Imperium Financial Group Limited - Proxy Solicitation & Information Statement 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of China Railsmedia Corporation Limited.

**CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 745)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO

ACQUISITION OF THE ENTIRE EQUITY INTEREST IN HUGE LEADER DEVELOPMENT LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the extraordinary general meeting of the Company to be held at Room 901, 9th Floor, Hong Kong Scout Centre, Scout path, Austin Road, Kowloon, Hong Kong, on Friday, 30 March 2012 at 10:00 a.m., is set out on pages 142 to 143 of this circular. Whether or not you propose to attend the meeting, you are advised to complete the form of proxy attached to the notice of the extraordinary general meeting in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

14 March 2012

* For identification purpose only

TABLE OF CONTENTS

			Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . .	48
APPENDIX II	–	ACCOUNTANTS’ REPORT ON THE TARGET GROUP . . . .	70
APPENDIX III	–	PRO FORMA FINANCIAL INFORMATION OF
		THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . .	93
APPENDIX IV	–	VALUATION REPORT ON TARGET . . . . . . . . . . . . . . . . . . .	109
APPENDIX V	–	LETTER FROM ATHENS CAPITAL LIMITED ON
		VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	131
APPENDIX VI	–	LETTER FROM HLB HODGSON IMPEY CHENG ON
		VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	133
APPENDIX VII	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .	135
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . .			142

DEFINITIONS

In this circular, unless the context requires otherwise, the expressions as stated below will have the following meanings:

“Acquisition”
the proposed acquisition of the Sale Shares pursuant to the Sale and Purchase Agreement
“associates” has the meaning ascribed to it in the Listing Rules
“Board” the board of Directors
“Business Day”
a day (other than a Saturday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Capital Increase”
the increase in the issued and paid up capital of each of the Target and FingerAd to no less than HK$2 million prior to Completion
“Company”
China Railsmedia Corporation Limited, a company incorporated in the Cayman Islands with limited liability, the issued Shares of which are listed on the Stock Exchange
“Completion”
completion of the transactions contemplated under the Sale and Purchase Agreement
“connected persons”
has the meaning ascribed to it in the Listing Rules
“Consideration”
the consideration of HK$690,000,000 payable by the Purchaser for the Sale Shares under the Sale and Purchase Agreement
“Convertible Preference Share(s)”
7,000,000,000 new convertible preference shares of HK$0.07 each to be issued by the Company at Completion to the Vendor at the issue price of HK$0.07 per Convertible Preference Share, credited as fully paid, for the purpose of settlement of part of the Consideration
“Conversion Shares”
new Shares to be issued upon exercise of the conversion rights attached to the Convertible Preference Shares
“Directors”

the directors of the Company and each a “Director”

– 1 –

DEFINITIONS

“EGM”
“Enlarged Group”
“FingerAd”
“Group”
“Hong Kong”
“Last Trading Day”
“Latest Practicable Date”
“Listing Rules”
“Mr Tang”
“Mr Xiao”
“Ms Chan”
“PRC”
“Promissory Note”
“Purchaser”
an extraordinary general meeting of the Company to be held at Room 901, 9th Floor, Hong Kong Scout Centre, Scout path, Austin Road, Kowloon, Hong Kong, on Friday, 30 March 2012 at 10:00 a.m.
the Group immediately after completion of the Acquisition
FingerAd Media Company Limited, the wholly owned subsidiary of the Target
the Company and its subsidiaries
the Hong Kong Special Administration Region of the People’s Republic of China
27 October 2011, being the last day on which the Shares were traded on the Stock Exchange prior to the suspension of trading in the Shares pending the release of the Company’s announcement dated 21 November 2011 relating to the Acquisition
9 March 2012, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Mr Tang Tsz Hoo Anthony
Mr Xiao Baoyan
Ms Chan Ka Wai
The People’s Republic of China
the promissory note in the sum of HK$200,000,000 to be issued by the Purchaser to satisfy part of the Consideration
Capital Marks Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly owned subsidiary of the Company

– 2 –

DEFINITIONS

“Sale and Purchase Agreement” the sale and purchase agreement to acquire the Sale Shares entered into amongst the Company, the Purchaser and the Vendor dated 27 October 2011
“Sale Shares” 1,000 ordinary shares in the Target representing 100% of the total issued share capital of the Target
“SFO” The Securities and Future Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)” ordinary share(s) of nominal value of HK$0.10 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“Target” Huge Leader Development Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly owned by the Vendor
“Target Group” The Target and FingerAd
“Valuation Report” the valuation report on the Target prepared by Ample Appraisal Limited as set out in Appendix IV
“Vendor” Huge Leader Holdings Limited
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“USD” United States Dollars, the lawful currency of the United States
“%” per cent

The English translation of Chinese names is included for information purpose only and should not be regarded as their official English translation.

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LETTER FROM THE BOARD

**CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 745)

Executive Directors: Registered office: Mr. Hui Chi Yung Cricket Square Mr. Hui Kau Mo Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Independent non-executive Directors: Cayman Islands Mr. Liu Kwong Sang Mr. Sit Hing Wah Head office and principal Dr. Hu Chung Kuen place of business in Hong Kong: Flat C, 3/F, Shing Lee Commercial Building No.8 Wing Kut Street, Central Hong Kong

14 March 2012

To Shareholders of the Company

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF THE ENTIRE EQUITY INTEREST IN HUGE LEADER DEVELOPMENT LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The Board announced on 21 November 2011 that the Company, the Purchaser and the Vendor entered into the Sale and Purchase Agreement, pursuant to which the Purchaser conditionally agreed to acquire and the Vendor conditionally agreed to dispose of the Sale Share, representing 100% of the entire issued share capital of the Target at the total consideration of HK$690,000,000.

The purpose of this circular is to provide you with, among other things, (i) further information on the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) the accountants’ report of the Target Group; (iii) the pro forma financial information on the Group upon Completion; (iv) the valuation report on the Target; (v) the letters from the financial adviser of the Company and the auditors of the Company in respect of the valuation of the Target and to give you a notice of the EGM at which a resolution will be proposed to consider and, if thought fit, approve the Sale and Purchase Agreement and the transactions contemplated thereunder and the issue of the Convertible Preference Shares.

For identification purpose only

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LETTER FROM THE BOARD

THE AGREEMENT

Date : 27 October 2011

Parties:

The Purchaser: Capital Marks Limited, a wholly owned subsidiary of the Company
The Vendor: Huge Leader Holdings Limited
The Company.

The Vendor is an investment holding company and is owned as to 40% by Ms Chan, 30% by Mr Xiao and 30% by Supreme Turbo Limited. Supreme Turbo Limited is wholly and beneficially owned by Mr Tang. To the best knowledge, information and belief of the Directors after having made all reasonable enquiries, as at the Latest Practicable Date, the Vendor and its ultimate beneficial owners are third parties independent of the Company and its connected persons. As informed by the Vendor, Ms. Chan has been actively engaged in the media and IT industry and has developed an extensive network in the field. Mr. Xiao is a businessman based in the PRC. Mr. Tang is a consultant on business and corporate development and has extensive experience in the IT and computing industry.

Assets to be acquired

The Sale Shares, representing 100% of the entire issued share capital of the Target

Consideration

Pursuant to the terms of the Sale and Purchase Agreement, the Consideration of HK$690,000,000 shall be settled in the following manners:

as to HK$490,000,000 to be satisfied by procuring the Company to issue to the Vendor or its nominees the Convertible Preference Shares upon Completion; and
as to the balance of HK$200,000,000 to be satisfied by way of issue of the Promissory Note to the Vendor or its nominees upon Completion.

The Consideration has been arrived at after arm’s length negotiations between the Company, the Purchaser and the Vendor and was determined with reference to, including but not limited to, the preliminary valuation on the Target prepared by Ample Appraisal Limited, an independent professional valuer, according to which the market value of the Target was approximately HK$690 million as at 30 September 2011.

The Valuation Report of the Target is set out in Appendix IV of this circular. Please also refer to the letter from Athens Capital Limited, the financial adviser to the Company, on the Valuation Report set out in Appendix V of this circular and the letter from HLB

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LETTER FROM THE BOARD

Hodgson Impey Cheng, the auditors of the Company, on the Valuation Report set out in Appendix VI of this circular. The Valuation Report was based on income approach and discounted cash flow method was adopted for valuation. The Valuation Report constitutes a profit forecast under Rule 14.61 of the Listing Rules.

The material assumptions used in the Valuation Report includes the following:

the projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals;
the financial projections provided will be materialised;
there will be sufficient supply of technical staff in the industry in which the Target Group operates;
The Target Group will retain competent management, key personnel and technical staff to support its ongoing operations and development;
there will be no major changes in the current taxation laws in the localities in which the Target Group operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
all relevant legal approvals and business certificates or licences to operate the business in the localities in which the Target Group operates or intends to operate would be officially obtained, and renewed upon expiry;
there will be no major changes in the political, legal, economic or financial conditions in the localities in which the Target Group operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Target Group; and
interest rates and exchange rates in the localities for the operation of the Target Group will not differ materially from those presently prevailing.

The life of the valuation model is perpetual with detail cash flows projection for the initial 10 years. The discount rate adopted for the valuation is determined by first obtaining the cost of equity finance according to the capital asset pricing model with reference to the average equity beta of the comparable companies. A risk premium is then added to the cost of equity finance as the Target is at its initial stage of business development, which is determined by reference to the average failure rate of similar new start-up private companies observed by researchers on Canadian and American companies in 1999-2000. Although the researches were performed in 1999-2000, this does not invalidate their findings in the absence of more recent research findings. The Directors consider that such references are fair and reasonable. The value of the Target is further adjusted by a discount for lack of marketability (as a private company) which is determined with reference to the average annualised volatility of the comparable companies. The revenue estimation is determined based on (i) monthly subscription fee

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LETTER FROM THE BOARD

per subscriber; (ii) estimated growth in number of subscribers in view of the explosion of the smartphone market; (iii) drop-out rate of customers after the free trial period; and (iv) future prospect of mobile app as a new channel for retailers in promotion. In particular, the cash flows projection in the valuation of the Target is based on (i) the business agreements entered into by the Target Group as set out under the section “Information of the Target Group” below; (ii) the current number of subscribers to the Dining App services with projected expansion and growth; (iii) the revenue estimation model abovementioned and (iv) operating expenses projected and benchmarked with comparable companies. As of 30 September 2011, the number of signed up customers for the Dining App services (in respect of the food and beverage market in Hong Kong only) in accordance with other assumptions will account for 9.6% and 1.9% of total revenue in the first and second year of revenue generating operation commencing from 1 April 2012, but less than 0.3% over the life of the valuation model. The financial forecast and valuation did not factor in the expansion into other industries in Hong Kong and the PRC which are possible directions for future expansion.

After having made due and careful enquiry and taken into account (i) the expected high growth rate in the initial years of launch of the Dining App due to (1) its new and innovative nature in the market with limited competition and (2) the low starting base effect; (ii) the popular use of smartphones in Hong Kong; (iii) the growth of internet advertising worldwide, (iv) the business model and strategies of the Target Group and (v) the business prospects of the Target Group according to its management, the Directors considered that the bases and assumptions adopted in the Valuation Report are fair and reasonable. In addition, as set out in the Valuation Report, it is projected that the Dining App can achieve approximately 25% market share in the food and beverage sector in Hong Kong by 2021. Having considered (i) the wide applications of the Dining App to different food and beverage retailers; (ii) distinctive strengths of the Dining App; (iii) the business strategies of the Target Group and (iv) the experience and vision of the key personnel of the Target Group, the Directors are of the view that such projections on market share are fair and reasonable.

Currently the Target Group operates its business in Hong Kong. Other than the usual business registration, there is no particular licence or approval required for operating the Target Group’s business in Hong Kong.

Prior to entering into the Sale and Purchase Agreement, the Company has engaged legal advisers to conduct legal due diligence on the Target Group. The Company has reviewed the business plan, the management accounts and all material contracts entered into by the Target Group. The Company has also discussed with the Vendor and the management of the Target Group on the affairs and prospects of the Target Group. In addition, the Company has engaged an independent valuer to prepare draft valuation report on the Target Group and has engaged a financial adviser to review the bases and assumptions adopted in the valuation. The Company has also discussed with the auditors of the Company on the relevant bases and assumptions adopted in the valuation.

The Directors note that the Target Group has no track record and the projections in future cash flows may not materialize. The Sale and Purchase Agreement does not provide for any profit guarantee or similar indemnity from the Vendor in the event that the

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LETTER FROM THE BOARD

projections in future cash flows of the Target Group do not materialize. However after having considered (i) the fast growth and importance of advertising through online medium; (ii) the popular use of smartphones and tablets in Hong Kong and the PRC and (iii) the business projections based on the existing agreements entered into by the Target Group as set out under the section “Principal business activities and business plan” below and the number of current subscribers to the Dining App services with projected expansion and growth, the Directors are of the view that the Acquisition at the Consideration is fair and reasonable and in the interest of the Shareholders as a whole.

Conditions precedent

Completion shall be conditional upon satisfaction or waiver as applicable of each of the following conditions precedent:-

(a) the Purchaser being reasonably satisfied with the results of the due diligence review of the Target Group to be conducted including but not limited to completion of the Capital Increase;
(b) all necessary consents and approvals required to be obtained on the part of the Vendor, the Purchaser and the Company in respect of the Sale and Purchase Agreement and the transactions contemplated thereby having been obtained;
(c) all necessary waiver, consent, approval, licence, authorisation, permission, order and exemption (if required) from the relevant governmental or regulatory authorities or other third parties which are necessary in connection with the Sale and Purchase Agreement and the transactions contemplated thereby having been obtained;
(d) the passing by the Shareholders at a general meeting of the Company of an ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated hereunder, including but not limited to the issue of the Convertible Preference Shares and issue of the Conversion Shares upon conversion of the Convertible Preference Shares;
(e) no indication having been received from the Stock Exchange that the transactions contemplated under the Sale and Purchase Agreement will be treated or, as the case may be, ruled by the Stock Exchange as a “reverse takeover” under the Listing Rules;
(f) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares; and
(g) the warranties by the Vendor contained in the Sale and Purchase Agreement remaining true and accurate in all respects.

If any of the conditions precedent has not been satisfied (or waived by the Purchaser in respect of (a), (e) or (g) only) at or before 5:00 p.m. on 31 March 2012 or such later date as the Vendor and the Purchaser may agree, the Sale and Purchase Agreement shall cease

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LETTER FROM THE BOARD

and determine and the Vendor shall forthwith return to the Purchaser all moneys paid under the Sale and Purchase Agreement (without interest or compensation) (if any) and thereafter neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof. Although the Purchaser is entitled to waive the conditions (a), (e) and (g) above, the Purchaser has no intention of waiving the same and will not do so which would adversely affect the interest of the Company.

Completion

Completion shall take place on the date falling on the third Business Day following the day on which all the conditions precedent of the Sale and Purchase Agreement are satisfied in full (or the case may be, waived by the Purchaser), or such other date as the Vendor and the Purchaser may agree in writing.

Upon Completion, the Target will become a wholly owned subsidiary of the Group.

Convertible Preference Shares

The principal terms of the Convertible Preference Shares are as follows:

Issuer: The Company Number of Convertible 7,000,000,000 Preference Shares: Notional Value: The issue price of each Convertible Preference Share, being HK$0.07 Conversion price: Initially, Convertible Preference Shares of an amount equivalent to HK$0.07 shall be convertible into one Share.

The conversion price will be subject to adjustments for subdivision or consolidation of Shares as described in the terms and conditions of the Sale and Purchase Agreement.

Dividend: Holder of each Convertible Preference Share shall have the same entitlement to dividend as holder of the number of Shares into which such Convertible Preference Share may be converted upon exercise of conversion rights attached thereto.

Conversion rights: Convertible Preference Shares are convertible at the option of the holder at any time after the issue date.

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LETTER FROM THE BOARD

No conversion shall take place if:

1) to do so would result in the Conversion Shares being issued at a price below their nominal value as at the applicable conversion date; or
2) to the extent that following such exercise, the relevant holder of Convertible Preference Share and parties acting in concert with it, taken together, will directly or indirectly, control or be interested in 30% or more of the entire issued share capital of the Company comprising the Shares or otherwise trigger a mandatory offer obligation under Rule 26 of the Takeovers Code; or
3) immediately after such conversion, the public float of the Shares falls below the minimum public float requirements stipulated under the Listing Rules or as required by the Stock Exchange; or
4) the Directors are of the opinion that such conversion is or would result in the non-compliance of any of the terms and conditions of the Convertible Preference Shares.

Accordingly, the Company has the right not to issue any Conversion Shares to such holder(s) of Convertible Preference Shares exercising the conversion rights in the above circumstances. The Company has no right to redeem the Convertible Preference Shares under the above circumstances.

Redemption:

Neither the Company nor any holder of the Convertible Preference Shares shall have any right to redeem the Convertible Preference Shares, other than for the purpose of conversion of the Convertible Preference Shares pursuant to the terms of the Convertible Preference Shares.

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LETTER FROM THE BOARD

Ranking:

The Convertible Preference Shares rank:

(i) in priority to the Shares as to return of capital; and
(ii) pari passu with the Shares as to dividends.

Voting rights:

Holders of the Convertible Preference Shares (in their capacity as such) will not be permitted to attend or vote at meetings of the Company, unless a resolution is proposed to vary the rights of holders of the Convertible Preference Shares or a resolution is proposed for the winding up of the Company.
Listing: No application will be made for the listing of the Convertible Preference Shares on the Stock Exchange or any other stock exchange.
Transferability: The Convertible Preference Shares are freely transferable, provided that if any Convertible Preference Share(s) is/are intended to be transferable to a connected person of the Company (other than the associates of the holder of the transferring Convertible Preference Shares), such transfer shall comply with the requirements under the Listing Rules and/or requirements imposed by the Stock Exchange (if any).

The conversion price of HK$0.07 per Convertible Preference Share has been arrived at after arm’s length negotiations between the Company, the Purchaser and the Vendor, with reference to, among other things, the recent trend of the Share price performance and the prevailing market price of the Shares prior to the Last Trading Date.

The conversion price of HK$0.07 per Convertible Preference Shares represents:

(i) a discount of approximately 19.54% to the closing price of HK$0.087 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 12.72% over the average of the closing prices of approximately HK$0.0802 per Share for the 5 consecutive trading days immediately prior to the Last Trading Day; and
(iii) a discount of approximately 3.98% over the average of the closing prices of approximately HK$0.0729 per Share for the 30 consecutive trading days immediately prior to the Last Trading Day.

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LETTER FROM THE BOARD

The maximum of 7,000,000,000 Conversion Shares to be issued upon full conversion of the Convertible Preference Shares represent approximately:

(a) 375.57% of the existing issued share capital of the Company; and
(b) 78.97% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares upon full conversion of the Convertible Preference Shares.

The Conversion Shares shall rank pari passu in all respects with the Shares then in issue on the date of allotment and issue thereof. The Company will seek a specific mandate from the Shareholders at the EGM for the allotment and issue of the Conversion Shares.

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

Promissory Note

The principal terms of the Promissory Note are as follows:

Issuer: The Purchaser Principal amount: HK$200,000,000 Maturity date: the 2nd anniversary of the date of issue of the Promissory Note (the “ Maturity Date ”)

Interest: 2% per annum Repayment: The principal may be repaid in full or in part by the Purchaser at any time without penalty prior to the Maturity Date. All outstanding principal together with interest shall be repaid on the Maturity Date. Transferability: The holder of the Promissory Note may freely assign or transfer the Promissory Note whether in whole or in part to any person (other than a connected person of the Company).

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LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

The Target is an investment holding company incorporated in the British Virgin Islands with limited liability. FingerAd is the wholly owned subsidiary of the Target and is incorporated in Hong Kong on 18 July 2011. FingerAd is the principal operating company of the Target Group. Currently the Target Group consists of the Target and FingerAd.

According to the unaudited consolidated financial information of the Target which has been prepared in accordance with Hong Kong Financial Reporting Standard from 18 April 2011 (the date of incorporation) to 30 September 2011, the net loss before and after taxation is both approximately HK$10,649. The consolidated net liabilities of the Target as at 30 September 2011 is approximately HK$2,669.

Principal business activities and business plan

The Target Group is currently engaged in providing advertising and value added services in Hong Kong through mobile devices and digital media network of LCD and flat panel screens in retail chain network.

FingerAd has teamed up with Amazing World Corporation Limited, a limited company incorporated in Hong Kong and trading under the business name of “Tera Age”, for the supply of solutions for mobile platforms. To the best of the Directors’ information and belief, Tera Age is a third party independent of the Company and its connected persons. Neither the Vendor nor its associates are shareholders or directors of Amazing World Corporation Limited. Tera Age is a leading provider of software development for companies of all sizes in Hong Kong and Greater China regions. It is one of the pioneers to develop software on mobile platform and successfully deployed the first mobile software on Windows CE in 2004. In 2011, Tera Age received the Certificate of Merit of The Hong Kong ICT Awards 2011: Best Ubiquitous Networking (Mobile Enterprise Solution). FingerAd has entered into a legally binding agreement dated 15 September 2011 with Tera Age pursuant to which Tera Age shall supply exclusively to FingerAd solutions for mobile platforms with online advertising capability for the food & beverage industry for an initial term of five years. Tera Age also granted to FingerAd the first right of refusal for the exclusive supply of similar solutions for the travel industry and apparel industry for an initial term of five years.

Details of the agreements with Tera Age are as follows:

Master Agreement for the exclusive supply of mobile solutions

Date

15 September 2011

Parties

(1) Tera Age, operated by Amazing World Corporation Limited;
(2) FingerAd Media Company Limited.

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LETTER FROM THE BOARD

Subject matter

Tera Age agreed to supply solutions for mobile platform with advertising capability exclusively to FingerAd for the food and beverage industry in Hong Kong and the PRC. Tera Age also granted to FingerAd the first right of refusal for the exclusive supply of similar solutions for the travel and apparel industry in Hong Kong and the PRC. The initial term of the agreement is 5 years from the date of the agreement. Thereafter the agreement shall be automatically renewed for successive one-year terms unless the parties agree otherwise or terminated pursuant to the agreement. The purpose of the master agreement is to secure the exclusive supply of mobile solutions from Tera Age and does not specify the fee arrangement thereof which is to be determined by the parties in subsequent supply contracts. The exclusivity is binding on Tera Age only and FingerAd is entitled to seek other suppliers for similar solutions. Therefore the Company is of the view that a fair and reasonable price can be agreed with Tera Age for the supply of mobile solutions pursuant to the master agreement.

Agreement for the supply of the Dining App services

Date

15 September 2011

Parties

(1) Tera Age, operated by Amazing World Corporation Limited;
(2) FingerAd Media Company Limited.

Subject matter

Tera Age shall supply to FingerAd exclusively the Dining App services at a fixed price per subscriber, subject to a one off minimum order of 1,200 subscribers at the fixed price per subscriber. The fee arrangement was determined after arm’s length negotiation between the parties. After taking into account of the market rate for similar services, the Company considers that the fee arrangement is fair and reasonable. FingerAd shall have the exclusive right to market, use, distribute and sub-licence the Dining App services to end users in the food and beverage industry in Hong Kong and the PRC. Tera Age shall provide support and maintenance services as well as enhancements and upgrades from time to time. The initial term of the agreement is 5 years from the date of the agreement. Thereafter the agreement shall be automatically renewed for successive one-year terms until terminated pursuant to the agreement.

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LETTER FROM THE BOARD

By leveraging on the technological expertise of Tera Age, FingerAd will as a first step provide advertising and value added services through mobile solutions targeted at the food & beverage industry in Hong Kong. Currently the key solution to be provided is the Dining App. The Dining App is not just a software, but a whole new platform for the food & beverage industry to market and promote their business and to keep connected with their customers. The Dining App combines both mobile & Cloud Computing technology that includes 3 key modules, the Mobile App for both Apple iOS and Android, System Administration Tool and Content Management System (“CMS”). The Dining App will be deployed as the personalized Mobile App for each restaurant and it can be downloaded from Apple’s App Store, Android Market or hyperlink by the consumer. After downloading the Dining App to the consumer’s mobile device, the consumer will be able to access the key information of the restaurant such as location and contact information as well as other special information such as the menu of the restaurant. All the information being shown in the Mobile App is managed by the restaurant through the CMS and the restaurant can update their menu from time to time by themselves. By leveraging on the platform created by the Dining App, FingerAd will also provide value added services to help the restaurants and retailers to market their offers and products to their target consumers. Tera Age will be responsible for the maintenance and technical operation of the Dining App. Most of the available mobile apps from the retailers in the market has been developed as a turnkey project by hiring a software developer and the initial cost on average is prohibitive to most of the restaurants. Instead, the Dining App does not require any significant initial investment for rolling out the personalized mobile app for individual restaurant. FingerAd will design an app for each individual restaurant and will charge the restaurants and retailers for the Dining App services on a monthly subscription or per usage basis. The restaurant can then stay connected with their customers with the Dining App services at an affordable monthly subscription. The Dining App services has been launched on 15 September 2011. The Dining Apps for both Apple iOS and Android has been launched. In order to create market awareness and the momentum for market penetration, FingerAd is offering a free trial period ranging from 3-6 months to new subscribers. Therefore as at the Latest Practicable Date, no revenue is recorded for the Dining App services.

In order to build up quickly the customer base, FingerAd has entered into a legally binding cooperation agreement dated 15 September 2011 with iKanTV Limited (“iKan”) pursuant to which iKan shall refer clients exclusively to FingerAd for the Dining App services for an initial term of two years. To the best of the Directors’ information and belief, iKan is a third party independent of the Company and its connected persons. iKan operates the “babybamboo.com.hk” website and is one of the main online group purchasing market player in Hong Kong. It focuses on the food and beverage market with a strong sales force and large customer base. FingerAd and iKan shall share the revenue generated from those clients referred by iKan. As at 31 December 2011, iKan has secured 51 subscribers for the Dining App services. If iKan continues to recruit at the rate of 51 subscribers in approximately 2.5 months, they can recruit approximately 245 subscribers in 12 months or 196 paid subscribers assuming a 20% dropout rate. Since such rate has been achieved by iKan without any significant marketing campaign and other high impact promotional means, the Directors considered that the targeted 291 paid subscribers in the financial year ended 31 March 2013 according to the Valuation Report is achievable.

