Labixiaoxin Snacks Group Limited - Proxy Solicitation & Information Statement 2011

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China Lifestyle Food and Beverages Group Limited 中國休閒食品集團有限公司

(incorporated in Bermuda with limited liability)

WARNING

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This Web Proof Information Pack is being published as required by The Stock Exchange of Hong Kong Limited (“HKEx”)/the Securities and Futures Commission solely for the purpose of providing information to the public in Hong Kong.	This Web Proof Information Pack is being published as required by The Stock Exchange of Hong Kong Limited (“HKEx”)/the Securities and Futures Commission solely for the purpose of providing information to the public in Hong Kong.
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CONTENTS
SUMMARY
DEFINITIONS
FORWARD-LOOKING STATEMENTS
RISK FACTORS
DIRECTORS
CORPORATE INFORMATION
INDUSTRY OVERVIEW
HISTORY AND CORPORATE STRUCTURE
BUSINESS
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
DIRECTORS AND SENIOR MANAGEMENT
SHARE CAPITAL
FINANCIAL INFORMATION
FUTURE PLANS
APPENDIX I – ACCOUNTANT’S REPORT
APPENDIX IV – PROPERTY VALUATION REPORT
APPENDIX V – SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS
APPENDIX VI – SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
APPENDIX VII – STATUTORY AND GENERAL INFORMATION

YOU SHOULD READ THE SECTION HEADED “WARNING” ON THE COVER OF THIS WEB PROOF INFORMATION PACK.

SUMMARY

OVERVIEW

We are a snack food provider in China with a leading position in the jelly products market. According to Euromonitor, we were the second largest manufacturer of jelly products in China with a market share

of 10.3% in 2010 in terms of retail sales value. We market our products under our core brand, “ ” (“Labixiaoxin”) as well as other sub-brands. Our “Labixiaoxin” brand is a well-recognized snack food brand in China and was recognized as a “China Well-Known Trademark” (中國馳名商標) by the SAIC in 2007. We offer a broad range of quality snack food products. Our main products are jelly products, which comprise jelly snacks and jelly beverages. We also market and sell confectionary products, which primarily include lollipops, milk candies, gummy candies and chocolates. Our other products primarily comprise powdered milk tea. For the year ended December 31, 2010, sales from our jelly products, confectionary products and other products accounted for 83.3%, 11.4% and 5.3% of our sales, respectively.

Over the last 10 years, we have established an extensive distribution network. As of October 31, 2011, we worked with over 190 independent wholesale distributors, covering 31 provinces, municipalities and autonomous regions in China, which on-sell our products to secondary distributors and retailers. We have also established good business relationships with a number of large and well-known retailers in China, which we consider to be our key account customers. Over 90% of our sales during the Track Record Period was generated domestically through our established nationwide distribution network, while the remainder was generated from export sales through our export agents. To facilitate our nationwide sales, we have established three major production facilities located in strategic areas, namely Jinjiang, Fujian Province, Tianjin Municipality and Chengdu, Sichuan Province, giving us convenient access to major markets in different regions in China. We have commenced the construction of our fourth production facility in Chuzhou, Anhui Province. We manufacture all of our jelly products and powdered milk tea and outsource the manufacture of confectionary products and the remainder of other products to third parties through OEM arrangements.

We are committed to high standards of quality in all our products and follow stringent quality control procedures throughout our production processes. We obtained QS Food Production Permits (食品生產許可證) for all our production facilities and ISO 9001 and HACCP certifications for our Fujian and Tianjin production facilities. We believe we have strong research and product development capabilities. We adjust our product offerings and introduce new and improved products in response to changing consumer preferences and demand. We believe our product development capabilities will help to strengthen our competitiveness through product differentiation and innovation.

We believe that we are well positioned to benefit from the rapid economic growth of China. From 2003 to 2010, China’s real GDP grew at a CAGR of 11.0%, and the level of per capita disposable income in the PRC increased significantly, with a CAGR of 12.3% and 12.3% from 2003 to 2010 for urban and rural residents, respectively. We expect such historical trends will sustain in the near future, and believe consumer spending on snack food will also increase. According to Euromonitor, the estimated retail sales value of jelly products and confectionary products represented 7.5% and 51.5% of the snack food market in China in 2010, respectively, and the retail sales value of jelly products and confectionary products are expected to increase with a CAGR of 14.2% and 7.4% from 2010 to 2013, respectively.

– 1 –

SUMMARY

Our sales grew from RMB721.1 million in 2008 to RMB771.4 million in 2009 and RMB931.7 million in 2010 and, according to Euromonitor, our share of the total jelly products retail sales value in China grew steadily from 9.0% in 2008 to 9.6% in 2009 and 10.3% in 2010. Our sales grew by 46.6% from RMB414.4 million for the five months ended May 31, 2010 to RMB607.4 million for the five months ended May 31, 2011. The table below sets forth our sales and percentage contribution to sales by product segment for the periods indicated:

				Year		ended December	ended December	ended December	ended December	31,					Five	months ended May	months ended May	months ended May	months ended May	31,	31,

Product segments		2008				2009				2010					2010				2011

															(unaudited)
							(RMB in thousands,				except		percentages)
Jelly products . . . . . . .	.	595,627		82.6%	669,609				86.8%	775,815		83.3%		356,756			86.1%	503,327			82.9%
Confectionary products .	.	107,005		14.8%		73,563			9.5%	106,115		11.4%			40,100		9.7%		62,127		10.2%
Other products . . . . . .	.	18,508		2.6%		28,188			3.7%	49,750		5.3%			17,563		4.2%		41,990		6.9%
Total. . . . . . . . . . . .	.	721,140	100.0%		771,360			100.0%		931,680	100.0%			414,419		100.0%		607,444		100.0%

OUR COMPETITIVE STRENGTHS

Strong brand recognition in China’s snack food industry
Extensive distribution network in China and strong relationships with wholesale distributors and key account customers
Commitment to stringent quality standards and control
Strong product development capabilities and proven track record of product innovation
Experienced management team with a proven track record

OUR BUSINESS STRATEGIES

Continue to strengthen our brand recognition and to enhance our market position
Continue to broaden and strengthen our distribution network in China and further enhance our relationships with wholesale distributors and key account customers
Expand and enhance our product offerings through continued product development efforts
Strengthen our market position through strategic production capacity expansion

SUMMARY FINANCIAL INFORMATION

The following tables summarize our consolidated historical financial information during the Track Record Period. The summary of consolidated balance sheets data as of December 31, 2008, 2009 and 2010 and May 31, 2011 and the summary of consolidated statements of comprehensive income data for the years

– 2 –

SUMMARY

ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 included in the following tables are extracted from, and should be read in conjunction with, our audited consolidated financial information included in the Accountant’s Report in Appendix I to this document. Our consolidated financial information has been prepared in accordance with IFRS.

Summary Data of Consolidated Statements of Comprehensive Income

	Year	ended December	31,		Five months	ended May	31,

	2008	2009		2010	2010	2011

					(unaudited)
		(RMB		in thousands)
Sales . . . . . . . . . . . . . . . . . . . . . .	721,140	771,360		931,680	414,419	607,444
Cost of sales . . . . . . . . . . . . . . . .	(438,427)	(482,910)	(589,682)		(262,255)	(360,115)
Gross profit . . . . . . . . . . . . . . . . .	282,713	288,450		341,998	152,164	247,329
Other income . . . . . . . . . . . . . . . .	3,488	2,765		1,573	635	560
Selling and distribution expenses. .	(114,835)	(133,138)	(134,790)		(62,583)	(76,394)
Administrative expenses . . . . . . . .	(53,750)	(48,260)		(44,854)	(15,686)	(23,811)
Other (losses)/gains, net . . . . . . . .	(10,384)	283		2,314	738	(456)
Operating profit . . . . . . . . . . . . . .	107,232	110,100		166,241	75,268	147,228
Finance costs . . . . . . . . . . . . . . . .	(2,040)	(3,014)		(3,518)	(1,386)	(3,316)
Share of loss of an associated
company . . . . . . . . . . . . . . . . . .	(2,593)	(4,145)		–	–		–
Provision for impairment of
investment in an associated
company . . . . . . . . . . . . . . . . . .	–	(5,128)		–	–		–
Provision for impairment of loans
to an associated company . . . . .	–	(1,999)		(1,778)	(1,778)		–
Share of loss of a jointly
controlled entity . . . . . . . . . . . .	(1,731)	(1,632)		(432)	(432)		–
Provision for impairment of
investment in a jointly
controlled entity . . . . . . . . . . . .	(5,000)	–		–	–		–
Gain on disposal of investment
in a jointly controlled entity. . . .	–	–		344	–		–
Profit before income tax . . . . . . . .	95,868	94,182		160,857	71,672	143,912
Income tax expense . . . . . . . . . . .	(27,237)	(40,694)		(13,019)	(13,076)	(28,334)
Profit and total comprehensive
income for the year/period . . . . .	68,631	53,488		147,838	58,596	115,578

– 3 –

SUMMARY

Our profit for the year decreased to RMB53.5 million in 2009 from RMB68.6 million in 2008, primarily attributable to a one-off inventory write-off of RMB19.3 million due to a change in labeling requirements under the new Food Safety Law of the PRC (中華人民共和國食品安全法) in 2009, and an income tax expense provision we made pursuant to the Notice on Enterprise Income Tax Treatment of Enterprise Reorganization (關於企業重組業務企業所得稅處理若干問題的通知), or Notice No. 59 (“Notice No. 59”), partially offset by an increase in our sales and operating profit. Pursuant to Notice No. 59, which was issued on April 30, 2009 but took retrospective effect on January 1, 2008, LBXX Tianjin, which enjoyed full tax exemption in 2008 and 2009, would be subject to an income tax rate of 25% in 2008 and 2009 and, therefore, we made a provision for the aggregate income tax liability for 2008 and 2009 amounting to RMB21.4 million in 2009. Our profit for the year increased to RMB147.8 million in 2010 from RMB53.5 million in 2009, primarily due to an increase in our sales and operating profit and the write-back of the aforementioned income tax expense provision that we recorded in 2009 after clarifying our tax position with the relevant PRC tax authorities. Our profit for the period increased to RMB115.6 million for the five months ended May 31, 2011 from RMB58.6 million for the five months ended May 31, 2010. For more information, please see “Financial Information – Results of Operations.”

Summary Data of Consolidated Balance Sheets

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
ASSETS
Non-current assets
Land use rights. . . . . . . . . . . . . . . . . . . . .	113,700	112,980		110,600	156,174
Property, plant and equipment . . . . . . . . . .	399,677	478,285		551,675	552,597
Deposits for property, plant and
equipment. . . . . . . . . . . . . . . . . . . . . . .	18,525	33,223		26,095	66,674
Investment in an associated company. . . . .	9,273	–		–	–
Loans to an associated company . . . . . . . .	–	1,778		–	–
Investment in a jointly controlled entity. . .	4,255	2,623		–	–
Deferred income tax assets . . . . . . . . . . . .	2,515	3,329		2,784	3,328

	547,945	632,218		691,154	778,773
	- - - - - - - - - - -	- - - - - - - - - - -		- - - - - - - - - - -	- - - - - - - - - - -
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . .	77,506	61,497		76,860	78,560
Trade receivables . . . . . . . . . . . . . . . . . . .	58,828	106,572		147,615	210,881
Prepayments and other receivables. . . . . . .	13,276	10,700		31,968	39,071
Pledged bank deposits. . . . . . . . . . . . . . . .	10,485	16,653		27,904	29,073
Cash and cash equivalents. . . . . . . . . . . . .	34,311	10,879		18,236	146,005
	194,406 -----------	206,301 -----------		302,583 -----------	503,590 -----------

Total assets . . . . . . . . . . . . . . . . . . . . . .	742,351	838,519		993,737	1,282,363

– 4 –

SUMMARY

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
EQUITY
Capital and reserves attributable to
equity holders of the Company
Share capital . . . . . . . . . . . . . . . . . . . . . .	205,644	205,644		205,644	220,056
Share premium . . . . . . . . . . . . . . . . . . . . .	151,230	151,230		151,230	275,948
Other reserves . . . . . . . . . . . . . . . . . . . . .	(25,387)	(33,638)		(26,435)	(26,435)
Retained earnings . . . . . . . . . . . . . . . . . . .	192,682	259,278		323,263	398,841
Total equity. . . . . . . . . . . . . . . . . . . . . . .	524,169	582,514		653,702	868,410
	- - - - - - - - - - -	- - - - - - - - - - -		- - - - - - - - - - -	- - - - - - - - - - -
LIABILITIES
Non-current liability
Deferred income tax liabilities. . . . . . . . . .	3,104	2,052		7,011	6,070
	- - - - - - - - - - -	- - - - - - - - - - -		- - - - - - - - - - -	- - - - - - - - - - -
Current liabilities
Trade and other payables . . . . . . . . . . . . .	171,525	162,920		229,684	257,761
Dividend payable . . . . . . . . . . . . . . . . . . .	180	180		–	–
Borrowings . . . . . . . . . . . . . . . . . . . . . . .	37,500	57,500		92,000	139,000
Current income tax liabilities . . . . . . . . . .	5,873	33,353		11,340	11,122

	215,078 -----------	253,953 -----------		333,024 -----------	407,883 -----------

Total liabilities . . . . . . . . . . . . . . . . . . . .	218,182 -----------	256,005 -----------		340,035 -----------	413,953 -----------

Total equity and liabilities . . . . . . . . . . .	742,351	838,519		993,737	1,282,363

Net current (liabilities)/assets . . . . . . . . .	(20,672)	(47,652)		(30,441)	95,707

Total assets less current liabilities. . . . . .	527,273	584,566		660,713	874,480

DIVIDEND POLICY

Pursuant to the Companies Act and our Bye-laws, we, through a general meeting, may declare final dividends in any currency but no dividend shall be declared in excess of the amount recommended by the Board. Dividends may be paid out of profits of the Company available for distribution or contributed surplus in accordance with the Companies Act.

Future dividend payments will also depend upon the availability of dividends received from our subsidiaries in China. PRC laws require that dividends be paid only out of the net profit calculated according to PRC accounting principles, which differ in many aspects from the generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also require foreign investment enterprises to set aside part of their net profit as statutory reserves, which are not available for distribution as cash dividends. Distributions from our subsidiaries may also be restricted if they incur debts or losses or in accordance with any restrictive covenants in bank credit facilities, convertible bond instruments or other agreements which we or our subsidiaries may enter into in the future.

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SUMMARY

After the [●], our Directors intend to recommend for distribution of not less than 20% of our profits available for dividend distribution for each financial year. The amount of dividend actually distributed to our Shareholders will depend upon our earnings and financial condition, operating requirements, capital requirements and any other conditions that our Directors may deem relevant and will be subject to approval of our Shareholders. Our Board has an absolute discretion to recommend any dividend for any year. There is no assurance that dividends of any amount will be declared or distributed in any year.

PRE-[ ● ] INVESTMENT WITH COFCO BVI AND STRATEGIC COOPERATION RELATIONSHIP WITH COFCO

On March 21, 2011, our Company entered into the Subscription Agreement with COFCO BVI, pursuant to which our Company agreed to allot and issue to COFCO BVI, and COFCO BVI agreed to subscribe for an aggregate of 43,754,922 Shares, representing approximately 8.0% of the then enlarged issued share capital of our Company immediately following completion of the Pre-[●] Investment [●] (but taking no account of any Shares which may be allotted and issued upon the exercise of the [●] or pursuant to the exercise of options which may be granted under the Share Option Scheme). The total consideration COFCO BVI paid for the Shares pursuant to the Subscription Agreement was approximately RMB139.1 million (equivalent to HK$164.8 million based on the specified exchange rate of HK$1.00 to RMB0.8440), and we received the proceeds in relation to the Subscription Agreement on March 24, 2011. For more information, please see “History and Corporate Structure – Pre-[●] Investment.”

With a view to developing a long-term strategic cooperation with COFCO Corporation, we entered into a strategic cooperation framework agreement with COFCO on August 8, 2011, which is a memorandum pursuant to which the parties intend to enter into future specific agreements. Under this document, COFCO agreed to, among others, (i) assure the quality of and supply us with raw materials for our jelly products such as syrup and flavoring essence and prioritize our purchase orders in the event of a shortage of raw materials; (ii) jointly develop new products with us; (iii) share information relating to the food and beverage industry, including, without limitation, the policies promulgated by the PRC government; (iv) grant us favorable and flexible payment terms; and (v) share information relating to business resources. For further information, please see “History and Corporate Structure – Strategic Cooperation Relationship with COFCO.”

COFCO BVI is an indirectly wholly owned subsidiary of COFCO Corporation, which is a wholly stated-owned company incorporated in the PRC currently under the purview of the State-owned Assets Supervision and Administration Commission. COFCO Corporation is a leading diversified agricultural and food products and services supplier in China. Given the experience in food and beverage investment and operations of COFCO Corporation, COFCO BVI and/or their associates in the PRC, we believe that COFCO BVI’s investment and our strategic cooperation with COFCO will further enhance our corporate governance standards, as well as provide strategic input and guidance in our Group’s mid-term and long-term development.

WORKING CAPITAL

We have funded our working capital requirements through a combination of cash inflow from our operations, bank borrowings and capital contributions from our Shareholders. We recorded net current liabilities as of December 31, 2008, 2009 and 2010. The construction of our Sichuan production facility as part of our production expansion plan resulted in a large amount of capital expenditures in 2008, 2009

– 6 –

SUMMARY

and 2010, which was partially funded by incurring short-term bank borrowings. However, we recorded strong operating cash inflows during the Track Record Period, in the amount of RMB103.4 million, RMB96.5 million, RMB165.5 million and RMB92.9 million for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. As of September 30, 2011, we recorded net current assets of RMB69.9 million and had unutilized banking facilities in the amount of RMB138.7 million. Taking into account the net proceeds we received in March 2011 from the Pre-[●] Investment of approximately RMB139.1 million (equivalent to HK$164.8 million based on the specified exchange rate of HK$1.00 to RMB0.8440), [●], banking facilities available to us and cash flows from our operations, our Directors believe that we have sufficient working capital to service our bank borrowings and our capital commitments, and to satisfy our reasonably foreseeable cash requirements in our operations for at least the next 12 months from the date of this document. The basis of our Directors’ conclusion includes, but is not limited to, (i) the forecast of demand in our products based on the Chinese economy’s expected growth, (ii) the assumption that we can successfully execute our business strategies, (iii) our planned capital expenditures, (iv) the assumption that there will be no material changes in our ability to manage our working capital, and (v) the assumption that there will be no material change in our operating environment in the PRC or other countries to which we export our products.

DELISTING FROM SGX-ST

We were listed on the SGX-ST on August 26, 2005 and remained listed on the SGX-ST for more than four years. On December 9, 2009, our Company and Rise Mount announced the Delisting Offer. We were subsequently delisted from the SGX-ST on May 6, 2010. Please see “History and Corporate Structure – Delisting from SGX-ST” for further details about our [●] on the SGX-ST and the Delisting.

OUR “LABIXIAOXIN” TRADEMARK

We distribute our products under our core brand “Labixiaoxin.” We completed the registrations of our “Labixiaoxin” trademark in the PRC in classes covering our jelly products in 2000 (with registration number 1470228) and confectionary products in 2002 (with registration number 1954434). At the time we applied for the registrations of our “Labixiaoxin” trademark, the trademark was not identical or similar to any then existing registered trademarks in China and was approved by the Trademark Appeal Board of State Administration for Industry and Commerce of the PRC (國家工商行政管理總局商標評審委員會) (the “Trademark Board”), and therefore our PRC legal adviser, Jingtian & Gongcheng, has confirmed that our trademark was legally registered in the PRC.

Our “Labixiaoxin” trademark does not contain the Chinese characters “蠟筆小新” rendered in the same artistic style as that used in Futabasha’s trademark, and thus it is not similar or identical thereto, and we do not use the image of the “Crayon Shinchan” manga series’ main character in our trademark.

– 7 –

SUMMARY

The registrations of our “Labixiaoxin” trademark in classes covering our jelly products and confectionary products received regulatory approvals in 2000 and in 2002, respectively, before news and articles about the “Crayon Shinchan” manga series and the related merchandise first appeared in China, in 2003, and therefore before Futabasha’s trademark could have become a well-known trademark in China, which would otherwise have prevented similar marks from being registered in the same or other classes.
Our “Labixiaoxin” trademark was not registered through improper means or with malicious intentions.

Furthermore, according to the Trademark Law of the PRC (中華人民共和國商標法) (the “Trademark Law”), there is generally a five-year time limit to challenge an approved trademark registration starting from the registration date. Since the “Labixiaoxin” trademark was registered in classes covering our jelly products in 2000 (with registration number 1470228) and our confectionary products in 2002 (with registration number 1954434), the respective time limits have lapsed. We and our PRC legal adviser, Jingtian & Gongcheng, are of the view that (i) we have completed all legal procedures in the PRC necessary to register our core “Labixiaoxin” trademark in classes covering our jelly products in 2000 (with registration number 1470228) and confectionary products in 2002 (with registration number 1954434), and the SAIC has approved such trademark registrations before Futabasha completed its trademark registrations, (ii) such use has not infringed the intellectual property rights of any third parties, and (iii) it is unlikely that there will be any foreseeable complaint, claim, dispute or litigation made against us in connection with our “Labixiaoxin” trademark. In addition, our “Labixiaoxin” trademark does not use the image of the “Crayon Shinchan” manga series’ main character and presents the Chinese characters “蠟筆小新” vertically, while Futabasha’s trademarks may use such image and present the Chinese characters “蠟筆小新” horizontally in artistic styles different from ours. As such, our “Labixiaoxin” trademark and Futabasha’s trademarks are clearly distinguishable and not considered similar or identical. Furthermore, based on searches conducted on the PRC Trademark Bureau’s online database, (i) Futabasha received approvals to register its trademarks beginning in 2003, and (ii) our “Labixiaoxin” trademark and Futabasha’s trademarks are registered in different classes in the PRC, with the exception of class 30, where our “Labixiaoxin” trademarks and Futabasha’s trademark are registered in different sub-classes. We further believe that our continuous use of the “Labixiaoxin” trademark will not infringe the intellectual property rights of any third parties in the future, and the risk of our not being able to use the “Labixiaoxin” trademark or brand name is remote.

To protect our intellectual property rights, we undertake proactive anti-counterfeiting measures, including (i) timely registration of marks we intend to use as trademarks in relevant jurisdictions, (ii) active monitoring of the market for potential infringement activities, and (iii) frequent communications with our wholesale distributors to respond to potential infringement activities they have identified in their respective distribution areas. During the Track Record Period and up to the Latest Practicable Date, we had not experienced any infringement of our intellectual property rights which would have a material adverse effect on our business. For more details, please see “Risk Factors – Risks Relating to Our Business – We may face challenges to our intellectual property rights and market confusion regarding our ‘Labixiaoxin’ brand name” and “Business – Intellectual Property – Intellectual Property Owned or Under Application.”

– 8 –

SUMMARY

PRODUCT QUALITY

We are committed to food safety and the highest level of quality standards in our products and implement stringent quality control procedures throughout our manufacturing processes. We also seek to promptly address any potential food safety concerns. In May 2011, incidents of illegal usage of certain plasticizers as food additives were publicized in Taiwan, which raised public concerns regarding the safety of certain food and beverage products. We have taken proactive measures to verify and confirm that none of our products contains plasticizers (whether as a result of contamination during the production processes or migration from packaging materials), and none of the packaging materials we use contains plasticizers exceeding levels permitted under relevant PRC laws and regulations. There are no uniform international standards regulating the levels of plasticizers in packaging materials, and as of the Latest Practicable Date we had not received any governmental notices or inquiries from countries to which we export our products with regard to the usage of plasticizers in packaging materials. In addition, we have obtained confirmation letters from our raw materials suppliers and OEM partners in favor of us, warranting that they have not used any additives or adjuvants in raw materials supplied to us or OEM products manufactured on our behalf in violation of relevant laws and regulations, and agreeing to indemnify us for any loss incurred as a result of such violations. We believe that the plasticizer incident has had no material adverse effect on our business, results of operations and financial conditions. For more information, please see “Business – Quality Control.”

RISK FACTORS

Risks Relating to Our Business

We may face challenges to our intellectual property rights and market confusion regarding our “Labixiaoxin” brand name.
Sales of our products are subject to changes in consumer perception, preferences and tastes.
We may be subject to product liability claims.
We face intense competition from other manufacturers of jelly products as well as other snack food products.
We may be adversely impacted by any negative publicity suffered by the food and beverage industry in China or abroad.
We may not be able to introduce new products successfully.
Our expansion plan may not be successful and we may not successfully manage our growth.
We are susceptible to fluctuations in raw materials prices.
We depend on wholesale distributors, key account agents and export agents to sell our products.
We may be unable to effectively manage our wholesale distributors or key account agents.
We are dependent on a skilled workforce to run our production facilities.

– 9 –

SUMMARY

We rely on third-party manufacturers for the manufacture of some of our products.
Delays in delivery by independent third-party logistics providers, wholesale distributors, key account agents or export agents may affect our sales and damage our reputation.
Sales of some of our products are subject to seasonality.
Counterfeiting or imitation of our products may damage our reputation and brand names as well as lead to higher administrative costs.
We consider the formulas of our products to be our trade secrets, and our ability to compete could be harmed if such trade secrets were disclosed to third parties.
Our operations are subject to production malfunctions and other risks and routine shutdowns for maintenance.
Any disruption in the supply of utilities or an outbreak of fire or other calamities at our production facilities may disrupt our business operations.
Our workers are subject to risks of serious injury caused by the use of production equipment and tools.
The discontinuation of any of the preferential tax treatments currently available would likely increase our enterprise income tax expenses.
We have limited insurance to cover our potential losses and claims.
We are reliant on our key management personnel.
We and entities with which we collaborate to export our products may not be able to meet regulatory requirements imposed by the governments of the PRC or our export destinations.
We recorded net current liabilities as of each of December 31, 2008, 2009 and 2010 and we cannot assure you that we will not continue to record net current liabilities.
Our subsidiary LBXX Fujian failed to comply with certain financial covenants under the terms of its short-term bank borrowings during the Track Record Period.

Risks Relating to the Food and Beverage Industry in China

Changes in the existing food safety laws may affect our business operations.
We are subject to increasingly stringent environmental protection regulations.
The enforcement of the PRC Labor Contract Law and increases in labor costs in the PRC may adversely affect our business and our profitability.
We are required to maintain various licenses and permits to operate our business, and the loss of or failure to renew any or all of these licenses and permits could materially adversely affect our business operations.

– 10 –

SUMMARY

The food and beverage industry in China is significantly impacted by fluctuations in the global economy and financial markets.

Risks Relating to the PRC

PRC economic, political and social conditions, as well as governmental policies, could affect our business and prospects.
Changes in government control of currency conversion and in PRC foreign exchange regulations may adversely affect our business operations.
We may be deemed a PRC resident enterprise under the new PRC Enterprise Income Tax Law and be subject to PRC taxation on our worldwide income. The PRC resident enterprise classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
The new PRC enterprise income tax law will affect tax exemptions on dividends to be paid by our PRC subsidiaries to us through our Hong Kong subsidiary and we may not able to obtain certain treaty benefits under the relevant tax treaty.
We are a holding company that relies heavily on dividend payments from our subsidiaries for funding.
Interpretation of the PRC laws and regulations involves uncertainty and the current legal environment in China could limit the legal protections available to you.
The national and regional economies in China and our business prospects may be adversely affected by natural disasters, acts of God, and occurrence of epidemics.
It may be difficult to effect service of process upon us or our Directors or executive officers who live in China or to enforce against them in the PRC judgments obtained from non-PRC courts.
PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit us from using the proceeds of the [●] to make additional contributions or loans to our PRC subsidiaries.
Failure to comply with the SAFE regulations relating to the establishment of offshore special purpose vehicles by PRC residents may adversely affect our business operations.
The M&A Rules established more complex procedures for acquisitions by foreign investors, which could make it more difficult for us to pursue growth through acquisitions.
Failure to comply with PRC regulations in respect of the registration of our PRC citizen employees’ share options may subject such employees or us to fines and legal or administrative sanctions.

– 11 –

DEFINITIONS


	_In this document, unless the context otherwise requires, _		the following terms shall have the
meanings set out below.

“affiliate”		person or entity directly or	indirectly controlled by, or under the
		direct or indirect common control of one person or entity
“Alliance Holding”		Alliance Food And Beverages (Holding) Company Limited, a
		company incorporated in	the BVI with limited liability on
		December 28, 2004 and is owned as to 28% by Mr. Zheng Yu Long,
		28% by Mr. Zheng Yu Shuang, 28% by Mr. Zheng Yu Huan and
		16% by Mr. Li Hung Kong
“AQSIQ”		PRC General Administration of Quality Supervision, Inspection
		and Quarantine (國家質量監督檢驗檢疫總局)
“Board	of Directors” or “Board”	our board of Directors
“business day”		any day (other than a Saturday, Sunday or public holiday) on which
		banks in Hong Kong are generally open for business
“BVI”		the British Virgin Islands
“Bye-laws”		the Bye-laws of our Company, adopted on September 23, 2011 and
		as amended from time to time
“CAGR”		compound annual growth rate
“China” or “the PRC”		the People’s Republic of China and, except where the context
		otherwise requires and only for the purpose of this document,
		references in this document to China or the PRC exclude Hong
		Kong, Macao and Taiwan
“Chinese government”		the central government of	the PRC, including all governmental
or “PRC government”		subdivisions (including provincial, municipal and other regional or
		local government entities) and instrumentalities thereof or, where
		the context requires, any of them
“Coco	Foods”	Coco (Fujian) Foods Company Ltd., a jointly controlled entity
		before the disposal which took place in June 2010 and an
		Independent Third Party after completion of the disposal
“COFCO”		中糧集團有限公司生化能源事業部(Bio-energy and Bio-Chemical
		Division of COFCO Corporation*), a business unit of COFCO
		Corporation

– 12 –

DEFINITIONS

“COFCO BVI” COFCO Agriculture and Food Investment Limited, a limited liability company incorporated in the BVI on July 29, 2010, an indirectly wholly owned subsidiary of COFCO Corporation
“COFCO Corporation” COFCO Corporation (中糧集團有限公司), a wholly state-owned company incorporated in the PRC
“Companies Act”
the Companies Act 1981 of Bermuda, as amended, supplemented or otherwise modified from time to time
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Company” or “our Company” China Lifestyle Food and Beverages Group Limited (中國休閒食品集團有限公司), an exempted company incorporated in Bermuda with limited liability on May 4, 2004
“Controlling Shareholder(s)” has the meaning ascribed thereto under the [●] and unless the context requires otherwise, refers to Alliance Holding, Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hung Kong
“CSRC” China Securities Regulatory Commission (中華人民共和國證券監督管理委員會), a regulatory body responsible for the supervision and regulation of the PRC national securities markets
“Deed of Non-competition” a deed of non-competition dated September 23, 2011 given by each of the Controlling Shareholders in favor of our Company
“Delisting” the voluntary delisting of the Company from SGX-ST effective from May 6, 2010, approved in a special general meeting of the Company held on April 7, 2010
“Delisting Offer” the exit offer by Rise Mount to purchase all of the ordinary shares of the Company, not otherwise held by Rise Mount, at S$0.178 per Share to effect the Delisting
“Director(s)” the director(s) of our Company
“Euromonitor”

Euromonitor International Plc.

