-bd4a-54e11cb07162.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

HAO WEN HOLDINGS LIMITED 皓 文 控 股 有 限 公 司

(1) SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE; (2) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE;

(3) APPLICATION FOR THE WHITEWASH WAIVER; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser

Independent Financial Adviser

Grand Vinco Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

SUMMARY OF THE OPEN OFFER

EXPECTED TIMETABLE

Event

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE AND PAYMENT FOR THE OFFER SHARES

TERMINATION OF THE UNDERWRITING AGREEMENT

HAO WEN HOLDINGS LIMITED 皓 文 控 股 有 限 公 司

Dear Sir or Madam,

(1) SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE;

(2) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE;

(3) APPLICATION FOR THE WHITEWASH WAIVER; AND

(4) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

SHARE CONSOLIDATION AND CHANGE IN BOARD LOT SIZE

Effects of the Share Consolidation

Conditions of the Share Consolidation

Listing Application

Change in board lot size

Status of the Consolidated Shares

Arrangement on odd lot trading

Exchange of certificates for Consolidated Shares

LETTER FROM THE BOARD

Adjustments in relation to the Share Options

Reasons for the Share Consolidation and change in board lot size

OPEN OFFER

Issue statistics

LETTER FROM THE BOARD

The Offer Shares

Subscription Price

Status of the Offer Shares

Certificates for the Offer Shares

Qualifying Shareholders

Closure of register of members

Rights of Excluded Shareholders

Fractions of the Offer Shares

Application for excess Offer Shares

Basis of allocation of excess Offer Shares

Application for listing

LETTER FROM THE BOARD

UNDERWRITING AGREEMENT

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

Conditions of the Open Offer

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

FUND RAISING ACTIVITY DURING THE PAST 12 MONTHS

REASONS FOR THE OPEN OFFER

WARNING OF THE RISK OF DEALINGS IN THE SHARES

TAKEOVERS CODE IMPLICATIONS AND APPLICATION FOR THE WHITEWASH WAIVER

INFORMATION OF BECKON INVESTMENTS LIMITED

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LOAN FACILITY

INFORMATION ON THE LENDER

DEALING IN SHARES BY DIRECTORS OVER THE PAST SIX MONTHS

LISTING RULES IMPLICATIONS

EGM

RECOMMENDATIONS

ADDITIONAL INFORMATION

HAO WEN HOLDINGS LIMITED 皓 文 控 股 有 限 公 司

(1) PROPOSED OPEN OFFER ON THE BASIS OF

EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE; AND (2) APPLICATION FOR THE WHITEWASH WAIVER

Yours faithfully,

(1) PROPOSED OPEN OFFER ON THE BASIS OF EIGHT OFFER SHARES FOR EVERY ONE CONSOLIDATED SHARE HELD ON THE RECORD DATE; AND (2) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

Hao Wen Holdings Limited Proxy Solicitation & Information Statement 2013

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

HAO WEN HOLDINGS LIMITED 皓文控股有限公司

HAO WEN HOLDINGS LIMITED 皓文控股有限公司