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LETTER FROM THE BOARD

Details of the agreement with iKan for customer referral are as follows:

Date

15 September 2011

Parties

(1) iKanTV Limited;
(2) FingerAd Media Company Limited.

Subject matter

iKan shall refer merchants in the food and beverage industry in Hong Kong to subscribe for the mobile app services provided by FingerAd on an exclusive basis. iKan shall be responsible for liaising and negotiating with the merchants on the application for the mobile app services. iKan shall be entitled to share with FingerAd the revenue generated from the merchants subscribing for the mobile app services and there is no minimum cap for such revenue sharing. The revenue sharing arrangement was determined after arm’s length negotiation between the parties. After considering the time and costs for procuring similar sales support and the benefits of enjoying the immediate sales and clientele resources of iKan to jump start FingerAd’s business, the Company is of the view that the revenue sharing arrangement is fair and reasonable. The initial term of the agreement is 2 years from the date of the agreement. Thereafter the agreement shall be automatically renewed for successive one-year terms unless the parties agree otherwise or terminated pursuant to the agreement.

In addition to the mobile platform advertising services, FingerAd will also provide advertising services through digital media networks of LCD and flat panel screens in retail chain network. FingerAd has entered into a legally binding agreement dated 26 October 2011 with a leading chain retail group for household goods in Hong Kong (the “Chain Store Group”) pursuant to which FingerAd has the right to install and operate a digital media network of LCD and flat panel display units at the retail stores under the Chain Store Group in Hong Kong. To the best of the Directors’ information and belief, the Chain Store Group is a third party independent of the Company and its connected persons. Currently the Chain Store Group has approximately 200 retail stores in Hong Kong selling a wide range of household products. It is expected that FingerAd will establish a digital media network of flat panel screens at over 100 stores under the Chain Store Group. The network of flat panel screens has been installed and were operated by iKan. FingerAd has acquired the installed screens and other hardware from iKan which included 107 flat panel display units and 160 sets of network media player. FingerAd has rolled out the digital media network upon commencement of the agreement on 27

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LETTER FROM THE BOARD

November 2011. In consideration of the establishment of the digital media network, FingerAd will pay a fixed rental to the Chain Store Group and provide a portion of the advertising air time on the digital media network and related video production services to the Chain Store Group free of charge. FingerAd will enjoy all the revenues from the advertising air time on the digital media network. Details of the agreement with the Chain Store Group are as follows:

Date

26 October 2011

Parties

(1) Chain Store Group;
(2) FingerAd Media Company Limited.

Subject matter

The Chain Store Group shall allow FingerAd to set up and operate one or more TV screen per store under the Chain Store Group. The Chain Store Group shall provide a desirable location for the TV screen and the necessary power supply. FingerAd shall be entitled to show advertisements, news and information on the TV screen. FingerAd shall at its own costs install and maintain the TV screens and related computer system and other equipment. FingerAd shall operate all programs and advertisements on the TV network within 60 minutes per loop at the maximum. FingerAd shall be entitled to put on TV display frame wrapping for its own advertisement. In consideration of allowing FingerAd to operate and use the TV screen network, FingerAd shall pay a fixed monthly rental to the Chain Store Group depending on the number of stores within the network. FingerAd shall also provide to the Chain Store Group a portion of the advertising air time and related video production services free of charge. The fee arrangement was determined after arm’s length negotiation between the parties. After considering the costs vs benefits to FingerAd as a result of such fee arrangement, the Company is of the view that such fee arrangement is fair and reasonable. The term of the agreement is 1 year commencing from 27 November 2011 and expiring on 26 November 2012. Upon expiry either party shall have the option to renew the agreement for a further term of 1 year on the same terms and conditions except for the pricing of rental and free air time which will be subject to negotiation. Either party may terminate the agreement by giving 3 months prior notice to the other.

FingerAd has also entered into a legally binding agreement dated 26 October 2011 with iKan pursuant to which iKan shall provide management services to FingerAd in respect of the digital media network under the Chain Store Group such as video production, processing and upload, operation of program, updating playlist and maintaining the hardware. In consideration of the services provided by iKan, FingerAd

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LETTER FROM THE BOARD

shall allow iKan to use a portion of the advertising air time and certain advertising space on the digital media network free of charge. Details of the agreement with the iKan are as follows:

Date

26 October 2011

Parties

(1) iKanTV Limited;
(2) FingerAd Media Company Limited.

Subject matter

iKan shall manage the network’s computer system including playlist update and video upload and operate the program and advertising broadcast. iKan will handle the video editing, conversion and submission of video, image and text content for the entire loop. iKan shall be responsible for maintenance of the display units. In consideration of services provided by iKan, FingerAd shall provide to iKan a portion of the advertising air time and certain advertising space within the network free of charge. The fee arrangement was determined after arm’s length negotiation between the parties. After considering the market rate for similar services and the costs to FingerAd, the Company is of the view that such fee arrangement is fair and reasonable. The term of the agreement is 1 year commencing from 27 November 2011 and expiring on 26 November 2012. Either party may terminate the agreement by giving 1 month prior notice to the other.

All the aforesaid agreements with Tera Age, iKan and the Chain Store Group were procured primarily by Ms Chan Ka Wai, one of the ultimate beneficial owners of the Vendor, on behalf of the Target Group. Ms Chan Ka Wai is currently a director of the Target and FingerAd. It is intended that Ms Chan shall remain as a director of FingerAd after completion to ensure a smooth transition for the Target Group.

The Target Group already has the key personnel required to operate the Target Group’s business. The Company will retain the following key personnel to assist the Company in the operation of the Target Group after completion:

Mr Chan Ka Sing, Billy, aged 44, is the chief executive officer of the Target Group. He is responsible for formulating corporate strategy, direction for company growth and leading the product development. Mr Chan has over 10 years of working experiences in the communication industry, and has held senior positions in communication and IT enterprises. He was the Chief Consultant of Internet Products and the Chief Consultant of Business Sales of New World Telecommunications Limited and the Sale Department head of PCCW Limited. Currently he is also the chief operating officer of iKanTV Limited, a subsidiary of China Post E-Commerce (Holdings) Limited.

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LETTER FROM THE BOARD

Mr Chow Wai Pui, Rio, aged 40, is the chief technical consultant of the Target Group. He is responsible for overseeing the technological aspects of the Target Group’s operation and services. Mr Chow has extensive experience in the information technology industry. He is a co-founder and the chief operation officer of Tera Age.

After considering the cash in hand and the estimated cash inflow and working capital requirements of the Group and the Target Group for the coming 12 months according to the working capital forecast which is based on the Company’s 2011 financial statements with disclaimer of opinion due to the fundamental uncertainty relating to the going concern basis, the Directors are of the opinion that the Group will have sufficient resources to satisfy the working capital requirements of the Target Group.

Business model

The Target Group provides advertising and value added services in Hong Kong through mobile devices and digital media network of LCD and flat panel screens in retail chain network. In its service delivery, the core essence rests on the mobile advertising solution with online advertising capability as provided by the Target Group. Currently, the Dining App, a mobile app, is the key mobile advertising solution offered by the Target Group. In addition to the mobile platform covered by the Dining App, it is further complemented with the digital media LCD displays network of the Chain Store Group for providing a comprehensive advertising network of the Dining App for its advertising clients.

The Dining App is targeted for the restaurants in Hong Kong. The main revenue source of the Target Group will come from the regular subscription of the Dining App by the restaurants and additional charges for value added services through the Dining App such as online table booking, push notification promotion campaign etc. Other sources of income will include in apps advertising and advertising through digital media network at the Chain Store Group. Initially the Target Group will mainly rely on iKan for referral of restaurants to subscribe for the Dining App services. The Target Group’s revenue will be affected primarily by (i) the demand for the Dining App services and the number of subscribers to the Dining App; (ii) the price charged by the Target Group for subscription to the Dining App services.

The major operating costs will be (i) the fee charged by Tera Age for the supply of the Dining App, (ii) the fee charged by the Chain Store Group for operating the digital media network and (iii) the fee charged by iKan for customer referral in the form of sharing of revenue generated from customers referred by iKan. All the said fees have been fixed for the term of the relevant agreements. Such fees will be subject to change after expiry or termination of the relevant agreements.

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LETTER FROM THE BOARD

The Target Group participates in providing mobile advertising solutions which is supplemented with digital media LCD displays network. Currently the Directors are not aware of any meaningful player in Hong Kong adopting a similar business model as the Target Group and operates in the advertising segment which the Target Group operates, i.e. offering mobile app advertising services and supplementing its advertising network coverage with physical digital media network.

Although smartphones allow users to access the internet in the same way as computers, the use of mobile apps to access the internet is specifically developed for mobile devices which is faster and more convenient than traditional means through web browsers. The use of mobile apps on the one hand and web browsers on the other hand to access the internet through smartphones are therefore two different consumer behaviors. While there are popular websites containing restaurants information operated by third parties which also have mobile apps access, these websites usually provide information only and do not allow interactive features. The Dining App is able to provide a personalized interactive platform for the restaurant to promote its business and to communicate with its customers. For example, customers can make online table booking and order takeaways through the Dining App. Restaurants can make use of the push notification function to “push” their promotional items to individual users of the Dining App from time to time.

The market of advertising based on mobile apps is still evolving. The Target Group is one of the early movers in this innovative and emerging advertising market. Therefore, competition on mobile advertising solutions of the Target Group, the core essence of the Target Group’s business model, is limited. Although the Target Group may encounter competition from other mobile apps developers, most of those mobile apps developers develop mobile apps as turnkey projects for their clients with average initial cost being prohibitive to most restaurants. Leveraging on the technological expertise of its technology partner, the mobile advertising solution of the Target Group competes with other mobile apps developers on the basis of low subscription price, interactive product features, flexibility of service offerings and quality of services that the Target Group provides. Based on the Directors’ information, the average initial costs for developing mobile apps as turnkey projects for clients range from approximately HK$35,000 to HK$100,000. In addition, clients would have to incur additional costs of approximately HK$10,000 to HK$15,000 per month on average in securing hardware and IT personnel to maintain and operate the mobile apps on a continued basis. While the subscription fee for the Dining App services include all the development costs and subsequent maintenance charges. After having considered such initial costs and on-going maintenance costs and the average turnover of restaurants in Hong Kong, the Directors are of the view that the current subscription fee of the Dining App is competitive and acceptable to the market. In addition, an added advantage of the Target Group is its additional advertising platform coverage under the established digital media LCD displays network under the Chain Store Group. With this physical advertising platform, the advertising clients of the Target Group will obtain extra exposure to target audience in addition to the mobile platform.

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LETTER FROM THE BOARD

Future plan

Other than the amount of HK$100,000 that has been paid to iKan, there is no material capital commitment expected in the short term for the Target Group. It is expected that the issued capital of the Target Group (which the Vendor have undertaken to increase to no less than HK$2 million pursuant to the Sale and Purchase Agreement) will be sufficient to meet the Target Group’s working capital requirements in the next 12 months.

The Target Group will continue to adopt a low operating costs structure and keep a lean approach to staffing. The Target Group will expand its work force, in particular its sales and marketing team, to align with its business development.

The Target Group will focus on building a critical mass for subscribers for the Dining App in the food and beverage industry in Hong Kong. The partnering with Tera Age and iKan enables the Target Group to provide low costs mobile app services to restaurants through the established client base of iKan. The digital media network under the Chain Store Group further complement the mobile app services and help building up brand recognition in the market. After successfully gaining market recognition in the food and beverage sector in Hong Kong, the Target Group will expand its target merchants to retailers in other industries in Hong Kong such as the fashion and travel industry. The Target group will adopt similar strategies for the supply and sales of mobile app services for other industries.

The Target Group also intends to replicate the business model in the PRC in the future after successfully gaining market recognition in the mobile advertising media for food and beverage industry in Hong Kong and after due and careful feasibility studies have been made. In order to pave the way for future replication of the business model of the Target Group in the PRC, as an initial start, the Group will leverage on its current established LCD displays network in rail stations in the PRC to create market awareness in the PRC and to establish brand recognition of the Target Group in the PRC in offering mobile advertising solutions. The Group will conduct appropriate due diligence work and feasibility studies before embarking on expanding the Target Group’s business in the PRC.

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LETTER FROM THE BOARD

RISK FACTORS IN RELATION TO THE TARGET GROUP’S BUSINESS AND THE ACQUISITION

The Target Group is a start-up business with no track record and there is no assurance that its business will be successfully developed

The Target Group is a new start up and has no track record of revenue generating. The Dining App, being the key advertising solution provided by the Target Group, has only a short history since launching and has not yet gained significant market recognition in Hong Kong. The market demand for this kind of advertising service in the future is not yet proven. The Target Group’s business strategy is subject to the test of time in the market place and the Directors cannot be certain that the Target Group will achieve market acceptance. The financial projections in relation to the Target Group’s business adopted in the Valuation Report are subject to significant uncertainties and unforeseen circumstances which could adversely affect the operation and profitability of the Target Group. There is no assurance that such financial projections can be sustained or materialized.

Reliance on a single product and the food and beverage industry in Hong Kong

Currently the Dining App is the only solution offered by the Target Group which is targeted at the food and beverage industry in Hong Kong. It is uncertain to what extent the restaurants in Hong Kong will spend their advertising budget in this relatively new channel of advertising. Although it is the intention of the Target Group to provide similar advertising solutions to other industries such as the travel industry and apparel industry in Hong Kong and to expand the services to the PRC, there is no assurance that such advertising solutions can be rolled out on time. It is also uncertain whether such advertising solutions will gain recognition in those markets.

Reliance on growth of smartphones and mobile apps

The Target Group’s business relied on the continued growth of the smartphone and mobile apps. Although there is a general trend in the continued growth of smartphone and mobile apps in Hong Kong and PRC, there is no assurance that advertising customers will increase their spending budget on advertising solutions based on mobile apps.

Reliance on Tera Age to provide the Dining App services

The Target Group relied on Tera Age to provide and maintain the Dining App services pursuant to an agreement dated 15 September 2011. Any failure, delay, cessation or disruption by Tera Age to perform its obligations under the said agreement will adversely affect the Target Group’s operation. The Target Group may not be able to secure alternative provider to support the Dining App services.

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LETTER FROM THE BOARD

Reliance on iKan to refer advertising customers

Pursuant to the agreement dated 15 September 2011 made between FingerAd and iKan, iKan shall exclusively referred customers in the food and beverage industry to FingerAd. The Target Group predominantly relied on iKan for customers referral. Any failure by iKan to refer customers to the Target Group would adversely affect the results of operation of the Target Group.

Reliance on key management

The Target Group’s operation is, to a significant extent, dependent on the management, expertise and experience of the chief executive officer and chief technical consultant mentioned under the section “Principal business activities and business plan” above. There may be an adverse impact on the Target Group’s operation should any of the said personnel cease to be involved in the business of the Target Group.

Ability in catching up with the latest technological and advertising trend and market demand

The advertising market based on smartphones and mobile apps are faced with rapidly changing technology, evolving business models and changing customer demands. The Target Group’s future success will depend on its ability to adapt to rapidly changing technology and advertising trends and to provide low cost and up-to-date solutions to gain an edge in the market. The failure of the Target Group to adapt to such changes would adversely affect the Target Group’s operating results.

Competition in the mobile apps advertising industry and flat panel screen advertising industry

Based on the Directors’ knowledge, the mobile apps advertising segment is relatively new in Hong Kong and the Target Group is one of the early movers in this area. There has been growing presence in the use of flat panel screen for advertising, notably in public transport and building lift lobbies. While the use of flat panel screen in chain retail store for advertising is relatively new. Currently the Directors are not aware of any meaningful player in Hong Kong adopting a similar business model as the Target Group and operates in the advertising segment which the Target Group operates, i.e. offering mobile app advertising services and supplementing its advertising network coverage with physical digital media network. While the Target Group may enjoy the advantage of an early mover, there is no assurance that the Target Group will be able to compete against its competitors. If the Target Group is unable to compete effectively against the competitors by maintaining the Target Group’s competitive advantages or to timely respond to a changing business environment, its results of operations may be adversely affected. In addition, any increase in competition may adversely affect the Target Group’s market share. Any of these events could have a material adverse effect on the Target Group’s financial condition, results of operations and future prospects.

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LETTER FROM THE BOARD

Failure to secure agreement with the Chain Store Group

The agreement between FingerAd and the Chain Store Group dated 26 October 2011 relating to the digital media networks of LCD and flat panel screens will expire on 26 November 2012. Failure to renew the agreement on favourable terms or at all would adversely affect the operation of the Target Group. According to the Vendor, the Target Group currently maintains a good business relationship with the Chain Store Group and they are not aware of any difficulties in renewing the agreement upon expiry of the existing term.

Failure to replicate business model in PRC

The Target Group intends to replicate the business model in the PRC in the future after successfully gaining market recognition in the mobile advertising media for food and beverage industry in Hong Kong and after due and careful feasibility studies have been made. The Target Group’s future business in the PRC will be subject to the economic, political and legal environment of the PRC. It is uncertain whether the Target Group’s business model can be replicated in the PRC on time or at all. The existence of unfavourable government policy in relation to the conduct of business in general or in areas specific to the Target Group’s business in the PRC or failure by the Target Group to comply with laws and regulations governing the Target Group’s business in the PRC and to obtain the necessary licences, approvals and authorizations from relevant PRC government authorities may stall the Target Group’s intended development in the PRC or adversely affect the Target Group’s future operation in the PRC.

Changes in economic conditions

The demand for the Target Group’s mobile apps and digital media network advertising services and related advertising spending by customers is sensitive to changes in general economic conditions in Hong Kong. Generally advertising spending will be reduced when there is decline in the economic conditions. A decrease in demand for advertising media in general and for the Target Group’s advertising services would adversely affect the Target Group’s results of operations.

Substantial dilution to shareholdings of existing Shareholders

Pursuant to the Sale and Purchase Agreement, the Company will issue a total of 7,000,000,000 Convertible Preference Shares to the Vendor on Completion. For illustration purpose only, the Conversion Shares represent approximately 78.97% of the enlarged issued share capital of the Company. As a result, the shareholdings of the existing Shareholders in the Company will be substantially diluted upon full conversion of the Convertible Preference Shares.

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LETTER FROM THE BOARD

INDUSTRY OVERVIEW

Matured Recovery in Asia Pacific

According to a recent report on the regional economic outlook published by the International Monetary Fund (hereinafter referred to as the “IMF”), the recovery in Asia from the recent financial crisis has matured as both exports and domestic demand have fueled rapid economic growth, which reached 8.3 percent in 2010. Export has benefited from the global investment cycle as well as strong final demand from emerging economies in both Asia and other regions. Domestic demand has also been robust, reflecting still expansionary fiscal policies as well as growing private demand. Private demand has been broad based across both investment and consumption. Investment is being driven by the need in many Asian countries to overcome capacity constraints and to build infrastructure. Consumption is being propelled by rising employment, wages, and productivity.

These supported favorable prospects with growth in the Asia Pacific region projected to average nearly 7 percent in the next two years. Growth is expected to be 9.5 percent and 4.8 percent for the PRC and Hong Kong respectively for the same period.

Risks to the growth outlook are evenly balanced. The prospects for sustained global growth have strengthened in recent quarters as uncertainties over private domestic demand in advanced economies have lessened. New downside risks have emerged such as the turmoil in the Middle East and North Africa region, which could disrupt global growth and inflation. Meanwhile, fiscal and financial vulnerabilities continue to cloud the outlook for advanced economies, which are important trading partners for Asia.

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LETTER FROM THE BOARD

Historical Perspective of the PRC and Hong Kong Economies

Historical data of gross domestic product (“GDP”) provided by the IMF, World Economic Outlook Database, April 2011 edition, shows the states of economies of selected countries in the Asia Pacific region from 2000 to 2010 (figures for 2010 are estimates) in United States Dollars (“USD”). Chart 3.1 shows the situation for the PRC and chart 3.2 illustrates the economy of Hong Kong. In 2010, the PRC overtakes Japan as the biggest economy in the region.

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Chart 3.1 – GDP (Current Prices) for the PRC

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Chart 3.2 – GDP (Current Prices) for Hong Kong

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LETTER FROM THE BOARD

Chart 3.3 compares economy of Hong Kong with other Asian economies of similar size, it shows economies of Indonesia and Thailand grew at a faster pace in last few years, Hong Kong only achieved a much slower growth in last decade.

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Chart 3.3 – GDP (Current Prices) for Selected Asia Pacific Countries

ISO Code

Country

HKG	Hong Kong
IDN	Indonesia
MYS	Malaysia
NZL	New Zealand
PHL	Philippines
SGP	Singapore
THA	Thailand
VNM	Vietnam

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LETTER FROM THE BOARD

2010 GDP Estimates and Forecasts towards 2016

Asia Pacific countries, after experienced a slow down or a set back in 2009, has their economy back on growth track. The outlook is positive over the next five years towards 2016, which is summarized in the following table (in billion USD).

Country	2010	2011	2012	2013	2014	2015	2016
Australia	1,236	1,448	1,470	1,574	1,552	1,663	1,697
Hong Kong	225	245	265	283	301	320	342
India	1,538	1,704	1,859	2,061	2,280	2,516	2,777
Indonesia	707	823	908	998	1,100	1,212	1,337
Japan	5,459	5,822	5,921	6,058	6,218	6,380	6,540
Korea	1,007	1,126	1,202	1,282	1,376	1,476	1,586
Malaysia	238	248	268	289	312	336	362
Mongolia	6	9	11	15	18	20	24
New Zealand	140	153	158	165	170	176	181
Philippines	189	203	218	233	251	269	289
PRC	5,878	6,516	7,209	8,057	9,016	10,062	11,220
Singapore	223	254	266	279	292	305	319
Taiwan	431	504	545	591	640	692	751
Thailand	319	332	368	398	427	461	498
Vietnam	104	119	129	143	159	176	194

The real GDP growth rates (in percent) from 2010 to 2016 for these countries can be derived from the estimates and forecasts after adjusting with the respective country deflators and are summarized in the following table.

Country	2010	2011	2012	2013	2014	2015	2016
Australia	2.75	2.97	3.48	3.54	3.26	3.19	3.04
Hong Kong	6.81	5.41	4.19	4.22	4.22	4.27	4.32
India	10.37	8.24	7.82	8.17	8.14	8.12	8.13
Indonesia	6.11	6.20	6.50	6.70	7.00	7.00	7.00
Japan	3.94	1.40	2.07	1.69	1.51	1.28	1.19
Korea	6.11	4.46	4.18	4.17	4.05	4.04	4.05
Malaysia	7.16	5.50	5.20	5.10	5.10	5.00	5.00
Mongolia	6.14	9.75	7.15	23.10	15.76	8.98	15.59
New Zealand	1.52	0.93	4.05	3.37	2.90	2.63	2.42
Philippines	7.33	4.95	4.97	5.00	5.00	5.00	5.00
PRC	10.30	9.59	9.52	9.48	9.52	9.46	9.53
Singapore	14.47	5.16	4.41	4.30	4.20	4.07	4.01
Taiwan	10.82	5.42	5.17	5.09	4.99	4.94	4.91
Thailand	7.80	3.96	4.53	4.70	4.75	4.85	5.00
Vietnam	6.78	6.26	6.75	7.23	7.44	7.50	7.50

Australia and New Zealand are expecting a healthy annual growth rate of about 2 to 3 percent over the next five years while Japan may have the lowest projected growth rate among the 14 countries listed. Growth rate for the other twelve countries except Mongolia are in the range from 3.96 percent to 9.59 percent. IMF estimates that Mongolia will enjoy a higher growth rate in real GDP in 2013, 2015, and 2016. Beyond 2011, IMF expects Hong Kong to grow at a steady rate of slightly above 4 percent per annum.

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LETTER FROM THE BOARD

ADVERTISING INDUSTRY

Global Advertising Market

Advertising spending in 2009 suffered the sharpest decline due to the economic downturn in 2008 after enjoying successive years of growth. However, global advertising spending is expected to grow slowly again, from USD426 billion in 2009 to USD471 billion this year, a 4.1 percent growth over last year and the same as the peak level of expenditure in 2008. The global advertising expenditure will reach USD527 billion in 2013 according to ZenithOptimedia, a media services agency, and summarized by region in the following table.

Region (in million USD) North America Western Europe Asia Pacific Central & Eastern Europe Latin America Middle East & North Africa Rest of the World World	2009 157,499 97,121 106,372 23,928 27,063 4,633 9,380 425,996	2010 161,556 102,717 116,466 25,406 31,320 5,085 10,139 452,689	2011 165,315 106,059 123,330 27,705 33,409 4,469 11,015 471,302	2012 171,232 109,909 133,470 31,463 36,116 4,867 12,120 499,177	2013 176,919 113,529 142,724 35,854 39,466 5,095 13,390
					526,977

Chart 4.1 visualize the above statistics and estimates of advertising spending in total from 2009 to 2013, which shows a growth of approximately 9.5 percent for advertising spending in Asia Pacific region in 2010 and estimated a growth rate of approximately 5.9 percent, 8.2 percent, and 6.9 percent in 2011, 2012, and 2013 respectively, which is generally higher than their estimates for the global market.