“FIEs”
foreign-invested enterprises

– 13 –

DEFINITIONS

“GB 19299-2003”	PRC hygienic standards applicable to jelly food, in particular with
	regard to its raw materials, physical characteristics, chemical
	composition, microbes, food additives, packaging, labeling,
	storage and transportation
“GB 19883-2005”	PRC standards applicable to jelly food, in particular with regard to
	its classifications, raw materials, sizes, chemical composition,
	microbes, testing methods, inspection guidelines, packaging,
	labeling, storage and transportation
“GDP”	gross domestic product (all references to GDP growth rates are to
	real as opposed to nominal rates of GDP growth)
“Group,” “our Group,” “we”	our Company and its subsidiaries or, where the context so requires
or “us”	in respect of period before our Company became the holding
	company of its present subsidiaries, the present subsidiaries of our
	Company and the businesses carried on by such subsidiaries or (as
	the case may be) their predecessors
“HACCP”	Hazard Analysis and Critical Control Points, a management system
	in which food safety is addressed through the analysis and control
	of biological, chemical, and physical hazards from raw material
	production, procurement and handling, to manufacturing,
	distribution and consumption of the finished product. HACCP
	certification is required for export of food products to certain
	countries
“HK$” or “Hong Kong dollars” or	Hong Kong dollars, the lawful currency of Hong Kong
“HK dollars”
“Hong Kong” or “HK”	the Hong Kong Special Administrative Region of the PRC
“IASB”	the International Accounting Standard Board
“IFRS”	the International Financial Reporting Standards

“Independent Third Party(ies)” a person(s) or company(ies) who or which is or are independent of, and not connected with any Director, chief executive or [●] of our Company or any of our subsidiaries or any of their respective associates

– 14 –

DEFINITIONS

“Investment Agreement” an investment agreement dated March 24, 2011 entered into among Alliance Holding, COFCO BVI, Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hong Kung in relation to the rights and obligations of COFCO BVI in respect of its subscription of 43,754,922 Shares under the Subscription Agreement, details of which are set out in the section headed “History and Corporate Structure – Pre-[●] Investment” in this document
“ISO 14001:2004” a standard of the ISO 14000 series, which specifies a framework of control for an environmental management system against which an organization can be certified by a third party
“ISO 9001” a set of standards that specifies the basic requirements for a quality management system that an organization must fulfill to demonstrate its ability to consistently provide products (which include services) that enhance customer satisfaction and meet applicable statutory and regulatory requirements
“ISO 9001:2000”, a standard of the ISO 9000 quality management series, which “ISO 9001:2008” specifies the requirements for a quality management system where an organization demonstrates its ability to consistently provide products that meet customer and applicable statutory and regulatory requirements
“Latest Practicable Date” November 22, 2011, being the latest practicable date for ascertaining certain information in this document prior to its publication
“LBXX Anhui” 蠟筆小新(安徽)有限公司 (Labixiaoxin (Anhui) Co., Ltd.*), a limited liability company established in the PRC on November 3, 2010 and our indirect wholly owned subsidiary
“LBXX Fujian” 蠟筆小新(福建)食品工業有限公司 (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.*), a limited liability company established in the PRC on March 15, 2000 and our indirect wholly owned subsidiary
“LBXX Holdings” Labixiaoxin Holdings Company Limited (蠟筆小新控股有限公司), a limited liability company incorporated in Hong Kong on October 8, 2007 and our wholly owned subsidiary
“LBXX International” Labixiaoxin International Company Limited (蠟筆小新國際有限公司*), formerly known as Alfie Ventures Inc., a limited liability company incorporated in the BVI on March 22, 2006 and our wholly owned subsidiary

– 15 –

	DEFINITIONS

“LBXX Investments”	Labixiaoxin Investments Company Limited (蠟筆小新投資有限公
	司), a limited liability company incorporated in Hong Kong on
	October 8, 2007 and our wholly owned subsidiary
“LBXX Sichuan”	蠟筆小新(四川)有限公司(Labixiaoxin (Sichuan) Co., Ltd.*), a
	limited liability company established in the PRC on January 17,
	2008 and our indirect wholly owned subsidiary
“LBXX Tianjin”	蠟筆小新(天津)有限公司(Labixiaoxin (Tianjin) Co., Ltd.*), a
	limited liability company established in the PRC on January 24,
	2006 and our indirect wholly owned subsidiary
“M&A Rules”	The Rules on the Merger and Acquisition of Domestic Enterprises
	by Foreign Investors (關於外國投資者併購境內企業的規定)
“Macao”	the Macao Special Administrative Region of the PRC
“Memorandum” or “Memorandum	the memorandum of association of our Company, as supplemented,
of Association”	amended or otherwise modified from time to time
“Ministry of Finance” or “MOF”	the PRC Ministry of Finance (中華人民共和國財政部)
“MOFCOM”	the PRC Ministry of Commerce (中華人民共和國商務部)
“NHTE”	“New and Hi-Tech Enterprises” (高新技術企業) as defined in the
	Administrative Measures for Determination of New and High-Tech
	Enterprises
“NHTE Notice”	the Notice of the Implementation Rules Regarding Designation
	and Management of New and High Tech Enterprises in Fujian
	Province (關於印發福建省高新技術企業認定管理實施細則(試行)的
	通知), jointly issued by Fujian Provincial Department of Science &
	Technology (福建省科學技術廳), Fujian Provincial Department of
	Finance (福建省財政廳), Fujian Provincial Office, SAT (福建省國家
	稅務局) and Fujian Provincial Local Taxation Bureau (福建省地方稅
	務局) in December 2008
“Ningxia Yin’ou”	寧夏銀鷗超閒食品有限公司(Ningxia Yin’ou Super Lifestyle Food
	Co., Ltd.*), a limited liability company established in the PRC on
	March 27, 2008 and is held as to 50% by Super Lifestyle Food and as
	to 50% by 寧夏佳立生物科技公司(Ningxia Jiali Bio-Tech Co.,
	Ltd.*), an Independent Third Party
“NPC” or “National People’s	the National People’s Congress of the PRC (中華人民共和國全國人
Congress”	民代表大會) and its Standing Committee

– 16 –

DEFINITIONS

“OEM”	acronym for original equipment manufacturer, a business that
	manufactures goods or equipment for branding and resale by others
“PBOC”	the People’s Bank of China (中國人民銀行), the central bank of the
	PRC
“Po Sang Group”	Po Sang Group Limited, a limited liability company incorporated in
	the BVI on November 28, 2006, and an Independent Third Party
“PRC Company Law”	the Company Law of the PRC (中華人民共和國公司法), as enacted
	by the Standing Committee of the Eighth National People’s Congress
	on December 29, 1993 and effective on July 1, 1994, as amended,
	supplemented or otherwise modified from time to time
“Pre-[●] Investment”	the investment made by COFCO BVI in our Group pursuant to the
	terms set out in the Subscription Agreement, details of which are set
	out in the section headed “History and Corporate Structure – Pre-[●]
	Investment” in this document
“Rise Mount”	Rise Mount Group Limited, a limited liability company incorporated
	in the BVI on April 11, 2008
“RMB” or “Renminbi”	Renminbi, the lawful currency of the PRC
“SAFE”	the State Administration of Foreign Exchange of the PRC (中華人民
	共和國國家外匯管理局)
“SAIC”	the State Administration for Industry and Commerce of the PRC (中
	華人民共和國國家工商行政管理總局)
“SAT”	the State Administration of Taxation of the PRC (中華人民共和國
	國家稅務總局)
“SFC”	the Securities and Futures Commission of Hong Kong
“SGX-ST”	Singapore Exchange Securities Trading Limited
“Share(s)”	ordinary share(s) of nominal value US$0.05 each in the share
	capital of our Company
“Share Option Scheme”	the share option scheme conditionally adopted by our Company on
	September 23, 2011, the principal terms of which are summarized
	in the section headed “Statutory and General Information – Other
	Information – Share Option Scheme” in Appendix VII to this
	document

– 17 –

DEFINITIONS

“Shareholder(s)” holder(s) of Share(s) “Singapore” The Republic of Singapore “Singapore dollars” or “S$” Singapore dollars, the lawful currency of Singapore

“SKU” stock keeping unit; a unique identifier for each distinct product and service that can be purchased

“State-owned Assets Supervision the State-owned Assets Supervision and Administration and Administration Commission” Commission of the State Council (中華人民共和國國務院國有資 or “SASAC” 產監督管理委員會) “Subscription Agreement” a share subscription agreement dated March 21, 2011 entered into between our Company and COFCO BVI in respect of the subscription of 43,754,922 Shares by COFCO BVI, details of which are set out in the section headed “History and Corporate Structure – Pre-[●] Investment” in this document

“subsidiary(ies)”

has the meaning ascribed thereto in section 2 of the Companies Ordinance

“Super Lifestyle Food”

天津超閒食品發展有限公司 (Tianjin Super Lifestyle Food Development Co., Ltd.*), a limited liability company established in the PRC on December 22, 2006 and is held as to 50% by Super Coffeemix Group, an Independent Third Party, as to 32% by LBXX International, and as to 18% by Chance Cove Group Limited, a company wholly owned by Mr. Zheng Yu Long

“Timeluck”

Timeluck International Limited (時運國際有限公司), a limited liability company incorporated in the BVI on March 20, 2003 and our wholly owned subsidiary

“Track Record Period”

the period comprising the three financial years ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011

“United States” or “U.S.” the United States of America
“United States or Canadian Person”

any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person), and shall include any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person

– 18 –

DEFINITIONS

“US$” or “U.S. dollars” United States dollars, the lawful currency of the United States “%” per cent

for identification purpose only

In this document, the terms “associate,” “connected person,” “connected transaction,” “subsidiary” and “[●]” shall have the meanings ascribed to them under the [●], unless the context otherwise requires.

Unless otherwise specified, all references to any shareholdings in our Company assume no exercise of the [●].

If there is any inconsistency between the official Chinese name of the PRC laws or regulations or the PRC government authorities or the PRC entities mentioned in this document and their English translation, the Chinese version shall prevail. English translations of official Chinese names are for identification purposes only.

Totals presented in this document may not total correctly because of rounding of numbers.

– 19 –

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements, including, without limitation, words and expressions such as “expect,” “believe,” “plan,” “intend,” “estimate,” “project,” “anticipate,” “seek,” “may,” “will,” “would” and “could” or similar words or statements, in particular, in the sections headed “Business” and “Financial Information” in this document in relation to future events, our future financial, business or other performance and development, the future development of our industry and the future development of the general economy of our key markets.

These statements are based on numerous assumptions regarding our present and future business strategy and the environment in which we will operate in the future. These forward-looking statements reflecting our current views with respect to future events are not a guarantee of future performance and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this document, and the following:

our business strategy and plan of operation and our ability to implement such strategies;
the amount and nature of, and potential for, future development of our business;
our business prospects, including business expansion plans;
various business opportunities that we may pursue;
our dividend policy;
the interpretation and implementation of the existing rules and regulations governing our industry;
information regarding our imbedded value, including our financial condition and results of operations;
the prospective financial information regarding our businesses;
availability and costs of bank loans and other forms of financing;
our capital commitment and budget plans;
the performance and future development of the food and beverage industry in China, particularly in the regions where we operate;
the industry regulatory environment as well as the industry outlook generally;
changes in political, economic, legal and social conditions in the PRC, including specific policies of the PRC government and the local authorities in the regions where we operate;
changes in competitive conditions and our ability to compete under these conditions;

– 20 –

FORWARD-LOOKING STATEMENTS

the performance of the obligations of our future partners and our overall relationship with them;
exchange rate fluctuations and restrictions; and
factors beyond our control such as catastrophic losses from accidents and natural disasters.

We and our Directors have taken reasonable care in making the forward-looking statements in this document. We caution you that, subject to the requirements of applicable laws, rules and regulations, we do not have any obligation to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements contained in this document are qualified by reference to the cautionary statements set out in this section.

In this document, statements of or references to the intentions of our Company or any of our Directors are made as of the date of this document. Any such intentions may potentially change in light of future developments.

– 21 –

RISK FACTORS

RISKS RELATING TO OUR BUSINESS

We may face challenges to our intellectual property rights and market confusion regarding our “Labixiaoxin” brand name.

We distribute our products under the core brand . We are dependent on the general recognition of the “Labixiaoxin” brand name. We have registered some of our trademarks, including the “Labixiaoxin” brand name, in the PRC and Hong Kong, and we have also applied for registration of such trademarks in other countries such as India and Mexico. Furthermore, our “Labixiaoxin” brand was recognized as a “China Well-Known Trademark” (中國馳名商標) by the SAIC in 2007. For further details, please see “Business – Intellectual Property – Intellectual Property Owned or Under Application.”

We are aware that “Crayon Shinchan,” a Japanese manga series, is commonly perceived to be known as “蠟筆小新” or “蜡笔小新” in Chinese (or “ labixiaoxin ” in pinyin). Trademarks incorporating the manga series’ main character’s image or the Chinese characters “蠟筆小新” or “蜡笔小新” rendered in different artistic styles have been registered by third parties unrelated to us in various countries and regions, including the PRC, Taiwan and Hong Kong. Futabasha is the copyright owner of Crayon Shinchan, and has registered various trademarks incorporating the image of the manga series’ main character and the Chinese characters “蜡笔小新” rendered in particular artistic styles in China since 2002. Futabasha has brought a number of civil lawsuits against a number of defendants in China, which are unrelated to us, claiming intellectual property infringement. Futabasha has also brought a number of administrative lawsuits against the PRC Trademark Bureau (國家商標局), challenging the latter’s decisions to grant trademark registrations containing the image of the manga series’ main character and the Chinese characters “蠟筆小新” or “蜡笔小新” rendered in different artistic styles to a number of registrants, which are unrelated to us. For instance, Futabasha has brought such an administrative lawsuit to challenge the registered trademarks of a PRC company in Guangzhou that is unrelated to us. The company in Guangzhou has registered trademarks in classes that encompass products such as drawing instruments, spectacles, certain toy products, roller skates, Christmas tree ornaments and eyewear products. As of the Latest Practicable Date, a number of these suits were ongoing.

Our “Labixiaoxin” trademark does not use the image of the “Crayon Shinchan” manga series’ main character and presents the Chinese characters “蜡笔小新” vertically, while Futabasha’s trademarks may use such image and present the Chinese characters “蜡笔小新” horizontally in artistic styles different from ours. As such, our “Labixiaoxin” trademark and Futabasha’s trademarks are clearly distinguishable and not considered similar or identical. For further details about our trademarks, please refer to “Appendix VII – Statutory and General Information – Information about the Business – Intellectual property rights of the Group – Trademarks.” We consider our business inseparable from the use of the “Labixiaoxin” brand name. During the Track Record Period, substantially all of our domestic sales were generated under the “Labixiaoxin” core brand. Although we have registered our “Labixiaoxin” trademark in the PRC in classes covering our jelly products in 2000 and confectionary products in 2002, and our trademark registrations have not been successfully challenged, we cannot assure you that parties claiming to have intellectual property rights in connection with the image of the manga series’ main character or the Chinese characters “蠟筆小新” or “蜡笔小新” rendered in different artistic styles will not bring claims or other proceedings against us in the PRC or other jurisdictions where we sell our products under current or future intellectual property laws or other laws. Any claims or proceedings against us, whether with or without merit, could be costly and time-consuming to defend, and result in the diversion of the attention of our management personnel, thereby adversely affecting our operational and financial positions. In addition, there is no certainty as to the outcome of such claims or proceedings.

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RISK FACTORS

Moreover, there may be market confusion regarding our “Labixiaoxin” brand name because it may appear similar to brand names used by other Independent Third Parties. In the event that other brand names similar to ours become unpopular or affected by any negative publicity, our “Labixiaoxin” brand name may be adversely affected, which could have a material adverse effect on our reputation, business, results of operations and financial position.

In addition to registrations in connection with our “Labixiaoxin” trademark, we had 110 registered trademarks in China as of the Latest Practicable Date, some of which we do not use in the marking of our products. We cannot assure you that these trademarks will not infringe the intellectual rights owned by third parties, or that third parties will not assert claims to our trademarks. If a third party brings an intellectual property claim against us, even if it is without merit, it will require substantial managerial and financial resources to defend, which could have a material adverse effect on our reputation, business, results of operations and financial position.

Sales of our products are subject to changes in consumer perception, preferences and tastes.

The snack food industry is subject to changes in consumer perception, preferences and tastes. Our business and financial performance depends on factors which may affect the level and pattern of consumer spending in China. Such factors include consumer preferences and tastes, consumer confidence, consumer incomes and consumer perceptions of the safety and quality of our products. Media coverage regarding the safety or quality of, or diet or health issues relating to, food, beverages, raw materials or additives that are used or involved in the manufacturing process may damage consumer confidence in these products. A general decline in the consumption of our products could also occur as a result of a change in consumer preferences, perceptions and spending habits at any time. Our future success will depend partly on our ability to anticipate or adapt to such changes and to offer, on a timely basis, new products that meet consumer preferences. Any failure to adapt our products to respond to such changes may result in a decrease in our sales. Any changes in consumer preferences and tastes could result in lower sales of our products, put pressure on pricing or lead to increased levels of advertising and promotional expenses, thereby materially and adversely affecting our business, results of operations and financial position.

We may be subject to product liability claims.

We, like other food manufacturers, may face product liability claims. The consumption of certain food products may cause illness, injury or, in extreme cases, death. Such illness, injury or death may result from unauthorized tampering by third parties or product contamination or degeneration, including the presence of foreign contaminants, chemical substances or other agents or residues during the various stages of the procurement, production, transportation and storage processes. Such illegal or harmful substances that we are not able to detect or identify using our standard procedures may exist in the raw materials or be brought into the production process due to failure of our employees to follow our production policies, or may result from improper handling during transit or by the distributors or retailers.

In addition, we export a small amount of our products from China to our foreign customers both under OEM arrangements and our own brand, and we rely on other entities such as our PRC export agents and our foreign customers to complete the export sales. Since our export contracts do not address risk allocation regarding product liability, and which party is at fault would be determined based on facts and circumstances of each claim and relevant PRC and foreign laws and regulations, we may be exposed to product liability claims in the PRC or overseas.

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Although as of the Latest Practicable Date there had not been any product liability claims against us, in the event that our products are found to be unfit for human consumption or detrimental to human health, resulting in illnesses or deaths of any persons, we may be subject to regulatory investigations, product liability claims and be required to compensate affected parties. While we are subject to government inspections and regulations, we cannot assure you that our products will not be found to be unfit for consumption, or that we will not be subject to claims for significant damages or lawsuits relating to such matters. Furthermore, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity arising from any assertions that our products may be harmful or unfit for human consumption could adversely affect our reputation and brand image.

We face intense competition from other manufacturers of jelly products as well as other snack food products.

Competition in the snack food industry in the PRC is intense. There are a large number of domestic and international manufacturers of products similar to ours. In addition, as we expand our business and diversify our product offerings, we may face competition for our new snack products in different markets. Competition is primarily manifested in the form of pricing concessions, rapid new product introduction, and intensive advertising campaigns. Some of our competitors may have a longer operating history than we do and may have substantially greater financial resources or research and development capabilities than us. To sustain our competitive edge, we need to invest continuously in product research and development, advertising and promotional activities and, as the case may require, reduce our cost of sales. We cannot assure you that our current or potential competitors will not provide products comparable or superior to those we provide or adapt more quickly than we do to evolving industry trends or changing market preferences. If we are unable to compete effectively with local and foreign competitors, our business, results of operations and financial position will be materially and adversely affected.

In particular, we price our products based on a combination of different factors, including our ability to differentiate our products from those of our competitors and the extent of market competition. We have historically maintained our sales prices at desired levels and differentiate our products from our competitors’ by regularly introducing new or improved products. If we are unable to continue to compete effectively, our ability to continue to price our products at desired levels may be materially and adversely affected, resulting in an adverse impact to our business, our results of operations and financial performance.

We may be adversely impacted by any negative publicity suffered by the food and beverage industry in China or abroad.

The food and beverage industry in China has in the past experienced problems related to contamination and food safety due to adulterated supplies of raw materials and inadequate enforcement of food safety regulations and inspection procedures. For example, in 2008 a significant proportion of the supply of milk and infant formula in China was contaminated with melamine, which affected hundreds of thousands of consumers, and caused the deaths of several infants and illness in thousands of young children. The 2008 melamine incident also resulted in large scale product recalls, the closure of one of China’s largest dairy products manufacturers, and significantly reduced consumer confidence in dairy and dairy-related products, thereby causing a significant decline in the sales of dairy and dairy-related products in China. We use dairy products and other raw materials which may be potentially exposed to contamination to manufacture our confectionary products. During the height of the melamine incident in

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early 2009, sales of our candies containing milk experienced a sharp decrease in sales volume, which caused the revenue of our confectionary products to drop by 31.3% from 2008 to 2009 compared to the previous year. Moreover, in May 2011, governmental authorities in Taiwan determined that certain local suppliers had been illegally using certain types of plasticizers as additives in their raw materials, which were used to manufacture a variety of processed food and beverages, including snack food products. Although our food and beverage products do not contain such plasticizers (whether as a result of contamination during the production processes or migration from packaging materials), and the packaging materials we use do not contain plasticizers exceeding levels permitted under relevant PRC laws and regulations, contamination or food safety incidents similar to the melamine or the plasticizer incident in the future could affect consumer perception of the safety of snack food products generally, which may in turn materially and adversely harm our business, results of operation and financial position.

We may not be able to introduce new products successfully.

A key to our expansion strategy is the development and introduction of new snack food products and additional flavors and types of jelly products to complement our existing product lines. We intend to continue to introduce new snack food products and different flavors, sizes and packaging of existing products in the future, such as egg rolls. The success of the new products we introduce depends on our ability to anticipate the changing tastes of consumers and to offer products that appeal to their preferences. We cannot assure you that we will be able to gain market acceptance or significant market share for our new products. Consumer preferences change, and any new products that we introduce may fail to meet the particular tastes or requirements of consumers, or may be unable to replace their existing preferences. Our failure to anticipate, identify or react to these particular tastes or preferences could result in reduced demand for our products. This could in turn lead to our inability to recover our research and development, production and marketing costs, thereby materially and adversely affecting our business, results of operations and financial position.

Our expansion plan may not be successful and we may not successfully manage our growth.

As the scale of our operations grows, we will need to continuously improve our management, operational and financial systems and strengthen our internal procedures and control. Our expansion plans involve widening our product offerings and increasing production volume by expanding our existing production facility in Tianjin Municipality in the next five years. In addition, we have started to construct a new production facility on a parcel of land in Anhui Province which we acquired in 2011. We also plan to continue to expand our distribution network in China and further enhance our relationships with wholesale distributors and key account customers. For more details, please see “Business – Production Process and Production Facilities – Production Expansion Plan” and “Business – Our Business Strategies.” As a result, we may be affected by a number of factors which may not be within our control. These factors include fluctuations in domestic and international demand for our products, changes in consumer taste and preference, increasing competition from snack food manufacturers and other industry participants. An adverse change in any of these factors may disrupt our expansion plans and have a material adverse effect on our business, results of operations and financial position. Moreover, we cannot assure you that our existing or future management, operational and financial systems, internal procedures and controls (including those relating to corporate governance) will be adequate to support our expansion and future operations or that we will be able to establish or develop business relationships beneficial to our future operations. Further, we may not be able to obtain adequate financing to complete construction and commence commercial operations of our new production facilities. Failure to execute our expansion plan efficiently, scale our business appropriately and manage our growth effectively could have a material adverse effect on our business, results of operations and financial position.

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We are susceptible to fluctuations in raw materials prices.

Our production costs and profitability depend, in part, on our ability to source and maintain a stable and sufficient supply of raw materials at acceptable prices. Our major raw materials include: jelly powder, sugar, water, canned fruit and packaging materials. We procure all of our raw materials from within the PRC. Our raw material costs (including packaging materials) for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 amounted to RMB393.0 million, RMB394.3 million, RMB497.8 million and RMB301.1 million, respectively, which constituted 89.6%, 81.6%, 84.4% and 83.6%, respectively, of our cost of sales. If we are unable to obtain raw materials in the quantities and of a quality that we require, our volume and/or quality of production will decline, which in turn may have a material adverse effect on our results of operation.

Raw materials we use in our production are subject to price volatility caused by external factors beyond our control, such as climatic and environmental conditions, commodity price fluctuations and changes in government policies which might reduce supply, leading to an increase in supply costs. An increase in the prices of our raw materials, or any inability to source and obtain alternative suppliers, may have a significant impact on our profit margins and hence our profitability. Our total raw material costs are expected to continue to increase in the foreseeable future, consistent with the general trend of rising commodity prices in the PRC. We expect that our raw material costs will continue to fluctuate and be affected by inflation in the future. Price fluctuations in our raw materials may result in unexpected increases in production costs, and if we are unable to manage these costs or to pass on any such increase to our customers, our profitability will decrease. Hence, any significant increase in the price of raw materials may materially and adversely affect our business, results of operations and financial position.

We depend on wholesale distributors, key account agents and export agents to sell our products.

We depend on wholesale distributors, key account agents and export agents to sell our products. As of October 31, 2011, we worked with over 190 wholesale distributors covering 31 provinces, municipalities and autonomous regions in China, 10 key account agents that distributed our products to key account customers in China, and through four PRC export agents, we sold our products both under OEM arrangements and our own brand to our foreign customers primarily in Latin America. We do not have long-term contracts with our wholesale distributors, key account agents and export agents, and we typically negotiate and enter into distribution, master sales or agency agreements for a term of one year. As our existing agreements with our wholesale distributors, key account agents or export agents expire, we may be unable to renew these agreements with our desired wholesale distributors, key account agents or export agents on favorable terms or at all. In addition, these agreements do not set forth clauses such as minimum sales commitments, and therefore may not lead to actual sales. Furthermore, it is possible that we may lose wholesale distributors and key account agents to our competitors. We may also choose to terminate underperforming wholesale distributors. Any disruption in our relationships with our wholesale distributors, key account agents or export agents, including our failure to renew our existing agreements with any of them, could affect our ability to effectively sell our products and would materially and adversely affect our business, results of operations and financial position.

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We may be unable to effectively manage our wholesale distributors or key account agents.

We have limited ability to manage the activities of our wholesale distributors and key account agents, which are independent from us. Our wholesale distributors or key account agents may violate their agreements with us through, among other things:

selling our products outside their designated models, areas or retail outlets, in violation of the exclusive distribution rights of our other distributors;
failing to adhere to our pricing policies;
failing to provide proper services to the retailers;
failing to adequately promote our products; or
selling products that compete with ours.

Failure to adequately manage our wholesale distributors or key account agents, or non-compliance by our wholesale distributors or key account agents with our agreements could harm our corporate image and disrupt our sales. Furthermore, our wholesale distributors or key account agents may violate applicable laws or otherwise engage in illegal practices, with respect to their sales and marketing of our products. In such case, we could be liable for legal actions taken against them and be required to pay damages or fines, which could materially and adversely affect our business, results of operations and financial position. In addition, our brand and reputation, our sales activities or the price of our products could be adversely affected if we become the target of any negative publicity as a result of any improper action taken by our wholesale distributors or key account agents.

We are dependent on a skilled workforce to run our production facilities.

As we expand our operations and invest in other production facilities, we will have to continuously recruit qualified employees to work at our production facilities. If the regions surrounding our production facilities are not able to supply a sufficiently sizable workforce or if the cost of labor increases, we may need to expend additional resources to attract and recruit suitable employees. In addition, our operations depend on the experience of our employees, the training of whom may require considerable resources. We cannot assure you that we will be able to recruit or retain employees with the requisite skills, or that we will have the necessary resources to adequately train our employees, or that we will be able to do so at reasonable costs.

We rely on third-party manufacturers for the manufacture of some of our products.

All of our confectionary products and our other products (except for powdered milk tea) are manufactured by independent third-party manufacturers through OEM arrangements with us. We then sell these products under our own brand names and logos. As of October 31, 2011, we had engaged 11 and three OEM partners to manufacture confectionary products and our other products (except for powdered milk tea), respectively. For more information, please see “Business – Production Process and Production Facilities – OEM Arrangements.” For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, products manufactured through OEM arrangements accounted for approximately 14.8%, 9.5%, 11.6% and 12.5% of our total sales, respectively.

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We may not always be able to find OEM partners operating at a standard acceptable to us. Our OEM partners may not always be able to provide us with required quantities of products of sufficiently high quality in a timely manner and at a competitive price. We may, from time to time, and have in the past, rejected products that failed to meet our specifications, resulting in potential delays to our customers. We cannot assure you that all products manufactured by our OEM partners would meet all of our quality standards. If the products manufactured by our OEM partners and sold under our brand names are defective, or are of poor quality, or fail to meet our customers’ expectations, we may be exposed to liability or our reputation may be damaged. This could materially and adversely affect our business, results of operation and financial position.

Moreover, we suggest all our OEM partners to source all of their raw materials from reputable suppliers. The OEM agreements we enter into with our OEM partners generally provide that the OEM partners will manufacture a particular type of product for us for a term of one year for a fixed price. If there are significant increases in the prices quoted by our OEM partners, we may not be able to fully pass these increases on to our customers due to competitive pricing pressures and that could materially and adversely affect our business, results of operations and financial position. In such cases, we may have to seek alternative OEM partners with comparable prices and products which may result in delivery delays to our customers. If we are unable to locate suitable OEM partners or manufacture these products internally, we may have to cease sales of such items, thus materially and adversely affecting our business, results of operation and financial position.

Delays in delivery by independent third-party logistics providers, wholesale distributors, key account agents or export agents may affect our sales and damage our reputation.

We rely on a number of independent third-party logistics providers for the transportation and delivery of our products to our wholesale distributors, key account agents and export agents, and we bear the costs of such product delivery. The vast majority of our products are delivered by road with the remainder being delivered by rail from our production facilities to the warehouses of our wholesale distributors, key account agents, or Chinese ports designated by our PRC export agents. The services provided by these logistics providers could be interrupted and could delay the delivery of our products to customers due to unforeseen events. Delivery disruptions may occur for various reasons beyond our control, including poor handling by logistics providers, transportation bottlenecks, adverse weather conditions and natural disasters, social unrest and labor strikes, which could result in delayed or lost deliveries, and may result in loss of revenue and damage to our reputation. Poor handling by logistics providers could also damage our products. In addition, any significant increase in the cost of transportation, such as increased fuel cost, will increase our operating expenses. Furthermore, wholesale distributors, key account agents or export agents may experience interruptions or delays in the delivery of our products to secondary distributors, retailers (including our key account customers) or our foreign customers due to factors not within our control, which could indirectly adversely affect us. Any delay or lost deliveries may result in loss of revenue, payments of compensation to customers and damage to our reputation, and may materially and adversely affect our business, results of operations and financial position.

Sales of some of our products are subject to seasonality.

The sales of some of our products are subject to seasonality fluctuations. Historically, we have experienced higher sales of our jelly and confectionary products during the traditional Chinese festival and holiday seasons, such as the Chinese New Year, which is typically in the first quarter of our financial year.

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Seasonal variations may cause fluctuations in our interim sales and profits. As a result, our results of operations fluctuate and our interim results may not proportionately reflect our annual results.

Counterfeiting or imitation of our products may damage our reputation and brand names as well as lead to higher administrative costs.

China’s intellectual property laws are still evolving, and the levels of protection and means of enforcement of intellectual property rights in China differ from those in Hong Kong or other jurisdictions. Counterfeiting and imitation of popular consumer and branded products occur from time to time in China. Most of our products are marketed under our primary “Labixiaoxin” brand, which is a well-recognized brand name for jelly products and is critical to our success. We believe the popularity of our brand name makes it a target of counterfeiting or imitation, with third parties attempting to pass off counterfeit products as our products. In the past, a PRC company used our “Labixiaoxin” trademark on its food products without our authorization. To stop such unauthorized use, we brought a civil action against such company, and made petitions to the SAIC, which recognized our “Labixiaoxin” trademark as a “China Well-Known Trademark” in 2007 and prohibited the unauthorized use by the infringing party. Although we successfully stopped the infringement of our trademark as mentioned above, we cannot assure you that other occurrences of counterfeiting or imitation of our products will not occur in the future and, if they do occur, whether we will be able to detect and deal with them effectively.

During the Track Record Period and up to the Latest Practicable Date, we had not experienced any infringement of our intellectual property rights having a material adverse effect on our business. To protect our intellectual property rights, we undertake proactive anti-counterfeiting measures, including (i) timely registration of marks we intend to use as trademarks in relevant jurisdictions, (ii) active monitoring of the market for potential infringement activities, and (iii) frequent communications with our wholesale distributors to respond to potential infringement activities they have identified in their respective distribution areas. However, we cannot assure you that we will be able to promptly detect the presence of counterfeited products on the market, or that our anti-counterfeiting measures in general will prove effective in preventing counterfeiting and imitation. Any occurrence of counterfeiting or imitation could adversely affect our reputation and brand names, leading to loss of consumer confidence in our brand. In addition, counterfeit and imitation products could result in a reduction of our market share, causing a long-term or even permanent decline in our sales and profitability, as well as increasing our administrative costs in respect of detection and prosecution.

We consider the formulas of our products to be our trade secrets, and our ability to compete could be harmed if such trade secrets were disclosed to third parties.