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

600,000
526,977
499,177
500,000 471,302
452,689
425,996
400,000
300,000
200,000
133,470 142,724
106,372 116,466 123,330
100,000
0
2009 2010 2011 2012 2013
World Asia Pacific
USD (Million)
----- End of picture text -----

Chart 4.1 – Global Advertising Spending (2009 to 2013 Statistics & Estimates)

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LETTER FROM THE BOARD

The dollar share of advertising spending for internet medium as compared to the total spending is illustrated in chart 4.2 follows.

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

600,000
526,977
499,177
500,000 452,689 471,302
425,996
400,000
300,000
200,000
94,967
72,176 82,818
100,000 54,700 63,690
0
2009 2010 2011 2012 2013
Total Internet
USD (Million)
----- End of picture text -----

Chart 4.2 – Total Advertising Spending and Dollar Share by Internet

The internet continues to grow at the fastest rate at an average of 14.2 percent a year between 2010 and 2013. Television is the next fastest growing medium, at approximately 6.2 percent a year. Actual advertising spending in 2009 was analyzed by medium and illustrated in chart 4.3, which shows a 38.38 percent share of advertising spending for the television medium and a 12.84 percent share for the internet sector, or USD54,700 million in money value.

==> picture [407 x 232] intentionally omitted <==

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

Newspapers
22.85%
Medium not Reported
1.14%
Magazines 10.28%
Internet 12.84%
Outdoor
6.53%
Cinema 0.49%
Radio 7.49%
Television 38.38%
----- End of picture text -----

Chart 4.3 – Global Advertising Spending by Medium (2009)

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LETTER FROM THE BOARD

Regional Advertising Market

The following table is compiled from the advertising spending data for Asia Pacific region according to the Nielsen Company, as data only covers the first 2 quarters in 2010 and the full year of 2009, it will be more meaningful to compare the first half of 2010 with the same period in 2009.

		2010	2009	2009
Country	Growth	(1st Half)	(1st Half)	(Full Year)
(in thousand USD)	(percent)
Australia	3.90	3,684,034	3,545,645	7,541,021
Hong Kong	26.17	4,579,962	3,629,875	8,272,816
India	13.21	4,246,765	3,751,243	8,225,250
Indonesia	72.72	4,164,215	2,411,031	5,307,575
Malaysia	19.49	1,005,091	841,130	1,923,201
New Zealand	–8.07	824,618	897,003	1,980,839
Philippines	13.50	2,288,234	2,016,122	4,280,875
Singapore	19.27	730,745	612,667	1,350,333
South Korea	–13.92	2,281,371	2,650,319	5,677,880
Taiwan	19.63	658,043	550,043	1,207,636
Thailand	5.92	1,432,043	1,352,035	2,895,018

Magnaglobal, a strategic global media unit of the Interpublic Group (NYSE: IPG), has recently released their 2011 forecast for the advertising markets and making predictions consistent with above views and expects the following annualized growth rates for advertising in Asia Pacific region over the next 5 years.

Country	Growth
	(percent)
Australia	6
Hong Kong	7
India	19
Indonesia	14
Japan	1
Malaysia	10
New Zealand	5
Philippines	10
PRC	17
Singapore	9
South Korea	8
Taiwan	7
Thailand	8

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LETTER FROM THE BOARD

Hong Kong Advertising Market and the Internet Medium

According to Magnaglobal, internet access is now critical for many of the largest advertisers in the world, even if their objectives cause them to prioritize television medium, online medium has become a clear number two in terms of budget importance, typically at the expense of print and radio. The heart of online advertising today lies in two key segments – endemics, and small and medium-sized enterprises (“SMEs”). Endemics include e-commerce players such as Amazon, eBay, Taobao (based in China), and any other entity with an online storefront.

The benefit of online medium can be seen in their unique feedback loops, commercial exposures can be tracked and associated with actions to optimize marketing efforts. Virtually all potential customers can be reached online, making the internet the primary medium for these marketers. SMEs present what we believe to be the other large, identifiable segment of online advertisers, due to smaller media budgets and fewer people to coordinate, this segment can more easily identify the impact of any given media campaign and can more cost-effectively accomplish its goals with the discrete and highly targeted units available through digital media.

Magnaglobal also pointed out that search has been the primary beneficiary today – and SMEs likely account for the majority of paid search advertising revenues – but other emerging media will capitalize on SMEs in the future. They expect online advertising to grow by 10.6% each year through 2016 after rising by 12.5% during 2011. The medium will account for USD70.9 billion in global advertising during 2011, and USD117.5 billion by 2016, a gain from 17% of the global total in 2011 to 21% in 2016.

The largest markets will remain the same through this time horizon, with the growth in the PRC accounting for the largest gains in years ahead, the PRC market will account for 9% of the world’s online advertising by 2016, up from 5% in 2011. In many countries, mobile advertising has been limited by widely varying device interfaces and capabilities and thus consumer experiences, but as the audience base of consumers with smartphones and mobile broadband is becoming larger, the advertising opportunity has become much clearer.

Although mobile media should increasingly converge with conventional fixed location web content in the future, there will be growth for the medium on a standalone basis for many years. Global mobile advertising should rise from USD2.7 billion in 2011 to USD6.6 billion by 2016, average growth of 19.4% each year according to Magnaglobal’s predictions.

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LETTER FROM THE BOARD

Growth in the use of smartphones in Hong Kong

The following tables shows the growth in the 3G mobile customers and mobile data usage in Hong Kong from 2006 to 2010:

	3G Public	Mobile	Mobile Data Usage	Mobile Data Usage
	Customers		per Customer
	No. of	Year-on-Year		Year-on-Year
Month/Year	customers	Growth	MegaBytes	Growth
12/2010	5,254,513	38%	295.65	132%
12/2009	3,819,186	36%	127.57	234%
12/2008	2,812,002	40%	38.14	248%
12/2007	2,004,565	51%	10.96	166%
12/2006	1,331,651		4.11

Source: Office of the Telecommunications Authority, Hong Kong

Growth of mobile advertising worldwide

Gartner predicts mobile advertising revenue will be USD3.3 billion in 2011. This will sky rocket to USD20.6 billion in 2015, more than doubling each year. It will continue to grow thereafter.

Mobile Advertising Revenue by Region, Worldwide, 2010-2015 (Millions of USD), according to Gartner

Region North America Western Europe Asia/Pacific and Japan Rest of the World Total	2010 304.3 257.1 868.8 196.9 1,627.1	2011 701.7 569.3 1,628.5 410.4 3,309.9	2015 5,791.4 5,131.9 6,925.0 2,761.7
			20,610.0

Source: Gartner (June 2011)

Comparing the above estimation with those by Magnaglobal, apparently the two sources have different views and presented their predictions with a huge difference. Despite the difference, both sources predicted rapid growth in mobile advertising revenue. These estimations are disclosed for information only.

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LETTER FROM THE BOARD

Competition landscape

Advertising through the LCD displays network is a supplement to the mobile solutions of the Target Group but it is not the core of the business model of the Target Group. The Target Group has identified two companies listed in Hong Kong which offer digital advertisement services through the network of flat-panel display, namely (i) Focus Media Network Limited, which has established a flat-panel display advertising network in elevator lobbies and commercial buildings with white collar workers being the target audience; and (ii) RoadShow Holdings Limited, which has established an in-bus TV advertising network with the mass bus passengers being the target audience. Having considered (i) the business model of the Target Group principally rests on the mobile aspect with the LCD displays network acts as an add-on; and (ii) difference in types of target audience, the Target Group does not consider significant direct competition exists between the Target Group and those listed companies offering advertisement services through network of flat-panel display.

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LETTER FROM THE BOARD

REGULATORY OVERVIEW

As at the Latest Practicable Date, there is no existing laws or regulations in Hong Kong that specifically defines or regulates the Target Group’s business in the provision of advertising services through mobile apps and digital media network in retail outlets.

The principal laws of Hong Kong applicable to the Target Group’s advertising business are:

The Control of Obscene and Indecent Articles Ordinance (Chapter 390 of the Laws of Hong Kong) restricts publication of any articles that are indecent or obscene. The Obscene Articles Tribunal, a statutory body established under the ordinance, is responsible for classifying and determining whether or not any articles are obscene.
The Undesirable Medical Advertisements Ordinance (Chapter 231 of the Laws of Hong Kong) prohibits any advertisements that are likely to lead to the use of any medicine or treatment for certain diseases, including infectious diseases, venereal diseases, respiratory diseases and cardiovascular conditions.
The Pharmacy and Poisons Regulation (Chapter 138A of the Laws of Hong Kong), pursuant to which no person shall sell a substance advertised to be a medicine unless such article is properly labeled in accordance with the statutory requirements.
The Smoking (Public Health) Ordinance (Chapter 371 of the Laws of Hong Kong), pursuant to which advertisements for products or services for tobacco products in general are not allowed.

The Broadcasting Ordinance (Chapter 562), laws of Hong Kong, regulates the provision of broadcasting services by licensees in Hong Kong. Currently the advertisements as shown on the mobile apps and the digital media network of the Target Group are not recognized licensable services under the Broadcasting Ordinance. Therefore the Broadcasting Ordinance and its related Code of Practices are not applicable to the Target Group’s business.

REASONS FOR AND BENEFIT OF THE ACQUISITION

The Group is principally engaged in a broad spectrum of construction works, including building construction, renovation and fitting out works for both public and private sectors in Hong Kong, media sales and management services for the multi-media business in the PRC and outdoor advertising in Hong Kong.

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LETTER FROM THE BOARD

As stated in the Company’s 2011 annual report, it is the Group’s strategy in recent years to continue to scale down the building construction and renovation business and to expand its advertising business. The business of Beijing Railsmedia Advertising Co. Ltd (“BJRA”) in PRC is still in its early stage of development compared with the conventional media such as television and newspaper. It is expected that the BJRA business will grow steadily due to the increasing consumption power of the PRC population, which induce various advertisement opportunities. Since the number of people exposed to ticket counters in train stations is massive, it will gradually enhance peoples’ perception on the positive effect of such new type of media. As a further step to expand the Group’s advertising business, the Group has on 12 August 2011 completed the acquisition of 7% of the equity interest in China New Media (HK) Company Limited (“CNM”) which is principally engaged in outdoor advertising and display business in Hong Kong.

Since the investment and acquisition of BJRA in 2008, the Company has been transitioning from its construction and renovation business to the advertising business. The Company has focused on the advertising sector for its future growth and expansion which became its core business. The Company is keen to explore non-traditional advertising media and to venture into new advertising niche with huge potential such as the existing business of BJRA. Ltd in providing advertising services through LCD displays network at rail stations in the PRC and the business of CNM in providing advertising services through lift frames and outer walls of buildings in Hong Kong. The business of BJRA is still in the early stage. The Company has put in substantial resources in running the BJRA business and in coping with the fast changing business environment in the PRC. Despite the unsatisfactory result of this segment, the Directors are optimistic with the prospects of the advertising industry in the PRC and determined to forge ahead in this sector. The acquisition of the minority interest in CNM represents the Group’s intention to expand its presence in the advertising industry in Hong Kong and to focus on unconventional advertising media. Leveraging on the Group’s experience in running the multimedia LCD displays network in the PRC and the exposure in lift frame and outer walls advertising in Hong Kong, the Acquisition represents the Group’s leap into another innovative advertising media through mobile devices and a further extension of the existing advertising channel through LCD display network. The Acquisition will broaden the media channels for the Group’s advertising business into mobile platform and digital media networks of flat panel screens in retail chain network. Therefore, it will increase the choices of platforms available for the Group’s advertising customers. With the Dining App, the key advertising solution provided by the Target Group, it will also broaden the Group’s advertising customer base by offering advertising solution to customers with lower budget. The Target Group’s business will also complement the Group’s existing advertising business by creating cross-selling opportunities to the Group’s advertising customers through different media channels. Therefore the Acquisition is an expansion of and complementary to the Group’s advertising business and a continuation of the Group’s strategy to gain a strong foothold in the advertising industry in both Hong Kong and the PRC;

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LETTER FROM THE BOARD

The Acquisition is considered as a major thrust to expand the Group’s existing advertising business. Due to the explosion on the smartphone market, the mobile app is regarded as the new channel for retailers to promote their offers as well as company image over the Internet. The Dining App is a just in time solution to fill up the demand as the Dining App does not require significant initial investment for rolling out a personalized mobile app for each restaurant. Through the Dining App, the restaurants will be able to market their business and stay connected with their consumers. In addition, the Target Group will also deploy the digital media network of flat panel screens in retail outlets in Hong Kong to provide advertising services to customers. The Directors consider that the mobile platform and the digital media network will create a new dimension of opportunities for generating substantial amount of recurrent revenue with manageable operating cost.

According to the business plan of the Target Group provided by the Vendor:

due to the explosion of the smartphone market, mobile apps will create a whole new media platform for different industries to visualize their innovations;
the Dining App is developed based on Tera Age’s variance in-house developed technology that include cloud computing, database management & mobile platform;
the Dining App contains features and provides functions as set out under section “Principal business activities and business plan” above;
The mobile platform together with the digital media network of the Chain Store Group provides a comprehensive network for advertising clients;
The Target Group is able to provide personalized mobile apps for individual restaurants and retailers at low set up costs based on regular subscription fees;
For tradition advertising channels, it is hard to measure its effectiveness. However with the mobile apps, the merchant can push their message directly via the notification feature to the target consumers or market their products through the in-app banner with totally measureable result;
There is a huge market for the food and beverage industry in Hong Kong. Dining App for famous restaurants such as Michelin Star restaurants will be very attractive to consumers;
The Target Group will replicate the business model and apply to retailers in other sectors in Hong Kong and to the PRC market.

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LETTER FROM THE BOARD

After considering the business plan provided by the Vendor and as at the Latest Practicable Date, the Directors have conducted appropriate due diligence work and feasibility studies on the Target Group which include:

engaging legal advisers to conduct legal due diligence on each member of the Target Group and all material contracts entered into by the Target Group and being satisfied with the due diligence result;
reviewing all material contracts entered into by the Target Group;
engaging an independent valuer to prepare the Valuation Report;
engaging the Company’s auditor to conduct an audit on the Target Group’s financial position and to review the bases and assumptions adopted in the Valuation Report;
engaging a financial adviser to advise the Company on the Acquisition and to review the bases and assumptions adopted in the Valuation Report;
researching on the advertising market worldwide through internet medium and mobile devices and the growth trend in the use of smartphones in Hong Kong and consider that there will be ample growth in the advertising market through mobile platforms;
reviewing the business model of the Target Group including the revenue source, target customers, costs element, strengths and weaknesses;
preparing and reviewing the financial projections for the Target Group’s business and discussing the same with the Company’s auditor and financial adviser;
meeting and discussing with the key personnel responsible of the Target Group’s management and operation and understanding their views on the affairs and prospects of the Target Group;
reviewing the business plan with the Target Group and devising strategies to implement the same;
studying the functions and applications of the Dining App and being satisfied with the technical aspects of the Dining App;
meeting with the management of Tera Age to gain better understanding on the background of Tera Age and its business relationship with the Target Group;
meeting with the management of iKan to gain better understanding on the background of iKan and its business relationship with the Target Group.

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LETTER FROM THE BOARD

After having considered (i) the aforesaid business plan; (ii) the fast growth and importance of advertising through online medium; (iii) the popular use of smartphones and tablets in Hong Kong and the PRC; (iv) the features and functions of the Dining App set out under the section “Information of Target Group” above and (v) the business projections relevant to the valuation of the Target Group described under the section “Consideration” above, the Directors are of the view that there is a huge potential in the business of the Target Group. The Company has not engaged any IT specialist to review the Target Group’s business plan and products. Mr Hui Chi Yung, chairman of the Company, and Mr Samson Hui Chi Yang, director of a subsidiary of the Company, were primarily responsible for reviewing and assessing the technical aspects of the Target Group’s business and products. Mr Hui Chi Yung is the holder of a bachelor degree in Applied Science in Electrical Engineering and is in charge of the Group’s IT technical matters. Mr Samson Hui Chi Yang has extensive experience in managing IT business.

Upon Completion, the financial results of the Target Group will be consolidated into the Group’s financial statements. As at the Latest Practicable Date, the Company has not entered into, nor propose to enter into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, and negotiation (whether concluded or not) with an intention to dispose of the existing business on construction works. However, should suitable business opportunities arise in the future, the Company will continue to explore and consider any of such business opportunities, including acquisitions or realisations, which are in line with the Group’s business strategies and may enhance the Group’s future business development. As at the Latest Practicable Date, the Company has no intention to change the composition of its Board upon Completion. Furthermore, there is no provision in the Sale and Purchase Agreement that the Vendor can appoint or nominate any directors to the Board.

The Directors noted that the valuation of the Target Group was largely based on projections and the Target Group has no track record. However the Directors also took into account (1) the robust economic growth in Hong Kong; (2) the growth in smartphone users in Hong Kong; (3) the growth of mobile advertising worldwide; (4) the business model and strategies of the Target Group; (5) the experience of the key management of the Target Group and their views on the business prospects; (6) the existing agreements entered into by the Target Group set out in the section “Principal business activities and business plan” above. The Directors are of the view that the projections on which the valuation is based are fair and reasonable. The Directors consider that the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder (including but limited to the issue of the Convertible Preference Shares and the Promissory Note) are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

EFFECT ON THE SHAREHOLDING STRUCTURE

Set out below are the shareholding structures of the Company comprising the Shares (i) as at the Latest Practicable Date; (ii) immediately after Completion and issue of the Convertible Preference Shares and assuming full conversion of the Convertible Preference Shares at the initial conversion price and (iii) immediately after Completion and issue of the Convertible Preference Shares and assuming full conversion of the Convertible Preference Shares at the initial conversion price but subject to the conversion restrictions:

Shareholders The Wing Hong Trust (note 1) United Century Limited_(note 2)_ Public Shareholders Vendor Total	As at the Latest Practicable Date No. of Shares % 743,918,560 39.91 121,978,000 6.55 997,933,440 53.54 0 0.00 1,863,830,000 100.00	Immediately after completion of the Acquisition and assuming full conversion of the Convertible Preference Shares at the initial Conversion Price *(note 3)* No. of Shares % 743,918,560 8.39 121,978,000 1.38 997,933,440 11.26 7,000,000,000 78.97 8,863,830,000 100.00	Immediately after completion of the Acquisition and assuming full conversion of the Convertible Preference Shares at the initial Conversion Price but subject to the conversion restriction No. of Shares % 743,918,560 27.98 121,978,000 4.59 997,933,440 37.53 794,985,977 29.90 2,658,815,977 100.00	Immediately after completion of the Acquisition and assuming full conversion of the Convertible Preference Shares at the initial Conversion Price but subject to the conversion restriction No. of Shares % 743,918,560 27.98 121,978,000 4.59 997,933,440 37.53 794,985,977 29.90 2,658,815,977 100.00
				100.00

These Shares are held as to 618,918,560 Shares by Rich Place Investment Limited and 125,000,000 Shares by Wise Win Enterprises Limited, which is a wholly owned subsidiary of Rich Place Investment Limited. The entire issued share capital of Rich Place Investment Limited is held by RBTT Trust Corporation, acting in its capacity as the trustee of The Wing Hong Trust, a discretionary trust whose beneficiaries are the family members of Mr. Hui Kau Mo, executive Director.
United Century Limited is wholly owned by Mr Hui Chi Yang, the son of Mr Hui Kau Mo, executive Director and brother of Mr Hui Chi Yung, executive Director.
This column is hypothetical and for illustrative purpose only as the conversion of the Convertible Preference Shares is subject to the conversion restrictions set out under section “Convertible Preference Shares” above.

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LETTER FROM THE BOARD

The Acquisition will not result in a change of control of the Company. After the completion of the Acquisition, each member of the Target Group will become a wholly owned subsidiary of the Company.

FINANCIAL IMPACT OF THE ACQUISITION

Based on the pro forma financial information of the Enlarged Group set out in Appendix III to this circular and the bases and assumptions taken into account in preparing such pro forma financial information, the Group’s total assets and total liabilities would be increased by approximately HK$675,034,000 and approximately HK$185,034,000 respectively while its loss for the year would be increased by approximately HK$9,453,000 as a result of the Acquisition. The details of the financial effect of the Acquisition on the financial position and results of the Group together with the bases and assumptions taken into account in preparing the unaudited pro forma financial information are set out, for illustration purpose only, in Appendix III to this circular.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The Accountant’s Report on the Target Group is set out in Appendix II. Set out below is the management discussion and analysis of the Target Group for the period from 11 April 2011, being the date of incorporation, to 30 September 2011:

Overview

The Target Group provides advertising and value added services in Hong Kong through mobile devices and digital media network of flat panel screens in retail chain network. The principal product and service is the Dining App service which is targeted at the restaurants in Hong Kong. The main revenue source of the Target Group comes from (i) regular subscription of the Dining App by restaurants and (ii) additional charges on restaurants for value added services such as online table booking and advertising campaign through the Dining App and digital media network in retail chain.

The market of advertising based on mobile apps is relatively new and is still evolving. The Target Group is one of the early movers in Hong Kong. The growth in the use of smartphones and internet advertising provides huge opportunities to the Target Group. At the same time, the Target Group’s business is materially affected by (i) the level of acceptance of mobile apps for advertising among merchants in Hong Kong, (ii) rapid changes in technology and advertising trends in the mobile apps advertising market and (iii) changes in economic conditions in Hong Kong. In order to meeting the challenges, the Target Group adopted the following strategies:

Sub-contracting the supply of mobile apps solutions to Tera Age, one of the leading providers of mobile solutions in Hong Kong;
Sub-contracting the sales operation to iKan who possesses a strong sales force and large customer base in food and beverage market in Hong Kong;

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LETTER FROM THE BOARD

Maintaining a low operating costs structure;
Brand building and creating market awareness through existing digital media network in retail chain.

Business and financial review

Turnover

Since the operation of Target Group is still in the early stage and the Target Group had offered a free trial period to its customers, therefore, the Target Group has no turnover for the period ended 30 September 2011.

Administrative expenses

The administrative expenses of the Target Group mainly consisted of legal and professional fee. For the period ended 30 September 2011, the Target Group has administrative expenses of approximately HK$11,000.

Liquidity, financial resources and capital structure

At the date of incorporation, 18 April 2011, 1,000 ordinary share of US$1 each was issued for initial working capital.

As at 30 September 2011, the Target Group has net liabilities of approximately HK$3,000 and deficit attributable to equity holders of the Company of approximately HK$3,000.

The Target Group has no borrowings as at 30 September 2011.

Gearing ratio

As at 30 September 2011, the Target Group’s gearing ratio, expressed as a percentage of total borrowings over total assets, was nil.

Operating activities

For the period ended 30 September 2011, there is no cash inflow generated from operating activities. It was mainly due to the operating loss before working capital changes of approximately HK$11,000 together with increase in accrual charged of approximately HK$11,000; increase in amount due from an immediate holding company of approximately HK$8,000; since its incorporation on 11 April 2011.

Investing activities

The Target Group did not have any material investing activities for the period ended 30 September 2011.

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LETTER FROM THE BOARD

Financing activities

The Target Group did not have any financing activities for the period ended 30 September 2011.

Total assets

As at 30 September 2011, total assets comprised of amount due from its holding company of HK$7,800. The amount due from its holding company was unsecured, interest-free and repayable on demand.

Charge on Assets

As at 30 September 2011, the Target had no charge on the assets.

Contingent liabilities

As at 30 September 2011, the Target had no contingent liabilities.

Capital commitments

As at 30 September 2011, the Target had no capital commitments.

Significant investments and material acquisition

The Target had no significant investments nor material acquisition in the course of the period ended 30 September 2011.

Foreign currency exposure

The transactions of the Target were mainly denominated in Hong Kong Dollars. Therefore, the management of the Target considered the risk exposure on foreign exchange to be minimal.

Employee and Remuneration Policy

As the Target has not commenced business since the date of its incorporation on 18 April 2011, the Target did not recruit any employee as at 30 September 2011.

Outlook and subsequent event

In order to build up quickly the customer base, The Target Group has entered into a legally binding cooperation agreement dated 15 September 2011 with iKanTV Limited (“iKan”) pursuant to which iKan shall refer clients exclusively to The Target Group for the Dining App services for an initial term of two years. The Director realized that iKan operates the “babybamboo.com.hk” website and is one of the main online group purchasing market player in Hong Kong focusing on the food and beverage market with a

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LETTER FROM THE BOARD

strong sales force and large customer base. With the secured subscription for Dining App services from iKan, both The Target Group and iKan shall share the revenue generated from those clients.

The Target Group has entered into a legally binding agreement dated 26 October 2011 with a leading chain retail group for household goods in Hong Kong (the “Chain Store Group”) pursuant to which The Target Group has the right to install and operate a digital media network of LCD and flat panel display units at the retail stores under the Chain Store Group in Hong Kong. Currently the Chain Store Group has approximately 200 retail stores in Hong Kong selling a wide range of household products, so it is expected that The Target Group will establish a digital media network of flat panel screens at over 100 stores under the Chain Store Group. On 11 November 2011, The Target Group has entered into a legally binding agreement to acquire the installed screens and other hardware from iKan and roll out the digital media network upon commencement of the agreement with the Chain Store Group on 27 November 2011. The total amount committed to acquire the installed screens and other hardware from iKan was HK$100,000.

The Target Group will pay a fixed rental to the Chain Store Group for the digital media network established and will provide a portion of the advertising air time on the network and related video production services to the Chain Store Group free of charge. The Target Group will enjoy all the revenues from the advertising air time on the digital media network. On 26 October 2011, the Target Group entered the agreement with iKan to obtain from iKan management services for the digital media network under the Chain Store Group such as video production, processing and upload, operation of program, updating playlist and maintaining the hardware.

Due to the vast expanding usage in mobile apps and the Directors consider that the mobile platform and the digital media network of the Target Group will create a new dimension of opportunities for generating substantial amount of recurrent revenue with manageable operating cost.