We rely on trade secret protection to secure our proprietary formulas, production processes and packaging of our products. We rely on a combination of contractual responsibilities and confidential restrictions in agreements with employees, OEM partners and other entities to which we disclose our proprietary formulas, and legal and statutory protections to safeguard our proprietary rights, including ingredients, production formulas and packaging of our products. Any breach of confidentiality by our employees, OEM partners or any other entities having access to our formulas and other trade secrets could result in third parties, including our competitors, gaining access to such formulas and trade secrets. If our competitors are able to successfully imitate our proprietary formulas and/or our product packaging while managing to provide comparable products at competitive prices, our market share may decrease. In addition, the intellectual property-related laws and their implementation in the PRC are still developing,

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which results in a degree of uncertainty as to interpretation and enforcement and may limit the legal protections available to us. In the event that the protection afforded by law does not adequately safeguard our trade secrets and other intellectual property rights, we may suffer significant losses in revenues, and our business, results of operations and financial position could be materially and adversely affected.

Our operations are subject to production malfunctions and other risks and routine shutdowns for maintenance.

Our operations are subject to production difficulties such as capacity constraints, mechanical and systems failures, construction and equipment upgrades and delays in the delivery of machineries, any of which could cause suspension of production and reduced output. Scheduled and unscheduled maintenance programs may also affect our production output. We carry out routine maintenance of our production equipment and we also carry out major maintenance work annually. Any significant manufacturing disruption could adversely affect our ability to manufacture and sell products, which could have a material adverse effect on our business, results of operations and financial position.

Any disruption in the supply of utilities or an outbreak of fire or other calamities at our production facilities may disrupt our business operations.

The operation of our production facilities depends on a continuous supply of utilities such as electricity and water. In time of excessive demand, the PRC authorities may, as a result of a shortage of power, ration the supply of utilities, such as electricity, and require our production facilities to shut down periodically. In order to reduce the loss of work-in-progress and to resume operational capacity in the event of a power shortage, we maintain backup power systems to provide electricity to our machinery and equipment until they can be safely turned off or switched to backup electricity supplies. However, our backup power systems may not be capable of meeting all of our production needs over a prolonged period of time. Any disruption to the supply of electricity and/or water at our production facilities may disrupt our production, or cause deterioration or loss of our products. This could adversely affect our ability to fulfill our sales orders and consequently may have a material adverse effect on our business, results of operations and financial position.

In addition, our facilities and operations are subject to operational risks, such as interruption by fire, earthquake, floods, hardware and software failure, computer viruses, equipment obsolescence, malfunction or failure, labor disputes, industrial accidents and other events beyond our control. While we have implemented fire safety measures in accordance with the relevant regulatory requirements in the PRC and employed additional measures to safeguard our production facilities, we cannot assure you that such measures would be sufficient to prevent any outbreak of fire, damage or losses to our assets in the future. In addition, our fixed assets insurance may be insufficient to cover any damage to, or loss of our major assets. In the event that major damage to our production facilities occur, and our insurance coverage is inadequate to compensate us for such damage, we may suffer significant loss and our business, results of operations and financial position may be materially and adversely affected.

Our workers are subject to risks of serious injury caused by the use of production equipment and tools.

We use heavy machinery and equipment such as industrial mixing, rolling and compressing machines, boiling cauldron and cutting equipment, which are potentially dangerous in our operations. In addition, certain steps of our production processes involve melting sugar and other raw materials at high

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temperatures using gas and steam, which could also be hazardous. Any significant accident caused by the use of such equipment or machinery could interrupt our operations and result in legal and regulatory liabilities. While we provide personal injury insurance for our employees, insurance coverage related to accidents resulting from the proper or improper use of such equipment or tools may be inadequate to offset losses arising from claims related to such accidents.

The discontinuation of any of the preferential tax treatments currently available would likely increase our enterprise income tax expenses.

The effective enterprise income tax rates for different companies in China may vary depending on the availability of preferential tax treatments or subsidies based on a company’s industry or location. In accordance with approvals granted by state and local tax bureaus of the PRC, some of our PRC subsidiaries have enjoyed or are still enjoying certain tax preferential treatments and government subsidies. Our operating subsidiary, LBXX Tianjin, is entitled to an exemption from PRC enterprise income tax for two years starting from its first profit-making year and a 50% reduction in the state enterprise income tax for the following three years. The first profit-making year for LBXX Tianjin was the financial year ended December 31, 2008. Upon the expiration of such tax concession, LBXX Tianjin will be subject to the regular PRC enterprise income tax rate of 25%.

In addition, LBXX Fujian has been designated as an NHTE since 2010 and enjoys a 15% enterprise income tax rate as a result. Such designation as an NHTE is subject to review and renewal every three years. If LBXX Fujian fails to retain its status as an NHTE, then it will be subject to the regular PRC enterprise income tax rate of 25%. Any increase in the enterprise income tax rate applicable to us or discontinuation or reduction of any of the preferential tax treatments or financial incentives currently enjoyed by our PRC subsidiaries could adversely affect our business, results of operations and financial position. Please see “Financial Information – Factors Affecting our Results of Operations – Taxation” in this document for more information.

We have limited insurance to cover our potential losses and claims.

As is customary in our industry, only some of our production facilities, machinery and equipment, and vehicles, among others, are insured. There is no legal requirement under PRC laws and regulations to insure all production equipment and machinery. However, even if we purchased such comprehensive insurance, certain kinds of losses cannot be insured or insured at a commercially reasonable cost, and our insurance policies are subject to liability limits and exclusions. For example, we do not maintain any product liability insurance coverage with respect to our domestic and export sales. Accordingly, in the event of a successful product liability claim against us, we will be liable for damages and may be ordered to suspend or cease production by the relevant government authorities. This may result in negative publicity and a loss of customer confidence and/or goodwill which could lead to a reduction in sales, cancellation of major contracts or cessation of our business. Any claims by consumers or the government that our snack food products caused injury, illness, or death could have a material adverse effect on our reputation with existing and potential customers and on our business, results of operations and financial position.

In addition, we are not insured against business interruptions resulting from natural disasters such as droughts, floods, earthquakes or severe weather conditions, any suspension or cessation in the supply of utilities and other calamities. As business interruption insurance is not generally available in China, any interruption to our operations, and the resulting losses or damages, could materially adversely affect our business, results of operations and financial condition.

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We are reliant on our key management personnel.

Our continued success, to a large extent, depends on our ability to retain the services of our key management and operational personnel. The loss of certain existing key personnel including our executive officers without suitable replacements, or the inability to attract and retain suitably qualified personnel, could adversely affect our results of operations. In particular, the loss of the services of our chairman, Mr. Zheng Yu Long, our chief executive officer, Mr. Zheng Yu Shuang, or our vice-chairman, Mr. Zheng Yu Huan, would have a material adverse impact on our performance as they hold key positions with respect to our overall operations, quality control, sales and marketing, strategic planning and business development. We cannot assure you that we will be able to retain the services of such key executives in the future.

We and entities with which we collaborate to export our products may not be able to meet regulatory requirements imposed by the governments of the PRC or our export destinations.

We export a small amount of our products from China to our foreign customers both under OEM arrangements and our own brand. Certain countries to which we export our products may impose technical, hygienic, environmental or other requirements on the export, distribution and sales of our products, which may be different from or more stringent than the standards imposed by the PRC government authorities. In addition to requirements imposed by the PRC government, other countries may also require us and entities with which we collaborate to export our products to obtain various approvals, certificates, registrations or other documentation to conduct our export sales. Although during the Track Record Period and up to the Latest Practicable Date, we had in all material respects complied with all laws and regulations applicable to us and relevant to our export sales in the PRC and in the destination countries to which we export our products by completing all necessary procedures to obtain all relevant health and food safety approvals, certificates, registrations or any other legally required documentation from the relevant government authorities in the PRC and in the destination countries with respect to the relevant exported products, we depend on our export agents and our foreign customers to complete our export sales, and they are responsible for complying with other aspects of the relevant PRC and foreign laws and regulations. As such, we cannot assure you that all of our export agents, our foreign customers or any other entities are in compliance with all other aspects of PRC or foreign laws and regulations relevant to our export sales, or that they can meet the relevant standards or obtain the approvals, certificates, registrations or other documentation necessary to our export sales. If we or other entities with which we collaborate with to export our products fail to satisfy the relevant standards adopted by the PRC or the destination countries or obtain the requisite approvals, certificates, registrations or other documentation now or in the future, our ability to export to these markets could be materially and adversely affected. We may also face regulatory actions or claims for significant damages, and there may be a material adverse effect on our business, results of operations and financial position.

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We recorded net current liabilities as of each of December 31, 2008, 2009 and 2010 and we cannot assure you that we will not continue to record net current liabilities.

We recorded net current liabilities of RMB20.7 million, RMB47.7 million and RMB30.4 million as of December 31, 2008, 2009 and 2010, respectively. Our current liabilities primarily consists of trade and other payables as well as bank borrowings. Our current assets primarily consist of trade receivables and inventories. Our current liabilities exceeded our current assets as of each of December 31, 2008, 2009 and 2010. The construction of our Sichuan production facility as part of our production expansion plan resulted in a large amount of capital expenditures from 2008 to 2010, which was partially funded by incurring short-term bank borrowings. We recorded net current assets of RMB95.7 million as of May 31, 2011 and RMB69.9 million as of September 30, 2011. However, there can be no assurance that the net proceeds from the [●] and our internally generated resources will be sufficient to finance all of our capital expenditures and operations in the long run. Thus, it may be necessary for us to resort to additional external financing such as additional bank borrowings. Although we have in place agreed credit limits from our banking facilities, consistent with our experience of Chinese lending practice, the terms of any drawdown thereunder are not set and remain to be agreed prior to any drawdown. Should we fail to obtain sufficient long-term financing in this respect, we will continue to record net current liabilities, which may limit our future development plans and expose us to certain liquidity risks. As a result, our capital structure, business, results of operations and financial position may be materially adversely affected. Please also see “Financial Information – Net Current (Liabilities)/Assets.”

Our subsidiary LBXX Fujian failed to comply with certain financial covenants under the terms of its short-term bank borrowings during the Track Record Period.

Certain short-term borrowings of our subsidiary, LBXX Fujian, from a bank are subject to certain financial covenants, which require LBXX Fujian to maintain a debt ratio of no more than 50%, a current ratio of no lower than 1.0 and a quick ratio of no lower than 0.8 during the terms of the respective loans. As of each of December 31, 2008, 2009 and 2010 and during the five months ended May 31, 2011, LBXX Fujian had drawn down on certain of its bank loans in breach of certain financial covenants. Due to the breaches of these financial covenants, the lending bank became contractually entitled to request early repayment of the outstanding amount of the loans, which amounted to RMB32 million as of May 31, 2011.

On August 17, 2011, LBXX Fujian obtained a waiver from the lending bank in respect of the breach of the financial covenant before May 31, 2011 for the outstanding bank borrowings of RMB32 million as of May 31, 2011. As of the Latest Practicable Date, the lending bank did not request us to make early repayment of the above-mentioned outstanding bank borrowings. For more information, please see “Financial Information – Indebtedness – Borrowings.” We cannot assure you that our subsidiaries will not breach any financial covenants under their respective loan agreements in the future, or that lending banks will not accelerate the repayment obligations or enforce other remedies against us. If we are required to make early repayment, our cash flow position may be adversely affected. Furthermore, non-compliance with financial covenants may trigger cross-default provisions and affect our ability to borrow in the future, which will in turn may have a material adverse effect on our business, results of operations and financial position.

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RISKS RELATING TO THE FOOD AND BEVERAGE INDUSTRY IN CHINA

Changes in the existing food safety laws may affect our business operations.

Our operations are subject to the food safety laws and regulations of the PRC and other countries to which we export our snack food products, which set out hygiene, safety and manufacturing standards with respect to food as well as hygiene, safety, packaging and other requirements for food production, production facilities and equipment used for the transportation and sale of food. For more information, please see “Appendix V – Summary of Principal PRC Laws and Regulations Relating to Our Business” in this document. In particular, according to the Food Safety Law of the PRC (中華人民共和國食品安全法) which became effective on June 1, 2009 and its implementation regulations which became effective on July 8, 2009, we are required to follow more stringent quality control and food safety standards, including, among others:

food additives may be used only if they are deemed necessary for food production and they must be tested and proven safe in accordance with the risk assessment principles established by the PRC government before they can be used;
chemicals other than specifically permitted additives and any substance that may harm human health are forbidden in food production;
no food product is exempt from inspection by the relevant food safety supervision authority; and
all food manufacturers will have to suspend production immediately and recall all products from the market if such products are found to have failed to meet the requisite food safety standards. The manufacturers are also required to notify the relevant food producers and traders, as well as consumers of such recall and keep record in this regard.

In addition, we are required to maintain proper production records of our snack food products. As the Food Safety Law of the PRC and its implementation regulations are relatively new, there are still some uncertainties as to how it will affect our business operations in the long run. Any failure to comply with the Food Safety Law of the PRC, its implementation regulations or other food safety and hygiene laws and regulations in the PRC may result in fines, suspension of operations, loss of licenses and, in more extreme cases, criminal proceedings may be brought against us and our management. Any of these events will have a material adverse impact on our production, business, results of operations and financial condition.

We cannot assure you that the PRC government will not change the existing laws or regulations or adopt additional or more stringent laws or regulations applicable to us and our business operations. Such new laws and regulations may require the re-configuration of our methods for sourcing raw materials, production, processing and transportation, including more onerous food safety, labeling and packaging requirements, more stringent compliance requirement for waste management, increases in transportation costs and greater uncertainty in production and sourcing estimate. Our failure to comply with any applicable laws and regulations could subject us to civil liabilities, including fines, injunctions, product recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and financial position.

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We are subject to increasingly stringent environmental protection regulations.

Our production, sales and distribution operations are subject to PRC regulations on environmental protection. They relate to, among other things, waste water discharges, exhaust gas emissions, noise emissions and industrial solid waste discharge from production facilities and waste disposal practices. Moreover, under the Regulations on The Administration of Construction Project Environmental Protection (建設項目環境保護管理條例), we are required to submit an environmental impact assessment report to the relevant government authorities for preliminary approval before the construction of our production facilities and the installation of pollution treatment facilities, and we are subject to environmental protection examinations and required to obtain approval from the relevant government authorities after we have completed the installation of our manufacturing equipment and before the production facility may commence commercial operation. If we fail to comply with applicable environmental regulations and standards, we may be subject to fines, orders for suspension of production, orders for damage compensation, or even criminal liabilities. We cannot assure you that the PRC government will not implement additional or more stringent laws or regulations, the compliance with which may cause us to incur significant costs, which we may be unable to pass on to our customers.

The enforcement of the PRC Labor Contract Law and increases in labor costs in the PRC may adversely affect our business and our profitability.

The Labor Contract Law of the PRC (中華人民共和國勞動法) came into effect on January 1, 2008 and its implementation rules were promulgated and became effective on September 18, 2008. The Labor Contract Law and its implementation rules impose more stringent requirements on employers with regard to entering into written employment contracts, hiring temporary employees and dismissing employees. The Labor Contract Law and its implementation rules also establish requirements relating to, among others, minimum wages, severance payments and non-fixed term employment contracts, time limits for probation periods as well as duration and the number of times that an employee can be placed on fixed term employment contracts. It also provides that social insurance is required to be paid on behalf of the employees and the employees are entitled to unilaterally terminate the labor contracts if this requirement is not satisfied.

In addition, under the Regulations on Paid Annual Leave for Employees (職工帶薪年休假條例), which also came into effect on January 1, 2008, and its implementation measures, which were promulgated and became effective on September 18, 2008, employees who have served more than one year for an employer are entitled to paid annual leave ranging from five to 15 days, depending on their length of service. Employees who waive such annual leave at the request of employers shall be compensated at a rate of three times of their normal salaries for each waived annual leave day. Such new laws and regulations may increase our labor costs. In addition, certain companies operating in the PRC have experienced labor unrest in 2010 as a result of workers’ dissatisfaction with working conditions and remuneration. We cannot assure you that these labor strikes will not affect general labor market conditions or result in changes to labor laws in the PRC, which in turn could adversely affect our business. Any significant increases in our labor costs and future disputes with our employees could nonetheless adversely affect our business, results of operations and financial position.

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We are required to maintain various licenses and permits to operate our business, and the loss of or failure to renew any or all of these licenses and permits could materially adversely affect our business operations.

In accordance with PRC laws and regulations, we are required to maintain various licenses and permits in order to operate our business including, without limitation, Food Hygiene License (食品衛生許可證) and Production License for Industrial Products (工業產品生產許可證). We are required to comply with applicable hygiene and food safety standards in relation to our production processes. Our premises and transportation vehicles are subject to regular inspections by the regulatory authorities for compliance with the Implementation Rules for the Supervision and Administration on the Quality Safety of the Food Manufacturing and Processing Enterprises (Trial) (食品生產加工企業質量安全監督管理實施細則(試行)). Failure to pass these inspections, or the loss of or failure to renew our licenses and permits, could require us to temporarily or permanently suspend some or all of our production activities, which could disrupt our operations and adversely affect our business.

The food and beverage industry in China is significantly impacted by fluctuations in the global economy and financial markets.

The food and beverage industry in China is significantly impacted by fluctuations in the global economy and financial market. For example, the recent global economic slowdown and turmoil in the global financial markets that started in the fourth quarter of 2008 have resulted in a general credit crunch, an increased level of commercial and consumer delinquencies, lack of consumer confidence and increased market volatility. The slowdown of the worldwide economy, including that of the PRC, caused a drop in consumer confidence and the level of disposable income, which translated into lower demand for our products, affecting our results of operations. These adverse market developments and the associated uncertainties may continue to present significant challenges to the global and local economies and financial markets. As a result, the global and local economies, including the PRC economy, could continue to experience significant volatility. Significant volatility or another downturn in the PRC and global economy in the future could have a material adverse effect on the food and beverage industry in China and the demand for our products, which may affect our business, results of operations and financial position. In addition, the general lack of available credit and confidence in the financial markets associated with any market volatility or downturn could adversely affect our access to capital as well as our suppliers’ and customers’ access to capital, which in turn could adversely affect our ability to fund our working capital requirements and capital expenditures.

RISKS RELATING TO THE PRC

PRC economic, political and social conditions, as well as governmental policies, could affect our business and prospects.

Our production facilities are located in China. The PRC economy differs from the economies of most developed countries in many respects, including:

the degree of PRC governmental involvement;
growth rate and degree of development;
uniformity in the implementation and enforcement of laws;

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content of and control over capital investment;
control of foreign exchange; and
allocation of resources.

The PRC economy has been transitioning from a centrally planned economy to a more marketoriented economy. For approximately three decades, the PRC government has implemented economic reform measures to utilize market forces in the development of the PRC economy. In addition, the PRC government continues to play a significant role in regulating industries and the economy through policy measures. We cannot predict whether changes in PRC economic, political or social conditions and in PRC laws, regulations and policies will have any adverse effect on our current or future business, results of operations and financial position.

In addition, many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to be refined and improved over time. Other political, economic and social factors may also lead to further adjustments of the reform measures. This refining and adjustment process may not necessarily have a positive effect on our operations and business development.

Our business, results of operations and financial position may be adversely affected by:

changes in PRC political, economic and social conditions;
changes in policies of the PRC government, including changes in policies affecting the food and beverage industry;
changes in laws and regulations or the interpretation of laws and regulations;
measures that may be introduced to control inflation or deflation;
changes in rates or methods of taxation;
imposition of additional restrictions on currency conversion and remittance abroad; and
reduction in tariff protection and other import restrictions.

Further, the growth of demand in China for snack food products depends heavily on economic growth. Between 1978 and 2010, China’s GDP increased from approximately RMB365 billion to approximately RMB39,798 billion. We cannot assure you that such growth will be sustained in the future. Since early 2004 and from time to time, the PRC government has implemented certain measures in order to prevent the PRC economy from experiencing excessive inflation. Such governmental measures may cause a decrease in the level of economic activity, including demand for our snack food products, and have an adverse impact on economic growth in the PRC. If China’s economic growth slows down or if the Chinese economy experiences a recession, the growth of demand for snack food products may also slow down or stop. Such events could have a material adverse effect on our business, results of operations and financial position.

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Changes in government control of currency conversion and in PRC foreign exchange regulations may adversely affect our business operations.

The PRC government imposes controls on the convertibility between Renminbi and foreign currencies and the remittance of foreign exchange out of China. We receive substantially all of our revenue in Renminbi. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Our PRC subsidiaries must convert their Renminbi earnings into a foreign currency before they may pay cash dividends to us or service their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current-account items may be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements.

However, approval from appropriate governmental authorities is required when Renminbi is converted into foreign currencies and remitted out of China for capital-account transactions, such as the repatriation of equity investment in China and the repayment of the principal of loans or debt denominated in foreign currencies. Such restrictions on foreign exchange transactions under capital accounts also affect our ability to finance our PRC subsidiaries. Subsequent to this [●], we have the choice, as permitted by the PRC foreign investment regulations, to invest our net proceeds from this [●] in the form of registered capital or a shareholder loan into our PRC subsidiaries to finance our operations in China. Our choice of investment is affected by the relevant PRC regulations with respect to capital-account and current-account foreign exchange transactions in China. Our investment decisions are additionally affected by various other measures taken by the PRC government relating to the PRC food and beverage industry, including those disclosed in the section headed “Appendix V – Summary of Principal PRC Laws and Regulations Relating to Our Business.” In addition, our transfer of funds to our subsidiaries in China is subject to approval by PRC governmental authorities in the case of an increase in registered capital, and subject to approval by and registration with PRC governmental authorities in case of shareholder loans to the extent that the existing foreign investment approvals received by our PRC subsidiaries permit any such shareholder loans at all. These limitations on the flow of funds between us and our PRC subsidiaries could restrict our ability to act in response to changing market conditions.

We may be deemed a PRC resident enterprise under the new PRC Enterprise Income Tax Law and be subject to PRC taxation on our worldwide income. The PRC resident enterprise classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

Under the 2008 Tax Law and its implementation regulations (collectively, the “2008 Tax Laws”), enterprises established under the laws of jurisdictions outside the PRC with their “de facto management bodies” located within the PRC may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The 2008 Tax Laws provide that “de facto management body” of an enterprise is the organization that exercises substantial and overall management and control over the production, business operations, employees, books of accounts and properties of the enterprise. In April 2009, the PRC tax authority promulgated a circular providing specific tests regarding under what situations the “de facto management body” of an offshore enterprise controlled by PRC enterprises or PRC enterprise group would be considered to be located in the PRC, but there had been no official tax rules promulgated regarding the determination of “de facto management bodies” for foreign enterprises which are not controlled by PRC enterprises or PRC enterprise group like ourselves. However, as substantially all of our management team members currently reside in the PRC and may remain in the PRC in the future, our Company may be deemed a PRC resident enterprise and therefore be

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subject to the PRC enterprise income tax at a rate of 25% on its worldwide income, which may have a material adverse effect on our business, results of operations and financial position. Although under the EIT Law and its implementing rules, dividend income between qualified PRC resident enterprises, such as a dividend received by a PRC resident enterprise attributable to an equity interest it directly owns in another PRC resident enterprise, is exempted from income tax, it remains unclear whether dividends distributed by our PRC subsidiaries to our Company and to our overseas Shareholders will qualify for tax exemption even if our Company and our overseas Shareholders are considered PRC resident enterprises for tax purposes because there is no published rules in this regard for offshore enterprises controlled by PRC individuals or foreign individuals. Moreover, according to the Notice on Issues Regarding Tax Credit for Enterprises Foreign Income (Cai Shui [2009] No. 25) (關於企業境外所得稅收抵免有關問題的通知(財稅[2009]25號)), which was jointly issued by the Ministry of Finance and SAT on December 25, 2009 and became effective retroactively on January 1, 2008, certain enterprise income tax may be relieved if a PRC resident enterprise has already paid the income tax offshore. However, as the 2008 Tax Laws are relatively new and ambiguities still exist with respect to the interpretation of the provisions relating to resident enterprise issues, we cannot assure you that we are eligible for such PRC enterprise income tax exemptions or foreign tax credits. Finally, if we are deemed to be a PRC “resident enterprise,” dividends payable by us to our investors and gain on the sale of our Shares may become subject to PRC withholding tax.

The new PRC enterprise income tax law will affect tax exemptions on dividends to be paid by our PRC subsidiaries to us through our Hong Kong subsidiary and we may not able to obtain certain treaty benefits under the relevant tax treaty.

Prior to January 1, 2008, dividend payments to foreign investors made by FIEs, such as dividends paid to us by our PRC subsidiaries, were exempt from PRC withholding tax. However, the 2008 Tax Laws, effective January 1, 2008, provide that any dividend payment to foreign investors who are non-resident enterprises will be subject to a withholding tax at a rate of 10%, unless any such foreign investors are qualified for a preferential withholding tax rate under the relevant taxation treaties or arrangements entered into between the PRC and other countries or areas. For instance, pursuant to the Arrangement between Mainland China and Hong Kong for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income (內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排) signed on August 21, 2006, which in Hong Kong applies to income derived in any year of assessment commencing on or after April 1, 2007; and in the PRC in any year commencing on or after January 1, 2007, a company incorporated in Hong Kong will be subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiaries if it holds a 25% or more interest in that particular PRC subsidiary at the time of the distribution, or 10% if it holds less than a 25% interest in that subsidiary.

If foreign investors intend to enjoy the preferential withholding income tax rate based on the relevant taxation treaties or arrangements entered into between the PRC and other countries or areas, they are required to obtain prior approval from the relevant tax authorities according to the Circular on Printing and Issuing the Administrative Measures (Trial) for Enjoying Treatment Under Taxation Treaties by Non-resident Individuals and Enterprises (關於印發《非居民享受稅收協定待遇管理辦法(試行)》的通知) issued by SAT, which became effective on October 1, 2009. It is likely that eligibility will be assessed based on a substantive analysis of the shareholder’s tax residency and economic substance. With respect to dividends, the beneficial ownership tests under Circular 601 (關於如何理解和確定稅收協定中受益所有人的通知), which was issued by SAT on October 27, 2009, will also apply. In addition, according to the Circular of the State Administration of Taxation on Relevant Issues relating to the Implementation of Dividend Clauses in Tax Treaty Agreements (國家稅務總局關於執行稅收協定股息條款有關問題的通知)

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RISK FACTORS

issued by SAT on February 20, 2009, if the main purpose of an offshore transaction is to obtain a preferential tax treatment, the PRC tax authorities have the discretion to adjust the preferential withholding tax rate levied on the relevant offshore entity. If our Hong Kong subsidiaries cannot be regarded as the beneficial owners of the dividends paid by our PRC subsidiaries to us, they will not be entitled to the treaty benefits and enjoy the preferential tax rate of 5% under the special tax arrangement between China and Hong Kong and thus the dividends will be subject to normal withholding tax of 10% as provided by the 2008 Tax Laws.

We are a holding company that relies heavily on dividend payments from our subsidiaries for funding.

We are a holding company and rely principally on dividends paid by our PRC subsidiaries for cash requirements, including the funds necessary to service any debt we may incur. If any of our subsidiaries incurs debt in its own name in the future, the instruments or agreements governing the debt may restrict dividends or other distributions from our PRC subsidiaries to us. Furthermore, applicable PRC laws, rules and regulations permit payment of dividends by our PRC subsidiaries only out of their accumulated retained earnings, if any, determined in accordance with PRC accounting standards. Our PRC subsidiaries are required to set aside a certain percentage of their after tax profits based on PRC accounting standards each year to their statutory reserves in accordance with the requirements of relevant PRC laws and provisions in their respective articles of associations. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net income to us whether in the form of dividends, loans or advances. These restrictions and requirements could reduce the amount of distributions that we receive from our subsidiaries, which would restrict our ability to fund our operations, generate income, pay dividends and service our indebtedness.

Interpretation of the PRC laws and regulations involves uncertainty and the current legal environment in China could limit the legal protections available to you.

Our core business is conducted in China and is governed by PRC laws and regulations. Our principal operating subsidiaries are located in China and are subject to PRC laws and regulations. The PRC legal system is a civil law system based on written statutes, and prior court decisions have limited precedential value and can only be used as a reference. Additionally, PRC written laws are often principle-oriented and require detailed interpretations by the enforcement bodies to further apply and enforce such laws. Since 1979, the PRC legislature has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commercial transactions, taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating to the food and beverage industry. However, because these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC laws and regulations involves a degree of uncertainty and the legal protection available to you may be limited. Depending on the governmental agency or the presentation of an application or case to such agency, we may receive less favorable interpretations of laws and regulations than our competitors. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. All these uncertainties may cause difficulties in the enforcement of our land use rights, entitlements under our permits, and other statutory and contractual rights and interests.

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The national and regional economies in China and our business prospects may be adversely affected by natural disasters, acts of God, and occurrence of epidemics.

Our business is subject to general economic and social conditions in China. Natural disasters, epidemics and other acts of God which are beyond our control may adversely affect the economy, infrastructure and livelihood of the people in China. Some regions in China, including the municipalities where we operate, are under the threat of flood, earthquake, sandstorm, snowstorm, fire, drought, or epidemics such as Severe Acute Respiratory Syndrome, or SARS, H5N1 avian flu or the human swine flu, also known as Influenza A (H1N1). For instance, a serious earthquake and its successive aftershocks hit Sichuan Province in May 2008 and resulted in tremendous loss of life and destruction in the region. In addition, past epidemics have caused varying degrees of damage to the national and local economies in China. Certain areas of the PRC and our other export markets are susceptible to epidemics such as SARS, H5N1 avian flu, the human swine flu, or foot-and-mouth disease. An occurrence or recurrence of any of these or other epidemics in areas where facilities producing our products are located or where our products are sold may result in material disruptions to our business operations, write-downs of capital expenditures we have invested in our production bases or livestock breeding facilities, and our sales and marketing, which in turn could materially and adversely affect our business, results of operations and financial position.

It may be difficult to effect service of process upon us or our Directors or executive officers who live in China or to enforce against them in the PRC judgments obtained from non-PRC courts.

A significant portion of our assets and our subsidiaries are located in China. In addition, most of our Directors and officers reside within China, and the assets of our Directors and officers may also be located within China. As a result, it may not be possible to effect service of process outside China upon most of our Directors and officers, including for matters arising under applicable securities laws. Moreover, a judgment of a court of another jurisdiction may be reciprocally recognized or enforced if the jurisdiction has a treaty with China or if judgments of PRC courts have been recognized before in that jurisdiction, subject to the satisfaction of other requirements. In addition, Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, recognition and enforcement in the PRC or Hong Kong of judgments of a court in other jurisdictions in relation to any matter not subject to a binding arbitration provision is subject to uncertainties.

In addition, although we will be subject to the [●] and the Hong Kong Code on Takeovers and Mergers or the Hong Kong Takeover Code upon the [●] of our Shares on the [●], the holders of our Shares will not be able to bring actions on the basis of violations of the [●] and must rely on the [●] to enforce its rules. Furthermore, the Hong Kong Takeover Code does not have the force of law and provides only standards of commercial conduct considered acceptable for takeover and merger transactions and share repurchases in Hong Kong.

PRC regulation of direct investment and loans by offshore holding companies to PRC entities may delay or limit us from using the proceeds of the [ ● ] to make additional contributions or loans to our PRC subsidiaries.

Any capital contribution or loan that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of the [●], is subject to PRC regulations. For example, any of our loans to our PRC subsidiaries cannot exceed the difference between the total amount of investment that our

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respective PRC subsidiaries are approved to make under relevant PRC laws and their respective registered capital, and any such loans must be registered with the local branch of SAFE. In addition, our additional capital contributions to our PRC subsidiaries must be approved by MOFCOM or its local counterpart. We cannot give assurance that we will be able to obtain these approvals on a timely basis, or at all. If we fail to obtain such approvals, our ability to make equity contributions or provide loans to our PRC subsidiaries or to fund its operations may be adversely affected, which could harm our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion projects and meet their obligations and commitments.

In addition, in August 2008, SAFE promulgated Circular 142 (國家外匯局綜合司關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知), a notice regulating the conversion by a foreigninvested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 142 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless otherwise specifically provided for. In addition, SAFE has strengthened its oversight over the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested company. The use of such Renminbi may not be changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Rules of the PRC (中華人民共和國外匯管理條例). The relevant foreign exchange administrative authority may order the foreign-invested company concerned to take appropriate remedial actions, confiscate any illegal income and impose a fine of up to 30% of the illegal amount involved. Where the circumstances of infringement are serious, a fine of between 30% and 100% of the illegal amount involved may be imposed on the foreign-invested company.

Failure to comply with the SAFE regulations relating to the establishment of offshore special purpose vehicles by PRC residents may adversely affect our business operations.