Critical accounting policies

The preparation of the Target Group’s financial statements and related notes requires us to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosures of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting estimate or judgement is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying

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LETTER FROM THE BOARD

amounts of assets and liabilities within the next financial year are addressed below. You should read the following descriptions of critical accounting policies, judgements and estimates in conjunction with our financial statements and other disclosures included elsewhere in this circular.

Income taxes

We are subject to income taxes in Hong Kong. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. We recognise liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the period in which determination is made.

Revenue recognition

Our revenue primarily comprises subscription fee income. 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 Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

Provision of services

Revenue from services is measured based on the usage of our Dining App and facilities and is recognised when the services are rendered.

Interest income

Interest income is recognized on a time-apportioned basis using the effective interest method.

Impairment of property, plant and equipment

In accordance with HKAS 16, we estimate the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. We also perform annual reviews on whether the assumptions made on useful lives continue to be valid. We test annually whether the assets have suffered any impairment. The recoverable amount of an asset or a cash generating unit is determined based on value in use calculations which require the use of assumptions and estimates.

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LETTER FROM THE BOARD

Impairment of accounts receivable

The aged debt profile of accounts receivable is reviewed on a regular basis to ensure that the accounts receivable balances are collectible and follow up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, we may experience delays in collection. Where recoverability of accounts receivable balances are called into doubts, specific provisions for bad and doubtful debts are made based on credit status of the customers, the aged analysis of the accounts receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the statement of comprehensive income. Changes in the collectability of accounts receivable for which provisions are not made could affect our results of operations.

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. We estimate the future cash flows expected to arise from the cash-generating unit and a suitable discountrate in order to calculate the present value of value in use of the cash-generating units.

FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

Upon Completion, the Target Group will become subsidiaries of the Company and the financial information of the Target Group will be consolidated into the consolidated financial statements of the Group. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular, the revenue and gross loss of the Group for the year ended 31 March 2011 was approximately HK$47.2 million and HK$22 million, respectively, and the unaudited pro forma revenue and gross loss of the Enlarged Group will remain as HK$47.2 million and HK$22 million, respectively, after Completion.

Looking forward, in 2012, after Completion, the Enlarged Group will continue with its existing principal business of the Group, among others, in provision of media advertising business related services. In addition, the Acquisition will enable the Enlarged Group to expand into a new line of businesses in advertising. The Directors are of the view that the Acquisition will enhance the operation base and the future income base of the Group. The consolidation of the media advertising business of the Target Group in the Enlarged Group will create meaningful synergies and strengthen the overall competitiveness of the Group, particularly: (i) the capability of providing a wider scope of media advertising business related services to clients; (ii) the potential of cross-selling media advertising services to clients with different requirements; and (iii) the potential benefit to the Company in better allocating and managing such resources as staff and sales and marketing personnel in carrying out the operation of the Enlarged Group. The Directors also believe that the Acquisition will lead to the diversification of the Group’s media advertising business portfolio, thereby providing significant growth potential for the Group.

– 46 –

LETTER FROM THE BOARD

In view of the synergistic benefits of the proposed Acquisition, the Directors believe that the proposed Acquisition is in the interest of the Company and its Shareholders as a whole.

LISTING RULES IMPLICATIONS

Based on the relevant percentage ratios calculations under the Listing Rules, the Acquisition constitutes a very substantial acquisition of the Company and therefore is subject to reporting, announcement and shareholder’s approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, no Shareholder has any material interest in the Acquisition and therefore no Shareholder is required to abstain from voting on the resolution to be proposed at the EGM.

THE EGM

A notice convening the EGM is set out on pages 142 to 143 of this circular. A form of proxy for the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are advised to complete the form of proxy and return it to the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the EGM. The completion and delivery of a form of proxy will not preclude you from attending and voting at the meeting in person.

RECOMMENDATION

The Directors consider that the terms of the Sale and Purchase Agreement and the issue of the Convertible Preference Shares are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that all Shareholders should vote in favour of the relevant resolutions to be proposed at the EGM to approve the Sale and Purchase Agreement and the issue of the Convertible Preference Shares.

GENERAL

Your attention is drawn to the financial information of the Group and the other additional information set out in the appendices to this circular.

Yours faithfully, On Behalf of the Board Hui Chi Yung Chairman

The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. THREE YEAR AND SIX MONTH FINANCIAL INFORMATION

Financial information of the Group for the year ended 31 March 2009, the year ended 31 March 2010, the year ended 31 March 2011 and six months ended 30 September 2011 are disclosed on pages 19–86 of the 2009 annual report published on 16 July 2009, pages 18–84 of the 2010 annual report published on 23 July 2010, pages 18–92 of the 2011 annual report published on 28 July 2011 and pages 2–18 of the 2011 interim report published on 15 December 2011 of the Company respectively, which were published on both the Stock Exchange website (www.hkexnews.hk) and the Company’s website (www.hklistco.com/745/).

2. STATEMENT OF INDEBTEDNESS

Borrowings

As at 31 January 2012, being the latest practicable date for ascertaining the indebtedness statement of the Enlarged Group prior to the printing of this circular, the Enlarged Group had the following outstanding borrowings:

Outstanding promissory note with principal amount of approximately HK$15,800,000 which was unsecured, bear interest at 2% per annum and will be matured on 25 July 2013.
Loan from a shareholder of approximately HK$39,599,000 which was unsecured, interest-free and repayable not less than 12 months.
Loan from a shareholder of approximately HK$1,530,000 which was unsecured, interest-free and repayable on 1 August 2012.
Loan from a shareholder of approximately HK$6,030,000 which was unsecured, interest-free and repayable on 21 February 2014.
Amount due to a related party of approximately HK$2,661,000 which is unsecured, bear interest at 3.5% per annum and with no fixed term of repayment.
Amount due to a related party of approximately HK$2,712,000 which was unsecured, interest-free and with no fixed term of repayment.

Securities and guarantees

No assets of the Enlarged Group have been pledged nor no guarantees were provided for the aforesaid borrowings as at the close of the business on 31 January 2012.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Contingent liabilities

The contingent liabilities of the Enlarged Group as at 31 January 2012 are as follows:

(a) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Enlarged Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Enlarged Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively.

As at 31 January 2012, no decision had been made in the arbitration and court proceedings. In the opinion of the directors, based on legal advice, the subsidiary of the Enlarged Group has valid defences, against such claims and any resulting liabilities would not have any probable material adverse impact on the Enlarged Group’s financial position. Therefore, no provision in respect of such claims was made.

(b) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Enlarged Group (the “Subcontracted Party”) against a subsidiary of the Enlarged Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000.

In the opinion of the directors, based on legal advice, the subsidiary of the Enlarged Group has valid defences against such claims and any resulting liabilities would not have any probable material adverse impact on the Enlarged Group’s financial position. Therefore, no provision in respect of such claims was made.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) On 26 October 2010, a subsidiary of the Enlarged Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Enlarged Group in respect of the construction project at No. 60 Victoria Road project. The amount of claim was approximately HK$204,000. Since this date and up to 30 November 2011, the arbitration has not yet commenced.

As at 31 January 2012, no decision has been made in the arbitration. In the opinion of the directors, based on legal advices, since the arbitration proceedings are at a very early stage and the amount of the ultimate liability cannot be measured with sufficient reliability, therefore, no provision in respect of such claims was made.

(d) On 1 June 2011, a subsidiary of the Enlarged Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Enlarged Group in respect of the construction project at Tsing Yi, Hong Kong. The amount of claim was approximately HK$1,602,000.

As at 31 January 2012, the subsidiary of the Enlarged Group had paid HK$1,000,000 to the subcontractor to settle the claim and the arbitration proceedings have been stayed with mutual agreement. In the opinion of the directors, the ultimate liability cannot be measured with sufficient reliability until final accounts is confirmed, therefore, no provision in respect of the balance amount of claim was made.

Save as mentioned above, and apart from intra-group liabilities and normal trade payables in the normal course of business, the Enlarged Group did not, at the close of business on 31 January 2012, have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, obligations under hire purchases contracts or finance leases, guarantees, or other material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account of its present available financial resources, and the continuing financial support from the major shareholder, Rich Place Investment Limited, the Enlarged Group will have sufficient working capital for its business for the next twelve months from the date of this circular in the absence of unforeseen circumstances. The entire issued share capital of Rich Place Investment Limited (“Rich Place”) is held by RBTT Trust Corporation, a company acting in its capacity as the trustee of the Wing Hong Trust. The Wing Hong Trust is a discretionary trust whose beneficiaries are the family members of Mr. Hui Kau Mo and include Mr. Hui Chi Yung, both are directors of the Company. After having made reasonable enquiries and assessment, the Directors are of the view that Rich Place has sufficient financial resources to provide continuing financial support to the Enlarged Group.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2011, the date to which the latest audited consolidated financial statements of the Group were made up.

5. MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Set out below are the management discussion and analysis on the Group for the six months ended 30 September 2011 and the three years ended 31 March 2009, 2010 and 2011.

For the six months ended 30 September 2011

Business Review

For the six months ended 30 September 2011, the Group recorded a turnover of approximately HK$19,401,000 in comparing to HK$34,787,000 in corresponding period last year. Gross loss recorded HK$981,000, whereas in same period last year, the gross loss was HK$12,174,000. Loss attributable to owners of the Company for the period was HK$2,559,000, as compared with a loss of HK$18,296,000 recorded in same period last year.

Turnover from our building and construction business was approximately HK$563,000 (2010: approximately HK$14,982,000). Such turnover was contributed by uncompleted projects in prior year. The renovation, repairs and maintenance segment reported a turnover of approximately HK$18,315,000 (2010: approximately HK$18,860,000). This was also contributed mainly from uncompleted projects in last year.

Due to the keen market competition and low profit margin in projects for building, construction, renovation, repairs and maintenance, we plan to scale down these business segments gradually.

For advertising segment, turnover amounted to approximately HK$523,000 (2010: approximately HK$945,000). Although this business segment is now running at a loss, we are confident of its future due to the general prosperity of the Peoples’ Republic of China (the “PRC”). Based on the present market trend and consumption pattern in PRC, we have decided to adopt a more competitive business strategy and business has been streamlined through restructuring targeted installation in cities and sites, and more efforts have been allocated to build channel sales network over the country.

To enrich our market exposure in PRC, we have established media alliances through business arrangement of airtime exchange, attending media events and cross business cooperation etc. so as to increase our market share and promote our business branding and services.

Our management has decided to have greater business development and market share in advertising and media business through investment and acquisition of those potentially healthy advertising business. In August 2011, we had made an investment in an established outdoor advertising business in Hong Kong.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial Review

Liquidity and financing

There were no bank borrowings as at 30 September 2011 and 31 March 2011. The Group’s cash and bank deposits were approximately HK$15,802,000 (31 March 2011: HK$16,190,000).

The Group’s gearing ratio, calculated by aggregate of amount due to a related party, loans from shareholders, promissory note and other non-current liabilities over total assets, decreased to 56.02% at 30 September 2011 from 66.33% at 31 March 2011.

Treasury policies

Cash and bank deposits of the Group are mainly in HK dollars or RMB. The Group conducts its core business transaction mainly in HK dollars and RMB such that the Group did not use any derivative instruments to hedge its foreign currency exposure as the Group considered its foreign currency exposure is insignificant.

Pledge of assets

As at 30 September 2011 and 31 March 2011, no asset was being pledged since there is no external financing for the Group.

Significant investments held

There was no significant investments held by the Group as at 30 September 2011.

Material acquisitions and disposals of subsidiaries and associated companies

Wing Hong (China) Limited (“WH China”) entered into an agreement to sell its entire interest of its non-wholly owned subsidiary, Shanghai Jinjiang Wing Hong Contracting Company Limited to Keen Honour International Limited (“Keen Honour”) on 21 January 2011. It was approved by the Shanghai Municipal Commission of Commerce and the transaction for the disposal was completed on 11 October 2011. After the completion of the transaction, Shanghai Jinjiang Wing Hong Contracting Company Limited ceased to be the subsidiary of the Group.

Contingent liabilities

(a) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively.

As at the date of approval of these consolidated financial statements, no decision had been made in the arbitration and court proceedings. In the opinion of the directors, based on legal advice, the subsidiary of the Group has valid defences, against such claims and any resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the consolidated financial statements.

(b) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Group (the “Subcontracted Party”) against a subsidiary of the Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000.

In the opinion of the directors, based on legal advice, the subsidiary of the Group has valid defences against such claims and any resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the consolidated financial statements.

(c) On 26 October 2010, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project at No. 60 Victoria Road project. The amount of claim was approximately HK$204,000. Since the date and up to the date of approval of these consolidated financial statements, the arbitration has not yet commenced.

As at the date of approval of these consolidated financial statements, no decision has been made in the arbitration. In the opinion of the directors, based on legal advices, since the arbitration proceedings are at a very early stage and the amount of the ultimate liability cannot be measured with sufficient reliability, therefore, no provision in respect of such claims was made in the consolidated financial statements.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(d) On 1 June 2011, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group on the construction project at Tsing Yi, Hong Kong. The amount of claim was approximately HK$1,602,000.

As at the date of approval of these condensed consolidated financial statements, the subsidiary of the Group had paid HK$1,000,000 to the subcontractor to settle the claim and the arbitration proceedings have been stayed with mutual agreement. In the opinion of the directors, the ultimate liability cannot be measured with sufficient reliability until final accounts is confirmed, therefore, no provision in respect of the balance amount of claim was made in the statements.

Saved as disclosed above and elsewhere in the financial statements, as at 30 September 2011, the Group and the Company had no other material contingent liabilities.

Employment information

On 30 September 2011, the Group had 30 full time employees (31 March 2011: 50 employees), whom are employed in Hong Kong and Mainland China. They are remunerated at market level with benefits such as medical, retirement benefit and share option scheme. The total remuneration of the employees for the six months ended 30 September 2011 was approximately HK$2,645,000.

Prospect

One of the policies adopted by the PRC Government is to boost domestic consumption and hence advertising is inevitable for brand building purpose. We foresee such government policy will continue so that it provides good opportunities for us to capture the advertising market though our train station networks.

We have adopted a prudent approach to properly control our operation costs, and LCD displays are installed in a mild speed on selected train stations. Our market strategy of building media alliances and channel sales network over the country not only promoting our branding, but also market exposure.

Our management policy has decided to focus on business in the new media market and we see that the traditional communication channel and its related advertising businesses are shrinking due to the competition and thrust from the new innovative communication technology and media applied in the modern day advertising business. With the change in the preference and shift of usage by users, new media business in advertising has provided efficiency and convenience for users, and is of course a brand new sector of business in the market.

Mobile application in communication media has provided good platform for advertising and its derived business in market. We find this new media application, in Apps market having a great potential market for business than the traditional communication media. We will target more on this direction to boost our market share in the industry.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the year ended 31 March 2011

Business Review

For the year ended 31 March 2011, the Group recorded a turnover of approximately HK$47,232,000, compared with the corresponding turnover of approximately HK$147,684,000 in 2010. We incurred a gross loss of approximately HK$22,007,000 while there was a gross loss of approximately HK$13,298,000 in 2010. The gross loss in the current year was mainly due to the increase in service costs in providing advertising, building renovation and construction businesses.

Besides, we find that the profit margin of our existing projects have been undermined by the rising material costs in general. Our loss attributable to shareholders amounted to approximately HK$21,534,000 (2010: approximately HK$87,310,000). This is mainly due to the impairment loss in respect of goodwill and the substantial amounts of legal fee incurred for various litigation of our Group. The management of the Group recognised an impairment loss in respect to goodwill of approximately HK$17,671,000 arising from the advertising segment. Nevertheless, there was a one-off special gain of approximately HK$24,020,000 on the disposals of subsidiaries for the year ended 31 March 2011.

Turnover from our building and construction segment was approximately HK$16,781,000 (2010: approximately HK$52,894,000). Such turnover was contributed by uncompleted projects in last year. Due to keen competition and the squeezing of contract price by both the private and public sector, we have to scale down this business segment gradually.

The renovation, repairs and maintenance segment reported a turnover of approximately HK$28,255,000 (2010: approximately HK$92,641,000). This was also contributed mainly from uncompleted projects in last year. There were lots of small scale renovation works in Hong Kong and the PRC, however, many of them are not cost effective for us to bid. Yet, we will continue to explore on this business segment should there is any profitable renovation works arise.

For advertising segment, turnover amounted to approximately HK$2,196,000 (2010: approximately HK$2,149,000). This business segment is now running at a loss, but we are confident of its future due to the general prosperity of the People’s Republic of China (the “PRC”). Based on the present market trend and consumption pattern in PRC, we have decided to adopt a more competitive business strategy and with the change in management policy we expect to have an increase in our market share of the advertising business.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial Review

Liquidity and financing

There were no bank borrowings as at 31 March 2011 and 2010. The Group’s cash and bank deposits were approximately HK$16.2 million (2010: HK$38.4 million). The Group’s gearing ratio, calculated by aggregate of amounts due to related parties and, loans from shareholders over total assets, increase to 66.33% at 31 March 2011 from 34.27% at 31 March 2010.

Treasury policies

Cash and bank deposits of the Group are mainly in Hong Kong dollars or Renminbi. The Group conducts its core business transaction mainly in Hong Kong dollars and Renminbi such that the Group did not use any derivative instruments to hedge its foreign currency exposure as the Group considered its foreign currency exposure is insignificant.

Pledge of assets

As at 31 March 2011 and 2010, no asset was being pledged since there is no external financing for the Group.

Significant investments held

There was no significant investments held by the Group as at 31 March 2011.

Material acquisitions and disposals of subsidiaries and associated companies

On 19 October 2010, the Group disposed of its equity interest in Wing Hong Construction Limited to Keen Fortune Investments Limited at a consideration of approximately HK$100,000. The disposal of Wing Hong Construction Limited was completed on 19 October 2010.

Contingent liabilities

(a) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively.

(b) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Group (the “Subcontracted Party”) against a subsidiary of the Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000.

(c) On 26 October 2010, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project at No. 60 Victoria Road project. The amount of claim was approximately HK$204,000. Since the date and up to the date of approval of these consolidated financial statements, the arbitration has not yet commenced.

(d) On 1 June 2011, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project at Tsing Yi, Hong Kong. The amount of claim was approximately HK$1,602,000. Since the date and up to the date of approval of these consolidated financial statements, the arbitration has not yet commenced.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Save as disclosed above and elsewhere in the consolidated financial statements, as at 31 March 2011, the Group and the Company had no other material contingent liabilities.

Employee information

On 31 March 2011, the Group had 50 (2010: 61) full time employees, whom are employed in Hong Kong and Mainland China. They are remunerated at market level with benefits such as medical, retirement benefit and share option scheme. The total remuneration of the employees for the year was HK$6,645,000 (2010: HK$16,692,000).

Prospect

One of the policies adopted by the PRC Government is to boost domestic consumption and hence advertising is inevitable for brand building purpose. We foresee such government policy will continue so that it provides great opportunities for us to capture the advertising market through our ever-expanding train station networks.

Although we foresee the great business and revenue potential, we must manage potential risk properly by adopting a prudent approach in capital expenditure, operating costs and by properly controlling the pace of installation of LCD displays in train stations in the PRC. For cost control, we already succeeded in streamlining our internal operation in current year and reduced the operating costs. Considering the present consumption pattern in PRC, we have decided to adopt a more competitive business strategy and are confident that such a change in management policy will bring along with fruitful results in future.

In addition, the group has been searching for different scope of investment and business opportunities in the advertising market.

For the year ended 31 March 2010

Business Review

For the year ended 31 March 2010, the Group recorded a turnover of approximately HK$147,684,000, compared with the corresponding turnover of approximately HK$108,038,000 in 2009. We incurred a gross loss of approximately HK$13,298,000 while there was a gross profit of approximately HK$2,710,000 in 2009. The gross loss in the current year was mainly attributable to the substantial

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

additional cost of completing construction projects which in turn related to arbitration results of certain litigations, including counter claims initiated by a previous major customer of our Group.

Our loss attributable to shareholders amounted to approximately HK$87,310,000 (2009: approximately HK$73,827,000). The loss was mainly related to impairment in respect of accounts receivables recognized of approximately HK$40,642,000 and the substantial amounts of legal fee incurred for various litigation of our Group. Besides, the profit margin of our existing projects have been undermined by the rising material costs in general.

Turnover from our building and construction business was approximately HK$52,894,000 (2009: approximately HK$23,278,000). Such turnover was contributed by uncompleted projects in last year. Due to keen competition and the squeezing of contract price both by private and public sector, we plan to scale down this business segment gradually.

The renovation, repairs and maintenance segment reported a turnover of approximately HK$92,641,000 (2009: approximately HK$84,410,000). This was also contributed mainly from uncompleted projects in last year. There were lots of small scale renovation works in Hong Kong, however, many of them are not cost effective for us to bid. Yet, we will continue to explore should there is any profitable renovation works arise.

For advertising segment, turnover amounted to approximately HK$2,149,000 (5 months ended 31 March 2009: approximately HK$350,000). Although this business segment is now running at a loss, we are confident of its future due to the general prosperity of the People’s Republic of China (the “PRC”) and due to the favourable government policy of encouraging domestic consumption, which in turn will lead to increased advertising expenditure.

Financial Review

Liquidity and financing

There were no bank borrowings as at 31 March 2010 and 2009. The Group’s cash and bank deposits were approximately HK$38.4 million (2009: HK$24.4 million). The Group’s gearing ratio, calculated by aggregate of amount due to a related party, loans from shareholders and other non-current liabilities over total assets, increase to 34.27% at 31 March 2010 from 25.07% at 31 March 2009.

Treasury policies

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Pledge of assets

As at 31 March 2010 and 2009, no asset was being pledged since there is no external financing for the Group.

Material acquisitions and disposals of subsidiaries and associated companies and significant investment held

Aside from the transactions completed on the acquisition of 55% equity interest in Beijing Railsmedia Advertisement Company Limited there were no material acquisitions, disposals of subsidiaries and associated companies and significant investment held by the Group for the year ended 31 March 2010.

Contingent liabilities

(a) As disclosed in Notes 24 to the financial statements, the final tranche of the Arbitration had not been issued. The remaining issues in the final tranche are related to some defect works of the Residential Project and the award of interest on the Receivable under Disputes and award of certain legal costs incurred by the Group, which are to be determined by the arbitrator. In the opinion of the directors, based on legal advice, the Group has a very good prospect of recovering the interest on Receivable under Dispute and legal cost incurred by the Group.
(b) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively.

As at the date of approval of these financial statements, no decision had been made in the arbitration and court proceedings. In the opinion of the directors, based on legal advice, the subsidiary of the Group has valid defences, against such claims and any resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the financial statements.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) On 13 September 2004, a subsidiary of the Group received a notice of arbitration from a nominated subcontractor in respect of a claim against the subsidiary of the Group in respect of subcontracting works performed in the Residential Project. The amount of claim was approximately HK$26,000,000.

On 5 May 2005, the subsidiary of the Group and the nominated subcontractor agreed to enter into a moratorium period of six months to the arbitration. On 13 April 2006, the subsidiary of the Group and the nominated subcontractor further agreed to suspend the arbitration proceedings for three months subject to the rights to re-active the proceedings upon a three day written notice to the subsidiary of the Group. Since this date and up to the date of approval of these financial statements, the arbitration has been dormant and there has been no activity arisen by the parties.

In the opinion of the directors, based on legal advice, the claim was related to a payment being withheld in respect of subcontracting work delays and defects caused by the nominated subcontractor, and the resulting liabilities, if any, would not have any probable material adverse impact on the Group’s financial position.

(d) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Group (the “Subcontracted Party”) against a subsidiary of the Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000.

(e) On 12 March 2009, a subsidiary of the Group received a writ of summons from a subcontractor in respect of a claim against the subsidiary of the Group in respect of a construction project performed at the Residential Project. The amounts of claims were approximately HK$3,300,000.

As at the date of approval of these financial statements, no decision had been made in the arbitration. In the opinion of the directors, based on legal advice, the subsidiary of the Group has valid defences, against such claims and any resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the financial statements.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(f) During the year and up to the date of this announcement, subsidiaries of the Group received a notice of arbitration from a nominated subcontractor in respect of a claim against the Group in respect of subcontracting works performed in a residential development project in Lai Chi Kok Road, Hong Kong and in the Residential Project. The amounts of claims were approximately HK$11,400,000.

As at the date of approval of these financial statements, no decision had been made in the arbitration. In the opinion of the directors, based on legal advices, since the arbitration proceedings are at a very early stage and the amount of the ultimate liability cannot be measured with sufficient reliability, therefore, no provision in respect of such claims was made in the financial statements.

(g) On 26 January 2010, a subsidiary of the Group received a notice of arbitration from a nominated subcontractor in respect of a claim against the subsidiary of the Group regarding its claim for outstanding payments under a kitchen cabinets installation contract in connection with the Residential Project. The amount of claim was approximately HK$5,200,000.

(h) On 2 September 2009, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project performed at Tung Chung, Hong Kong. The Group filed its reply and counterclaim in January 2010 and the subcontracter filed its reply and defence to counterclaim in March 2010. The amount of claim was approximately HK$2,000,000.

(i) On 8 October 2009, a subsidiary of the Group received a writ of summon from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project performed at the Residential Project. The amount of claim was approximately HK$1,200,000.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the financial statements.

(j) On 19 June 2009, a subsidiary of the Group received a notice of arbitration from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project performed at the Residential Project. The amount of claim was approximately HK$5,696,000. Since this date and up to the date of approval of these financial statements, the arbitration has been dormant and there has been no activity raised by the parties. Arbitrator was appointed in September 2009.

(k) On 19 May 2010, a subsidiary of the Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Group in respect of the construction project performed at Mei Foo, Hong Kong. The amount of claim was approximately HK$430,000. The Group filed its statement of defence and counterclaim with the gross amount of approximately HK$1,221,000 in June 2010.

Saved as disclosed above and elsewhere in the financial statements, as at 31 March 2010, the Group and the Company had no other material contingent liabilities.

Employment information

On 31 March 2010, the Group had 61 (2009: 117) full time employees, whom are employed in Hong Kong and Mainland China. The employees and the directors are remunerated at market level with benefits such as medical, retirement benefit and share option scheme. The total remuneration of the employees for the year was HK$16,692,000 (2009: HK$17,999,000).

Prospect

One of the policies adopted by the PRC Government is to boost domestic consumption and hence advertising is inevitable for brand building purpose. We foresee such government policy will continue so that it provides huge opportunities for us to capture the advertising market though our ever-expanding train station networks.

– 63 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Although we foresee the huge business and revenue potential, we must properly manage potential risk by adopting prudent approach in capital expenditure and operating costs and by properly control the pace of installation of LCD displays in train stations in the PRC. For cost control, we already succeeded in streamlining our internal operation in current year and reduced the operating costs. The pace of installation of LCD is now at a mild speed since we must ensure adequate market potentials of that local area before stepping in to proceed with the actual installation.

We are confident that the above strategy will bring along with fruitful results in future.

For the year ended 31 March 2009

Business Review

For the year ended 31 March 2009, the Group recorded a turnover of approximately HK$108.0 million in comparing to HK$63.2 million in fiscal 2008. Gross profit recorded HK$2.7 million, whereas there’s profit of HK$2.8 million in fiscal 2008. With the increasing legal and professional expenditure and impairment on goodwill arising from acquisition of 北京鐵聯通達 (Beijing Railsmedia Advertising Co. Ltd.), net loss attributable to equity shareholders of the Company for this fiscal year was HK$73.8 million, as compared with HK$37.1 million recorded in last financial year. The recoverable amount of cash-generating units (CGU) is determined based on a value-in-use calculation which uses cash flow projections based on financial budgets approved by management. Considering the valuer has applied the discounted cash flow methods on CGU and the valuer’s recommendation in the independent valuation report, management has reviewed the situations and an impairment loss of goodwill would be recognized. The impairment loss in respect of goodwill amounted to approximately HK$22,823,000 for the year 2009.

Building construction

Revenue from Building construction was HK$23.3 million for this financial year (2008: HK$16.5 million). The depression in the construction industry continued especially in the global economic recession we are facing. To reduce the negative impact of the depression of construction industry to the Group, we will keep our policy to downsize the construction department and sought for other investment opportunities.

Renovation and fitting out works

As the old projects were approaching completion, the revenue from Renovation and fitting out works reported HK$84.4 million for this financial year (2008: HK$46.7 million). There were lots of small scale renovation works in Hong Kong, however, it was not appropriate for our company to step into this market.

It’s the new business segment we participated after acquiring 北京鐵聯通達 (Beijing Railsmedia Advertising Co. Ltd.). As 北京鐵聯通達 (Beijing Railsmedia Advertising Co. Ltd.) started to become our non-wholly owned subsidiary in November 2008, for the year ended 31 March 2009, it contributed only five-month results with revenue of HK$350,000 to the Group.

– 64 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial Review

Liquidity and financing

There were no bank borrowings as at 31 March 2009 and 2008. The Group’s cash and bank deposits were approximately HK$24.4 million (2008: HK$15.6 million). The Group’s gearing ratio, calculated by aggregate of amount due to a related party, loans from shareholders and other non-current liabilities over total assets, increase to 25.07% at 31 March 2009 from 21.68% at 31 March 2008.

Treasury policies

Pledge of assets

As at 31 March 2009 and 2008, the Group had no time deposits pledged for performance bond facilities.

Significant investments held

There was no significant investments held by the Group as at 31 March 2009.

Material acquisitions and disposals of subsidiaries and associated companies

On 6 November 2008, the Group has acquired 55% equity interest in Beijing Railsmedia Advertisement Co., Limited (“Beijing Railsmedia”) at a consideration of HK$99,297,000. The amount of goodwill arising as a result of the acquisition was HK$57,823,000 in aggregate.

Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Beijing Railsmedia. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Beijing Railsmedia. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured.

During the year ended 31 March 2009, Beijing Railsmedia contributed loss of HK$3,276,000 to the Group’s loss for the period between the date of acquisition and the balance sheet date respectively.

There was no material disposals of subsidiaries and associated companies during the year.

– 65 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Contingent liabilities

(a) In the normal course of business, the Group is subject to claims of liquidated damages by relevant employers due to a delay in completion of certain phases of construction contracts. The Group has filed extension of time claims with the relevant employers and the directors, based on legal advice, consider that the Group has valid reasons for the extension of time claims. As at the date of approval of these financial statements, and save as disclosed in Note 3 to the financial statements, the directors are of the opinion that the amount of the ultimate liquidated damages, if any, cannot be ascertained, however, any resulting liability would unlikely materially affect the financial position of the Group.
(b) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively.

(c) On 13 September 2004, a subsidiary of the Group received a notice of arbitration from a nominated subcontractor in respect of a claim against the subsidiary of the Group in respect of subcontracting works performed in a residential development project in Kowloon Tong, Hong Kong. The amount of claim was approximately HK$26,000,000.

– 66 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In the opinion of the directors, based on legal advice, the claim was related to a payment being withheld in respect of subcontracting work delays and defects caused by the nominated subcontractor, and the resulting liabilities, if any, would not have probable material adverse impact on the Group’s financial position.

(d) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Group (the “Subcontracted Party”) against a subsidiary of the Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000.

(e) On 7 December 2006, a subsidiary of the Group received a notice of arbitration from a subcontractor in respect of a claim against the subsidiary of the Group in respect of subcontracting works performed in a residential development project in Kowloon Tong, Hong Kong. The amount of claim was approximately HK$5,629,000. On 24 February 2007, the subsidiary of the Group sought to counterclaim against the subcontractor of approximately HK$8,062,000.

As at the date of approval of these financial statements, no decision had been made in the arbitration. In the opinion of the directors, based on legal advice, the subsidiary of the Group has valid defences against such claims and any resulting liabilities would not have any probable material adverse impact on the Group’s financial position. Therefore, no provision in respect of such claims was made in the financial statements.

(f) On 28 March 2007, a subsidiary of the Group received a notice of arbitration from a nominated subcontractor in respect of a claim against the subsidiary of the Group in respect of subcontracting works performed in a residential development project in Kowloon Tong, Hong Kong. The amount of claim was approximately HK$3,253,000. On 29 June 2007, the subsidiary of the Group sought to counterclaim against the subcontractor of approximately HK$232,000 together with an order for indemnity for a sum amounting to approximately HK$4,389,000.

– 67 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

the Group’s financial position. Therefore, no provision in respect of such claims was made in the financial statements.

(g) On 12 March 2009, a subsidiary of the Group received a writ of summons from a subcontractor in respect of a claim against the subsidiary of the Group in respect of a claim of a construction project performed at Beacon Hill Road, Kowloon (“Beacon Hill Project”) and Proposed Church Development at 118 Gloucester Road, Wanchai (“Church Project”). The amounts of claims were approximately HK$3,358,000 and HK$100,000 respectively.

(h) On 12 March 2009, a subsidiary of the Group received a writ of summons from a subcontractor in respect of claims against the subsidiary of the Group in respect of claims of a construction project performed at Shatin Area 31A, Hin Keng Street, Shatin (“Hin Keng Project”). The amounts of claims were approximately HK$658,000.

Saved as disclosed above and elsewhere in the financial statements, as at 31 March 2009, the Group and the Company had no other material contingent liabilities.

Use of proceeds

On 30 May 2008, the Company has entered into the placing and subscription agreement in relation to the placing of 93,000,000 shares at a placing price of HK$0.74 per share. The net proceeds of approximately HK$63,000,000 would be used for the acquisition of 北京鐵聯通達 (Beijing Railsmedia Advertising Co. Ltd.) and as general working capital of the Group.

Employment information

On 31 March 2009, the Group had 117 full time employees (31 March 2008: 59 employees), whom are employed in Hong Kong and Mainland China. They are remunerated at market level with benefits such as medical, retirement benefit and share option scheme. The total remuneration of the employees for the year was HK$17,999,000 (2008: HK$10,338,000).

– 68 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Prospect

The Chinese government has spurred growth by announcing an RMB4 trillion stimulus package to boost economic expansion. In addition, the government is also offering subsidies for people in villages purchasing certain consumable goods such as electrical appliances. Sure this package will stimulate the domestic spending and thus advertising market in Mainland China. We are optimistic about the potential of the government package and believed that Mainland China will be the first country recovering from the recession.

Even the installation of LCD displays has been slowed down. The installation of LCD display in major cities such as Guangzhou, Shanghai and Beijing is continuing. The media business we are participated will benefit when domestic spending is strong. It’s believed that by installing LCD display in major cities will allow us to capture the opportunities should the economy recovered.

Furthermore, we are adopting a very prudent strategy to help us passing through the existing tough conditions. We are limiting capital expenditure and cutting costs wherever possible. It’s believed that we can come out from the ongoing downturn that face us today and have a brighter future.

– 69 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report, prepared for inclusion in this circular, received from the independent reporting accountants, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, Hong Kong.

==> picture [173 x 66] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

14 March 2012

The Board of Director China Railsmedia Corporation Limited Flat C, 3/F., Shing Lee Commercial Building, No. 8 Wing Kut Street, Central Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Huge Leader Development Limited (the “Target Company”) and its subsidiary (hereinafter collectively referred to as the “Target Group”), for the period from 18 April 2011 (date of incorporation) to 30 September 2011 (the “Relevant Period”) (the “Financial Information”) prepared on the basis of presentation set out in Note 2, for inclusion in the circular of China Railsmedia Corporation Limited (the “Company”) dated 14 March 2012 (the “Circular”) in connection with the sale and purchase agreement dated 27 October 2011 (the “Sale and Purchase Agreement”) entered into between the Company and Huge Leader Holdings Limited (the “Vendor”), pursuant to which the Company would acquire the entire issued share capital of the Target Company at a total consideration of HK$690,000,000 (collectively referred to as the “Proposed Acquisition”).

The consideration shall be satisfied (i) as to HK$490,000,000 by allotting and issuing a total of 7,000,000,000 new convertible preference shares of HK$0.07 each in the share capital of the Company (the “Convertible Preference Shares”) upon completion of the Proposed Acquisition (the “Completion”); and (ii) as to HK$200,000,000 by issuing promissory note to the Vendor upon Completion. The Financial Information comprises the consolidated statement of financial position of the Target Group as at 30 September 2011 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the Relevant Period and a summary of significant accounting policies and other explanatory information.

– 70 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The Target Company is principally engaged in investment holding and incorporated in the British Virgin Islands with limited liability on 18 April 2011. As at 30 September 2011, the Target Company has no major assets or operating business other than its equity interest in FingerAd Media Company Limited (the “FingerAd”).

Particulars of the principal subsidiary comprising the Target Group at the date of this report are set out below:

		Nominal value
		of issued and	Percentage
		fully paid-up	of equity
		share/	interest
	Place of	registered	attributable to
Company	incorporation/	paid- up	the Target
name	registration	capital	Company	Principal activity
Directly held:
FingerAd	Hong Kong	HK$1	100%	Food and
				beverages
				industry
				advertising
				business

The Target Group adopts 31 March as its financial year end date. The statutory financial statements of the Target Group for the Relevant Period have been prepared by the director of the Target Company. However, these statutory financial statements were not audited by certified public accountants.

BASIS OF PREPARATION

For the purpose of this report, the director of the Target Company have prepared the Financial Information for the Relevant Period based on the unaudited financial statements of the Target Group in accordance with Hong Kong Financial Reporting Standards (the “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), the disclosure requirements of Hong Kong Companies Ordinance and the applicable disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”). The Financial Information for the Relevant Period were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA. The Financial Information set out in this report has been prepared from the unaudited financial statements with no adjustments made thereon.

– 71 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

RESPONSIBILITY OF THE DIRECTOR

The director of the Company are responsible for the contents of the Circular, including the preparation of the Financial Information that gives a true and fair view in accordance with the basis set out in Note 2. The director of the Target Company are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs and the Listing Rules, and for such internal control as the director of the Target Company determine is necessary to enable the preparation of the Financial Information that are free from material misstatement, whether due to fraud or error.

RESPONSIBILITY OF THE REPORTING ACCOUNTANTS

For the Financial Information for the Relevant Period, it is our responsibility to form an independent opinion on the Financial Information based on our examination and to report our opinion to you. We examined the relevant unaudited financial statements of the Target Group for the Relevant Period, and carried out such procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the reporting accountants’ judgment, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Financial Information that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the director of the Target Company and of the Company, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the Financial Information for the Relevant Period, for the purpose of this report and prepared on the basis of presentation and preparation set out in Note 2, gives a true and fair view of the state of affairs of the Target Group as at 30 September 2011 and of the consolidated results and cash flows of the Target Group for the Relevant Period.

Material uncertainty concerning going concern basis of accounting

Without qualifying our opinion, we draw attention to Note 2(a) to the Financial Information which indicate that the Target Group incurred net loss for the Relevant Period of approximately HK$11,000 and, as of that date, the Target Group’s total liabilities exceeded its total assets by approximately HK$3,000 as at 30 September 2011. These conditions, along with other matters as set forth in Note 2(a), indicate the existence of a material uncertainty which may cast significant doubt about the Target Group’s ability to continue as a going concern.

– 72 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

A. FINANCIAL INFORMATION

Consolidated Statement of Comprehensive Income

Notes
Turnover
7
Cost of sales
Gross profit
Administrative expenses
Loss before taxation
8
Taxation
10
Loss for the period
Other comprehensive income for the period, net of tax
Total comprehensive loss for the period
Loss for the period attributable to owners of the Target
Company
Total comprehensive loss for the period attributable to
owners of the Target Company
Loss per share for the period attributable to owners of
the Target Company
– Basic and diluted (HK dollars)
12

For the period
from 18 April
2011 to
30 September
2011
HK$’000
–
–
–
(11)
(11)
–
(11)
–
(11)
(11)
(11)
(11)

The accompanying notes form an integral part of the Financial Information.

– 73 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated Statement of Financial Position

Notes
ASSETS
Current assets
Amount due from an immediate holding company
13
Total assets
EQUITY
Capital and reserves attributable to owners of
the Target Company
Share capital
14
Accumulated losses
Total equity
LIABILITIES
Current liabilities
Other payables and accruals
Total liabilities
Total equity and liabilities
Net current liabilities
Total assets less current liabilities

As at
30 September
2011
HK$’000
8
8
8
(11)
(3)
11
11
8
(3)
(3)

The accompanying notes form an integral part of the Financial Information.

– 74 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated Statement of Changes in Equity

At 18 April 2011 (date of incorporation) Issue of shares Loss and total comprehensive loss for the period At 30 September 2011	Share capital HK$’000 – 8 – 8	Accumulated losses HK$’000 – – (11) (11)	Total equity HK$’000 – 8 (11) (3)

The accompanying notes form an integral part of the Financial Information.

– 75 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated Statement of Cash Flows

Cash flows from operating activities
Loss before taxation
Operating loss before working capital changes
Increase in amount due from an immediate holding company
Increase in other payables and accruals
Net cash used in operating activities
Cash flows from financing activities
Proceeds from issue of shares
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Analysis of balances of cash and cash equivalents
Cash and cash equivalents

For the period
from 18 April
2011 to
30 September
2011
HK$’000
(11)
(11)
(8)
11
(8)
8
8
–
–
–
–

The accompanying notes form an integral part of the Financial Information.

– 76 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Notes to the Financial Information

1. GENERAL INFORMATION

The registered office of the Target Company is at Palm Grove House, P.O. Box H38, Road Town, Tortola, British Virgin Islands and the principal place of business of the Target Company is at Flat 115B, 1/F, Enterprise Place, No. 5 Science Park West Avenue, Pak Shek Kok, New Territories, Hong Kong. The Target Company was incorporated in British Virgin Islands with limited liability. The Target Company is principally engaged in investment holding.

The Financial Information is presented in Hong Kong Dollars, which is the functional currency of the Target Company and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the HKICPA, and accounting principles generally accepted in Hong Kong (which also include Hong Kong Accounting Standards and Interpretations) and the Listing Rules as applicable to Accountants’ Reports including in the Circulars. The accounting policies of the Target Group are materially consistent with the Company’s accounting policies. The measurement basis used in the preparation of the Financial Information is historical cost convention accounting.

The HKICPA has issued a number of new and revised HKFRSs during the Relevant Period. For the purpose of preparing this Financial Information, the Target Group has adopted all these new and revised HKFRSs to the Relevant Period.

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

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

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

– 77 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The Target Group is not yet in a position to determine whether these standards, amendments and interpretations will have significant impact on how the results of operations and financial position are prepared and presented. These standards, amendments and interpretations may result in changes in the future as to how the results and financial position are prepared and presented.

HKAS 1 (Amendments) Presentation of Items of Other Comprehensive Income[3] HKAS 12 (Amendments) Deferred tax: Recover of Underlying Assets[2] HKAS 19 (Amendments) Employee Benefits[4] HKAS 27 (Revised 2011) Separate Financial Statements[4] HKAS 28 (Revised 2011) Investments in Associates and Joint Ventures[4] HKAS 32 (Amendments) Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities[5] HKFRS 1 (Amendment) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters[1] HKFRS 7 (Amendments) Disclosure – Transfer of Financial Assets[1] HKFRS 7 (Amendments) Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities[4] HKFRS 9 Financial Instruments[6] HKFRS 10 Consolidated Financial Statements[4] HKFRS 11 Joint Arrangements[4] HKFRS 12 Disclosure of Interests in Other Entities[4] HKFRS 13 Fair Value Measurement[4] HK(IFRIC)–Int 20 Stripping Costs in the Production Phase of a Surface Mine[4]

1 Effective for annual periods beginning on or after 1 July 2011 2 Effective for annual periods beginning on or after 1 January 2012
3 Effective for annual periods beginning on or after 1 July 2012
4 Effective for annual periods beginning on or after 1 January 2013
5 Effective for annual periods beginning on or after 1 January 2014 6 Effective for annual periods beginning on or after 1 January 2015

HKFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets and will be effective from 1 January 2013, with earlier application permitted. The standard requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the Target Group’s financial assets.

Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either 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 accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the 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 presentation 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 attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

– 78 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.

The director of the Target Company anticipate that HKFRS 9 that will be adopted in the Target Group’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of the new standard may have a significant impact on amounts reported in respect of the Target Groups’ financial assets. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

The amendments to HKFRS 7 titled Disclosures – Transfers of Financial Assets increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.

The director of the Target Company do not anticipate that these amendments to HKFRS 7 will have a significant effect on the Target Group’s disclosures regarding transfers of trade receivables previously effected. However, if the Target Group enters into other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected.

The director of the Target Company anticipate that the application of the other new and revised HKFRSs will have no material impact on the results and the financial position of the Target Group.

(a) Basis of preparation

The measurement basis used in the preparation of the Financial Information is the historical cost convention, except for certain financial assets and financial liabilities as explained below.

Judgments made by management in the application of HKFRSs that have significant effect on the Financial Information and estimates with a significant risk of material adjustment in the next year are discussed in Note 3.

During the period from 18 April 2011 to 30 September 2011, the Target Group incurred a net loss of approximately HK$11,000. As at 30 September 2011, the Target Group’s total liabilities exceeded its total assets by approximately HK$3,000. The immediate holding company of the Target Company, Huge Leader Holdings Limited has agreed to provide continuing financial support to the Target Group. As such, the director of the Target Company are satisfied that the Target Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the consolidated financial statements have been prepared on a going concern basis.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Target Company and entity controlled by the Target Company (its subsidiary). Control is achieved where the Target Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Target Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are presented separately from the Target Group’s equity therein.

– 79 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and loss of the subsidiary is attributed to the owners of the Target Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(c) 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 Target Group, liabilities incurred by the Target Group to the former owners of the acquire and the equity interests issued by the Target 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 at the acquisition date, except that:

(i) deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively;
(ii) liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the Target Group are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date; and
(iii) assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Noncurrent 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 assessment, 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 another measurement basis required by another standard.

Where the consideration the Target Group transfers 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 considered 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 being made against goodwill or gain on bargain purchase. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. Measurement period does not exceed one year from the acquisition date.

– 80 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

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 HKAS 39, or HKAS 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 Target Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Target 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.

Changes in the value of the previously held equity interest recognised in other comprehensive income and accumulated in equity before the acquisition date are reclassified to profit or loss when the Target Group obtains control over the acquiree.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Target 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 as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

(d)

Subsidiary

A subsidiary is an entity whose financial and operating policies the Target Company controls, directly or indirectly, so as to obtain benefits from its activities. The results of subsidiary are included in the Target Company’s statement of comprehensive income to the extent of dividends received and receivable. The Target Company’s investment in subsidiary that are not classified as held for sale in accordance with HKFRS 5 are stated at cost less any impairment losses.

(e) Impairment

At the end of each reporting period, the director of the Target Company review the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such 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 in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation increase under that standard.

– 81 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(f) Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statement of financial position when an entity becomes a party to the contractual provisions of the instruments. 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 through profit or loss are recognised immediately in the consolidated statement of comprehensive income.

Financial assets

The Target Group’s financial assets are classified into loans and receivables. 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.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset 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 on 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 asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At the end of each reporting period subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less any identified impairment losses.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the financial assets have been impacted.

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss then there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

– 82 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The carrying amount of the financial assets 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. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable or other receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

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

Financial liabilities and equity

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

An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities.

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 through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognised on an effective interest basis.

Financial liabilities (other than derivative financial instruments)

The Target Group’s financial liabilities are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

Repurchase of the Target Group’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Target Group’s own equity instruments.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Target Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, 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 directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in consolidated statement of comprehensive income.

– 83 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(g) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown separately in current liabilities on the consolidated statement of financial position.

(h) Revenue recognition

Interest income is recognised on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

(i) Taxation

Income tax expenses represent the sum of the tax currently payable and deferred tax.

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

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to consolidated statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(j) Provisions

Provisions are recognised when the Target Group has a present obligation as a result of a past event, and it is probable that the Target Group will be required to settle that obligation. Provisions are measured at the best estimate of the director of the Target Company of the expenditure required to settle the obligation as at the end of the reporting period, and are discounted to present value where the effect is material.

(k) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Target Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the Financial Information. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

– 84 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Target Group. Contingent assets are not recognised but are disclosed in the notes to the Financial Information when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(l) Related party transactions

A party is considered to be related to the Target Group if:

(1) A person or entity is preparing the financial statements of the Target Group;
(2) A person or a close member of that person’s family is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of the key management personnel of the Target Group or of a parent of the Target Group.
(3) An entity is related to the Target Group if any of the following conditions applies:
(i) The entity and the Target 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 of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group. If the Target Group is itself such a plan, the sponsoring employers are also related to the Target Group.
(vi) The entity is controlled or jointly controlled by a person identified in (2).
(vii) A person identified in (2)(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).

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

– 85 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(m)

Segment reporting

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

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type 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.

3. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Target Group’s accounting policies which are described in Note 2, the management has made certain key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the Relevant Periods, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Income taxes

The Target Group is subject to income taxes in Hong Kong. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Target Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.

4. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loan and receivables – amount due from an immediate holding company Financial liabilities Amortised cost – other payables and accruals	As at 30 September 2011 HK$’000 8

	11

(b) Financial risk management objectives and policies

The Target Group’s major financial instruments include amount due from an immediate holding company and other payables and accruals. The details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

– 86 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The main risks arising from the Target Group’s financial instruments are currency risk, credit risk and liquidity risk. The director of the Target Company review and agree policies for managing each of these risks and they are summarised below.

During the Relevant Period, there has been no change to the types of the Target Group’s exposure in respect of financial instruments or the manner in which it manages and measures the risks.

Currency risk

The Target Group mainly operates in Hong Kong with most of the transactions denominated and settled in Hong Kong Dollars. Most of the Target Group’s monetary assets and liabilities are also denominated in Hong Kong Dollars. Therefore, the Target Group has no significant currency risk exposure.

Credit risk

The Target Group has no significant concentrations of credit risk.

Liquidity risk

Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due, and it results from amount and maturity mismatches of assets and liabilities. The Target Group will consistently maintain a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements.

The Target Group’s financial liabilities are analysed into relevant maturity groupings based on the remaining period at the respective end of the Relevant Periods to the contractual maturity date, using the contractual undiscounted cash flows, as follows:

			At 30 September 2011	At 30 September 2011
	Weighted				Total
	average				undis-
	effective				counted	Total
	interest	Within	2 to 5	Over 5	cash	carrying
	rate	1 year	years	years	flows	amount
	%	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Other payables and
accruals	–	11	–	–	11	11

(c) Fair value of financial instruments

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

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

The director consider that 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.

– 87 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Fair value measurements recognised in the consolidated statements of financial position

The Target Group’s financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

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 asset or liability that are not based on observable market data (unobservable inputs).

No analysis is disclosed since the Target Group has no financial instruments that are measured subsequent to initial recognition at fair value at the end of the Relevant Period.

5. CAPITAL RISK MANAGEMENT

The primary objective of the Target Group’s capital management is to safeguard the Target Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value. The Target Group manages the capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Target Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Target Group’s objectives, policies or processes for managing capital remain unchanged during the Relevant Period.

The capital structure of the Target Group consists of equity attributable to owners of the Target Company, comprising share capital and accumulated losses. The Target Group’s risk management reviews the capital structure on a semi-annual basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.

The gearing ratio at the end of the Relevant Period was as follows:

Debt Asset Gearing ratio	As at 30 September 2011 HK$’000 –

	8

	N/A

6. OPERATING SEGMENTS

The Target Group has adopted HKFRS 8 Operating Segments with effect from 18 April 2011. HKFRS 8 is a disclosure standard that requires operating segments to be identified on the basis of internal reports about components of the Target Group that are regularly reviewed by the chief operating decision makers for the purposes of allocating resources to segments and assessing their performance. A single management team reports to the chief operating decision makers who comprehensively manages the entire business.