In October 2005, SAFE issued SAFE Circular No.75, which took effect on November 11, 2005. Also, in May 2011, SAFE issued implementation rules for the administration of foreign exchanges with respect to the financing and round-trip investments of domestic residents via overseas special purpose companies which took effect on July 1, 2011. The SAFE Circular No.75 and its implementation rules require domestic residents of the PRC (including individuals who habitually reside within the PRC due to economic interests) to register with and obtain approvals from SAFE before establishing or controlling any company outside the PRC for the purpose of capital financing with assets or equities of PRC companies, referred to therein as a “special purpose company.” In addition, any PRC resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration within 30 working days after any major change in the share capital of the offshore special purpose company without any return investment being made, such as any increase or decrease in share capital, stock right assignment or exchange, consolidation or subdivision of shares, investment with long term stock rights or credits, or provision of guaranty to a foreign party.

Among our four ultimate beneficial owners, Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan have obtained Macanese residency prior to December 2007, and Mr. Li Hung Kong has obtained Hong Kong residency in January 1993. Moreover, because our Company’s PRC operating subsidiaries have all been originally established as wholly foreign-owned enterprise, for the purposes of

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SAFE Circular No. 75, none of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan is considered to be holding equity interests in the form of domestic investment in domestic enterprises when they carry out offshore equity financing (including convertible bond financing) and round-trip investments with their equity interests in our PRC operating subsidiaries. Additionally, based on the confirmation letter issued by SAFE (Jinjiang branch), none of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan habitually resides in the PRC for reasons related to economic interests under SAFE Circular No.75 and therefore they are not subject to the relevant registration requirements. As advised by the Company’s PRC legal adviser, Jingtian & Gongcheng, based on all of the above, none of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hung Kong is required to register his offshore investment with SAFE. However, we may not at all times be fully informed of the identities of all our shareholders who are PRC residents and we do not have control over our shareholders. As such, we cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular No.75 and its implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular No.75 and its implementation rules or the failure of future shareholders who are PRC residents to comply with the registration requirements set out in SAFE Circular No.75 and its implementation rules may subject such beneficial owners and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to contribute additional capital to our PRC subsidiaries, limit the ability of our PRC subsidiaries to distribute dividends to us or otherwise materially and adversely affect our business.

The M&A Rules established more complex procedures for acquisitions by foreign investors, which could make it more difficult for us to pursue growth through acquisitions.

On August 8, 2006, six PRC regulatory agencies, including MOFCOM, the State Administration of Taxation, the State-owned Assets Supervision and Administration Commission, the State Administration for Industry and Commerce, CSRC, and SAFE, jointly adopted the M&A Rules, which became effective on September 8, 2006 and was revised on June 22, 2009. The M&A Rules established stringent procedures and requirements that could make merger and acquisition activities by foreign investors more timeconsuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In the future, we may expand our business in part by acquiring complementary businesses, although we have not identified any target at this time. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Failure to comply with PRC regulations in respect of the registration of our PRC citizen employees’ share options may subject such employees or us to fines and legal or administrative sanctions.

Pursuant to the Administrative Measures on Individual Foreign Exchange (個人外匯管理辦法) which was adopted on November 30, 2006 by the PBOC, the Implementation Rules of the Administration Measure for Individual Foreign Exchange (個人外匯管理辦法實施細則) issued on January 5, 2007 by the SAFE (the “Individual Foreign Exchange Rules”) and the Operating Rules on the Foreign Exchange Administration of the Involvement of Domestic Individuals in the Employee Stock Ownership Plans and Share Option Schemes of Overseas Listed Companies (境內個人參與境外上市公司員工持股計劃和認股期權計劃等外匯管理操作規程) issued on March 28, 2007 by the SAFE (“Circular 78”), PRC citizens who are granted shares or share options by an overseas listed company according to its employee share option

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or share incentive plan are required, through the PRC subsidiary of such overseas listed company or other qualified PRC agents, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan. Foreign exchange income from the sale of shares or dividends distributed by the overseas listed company must be remitted into China. In addition, the overseas listed company or its PRC subsidiary or other qualified PRC agent is required to appoint an asset manager or administrator and a custodian bank, as well as open foreign currency accounts to handle transactions relating to the share option or other share incentive plan.

Our PRC citizen employees who will be granted share options, or PRC option holders, together with us, will be subject to these rules upon the [●] of our Shares. In order to comply with the requirements of the Individual Foreign Exchange Rules and Circular 78, we will require our domestic employees to obtain approval from the SAFE or its local branches when they participate in the Share Option Scheme. If we or our PRC option holders fail to comply with these rules, we or our PRC option holders may be subject to fines and sanctions.

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DIRECTORS

Name			Address	Nationality
Executive Directors
Zheng Yu Long		Room 303, Block C		Chinese
		Xi Huan Jiao Guan
		Qing Yang Town
		Jinjiang, Fujian
		PRC
Zheng Yu Shuang		308 Wei Cuo Road		Chinese
		Que Tang Village
		Luo Shan Town
		Jinjiang, Fujian
		PRC
Zheng Yu Huan		69, South District		Chinese
		Que Tang Village
		Luo Shan Town
		Jinjiang, Fujian
		PRC
Non-executive Directors
Li Gang		Room 2212, Unit 2		Canadian
		Building 1, Wanke Sunshine Apartment
		139 Shi Fo Ying Dong Li
		Chao Yang District,	Beijing
		PRC
Li Hung Kong		Room G, 17/F,		Chinese
		Yuk Ming Towers
		202 Third Street
		Sai Ying Pun
		Hong Kong
Independent non-executive	Directors
Sun Kam Ching		Flat C, 15/F, Block	5	Chinese
		City Garden
		North Point
		Hong Kong
Li Zhi Hai		Room 202, Unit 2		Chinese
		No. 6 Building
		Yi Zhuang Yu Yuan	Li
		Daxing District, Beijing
		PRC
Chung Yau Tong		Flat A, 14/F, Ko Fung Court		Chinese
		Harbour Heights
		5 Fook Yuen Road
		North Point
		Hong Kong

– 45 –

CORPORATE INFORMATION

Registered Office


Registered Office	Clarendon House
	2 Church Street
	Hamilton HM 11
	Bermuda
Headquarters and principal place of business	Wuli Technology Industry Area
in the PRC	Jinjiang, Fujian
	PRC
Place of Business in Hong Kong	Room 1104
	Asia-Pac Commercial Centre
	10 North Point Road
	North Point
	Hong Kong
Company’s Website	http://www.lbxxgroup.com
	(information contained in this website does not
	form part of this document)
Company Secretary	Yap Yung HKICPA
Audit Committee	Chung Yau Tong (Chairman)
	Sun Kam Ching
	Li Zhi Hai
Remuneration Committee	Zheng Yu Long (Chairman)
	Chung Yau Tong
	Sun Kam Ching
Nomination Committee	Zheng Yu Shuang (Chairman)
	Li Zhi Hai
	Chung Yau Tong
Principal Bankers	Construction Bank of China, Jinjiang Branch
	Construction Bank Building
	Zeng Jin Area, Qing Yang
	Jinjiang, Fujian
	PRC
	Bank of Communications, Jinjiang Branch
	550 Fengze Street
	Quanzhou, Fujian
	PRC

– 46 –

CORPORATE INFORMATION

China CITIC Bank, Quanzhou Branch 1-2/F, Renmin Renxing Building Quanzhou, Fujian PRC Agricultural Bank of China, Tianjin Wuqing Branch Jinrong Building Northern Xinhua Road Yangcun Town Wuqing Area, Tianjin PRC

– 47 –

INDUSTRY OVERVIEW

The information and statistics in this section have been extracted and derived, in part, from various official government publications and the market study prepared for us by Euromonitor as described below. We believe that the sources of the information in this section are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. While reasonable care has been taken in the extraction, compilation and reproduction of such information and statistics, neither we, the [ ● ], the [ ● ], the [ ● ] nor any of our or their respective directors, officers or representatives or any other person or party involved in the [ ● ] has independently verified such information and statistics directly or indirectly derived from official government publications, and such parties do not make any representation as to their accuracy. Such information may not be consistent with other information compiled within or outside the PRC.

THE ECONOMY OF THE PRC

Rapid Economic Growth in China

China is one of the world’s fastest growing economies and was named as the second largest economy in the world last year, surpassing Japan. The economy in China has continued to grow rapidly since economic reforms were introduced in 1978. Since then, the PRC government has continued to emphasize raising economic productivity and improving personal income through market-oriented reforms as well as focusing on foreign trade as a major driver of economic growth. Since the introduction of these reforms, the economy in China has continued to demonstrate high growth, with real GDP growing at a CAGR of 11.0% between 2003 and 2010. Economic growth has continued to remain strong in 2010 with a real GDP growth of 10.3% in 2010. The table below sets out the nominal GDP and real GDP growth of China between 2003 and 2010:

Nominal GDP and Real GDP Growth in China

==> picture [410 x 131] intentionally omitted <==

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

45,000 25.0%
39,798
40,000
34,051
35,000 31,405 20.0%
30,000 26,581
25,000 18,494 21,631 15.0%
20,000 15,988
15,000 13,582 12.7% 14.2%
10.0%
10,000 11.3%
5,000 10.0% 10.1% 9.6% 9.1% 10.3%
0 5.0%
2003 2004 2005 2006 2007 2008 2009 2010
Real GDP Growth Nominal GDP
GDP (RMB billion) Real GDP Growth (%)
----- End of picture text -----

Source: National Bureau of Statistics of China.

– 48 –

INDUSTRY OVERVIEW

Increasing Disposable Income

Disposable income of urban and rural residents in China increased significantly on the back of rapid economic expansion. Urban disposable income increased from RMB8,472 per capita in 2003 to RMB19,109 per capita in 2010, representing a CAGR of 12.3%. Rural disposable income increased from RMB2,622 per capita in 2003 to RMB5,919 per capita in 2010, representing a CAGR of 12.3%. However, rural disposable income has exhibited stronger growth in recent years, registering a growth of 14.9% in 2010, while urban disposable income grew by 11.3% over the same period.

Urban vs. Rural Per Capita Disposable Income (RMB)

==> picture [362 x 154] intentionally omitted <==

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

19,109
17,175
15,781
13,786
11,759
10,493
9,422
8,472
5,919
4,761 5,153
4,140
2,622 2,936 3,255 3,587
2003 2004 2005 2006 2007 2008 2009 2010
Urban residence disposable income ( 城鎮居民可支配收入 ) Rural residence net income ( 農村居民純收入 )
----- End of picture text -----

Source: National Bureau of Statistics of China.

Rising Urbanization and Household Consumption

In China, the urban population has increased substantially, largely due to the significant influx of people from rural areas. The urbanization rate in China has increased from approximately 40.5% in 2003 to 49.7% in 2010. The chart below sets forth the urbanization rate in China between 2003 and 2010:

Urbanization Rate in China

(%)

==> picture [340 x 128] intentionally omitted <==

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

49.7%
46.6%
45.7%
44.9%
43.9%
43.0%
41.8%
40.5%
2003 2004 2005 2006 2007 2008 2009 2010
----- End of picture text -----

Source: National Bureau of Statistics of China.

– 49 –

INDUSTRY OVERVIEW

As residents relocate from rural areas to newly emerged cities, they earn substantially higher incomes, in higher household consumption levels. Historically, between 2003 and 2009, per capita household consumption in urban households was between 3.6 and 3.8 times higher than that of rural household consumption. In 2009, urban household consumption per capita was RMB15,025 compared to RMB4,021 in rural households. However, household consumption of rural populations has also continued to grow as a result of overall economic growth of the PRC. The chart below sets forth urban versus rural household consumption between 2003 and 2009:

Urban vs. Rural Per Capita Household Consumption in China

(RMB)

==> picture [356 x 131] intentionally omitted <==

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

15,025
13,845
12,211
10,682
9,644
8,912
8,060
3,795 4,021
2,103 2,319 2,579 2,868 3,293
2003 2004 2005 2006 2007 2008 2009
Urban Rural
----- End of picture text -----

Source: National Bureau of Statistics of China.

OVERVIEW OF CHINA’S SNACK FOOD MARKET

The China snack food market consists of two broad segments, which are (i) confectionary products and (ii) sweet and savory snacks. According to Euromonitor, the retail sales value of the China snack food market is estimated to be RMB124,952 million in 2010, in which confectionary products and sweet and savory snacks accounted for RMB64,319 million and RMB60,633 million, respectively. The confectionary products segment consists of sugar confectionary, gum and chocolate confectionary. The sweet and savory snacks segment consists of chips and crisps, extruded snacks, fruit snacks, nuts, popcorn and other sweet and savory snacks (including jelly products).

– 50 –

INDUSTRY OVERVIEW

The chart below sets forth the breakdown of the retail sales value of China snack food market in 2010:

Snack Market Breakdown in China

==> picture [176 x 202] intentionally omitted <==

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

Sweet & Savory
Snacks Confectionary
7.5%
48.5% 51.5%
23.1%
12.3%
0.0%
5.6%
5.4%
31.7%
12.7%
1.8%
Chocolate Confectionary Gum
Sugar Confectionary Chips/Crisps
Extruded Snacks Fruit Snacks
Nuts Popcorn
Other Sweet and Savory Snacks
(including Jelly Products)
----- End of picture text -----

Source: Euromonitor.

CHINA’S JELLY INDUSTRY

Overview

According to Euromonitor, China is estimated to be the largest jelly market in the world and has continued to demonstrate continued growth supported by regional consumer preferences and habits, strong economic fundamentals, rising urbanization and growing disposable income. Jelly is a well-known snack and very popular among children in China. According to Euromonitor, the estimated retail sales value of jelly products in 2010 amounted to RMB9,410 million, representing 7.5% of the China snack food market.

– 51 –

INDUSTRY OVERVIEW

According to Euromonitor, the retail sales value of all jelly products grew from RMB8,000 million in 2008 to RMB9,410 million in 2010, representing a CAGR of 8.5% and are expected to reach RMB14,016 million by 2013, representing a CAGR of 14.2% from 2010 to 2013. The jelly market has outgrown and is expected to outperform the overall snack food market, which grew at a CAGR of 5.6% between 2008 and 2010 and is expected grow at a CAGR of 7.4% from 2010 to 2013. The following chart sets forth the retail sales value of jelly products for the periods indicated:

Retail Sales Value of Jelly Products in China

(RMB in million)

==> picture [336 x 108] intentionally omitted <==

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

14,016
12,250
10,774
9,410
8,656
8,000
2008 2009 2010 2011E 2012E 2013E
----- End of picture text -----

Source: Euromonitor.

Segment in the Jelly Market

The jelly market can largely be divided into two categories: jelly snacks and jelly beverages. The jelly snacks segment accounted for 76.6% of the total jelly market in 2010 while jelly beverages accounted for 23.4%. Both jelly snacks and jelly beverages are available in various flavors in different shapes and packaging.

Jelly snacks are typically sold by weight as individually packaged ready-to-eat unit in the “pick-and-mix” specialty counters of larger modern food retailers where customers pick and pay according to the weight or the quantity of the products. It is also packaged into containers or bags and sold in pre-packaged form. “Pick-and-mix” jelly and pre-packaged jelly accounted for 70.0% and 30.0% of the total jelly snacks retail sales value in 2010 respectively. However, recent developments have shown the share of packaged jelly is increasing and is expected to account for 35.0% of the market in 2013. This is partly driven by the continuous improvement in packaging as well as promotional campaigns by manufacturers. Some manufacturers have been promoting packaged jelly as a gift item and have introduced toy shaped packaging, such as animal shaped jars, which have been increasingly popular among children.

Jelly beverages are typically sold by individual pieces. It is a relatively new product category and was introduced as an alternative to jelly snacks. It is perceived to be a safer and a more convenient product than traditional jelly snacks as small jelly snacks may pose a choking hazard and often leak when the package is opened. Currently, jelly beverages are primarily targeted toward children as the core consumer group. However, manufacturers are expected to increase their product offerings and expand into adjacent consumer groups.

– 52 –

INDUSTRY OVERVIEW

The retail sales value of jelly snacks grew from RMB6,160 million in 2008 to RMB7,208 million in 2010, representing a CAGR of 8.2% and are expected to reach RMB10,447 million by 2013, representing a CAGR of 13.2% from 2010 to 2013. Jelly beverages grew slightly faster than jelly snacks with the retail sales value growing from RMB1,840 million in 2008 to RMB2,202 million in 2010, representing a CAGR of 9.4% and are expected to reach RMB3,569 million by 2013, representing a CAGR of 17.5% from 2010 to 2013. Jelly beverages are expected to outperform jelly snacks as it is perceived to be a newer, safer and more convenient product. The charts below set forth the breakdown of the jelly market by the total retail sales value for the periods indicated:

Jelly Market Breakdown by Retail Sales Value in China

==> picture [431 x 180] intentionally omitted <==

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

2008 2010 2013E
23.0% 23.4% 25.5%
77.0% 76.6% 74.5%
Jelly Snacks Jelly Beverages
Source: Euromonitor.
----- End of picture text -----

Distribution

Jelly products are predominately distributed via modern food retailers with supermarkets and hypermarkets accounting for 55.1% of the total retail sales value while convenience stores accounting for 20.1% in 2010. Independent grocers commanded 10.6% of the total retail sales value while snack food specialists and other channels commanded a market share of 8.2% and 6.0% respectively. Share of sales though modern food retailers have been increasing at the expense of snack food specialists as snack food specialists are failing to cope with the increasing pricing pressure and competition from modern food retailers. The following chart below sets forth the breakdown of retail sales value of jelly products by distribution channels in China for 2010:

Jelly Products Retail Sales Breakdown by Distribution Channels in China for 2010

==> picture [191 x 129] intentionally omitted <==

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

Others
Independent 6.0%
Grocers
10.6%
Supermarket/
Snack Food Hypermarket
Specialists 55.1%
8.2%
Convenience
Stores
20.1%
----- End of picture text -----

Source: Euromonitor.

– 53 –

INDUSTRY OVERVIEW

Key Trends and Growth Drivers of China’s Jelly Industry

Strong economic growth, increasing consumer spending and urbanization

GDP growth and the resulting disposable income growth have been among the key drivers of the growth in demand for jelly products in China. With the rise of disposable income and increasing urbanization, consumers have a greater reach and willingness to spend on goods such as jelly products. According to National Bureau of Statistics of China, the annual per capita food and beverages consumption expenditure of rural households in China increased from approximately RMB886 in 2003 to approximately RMB1,801 in 2010, representing a CAGR of 10.7%, while the annual per capita food and beverages consumption expenditure of urban households in China increased from RMB2,417 in 2003 to approximately RMB4,805 in 2010, representing a CAGR of 10.3%. The following chart sets forth the per capita food and beverages consumption in China for the periods indicated:

Per Capita Food and Beverages Consumption

==> picture [31 x 10] intentionally omitted <==

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

(RMB)
----- End of picture text -----

==> picture [361 x 142] intentionally omitted <==

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

4,805
4,479
4,260
3,628
3,112
2,914
2,710
2,417
1,599 1,636 1,801
1,389
886 1,032 1,162 1,217
2003 2004 2005 2006 2007 2008 2009 2010
Food and Beverages Consumption Expenditure of Urban Households
Food and Beverages Consumption Expenditure of Rural Households
----- End of picture text -----

Source: National Bureau of Statistics of China.

In addition, the Chinese government is increasingly focused on private consumption as the key driver of economic growth going forward, as opposed to the previous focus on exports and foreign investment. For example, in 2008 the government announced a RMB4 trillion stimulus plan which was focused on boosting domestic demand through increased spending in areas such as low-income housing, rural infrastructure, technological innovation, transportation and infrastructure. Other initiatives undertaken by the Chinese government include testing new consumer lending policies to improve the market structure in consumer lending and facilitating more open lines of credit for consumers. China’s Twelfth Five-Year Plan for 2011-2015 seeks to create an environment for more sustainable growth by prioritizing domestic consumption, and improving social infrastructure as well as social safety nets. The plan also seeks to rebalance the economy, shifting the emphasis from investment in urban and coastal growth, towards rural and inland development.

– 54 –

INDUSTRY OVERVIEW

Increasing consumer health and food safety awareness

With improved living standards and higher disposable incomes, consumers in China are becoming more familiar with the concepts of wellness, partly as a result of consumer education programs and marketing campaigns by food companies as well as the government. China’s Twelfth Five-Year Plan for 2011-2015 places great emphasis on the development of a diet of nutritious and healthy food, particularly products that may enhance nutrient balance and improve immunity; low-sugar, low-salt and high fiber nutritious food; intensified food for supplementation of different nutrient elements for different groups, such as microelements and vitamins. These government policies provide incentives for various businesses to develop healthy products.

Increased access to information through widespread Internet usage in China has also played an important role in boosting consumers’ knowledge and awareness of health and value added food products. This increased sophistication and awareness have led to an increased demand in natural and value added products with demands particularly pronounced in urban areas. Consumers are now willing to pay more for higher quality jelly products.

According to Euromonitor, “healthy” or “better for you” jelly products are defined as jelly products, which are marketed on the basis of being “healthy” or “better for you.” This may be either through the brand name alone or through nutrient content claims such as “low fat,” “30% less sugar” or similar claims. With greater consumer health and food awareness and rising disposable incomes, consumers are increasingly demanding newer, healthier products. In response to this demand, manufacturers have launched into the market a number of new products including low fat jelly, high-calcium jelly and aloe jelly. According to Euromonitor, there has been a continued shift in demand for “healthy” or “better for you” jelly products from traditional jelly products, and this trend is expected to continue going forward. The share of “healthy” or “better for you” products as a percentage of the total jelly products retail sales value increased from 21% in 2008 to 26% in 2010. The chart below sets forth the market share of “healthy” or “better for you” jelly products by the total retail sales value for the periods indicated:

Share of “Healthy” or “Better for You” Jelly Products

(%)

==> picture [346 x 109] intentionally omitted <==

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

41%
37%
32%
26%
23%
21%
2008 2009 2010 2011E 2012E 2013E
----- End of picture text -----

Source: Euromonitor.

– 55 –

INDUSTRY OVERVIEW

Improved distribution of products throughout China

According to Euromonitor, jelly products are increasingly being purchased through modern food retailers, which include supermarkets and hypermarkets, with their market share increasing from 54.7% in 2008 to 55.1% in 2010. The share of sales through modern food retailers has been increasing steadily at the expense of snack food specialists as the latter have been struggling to cope with the increasing pricing pressure and competition from modern food retailers. The chart below sets forth the percentage of jelly products sold through modern food retailers by the retail sales value for the periods indicated:

Jelly Products Sold Through Modern Food Retailers

(%)

==> picture [339 x 104] intentionally omitted <==

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

55.1%
54.7% 54.8%
2008 2009 2010
----- End of picture text -----

Source: Euromonitor.

Leading food retailers including RT-Mart, Wal-Mart, Carrefour and China Resources Vanguard have continued to expand their store networks throughout China and are expected to continue their rapid expansion. Rising penetration of modern retail formats such as hypermarkets and supermarkets, notably into more rural areas in China, is expected to significantly improve access to jelly products. Furthermore, significant continued investment in logistics and infrastructure has helped to facilitate improvements in the distribution of jelly products to consumers.

The robust growth in modern retail network has largely been due to both leading domestic and international retail corporations, backed by significant capital and resources, establishing and expanding their presence significantly, as compared to traditional retail formats that are typically independent and owned by individuals rather than corporations.

Barriers to entry are increasing

As the number of products available to customers continue to increase, marketing and advertising as well as product differentiation have become increasingly important. Larger and more well-known brands are able to leverage their scale on marketing, branding and purchasing materials at a favorable rate.

In addition, with food safety being increasingly important to consumers, the government is responding by establishing higher standards and stricter regulations. The Chinese government created the State Food and Drug Administration or SFDA in 2003 to monitor and consolidate food safety regulations. Recently, the SFDA has increased the number of inspections as well as implemented stricter requirements on product ingredients and packaging materials. Many small-sized jelly manufacturers were not able to pass these food safety inspections and were forced to shut down. In contrast, better known brands that are trusted by consumers have continued to gain market shares. As a result, the entry barriers for the jelly industry are increasing.

– 56 –

INDUSTRY OVERVIEW

As modern retail channels continue to attract consumers and further penetrate the market, the sales value of jelly products are increasingly reliant on hypermarkets and supermarket chains. The top five jelly manufacturers have well-established distribution networks as well as strong relationships with the leading modern food retailers. With increasing entry costs and ongoing charges of hypermarkets and supermarket chains, it has become increasingly difficult for new and smaller manufacturers to enter the jelly market.

Competitive Landscape

Total Jelly Market

The jelly market is dominated by the top five jelly manufacturers with a combined market share of 48.0% in 2010 in terms of total retail sales value. Out of the top five jelly manufacturers, the Company and Fujian Qinqin have been the key consolidators in the market, taking market share away from smaller operators and increasing market share by over a percentage point between 2008 and 2010. The Company recorded the largest gain among the top five manufacturers with market share increasing from 9.0% in 2008 to 10.3% in 2010 in terms of total retail sales value of jelly products. The following table sets forth the market share of the top five manufacturers of jelly products in terms of the retail sales value for the periods indicated:

	Year ended December 31,	Year ended December 31,	Year ended December 31,

% of Total Jelly Products Retail Sales Value	2008	2009	2010

Guangdong Strong Group Co., Ltd.
(廣東喜之郎集團有限公司) . . . . . . . . . . . . . . . . . . .	19.3%	19.8%	19.7%
China Lifestyle Food and Beverages Group Limited
(中國休閒食品集團有限公司) . . . . . . . . . . . . . . . . .	9.0%	9.6%	10.3%
Want Want China Holdings Limited
(中國旺旺控股有限公司) . . . . . . . . . . . . . . . . . . . .	7.0%	7.3%	7.0%
Fujian Qinqin Co., Ltd.
(福建親親股份有限公司) . . . . . . . . . . . . . . . . . . . .	4.7%	5.4%	5.7%
Dongguan Hsu Fu Chi Foods Co., Ltd.
(東莞徐福記食品有限公司). . . . . . . . . . . . . . . . . . .	4.9%	5.0%	5.2%
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55.1%	52.9%	52.0%

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100.0%	100.0%	100.0%

Source: Euromonitor.

Note: Retail sales share reported in this table is based on the summation of the respective retail sales value reported in the jelly snacks and jelly beverages tables disclosed on p58 and p59 of this document.

According to Euromonitor, the top five jelly manufacturers by retail sales value continued to dominate and increased their market share from 44.9% in 2008 to 48.0% in 2010. In some large and medium-sized cities, the market shares of leading players accounted for more than 70% in 2010.

– 57 –

INDUSTRY OVERVIEW

Market Share of Top Five Jelly Manufacturers in China

(%)

==> picture [342 x 98] intentionally omitted <==

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

48.0%
47.1%
44.9%
2008 2009 2010
----- End of picture text -----

Source: Euromonitor.

Despite the dominance of the top five manufacturers, competition has intensified as leading jelly manufacturers continued to further expand their product offerings and new entrants continued to seek entry into the jelly market. However, despite such attempts by new entrants, the top five manufacturers have continued to gain market shares mainly due to better brand awareness and nationwide distribution networks. We believe that in the longer term, consolidations will continue in the jelly sector and similar to the historical trend seen in the overall global snack food market.

Jelly Snacks

According to the Euromonitor, our company was the second largest jelly snacks manufacturer in China with a market share of 9.0%, 9.2 and 9.4% in 2008, 2009 and 2010, respectively, in terms of the retail sales value. The following table sets forth the market shares of the top five manufacturers of jelly snacks in terms of the retail sales value for the periods indicated:

	Year	ended December	31,

% of Total Jelly Snacks Retail Sales Value	2008	2009	2010

Guangdong Strong Group Co., Ltd.
(廣東喜之郎集團有限公司) . . . . . . . . . . . . . . . . . . . . . . . . .	19.0%	19.5%	19.6%
China Lifestyle Food and Beverages Group Limited
(中國休閒食品集團有限公司) . . . . . . . . . . . . . . . . . . . . . . .	9.0%	9.2%	9.4%
Dongguan Hsu Fu Chi Foods Co., Ltd.
(東莞徐福記食品有限公司). . . . . . . . . . . . . . . . . . . . . . . . .	6.4%	6.6%	6.8%
Want Want China Holdings Limited
(中國旺旺控股有限公司) . . . . . . . . . . . . . . . . . . . . . . . . . .	6.5%	6.7%	6.3%
Fujian Qinqin Co., Ltd.
(福建親親股份有限公司) . . . . . . . . . . . . . . . . . . . . . . . . . .	4.6%	5.3%	5.5%
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54.4%	52.7%	52.3%

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100.0%	100.0%	100.0%

Source: Euromonitor.

– 58 –

INDUSTRY OVERVIEW

Jelly Beverages

According to Euromonitor, our company was the second largest jelly beverages manufacturer in China with a market share of 9.0%, 10.7% and 13.3% in 2008, 2009 and 2010, respectively, in terms of the retail sales value. Historically, the Company has been the fastest growing jelly beverages manufacturer out of the top five players with the company increasing its market share from 9.0% to 13.3% between 2008 and 2010 respectively. The following table sets forth the market shares of the top five manufacturers of jelly beverages in terms of the retail sales value for the periods indicated:

	Year ended December 31,	Year ended December 31,	Year ended December 31,

% of Total Jelly Beverages Retail Sales Value	2008	2009	2010

Guangdong Strong Group Co., Ltd.
(廣東喜之郎集團有限公司) . . . . . . . . . . . . . . . . . . .	20.1%	20.7%	19.9%
China Lifestyle Food and Beverages Group Limited
(中國休閒食品集團有限公司) . . . . . . . . . . . . . . . . .	9.0%	10.7%	13.3%
Want Want China Holdings Limited
(中國旺旺控股有限公司) . . . . . . . . . . . . . . . . . . . .	8.5%	9.1%	9.3%
Fujian Qinqin Co., Ltd.
(福建親親股份有限公司) . . . . . . . . . . . . . . . . . . . .	4.9%	5.9%	6.4%
Dongguan Jinwa Food Industry Co., Ltd.
(東莞市金娃食品工業有限公司) . . . . . . . . . . . . . . .	3.9%	3.9%	3.7%
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53.5%	49.8%	47.4%

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100.0%	100.0%	100.0%

Source: Euromonitor.

– 59 –

INDUSTRY OVERVIEW

OVERVIEW OF CHINA’S CONFECTIONARY MARKET

According to Euromonitor, the confectionary market can largely be categorized into three products categories: sugar confectionary, gum and chocolate confectionary. The total retail sales value of confectionary products grew from RMB57,817 million in 2008 to RMB64,319 million in 2010, representing a CAGR of 5.5% and are expected to reach RMB79,678 million by 2013, representing a CAGR of 7.4% from 2010 to 2013. According to Euromonitor, estimated retail sales value of confectionary products in 2010 represented 51.5% of the snack food market in China in 2010. The following chart sets forth the retail sales value of confectionary products in China for the periods indicated:

Retail Sales Value of Confectionary Products in China

(RMB in million)

==> picture [340 x 108] intentionally omitted <==

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

79,678
74,970
70,144
64,319
57,817 60,825
2008 2009 2010 2011E 2012E 2013E
----- End of picture text -----

Source: Euromonitor.

Sugar confectionary is the largest category and accounted for 61.5% of the confectionary market in 2010 followed by gum with 23.9% share and chocolate confectionary with 14.6% share. The following charts set forth the breakdown of the retail sales value of confectionary products in China for the periods indicated:

Confectionary Market Breakdown in China

==> picture [401 x 183] intentionally omitted <==

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

2008 2010 2013E
13.4% 14.6% 16.2%
23.7% 23.9% 24.3%
62.9%
61.5% 59.5%
Chocolate Confectionary
Gum
Sugar Confectionary
----- End of picture text -----

Source: Euromonitor.

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INDUSTRY OVERVIEW

The retail sales value of sugar confectionary grew at a CAGR of 4.3% from 2008 to 2010 and reached RMB39,574 million in 2010. Sales of sugar confectionary is expected to reach RMB47,424 million by 2013, representing a CAGR of 6.2% from 2010 to 2013. Similarly, the retail sales value of gum has grown at a slightly faster rate with a CAGR of 6.0% between 2008 to 2010 to reach RMB15,374 million in 2010. The sales value of gum is expected to reach RMB19,375 million in 2013 representing a CAGR of 8.0% between 2010 and 2013. Chocolate confectionary has been the fastest growing category with its retail sales value reaching RMB9,371 million in 2010 representing CAGR of 9.8% between 2008 and 2010. Furthermore, the chocolate confectionary market is expected to be the fastest segment going forward with its retail sales value expected to reach RMB12,878 million at a CAGR of 11.2% between 2010 and 2013.

SOURCES OF INFORMATION

Euromonitor

Euromonitor International Plc., founded in 1972, is a private independent provider of business intelligence on industries, countries and consumers. The information disclosed in this document from Euromonitor is extracted from a research study commissioned by us for a fee of US$22,500 and is disclosed with the consent of Euromonitor. Euromonitor used multiple primary and secondary sources to validate any data or information collected with no reliance on any single source, reflecting the consensus of industry for historic data including market size and shares. For the forecast, Euromonitor adopted its standard practice of both quantitative as well as qualitative forecast in terms of the market size, growth trends and a cross-check with established government/industry figures or trade interviews. The Euromonitor study is based on the principal assumption that current trends in disposable income and consumer tastes in China will not change significantly over the forecast period and that there will not be significant changes to current PRC government policy in relation to jelly and confectionary products.

National Bureau of Statistics of China

National Bureau of Statistics of China is an agency directly under the State Council which is in charge of statistics and economy accounting in China. National Bureau of Statistics is an Independent Third Party to the Company. The information disclosed in this document is extracted from its official published data.

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HISTORY AND CORPORATE STRUCTURE

HISTORY AND DEVELOPMENT

Our Company was incorporated under the laws of Bermuda on May 4, 2004 as an exempted company with limited liability. In order to enhance our corporate profile, increase the liquidity of our Shares and the scope of our shareholder base, expand sources of funding for our then expansion plans and capitalize on investment opportunities in Singapore and other countries in South-east Asia, our Company was listed on the SGX-ST on August 26, 2005. Our Company was subsequently delisted from the SGX-ST on May 6, 2010. For further details, please refer to the paragraph “— Delisting from SGX-ST” in this section.

Our history can be traced back to 2000, when Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan began their business of producing jelly snacks and beverages through Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司), a privately owned company established in the PRC and operated by their father since 1991. In early 2000, witnessing growth in the jelly products market and seeing great potential for further growth and expansion, Mr. Li Hung Kong (the brother-in-law of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan), through Jen Yuon Trading Co., a sole proprietorship established in Hong Kong, established LBXX Fujian as a wholly owned foreign enterprise on March 15, 2000 and acquired the jelly business of Jinjiang Weili Foods Co., Ltd. in 2000. LBXX Fujian was established with a total investment capital of HK$73,330,000 and a registered capital of HK$38,880,000. LBXX Fujian is primarily engaged in the manufacture of jelly snacks and beverages. After LBXX Fujian’s acquisition of the jelly business of Jinjiang Weili Foods Co., Ltd., Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan, all of whom were then the core management personnel of Jinjiang Weili Foods Co., Ltd., were invited by Mr. Li Hung Kong to continue managing the business of LBXX Fujian. On March 7, 2005, the registered capital of LBXX Fujian was increased from HK$38,880,000 to HK$53,880,000.

As part of the reorganization of our Company’s [●] on the SGX-ST, on August 1, 2003, Timeluck, which was at that time wholly owned by Mr. Li Hung Kong, acquired 100% of the registered capital of LBXX Fujian from Jen Yuon Trading Co., for a cash consideration of HK$38,880,000. After completion of such acquisition, LBXX Fujian became a wholly owned subsidiary of Timeluck. Pursuant to a sale and purchase agreement dated June 18, 2004 (as supplemented by a supplemental agreement dated December 20, 2004), our Company acquired the entire issued share capital of Timeluck from Mr. Li Hung Kong for a consideration of RMB134,205,987, which was satisfied by (i) the allotment and issuance of an aggregate of 16,219,977 new ordinary shares of US$1.00 each in the capital of our Company credited as fully paid, to Mr. Li Hung Kong (as to 76%), Mr. Zheng Yu Long (as to 8%), Mr. Zheng Yu Shuang (as to 8%) and Mr. Zheng Yu Huan (as to 8%) (collectively, the “Allottees”); and (ii) crediting as fully paid the 12,000 nil-paid ordinary shares of US$1.00 each, issued to the Allottees on June 1, 2004. The consideration of such acquisition was determined on an arm’s length basis taking into account the audited net tangible asset of Timeluck as of December 31, 2003 of RMB134,205,987. Upon completion of this acquisition, Timeluck became our wholly owned subsidiary.

On December 28, 2004, Alliance Holding was incorporated in the BVI by the Allottees as an investment holding company, and owned as to 76% by Mr. Li Hung Kong, 8% by Mr. Zheng Yu Long, 8% by Mr. Zheng Yu Shuang and 8% by Mr. Zheng Yu Huan. On March 28, 2005, the Allottees transferred their respective interests in our Company to Alliance Holding. As part of the family arrangement, on October 16, 2006, Mr. Li Hung Kong, Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan entered into a shareholders agreement, pursuant to which Mr. Li Hung Kong agreed to transfer 20% of the issued share capital of Alliance Holding to each of Mr. Zheng Yu Long, Mr. Zhang Yu Shuang and Mr. Zheng Yu Huan. After completion of such transfers, Alliance Holding was owned as to 16% by Mr. Li Hung Kong, 28% by Mr. Zheng Yu Long, 28% by Mr. Zheng Yu Shuang and 28% by Mr. Zheng Yu Huan.

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HISTORY AND CORPORATE STRUCTURE

On March 7, 2005, the registered capital of LBXX Fujian was increased from HK$38,880,000 to HK$53,880,000. With a view to increasing our production capacity to accommodate the increasing demand for our products in the northern region of China, we established LBXX Tianjin on January 24, 2006 with a registered capital of HK$200,000,000 to operate our production facility in Tianjin Municipality, which manufactures primarily jelly products. LBXX Tianjin is wholly owned by Timeluck. On October 13, 2010, the registered capital of LBXX Tianjin was increased from HK$200,000,000 to HK$228,080,000.

With a view to increasing our production capacity and accommodating the increasing demand for our products in the western region of China, we established LBXX Sichuan on January 17, 2008 with a registered capital of HK$150,000,000. LBXX Sichuan is wholly owned by LBXX Holdings. We set up our production facilities in Sichuan to manufacture primarily jelly snacks and beverages and powdered milk tea.

On April 11, 2008, Rise Mount was incorporated in the BVI. On October 13, 2008, Rise Mount was acquired by Alliance Holding as a special purpose vehicle for the purpose of the delisting of our Shares from SGX-ST in 2009. On December 7, 2009, Alliance Holding, Mr. Zheng Yu Long, Ms. Ke Hai Rong, Mr. Or Kin Nam, Mr. Yap Yung and Rise Mount entered into a subscription agreement, pursuant to which Alliance Holding, Mr. Zheng Yu Long, Ms. Ke Hai Rong, Mr. Or Kin Nam and Mr. Yap Yung agreed to transfer their respective 308,039,540 Shares, 30,490,000 Shares, 24,620,000 Shares, 18,609,000 Shares and 500,000 Shares, representing approximately 61.2%, 6.1%, 4.9%, 3.7% and 0.1% of the issued share capital of our Company, to Rise Mount and in consideration of such transfers, Rise Mount agreed to issue and allot 8,057 shares, 798 shares, 644 shares, 487 shares and 13 shares to Alliance Holding, Mr. Zheng Yu Long, Ms. Ke Hai Rong, Mr. Or Kin Nam and Mr. Yap Yung, respectively. Following completion of such allotments on April 9, 2010, each of Alliance Holding, Mr. Zheng Yu Long, Ms. Ke Hai Rong, Mr. Or Kin Nam and Mr. Yap Yung held approximately 80.6%, 8.0%, 6.4% 4.9% and 0.1% of the issued share capital of Rise Mount, which in turn held approximately 76% of the issued share capital of our Company.

As part of our geographical strategic expansion plan, we established LBXX Anhui on November 3, 2010 with a registered capital of HK$180,000,000 with an intent to construct a new production facility in Chuzhou, Anhui Province. LBXX Anhui is wholly owned by LBXX Holdings. We intend to start manufacturing primarily jelly snacks and jelly beverages at our Anhui production facility in 2013. Details of the production expansion plan of our Anhui production facility are provided in “Business – Production Process and Production Facilities – Production Expansion Plan.”

BUSINESS MILESTONES

The following is a summary of our key business development milestones:

2000 • We established our first production facility in Jinjiang, Fujian Province and began to produce and sell jelly snacks.
We were authorized by Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司) to use the core trademark “ ” in the PRC and began to market our jelly products under the core trademark “ .”

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HISTORY AND CORPORATE STRUCTURE

2001 • We expanded our range of jelly snacks to include fruit-flavored jellies and jellies filled with canned fruit, and our range of products to include jelly beverages.
2002 • We were awarded the National Quality Reliable Foods Award (國家監督抽查合格－全國質量信得過食品表彰公告證書) by the China Food Industry Association in October 2002. This award is conferred on companies that are recognized for the quality of their food products in the PRC.
2003 • LBXX Fujian was awarded the quality system certification issued by the National Quality Assurance Limited certifying that LBXX Fujian has established and implemented a quality management system in conformity with ISO 9001:2000 and has met the requirements under the Food Act CAC/RCP 1-1969 (Rev. 3-1997) and HACCP System and Application Rules.
LBXX Fujian was awarded the ISO 14001:2004 certification for environment management system.
LBXX Fujian was awarded the occupational health and system management certification issued by Beijing New Century Certification Co., Ltd. certifying that LBXX Fujian has established and implemented an occupational health and safety management system in conformity with GB/T28001-2001.
2004 • We expanded our products to include confectionary products under the “ ” brand.
Our products under the “Labixiaoxin” brand was named a “China Top Brand Product (中國名牌產品)” by the National Quality, Supervision, Inspection and Quarantine Bureau.
2005 • As part of our strategic expansion plans to explore the market in the northern region of China, we set up a production facility in Xiqing Industrial Zone, Tianjin Municipality.
LBXX Fujian was awarded the quality management system certification issued by Beijing New Century Certification Co., Ltd. certifying that LBXX Fujian has established and implemented an occupational health and safety management system in conformity with ISO 9001:2008.
2006 • We expanded our range of products to include powdered milk tea.
We were awarded the Top 10 Food Safety Enterprise by the Organizing Committee of China Food Safety Annual Conference (中國食品安全年會組委會).
To accommodate the increasing demand for our products, we commenced the construction of a new production facility in Wuqing Industrial Zone, Tianjin Municipality.

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HISTORY AND CORPORATE STRUCTURE

2007 • Our trademark “ ” was recognized as a “China Well-Known Trademark” (中國馳名商標) by the SAIC.
We began to collaborate with key account customers including RT-Mart, a hypermarket chain with nationwide and regional presence, to sell our jelly products.
2008 • Construction of our new production facility in Wuqing Industrial Zone, Tianjin Municipality was completed. Our production facility in Xiqing Industrial Zone, Tianjin Municipality was then relocated to merge with the new production facility in Wuqing Industrial Zone. Following such merger, the annual production capacity of our production facility in Wuqing Industrial Zone was increased to approximately 55,000 tons, and our Group’s total annual production capacity was then increased to over 100,000 tons.
LBXX Tianjin was awarded the ISO 14001:2004 certification for environment management system.
LBXX Fujian and LBXX Tianjin were awarded the food safety management system based on HACCP certification issued by the Beijing New Century Certification Co., Ltd. certifying that LBXX Fujian and LBXX Tianjin have met the food safety management requirements under the HACCP System General Evaluation Code.
2009 • LBXX Fujian was awarded the New and High-Tech Enterprise Award by Fujian Provincial Department of Science & Technology (福建省科學技術廳), Fujian Provincial Department of Finance (福建省財政廳), Fujian Provincial Office, SAT (福建省國家稅務局) and Fujian Provincial Local Taxation Bureau (福建省地方稅務局).
2010 • As part of our production expansion plan into the western region of China, we commenced production at our facility in Chengdu, Sichuan Province, which has an annual production capacity of 50,000 tons.
We began to market and sell a small quantity of dried bean curd products in late 2010 under the “ ” brand.
2011 • As of October 31, 2011, we worked with over 190 independent wholesale distributors, covering 31 provinces, municipalities and autonomous regions in China.
As part of our strategic geographical expansion plan, we commenced construction of a new production facility in Chuzhou, Anhui Province in August 2011, which is expected to have an annual production capacity of 90,000 tons when it becomes operational.

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HISTORY AND CORPORATE STRUCTURE

DELISTING FROM SGX-ST

Our Company was incorporated under the laws of Bermuda on May 4, 2004 as an exempted company with limited liability, and was listed on the SGX-ST on August 26, 2005. We remained listed on the SGX-ST for more than four years, during which time we did not breach any requirement of the [●] of the SGX-ST and were not subject to any disciplinary action, whether private or public, by the SGX-ST or other regulatory authorities in Singapore.

The following chart sets forth our corporate and shareholding structure immediately before the Delisting:

==> picture [366 x 190] intentionally omitted <==

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

Zheng Yu Long Zheng Yu Shuang Zheng Yu Huan Li Hung Kong
28% 28% 28% 16%
Alliance Holding Ke Hai Rong Or Kin Nam Yap Yung
(BVI) (Note 1) (Note 2) (Note 3)
8.0% 80.6% 6.4% 4.9% 0.1%
Rise Mount Po Sang Group Sun Kam Ching Or Hon Fai Other public
(BVI) (BVI) (Note 5) (Note 6) shareholders
(Note 4)
90.8% 4.0% 2.1% 0.3% 2.8%
Our Company
(Bermuda)
----- End of picture text -----

==> picture [407 x 150] intentionally omitted <==

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

100% 100% 100% 100%
LBXX LBXX
Investments LBXX Holdings Timeluck International
(Hong Kong) (BVI)
(Hong Kong) (BVI)
32%
50% 100% 100% 100% Super Lifestyle
Food
Coco Foods LBXX Sichuan LBXX Fujian LBXX Tianjin (PRC)
(Note 8 )
(Note 7) (PRC) (PRC) (PRC)
50%
Ningxia Yin’ou
(PRC)
( Note 9)
----- End of picture text -----

Notes:

(1) Ms. Ke Hai Rong was an employee of LBXX Fujian. She resigned in 2010.
(2) Mr. Or Kin Nam is an employee of LBXX Fujian. He is the son of Mr. Or Hon Fai.
(3) Mr. Yap Yung is our chief financial officer and company secretary.
(4) Po Sang Group is principally engaged in investment holding and is wholly owned by Mr. Li Lai Ming, an Independent Third Party. Po Sang Group holds its interest in our Company through its nominee, Merrill Lynch (Singapore) Pte Ltd..
(5) Ms. Sun Kam Ching is our independent non-executive Director.
(6) Mr. Or Hon Fai was an employee of LBXX Fujian. He retired in 2006. He is the father of Mr. Or Kin Nam.

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HISTORY AND CORPORATE STRUCTURE

(7) The remaining 50% was held by Cocoaland Industry Sdn. Bhd, an Independent Third Party. In June 2010, Coco Foods was subsequently disposed of to an Independent Third Party at a consideration of US$425,000, which was determined with reference to the estimated value of the assets of Coco Foods as of the date of such disposal, after arm’s length negotiations between the parties.
(8) The remaining 68% is held as to 50% by Super Coffeemix Group, an Independent Third Party, and 18% by Chance Cove Group Limited, which is in turn wholly owned by Mr. Zheng Yu Long.
(9) The remaining 50% is held by Ningxia Jiali Bio-Tech Co., Ltd. (寧夏佳立生物科技公司), an Independent Third Party.

On December 9, 2009, our Company and Rise Mount announced the Delisting Offer. The Delisting Offer was conditional on, inter alia, (i) approval of the Delisting by Shareholders holding at least 75% of the total number of issued Shares, (ii) Shareholders holding less than 10% of the total number of issued Shares voting against the Delisting, and (iii) a confirmation by the SGX-ST that it has no objection to the application by our Company for the Delisting. A special general meeting was held on April 7, 2010 and resolution was passed to approve the Delisting.

The terms of the Delisting Offer were as follows:

(i) Rise Mount offered to pay S$0.178 (approximately HK$1.07) in cash for each offer Share and this price was applicable to any number of Shares tendered in acceptance of the Delisting Offer;
(ii) Shareholders could choose to accept the Delisting Offer in respect of all or part of their holdings of the Shares; and
(iii) the Shares acquired by Rise Mount were fully paid and free from all encumbrances and other third-party rights.

The reasons for the Delisting, amongst others, were as follows:

(a) Low Trading Liquidity

Based on the historical trading records, the liquidity of our Shares on the SGX-ST had been generally low. The Delisting Offer provided an exit opportunity for those Shareholders who wished to realize their entire investment in our Shares but had found it difficult to do so as a result of the low trading liquidity of our Shares.

(b) Greater Management Flexibility

The Delisting would facilitate greater management flexibility in the utilization and deployment of the resources of our Group. Our Company would also dispense with the expenses relating to the maintenance of a listed status and focus its resources on its business operations. Given the distance between China and Singapore and with our Group’s operations and expansion plans based predominantly in China and taking into account the liquidity of our Shares on the SGX-ST, our then Directors had considered that it was not cost effective and efficient to deploy our resources in Singapore. The Delisting would allow our Company to rationalize the management, resources and cost structure of our Group’s businesses in China for greater efficiency and competitiveness.

(c) Attractive Premium

The Delisting offered minority Shareholders an opportunity to realize the value of their investments in our Company at a premium over the historical trading prices of our Shares on the SGX-ST, an option which may not otherwise have been readily available.

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HISTORY AND CORPORATE STRUCTURE

Pursuant to the Delisting Offer, Rise Mount purchased our Shares from Shareholders who accepted the Delisting Offer at S$0.178 (approximately HK$1.07) per Share. Our Company was subsequently delisted from the SGX-ST on May 6, 2010. Thereafter, Rise Mount acquired the remaining minority Shareholders’ Shares (save for Ms. Sun Kam Ching, Mr. Or Hon Fai and Po Sang Group) on October 8, 2010 pursuant to a compulsory acquisition.

The following chart sets forth our shareholding structure immediately before the Delisting:

==> picture [346 x 178] intentionally omitted <==

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

Zheng Yu Long Zheng Yu Shuang Zheng Yu Huan Li Hung Kong
28% 28% 28% 16%
Alliance Holding Ke Hai Rong Or Kin Nam Yap Yung
(BVI)
8.0% 80.6% 6.4% 4.9% 0.1%
Rise Mount (BVI ) Po Sang Group (BVI ) Sun Kam Ching Or Hon Fai shareholders Other public
(Note)
90.8% 4.0% 2.1% 0.3% 2.8%
Our Company
(Bermuda)
----- End of picture text -----

Note: Po Sang Group holds its interest in our Company through its nominee, Merrill Lynch (Singapore) Pte Ltd..

The following chart sets forth our shareholding structure immediately after the Delisting and completion of the abovementioned compulsory acquisition:

==> picture [299 x 178] intentionally omitted <==

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

Zheng Yu Long Zheng Yu Shuang Zheng Yu Huan Li Hung Kong
28% 28% 28% 16%
Alliance Holding Ke Hai Rong Or Kin Nam Yap Yung
(BVI)
8.0% 80.6% 6.4% 4.9% 0.1%
Rise Mount Po Sang Group
(BVI) Sun Kam Ching Or Hon Fai
(BVI)
(Note)
96.0% 3.6% 0.1% 0.3%
Our Company
(Bermuda)
----- End of picture text -----

Note: Po Sang Group holds its interest in our Company through its nominee, Merrill Lynch (Singapore) Pte Ltd..

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HISTORY AND CORPORATE STRUCTURE

SHAREHOLDERS RESTRUCTURING

On January 3, 2011, Mr. Zheng Yu Long transferred 49 shares of Rise Mount, representing approximately 0.5% of the issued share capital of Rise Mount, to Mr. Yap Yung at nil consideration in recognition of Mr. Yap Yung’s contribution to the success of our privatization and the Delisting in May 2010. Upon completion of such transfer, Mr. Yap Yung holds 62 shares, representing approximately 0.6% of the issued share capital of Rise Mount.

On January 3, 2011, with a view to realizing her investments and assets, Ms. Ke Hai Rong transferred her entire 644 shares of Rise Mount, representing approximately 6.4% of the issued share capital of Rise Mount, to Mr. Zheng Yu Long at a consideration of HK$20,647,610. Upon completion of such transfer, Ms. Ke Hai Rong ceased to be a shareholder of Rise Mount.

In recognition of the contribution made by Kangta Investments Limited (“Kangta Investments”), a business partner and an Independent Third Party, in bringing in business opportunity to our Group, on February 16, 2011, Rise Mount transferred 2,000,000 Shares to Kangta Investments for a consideration of HK$3,000,000. Kangta Investments held approximately 0.4% of the issued share capital of our Company as of the date of completion of such transfer.

In preparation of the [●] and as part of the shareholders restructuring after the Delisting, Mr. Zheng Yu Long, Mr. Or Kin Nam and Mr. Yap Yung transferred their respective 1,393 shares, 487 shares and 62 shares of Rise Mount, representing approximately 13.9%, 4.9% and 0.6% of the issued share capital of Rise Mount, respectively, to Alliance Holding. In consideration of such transfers, on March 18, 2011, Rise Mount transferred 66,974,237 Shares, 23,420,931 Shares and 3,000,000 Shares to Mr. Zheng Yu Long, Mr. Or Kin Nam and Mr. Yap Yung, respectively. Each of Mr. Zheng Yu Long, Mr. Or Kin Nam and Mr. Yap Yung held approximately 13.3%, 4.7% and 0.6% of the issued share capital of our Company as of the date of completion of such transfers.

On March 18, 2011, Rise Mount transferred 387,527,432 Shares, representing approximately 77.0% of the then issued share capital of our Company, to Alliance Holding at a consideration of S$17,849,947.52. Upon completion of such transfer, Alliance Holding held 387,527,432 Shares, representing approximately 77.0% of the issued share capital of our Company as of the date of completion of such transfer.

PRE-[ ● ] INVESTMENT

On March 21, 2011, our Company entered into the Subscription Agreement with COFCO BVI, an Independent Third Party, pursuant to which our Company agreed to allot and issue to COFCO BVI, and COFCO BVI agreed to subscribe for an aggregate of 43,754,922 Shares, representing approximately 8.0% of the then enlarged issued share capital of our Company immediately following completion of the Pre-[●] Investment, and approximately 6.4% of the then enlarged issued share capital of our Company upon completion of [●] (but taking no account of any Shares which may be allotted and issued upon the exercise of the [●] or pursuant to the exercise of options which may be granted under the Share Option Scheme). The total consideration for the Shares paid by COFCO BVI pursuant to the Subscription Agreement was approximately RMB139,130,435.6 (equivalent to approximately HK$164,846,487.6, which is based on the exchange rate of HK$1.00 to RMB0.8440) (the “Consideration”), and the price per Share is approximately HK$2.37 (the “Subscription Price”) after the Pre-[●] Investment and [●]. [●]. The Consideration was

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HISTORY AND CORPORATE STRUCTURE

arrived at after arm’s length negotiations with COFCO BVI with reference to the agreed assessment of the value of our Group at the time of signing the Subscription Agreement. We received the proceeds from COFCO BVI in relation to the subscription on March 24, 2011.

COFCO BVI, a company incorporated in the BVI with limited liability on July 29, 2010 is principally engaged in the business of investment holding. COFCO BVI is a wholly owned subsidiary of COFCO (BVI) Limited, which is in turn wholly owned by COFCO Corporation, a wholly state-owned company incorporated in the PRC currently under the purview of the State-owned Assets Supervision and Administration Commission, and is an Independent Third Party. COFCO Corporation is a leading diversified agricultural and food products and services supplier in China. COFCO BVI is operationally managed by COFCO Agricultural Industrial Investment Fund Management Company Limited, which specializes in management of equity investments in agriculture and food business in China.

As of the Latest Practicable Date, the net proceeds from the Pre-[●] Investment were principally used as capital expenditures for the construction of our production facilities in Anhui province and as general working capital.

The Shares subscribed by COFCO BVI pursuant to the Subscription Agreement will be counted as part of [●] given that COFCO BVI is solely a strategic investor in our Group and is an Independent Third Party.

In conjunction with the Subscription Agreement, on March 24, 2011, Alliance Holding, COFCO BVI, Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hong Kung (the individuals being the “Founders”) entered into the Investment Agreement pursuant to which COFCO BVI has been granted the following rights including without limitation:

• Tag along rights

If Alliance Holding intends to sell or transfer any of its Shares (the “Transferred Shares”) to any person prior to the [●], it shall give a written notice (the “Transfer Notice”) to COFCO BVI prior to such sale or transfer, and COFCO BVI shall have the tag along right to participate in such sale of the Transferred Shares on the terms and conditions set forth in the Transfer Notice.

• Right of first refusal

If Alliance Holding intends to sell all its Shares, COFCO BVI shall have the right of first refusal to purchase all the Shares held by Alliance Holding on the terms and conditions stated in the Transfer Notice.

• Put Option

In consideration of HK$1.00, Alliance Holding has granted COFCO BVI a put option (the “Put Option”) to require Alliance Holding to purchase all of the Shares held by COFCO BVI (the “Put Option Shares”) during the period of 30 days following the expiry of 18 months after March 24, 2011 if a [●] has not occurred within 18 months after the date of the Investment Agreement at a price equal to an amount which will yield an internal rate of return of 15% on the Consideration. In the event that the exercise of the Put Option shall result in the violation by our Company, Alliance Holding or its respective associates under the [●], or such applicable rules and regulations, the exercise period shall be extended for a period of 30 business days on and from the first business day pursuant to which the Put Option can be validly exercised. The Put Option will be terminated upon [●].

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HISTORY AND CORPORATE STRUCTURE

For the purpose of the Investment Agreement, the term [●] means the [●] on the [●] with the market capitalization of not less than the Hong Kong dollars equivalent of [●] on the [●], the calculation of such market capitalization shall be the [●] multiplied by the total number of Shares issued by our Company as of the [●], and for the avoidance of doubt shall include such Shares held by Alliance Holding, COFCO BVI, the other Shareholders and [●].

Adjustment mechanism
(a) Pursuant to the adjustment mechanism provided in the Investment Agreement, COFCO BVI shall have the right to request Alliance Holding by way of written notice (the “Additional Shares Transfer Notice”) to transfer such number of additional Shares to COFCO BVI in the event that the performance target of RMB204,624,000 (the “Performance Target”), which has been set and benchmarked against the consolidated net profit of our Group for the year ending December 31, 2011 (the “2011 Net Profit”), cannot be met, provided that such transfer shall not (i) result in Alliance Holding holding less than 51% of the then issued share capital of our Company following the transfer, and in such event, the number of shortfall Shares which are not transferred to COFCO BVI, shall be payable in cash as determined in accordance with the formula set out below (the “Cash Compensation”), or (ii) affect the [●], or result in the violation by our Company, Alliance Holding or its respective associates of the [●], requirements of the [●] or such applicable rules and regulations, and in such event, Alliance Holding shall have a right to elect either to (A) reduce the number of additional Shares to be transferred to COFCO BVI and pay the shortfall through Cash Compensation, or (B) pay the shortfall through full Cash Compensation, or (C) extend the date of the transfer of such additional Shares to a date falling 30 business days after which such transfer of additional Shares shall be valid according to the [●], the requirements of the [●] or such applicable rules and regulations.

The number of the aforementioned additional Shares to be transferred to COFCO BVI in the event that the 2011 Net Profit cannot meet the Performance Target shall be calculated in accordance with the following formula:

Number of additional Shares Performance Target = x A – A to be transferred to COFCO BVI ( 2011 Net Profit )

A = the number of Shares held by COFCO BVI on the date of the Additional Shares Transfer Notice

The Performance Target is a subjective target negotiated and agreed to among the parties as part of the terms of the Investment Agreement, and should not be considered as a profit forecast of our Company.

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HISTORY AND CORPORATE STRUCTURE

The amount of Cash Compensation shall be calculated in accordance with the following formula:

A A + C Cash Compensation = [Performance Target x – 2011 Net Profit x ] x 8.5* B B

  - A = the number of Shares held by COFCO BVI on the date of the Additional Shares Transfer Notice

  - B = the total issued Shares on the date of the Additional Shares Transfer Notice

  - C = the number of additional Shares which Alliance Holding agreed to transfer to COFCO BVI pursuant to (a)(i) and (a)(ii)(A) above, and in the event Alliance Holding elects to provide full Cash Compensation to COFCO BVI for the shortfall, C = 0

  - Such number was determined after arm’s length negotiations between the parties.

(b) As collateral for the performance of its obligations described above, Alliance Holding agreed to pledge 65,632,383 Shares (the “Pledge”) to COFCO BVI, and the Pledge will be automatically terminated and released upon the earlier of (i) the fulfillment of its obligations to transfer the additional Shares and/or pay the shortfall in cash as set out in paragraph (a) above, or (ii) in accordance with the terms of the Investment Agreement, Alliance Holding is not required to transfer the additional Shares to COFCO BVI or has no relevant obligations towards COFCO BVI under the Investment Agreement, or (iii) the consummation of the [●].
Information Rights

Pursuant to the Investment Agreement, COFCO BVI was given miscellaneous information rights such as the right to inspect and obtain financial records and audited accounts of our Company in its capacity as a Shareholder. Such information rights of COFCO BVI as set forth in the Investment Agreement will cease to have effect upon [●].

Termination of special rights upon [ ● ]

The Investment Agreement will terminate upon the earlier of (a) the [●], (b) the parties agreeing to terminate the Investment Agreement, (c) the liquidation, administration, winding-up, bankruptcy or dissolution of our Company, or (d) COFCO BVI ceasing to hold any Shares, or (e) in respect of any party which undergoes liquidation, administration, winding-up, bankruptcy or dissolution, the right of any other party to terminate the Investment Agreement, save for any provisions which are expressed to continue in force after termination.

Save for the performance target adjustment right disclosed in subsection (a) of the paragraph headed “Adjustment mechanism” in this section, which shall terminate upon termination of the Investment Agreement, all other special rights granted to COFCO BVI will be terminated upon [●].

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HISTORY AND CORPORATE STRUCTURE

LOCK-UP UNDERTAKING GIVEN BY COFCO BVI

COFCO BVI has entered into a deed of undertaking in favor of our Company (“Deed of Undertaking”), pursuant to which COFCO BVI has agreed that save as pursuant to the [●], the [●], without the prior written consent of the Company, and unless in compliance with the applicable [●], that at any time in the six month period commencing on the [●], it shall not:

(i) offer, pledge, charge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, conditionally or unconditionally, any share capital or other securities of our Company or any interest therein (including, but not limited to any securities that are convertible into or exercisable or exchangeable for, or that represent the right to receive, any such capital or securities or any interest therein); or
(ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any such capital or securities or any interest therein; or
(iii) enter into any transaction with the same economic effect as any transaction described in (i) or (ii) above; or
(iv) offer or agree or contract to, or publicly announce any intention to enter into, any transaction described in (i), (ii) or (iii) above,

whether any of the foregoing transaction is to be settled by delivery of such capital or such other securities, in cash or otherwise and, in each case, with respect to the interest in our Company beneficially held by COFCO BVI as at the [●].

COFCO BVI has further undertaken pursuant to the Deed of Undertaking that it shall not apply for and shall procure all of its associates not to apply for any Shares under the [●].

STRATEGIC COOPERATION RELATIONSHIP WITH COFCO

(a) Supply of raw materials: COFCO has agreed (i) to supply us with raw materials which are of the standard required by the PRC or a higher quality standard; (ii) to supply its self-produced raw materials including but not limited to syrup for our jelly products and ensure the quality of such raw materials; (iii) to ensure the quality of the raw materials including but not limited to flavoring essence manufactured by third-party suppliers engaged by COFCO and supplied to us by COFCO; and (iv) to ensure that we will have priority over its other customers in respect of raw materials required by us in the event of shortage of raw materials supply.

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HISTORY AND CORPORATE STRUCTURE

(b) Jointly develop new products: We and COFCO have agreed to cooperate and jointly develop new products and such cooperation shall include, without limitation, feasibility studies on new products, design and development of new products, production of new product samples, product sample testing and protection of intellectual property rights of such new products. We will be the sole proprietor of any intellectual property rights arising from any joint product development projects, with COFCO having the priority right to use such intellectual property.
(c) Share information relating to the food and beverage industry: We and COFCO have agreed to share with each other information relating to the food and beverage industry including but not limited to government policies on food safety and the technology concepts and experience of our and COFCO’s management team.
(d) Favorable and flexible payment term: COFCO has agreed to provide us with a favorable and flexible payment term including a longer credit period.
(e) Share information relating to business resources: We and COFCO have agreed to share with each other information relating to business resources including but not limited to raw materials suppliers information, product distribution channels and sales channels.

Given the experience in the food and beverage business of COFCO Corporation and/or its associates in the PRC, we believe that our strategic cooperation with COFCO will further enhance our corporate governance standards, as well as provide strategic input and guidance in our Group’s mid- and long-term development.