The Target Group currently does not have any operations. Accordingly, the Target Group does not have separately reportable segments.

– 88 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

7. TURNOVER

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

8. LOSS BEFORE TAXATION

The Target Group’s loss before taxation is arrived at after charging:

	For the period
	from 18 April
	2011 to
	30 September
	2011
	HK$’000
Auditors’ remuneration	–
Staff cost excluding director’s remuneration (Note 9)
– Wages and salaries	–
– Pension scheme contributions	–

Apart from director of the Target Company, no staff was employed during the Relevant Period.

9. DIRECTOR’S AND KEY MANAGEMENT PERSONNEL EMOLUMENTS

(a) Director’s emoluments

For the period from 18 April 2011 to 30 September 2011 HK$’000 Chan Ka Wai (appointed on 18 April 2011) –

(b) Five highest paid individuals

Of the five individuals with the highest emoluments in the Target Group, for the period from 18 April 2011 to 30 September 2011, none were the director of the Target Company whose emoluments are included in the disclosures in Note 9(a) above respectively. The emoluments of the remaining individuals were as follows:

Basic salaries and allowances Pension scheme contributions	For the period from 18 April 2011 to 30 September 2011 HK$’000 – –
	–

There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Period.

– 89 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

During the Relevant Period, no emoluments were paid by the Target Group to the director, highest paid employees as an inducement to join, or upon joining the Target Group, or as compensation for loss of office. None of the director has waived emoluments during the Relevant Period.

10. TAXATION

For the period from 18 April 2011 to 30 September 2011 HK$’000

Current tax: Provision for the period –

The Target Group is subject to income tax on an entity basis on profits arising in or derived from Hong Kong.

No provision for Hong Kong profits tax has been made as the Target Company and FingerAd had no assessable profits arising in Hong Kong during the Relevant Period.

A reconciliation of the income tax expense applicable to loss before income tax using the statutory rate for the location in which the Target Group is domiciled is presented below:

Period from 18 April 2011 to 30 September 2011

Loss before taxation Tax at the Hong Kong profits tax rate of 16.5% Tax loss not recognised Tax expense and effective tax rate for the period	HK$’000 (11)	%
	(2) 2	(16.5) 16.5
	–	–

As at 30 September 2011, the Target Group did not have any unused estimated tax losses available for offset against future taxable profits. No deferred tax has been provided as the Target Group did not have any significant temporary difference which gave rise to a deferred tax.

11. DIVIDEND

No dividend has been paid or declared by the Target Company since the date of its incorporation.

– 90 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

12. LOSS PER SHARE ATTRIBUTABLE TO OWNERS OF THE TARGET COMPANY

The calculation of the basic and diluted loss per share attributable to owners of the Target Company is based on the following data:

Loss Loss for the period attributable to owners of the Target Company for the purpose of basic loss per share Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share	For the period from 18 April 2011 to 30 September 2011 HK$’000 (11)

	1,000

Basic and diluted loss per share for the Relevant Period has been presented in a single line because no potential dilutive ordinary shares were outstanding during the Relevant Period.

13. AMOUNT DUE FROM AN IMMEDIATE HOLDING COMPANY

					As at
				30	September
					2011
					HK$’000
Huge	Leader	Holdings	Limited		8

The maximum amount outstanding during the period from 18 April 2011 to 30 September 2011 is as follow:

				For the period
				from 18 April
				2011 to
				30 September
				2011
				HK$’000
Huge	Leader	Holdings	Limited	8

The amount due from an immediate holding company is unsecured, interest-free and recoverable on demand.

– 91 –

APPENDIX II ACCOUNTANTS’ REPORT ON THE TARGET GROUP

14. SHARE CAPITAL

Authorised: Ordinary shares at US$1 each At 18 April 2011 (date of incorporation) and 30 September 2011 Issued and fully paid: At 18 April 2011 (date of incorporation) Issue of ordinary shares At 30 September 2011	Number of shares 1,000 – 1,000 1,000	Share capital HK$ 7,800

		– 7,800
		7,800

15. MATERIAL RELATED PARTY TRANSACTIONS

Save as disclosed in Notes 9 and 13 to the Financial Information, which in the opinion of the director of the Target Company, there was no other material related party transaction during the Relevant Period.

During the Relevant Period, no compensation of any kind was paid to the Target Company’s director who was key management personnel of the Target Company.

16. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Group in respect of any period subsequent to 30 September 2011 and no dividends or other distributions have been declared by the Target Company in respect of any period subsequent to 30 September 2011.

Yours faithfully HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– 92 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of the unaudited pro forma financial information of the Enlarged Group, prepared for the purpose of inclusion in this circular, received from the reporting accountants of the Company, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, Hong Kong.

==> picture [173 x 65] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

14 March 2012

The Board of Directors China Railsmedia Corporation Limited Flat C, 3/F., Shing Lee Commercial Building, No. 8 Wing Kut Street, Central, Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of China Railsmedia Corporation Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Huge Leader Development Limited (the “Target Company”) and its subsidiaries (the “Target Group”) (together with the Group hereinafter referred to as the “Enlarged Group”) (the “Unaudited Pro Forma Financial Information”) which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of the Target Company and all obligations, liabilities and debts owing or incurred by the Target Group (the “Proposed Acquisition”) might have affected the financial information presented, for inclusion as Appendix III of the circular of the Company dated 14 March 2012 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 96 and 108 of Appendix III to the Circular.

– 93 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with Rules 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion as required by Rule 4.29(7) of the Listing Rules on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owned to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group as at 30 September 2011 or any future date; or
the financial results and cash flows of the Enlarged Group for the year ended 31 March 2011 or for any future period.

– 94 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

OPINION

In our opinion:

the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
such basis is consistent with the accounting policies of the Group; and
the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– 95 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. INTRODUCTION

The Unaudited Pro Forma Financial Information of the Enlarged Group has been prepared in accordance with the Rules 4.29 of the Listing Rules for the purpose of illustrating the effect of the Proposed Acquisition as if the Proposed Acquisition took place on 30 September 2011 for the consolidated statement of financial position and 1 April 2010 for the consolidated statement of comprehensive income and consolidated statement of cash flows.

The Unaudited Pro Forma Financial Information of the Enlarged Group is prepared based on the unaudited consolidated statement of financial position of the Group as at 30 September 2011 and audited consolidated statement of comprehensive income and audited consolidated statement of cash flows for the year ended 31 March 2011 and audited consolidated financial information of the Target Group as at 30 September 2011 as set out in Appendix II, after making pro forma adjustments relating to the Proposed Acquisition that are (i) directly attributable to the transaction; and (ii) factually supportable.

The accompanying Unaudited Pro Forma Financial Information of the Enlarged Group has been prepared by the directors of the Company for illustrative purpose only and is based on a number of assumptions, estimates and uncertainties. Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position of the Enlarged Group that would have been attained has the Proposed Acquisition been completed on 30 September 2011 and to describe the actual financial results and cash flows of the Enlarged Group that would have been attained has the Proposed Acquisition been completed on 1 April 2010, nor purport to predict the Enlarged Group’s future financial position or results of operations.

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

The Unaudited Pro Forma Financial Information on the Enlarged Group has been prepared by the directors of the Company for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of financial position of the Enlarged Group following completion of the Proposed Acquisition.

– 96 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(I) Unaudited Pro Forma Consolidated Statement of Financial Position of the Enlarged Group

The following is the unaudited pro forma consolidated statement of financial position of the Enlarged Group, assuming that the Proposed Acquisition has been completed on 30 September 2011. The information is based on the unaudited consolidated statement of financial position of the Group as at 30 September 2011 and the audited consolidated statement of financial position of the Target Group as at 30 September 2011 as set out in Appendix II. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at the date to which it is made up to or at any future date.

Unaudited Consolidated Statement of Financial Position of the Group as at 30 September 2011 HK$’000 3,001 13,329 28,800	Audited Consolidated Statement of Financial Position of the Target Group as at 30 September 2011 HK$’000 – – –	Sub-total Pro forma adjustments for the Proposed Acquisition HK$’000 Notes HK$’000 3,001 13,329 1(c) 673,045 28,800	Unaudited Pro forma Consolidated Statement of Financial Position of the Enlarged Group as at 30 September 2011 HK$’000 3,001 686,374 28,800
45,130 7,083 756 37,448 – 15,802 61,089 18,396 79,485	– – – – 8 – 8 – 8	45,130 7,083 756 37,448 2 8 8 2 (8) 15,802 1(b) 1,981 61,097 18,396 79,493	718,175
			7,083 756 37,456 – 17,783
			63,078 18,396
			81,474
124,615	8	124,623	799,649

– 97 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited Consolidated Statement of Financial Position of the Group as at 30 September 2011 HK$’000 18,638 – (16,661)	Audited Consolidated Statement of Financial Position of the Target Group as at 30 September 2011 HK$’000 8 – (11)	Sub-total Pro forma adjustments for the Proposed Acquisition HK$’000 Notes HK$’000 1(b) 1,992 18,646 3 (2,000) – 1(f) 490,000 (16,672) 4 11	Unaudited Pro forma Consolidated Statement of Financial Position of the Enlarged Group as at 30 September 2011 HK$’000 18,638 490,000 (16,661)
1,977 24,307 26,284 44,633 15,800 60,433 4,030 4,836 19,877 47 28,790 9,108 37,898 98,331	(3) – (3) – – – – – 11 – 11 – 11 11	1,974 24,307 26,281 44,633 15,800 (1(e)) 185,034 60,433 4,030 4,836 19,888 1(b) (11) 47 28,801 9,108 37,909 98,342	491,977 24,307
			516,284
			44,633 200,834
			245,467
			4,030 4,836 19,877 47
			28,790 9,108
			37,898
			283,365
124,615 41,587 86,717	8 (3) (3)	124,623 41,584 86,714	799,649

			43,576

			761,751

– 98 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(II) Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the Enlarged Group

The following is the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group, assuming that the Proposed Acquisition have been completed on 1 April 2010. The information is based on the audited consolidated statement of comprehensive income of the Group for the year ended 31 March 2011 and the audited consolidated statement of comprehensive income of the Target Group for the period from 18 April 2011 (date of incorporation) to 30 September 2011 as set out in Appendix II. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the results of the Enlarged Group for the year ended to which it is made up to or for any future period.

Audited Consolidated Statement of Comprehensive Income of the Group for the year ended 31 March 2011 Audited Consolidated Statement of Comprehensive Income of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 HK$’000 Turnover 47,232 – Cost of sales (69,239) – Gross loss (22,007) – Other revenue 6,546 – Other income 886 – Administrative expenses (17,863) (11) Gain on disposals of subsidiaries 24,020 – Impairment loss in respect of goodwill (17,671) – Share of loss of a jointly controlled entity (5) – Impairment loss in respect of interest in a jointly controlled entity (288) – Loss from operating activities (26,382) (11) Finance costs (258) – Loss before taxation (26,640) (11) Taxation – –	Audited Consolidated Statement of Comprehensive Income of the Group for the year ended 31 March 2011 Audited Consolidated Statement of Comprehensive Income of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 HK$’000 Turnover 47,232 – Cost of sales (69,239) – Gross loss (22,007) – Other revenue 6,546 – Other income 886 – Administrative expenses (17,863) (11) Gain on disposals of subsidiaries 24,020 – Impairment loss in respect of goodwill (17,671) – Share of loss of a jointly controlled entity (5) – Impairment loss in respect of interest in a jointly controlled entity (288) – Loss from operating activities (26,382) (11) Finance costs (258) – Loss before taxation (26,640) (11) Taxation – –	Sub-total Pro forma adjustments for the Proposed Acquisition Unaudited Pro forma Consolidated Statement of Comprehensive Income of the Enlarged Group for the year ended 31 March 2011 HK$’000 Notes HK$’000 HK$’000 47,232 47,232 (69,239) (69,239)	Sub-total Pro forma adjustments for the Proposed Acquisition Unaudited Pro forma Consolidated Statement of Comprehensive Income of the Enlarged Group for the year ended 31 March 2011 HK$’000 Notes HK$’000 HK$’000 47,232 47,232 (69,239) (69,239)
(22,007) 6,546 886 (17,863) 24,020 (17,671) (5) (288) (26,382) (258) (26,640) –	– – – (11) – – – – (11) – (11) –	(22,007) 6,546 886 (17,874) 24,020 (17,671) (5) (288) (26,393) (258) 5 (9,442) (26,651) –	(22,007) 6,546 886 (17,874) 24,020 (17,671) (5) (288)
			(26,393) (9,700)
			(36,093) –

– 99 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Audited Consolidated Statement of Comprehensive Income of the Group for the year ended 31 March 2011 Audited Consolidated Statement of Comprehensive Income of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 HK$’000 Loss for the year/period (26,640) (11) Other comprehensive income Exchange differences on translating foreign operations 4,323 – Total comprehensive loss for the year/period, net of tax (22,317) (11) Loss attributable to: Owners of the Company (21,534) (11) Non-controlling interests (5,106) – (26,640) (11) Total comprehensive loss attributable to: Owners of the Company (18,659) (11) Non-controlling interests (3,658) – (22,317) (11) Loss per share attributable to owners of the Company: –Basic and diluted (1.39 HK cents) (HK$11)	Audited Consolidated Statement of Comprehensive Income of the Group for the year ended 31 March 2011 Audited Consolidated Statement of Comprehensive Income of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 HK$’000 Loss for the year/period (26,640) (11) Other comprehensive income Exchange differences on translating foreign operations 4,323 – Total comprehensive loss for the year/period, net of tax (22,317) (11) Loss attributable to: Owners of the Company (21,534) (11) Non-controlling interests (5,106) – (26,640) (11) Total comprehensive loss attributable to: Owners of the Company (18,659) (11) Non-controlling interests (3,658) – (22,317) (11) Loss per share attributable to owners of the Company: –Basic and diluted (1.39 HK cents) (HK$11)	Sub-total Pro forma adjustments for the Proposed Acquisition Unaudited Pro forma Consolidated Statement of Comprehensive Income of the Enlarged Group for the year ended 31 March 2011 HK$’000 Notes HK$’000 HK$’000 (26,651) (36,093 4,323 4,323 (22,328) (31,770	Sub-total Pro forma adjustments for the Proposed Acquisition Unaudited Pro forma Consolidated Statement of Comprehensive Income of the Enlarged Group for the year ended 31 March 2011 HK$’000 Notes HK$’000 HK$’000 (26,651) (36,093 4,323 4,323 (22,328) (31,770
			(31,770

(21,534) (5,106)	(11) –	(21,545) 5 (9,442) (5,106)	(30,987 (5,106
(26,640)	(11)	(26,651)	(36,093

(18,659) (3,658)	(11) –	(18,670) 5 (9,442) (3,658)	(28,112 (3,658
(22,317) (1.39 HK cents)	(11) (HK$11)	(22,328) 6	(31,770

			(0.36 HK cents

– 100 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(III) Unaudited Pro Forma Consolidated Statement of Cash Flows of the Enlarged Group

The following is the unaudited pro forma consolidated statement of cash flows of the Enlarged Group, assuming that Proposed Acquisition have been completed on 1 April 2010. The information is based on the audited consolidated statement of cash flows of the Group for the year ended 31 March 2011 and the audited consolidated statement of cash flows of the Target Group for the period from 18 April 2011 (date of incorporation) to 30 September 2011 as set out in Appendix II. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated statement of cash flows of the Enlarged Group has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the cash flows of the Enlarged Group for the year ended to which it is made up to or for any future period.

		Audited				Unaudited
		Consolidated				Pro forma
	Audited	Statement of				Consolidated
	Consolidated	Cash Flows				Statement of
	Statement of	of the Target				Cash Flows
	Cash Flows	Group for the				of the
	of the Group	period from			Pro forma	Enlarged
	for the year	18 April			adjustments	Group for the
	ended	2011 to			for the	year ended
	31 March	30 September			Proposed	31 March
	2011	2011	Sub-total		Acquisition	2011
	HK$’000	HK$’000	HK$’000	Notes	HK$’000	HK$’000
Cash flows from operating
activities
Loss before taxation	(26,640)	(11)	(26,651)	5	(9,442)	(36,093)
Adjustments for:
Finance costs	258	–	258	5	9,442	9,700
Interest income	(104)	–	(104)			(104)
Depreciation	267	–	267			267
Exchange difference	4,264	–	4,264			4,264
Gain on disposal of property,
plant and equipment	(5)	–	(5)			(5)
Share of results of a
jointly-controlled entity	5	–	5			5
Waiver of loan interest payable
to a shareholder	(881)	–	(881)			(881)
Impairment loss in respect of
goodwill	17,671	–	17,671			17,671
Impairment loss in respect of
interest in a jointly controlled
entity	288	–	288			288
Gain on disposal of subsidiaries	(24,020)	–	(24,020)			(24,020)

– 101 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Audited Consolidated Statement of Cash Flows of the Group for the year ended 31 March 2011 HK$’000 (28,897) (1,901) 27,721 1,126 160 – 15,237 (983) (19,757) 3	Audited Consolidated Statement of Cash Flows of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 (11) – – – – (8) – 11 – –	Sub-total Pro forma adjustments for the Proposed Acquisition HK$’000 Notes HK$’000 (28,908) (1,901) 27,721 1,126 160 (8) 15,237 (972) 9 (11) (19,757) 3	Unaudited Pro forma Consolidated Statement of Cash Flows of the Enlarged Group for the year ended 31 March 2011 HK$’000 (28,908) (1,901) 27,721 1,126 160 (8) 15,237 (983) (19,757) 3
(7,291) 85 (147) (7,353) (2,795) 150 (664) (3,309) – (1,000) –	(8) – – (8) – – – – 8 – –	(7,299) 85 (147) (7,361) (2,795) 150 (664) (3,309) 8 8 1,992 (1,000) – 7 (4,000)	(7,310) 85 (147)
			(7,372)
			(2,795) 150 (664)
			(3,309)
			2,000 (1,000) (4,000)

– 102 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Audited Consolidated Statement of Cash Flows of the Group for the year ended 31 March 2011 HK$’000 (1,000)	Audited Consolidated Statement of Cash Flows of the Target Group for the period from 18 April 2011 to 30 September 2011 HK$’000 8	Sub-total Pro forma adjustments for the Proposed Acquisition HK$’000 Notes HK$’000 (992)	Unaudited Pro forma Consolidated Statement of Cash Flows of the Enlarged Group for the year ended 31 March 2011 HK$’000 (3,000
(11,662) 38,378	– –	(11,662) 38,378	(13,681 38,378
26,716	–	26,716	24,697

16,190 10,526	– –	16,190 10,526	14,171 10,526
26,716	–	26,716	24,697

Notes to the Unaudited Pro Forma Financial Information

Under HKFRS 3 Business Combinations (Revised), the Company will apply the purchase methods to account for the Proposed Acquisition. In applying the purchase method, the identifiable assets, liabilities and contingent liabilities of the Target Group will be recorded on the consolidated statement of financial position of the Group at their fair values at the date of completion. Any goodwill or discount arising on the Proposed Acquisition will be determined as the excess or deficit of the purchase price to be incurred by the Group over the Group’s interests at the date of completion. Bargain purchase gain resulting from the business combinations should be recognised immediately in the consolidated statement of comprehensive income.

– 103 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The adjustment reflected the following:

(a) The consideration for the Proposed Acquisition to be satisfied by the Company is HK$690,000,000. The consideration is to be satisfied by:

		HK$’000
	Issue of the promissory note (the “Promissory
	Note”) (Note 1(e))	200,000
	Allotment and issue of convertible preference
	shares (the “Convertible Preference Shares”)
	(Note 1(f))	490,000
		690,000

(b)	Prior to the completion of the acquisition, the issued and paid up
	share capital of the target group was increased to HK$2,000,000.
	The effects of issuing the additional share capital prior to the
	completion were as follows:
		HK$’000
	Issue of additional share capital	1,992
	Less: Settlement of other payables and accruals
	of the Target Group on issue of share
	capital	(11)
	Net cash proceeds from issue of additional
	share capital	1,981

All the outstanding payables in Appendix II was subsequently taken over by the Vendor as reflected in its November 2011 management account. The current account due to the Vendor will be settled upon increase of the issued capital of the Target Group by the Vendor according to the sale and purchase agreement.

– 104 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Assumed fair value of the consideration on 30 September 2011

Promissory Note (Note 1(e)) Convertible Preference Shares (Note 1(f)) Total Less: Fair value of net identifiable assets acquired (Note 1(d)) Goodwill	HK$’000 185,034 490,000
	675,034 - - - - - - - - - - - - 1,989
	673,045

The directors of the Company have reviewed the carrying value of goodwill of the Enlarged Group in accordance with Hong Kong Accounting Standard 36 Impairment of Assets (“HKAS 36”), taking into account the independent valuation report, carried out by Ample Appraisal Limited, an independent professional valuer. Taking into consideration of the assumptions stated in the valuation report and the latest market environment in their assessment of impairment of goodwill in accordance with HKAS 36, the directors of the Company are of the opinion that there are no indications that the values of the goodwill may be impaired, as shown in the Unaudited Pro Forma Consolidated Statement of Financial Position of the Enlarged Group as at 30 September 2011.

The reporting accountants of the Proposed Acquisition concurred with the assessment of impairment in the goodwill by the directors of the Company, in accordance with HKAS 36, in the Unaudited Pro Forma Financial Information and adoption of consistent accounting policies and principal assumptions in the preparation of consolidated financial statements of the Enlarged Group after the completion of the Proposed Acquisition.

– 105 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(d) The fair values of net liabilities of the Target Group acquired in the Proposed Acquisition are as below:

Net assets value of the Target Group	HK$’000 1,989

For the purpose of preparing the Unaudited Pro Forma Financial Information, the carrying value of the net assets of the Target Group is reconciled as follows:

Net liabilities value of the Target Group as set out in Appendix II Add: Additional paid-up share capital issued by the Target Group prior to completion (note 1(b)) Net assets value of the Target Group	HK$’000 (3) 1,992
	1,989

(e) The carrying amount of the Promissory Note of approximately HK$185,034,000 represents the carrying value of the Promissory Note with face value of HK$200,000,000 carried at its amortised cost and is calculated using the discounted cash flow method at an effective interest rate of 5%. In preparation of the Unaudited Pro Forma Financial Information, it is assumed that prime rate of 5% is the effective interest rate.
(f) The adjustments represent the allotment and issuance of a total of 7,000,000,000 Convertible Preference Shares of the Company of HK$0.07 per share, which was determined after arm’s length negotiations between the Group and the Vendors, with reference to the prevailing trading price of the Consideration Shares during the period of negotiations. In accordance with Hong Kong Accounting Standard 32 “Financial Instrument: Disclosure and Presentation” as the Convertible Preference Shares does not have a fixed maturity and is non-redeemable and payment of dividends is at the discretion of the Company, the Convertible Preference Shares should be recognised as equity. In preparation of the Unaudited Pro Forma Financial Information, it is assumed that the fair value of the Consideration Shares as at 30 September 2011 amounted to HK$490,000,000 and is recognised in equity.

– 106 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The pro forma adjustment represents the reallocation of amount due from an immediate holding company of the Target Company to prepayments, deposits and other receivables upon consolidation as if the Proposed Acquisition was completed on 30 September 2011.
The pro forma adjustment of HK$2,000,000 represents the elimination of the share capital of the Target Group upon consolidation as if the Proposed Acquisition was completed on 30 September 2011.
The pro forma adjustment of approximately HK$11,000, represents the net effect of elimination of reserves as if the Proposed Acquisition was completed on 30 September 2011.

Details are set out as follows:

HK$’000

Elimination of pre-acquisition reserves of the Target Group

The pro forma adjustment of approximately HK$9,442,000 represents the annual finance cost of the imputed interest expenses recognised for the Promissory Note in the consolidated statement of comprehensive income of the Enlarged Group with the imputed interest rate of 5% for the year ended 31 March 2011. In preparation of the Unaudited Pro Forma Financial Information, it is assumed that prime rate of 5% is the effective interest rate. These interest expenses will have the continuing effect on the financial statements of the Enlarged Group in subsequent years.

– 107 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The calculation of unaudited pro forma loss per share are shown as the follows:

Unaudited pro forma basic loss per share

The calculation of the unaudited pro forma loss per share attributable to owners of the Company is based on the following data:

Loss

HK$’000

Loss from operations attributable to owners of the Company (30,987) ’000
Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 8,553,830
The pro forma adjustments to the consolidated statement of cash flows represent the recognition of the finance cost of the Promissory Notes of HK$4,000,000 as if the Proposed Acquisition was completed on 1 April 2010. This unaudited pro forma adjustment will have continuing effect to the consolidated statement of cash flow of the Enlarged Group.
The pro forma adjustment to the consolidated statement of cash flows represents the increase in issued and paid up share capital of the Target Group to HK$2,000,000 as if the Proposed Acquisition was completed on 1 April 2010.
The pro forma adjustment to the consolidated statement of cash flows represents the settlement of other payables and accruals of the Target Group on increase in issued and paid up share capital of the Target Group as if the Proposed Acquisition was completed on 1 April 2010.

– 108 –

APPENDIX IV

VALUATION REPORT ON TARGET

The following is the text of the letter and valuation report prepared for the purpose of incorporation in this circular received from Ample Appraisal Limited, being an independent valuer, in connection with its valuation as at 30 September 2011 of the market value of the Target.

==> picture [168 x 50] intentionally omitted <==

Room 604, Far East Consortium Building 121 Des Voeux Road Central Hong Kong 14 March 2012

China Railsmedia Corporation Limited

Flat C, 3rd Floor Shing Lee Commercial Building No. 8, Wing Kut Street Central, Hong Kong

Attn: The Board of Directors

Dear Sirs,

Re: The 100 Percent Equity Interest in the Business Enterprise of Huge Leader Development Limited

In accordance with your instructions for us to carry out an appraisal of the fair value of the 100 percent equity interest in the business enterprise of Huge Leader Development Limited (hereinafter referred to as the “Business Enterprise”), we confirm that we have made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the fair value of the Business Enterprise as at 30 September 2011 (hereinafter referred to as the “Valuation Date”).

This report states the purpose of appraisal and scope of our works, identifies the business appraised, describes the basis and methodology of our appraisal, investigation and analysis, assumptions and limiting conditions, and presents our opinion of value.

1.0 PURPOSE OF APPRAISAL

Ample Appraisal Limited (hereinafter referred to as “Ample Appraisal”) acknowledges that this report is being prepared solely for the use of the directors and management of China Railsmedia Corporation Limited (hereinafter referred to as the “Company”). The Company is a pubic company listed on the Stock Exchange of Hong Kong Limited (hereinafter referred to as the “Stock Exchange”). The Business Enterprise is an investment holding company with limited liability incorporated in the British Virgin Islands.

– 109 –

APPENDIX IV

VALUATION REPORT ON TARGET

This report is not to be used for any purpose other than that mentioned above, including issue to third parties, without our prior approval of the use, form and context in which it is released.

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

2.0 SCOPE OF WORK

Our appraisal conclusions are based on the assumptions stated herein and on information provided by the management of the Business Enterprise and its subsidiaries, or their representatives (hereinafter referred to as the “Management”).

In preparing this report, we have had discussions with the Management and the Company in relation to the development and prospects of the online advertising business in Hong Kong, the People’s Republic of China (hereinafter referred to as the “PRC”), and the Asia Pacific region, and the development, operations and other relevant information of the Business Enterprise. As part of our analysis, we have reviewed such financial information, including but not limited to, revenue forecasts, cost of sales, expenses, business models and agreements, and other pertinent data concerning the Business Enterprise provided to us by the Management and the Company and have considered such information and data as attainable and reasonable.

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

We do not express an opinion as to whether the actual results of the business operation of the Business Enterprise will approximate those projected because assumptions regarding future events by their nature are not capable of independent substantiation.

In applying these projections to the appraisal of the fair value of the Business Enterprise, we are making no representation that the business expansion will be successful, or that market growth and penetration will be realized.

3.0 ASIA PACIFIC ECONOMIC OVERVIEW

3.1 Matured Recovery in Asia Pacific

– 110 –

APPENDIX IV

VALUATION REPORT ON TARGET

broad based across both investment and consumption. Investment is being driven by the need in many Asian countries to overcome capacity constraints and to build infrastructure. Consumption is being propelled by rising employment, wages, and productivity.

3.2 Historical Perspective of the PRC and Hong Kong Economies

==> picture [367 x 213] intentionally omitted <==

Chart 3.1 – GDP (Current Prices) for the PRC

– 111 –

APPENDIX IV

VALUATION REPORT ON TARGET

==> picture [367 x 213] intentionally omitted <==

Chart 3.2 – GDP (Current Prices) for Hong Kong

==> picture [367 x 213] intentionally omitted <==

Chart 3.3 – GDP (Current Prices) for Selected Asia Pacific Countries

ISO Code

Country

HKG Hong Kong IDN Indonesia MYS Malaysia NZL New Zealand PHL Philippines SGP Singapore THA Thailand VNM Vietnam

– 112 –

APPENDIX IV

VALUATION REPORT ON TARGET

3.3 2010 GDP Estimates and Forecasts towards 2016

Country	2010	2011	2012	2013	2014	2015	2016
Australia	1,236	1,448	1,470	1,574	1,552	1,663	1,697
Hong Kong	225	245	265	283	301	320	342
India	1,538	1,704	1,859	2,061	2,280	2,516	2,777
Indonesia	707	823	908	998	1,100	1,212	1,337
Japan	5,459	5,822	5,921	6,058	6,218	6,380	6,540
Korea	1,007	1,126	1,202	1,282	1,376	1,476	1,586
Malaysia	238	248	268	289	312	336	362
Mongolia	6	9	11	15	18	20	24
New Zealand	140	153	158	165	170	176	181
Philippines	189	203	218	233	251	269	289
PRC	5,878	6,516	7,209	8,057	9,016	10,062	11,220
Singapore	223	254	266	279	292	305	319
Taiwan	431	504	545	591	640	692	751
Thailand	319	332	368	398	427	461	498
Vietnam	104	119	129	143	159	176	194

Country	2010	2011	2012	2013	2014	2015	2016
Australia	2.75	2.97	3.48	3.54	3.26	3.19	3.04
Hong Kong	6.81	5.41	4.19	4.22	4.22	4.27	4.32
India	10.37	8.24	7.82	8.17	8.14	8.12	8.13
Indonesia	6.11	6.20	6.50	6.70	7.00	7.00	7.00
Japan	3.94	1.40	2.07	1.69	1.51	1.28	1.19
Korea	6.11	4.46	4.18	4.17	4.05	4.04	4.05
Malaysia	7.16	5.50	5.20	5.10	5.10	5.00	5.00
Mongolia	6.14	9.75	7.15	23.10	15.76	8.98	15.59
New Zealand	1.52	0.93	4.05	3.37	2.90	2.63	2.42
Philippines	7.33	4.95	4.97	5.00	5.00	5.00	5.00
PRC	10.30	9.59	9.52	9.48	9.52	9.46	9.53
Singapore	14.47	5.16	4.41	4.30	4.20	4.07	4.01
Taiwan	10.82	5.42	5.17	5.09	4.99	4.94	4.91
Thailand	7.80	3.96	4.53	4.70	4.75	4.85	5.00
Vietnam	6.78	6.26	6.75	7.23	7.44	7.50	7.50

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4.0 ADVERTISING INDUSTRY

4.1 Global Advertising Market

Region (in million USD) North America Western Europe Asia Pacific Central & Eastern Europe Latin America Middle East & North Africa Rest of the World World	2009 157,499 97,121 106,372 23,928 27,063 4,633 9,380 425,996	2010 161,556 102,717 116,466 25,406 31,320 5,085 10,139 452,689	2011 165,315 106,059 123,330 27,705 33,409 4,469 11,015 471,302	2012 171,232 109,909 133,470 31,463 36,116 4,867 12,120 499,177	2013 176,919 113,529 142,724 35,854 39,466 5,095 13,390
					526,977

==> picture [392 x 243] intentionally omitted <==

Chart 4.1 – Global Advertising Spending (2009 to 2013 Statistics & Estimates)

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The dollar share of advertising spending for internet medium as compared to the total spending is illustrated in chart 4.2 follows.

==> picture [392 x 243] intentionally omitted <==

Chart 4.2 – Total Advertising Spending and Dollar Share by Internet

==> picture [407 x 231] intentionally omitted <==

Chart 4.3 – Global Advertising Spending by Medium (2009)

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4.2 Regional Advertising Market

		2010	2009	2009
Country	Growth	(1st Half)	(1st Half)	(Full Year)
(in thousand USD)	(percent)
Australia	3.90	3,684,034	3,545,645	7,541,021
Hong Kong	26.17	4,579,962	3,629,875	8,272,816
India	13.21	4,246,765	3,751,243	8,225,250
Indonesia	72.72	4,164,215	2,411,031	5,307,575
Malaysia	19.49	1,005,091	841,130	1,923,201
New Zealand	–8.07	824,618	897,003	1,980,839
Philippines	13.50	2,288,234	2,016,122	4,280,875
Singapore	19.27	730,745	612,667	1,350,333
South Korea	–13.92	2,281,371	2,650,319	5,677,880
Taiwan	19.63	658,043	550,043	1,207,636
Thailand	5.92	1,432,043	1,352,035	2,895,018

Country	Growth
	(percent)
Australia	6
Hong Kong	7
India	19
Indonesia	14
Japan	1
Malaysia	10
New Zealand	5
Philippines	10
PRC	17
Singapore	9
South Korea	8
Taiwan	7
Thailand	8

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4.3 Hong Kong Advertising Market and the Internet Medium

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5.0 THE BUSINESS ENTERPRISE

5.1 Brief History

The Business Enterprise is an investment holding company incorporated in the British Virgin Islands with limited liability. It has an authorized capital of 1,000 ordinary shares at a par value of USD1.00 per share. As of the Valuation Date, the Business Enterprise has issued 1,000 shares.

FingerAd Media Company Limited (hereinafter referred to as “FingerAd”) is the wholly owned subsidiary of the Business Enterprise and is incorporated in Hong Kong on 18 July 2011 with limited liability. FingerAd is the principal operating company of the Business Enterprise.

The Business Enterprise is engaged in food and beverages industry advertising business through FingerAd with the support of Amazing World Corporation Limited (hereinafter referred to as “Amazing World”) under the business name “TeraAge”. Amazing World is a private company incorporated in Hong Kong on 27 November 2002 with limited liability.

5.2 Shareholding and Corporate Structure

The Business Enterprise has one shareholder as of the Valuation Date as below:

Name of Shareholder Huge Leader Holdings Limited Total	Shareholding (percent) 100
	100

5.3 Management and Key Staff

Mr. Billy Chan Ka Sing, chief executive officer, guides the Business Enterprise on corporate strategy, company growth and leading the product development. Billy Chan has over 10 years of working experiences in communication industry, and has held senior positions in communication and IT enterprises. He was the Chief Consultant of Internet Products and the Chief Consultant of Business Sales of New World Telecommunications Limited, and the Sales Department Head of PCCW Limited. He is also the chief operating officer of iKanTV Limited (hereinafter referred to as “iKan”), a subsidiary of China Post E-Commerce (Holdings) Limited.

Mr. Rio Chow Wai Pui, chief technical consultant, is responsible for overseeing the technological aspects of the operation and services. Mr. Chow has extensive experience in the information technology industry. He is a co-founder and the chief operating officer of TeraAge.

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5.4 Scope of Business

The Business Enterprise is committed in providing technologically advanced and innovative software solutions that is not only satisfying the needs of the customers but also adding value to their businesses. TeraAge, their technology partner, is one of the pioneers to develop software on mobile platform and successfully deployed the first mobile software on Windows CE in 2004. In 2011, TeraAge was awarded the Certificate of Merit of the Hong Kong ICT Awards 2011: Best Ubiquitous Networking (Mobile Enterprise Solution).

5.5 Business Development

TeraAge has successfully developed many mobile solutions based on its own technology developed for both mobile platform and cloud computing. One of the key solutions recently developed is a solution offered through the mobile platform for the food and beverages businesses (hereinafter referred to as the “Dining App”). Dining App is not just a solution, but also a whole new platform for the food and beverage industry to operate, market and promote their businesses as well as keep connected with their customers.

The Dining App runs on mobile and cloud computing technology, which includes three key modules, namely, the consumer module on mobile, system administration tool and content management system (“CMS”). Consumers will be able to access restaurant information and menu, and at a later stage, make reservations, coupon redemption, self-serve ordering, etc. All the information being shown through the Dining App are managed through the CMS, the restaurant can opt to update by themselves or Amazing World can provide data management service to update their information.

In the future, the Business Enterprise will build up a huge database of consumer behaviors and the Dining App will be the default choice for the food and beverages businesses to connect with their customers and others consumers. Value added services would be provided to help the businesses or other retailers to plan, market and promote their products and offers to their target consumers, at a charge per usage or by regular subscription.

This business model will create an opportunity of generating recurrent and stable revenue for the Business Enterprise with totally manageable operation cost, yet with a high growth prospect. Since the philosophy of the Dining App is a completely new idea for the food and beverages industry and the consumers, The Business Enterprise will need to create market awareness as well as the momentum to change the users behaviors. To achieve this, the Business Enterprise has brought in strategic business partners with established presence and connections in the food and beverages industry. Babybamboo is a perfect partner to the Business Enterprise and can help execute the business plan effectively. Babybamboo is one of the key group buy market player and focus on the food and beverages market with strong sales force and large customer base.

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Based on recent research by TNS, a global market research company, 48 percent of Hong Kong mobile phone users owns a smartphone and one out of six owns an iPad. According to the Census and Statistics Department of the Hong Kong SAR Government, there are approximately 16,800 accommodation and food service establishments and a population of approximate seven million in June 2011, Hong Kong is definitely a fantastic market for rolling out the Dining App.

The Business Enterprise aims to recruit and maintain on average 291 paid subscribers in the financial year ended 31 March 2013 at an average monthly recruitment rate of approximate 70 subscribers each month, on the assumption that 20% subscribers will drop out after the free trial period with reference to the performance of public subscription businesses in 2010, thus 80% will pay for the Dining App and become paid subscribers. Business development during the initial launch period will be matched with appropriate promotional and marketing campaigns in order to raise awareness of the public and potential subscribers. The Business Enterprise expects to enjoy a high growth period, 407%, 225% and 71% in 2014, 2015 and 2016 respectively, for this innovative application with advertising platform embedded. It is expected that the success of the high growth in the initial 2 years will build up the critical mass and bring about a crowding in effect for growth in subsequent years. Beyond the high growth period, the Business Enterprise assumes an annualized growth of 16.5% until 2021, and shall operate in parity with the pace of the Hong Kong economy at 2.5% growth thereafter as a going concern. The growth pattern is not exceptional for an innovative application, for example, (1) the annualised growth rate of mobile data usage per customer was 200% for 2008, 2009 and 2010 according to statistics of the Office of the Telecommunications Authority, Hong Kong; and (2) the Hong Kong Domain Name Registration Company Limited recorded an annualized growth of 14.7% from January 2004 to January 2012 for active domains registered. The average number of paid subscribers for each of the financial years ended 31 March is projected and charted below.

Annual Average Number of Paid Subscribers

==> picture [368 x 180] intentionally omitted <==

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

18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2013 2014 2015 2016 2017 2018 2019 2020 2021
Paid Subscribers 291 1,475 4,789 8,203 10,965 13,198 14,996 16,447 17,612
Number of Paid Subscribers
----- End of picture text -----

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According to statistics published by the Food and Environmental Hygiene Department (“FEHD”), the number of food and beverage related licenses and permits in force as at 31 December 2010 is 28,919, which more accurately reflects the number of potential subscribers for the Dining App. Such number exhibited an annualized growth of 1.62% from 24,629, the number of related licenses and permits in force as at 31 December 2000 according to FEHD. It is assumed that the total market size of potential subscribers is double the number of licenses and permits in force as license/permit holder will subscribe for both the Apple iOS and Android platform given the popularity of both platforms and subscribers will not take risk of ignoring customers using the other platform if they opt to use Dining App. Thus the market share from 2013 to 2021 is assessed as follows:

	Number of		Paid
Year	Licenses/Permits	Market Size	Subscribers	Market Share
2013	30,347	60,694	291	0.48%
2014	30,839	61,678	1,475	2.39%
2015	31,339	62,678	4,789	7.64%
2016	31,847	63,694	8,203	12.88%
2017	32,363	64,726	10,965	16.94%
2018	32,887	65,774	13,198	20.07%
2019	33,420	66,840	14,996	22.44%
2020	33,961	67,922	16,447	24.21%
2021	34,511	69,022	17,612	25.52%

In the longer term, Hong Kong is the stepping-stone of rolling out to the Mainland China. With the explosion of smartphones market in the Mainland China, Dining App is an ideal solution to fill up the gap in consumer trend as well as creating a whole new media platform for the food and beverages industry to visualize their innovations. The potential return for the Dining App to the Business Enterprise is huge and immeasurable.

5.6 Financial Projections

Revenue is estimated on the basis of (i) monthly subscription fee per subscriber; (ii) estimated growth in number of subscribers in view of the explosion of the smartphone market; (iii) drop-out rate of customers after the free trial period; and (iv) future prospect of mobile app as a new channel for retailers in promotion.

The Business Enterprise adopted a typical cost estimation method for their business model. Cost of sales is estimated as a commission on the basis of gross revenue plus a fixed rental cost of the retail outlets LCD display units. The projected gross margin falls in a reasonable range of 77% to 80%. The range is obtained from the projected figures in the table following the paragraph by dividing gross profit with revenue and stated in percentage, the percentage from 2013 (that is, the year generating revenue) to 2016 are 76.6%, 79.3%, 79.7%, 79.8% respectively and 79.9% from 2017 to 2021. The range is therefore approximately 77% to 80%. As one of the Comparables does not disclose their

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gross margin in the annual report, benchmarking is not done for the gross margin. Given the range of benchmarked companies is 68% to 87% with a mid value of 77.5% and a standard deviation of 7.4%, the projected gross margin range in a slight variation between 77% and 80% over a ten years period is reasonable. The Business Enterprise further estimated the operating expenses on the basis of the revenue projection and operation size according to its cost estimation method for its business model, and the valuer has employed the benchmarking technique to evaluate the cost model and cost level with the Comparables. Before reaching a scale of economies, the operating expenses will be above 60% of the gross revenue but will eventually fall to level of about 42% and achieve an earnings before tax to revenue ratio of above 30% in its second year of operation, then will gradually improve to 37%, which is slightly lower than the average of 41.76% for the benchmarked companies, including, Pacific Online Limited, Tencent Holdings Limited, Tradelink Electronic Commerce Limited and VODone Limited (hereinafter referred to as the “Comparables”). The Comparables are having principal activities in the provision of internet and mobile value added services, online advertising services and tele-media service business, all of them are classified according to HSIC as IT – software and services except one of them is classified as services – media and entertainment. The projections are summarized as below:

Statement of Comprehensive Income from 2012 to 2021 (in HKD):

2012 – 310,000	2013 11,520,300 2,700,060	2014 58,419,900 12,119,580	2015 189,624,600 38,404,080	2016 324,819,000 65,490,876
(310,000) 1,036,000 (1,346,000) –	8,820,240 7,712,015 1,108,225 –	46,300,320 34,468,995 11,831,325 1,912,936	151,220,520 93,219,230 58,001,290 9,570,213	259,328,124 146,288,950
				113,039,174 18,651,464
(1,346,000)	1,108,225	9,918,389	48,431,077	94,387,710

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2017 434,204,100 87,420,604	2018 522,621,000 105,161,962	2019 593,851,500 119,471,838	2020 651,291,300 131,029,952	2021 697,445,100 140,337,881
346,783,496 189,341,205 157,442,291 25,977,978	417,459,038 224,095,050 193,363,988 31,905,058	474,379,662 252,073,575 222,306,087 36,680,504	520,261,348 274,630,565 245,630,783 40,529,079	557,107,219 292,754,255
				264,352,964 43,618,239
131,464,313	161,458,930	185,625,583	205,101,704	220,734,725

Note:

Cost of sales include:

Selling commission; and
Costs incurred for operating the LCD panels according to agreements and annual increase of 10% is provided for inflation, increasing repair and maintenance expenses.

Operating expenses include:

Marketing expenses estimated and be controlled at 5% level of gross revenue;
Royalties paid to TeraAge; and
For every increment of 25 subscribers or part thereof, an extra half time staff will be required for the supporting work.

Inflation is considered and assumed to be offset with reduction in subscription rate over the forecast period i.e. the theoretical increase in subscription price caused by inflation is offset by the reduction in the subscription price caused by the pressure for price reduction brought about by subscribers and competitors and therefore the subscription price remains constant in the forecast.

6.0 DEFINITION OF APPRAISAL

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

7.0 INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the management of the Business Enterprise in relation to the development and prospects of the online advertising business in Hong Kong, the PRC, and the Asia Pacific region, and the development, operations and other relevant information of the Business Enterprise.

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In addition, we have made relevant inquiries and obtained such further information, statistical figures regarding the online advertising industry from external public sources, as we consider necessary for the purpose of this appraisal. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Business Enterprise provided to us by the Management and the Company and have considered such information and data as attainable and reasonable. We have also consulted other sources of financial and business information.

The appraisal of an interest in the Business Enterprise requires consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered in this appraisal include, but not necessarily limited to, the following:

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

8.0 GENERAL APPRAISAL APPROACHES

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

8.1 Market-Based Approach

It values a business entity by comparison of the prices at which other similar business nature companies or interests changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to pay for an equally desirable alternative. By adopting this approach, the valuer will first look for valuation indication from the prices of other similar companies or equity interests in companies that were sold recently.

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The right transactions employed in analyzing for indications of value need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell. The derived multiples (most commonly used are: price to earnings, price to revenues and price to book multiple) based on analyses of those transactions are then to be applied to the fundamental financial variables of the subject business entity and to arrive at an indicated value of it.

8.2 Asset-Based Approach

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

This money comes from investors who buy stocks of the business entity (equity) and investors who lend money to the business entity (debt). After collecting the total amounts of money from equity and debt, and converted into various types of assets of the business entity for its operation, their sum equals the value of the business entity. From a valuation perspective, the valuer will restate the values of all types of assets of a business entity from book value, i.e. historical cost minus depreciation to appropriate standards of value. After the restatement, the valuer can identify the indicated value of the business entity, or, by applying the accounting principle “assets minus liabilities”, arrive at the value of the equity interests of the business entity.

8.3 Income-Based Approach

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

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

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9.0 APPRAISALS APPROACHES FOR THE BUSINESS ENTERPRISE

In the process of valuing the Business Enterprise, we have taken into account of the uniqueness of its operation and the industry it is participating and thus Market-Based Approach is not applicable in this case. The Asset-Based Approach is also not applicable in this case since the Business Enterprise does not own substantial tangible assets. We have therefore adopted the Income-Based Approach to arrive at the fair value of the Business Enterprise.

9.1 Discount Rate

Discounted cash flow method is one of the methods used in Income-Based Approach to find the fair value of a company. This is a widely used and accepted method to determine fair value of a business or a firm, which is based on a simple reversal calculation to restate all future cash flow as present worth.

This method is simple and easy to understand and well accepted by most analysts and practitioners. To adopt this method, we must however, first obtain the cost of equity of the Business Enterprise as a basic discount rate. Since the Business Enterprise is not a listed company, we have estimated its beta from Comparables, and obtained an average equity beta of 0.8055 as at Valuation Date on the assumption that the Business Enterprise is 100 percent equity funded.

Although the Comparable chosen are not directly comparable to the Business Enterprise in terms of size and listing status, in which case have been accounted for in the discount for start-up and marketability, the Comparables used are identified on a best effort and random basis based on its resemblance with the Business Enterprise in terms of business activities, characteristics, coverage and associated risks which is sufficient to be fair and representative.

Details of Comparables are listed in the table appended below.

Company Name Stock Code Pacific Online Limited (0543.HK) Tencent Holdings Limited (0700.HK) Tradelink Electronic Commerce Limited (0536.HK) VODone Limited (0082.HK) Average	Equity Beta to Market 0.6230 0.8979 0.7130 0.9880
	0.8055

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We have retrieved 10 years market return and risk free interest rate from Bloomberg which are 15.801 percent and 1.265 percent respectively as at the Valuation Date, hence, determined a market premium 14.536 percent. In accordance with the capital asset pricing model (“CAPM”), we have estimated the cost of equity finance to be 13.00 percent with reference to the average equity beta of Comparables.

As the Business Enterprise is at its initial stage of business development, we have added a 2.00 percent risk premium to the cost of equity finance, approximately equivalent to a 21.83 percent discount to the final value, which is at a similar level as failure rate of new start-up private companies observed by researchers on Canadian and American companies. (sources: Baldwin, J.R., Bian, L., Dupuy, R. and Gellatly, G., Failure Rates for New Canadian Firm: New Perspectives on Entry and Exit , Statistics Canada, and Nucci, A.R., The Demography of Business Closings , “Small Business Economics”, Volume 12 Number 1, February 1999, pp.25-39, Springer) in the absence of relevant research for Hong Kong.

Therefore, we have obtained and adopted a CAPM risk adjusted discount rate of 15.00 percent (hereinafter referred to as the “Discount Rate”). The Business Enterprise also assumed a sustainable growth rate of 2.50 percent beyond the initial 10 years plan, which is slightly lower than the annualized economic growth of the Hong Kong economy in the last ten year. The Discount Rate is then used to conduct the discounted cash flow calculation as follows to arrive at the fair value of the Business Enterprise.

Since the Business Enterprise is a private company, we further adjust its fair value by a discount for lack of marketability (“DLOM”) of 19.56 percent, which is determined by the density function for the maximum of a Brownian motion process as below by adopting average annualized volatility of the Comparables and assuming marketing period is approximately 3 months. No other difference is identified that requires further adjustment.

==> picture [237 x 39] intentionally omitted <==

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9.2 Discounted Cash Flow

The discounted cash flow for the Business Enterprise can be computed as below:

Years ended 31 March
Free Cash
Flow
PV Factor
(HKD’000)
(@ 15.00%)
2012
(1,346)
0.9217
2013
1,108
0.8015
2014
9,918
0.6969
2015
48,431
0.6060
2016
94,388
0.5270
2017
131,464
0.4583
2018
161,459
0.3985
2019
185,626
0.3465
2020
205,102
0.3013
2021
220,735
0.2620
Continuing Value
1,765,878
0.2620
Fair Value before Marketability Discount
Discount for Lack of Marketability
Fair Value as at Valuation Date

Present
Values
(HKD’000)
(1,241)
888
6,912
29,349
49,742
60,250
64,341
64,319
61,797
57,833
462,661
856,851
167,600
689,251

9.3 The Fair value

According to the discounted cash flow, the fair value of 100 percent equity interest in the Business Enterprise is therefore approximately HKD 690 million as of the Valuation Date.