CORPORATE AND SHAREHOLDING STRUCTURE

The following chart sets forth our corporate and shareholding structure immediately before the completion of the [●]:

==> picture [424 x 251] intentionally omitted <==

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

Zheng Yu Long Zheng Yu Shuang Zheng Yu Huan Li Hung Kong
28% 28% 28% 16%
Alliance Po Sang Group InvestmentsKangta COFCO BVI
Holding Or Kin Nam Yap Yung (BVI) Sun Kam Ching Or Hon Fai (BVI) (BVI)
(BVI) (Note 1) (Note 2)
12.2% 70.9% 4.3% 0.5% 3.3% 0.1% 0.3% 0.4% 8.0%
Our Company
(Bermuda )
100% 100% 100% 100%
Investments LBXX LBXX Holdings Timeluck International LBXX
(Hong Kong) (BVI)
(Hong Kong ) (BVI )
32%
100% 100% 100% 100% Super Lifestyle
Food
LBXX Sichuan LBXX Anhui LBXX Fujian LBXX Tianjin (PRC)
(PRC) (PRC) (PRC) (PRC) (Note 3 )
50%
Ningxia Yin’ou
(PRC)
( Note 4)
----- End of picture text -----

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HISTORY AND CORPORATE STRUCTURE

Notes:

(1) Po Sang Group holds its interest in our Company through its nominee, Merrill Lynch (Singapore) Pte Ltd..
(2) Kangta Investments is principally engaged in investment holding and is wholly owned by Mr. Wong Kin Ping, an Independent Third Party.
(3) The remaining 68% is held as to 50% by Super Coffeemix Group, an Independent Third Party, and 18% by Chance Cove Group Limited, which is in turn wholly owned by Mr. Zheng Yu Long.
(4) The remaining 50% is held by Ningxia Jiali Bio-Tech Co., Ltd. (寧夏佳立生物科技公司), an Independent Third Party.

M&A Rules

In August 2006, six PRC regulatory agencies promulgated the M&A Rules regulating mergers and acquisitions of domestic enterprises by foreign investors. The M&A Rules, which became effective in September 2006 and re-issued in June 2009, purport to require that an offshore special purpose vehicle (the “SPV”) formed for [●] purposes and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to the [●] and trading of such SPV’s securities on an overseas stock exchange, especially in the event that the SPV acquires shares of or equity interests in the PRC companies in exchange for the shares of offshore companies. According to Article 2 of the M&A Rules, “takeover of a domestic enterprise by a foreign investor” is defined as a situation where a foreign investor purchases by agreement the equity interests of a domestic non-foreign-invested enterprise (“Domestic Company”) or subscribes to the increased capital of a Domestic Company, and thus changes the Domestic Company into a foreign-invested enterprise; or a foreign investor establishes a foreign- invested enterprise, and through which it purchases by agreement the assets of a Domestic Company and operates its assets; or a foreign investor purchases by agreement the assets of a Domestic Company, and then uses such assets to invest in and establish a foreign-invested enterprise through which it operates the assets.

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BUSINESS

OVERVIEW

of 10.3% in 2010 in terms of retail sales value. We market our products under our core brand, “ ” (“Labixiaoxin”) as well as other sub-brands. Our “Labixiaoxin” brand is a well-recognized snack food brand in China and was recognized as a “China Well-Known Trademark” (中國馳名商標) by the SAIC in 2007. We offer a broad range of quality snack food products. Our main products are jelly products, which comprise jelly snacks and jelly beverages. We also market and sell confectionary products which primarily include lollipops, milk candies, gummy candies and chocolates. Our other products, primarily comprise powdered milk tea. For the year ended December 31, 2010, sales from our jelly products, confectionary products and other products accounted for 83.3%, 11.4% and 5.3% of our sales, respectively.

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Our sales grew from RMB721.1 million in 2008 to RMB771.4 million in 2009 and RMB931.7 million in 2010 and, according to Euromonitor our share of the total jelly products retail sales value in China grew steadily from 9.0% in 2008 to 9.6% in 2009 and 10.3% in 2010. Our profit for the year was RMB68.6 million, RMB53.5 million and RMB147.8 million in 2008, 2009 and 2010 respectively. Our sales grew by 46.6% from RMB414.4 million for the five months ended May 31, 2010 to RMB607.4 million for the five months ended May 31, 2011.

OUR COMPETITIVE STRENGTHS

We believe that the following competitive strengths have allowed us to achieve a leading position in the jelly products market in China and differentiate us from our competitors:

Strong brand recognition in China’s snack food industry

We have a proven business track record and have established strong brand recognition in China’s snack food market since our commencement of operations in 2000. According to Euromonitor, we were the second largest manufacturer of jelly products in China with a market share of 10.3% in 2010 in terms of retail sales value. We sell our products under our core brand “ ” (“Labixiaoxin”) and other sub-brands such as “ ” (“Sunshine City”) and “ ” (“Humor”) across various product segments. Our “Labixiaoxin” brand was recognized as a “China Well-Known Trademark” (中國馳名商標) by SAIC in 2007.

We believe the favorable reputation and strong recognition of our “Labixiaoxin” brand have allowed us to compete effectively against our competitors and will continue to be a main factor driving our future success. We believe we are well positioned to leverage our leading position in the jelly products market to capture growth in other snack food market segments in China.

Extensive distribution network in China and strong relationships with wholesale distributors and key account customers

We have established an extensive sales and distribution network in China that enables us to effectively reach end consumers nationwide. We primarily sell our products to regional wholesale distributors which then on-sell to secondary distributors and retailers. As of October 31, 2011, we worked with over 190 independent wholesale distributors located throughout China, covering 31 provinces, municipalities and autonomous regions.

We believe one of our key success factors is the strong working relationships we enjoy with our wholesale distributors. As of the Latest Practicable Date, we had worked with the majority of our wholesale distributors for over five years. As of October 31, 2011, we had over 370 sales and marketing representatives, who collaborated with our wholesale distributors to market and promote our products in different regions across China and provided support to these wholesale distributors. To better respond to changing consumer preferences, our sales and marketing representatives also gather market intelligence, which allows us to monitor and analyze market trends. We typically adopt a flexible and mutually beneficial pricing policy by charging our wholesale distributors a uniform and competitive ex-factory price, which allows them to mark up our ex-factory price for a reasonable profit margin before the products are on-sold to secondary distributors and retailers. We believe these measures, together with our effective management policies, enable us to maintain strong working relationships with our wholesale distributors.

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BUSINESS

As our business operations grew, we have been able to establish close partnerships with some of our key account customers, which are typically large, well-known supermarkets, hypermarkets and chain stores with multiple retail points in China, including Wal-Mart, RT-Mart, Tesco and China Resources Vanguard. We believe our relationships with these key account customers will help to strengthen our market position and improve our product image as these key account customers wield significant influence over smaller local retailers.

We believe our well-established and effectively managed distribution network, as well as strong relationships with our wholesale distributors and key account customers, will continue to allow us to successfully market and deliver products to our customers and support our future growth.

Commitment to stringent quality standards and control

We are committed to high standards of quality in our products and implement stringent quality control procedures throughout our manufacturing processes. We have a dedicated quality control team, led by our executive Director, Mr. Zheng Yu Shuang, to ensure that our internal quality control procedures are duly followed. Our quality control personnel closely monitor our manufacturing processes. Control procedures generally include inspection of incoming raw materials, maintenance of our production equipment and production facility environment, monitoring of our production processes to detect any contaminants, sample inspections of all final products and maintenance of inventory storage areas to prevent spoilage of our products.

We also implement stringent quality control procedures with our OEM partners to ensure the quality of the products they manufacture. Our quality control staff monitor our OEM partners’ production processes at their facilities, from raw material procurement to delivery of the finished products. We also conduct sample checks on the finished products delivered to us to ensure that they meet our internal quality standards.

We have obtained QS Food Production Permits (食品生產許可證) for all of our production facilities. As a result of our stringent internal quality control standards, we have also obtained ISO 9001 and HACCP certifications for our Fujian and Tianjin production facilities, as well as other certifications in relation to the health, safety and hygiene conditions of our production facilities.

Strong product development capabilities and proven track record of product innovation

Our strong product development efforts have enabled us to expand the range and improve the quality of our products over the years. We regularly collect market intelligence from our sales and marketing department to develop new product lines in order to improve and expand our product offerings. For example, we typically launch a number of new flavors or products every year and eliminate less popular products from our product menu. We have successfully expanded our product offerings over the years and currently offer over 1,000 SKU of jelly products (with different flavors, packaging and serving sizes), confectionary products and other snack food products.

We have a skilled research and product development team focused on developing new formulas and flavors to further differentiate our products from those of our competitors. We aim to continually innovate and improve our products to cater to changing consumer tastes and preferences, focusing particularly on product tastes, textures and packaging, while maintaining our cost of production at acceptable levels. In

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BUSINESS

addition to internal product development efforts, we also cooperate with academic and research institutions to jointly develop new products. Prior to the establishment of the Jelly Products Working Group of the Committee for the Standardization of Lifestyle Food (全國休閒食品標準化技術委員會果凍小組) (the “Jelly Products Working Group”) on August 19, 2011, we acted as the convenor in preparing for its establishment and, leveraging our research and product development capabilities, we will participate in the formulation of national standards for different types of jelly products.

We believe our product research and development capabilities have enabled us to successfully achieve ongoing product improvement, continuously expand our product offerings, diversify our product mix, as well as maintain our competitiveness in the snack food industry in China.

Experienced management team with a proven track record

Our management team is composed of knowledgeable and experienced professionals with a proven track record in the snack food industry. A majority of our senior management team members have extensive operational and management experience in the marketing and manufacture of jelly and confectionary products in the PRC. Our chairman, Mr. Zheng Yu Long, and our executive Directors, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan, each has over 15 years of experience in the snack food industry in China.

Our dedicated management team spearheads our business operations and drives our future growth plans. Their experience in, and knowledge of, the industry in which we operate also enables us to develop new products and identify new business opportunities. Our management team has played a key role in building a corporate culture which encourages consistent delivery of high quality products and continuous innovation. We believe our experienced management team is a key to our success in the past and will continue to contribute to our growth in the future.

OUR BUSINESS STRATEGIES

Our objective is to become a leading manufacturer of snack food products in China. We intend to achieve our objective by implementing the following strategies:

Continue to strengthen our brand recognition and to enhance our market position

We believe successful branding is key to our business development and that our core brand “ ”

(“Labixiaoxin”) has gained wider recognition and popularity in the PRC snack food industry in recent years as a result of our successful marketing and promotional strategies. To further strengthen and capitalize on the established reputation and recognition of our “Labixiaoxin” brand, we are currently consolidating all our existing brands with the intention to use “Labixiaoxin” as an umbrella brand to market all our products, with multiple sub-brands to market our different product segments. For example,

we intend to incorporate our existing sub-brands, “ ” (“Sunshine City”) for confectionary products and “ ” (“Humor”) for powdered milk tea, into our umbrella brand “Labixiaoxin.” We believe this will further enhance our “Labixiaoxin” brand and closely align our sub-brands with their respective product segments, which will help us to reach different consumer groups more effectively and take advantage of cross-promotional opportunities across different product offerings.

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BUSINESS

We plan to concentrate our advertising and promotional efforts to further develop our core brand “Labixiaoxin” going forward. We plan to enhance our brand image by adopting a multi-channel advertising strategy. In addition to traditional advertising channels such as print media advertising, we intend to increase our prime time television advertising on national and regional satellite television networks, and sponsor certain popular television programs and festive events. We also intend to enhance Internet advertising by producing short film clips promoting our brand and products, which we believe will help us to gain access to younger consumers. We also intend to regularly undertake in-store product promotion campaigns to encourage sales. We plan to continue to participate in industry and trade shows to promote our brand and increase product recognition in the snack food industry in China as well as attract new buyers.

Continue to broaden and strengthen our distribution network in China and further enhance our relationships with wholesale distributors and key account customers

We believe further expansion of our existing distribution network is crucial to increasing our market share and coverage. We also believe such expansion is necessary to capitalize on the increasing spending power of end consumers, especially in third and fourth tier cities as a result of the continued economic development and urbanization in China. As a result, we intend to expand our distribution network into other cities in the PRC with growth potential surrounding our existing markets by increasing our advertising and promotional activities in these areas, as well as engaging more regional wholesale distributors to sell our products to the retailers. We believe improved market penetration will help us to gain access to a wider group of end consumers and support our future growth.

In addition, we intend to expand our distribution network geographically to facilitate the expected increases in demand for our products in other growth regions across China, and, in particular, we plan to expand our distribution network into more locations in western China and actively seek out more key account customers. With the construction of our Sichuan production facility and its commencement of production in 2010, we believe we are well-placed to strengthen our presence in western China and capitalize on the rapid economic growth in this region in recent years.

We intend to continue to work closely with our wholesale distributors in each region to strengthen our relationship and cooperation in the marketing of our products. We also intend to engage more key account agents to sell our products and provide customer services to our key account customers on an exclusive basis. We believe the use of key account agents enables us to respond to the needs of our key account customers in a more timely manner and allows us to provide prompt customer service tailored to suit their individual business needs, which we believe will enhance our relationships with the key account customers. As part of our future business strategy to further strengthen our relationship with key account customers, we intend to sell directly to our key account customers in order to broaden our distribution channels and strengthen our relationships with key account customers. Direct sales to these key account customers enable us to gain more access to end consumers and gather more accurate market intelligence.

Expand and enhance our product offerings through continued product development efforts

We believe that continuous product innovation and differentiation is an important factor for us to increase the market share of our products. We plan to invest in and strengthen our market-oriented product development activities to continuously provide innovative products to differentiate ourselves from other competitors and accommodate the changing preferences of consumers. For example, with growing health awareness among consumers in their consumption of snack food, we intend to focus our product development efforts on manufacturing healthier snack food such as low-sugar or low-calorie jelly products.

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BUSINESS

We believe it is important to expand our product offerings and adjust our product mix in response to changing consumer tastes and preferences in order to stay competitive in the snack food industry in China. For example, we intend to further expand the range of our products to include egg rolls. Moreover, we expect that a more comprehensive product portfolio can increase our commercial appeal to our customers as such customers can procure more types of snack food products from us, and reduce the impacts of seasonal fluctuations in the sales of particular products. We believe that our strong product development capabilities coupled with our established brand names and extensive distribution network provide a solid foundation for us to introduce new and innovative snack food products to the market. We believe we can achieve synergies in our product development activities, branding and sales and marketing of these new products by leveraging our existing experience and strengths in these areas.

Strengthen our market position through strategic production capacity expansion

We plan to strengthen our market position in the snack food industry and achieve better economies of scale by expanding our existing production facilities and constructing a new production facility. We intend to invest approximately RMB450 million to raise the annual production capacity of our Tianjin production facility from 55,000 tons to over 100,000 tons of jelly snacks and jelly beverages in the next five years.

In addition to expanding our existing production facilities, we also plan to invest approximately RMB550 million for the construction of a new production facility in Chuzhou, Anhui Province, as part of our geographical expansion plan. We own a parcel of land in Chuzhou, Anhui Province which has a total site area of approximately 133,332 square meters, and commenced construction of our Anhui production facility in August 2011. We plan to start manufacturing primarily jelly snacks and jelly beverages at our Anhui production facility in the first half of 2013. The new production facility will markedly increase our production capacity, which is important to ensure our continued business growth. We also believe the Anhui production facility will further enhance our geographical coverage and enable us to distribute our products more efficiently to markets around the region. Please see “– Production Process and Production Facilities – Production Expansion Plan” and “Financial Information – Capital Expenditures – Planned Capital Expenditures.”

OUR PRODUCTS

We offer a broad range of quality snack food products to the market that can be categorized into the following segments:

Jelly products, which comprise jelly snacks and jelly beverages;
Confectionary products, which primarily include lollipops, milk candies, gummy candies and chocolates; and
Other products, which primarily comprise powdered milk tea, dried bean curd products and baked products.

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BUSINESS

The table below sets forth our annual sales by product segment for the periods indicated:

			Year ended	Year ended	December	December	31,	31,				Five	months	ended May	31,

Product segments		2008		2009				2010				2010		2011

												(unaudited)
					(RMB in		thousands,		except percentages)
Jelly products . . .	.	595,627	82.6%	669,609		86.8%		775,815			83.3%	356,756	86.1%	503,327	82.9%
Confectionary
products . . . . .	.	107,005	14.8%	73,563		9.5%		106,115			11.4%	40,100	9.7%	62,127	10.2%
Other products . . .	.	18,508	2.6%	28,188		3.7%		49,750			5.3%	17,563	4.2%	41,990	6.9%
Total . . . . . . . .	.	721,140	100.0%	771,360		100.0%		931,680		100.0%		414,419	100.0%	607,444	100.0%

Jelly Products

We are a leading manufacturer in China’s jelly products market with over 10 years of experience in the manufacture and sales of jelly products. According to Euromonitor, we had over 10.3% of market share in the jelly products market for the year ended December 31, 2010. We began to produce and sell jelly products in 2000 at our first production facility in Jinjiang, Fujian Province. We have expanded our business operations over the years and currently have two additional production facilities in Tianjin Municipality and Chengdu, Sichuan Province. Our production facilities in Fujian, Tianjin and Sichuan cover eastern and southern China, northern China and western China, respectively. We offer a wide variety of jelly snacks and jelly beverages with different flavors and serving sizes. Our jelly products are sold either through “pick-and-mix” where consumers can pick and mix different quantities of various types of these products, and pay for them by weight, or in pre-packaged forms. Our jelly products have an average shelf life of 12 months.

We sold 90,640 tons, 101,483 tons, 116,991 tons and 69,609 tons of jelly products in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. We generated RMB595.6 million, RMB669.6 million, RMB775.8 million and RMB503.3 million of sales from jelly products in 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, accounting for 82.6%, 86.8%, 83.3% and 82.9% to our total sales for the same periods, respectively.

Jelly snacks

Jelly snacks comprise the largest component of our jelly products sales and we have over 500 SKU of jelly snacks, such as fruit-flavored jellies, jellies filled with canned fruit, yogurt jellies and jelly mousse. We offer our jelly snacks in different flavors and sizes ranging from 16 gram cup-sized jellies to 200 gram bowl-sized jellies. We market our jelly snacks under our core brand “Labixiaoxin” and a number of sub-brands such as “Eden Bar” (“異度果吧”), “Qingmeiwuyu” (“青梅物語”) and “Zhenguoduo” (“珍果多”).

We sold 70,453 tons, 68,040 tons, 72,872 tons and 42,391 tons of jelly snacks in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. We generated RMB474.2 million, RMB486.3 million, RMB530.2 million and RMB330.1 million of sales from jelly snacks in 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, accounting for 79.6%, 72.6%, 68.3% and 65.6% of total sales attributable to jelly products for the same periods, respectively. All of our jelly snacks bear choking hazard warnings, as required by the relevant laws and regulations in the PRC and the foreign countries to which we sell our jelly snack products.

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BUSINESS

Jelly beverages

Jelly beverages are liquid jellies that may be directly consumed from the packages. We started producing jelly beverages in 2001 in our Fujian production facility. We offer over 40 SKU of jelly beverages comprising a variety of flavors and serving sizes, with packages ranging from 40 grams to 350 grams. Jelly beverages are normally sold in individual pieces, where customers pick and pay according to the weight or the quantity of the product. We market our jelly beverages under our core brand “Labixiaoxin” and a number of sub-brands such as “Fresh Q” (“鮮 Q”) and “Xixi Jelly” (“吸吸果凍”). We recently launched “Vegi-fruit Party” (“蔬果派對”), a new jelly beverage, to the market.

We sold 20,187 tons, 33,443 tons, 44,119 tons and 27,218 tons of jelly beverages in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. We generated RMB121.4 million, RMB183.3 million, RMB245.6 million and RMB173.2 million of sales from jelly beverages in 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, accounting for 20.4%, 27.4%, 31.7% and 34.4% of total sales attributable to jelly products for the same periods, respectively.

From 2008 to 2010, sales of our jelly beverages achieved a CAGR of 42.3% due to increasing consumer demand and product popularity. We believe this increasing demand is attributable to our successful sales and marketing efforts, as well as to the fact that we placed more focus and resources on promoting our jelly beverages. We believe the demand for jelly beverages will continue to grow, and we intend to continue to focus on producing more varieties of jelly beverages to satisfy increasing consumer demand.

Confectionary Products

We began to market and sell confectionary products over five years ago because candies are popular snacks commonly consumed during traditional festivals and are complementary to our jelly products. As of May 31, 2011, we outsourced the entire manufacturing process of our confectionary products to nine third-party manufacturers under non-exclusive OEM arrangements. We believe outsourcing helps to increase our economic and operational efficiency. By leveraging our well-established distribution network and our growing brand recognition, we believe our confectionary products have gained wide consumer acceptance and the sales of our confectionary products will continue to grow in the next few years. We currently market and sell over 400 SKU of confectionary products, which come in a large variety of flavors, shapes and textures, including lollipops, milk candies, gummy candies and chocolates. We market our confectionary products primarily under our sub-brand “Sunshine City” (“陽光城市”). Our confectionary products have an average shelf life of 12 months.

We sold 6,587 tons, 5,037 tons, 7,669 tons and 3,453 tons of confectionary products in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. We generated RMB107.0 million, RMB73.6 million, RMB106.1 million and RMB62.1 million of sales from confectionary products in 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, accounting for 14.8%, 9.5%, 11.4% and 10.2% to our total sales for the same periods, respectively.

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BUSINESS

Other Products

Our other products primarily consist of powdered milk tea, which we launched in 2006. Our powdered milk tea is packaged in a cup that can be turned into an instant hot drink by adding hot water to the powder. We primarily market our powdered milk tea under the core brand “Labixiaoxin” (“蠟筆小新”) and sub-brand “Humor” (“幽沫”).

In addition to powdered milk tea, we began to market and sell a small quantity of dried bean curd products in late 2010 under the “Xiangdoufang” (“鄉豆坊”) brand. In early 2011, we began to market and sell a small quantity of baked products. Both of our dried bean curd products and baked products are manufactured by third-party manufacturers under OEM arrangements. As of the Latest Practicable Date, our other products had an average shelf life ranging from six to 12 months.

We sold 1,016 tons, 1,329 tons, 2,153 tons and 2,032 tons of other products in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. We generated RMB18.5 million, RMB28.2 million, RMB49.8 million and RMB42.0 million of sales from other products in 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, accounting for 2.6%, 3.7%, 5.3% and 6.9% of our total sales for the same periods, respectively.

SALES AND MARKETING

Branding

We believe that our strong brand recognition and reputation have been instrumental to the success of our business. We have been promoting recognition of our core brand “ ” (“Labixiaoxin”) through a variety of marketing and promotional activities since we began manufacturing jelly products. See “– Advertising and Promotion” below.

Currently our jelly products are primarily marketed under our core brand “Labixiaoxin.” Our “Labixiaoxin” brand was recognized as a “China Well-Known Trademark” (中國馳名商標) by the SAIC in 2007. We also use sub-brands to market different types of jelly products, such as “ ” (“Eden Bar”), “ ” (“Fresh Q”) and “[��] ” (“Qingmeiwuyu”). In addition, we market and sell our confectionary products, powdered milk tea and dried bean curd products under the brands “ ” (“Sunshine City”), “ ” (“Humor”) and “ ” (“Xiangdoufang”), respectively.

As a result of our successful marketing and promotional strategies, we believe that our “Labixiaoxin” brand has gained wide recognition and popularity in China’s snack food industry. As part of our branding strategy and in order to capitalize on our established reputation and brand recognition, we are currently consolidating all our brands with the intention to use “Labixiaoxin” as an umbrella brand to market all our products, with multiple sub-brands to market different product segments. For example, we intend to incorporate our existing sub-brands “Sunshine City” (“陽光城市”) for confectionary products and “Humor” (“幽沫”) for powdered milk tea, into our umbrella brand “Labixiaoxin.” We believe this will further enhance our “Labixiaoxin” brand and closely align our sub-brands with their respective product segment, which will help us to target different consumer groups more effectively.

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BUSINESS

Sales and Distribution Network

We sell our products primarily through wholesale distributors, which then on-sell the products to secondary distributors or retailers. As of October 31, 2011, we had established an extensive nationwide sales and distribution network with over 190 independent wholesale distributors located throughout China covering 31 provinces, municipalities and autonomous regions in China. The following map shows our sales distribution in each province, municipality and autonomous region for the year ended December 31, 2010 and the coverage of our wholesale distributors in China as of December 31, 2010:

==> picture [409 x 317] intentionally omitted <==

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

Heilongjiang
4
Jilin
4
Liaoning
Beijing
Xinjiang Gansu Inner Mongolia 1 Tianjin 7
1 4 3
2
Hebei
Q in g hai Ningxia Shanxi 7 Shandong
1 5 9
1 Shaanxi Henan Jiangsu
Tibet 4 8 Anhui 10
Shanghai
2 Sichuan 7 Hubei 8 11 Zhejiang 3
Chongqing
4 Hunan Jiangxi 10
Guizhou 13 7 Fujian
9
4
Yunnan
Guangxi Guangdong
1
7 6
2010 sales as % of 2010 total sales of our Group above 5%
2010 sales as % of 2010 total sales of our Group between 3% to 5%
2010 sales as % of 2010 total sales of our Group between 0% to 3% Hainan
# Number of wholesale distributors 1
----- End of picture text -----

As our business operations grew, we have been able to establish close relationships with some of our key account customers, which are typically large supermarket or hypermarket chains with a national or regional presence in China. To enhance our relationships with the key account customers, we started to engage key account agents in 2011 to sell our products and provide customer services to certain key account customers. To implement our mid-range to long-term business strategy, we also began initial steps of direct sales in 2011 to certain key account customers.

In addition, we export our products under both OEM arrangements and our own brand through certain PRC export agents to our foreign customers primarily in Latin America.

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BUSINESS

We manage our extensive sales network through our sales and marketing department located at our headquarters in Jinjiang, Fujian. Our sales and marketing department consists of over 370 representatives as of October 31, 2011. These representatives are responsible for liaising with our regional wholesale distributors and key account agents for the marketing and promotion of our products and gathering of market intelligence and provide feedback to us on a timely basis. Some of our representatives are dedicated to directly liaising with our key account customers.

The following table sets forth our sales to wholesale distributors, key account agents and key account customers as well as export agents, respectively, for the periods indicated:

				Year ended December	Year ended December	31,				Five months	Five months	ended May 31,	ended May 31,

		2008		2009			2010			2010		2011

										(unaudited)
					(RMB	in thousands,		except percentages)
Wholesale distributors	.	662,208	91.8%	726,334	94.2%		859,815		92.3%	386,404	93.2%	483,712	79.6%
Key account agents and
key account
customers . . . . .	.	–	–	–	–		–		–	–	–	90,428	14.9%
Export agents. . . . .	.	58,932	8.2%	45,026	5.8%		71,865		7.7%	28,015	6.8%	33,304	5.5%
Total . . . . . . . . .	.	721,140	100.0%	771,360	100.0%		931,680		100.0%	414,419	100.0%	607,444	100.0%

We market and sell a majority of our products in China. The following table sets forth the geographical breakdown of our domestic sales for the periods indicated:

				Year ended	Year ended	December	December	31,			Five months	Five months	ended May	31,

			2008		2009			2010			2010		2011

											(unaudited)
						(RMB in		thousands,	except percentages)
Eastern China(1) . .		.	224,160	33.9%	239,422		33.0%	265,449		30.9%	119,723	31.0%	173,988	30.3%
Central China(2) . .		.	176,148	26.6%	175,790		24.2%	208,307		24.2%	93,990	24.3%	124,564	21.7%
Northern China(3)	.	.	107,203	16.2%	124,917		17.2%	155,553		18.1%	70,376	18.2%	111,232	19.4%
Western China(4)	.	.	77,986	11.8%	98,315		13.5%	120,802		14.0%	54,358	14.1%	84,005	14.6%
Southern China(5)	.	.	76,711	11.6%	87,890		12.1%	109,704		12.8%	47,957	12.4%	80,350	14.0%

Total . . . . . . . .		.	662,208	100.0%	726,334		100.0%	859,815		100.0%	386,404	100.0%	574,140	100.0%

Notes:

(1) Eastern China represents Shanghai, Jiangsu, Zhejiang, Shandong and Anhui.

(2) Central China represents Hubei, Hunan, Henan and Jiangxi.
(3) Northern China represents Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin and Heilongjiang.
(4) Western China represents Sichuan, Chongqing, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Xinjiang, Qinghai and Ningxia.
(5) Southern China represents Guangdong, Guangxi, Hainan and Fujian.

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BUSINESS

Wholesale distributors

Consistent with market practice, we sell our products primarily through wholesale distributors which then on-sell to secondary distributors and retailers, including some of our key account customers. The secondary distributors on-sell our products to other sales outlets such as supermarkets and other retail points via their own sales network. As of October 31, 2011, we engaged more than 190 wholesale distributors. Our wholesale distributors are typically large regional wholesale distributors with wellestablished local distribution networks and are primarily involved in the distribution of food and beverages. We select our wholesale distributors on the basis of their coverage of sales network, track record performance and financial resources. For the year ended December 31, 2008, 2009 and 2010, all of our domestic sales were generated through sales to wholesale distributors. During the five months ended May 31, 2011, although we began to engage a number of key account agents to sell our products and provide customer services to key account customers and initiated our direct sales efforts, a majority of domestic sales were still generated through sales to wholesale distributors. We generated RMB662.2 million, RMB726.3 million, RMB859.8 million and RMB483.7 million of sales in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 through sales to our wholesale distributors, respectively, representing 91.8%, 94.2%, 92.3% and 79.6% of our total sales during the same periods, respectively. We believe that by collaborating with wholesale distributors to sell our products we are able to benefit from leveraging their established distribution channels and resources, and save costs that would otherwise be required to build up and maintain internal logistics and other related capacities to supply retailers across the country.

We had maintained stable working relationships with most of our wholesale distributors during the Track Record Period and have engaged many of them for more than five years. The following table provides the number of wholesale distributors and the turnover during the Track Record Period:

				Five months
	Year	ended December 31,		ended May 31,
Wholesale Distributors	2008	2009	2010	2011

Added during the period . . . . . . . . . . . . .	34	16	34	80
Terminated during the period . . . . . . . . . .	6	13	12	42
Total at end of period . . . . . . . . . . . . . .	127	130	152	190

Turnover of our wholesale distributors was generally due to (i) our termination of underperforming wholesale distributors based on our qualitative assessments such as their ability to comply with our sales strategies, and (ii) decisions by some wholesale distributors to cease their distribution operations and transition into other businesses. With respect to the turnover during the five months ended May 31, 2011, our turnover was also partly due to the beginning of our engagement with key account agents. In 2011, we converted a number of wholesale distributors to key account agents to sell our products and provide customer services to certain key account customers, which increased our wholesale distributor turnover during the five months ended May 31, 2011. Sales generated through terminated wholesale distributors amounted to RMB15.5 million, RMB17.5 million, RMB33.0 million and RMB22.4 million in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, representing 2.1%, 2.3%, 3.5% and 3.7% of our total sales during the same periods, respectively. We increased the overall number of our wholesale distributors in 2011 to address the increase in distribution needs resulting from our increased production capacity and volume, and to satisfy the increased demand for our products.

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BUSINESS

In line with industry practice, we generally do not enter into any long-term sales contracts with our wholesale distributors, and most of our sales are made on a short-term basis with order cycles typically ranging from five days to three weeks. Our wholesale distributors submit purchase orders to us from time to time with specification as to the type and quantity of products. If we determine that the total trade receivables from such wholesale distributors as a result of such purchase orders will not exceed the maximum trade receivables limits we assign to them, we will accept the purchase orders. We will then either arrange the delivery of finished products available in our storage, or execute production plans to fulfill the purchase orders. Our wholesale distributors purchase our products from us at a competitive ex-factory price and are entitled to add a reasonable margin to the ex-factory price before the products are on-sold to retailers and supermarket chains. We usually recommend a retail price to our wholesale distributors but do not cap the price at which they on-sell the products to retailers and supermarkets. However, we typically stipulate a minimum price at which retailers and supermarkets may sell our products. This is consistent with market practice in the food and beverage industry in China, and we believe the flexible pricing policy allows our wholesale distributors to retain an acceptable profit margin and has helped to nurture mutually beneficial and long-term working relationships between us and our wholesale distributors.

We enter into distribution agreements with our wholesale distributors. There are no guaranteed sales commitments under these wholesale agreements, and therefore they may not lead to actual sales. Under such agreements, we grant exclusive distribution rights to each wholesale distributor (i) within a designated area, or (ii) within certain retail outlets if there are multiple wholesale distributors within the same designated area. We are responsible for ensuring our wholesale distributors’ exclusive distribution rights within their respective designated areas or retail outlets, and assisting the wholesale distributors in marketing activities. During the Track Record Period and up to the Latest Practicable Date, we were not aware of any incidents where a wholesale distributor sold our products outside its designated area or retail outlets. The wholesale distributors are responsible for providing sufficient storage capacity and timely logistics support for our products, and distributing our products within their respective exclusive designated areas or retail outlets. We provide incentives in the form of sales rebates to our wholesale distributors for achieving or exceeding sales targets stipulated in the distribution agreements, which are negotiated and determined by reference to various criteria, including past performance and market conditions. In addition, we provide subsidies to our wholesale distributors in line with customary industry practice to cover any initial start-up and subsequent handling charges they may incur in relation to setting up sales stalls and product displays in retail outlets, and for product promotion. We also provide subsidies to wholesale distributors based on a pre-determined percentage of total sales such wholesale distributors generate during the contract period to cover losses from products that are likely to be damaged or spoiled during transit, payable upon the expiration of the contract period. During the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we provided sales rebates totaling RMB15.1 million, RMB16.5 million, RMB17.7 million and RMB12.5 million, respectively, and subsidies totaling RMB14.6 million, RMB17.3 million, RMB19.4 million and RMB13.1 million, respectively, to our wholesale distributors.

The distribution agreements usually have a term of one year, and are terminable by us upon the occurrence of certain events, such as when the wholesale distributor is unable to purchase from us for two consecutive months, when the wholesale distributor on-sells our products at a price below the agreed minimum price or if our wholesale distributor is found to have distributed competing products. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material sales returns from our wholesale distributors due to product quality issues or otherwise, and in any event it is our policy that we do not accept return of products we have sold unless there are product quality issues.

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BUSINESS

Other than the business relationships described above, there were no other relationships (including family or employment relationships) between us, our Directors, our [●], our senior management or any of our or their respective associates on the one hand, and the wholesale distributors or any of their respective associates, each of which is an Independent Third Party, on the other hand during the Track Record Period and as of the Latest Practicable Date.

Secondary distributors

We do not work directly with secondary distributors, which are typically smaller regional distributors. They purchase from our wholesale distributors and typically distribute products to small-scale retail outlets in remote areas. We delegate to the wholesale distributors the authority to choose secondary distributors and negotiate the transaction terms directly with them, and rely on our wholesale distributors to limit the secondary distributors’ activities within such wholesale distributors’ respective designated distribution territories or retail outlets.

Other than the business relationships described above, there were no other relationships (including family or employment relationships) between us, our Directors, our [●], our senior management or any of our or their respective associates on the one hand, and the secondary distributors or any of their respective associates, each of which is an Independent Third Party, on the other hand during the Track Record Period and as of the Latest Practicable Date.

Key account customers and other retailers

Retailers that sell our products range from traditional grocery stores, regional convenience stores to multinational, nationwide and regional retailers, including our key account customers. Our key account customers are typically large supermarket or hypermarket chains with a national or regional presence in China and are of strategic importance to our sales and distribution strategy. As of October 31, 2011, we had a total of 25 key account customers covering 25 provinces in China, including Wal-Mart, RT-Mart, Tesco and China Resources Vanguard. Some of these key account customers have worked with us for more than five years. We believe our strong working relationships with our key account customers enable us to leverage on their reputation and wide customer base, which we expect will lead to increased brand awareness of our products.

Historically, we sold substantially all our products through wholesale distributors which then on-sold to our key account customers. We participated in negotiations with our key account customers regarding sales terms, shelf spaces and positions of our products, though we did not enter into contracts with them.

As part of our strategy to strengthen our working relationship with our key account customers, we started to engage a number of key account agents to sell our products and provide customized services to some of our key account customers in 2011. Under this new sales model, we develop a closer relationship and maintain frequent communication with our key account customers, and allocate additional time and resources to a series of direct negotiations with our key account customers including the terms of sales and a range of recommended retail prices, and location and size of our shelves in the stores. We also help our key account agents to sell our products through on-site decoration, promotion campaign, and providing training to our key account agents’ product promoters. In addition, we typically grant our key account agents a longer credit terms of 90 days which is in line with the credit term offered by the key account customers. By having such arrangements under which we fulfill a number of functions that are traditionally handled by wholesale distributors, we are in a position to sell our products at higher prices

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BUSINESS

to our key account agents, compared to the prices we usually sell to our wholesale distributors, and have achieved higher profit margins. Our increase in sales revenue and gross profit margin as of the five months ended May 31, 2011 has been in part attributed to the implementation of such sales model to our key account agents and to the key account customers. During the five months ended May 31, 2011, we generated RMB49.1 million of sales through the key account agents. We also experienced an increase in our gross profit margin to 40.7% for the five months ended May 31, 2011 from 36.7% for the five months ended May 31, 2010. We believe such practice is consistent with the industry norm. As of October 31, 2011, we had 10 key account agents.

We enter into master sales agreements with our key account agents during the year. To facilitate our management of contracts, such master sales agreements generally expire by the end of the calendar year, and we intend to renew them annually going forward. There are no guaranteed sales commitments under these master sales agreements, and therefore they may not lead to actual sales. We confine the exclusive distribution rights and support functions of each key account agent to one or several key account customers within a designated region, and we do not allow our wholesale distributors to sell to those key account customers which purchase our products through key account agents. Under the master sales agreements, we directly negotiate the terms of sale and the range of recommended retail prices for our products with our key account customers, and we sell our products to our key account customers at a discount from such negotiated price range as compensations for our key account agents. In line with industry practice, we generally do not enter into any long-term sales contracts with our key account agents, and most of our sales are made on a short-term basis with order cycles typically ranging from five days to three weeks. Our key account agents are responsible for executing the marketing activities to promote and sell our products under our coaching, and providing sales representatives to liaise with key account customers and products promoters at their own costs. We provide incentives in the form of sales rebates to our key account agents for achieving or exceeding a sales target. We also provide subsidies to key account agents based on a pre-determined percentage of total sales generated by such key account agents during the contract period to cover their losses from products that are likely to be damaged or spoiled during transit. Such subsidies are realized in form of sales discount. We may terminate the agreements in the event that (i) the key account agents engage in conducts in violation of any laws and regulations which lead to damages to our reputation, or (ii) the key account agents fail to follow our policies and directives. We have not experienced any material sales returns from our key account agents due to product quality issues or otherwise since we began engaging such key account agents, and in any event it is our policy that we do not accept return of products we have sold unless there are product quality issues.

As part of our mid-range to long-term business strategy, we intend to gradually sell our products directly to our key account customers in the future in order to further strengthen our relationships with these key account customers. As initial steps to implement such strategy, we began direct sales to certain key account customers in 2011, amounting to RMB41.3 million and representing 6.8% of our sales for the five months ended May 31, 2011. In line with industry practice, we generally do not enter into any long-term sales contracts with our key account customers, and most of our sales are made on a short-term basis with order cycles typically ranging from five days to three weeks. Going forward, we intend to increase direct sales to the key account customers in the future either by developing internal logistical and other capacities relevant to direct sales, or through opportunistic acquisitions of key account agents. We believe that direct sales to our key account customers will allow us to further enhance our strategic relationship with them and leverage their extensive sales channels, as well as reduce our use of key account agents which will help to increase our overall profitability. Furthermore, we believe direct sales also provide a platform from which to promote and launch our new products and enable us to access end-consumer feedback more efficiently.

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BUSINESS

Other than the business relationships described above, there were no other relationships (including family or employment relationships) between us, our Directors, our [●], our senior management or any of our or their respective associates on the one hand, and our key account customers, other retailers, key account agents or any of their respective associates, each of which is an Independent Third Party, on the other hand during the Track Record Period and as of the Latest Practicable Date.

Export Sales

We manufacture jelly products and confectionary products under OEM arrangements on behalf of certain of our foreign customers, which distribute such products under their own brands. In addition, some of our jelly products and confectionary products are sold in foreign countries under our own “Larbee” (“ ”) brand. Our export markets are primarily in Latin America. Consistent with industry practice, we sell our products through export agents in the PRC, and rely on them to handle logistics, customs, and other export-related matters to deliver our products to our foreign customers. As of October 31, 2011, we engaged four export agents in the PRC. The export agents purchase the products from us and then on-sell such products to our foreign customers. We enter into export agency agreements with export agents in China, usually for a term of one year. Under this framework, after we have secured a purchase order from a foreign customer which stipulates conditions such as the quantity and unit prices of purchased products, we enter into a separate sales contract with an export agent of our choice. Such sales contract generally provides the quantity and types of products purchased by the export agent to satisfy one or more purchase orders we have received. We are responsible for delivering the products to the designated port at our own cost. The responsible export agent accepts our delivery at such port, and makes arrangements to transport the products to our foreign customers, which on-sells such products. The export agents are required to settle payments for the purchased products within 30 working days of receiving delivery. During the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, our export sales amounted to RMB58.9 million, RMB45.0 million, RMB71.9 million and RMB33.3 million, respectively, representing 8.2%, 5.8%, 7.7% and 5.5% of our total sales during the same periods, respectively. We did not experience any material sales returns by our export agents during the Track Record Period and up to the Latest Practicable Date.

During the Track Record Period and up to the Latest Practicable Date, we had in all material respects complied with all laws and regulations relevant to our export sales and applicable to us in the PRC and in the countries to which we export our products, by completing all necessary procedures to obtain all relevant health and food safety approvals, certificates, registrations or any other legally required documentation from the relevant government authorities in the PRC and the countries with respect to the relevant exported products.

In the long run, we intend to continue to participate in trade shows to make our products more visible to potential international buyers and seek other potential export opportunities. Furthermore, we intend to develop our export market by using more export agents which have well-established connections with overseas markets, particularly with large and well-known supermarket chains.

During the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, sales to our five largest customers represented 16.3%, 13.6%, 12.9% and 11.4% of our total sales, respectively, and sales to our largest customer accounted for 4.5%, 3.0%, 4.0% and 3.1% of our total sales, respectively. None of our Directors, their respective associates, or any Shareholder who, to the knowledge of our Directors, owned more than 5% of our issued share capital as of the Latest Practicable Date, had any interest in any of our five largest customers during the Track Record Period.

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BUSINESS

Credit Policy

In addition to certain key account customers we directly sell to, our wholesale distributors and our key account agents are effectively our customers because we sell our products to them. We typically sell our products on credit and grant most of our customers credit terms ranging from 30 to 60 days depending on a number of factors, such as their credit history, scale of operation and financial resources. In line with customary market practice, we generally grant our key account agents and key account customers a credit term of 90 days. We also sell our products to our PRC export agents, which then on-sell and deliver such products to our foreign customers both under OEM arrangements and our own brand, and we typically grant our export agents a credit term of 30 working days. For more information, please see “Financial Information – Certain Balance Sheet Items – Trade receivables, prepayments and other receivables.”

During the Track Record Period, we did not experience any material bad debts, and we did not provide for doubtful debts as we did not experience significant difficulties in collecting our trade receivables. We do not have a general provisioning policy for doubtful debts. We make specific provisions when we are of the view that the collection of an outstanding debt is doubtful.

Advertising and Promotion

To enhance the visibility and marketability of our products and promote our brand recognition, we undertake advertising and promotional campaigns. We typically launch television advertising campaigns to coincide with new product launches. Our promotional activities primarily consist of our participation in domestic and international industry trade shows, on-site promotions at individual points of sale, advertising campaigns on national and regional satellite television channels, as well as in print media such as magazines, flat-panel displays in public areas and public transportation displays. From time to time, we may engage celebrities as our product spokespersons to promote our products. We also collaborate with retailers by installing in-store displays featuring our logos and products during Chinese festival seasons or other special occasions to increase the awareness of our brand name and products.

We believe these advertising and promotion measures help promote our brand and product awareness among our target consumer groups. Going forward, we intend to increase our prime time television advertisement, as well as [●] certain popular television programs and festive events. We also intend to increase our Internet advertising by producing short film clips promoting our brand and products, which we believe will help us to gain access to younger consumers. Our advertising and promotional expenses for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 were RMB71.1 million, RMB81.6 million, RMB77.7 million and RMB44.2 million, respectively, representing 9.9%, 10.6%, 8.3% and 7.3% of our total sales, respectively.

During major Chinese festivals and holidays, such as Chinese New Year, we usually produce a range of gift packs containing selections of our jelly products. We believe that our gift packs are an effective way to introduce our new products to the market by including various flavored jelly products in attractive packaging with story themes or Chinese festival themes.

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BUSINESS

Seasonality

The sales of some of our products are subject to seasonality. Historically, we have experienced higher sales of our jelly and confectionary products during the traditional Chinese festival and holiday seasons, such as Chinese New Year, which is typically in the first quarter of our financial year. Sales can also fluctuate during the course of a financial year due to other reasons, including the timing of new product launches and advertising and promotional campaigns. We attempt to reduce the impact of product seasonality by diversifying our product range so that we can maintain our overall sales volume and revenue through any particular period.

PRODUCTION PROCESS AND PRODUCTION FACILITIES

Production Facilities and Capacity

We manufacture all our jelly products internally, and as of the Latest Practicable Date, we had three production facilities, namely (i) Jinjiang, Fujian Province; (ii) Tianjin Municipality; and (iii) Chengdu, Sichuan Province. Our production facilities are strategically located to cover the target markets in their respective regions. As of October 31, 2011, we employed over 1,600 production workers to operate and manage our production lines.

As of December 31, 2008, 2009 and 2010 and May 31, 2011, we had nine, nine, 14 and 14 production lines manufacturing our jelly snack products, respectively, and four, five, 10 and 10 production lines manufacturing our jelly beverage products, respectively. The table below sets forth our production capacity, production volume and utilization rate for the products under our jelly product segment for the periods shown below:

								Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,	Year ended December 31,						Five	months ended	months ended	May 31,	May 31,

					2008					2009					2010					2011

			Production	Production		Utilization		Production	Production		Utilization		Production	Production		Utilization		Production	Production		Utilization
			capacity(1)	volume			rate(2)	capacity(1)	volume			rate(2)	capacity(1)	volume			rate(2)	capacity(3)	volume			rate(2)
Jelly	Products		(tons)		(tons)		(%)	(tons)		(tons)		(%)	(tons)		(tons)		(%)	(tons)		(tons)		(%)

Jelly	snacks . .	.	72,000		74,323		103.2	72,000		64,188		89.2	92,500		72,077		77.9	47,083		39,502		83.9
Jelly	beverages	.	31,000		26,192		84.5	35,500		36,357		102.4	52,000		44,376		85.3	34,167		30,118		88.1

Total	. . . . .	.	103,000		100,515		97.6	107,500		100,545		93.5	144,500		116,453		80.6	81,250		69,620		85.7

Notes:

(1) Production capacity for the year ended December 31, 2008, 2009 and 2010 is calculated on a weighted average basis. The weighted average production capacity for a calendar year equals (i) the production capacity at the beginning of the calendar year, plus (ii) weighted new production capacity added during the same calendar year. Weighted new production capacity added during a calendar year is derived by multiplying (x) the total new production capacity added during that calendar year with (y) the numbers of months during which the new production capacity is in operation, (z) divided by 12.
(2) Utilization rate is derived by dividing the production volume by the production capacity during the same period. The decrease in utilization rate with respect to our jelly products production to 80.6% for the year ended December 31, 2010 from 93.5% for the year ended December 31, 2009 was primarily due to the expansion of our production capacity in 2010 in anticipation of an increase in demand for our jelly products. We commenced production at our Sichuan production facility in July 2010, and expanded our Fujian production facility’s jelly beverages production capacity in October 2010. The subsequent increase in utilization rate to 85.7% for the five months ended May 31, 2011 was primarily attributable to the ramp-up of such new production capacity, and an increase in our production to satisfy an increase in demand for our jelly products, as originally expected when we decided to expand our production capacity.
(3) For the five months ended May 31, 2011, there was no capacity addition, and the production capacity is calculated on a pro-rata basis utilizing the production capacity as of December 31, 2010, which amounted to 113,000 tons for jelly snacks and 82,000 tons for jelly beverages.

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In addition to jelly products, we also manufacture powdered milk tea at all our production facilities. As of December 31, 2008, 2009 and 2010 and May 31, 2011, we had seven, 13, 23 and 23 production lines, respectively, producing powdered milk tea. During the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, our powdered milk tea weighted average production capacity totaled 2,400 tons, 3,000 tons, 7,200 tons and 4,000 tons, respectively, and our production volume totaled 1,233 tons, 1,171 tons, 2,121 tons and 1,180 tons, respectively. The weighted average production capacity for powdered milk tea is calculated on the same basis that has been adopted in calculating the weighted average production capacity for the jelly product segment as described above. Our utilization rate thus amounted to 51.4%, 39.0%, 29.5% and 29.5% during the same periods, respectively. The general decrease in utilization rate with respect to our powdered milk tea production during the Track Record Period reflected the increase in our production capacity which outpaced the increase in our production volume. We initially manufactured powdered milked tea only in our Fujian production facility. We subsequently commenced powdered milk tea production in our Tianjin production facility in the second half of 2009 and in our Sichuan production facility in the second half of 2010. We increased our production capacity through geographic expansion with a view to better serving the growing demand for powdered milk tea in areas near our production facilities and reducing our freight and transportation costs.

A large portion of our production facilities and equipment are tailor-made to suit our production needs. We purchase most of our equipment from large and reputable domestic manufacturers which construct the equipment according to our specifications. We invest in high quality manufacturing equipment, which we believe is capable of producing higher quality products more efficiently. For example, we recently acquired a number of new sealing machines for our jelly production, which are capable of sealing up to 1.5 tons of jelly snacks per hour, which is approximately five times faster than the existing sealing machines.

We adopt efficient and advanced technology for our production facilities. We endeavor to keep abreast of technological advances in the snack food industry and regularly monitor and upgrade our production technology, equipment and processes. For example, we completed our production technology and equipment upgrade at our Fujian production facility in 2010, which we believe will increase our production capacity and efficiency to meet growing market demand.

Equipment Maintenance

We have implemented a comprehensive maintenance system for our equipment and facilities, including scheduled downtimes for maintenance and repairs, and regular inspections of production facilities and equipment. This allows us to operate our production lines at optimal levels. We carry out routine daily cleaning and maintenance of our production equipment to prolong their useful life. We also carry out major maintenance work annually. Our different production lines and equipment have varying maintenance schedules and downtime periods, which are typically no more than one week. We optimize our production capacity by scheduling major maintenance work during low season for the relevant products’ production lines. We did not experience any material or prolonged interruptions to our production process due to equipment or machinery failure during the Track Record Period.

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Production Expansion Plan

We plan to expand our business to benefit from the expected increase in demand for our products, which is based on the following trends and assumptions:

The expected continuous growth of the overall PRC economy and household disposable income in the PRC based on historical trends, including China’s real GDP growth at a CAGR of 11.0% from 2003 to 2010, and the increase in the per capita disposable income of urban and rural Chinese residents with a CAGR of 12.3% and 12.3%, respectively, during the same period;
The proliferation of retailers selling our products, either through our key account customers’ addition of new retail stores, or by executing our plan to expand our distribution network. According to Euromonitor, leading food retailers including RT-Mart, Wal-Mart, Carrefour and China Resources Vanguard, many of which are our key account customers, have continued to expand their store networks throughout China and are expected to continue their rapid expansion;
Continuous strengthening of our brand recognition through increasing marketing activities. We were able to strengthen our brand recognition during the Track Record Period, as evidenced by the increase in our market share from 9.0% in 2008 to 10.3% in 2010 in terms of the total jelly products retail sales value according to Euromonitor. Such increased brand recognition was partly due to our marketing activities, the costs of which amounted to RMB71.1 million in 2008, RMB81.6 million in 2009, RMB77.7 million in 2010 and RMB44.2 million during the five months ended May 31, 2011; and
We plan to continue to expand and enhance our product offerings by launching new products with health and other features, including low-sugar or low-calorie jelly products.

In order to support our planned business expansion, we are in the process of expanding the jelly products production capacity at our Sichuan production facility by 30,000 tons per year to 80,000 tons per year, and the expansion is expected to be completed in early 2012. We further intend to increase the production capacity of our Tianjin production facility from 55,000 tons to over 100,000 tons per year of jelly products in the next five years. Moreover, we plan to expand our production capacity by constructing a new production facility. We own a parcel of land in Chuzhou, Anhui Province which has a total site area of approximately 133,332 square meters, and commenced construction of our Anhui production facility in August 2011. We plan to start manufacturing primarily jelly snacks and beverages at our Anhui production facility in the first half of 2013. As our business operation grows, we plan to search for other suitable locations to establish further production facilities. For more information, please see “Financial Information – Capital Expenditures – Planned Capital Expenditures.”

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OEM Arrangements

We engage third-party manufacturers through non-exclusive OEM arrangements to manufacture certain products for us, which mainly include confectionary products. As of October 31, 2011, we had 11 OEM partners which were responsible for manufacturing all of our confectionary products, and we engaged three OEM partners to manufacture our other products, with the exception of powdered milk tea. We sell these products under our own brand names and logos, such as “Sunshine City” (“陽光城市”) for confectionary products and “Xiangdoufang” (“鄉豆坊”) for dried bean curd products. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, products manufactured through OEM arrangements accounted for 14.8%, 9.5%, 11.6% and 12.5% of our total sales, respectively.

Our OEM strategy is to find high quality, reliable OEM partners with which we can establish long-term relationships. We apply a stringent set of criteria when we select our OEM partners, which includes requiring our OEM partners to obtain all requisite production licenses and permits such as the QS Food Production Permits (食品生產許可證) and ensuring that such OEM partners’ production facilities are adequately equipped to manufacture products that meet our specifications. Once we have selected suitable OEM partners, we enter into OEM agreements with them. Our OEM partners are responsible for all raw materials procurement from reputable suppliers. They are also required to meet all national standards for product hygiene and safety. If the products they produce fail to meet the requisite standards, we have the right to reject them and request compensation for all losses suffered.

In order to protect our know-how and trade secrets, we require our OEM partners to keep confidential all information received in connection with the manufacture of our products. We may also pre-mix some of our key ingredients and raw materials before passing them to our OEM partners to be used in the production process to ensure confidentiality of our formulas. We believe this approach not only ensures the confidentiality of our proprietary formulas and recipes, but also helps maintain the quality of products manufactured by our OEM partners.

We believe outsourcing the manufacturing of some of our products allows us to increase production capacity in a timely manner, without incurring additional capital expenditure, which in turn enables us to apply our financial resources to other areas of the business, such as sales and marketing and building our distribution network. It also allows us to launch new types of products efficiently without incurring significant capital investment in acquiring new equipment and machinery. Outsourcing also provides us with greater flexibility to adjust our product mix more quickly in response to changing consumer demands and market conditions.

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Production Process

We set out below the typical production processes for our main products.

Jelly products

The following chart depicts the production process of our jelly products:

Mixing and grinding	• •	The key raw materials for jelly products include, sugar, water, fruit juice, canned fruit and favoring essence The raw materials are mixed and ground together


	•	The sugar is melted into syrup and then fltered to remove
Boiling and		impurities
fltering	•	We boil the mixed raw materials with the syrup
	•	We flter and sieve the mixture to further remove any impurities


Hydro	•	We cool the mixture using cold water and add favorings
cooling and
favoring


Filling	•	We then pour the favored jelly mixture into various containers
and	•	We seal the containers with plastic flms
sealing


	•	We sterilize the jelly products by pasteurization and
Sterilizing,		then cool the sterilized products to room temperature
cooling and	•	The flled jelly containers are cooled and dried
drying


	•	The fnished products are packaged for delivery after
Packaging		undergoing quality assurance checks

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Powdered milk tea

The following chart depicts the production process of our powdered milk tea:

==> picture [319 x 173] intentionally omitted <==

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

• The key raw materials for powdered milk tea include non-dairy
creamer, sugar, milk powder, tea powder and flavoring essence
Mixing
• All raw materials are mixed in a sterilized environment
with constant temperature and humidity
• We filter and sieve the mixture to further remove any impurities
Filtering
• The powder mix is placed into cups and sealed with a plastic film
• The finished products are packaged for delivery after
Packaging undergoing quality assurance checks
----- End of picture text -----

RAW MATERIALS AND SUPPLIERS

Raw Materials

We set out below the main raw materials used in the manufacture of our main products:

The core raw materials we use in the manufacture of jelly products are jelly powder, sugar and syrup, water, canned fruit and flavoring essence.
The core raw materials we use in the manufacture of powdered milk tea are sugar, milk powder, tea powder and flavoring essence.
We also use various types of packaging materials in our manufacturing process, such as plastic containers and films, paper and cardboard boxes.

The costs of our raw materials (including packaging materials) used in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 amounted to RMB393.0 million, RMB394.3 million, RMB497.8 million and RMB301.1 million, respectively. Raw materials (including packaging materials) constituted 54.5%, 51.1%, 53.4% and 49.6% of our sales, and 89.6%, 81.6%, 84.4% and 83.6% of our cost of sales for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively.

Packaging materials

Packaging materials represents the largest component of our raw materials used. We package our products in various sizes and types of plastic cups, plastic packets and cardboard boxes. All our packaging materials are generally available from domestic suppliers. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we procured packaging materials from 30, 32, 27 and 29 different suppliers, respectively.

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The costs of our packaging materials for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 were RMB189.5 million, RMB196.9 million, RMB217.8 million and RMB137.3 million, respectively, accounting for 43.2%, 40.8%, 36.9% and 38.1% of our cost of sales, respectively.

Jelly powder

Jelly powder consists of various types of powders, such as konjac powder, which is derived from the root of the konjac plant, and carrageen, an extract from seaweed. The proportion of ingredients that makes up the jelly powder we use in our manufacturing process varies depending on the type of products manufactured. We strive to obtain high quality ingredients for our production process, and our product development team seeks to improve the formula of our jelly powder to enrich the texture of our jelly products, while maintaining our production costs at a competitive level.

The ingredients that make up our jelly powder are generally available from a variety of domestic suppliers. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we procured the necessary ingredients for jelly powder from three, four, four and four different suppliers, respectively.

Sugar and syrup

Sugar is a commodity generally available from a large number of domestic suppliers. We procure sugar on the spot market. Sugar prices have risen over the past few years in China. In order to maintain our production costs at a competitive level, our product development team seeks to incorporate sugar substitutes, such as fructose syrup, in our production process with an aim to adjusting the formulas and enhancing the texture of our jelly products. For each of the years ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we procured sugar and syrup from seven, seven, seven and six different suppliers.

Canned fruits

We procure canned fruits, such as oranges, peaches, pineapples and grapes from a variety of domestic suppliers. We maintain an appropriate inventory level of certain types of canned fruits, depending on their seasonality and our planned production schedule. We closely monitor any inventory of canned fruits we keep to ensure they are consumed well before the expiration of their shelf lives. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we procured canned fruits from 10, nine, eight and seven different suppliers, respectively.

Other raw materials

Other raw materials used in our production primarily include fruit juice, milk powder, tea powder and flavoring essence. We procure these materials from domestic suppliers.

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Water

Underground water

We use some underground water in the production of our various products at our Fujian production facility. We conduct extensive procedures to process the underground water we extract and check its quality before we use such water in our manufacturing process. Extracted ground water undergoes various filtration and purification steps that remove impurities before it is boiled as part of the manufacturing process for jelly products.

We are required to apply for a water assumption permit (取水許可證) from the local water resources bureau before we are legally entitled to extract underground water. The water assumption permit is valid for five years and can be renewed by submitting the prescribed documents and renewal fees to the local water resources bureau before the expiration of the permit. Our current permit is valid until the end of 2012. We have not experienced any shortage of underground water at our Fujian production facility since the commencement of our operations.

Tap water

In addition to underground water, we use tap water at our Fujian production facility. We also use tap water at our Tianjin and Sichuan production facilities. We obtain tap water from the relevant local water supply companies or local resources bureaus upon the commencement of operations at each of our production facilities.

We have not experienced any water shortage or problems with water quality in the past and had not received any complaints or been subject to any penalty in connection with the quality of water used in our products in the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 or subsequently, up to the Latest Practicable Date.

Procurement

Our raw material procurement is determined by our production schedule. Our production and sales departments determine the expected production and sales volume at a particular time so as to formulate our procurement plan. Our procurement department then contacts the suppliers in relation to our raw materials requirements. All of our raw materials, including packaging materials, are sourced domestically. We adopt a centralized procurement system for the majority of our raw materials in order to enjoy economies of scale and maximize our bargaining power with suppliers. We believe this approach increases our bargaining power and allows us to obtain more competitive prices. Suppliers directly deliver raw materials to each of our production facilities so as to enhance time and cost efficiency.

We generally enter into procurement contracts which are renewable on a yearly basis. Other than sugar, we typically pay the contract price regardless of any subsequent changes in the market price of raw materials ordered, unless the changes in the market price are significant and the suppliers give us advance notice of any proposed price increase. We are only responsible for any subsequent increase in price if such increase occurred as a result of our inability to receive the delivery of raw materials on time. However, as sugar is a commodity, we typically pay the prevailing spot market price. Our suppliers typically engage third-party transportation companies to deliver raw materials to each of our production facilities at their

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own costs. The third-party transportation companies are liable for any loss or damage to the goods that occurs during transportation process. After the raw materials are delivered to our warehouses, we have up to 30 days (depending on the type of raw materials procured) within which to inspect the goods and notify the suppliers of any discrepancy in quantity or deficiency and defect in quality.

We closely monitor the quality of all raw materials provided by our suppliers. We inspect all raw materials delivered to our production facilities before accepting the materials to ensure that they comply with the national standards as stipulated by the Standardization Administration of the PRC (國家標準化管理委員會). We sample check the quality of raw materials based on specific criteria, such as the appearance, hygiene standards, and the chemical and impurity content of the raw materials. Raw materials which fail to comply with our standards and the national standards are returned to the suppliers. For new types of raw materials or raw materials procured from new suppliers, we typically sample them in small production trials to test whether the products manufactured using a particular supply of raw materials satisfy our quality standard in every respect before we continue to use such raw materials in our manufacturing process.

Suppliers

We typically work with reputable, large domestic suppliers to secure key raw materials used in our production process. We have long-term relationships with the suppliers of our principal raw materials, which include sugar, jelly powder and canned fruits. Our raw materials are generally available from a number of domestic suppliers, and we normally have at least two sources of supply for each type of raw materials to reduce the dependency on a single supplier. Most of our suppliers have maintained a working relationship with us for at least five years. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we had 78, 81, 78 and 83 suppliers, respectively.

We select our suppliers on the basis of product quality, reputation, scale of production, price and ability to meet our delivery schedule. We require goods provided by our suppliers to meet our quality standards and the standards set by the AQSIQ of the PRC. If the goods supplied do not meet the quality standards we stipulate under the supply contracts, we may reject them and be compensated for any related costs. Furthermore, before we engage a new supplier, such supplier has to pass our internal quality control process, including inspection of their production facilities and production process, testing of their prototype materials and satisfactory trial production before we enter into a procurement agreement with them.

Payment terms granted by our suppliers vary depending on a number of factors including our relationship with the suppliers and the size of the transactions. On average, our suppliers typically provide us with credit terms of 30 to 60 days. We usually settle our trade payables by bank transfers and bank bills.

With a view to developing a long-term strategic cooperation with COFCO Corporation, we entered into a strategic cooperation framework agreement with COFCO on August 8, 2011, which is a memorandum pursuant to which the parties intend to enter into future specific agreements. Under this document, COFCO as our raw materials supplier assures the quality of raw materials it supplies, including syrup and flavoring essence. In the event that there is a shortage of raw materials, COFCO shall prioritize our purchase orders. Moreover, due to our long-term business relationship with COFCO, COFCO agrees to extend us credit terms which are longer and more flexible than those it typically grants to its customers. For more detail, please see “History and Corporate Structure – Strategic Cooperation Relationship with COFCO.”

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During the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, purchases of raw materials from our five largest suppliers represented 34.5%, 29.8%, 27.1% and 30.6% of our total cost of goods purchased, respectively, and purchases from our single largest supplier accounted for 9.0%, 8.3%, 6.8% and 7.9% of our total cost of goods purchased, respectively. None of our Directors, their respective associates or any Shareholder who, to the knowledge of our Directors, owned more than 5% of our issued share capital as of the Latest Practicable Date, has any interest in any of our five largest suppliers during the Track Record Period.