9.4 Sensitivity Analysis

We further analyzed the sensitivity of the fair value to two selected key rates used as below:

Change	in	Fair Value	(HKD’000)		Change	in Discount Rate	in Discount Rate
				+2%	+1%	–	–1%	–2%
Change	in	DLOM	+2%	–148,950	–88,503	–17,137	+67,900	+170,574
			+1%	–142,061	–80,844	–8,568	+77,552	+181,536
			–	–135,173	–73,185	–	+87,205	+192,497
			–1%	–128,285	–65,527	+8,569	+96,857	+203,459
			–2%	–121,397	–57,868	+17,138	+106,510	+214,421

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10.0 APPRAISAL ASSUMPTIONS

We have adopted certain specific assumptions in this appraisal and the major ones are as follows:

The projections outlined in the financial information provided are reasonable, reflecting market conditions and economic fundamentals.
The financial projections provided will be materialized.
There will be sufficient supply of technical staff in the industry in which the Business Enterprise operates.
The Business Enterprise will retain competent management, key personnel and technical staff to support its ongoing operations and developments.
There will be no major changes in the current taxation laws in the localities in which the Business Enterprise operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with.
All relevant legal approvals and business certificates or licences to operate the business in the localities in which the Business Enterprise operates or intends to operate would be officially obtained, and renewed upon expiry.
There will be no major changes in the political, legal, economic or financial conditions in the localities in which the Business Enterprise operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Business Enterprise.
Interest rates and exchange rates in the localities for the operation of the Business Enterprise will not differ materially from those presently prevailing.

11.0 LIMITING CONDITIONS

This appraisal reflects facts and conditions existing at the Valuation Date. Subsequent events have not been considered and we are not required to update our report for such events and conditions. To the best of our knowledge, all data set forth in this report are reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis, are gathered from reliable sources; yet, no guarantee is made nor liability assumed for their accuracy.

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

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We have not investigated the title to or any legal liabilities of the Business Enterprise and have assumed no responsibility for the title to the business enterprise appraised. We would particularly point out that our appraisal was based on the information such as company background, business nature, market share, future prospecting and in particular the cash flow projections of the Business Enterprise provided to us.

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

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

12.0 REMARKS

Unless otherwise stated, all monetary amounts stated in this appraisal report are in Hong Kong Dollars (“HKD”). We hereby confirm that we have no present interests in the Company, the Business Enterprise and the associated companies, or the values reported herein.

13.0 OPINION OF VALUES

Based on the investigation and analysis stated above and on the appraisal methods employed, we are of the opinion that the fair value of 100 percent equity interest of the Business Enterprise as at 30 September 2011 is in the sum of HKD 690,000,000 (HONG KONG DOLLARS SIX HUNDRED NINETY MILLION ONLY) . Yours faithfully, For and on behalf of

AMPLE APPRAISAL LIMITED

Johnny Law K. Y. Mak CPA(Aust), CPA AICPA, CFA Senior Vice President Chief Technical Advisor

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APPENDIX V

LETTER FROM ATHENS CAPITAL LIMITED ON VALUATION REPORT

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The Board of Directors China Railsmedia Corporation Limited Flat C, 3/F., Shing Lee Commercial Building, No. 8 Wing Kut Street, Central, Hong Kong

14 March 2012

Dear Sirs,

We refer to the circular of China Railsmedia Corporation Limited (the “ Company ”) dated 14 March 2012 in relation to the Acquisition which constitutes a very substantial acquisition under the Listing Rules (the “ Circular ”). Unless otherwise defined or if the context otherwise requires, all terms defined in the Circular shall have the same meaning when used in this letter.

Athens Capital Limited (“ ACL ”) hereby confirms that it has reviewed and discussed with the Company, the bases and assumptions adopted in the profit forecast prepared by Ample Appraisal Limited, the independent valuer of the Company (the “ Independent Valuer ”) in the course of their work, and has satisfied itself that the bases and assumptions have been made with due care and objectivity, and on a reasonable basis and that the profit forecast has been made by the Directors after due and careful enquiry.

We have not independently verified the computations leading to the Independent Valuer’s determination of the fair value and market value of the Target. We have had no role or involvement and have not provided and will not provide any assessment of the fair value and market value of the Target. Accordingly, save as expressly stated in this letter, we take no responsibility for and express no views, whether expressly or implicitly, on the fair value and market value of the Target as determined by the Independent Valuer and set out in the valuation reports issued by the Independent Valuer or otherwise.

ACL further confirms that the assessment, review and discussion carried out by it as described above are primarily based on financial, economic, market and other conditions in effect, and the information made available to us as of the date of this letter and that it has, in arriving at its views, relied on information and materials supplied to it by the Independent Valuer, the Group and the Target Group and opinions expressed by, and representations of, the employees and/or management of the Independent Valuer, the

– 131 –

APPENDIX V

LETTER FROM ATHENS CAPITAL LIMITED ON VALUATION REPORT

Group and Target Group. We have assumed that all information, materials and representations so supplied, including all information, materials and representations referred to or contained in the Circular, for which the Directors of the Company are wholly responsible, were true, accurate, complete and not misleading at the time they were supplied or made, and remained so up to the date of the Circular and that no material fact or information has been omitted from the information and materials supplied. No representation or warranty, expressed or implied, is made by ACL on the accuracy, truth or completeness of such information, materials, opinions and/or representations. Circumstances could have developed or could develop in the future that, if known to ACL at the time of this letter, would have altered our respective assessment and review. Further, while the qualifications, bases and assumptions adopted by the Independent Valuer are considered by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company and the Independent Valuer.

ACL is acting as financial adviser to the Company in reviewing the forecast on the valuation of the Target and will receive fees for such advice. ACL and its directors and affiliates will, neither jointly or severally, be responsible to anyone other than the Company for providing advice in connection with the review on the forecast on the valuation of the Target, nor will ACL, its directors or affiliates, whether jointly or severally, owe any responsibility to anyone other than the Company.

Nothing in this letter should be construed as an opinion or view as to the fair value, market value or any other value of the Target or as an opinion or recommendation to any person as to whether they should acquire Shares of the Company or as to how to vote on the Acquisition, the Sale and Purchase Agreement, or other incidental or ancillary documents. Shareholders are recommended to read the Circular with care.

A copy of this letter in its entirety may be reproduced in the Circular on the basis that none of the Company, the Independent Valuer or any other person may reproduce, disseminate or quote this letter (or any part thereof) for any other purpose at any time and in any manner without our prior written consent. In the event of inconsistency, the English text of this letter shall prevail over the Chinese translation of this letter.

Yours faithfully Athens Capital Limited

– 132 –

APPENDIX VI

LETTER FROM HLB HODGSON IMPEY CHENG ON VALUATION REPORT

The following is the text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, Hong Kong.

==> picture [173 x 66] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

14 March 2012

The Board of Directors China Railsmedia Corporation Limited Flat C, 3/F., Shing Lee Commercial Buildings, 8 Wing Kut Street, Central, Hong Kong

Dear Sirs,

REPORT OF FACTUAL FINDINGS

We have performed the procedures agreed with you and enumerated below with respect to the discounted future estimated cash flows on which the business valuation on the entire equity interest of Huge Leader Development Limited (“the Target Company”) and its subsidiary (collectively referred to as the “Target Group”) as at 30 September 2011 (the “Valuation”) dated 14 March 2012 prepared by Ample Appraisal Limited (the “Valuer”) by China Railsmedia Corporation Limited (the “Company”) in connection with the subscription of the entire equity interest in the Target Company.

Our engagement was undertaken in accordance with the Hong Kong Standard on Related Services 4400 “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The procedures were performed solely to assist the directors of the Company to comply with rule 14.62 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

Our procedures are summarised as follows:

We obtained the supporting worksheets of the Valuation provided by the Company which comprises the discounted future estimated cash flows carried out by the Target Group under various assumptions adopted in the preparation of the Valuation.

– 133 –

APPENDIX VI

LETTER FROM HLB HODGSON IMPEY CHENG ON VALUATION REPORT

We checked the mathematical accuracy of the calculation of the discounted future estimated cash flows carried out by the Target Group contained in the supporting worksheets of the Valuation and reviewed those accounting policies adopted in the preparation of the discounted future estimated cash flows by the directors of the Target Company which was in turn used for the preparation of supporting worksheets of the Valuation, where appropriate.

We report our findings below:

a) With respect to item 1, we obtained the supporting worksheets of the Valuation provided by the Company which comprises the discounted future estimated cash flows carried out by the Target Group under various assumptions adopted in the preparation of the Valuation.
b) With respect to item 2, we found that the calculation of the discounted future estimated cash flows carried out by the Target Group contained in the supporting worksheets of the Valuation is mathematically accurate. For those accounting policies adopted in the preparation of the discounted future estimated cash flows by the directors of the Target Company which was in turn used for the preparation of supporting worksheets of the Valuation, we found that they are consistent with the Company’s accounting policies, where appropriate.

Because the above procedures do not constitute an assurance engagement made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, we do not express any such assurance on the Valuation.

Had we performed additional procedures or had we performed an assurance engagement of the Valuation in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, other matters might have come to our attention that would have been reported to you. Our report is solely for the purpose set forth in the second paragraph of this report and for your information and is not to be filed with, or referred to (either in whole or in part) or otherwise quoted, circulated or used for any other purpose or to be distributed to any other parties without our prior written consent. This report relates only to the matters specified above and does not extend to any financial statements of the Company, taken as a whole.

Yours faithfully HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– 134 –

APPENDIX VII

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised: 10,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid or credited as fully paid: 1,863,830,000 Shares	HK$ 100,000,000.00

	HK$ 18,638,300

Immediately after Completion and upon full conversion of the Convertible Preference Shares at the initial conversion price, the authorised and issued share capital of the Company will be as follows:

Authorised: 10,000,000,000 ordinary shares of HK$0.01 each 7,000,000,000 Convertible Preference Shares of HK$0.07 each Total Issued and fully paid or credited as fully paid: 1,863,830,000 Shares as at Latest Practicable Date 7,000,000,000 Conversion Shares to be issued upon conversion of the Convertible Preference Shares 8,863,830,000 Total	HK$ 100,000,000.00 490,000,000.00 590,000,000.00

	HK$ 18,638,300.00 70,000,000.00 88,638,300.00

All Shares currently in issue rank pari passu in all respects with each others, including, in particular, as to dividends, voting rights and return of capital.

– 135 –

APPENDIX VII

GENERAL INFORMATION

The Convertible Preference Shares rank in priority to the Shares as to return of capital and pari passu with the Shares as to dividends. Holders of the Convertible Preference Shares will not be permitted to attend or vote at meetings of the Company, unless a resolution is proposed to vary the rights of holders of the Convertible Preference Shares or a resolution is proposed for the winding up of the Company.

3. DISCLOSURE OF INTERESTS

Interests of directors

As at the Latest Practicable Date, the interests or short positions of the Directors or the chief executive of the Company in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required, (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under Appendix 10 of the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

Long position in Shares, underlying shares and debentures of the Company or its associated corporations:

	Company/name		Name and class of
	of associated		securities/approximate
Name of Director	corporation	Capacity	shareholding percentage
Mr. Hui Chi Yung	Company	Settlor/Founder of	743,918,560 Shares/
		The Wing Hong	47.88% (L)
		Trust (Note 2)
	Rich Place	Settlor/Founder of	1 ordinary share/
	Investment	The Wing Hong	100% (L)
	Limited	Trust (Note 3)
	Wise Win	Settlor/Founder of	1 ordinary share/
	Enterprises	The Wing Hong	100% (L)
	Limited	Trust (Note 4)
Mr. Hui Kau Mo	Company	Settlor/Founder of	743,918,560 Shares/
		The Wing Hong	47.88% (L)
		Trust (Note 2)
	Rich Place	Settlor/Founder of	1 ordinary share/
	Investment	The Wing Hong	100% (L)
	Limited	Trust (Note 3)
	Wise Win	Settlor/Founder of	1 ordinary share/
	Enterprises	The Wing Hong	100% (L)
	Limited	Trust (Note 4)

Notes:

The letter “L” denotes the Director’s long position in such securities.

– 136 –

APPENDIX VII

GENERAL INFORMATION

These shares are held by Rich Place Investment Limited (“Rich Place”) which is wholly owned by RBTT Trust Cooperation (“RBTT”), and Wise Win Enterprises Limited, a wholly owned subsidiary of Rich Place. RBTT is the trustee of The Wing Hong Trust, a discretionary trust whose beneficiaries are the family members of Mr. Hui Kau Mo.
The share is held by RBTT. RBTT is the trustee of The Wing Hong Trust, a discretionary trust whose beneficiaries are the family members of Mr. Hui Kau Mo.
The share is held by Rich Place.

4. LITIGATION

(a) On 7 August 2002, a High Court action had commenced by a subcontractor against a subsidiary of the Enlarged Group in respect of (i) a claim of subcontracting fees and material costs of approximately HK$31,300,000; and (ii) a compensation claim of approximately HK$191,200,000 for the improper termination of a subcontracting contract. On 13 September 2002, an agreement was reached between the subsidiary of the Enlarged Group and the subcontractor that the High Court action was withdrawn and all the disputes between the parties relating to this action were referred to arbitration. In the statement of claim for the arbitration, the subcontractor revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$42,600,000 and HK$84,400,000, respectively. On 9 July 2005, a writ of summons was issued and the proceedings were transferred to the Court of First Instance. The subcontractor further revised the claim of subcontracting fees and material costs and compensation claim to approximately HK$56,000,000 and HK$278,100,000 respectively. As at 31 January 2012, no decision had been made in the arbitration and court proceedings. In the opinion of the directors, based on legal advice, the subsidiary of the Enlarged Group has valid defences, against such claims and any resulting liabilities would not have any probable material adverse impact on the Enlarged Group’s financial position. Therefore, no provision in respect of such claims was made.
(b) On 26 July 2005, a High Court action was commenced by a subcontracted party of a subcontractor of the Enlarged Group (the “Subcontracted Party”) against a subsidiary of the Enlarged Group and the subcontractor, which is in liquidation, in respect of a claim of subcontracting fees and material costs of approximately HK$20,500,000 relating to a maintenance term contract. On 25 April 2006, the Subcontracted Party substantially revised its statement of claim and the total amount of claim was revised to approximately HK$14,241,000. In the opinion of the directors, based on legal advice, the subsidiary of the Enlarged Group has valid defences against such claims and any resulting liabilities would not have any probable material adverse impact on the Enlarged Group’s financial position. Therefore, no provision in respect of such claims was made.

– 137 –

APPENDIX VII

GENERAL INFORMATION

(c) On 26 October 2010, a subsidiary of the Enlarged Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Enlarged Group in respect of the construction project at No. 60 Victoria Road project. The amount of claim was approximately HK$204,000. Since this date and up to 30 November 2011, the arbitration has not yet commenced. As at 31 January 2012, no decision has been made in the arbitration. In the opinion of the directors, based on legal advices, since the arbitration proceedings are at a very early stage and the amount of the ultimate liability cannot be measured with sufficient reliability, therefore, no provision in respect of such claims was made.
(d) On 1 June 2011, a subsidiary of the Enlarged Group received a statement of claim from a subcontractor in respect of a claim against the subsidiary of the Enlarged Group in respect of the construction project at Tsing Yi, Hong Kong. The amount of claim was approximately HK$1,602,000. As at 31 January 2012, the subsidiary of the Enlarged Group had paid HK$1,000,000 to the subcontractor to settle the claim and the arbitration proceedings have been stayed with mutual agreement. In the opinion of the directors, the ultimate liability cannot be measured with sufficient reliability until final accounts is confirmed, therefore, no provision in respect of the balance amount of claim was made.

Save as aforesaid, as at the Latest Practicable Date, there was no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

5. SERVICE CONTRACTS

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

6. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or management shareholder or their respective associates had any business or interest which competes or may compete with the business of the Group, or have or may have any other conflicts of interest with the Group.

7. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) none of the Directors had any interest, either direct or indirect, in any assets which have, since 31 March 2011 (being the date to which the latest published audited accounts of the Group were made up), been acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group; and

– 138 –

APPENDIX VII

GENERAL INFORMATION

(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group which is subsisting as at the date of this circular and is significant in relation to the business of the Enlarged Group.

8. MATERIAL CONTRACTS

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

(a) The sale and purchase agreement dated 19 October 2010 made between Shing Tak Construction Company Limited and Wing Hong Contractors Limited, both are wholly owned subsidiaries of the Company, of the one part and Keen Fortune Investments Limited, an independent third party, of the other part in relation to the sale of the entire equity interest in Wing Hong Construction Limited at a consideration of HK$100,000;
(b) The sale and purchase agreement dated 21 January 2011 made between Wing Hong (China) Limited, a wholly owned subsidiaries of the Company, and Keen Honour International Limited, an independent third party, in relation to the sale of 73% equity interest in Jinjiang WH Contracting Company Limited at a consideration of RMB8.76 million;
(c) The sale and purchase agreement dated 26 July 2011 made between Beast Media Limited, a wholly owned subsidiaries of the Company, and Win Today Limited, an independent third party, in relation to the acquisition of 7% equity interest in China New Media (HK) Company Limited at a consideration of HK$28.8 million;
(d) The top-up subscription agreement dated 26 July 2011 made between the Company and Rich Place Investment Limited in relation to the top-up subscription by Rich Place Investment Limited of 310,000,000 Shares at a price of HK$0.078 per Share;
(e) the Sale and Purchase Agreement.

9. EXPERT AND CONSENT

The followings are the names and the qualifications of the professional advisers who have given opinions or advice which are contained or referred to in this document:

Name Qualification Ample Appraisal Limited Valuer Athens Capital Limited A licensed corporation to carry on type 6 (advising on corporate finance) regulated activity under the SFO HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants

– 139 –

APPENDIX VII

GENERAL INFORMATION

As at the Latest Practicable Date, none of Ample Appraisal Limited, Athens Capital Limited and HLB Hodgson Impey Cheng had any beneficial interest in the share capital of any member of the Enlarged Group nor did they have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group or have any interest, either directly or indirectly, in any assets which have been, since 31 March 2011, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

Each of Ample Appraisal Limited, Athens Capital Limited and HLB Hodgson Impey Cheng has given and has not withdrawn its written letter of consent to the issue of this circular with the inclusion herein of references to its name in the form and context in which they respectively appear.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (i.e. from 9:30 a.m. to 6:00 p.m. on Monday to Friday at the principal place of business of the Company in Hong Kong at Flat C, 3/F, Shing Lee Commercial Building, No.8 Wing Kut Street, Central, Hong Kong from 14 March 2012, the date of this circular up to and including 30 March 2012:

the memorandum and articles of association of the Company;
the annual report of the Company for the year ended 31 March 2009;
the annual report of the Company for the year ended 31 March 2010;
the annual report of the Company for the year ended 31 March 2011;
the Accountant’s report of the Target Group, the text of which is set out in Appendix II to this circular;
the pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
the valuation report prepared by Ample Appraisal Limited, the text of which is set out in Appendix IV to this circular;
the letter from Athens Capital Limited on the Valuation Report, the text of which is set out in Appendix V to this circular;
the letter from HLB Hodgson Impey Cheng on the Valuation Report, the text of which is set out in Appendix VI to this circular;

– 140 –

APPENDIX VII

GENERAL INFORMATION

the letters of consent referred to under the paragraph headed “Expert and Consents” in this appendix;
copy of the material contracts referred to in the paragraph headed “Material contracts” in this appendix.

11. GENERAL

(a) The secretary of the Company is Mr. Sin Kwok Wai, Ronald who is an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the CPA Australia.
(b) The Hong Kong branch share registrar and transfer office of the Company in Hong Kong is Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(c) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
(d) The principal place of business of the Company in Hong Kong is at Flat C, 3/F, Shing Lee Commercial Building, No.8 Wing Kut Street, Central, Hong Kong.

– 141 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

**CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]**

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 745)

NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of China Railsmedia Corporation Limited (the “Company”) will be held at Room 901, 9th Floor, Hong Kong Scout Centre, Scout path, Austin Road, Kowloon, Hong Kong on Friday, 30 March 2012 at 10:00 a.m. to consider and, if thought fit, to pass with or without amendments, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT

  - (a) the conditional sale and purchase agreement (the “ **Agreement** ”) as defined in the circular dated 14 March 2012 despatched to the shareholders of the Company (the “ **Circular** ”), a copy of which has been produced to this meeting marked “A” and signed by the chairman hereof for the purpose of identification, and all the transactions contemplated thereby be and are hereby approved, confirmed and ratified;

  - (b) subject to the ordinary resolutions no. 2 and no. 3 below being duly passed, the creation, allotment and issue of the Convertible Preference Shares (as defined in the Circular) in accordance with the terms of the Agreement be and are hereby approved;

  - (c) the issue and allotment by the Company of new shares in the capital of the Company from time to time upon exercise of the conversion rights pursuant to the terms of the Convertible Preference Shares (as defined in the Circular) be and are hereby approved;

  - (d) any one director of the Company be and is hereby authorised to do all such acts and things as he in his sole and absolute discretion deems necessary, desirable or expedient to implement, give effect to and/or complete the Agreement, the issue of the Convertible Preference Shares, the issue and allotment of new shares in the capital of the Company from time to time upon exercise of the conversion rights pursuant to the terms of the Convertible Preference Shares.”

“ THAT
- (a) the authorised share capital of the Company be and is hereby increased from HK$100,000,000 divided into 10,000,000,000 shares (the “ Shares ”) of HK$0.01 each to HK$590,000,000 divided into 10,000,000,000 Shares and 7,000,000,000 non-voting convertible preference shares (the “ Convertible Preference Shares ”) of HK$0.07 each in the share capital of the Company with the rights and restrictions of the Convertible
For identification purpose only

– 142 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Preference Shares as set out in the terms of the Convertible Preference Shares as referred to in the ordinary resolution no. 3 below by the creation of an additional 7,000,000,000 Convertible Preference Shares (the “ Proposed Increase in Authorised Share Capital” );

(b) any one director of the Company be and is hereby authorised to do all such acts and things as he in his sole and absolute discretion deems necessary, desirable or expedient to implement, give effect to and/or complete the Proposed Increase in Authorised Share Capital.”
“ THAT
(a) the terms of the Convertible Preference Shares as set out in the Agreement be and is hereby approved, and shall, subject to the articles of association of the Company, constitute the entire terms of the Convertible Preference Shares; and
(b) any one director of the Company be and is hereby authorised to do all such acts and things as he in his sole and absolute discretion deems necessary, desirable or expedient to implement and/or give effect to the terms of the Convertible Preference Shares.”

By Order of the Board Hui Chi Yung Chairman

Hong Kong, 14 March 2012

Registered Office: Principal Place of Business: Cricket Square, Hutchins Drive Flat C, 3/F, Shing Lee Commercial Building P.O. Box 2681, Grand Cayman KY1-1111 No. 8 Wing Kut Street, Central Cayman Islands Hong Kong

Notes:

A shareholder entitled to attend and vote at the meeting is entitled to appoint a person or if he is the holder of two or more shares, more than one person as his proxy or proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.
To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of such power of attorney or authority, must be deposited at the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting, and in default thereof the form of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiry of 12 months from the date of its execution.
Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting, and in such event the instrument appointing a proxy shall be deemed to be revoked.

As at the date of this notice, the Board comprises Mr. Hui Chi Yung and Mr. Hui Kau Mo as Executive Directors, Mr. Liu Kwong Sang, Mr. Sit Hing Wah and Dr. Hu Chung Kuen, David as Independent Non-Executive Directors.

– 143 –

AI assistant

Imperium Financial Group Limited — Proxy Solicitation & Information Statement 2012

51224_rns_2012-03-13_dca2ee01-af09-4c3a-a225-75c3959e387e.pdf

CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]

VERY SUBSTANTIAL ACQUISITION IN RELATION TO

DEFINITIONS

CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]

VERY SUBSTANTIAL ACQUISITION IN RELATION TO ACQUISITION OF THE ENTIRE EQUITY INTEREST IN HUGE LEADER DEVELOPMENT LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

THE AGREEMENT

Parties:

Assets to be acquired

Consideration

Conditions precedent

Completion

Convertible Preference Shares

Promissory Note

INFORMATION ON THE TARGET GROUP

Principal business activities and business plan

Subject matter

Agreement for the supply of the Dining App services

Date

Parties

Subject matter

Subject matter

Subject matter

Subject matter

LETTER FROM THE BOARD

Business model

Future plan

RISK FACTORS IN RELATION TO THE TARGET GROUP’S BUSINESS AND THE ACQUISITION

The Target Group is a start-up business with no track record and there is no assurance that its business will be successfully developed

Reliance on a single product and the food and beverage industry in Hong Kong

Reliance on growth of smartphones and mobile apps

Reliance on Tera Age to provide the Dining App services

Reliance on iKan to refer advertising customers

Reliance on key management

Ability in catching up with the latest technological and advertising trend and market demand

Competition in the mobile apps advertising industry and flat panel screen advertising industry

Failure to secure agreement with the Chain Store Group

Failure to replicate business model in PRC

Changes in economic conditions

Substantial dilution to shareholdings of existing Shareholders

INDUSTRY OVERVIEW

Matured Recovery in Asia Pacific

Historical Perspective of the PRC and Hong Kong Economies

ISO Code

Country

2010 GDP Estimates and Forecasts towards 2016

ADVERTISING INDUSTRY

Global Advertising Market

Regional Advertising Market

Hong Kong Advertising Market and the Internet Medium

Growth in the use of smartphones in Hong Kong

Growth of mobile advertising worldwide

Mobile Advertising Revenue by Region, Worldwide, 2010-2015 (Millions of USD), according to Gartner

Competition landscape

REGULATORY OVERVIEW

REASONS FOR AND BENEFIT OF THE ACQUISITION

LETTER FROM THE BOARD

EFFECT ON THE SHAREHOLDING STRUCTURE

FINANCIAL IMPACT OF THE ACQUISITION

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Overview

Business and financial review

Turnover

Administrative expenses

Liquidity, financial resources and capital structure

Gearing ratio

Operating activities

Investing activities

Financing activities

Total assets

Charge on Assets

Contingent liabilities

Capital commitments

Foreign currency exposure

Employee and Remuneration Policy

Outlook and subsequent event

Critical accounting policies

Imperium Financial Group Limited Proxy Solicitation & Information Statement 2012

**CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]**

**CHINA RAILSMEDIA CORPORATION LIMITED 中國鐵聯傳媒有限公司[*]**