INVENTORY CONTROL AND LOGISTICS ARRANGEMENT

Inventory Management

Our inventory primarily consists of finished products and raw materials (including packaging materials). We have implemented an effective inventory control system that requires close co-ordination among our various functional departments, including sales and marketing, raw material procurement, production and storage.

We procure raw materials and plan our production based on actual and anticipated orders received from our customers. We usually maintain a safety inventory level for raw materials sufficient to meet 20 to 40 days’ production requirements, depending on the type of raw material involved. Once the finished goods are produced, we endeavor to transport them to our customers at the earliest possible time. We manufacture goods upon receiving orders from our customers and do not typically maintain substantial safety inventory levels for finished goods, except during periods leading up to traditional Chinese festivals such as the Chinese New Year, in order to accommodate the increased demand for our products. We believe that we manage our inventory at a reasonable level based on the management’s assessment, which minimizes storage space and carrying costs, enhances working capital efficiency and reduces the risk of deterioration of products while in storage, which is important for our stringent quality control policy.

Our safety inventory levels for raw materials vary according to season and may be adjusted depending on our production and sales plans, and are actively monitored by our procurement department based on our actual and expected procurement arrangements and the level of goods being delivered by our suppliers. Our safety inventory levels for finished products also vary according to season and may be adjusted depending on our production plan and sales requirements. In order to maintain accurate inventory records, we conduct monthly inventory counts on a rotation basis, and we conduct full inventory counts once every year. We also assess diminution in value of our inventory items on a regular basis.

Transportation

We engage independent third-party logistics services providers to deliver our products to wholesale distributors, key account customers, key account agents and export agents at our cost. The wholesale distributors then distribute to secondary distributors or retailers at their own costs. Similarly, the key account agents distribute to key account customers and the export agents deliver to our foreign customers at their own costs. Our OEM partners are generally responsible for the delivery of finished products to the warehouses of our production facilities at their own expense.

The vast majority of our products are delivered by road, with the remainder delivered by rail, from our production facilities to our customers’ warehouses or to designated ports in China with respect to products sold to the export agents. We have long-term relationships with a number of third-party logistics

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providers, with which we enter into annual transportation agreements. We select logistics providers on the basis of their track record, distribution network coverage and scale of operation. We typically inspect the trucks transporting our products before they leave our facilities and require the logistics providers to follow certain storage and transportation procedures to ensure that our products are transported under proper conditions. We require the logistics providers to inspect the products and to confirm the quantity of products to be delivered and the destination for delivery. Once the goods to be delivered have been confirmed, the logistics providers are liable for any damage or loss which arises during transportation, including delay of delivery and spoilage, damage or loss of products, unless such delay, spoilage, damage or loss was caused by our mishandling of the products.

QUALITY CONTROL

We have instituted rigorous quality control procedures in our manufacturing processes. We adhere to stringent quality control guidelines and conduct quality checks at various points of our entire production process, from sourcing of raw materials to processing, packaging and inventory storage. We have a dedicated quality control team headed by our executive Director, Mr. Zheng Yu Shuang and three executive personnel. This committee is responsible for ensuring that we adhere to our internal quality control procedures. During the Track Record Period and up to the Latest Practicable Date, we did not, due to product quality issues, (i) receive fines, product recall orders or other penalties from the PRC government or other regulatory bodies, (ii) receive any material goods return requests from our wholesale distributors, key account agents, key account customers or export agents, or (iii) receive any material complaints from consumers. As of October 31, 2011, we had a team of over 45 quality control staff that implement our quality control system.

We have maintained, since 2003, ISO 9001 and HACCP certifications in relation to our product quality and safety control systems for our Fujian and Tianjin production facilities. These certifications are subject to annual independent audits by third parties. As the Sichuan production facility only came into operation in July 2010, we intend to start the certification processes for obtaining ISO 9001 and HACCP certifications before the end of 2011. We have also obtained the QS Food Production Permits (食品生產許可證) for the manufacture of our products from the provincial-level Bureau of Quality and Technical Supervision (質量技術監督局) for all our production facilities. For our export sales, we have obtained the sanitary registration certificate of export commodities (出口商品衛生註冊證書) issued by the Certification and Accreditation Administration of PRC (中國國家認證認可監督管理委員會). In order to obtain and maintain the QS production permit and the sanitary registration certificate of export commodities, we have to meet the quality and hygiene standards set by the PRC government, covering different stages of the production process from raw material procurement, manufacturing, maintenance of production facilities, finished products and storage. Moreover, we are subject to annual inspection from the relevant PRC government authorities.

Our external internal control adviser, Crowe Horwath (HK) CPA Limited, performed an assessment on our internal control systems, including reviewing internal quality control guidelines and policies such as “Policies on Product Quality Assessment,” “Procedures on Handling Irregular Raw Materials and Packing Materials,” “Policies on Product Quality Analysis Management” and “Procedures on Production Processes,” which are implemented throughout our business production process. No insufficiency and ineffectiveness on the internal control system (including food safety and quality control) had been identified, as considered by the internal control adviser, in the course of the internal control review.

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Our quality control system covers the following:

Raw materials quality control. We require our raw materials suppliers to give us reports from independent laboratories with regard to the quality of their raw materials annually, and such practice is in line with industry norms. When these raw materials arrive at our warehouse, our quality control personnel check them to ensure that the quantity and quality of the raw materials meet our specifications, including having correct labeling and packaging, before they are accepted. We also perform laboratory tests to ensure that the raw materials and packaging materials are up to our specifications. We test the raw materials following the national quality standards stipulated under GB14881 General Hygienic Regulation for Food Enterprises (食品企業通用衛生規範). Any sub-standard raw materials will be returned.

We also conduct periodic inspection on the quality control compliance level of our procured raw materials by (i) sending the relevant raw materials to external laboratories, such as the Jinjiang Product Quality Supervision and Inspection Institute (晉江市產品質量監督檢驗所), which holds a Metrology Accreditation Certificate, and the Fujian Provincial Quality Control Center (福建省質量控制中心) for quality control testing in accordance with relevant national standards; and (ii) sending our quality control inspectors to our suppliers to conduct random quality control testing pursuant to the ISO 9001:2008 standards. Any raw materials that do not meet our standards are returned to the supplier.

Production process quality control. We strictly follow all relevant industry standards for the manufacture of our products. For example, in relation to jelly products, we adhere to the GB19883-2005 standard issued by AQSIQ and the Standardization Administration of the PRC (國家標準化管理委員會) as well as the GB19299-2003 standard issued by the Ministry of Health of the PRC (中華人民共和國衛生部). We conduct quality checks at key control points of our production process in order to ensure that the production process is operating properly and that there is no contamination or impurity affecting our products. We also conduct a comprehensive production process inspection annually to ensure that all of our production equipment and machinery satisfy the national hygiene and safety standards. When irregularities are found, we increase our sampling size and make necessary adjustments or corrections. If the problem persists, we will halt production and conduct a full investigation into the cause of the problem. Production will only be resumed when the problem has been resolved.

Production environment and workplace safety control. We conduct periodic health checkups for all of our employees and require them to maintain good personal hygiene. We provide regular product quality, production safety and other technical training to all our staff, including production personnel, quality control and inspection personnel as well as managerial personnel to ensure they are kept abreast of the latest safety and hygiene requirements.

Finished goods quality control. Our finished products are packaged and stored at our warehouses before they are delivered to our customers. These finished products are stored in designated zones within our warehouses according to their manufacturing dates and product categories. To maintain their freshness, our finished products are stored in well-ventilated, temperature and humidity controlled warehouses. Moreover, we undertake pest control regularly to ensure our warehouses are pest-free. We also take safety measures to minimize fire hazards and water damage to our finished goods.

In order to maintain the same quality standards as our own production facilities, we identify reliable raw materials suppliers and recommend that our OEM partners source from them. All of the raw materials used in production by our OEM partners are subject to our inspection, and we randomly sample each batch of raw materials for such inspection in accordance with relevant national standards on food safety. We also dispatch our quality control staff regularly to monitor the production process at our OEM partners’

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facilities. We conduct sample checks for every batch of finished products delivered to us to ensure they meet relevant national standards on visual appearance, product quality and food safety. In line with industry norms, we submit samples of our finished products to independent laboratories near each of our production facilities, such as the China National Quality Supervision and Testing Center for Processed Food (Fuzhou) (國家加工食品質量監督檢驗中心(福州)), for quality control checks in accordance with relevant national standards on visual appearance, product quality and food safety on a semi-annual basis.

Although plasticizers are common adjuvants in packaging materials when used under their legally permitted levels, there have been recent public concerns over the illegal usage of certain plasticizers as food additives after such incidents were first publicized in Taiwan in May 2011. None of us, our suppliers or our OEM partners has used any plasticizers to manufacture our food and beverage products, and plasticizers are not ingredients to the manufacture of our food and beverage products. Our products were sent in their original packaging to the China National Quality Supervision and Testing Center for Processed Food (Fuzhou) and Jinjiang Product Quality Supervision and Inspection Institute for inspections, both of which are qualified to conduct plasticizer inspections by virtue of their Metrology Accreditation Certificates issued by the Certification and Accreditation Administration of the PRC (中國國家認證認可監督管理委員會) that attest to these institutions’ abilities to conduct such inspections. We also took proactive measures to arrange plasticizers testing by independent laboratories on our products submitted in their retail packaging. Furthermore, we urged our raw materials suppliers and OEM partners to arrange plasticizers testing by independent laboratories on the raw materials and the packaging materials supplied to us and the products manufactured by our OEM partners on our behalf and provide us confirmation thereafter. Through these measures, we have confirmed that none of our products contains any plasticizer (whether as a result of contamination during the production processes or migration from packaging materials), none of the raw materials we use and none of the products manufactured by our OEM partners on our behalf contains any plasticizer, and the packaging materials supplied to us do not contain plasticizers exceeding levels permitted under relevant PRC laws and regulations. In addition, there are no uniform international standards regulating the levels of plasticizers in packaging materials, and as of the Latest Practicable Date we had not received any governmental notices or inquiries from countries to which we export our products with regard to the usage of plasticizers in packaging materials. Moreover, the PRC State Food and Drug Administration published a list of manufactures of food-related raw materials which have been found to use plasticizers in their products in June 2011, and we confirm that none of our raw materials suppliers is on such list. In order to ensure that none of our food and beverage products contains any plasticizer, we have started to include plasticizers testing as part of our existing semi-annual quality control checks on samples of our finished products in their retail packaging in accordance with relevant national standards on visual appearance, product quality and food safety by independent laboratories. In addition, we have obtained confirmation letters from our raw materials suppliers and OEM partners in favor of us, warranting that they have not used any additives or adjuvants in raw materials supplied to us or OEM products manufactured on our behalf in violation of relevant laws and regulations, and agreeing to indemnify us for any loss incurred as a result of their such violations. We believe that the plasticizer incident has had no material adverse effect on our business, results of operations and financial conditions.

RESEARCH AND PRODUCT DEVELOPMENT

We have successfully expanded our product offerings through continuous research and product development efforts. Our product development process focuses on enhancing and expanding our existing product lines, including quality improvement and introduction of new flavors and textures, as well as identifying new products in response to customer demand.

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We closely monitor the types of competing products available on the market, and our sales and marketing team and wholesale distributors also provide us with timely and direct customer feedback to assist in our product development efforts. We adopt a market-oriented product development approach. We carry out feasibility analyses prior to launching new products. We assess consumer preferences, and test flavors and textures of our new products to ensure they cater to our target consumers’ tastes. We also conduct cost-benefit analyses on our new products and aim to optimize our existing production facilities where possible for the production of our new products. Our new product launches are typically scheduled in accordance with our marketing plans.

We have a dedicated research and product development team responsible for expanding the range and improving the quality of our products. We undertake the majority of our research and product development activities for our jelly products in-house. We also cooperate with higher education, academic and research institutions such as Fujian Agriculture and Forestry University (福建農林大學) and the College of Food Engineering and Biotechnology, Tianjin University of Science and Technology (天津科技大學食品工程與生物技術學院) to jointly develop new jelly products. We entered into cooperative joint research and development agreements with these third-party institutions for a term of five years, during which period they undertake to develop new formulas or products according to our product development plans and specifications, provide technical support and training to our production personnel, and assist with product quality control. In return, we have agreed to pay fees to these third-party institutions and attend classes or seminars organized by them to share our production expertise. Under our agreement with Fujian Agriculture and Forestry University, the university retains the proprietary right to any jointly developed patents, and we paid them a one-off fee of RMB50,000 for the exclusive right to produce certain types of jelly snacks using its patent. Under our agreement with Tianjin University of Science and Technology, we retain the proprietary right to any patents or products developed jointly, and we pay them RMB50,000 per year for a period of five years starting 2008.

In addition, we have been acting as the convenor in preparing for the establishment of the Jelly Products Working Group since 2008, and the Jelly Products Working Group was formally established on August 19, 2011. As a member of the Jelly Products Working Group, we will participate in the formulation of national standards for different types of various jelly products.

We invest in research and product development to maintain our competitiveness and to expand our sales, as demonstrated by our historical performance and our track record of bringing new products to the market successfully. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, our research and development expenditures were RMB12.6 million, RMB13.9 million, RMB19.0 million and RMB8.2 million, respectively. We aim to continually innovate and improve our products to cater to changing consumer preferences, focusing particularly on product tastes, textures and packaging, while maintaining our cost of production at acceptable levels. Our jelly product innovation efforts have led to the introduction of a number of new products, including “Eden Bar” (“異度果吧”) and “Fresh Q” (“鮮 Q”) jelly beverages. We have also produced jelly snacks with added probiotics such as our “Xiaoxin” (“小新”) series of jelly snacks. We typically launch a number of new jelly products or flavors every year and eliminate less popular products from our product range. We have also expanded our product offerings to include jelly products with vitamins and probiotics, and other snack food categories such as confectionary products, powdered milk tea, dried bean curd products and baked products. In addition, with the growing desire for healthy diet and lifestyle among Chinese consumers, we intend to focus our research and product development efforts on low-sugar or low-calorie jelly products, as well as jelly products with vitamins and minerals content. Currently, we are participating in the lawmaking process to formulate industry standards for low-sugar jelly products by submitting our own comments and proposals, and intend to launch low-sugar jelly products after such standards are formulated.

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With a view to developing a long-term strategic cooperation with COFCO Corporation, we entered into a strategic cooperation framework agreement with COFCO on August 8, 2011, which is a memorandum pursuant to which the parties intend to enter into future specific agreements. Under this document, we and COFCO agree to cooperate on new product development and jointly contribute the necessary technical and staff resources to joint product development projects. If any intellectual property rights result from such joint development projects, we are entitled to sole ownership of such intellectual property rights, while COFCO is entitled to a priority right to use such intellectual properties. For more information please see “History and Corporate Structure – Strategic Cooperation Relationship with COFCO.”

INTELLECTUAL PROPERTY

Our intellectual property rights are of fundamental importance to our business since we rely significantly on consumers’ recognition of our brand names.

Intellectual Property Owned or Under Application

We currently distribute our jelly and certain confectionary products under the core brand name

“ ” (“Labixiaoxin”), and we are currently consolidating all our existing brands with the intention to use “Labixiaoxin” as an umbrella brand to market all our products. We are dependent on the general recognition of the “Labixiaoxin” brand name. We have registered our trademarks, including our “Labixiaoxin” logo, in the PRC and Hong Kong and we have also applied for registration of such trademarks in other countries such as India and Mexico. We completed the registrations of our “Labixiaoxin” trademark in the PRC in classes covering our jelly products in 2000 (with registration number 1470228) and our confectionary products in 2002 (with registration number 1954434). At the time we applied for the registrations of our “Labixiaoxin” trademark, it was not identical or similar to any then existing registered trademarks in China, and therefore our PRC legal adviser, Jingtian & Gongcheng, has confirmed that our trademark was legally registered in the PRC. We are aware that “Crayon Shinchan,” a Japanese manga series, is commonly perceived to be known as “蠟筆小新” or “蠟筆小新” in Chinese (or “Labixiaoxin” in pinyin). Trademarks incorporating the manga series’ main character’s image or the Chinese characters “蠟筆小新” or “蠟筆小新” rendered in different artistic styles have been registered by third parties unrelated to us in various countries and regions, including the PRC, Taiwan and Hong Kong. We do not use the image of the “Crayon Shinchan” manga series’ main character in our trademarks, nor do we use that image to market our products. In 2005 and in 2007, Futabasha applied to the Trademark Board, the regulatory authority responsible for handling trademark disputes in the PRC, for the revocation of our “Labixiaoxin” trademark registrations in administrative proceedings primarily on the grounds that our trademark infringed copyrights owned by Futabasha in the “Crayon Shinchan” manga series, commonly perceived to be “蠟筆小新” or “蠟筆小新” (“ labixiaoxin ” in pinyin) in Chinese. The Trademark Board ruled in our favor in 2009 and 2010 on the following grounds:

Our “Labixiaoxin” trademark does not contain the Chinese characters “蠟筆小新” rendered in the same artistic style as that used in Futabasha’s trademark, and we do not use the image of the “Crayon Shinchan” manga series’ main character in our trademark, and thus it is not similar or identical to Futabasha’s trademark.

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The registrations of our “Labixiaoxin” trademark in classes covering our jelly products and confectionary products received regulatory approvals in 2000 and in 2002, respectively, before news and articles about the “Crayon Shinchan” manga series and the related merchandise first appeared in China, in 2003, and therefore before Futabasha’s trademark could have become a well-known trademark in China, which could have prevented similar marks from being registered in the same or other classes.
Our “Labixiaoxin” trademark was not registered through improper means or with malicious intentions.

Furthermore, according to the Trademark Law, there is generally a five-year time limit to challenge an approved trademark registration starting from the registration date. Since the “Labixiaoxin” trademark was registered in classes covering our jelly products in 2000 (with registration number 1470228) and our confectionary products in 2002 (with registration number 1954434), the respective time limits have lapsed. We and our PRC legal adviser, Jingtian & Gongcheng, are of the view that (i) we have completed all legal procedures in the PRC necessary to register our core “Labixiaoxin” trademark in classes covering our jelly products in 2000 (with registration number 1470228) and confectionary products in 2002 (with registration number 1954434), and the SAIC has approved such trademark registrations before Futabasha completed its trademark registrations, (ii) such use has not infringed the intellectual property rights of any third parties, and (iii) it is unlikely that there will be any foreseeable complaint, claim, dispute or litigation made against us in connection with our “Labixiaoxin” trademark. In addition, our “Labixiaoxin” trademark does not use the image of the “Crayon Shinchan” manga series’ main character and presents the Chinese characters “蠟筆小新” vertically, while Futabasha’s trademarks may use such image and present the Chinese characters “蠟筆小新” horizontally in artistic styles different from ours. As such, our “Labixiaoxin” trademark and Futabasha’s trademarks are clearly distinguishable and not considered similar or identical. Furthermore, based on searches conducted on the PRC Trademark Bureau’s online database, (i) Futabasha received approvals to register its trademarks beginning in 2003, and (ii) our “Labixiaoxin” trademark and Futabasha’s trademarks are registered in different classes in the PRC, with the exception of class 30, where our “Labixiaoxin” trademark and Futabasha’s trademark are registered in different sub-classes. We further believe that our continuous use of the “Labixiaoxin” trademark will not infringe the intellectual property rights of any third parties in the future, and the risk of our not being able to use the “Labixiaoxin” trademark or brand name is remote. For more details, please see “Risk Factors – Risk Relating to Our Business – We may face challenges to our intellectual property rights and market confusion regarding our ‘Labixiaoxin’ brand name.”

As part of our anti-counterfeit measures to protect our trademark, we sued a third party (the “Defendant”) in the PRC for using our “Labixiaoxin” trademark on its herbal tortoise jelly products without our authorization in 2007. The infringing products were not in a class in which our “Labixiaoxin” trademark was then registered. During the course of the litigation, we made a petition to the SAIC, which subsequently recognized our “Labixiaoxin” trademark as a “China Well-Known Trademark” (中國馳名商標) in 2007 and prohibited the Defendant’s infringing use. According to our PRC legal adviser, Jingtian & Gongcheng, the “China Well-Known Trademark” recognition could only be made by the PRC Trademark Bureau or the Trademark Appeal Board of State Administration for Industry and Commerce of the PRC, based on a party’s petition for such recognition during a trademark infringement lawsuit, or a dispute originating from processes concerning (i) trademarks administration, (ii) trademark registrations, or (iii) trademark reviews and adjudication. Therefore, there is no practice or necessity to renew this recognition periodically. In the event of a future trademark dispute or lawsuit, our “Labixiaoxin”

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trademark’s past recognition as a “China Well-Known Trademark” has evidentiary significance. If our past recognition is not disputed, the adjudicating body may take as a matter of fact that the trademark is still a “China Well-Known Trademark,” which can prevent the registration of identical or similar marks in the same or different classes in the future.

We undertake proactive anti-counterfeiting measures, including (i) timely registration of marks we intend to use as trademarks in relevant jurisdictions, (ii) active monitoring of the market for potential infringement activities, and (iii) frequent communications with our wholesale distributors to respond to potential infringement activities they have identified in their respective distribution areas. During the Track Record Period and up to the Latest Practicable Date, we had not experienced any infringement of our intellectual property rights having a material adverse effect on our business.

In March 2011, we entered into a trademark application transfer agreement pursuant to which Labixiaoxin (Xiamen) Trading Co., Ltd. (蠟筆小新(廈門)商貿有限公司), a company jointly owned by the daughters of two of our executive Directors, Mr. Zheng Yu Long and Mr. Zheng Yu Shuang, transferred the application rights to the trademark “Xiangdoufang” (“鄉豆坊”) to us for consideration of RMB1,000, and we applied for the registration of such trademark with the Trademark Office of the SAIC. We are entitled to enjoy the exclusive right to use the “Xiangdoufang” trademark during the period between the date of the trademark transfer agreement and the date that the trademark registration becomes effective, which is expected to be in late 2011. We currently use “Xiangdoufang” to market our dried bean curd products. In March 2011, we also entered into six patent transfer agreements pursuant to which two of our executive Directors transferred the application rights to six patents relating to product packaging designs to us for no consideration, and the Patent Office of the National Intellectual Property Bureau approved our applications to transfer the ownership of such patents to us in April and May 2011. One of such transferred patents expired in June 2011.

In August 2011, we entered into a trademark transfer agreement pursuant to which Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司), a company jointly owned by two of our executive Directors, Mr. Zheng Yu Long and Mr. Zheng Yu Huan, agreed to transfer certain trademarks (“Transferred Trademarks”) to us for consideration of RMB1,000. The Transferred Trademarks are registered in classes 2 (paints), 3 (cleaning preparations), 5 (pharmaceuticals), 6 (metal goods), 8 (hand tools), 9 (electrical and scientific apparatus), 11 (environmental control apparatus), 12 (vehicles), 14 (jewelry), 16 (paper goods and printed matter), 20 (furniture and articles not otherwise classified), 24 (fabrics), 26 (fancy goods), 32 (light beverages), 33 (wines and spirits), 34 (smokers’ articles) and 35 (advertising and business services). The Transferred Trademarks are visually similar or identical to trademarks owned by us, and Mr. Zheng Yu Long and Mr. Zheng Yu Huan deem it advisable to consolidate the ownership of such similar trademarks in our Group. We have applied for the transfer of the Transferred Trademarks with the Trademark Office of the SAIC, and are entitled to the exclusive right to use the Transferred Trademarks during the period between the date of the trademark transfer agreement and the date that the transfer of the Transferred Trademarks becomes effective, which is expected to be before February 2012.

We have been exporting our products under our “Larbee” (“ ”) brand. We do not export our

products under our “Labixiaoxin” trademark because it contains Chinese characters which make it less effective to elicit brand recognition and loyalty from non-Chinese consumers. We are aware that the PRC is a signatory to major international conventions concerning intellectual property rights, such as the Paris Convention for the Protection of Industrial Property (the “Paris Convention”), and the Madrid System for the International Registration of Marks (the “Madrid System”). Under the Paris Convention, if an

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applicant has filed a trademark application in a member country, its subsequent application in another member country may enjoy the same filing date as the original application, provided that the latter application is filed within six months from the original application. Under the Madrid System, it is possible for an applicant in a member country to file a trademark application directly with its own national or regional trademark office and obtain protection for such trademark in other member countries. Because (i) we do not use the “Labixiaoxin” trademark on our exported products and (ii) export sales only accounted for 8.2%, 5.8%, 7.7% and 5.5% of our total sales during the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively, we do not believe the potential advantages the Paris Convention or the Madrid System may afford us in connection with the registration of our “Labixiaoxin” trademark in other countries will significantly benefit our export sales, and have not availed and do not plan to avail ourselves to such potential advantages. Furthermore, regardless of whether Futabasha’s trademarks have been or will be registered under the Paris Convention or the Madrid System, our PRC legal adviser, Jingtian & Gongcheng, has confirmed that Futabasha will not have any priority rights over our registered “Labixiaoxin” trademark in the PRC, because we have completed the registrations of our core “Labixiaoxin” trademark in the PRC in classes covering our jelly products in 2000 (with registration number 1470228) and our confectionary products in 2002 (with registration number 1954434) before Futabasha completed its trademark registrations in the PRC. In addition, since our “Labixiaoxin” trademark and Futabasha’s trademark are clearly distinguishable and not considered similar or identical, we believe that Futabasha will not have any valid trademark infringement claims against us in the PRC, whether such claims arise under PRC laws and regulations, the Paris Convention or the Madrid System. Based on the foregoing, we believe our current trademark administration practice does not and will not have any material adverse effect on the Group.

As of the Latest Practicable Date, we had registered 162 trademarks in China and overseas. As of the same date, we also had 10 registered patents in China relating to our product packaging designs. As of the Latest Practicable Date, we had made 43 trademark and six patent applications in China. We have submitted our registration applications for those trademarks and patents and our applications are being processed by the Trademark Office of the SAIC. For details, please see “Statutory and General Information” in Appendix VII to this document.

Intellectual Property under Licensing Agreement

We distribute certain of our jelly products using the “Snoopy” logo and other characters in the “Peanuts” comics series pursuant to an exclusive copyright licensing agreement entered into in December 2007 with Nanjing Fangzhiyuan Food Products Company Limited (南京芳之圓食品有限公司) (the “Licensor”), an Independent Third Party, which is the licensed copyright owner in the PRC. The Licensor is authorized under its licensing agreement with its licensor to sublicense to us the rights to use the “Snoopy” logo and other characters in the “Peanuts” comics series. The copyright licensing agreement was for a term of three years and we subsequently renewed the agreement in December 2010 for a further term of two years till the end of 2012. Upon expiration, we intend to renew our licensing agreement with the Licensor. Under the licensing agreement, we are required to pay a predetermined licensing fee within the first month of entering into the agreement, and we are required to sell products which bear the “Snoopy” logo at agreed prices. The Licensor is required to do what is reasonably necessary to protect our exclusive right to use the “Snoopy” logo under the agreement and assist us with designing and conducting advertising and promotional campaigns with respect to products bearing the “Snoopy” logo.

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On July 1, 2009, we were granted an exclusive right by Fujian Agriculture and Forestry University to produce certain types of jelly snacks pursuant to a registered patent with a validity period of five years commencing from July 1, 2009. We paid Fujian Agriculture and Forestry University a one-off fee of RMB50,000 for the exclusive use of the registered patent. Our sales attributable to the jelly snacks produced under such patent accounted for 0.1% in 2009, 0.2% in 2010 and 0.2% in the first five months of 2011 of our sales. We may negotiate with Fujian Agriculture and Forestry University to extend the right to use its patent if we deem it commercially advisable when the current license is near expiration.

Details of our registered intellectual property portfolio are provided in the section headed “Statutory and General Information −Information about the Business – Intellectual property rights of the Group” in Appendix VII to this document.

COMPETITION

While the PRC jelly products industry had over 500 jelly manufacturers in 2010, according to Euromonitor, the top five jelly manufacturers commanded approximately 50% of the total market share in terms of total retail sales value of jelly products. According to Euromonitor, the top five jelly manufacturers in China in 2010 were Guangdong Strong Group Co., Ltd. (廣東喜之郎集團有限公司), us, Want Want China Holdings Limited (中國旺旺控股有限公司), Fujian Qinqin Co., Ltd. (福建親親股份有限公司) and Dongguan Hsu Fu Chi Foods Co., Ltd. (東莞徐福記食品有限公司) in terms of total jelly products retail sales value.

Competition for jelly products is primarily on the basis of brand recognition, consumer preference, product innovation and price. According to Euromonitor, in the year ended December 31, 2010, we were the second largest manufacturer of jelly products in China with a total market share of 10.3% in terms of retail sales value of jelly products. For the same period, the largest manufacturer had a market share of 19.7%. We had reinforced our leading position over the Track Record Period by gaining the most market share from 2008 to 2010 out of the top five jelly manufacturers, according to Euromonitor. Furthermore, according to Euromonitor, we were the fastest growing jelly beverages manufacturer out of the top five jelly beverages manufacturers, increasing our market share of jelly beverages products from 9.0% in 2008 to 13.3% in 2010.

For more details, please see “Industry Overview.”

INSURANCE

Our insurance policies primarily cover social insurance and damages to certain fixed assets, such as our production plants and equipment as well as raw materials and finished products in storage caused by natural disasters such as droughts, floods, earthquakes, hailstorms, windstorms and snowstorms. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we incurred expenses for such insurance policies in the amount of approximately RMB27,000, RMB25,000, RMB51,000 and RMB44,000, respectively. We do not maintain product liability insurance coverage with respect to our domestic and export sales, which is not compulsory in China, nor is it contrary to market practice in our industry. We rely on our stringent quality control to limit our product liability risks, and we have not experienced any product liability claims in relation to our products since our inception. After taking into account (i) our stringent quality control procedures, (ii) our compliance in all material respects with the relevant laws and regulations applicable to us in the PRC and in destination countries to which we export our products through obtaining the relevant health and food safety approvals, certificates,

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registrations or any other legally required documentation, (iii) the limited types of insurance coverage that are currently available in the PRC, and (iv) the amount of export sales as a relatively small percentage of our total sales, our Directors have concluded that the cost of purchasing product liability insurance coverage outweighs the benefits that we would derive from such insurance coverage, and our insurance policies are reasonable and in line with the general practices in our industry in China. We are also not insured against business interruptions resulting from natural disasters such as droughts, floods, earthquakes or severe weather conditions, any suspension or cessation in the supply of utilities and other calamities.

ENVIRONMENTAL COMPLIANCE

We are subject to PRC environmental and safety laws and regulations promulgated by both the central and local governments. The laws and regulations applicable to us include the Environmental Protection Law of the PRC (中華人民共和國環境保護法), the Law of the PRC on Prevention and Control of Environmental Noise Pollution (中華人民共和國環境噪聲污染防治法), the Environmental Impact Assessment Law (中華人民共和國環境影響評價法) and the Regulations on Administration of Construction Project Environmental Protection (建設項目環境保護管理條例). Pursuant to those laws and regulations, each construction project is required to undergo an environmental assessment and an environmental impact assessment report (項目環境影響報告) is required to be submitted to the relevant government authorities for approval before commencement of construction. When there is a material change in respect of the construction site, or in the scale or nature of a given project, a new environmental impact assessment report must be submitted for approval. Other than a new construction project at our Fujian production facility, we have submitted environmental impact assessment reports for construction projects in relation to all our production facilities for assessment by the PRC government and have obtained the relevant approvals. Under relevant PRC laws and regulations, completed construction projects, including production facilities, must undergo environmental protection inspection procedures carried out by the local environmental protection bureaus, which will issue pollutant discharge permits (排放污染物許可證) if the completed construction projects pass the inspection procedures. Although the food and beverage industry is generally regarded as low polluting, during the course of food production, there may be increased noise pollution and increased waste water, exhaust gas and solid waste. We have obtained the pollutant discharge permit for the discharge of pollutants such as waste water, solid waste and other waste with respect to our Fujian production facility. We submitted the environmental impact assessment reports and obtained the approvals to commence construction of our Tianjin production facility in January 2006 and our Sichuan production facility in April 2008, and the construction projects including pollution control equipment were completed on March 2008 and July 2010, respectively. After taking into account our expansion plan, our low polluting production, the pollution control equipment in place and the uncertainty as to the length of time the local environmental protection bureaus may take to complete their inspection procedures, we decided to commence production at our Tianjin and Sichuan production facilities in March 2008 and July 2010, respectively, as they were undergoing the environmental protection inspection procedures after which they would obtain the pollutant discharge permits. In letters issued in March 2011, the local environmental protection bureaus in Tianjin and Sichuan confirmed that (i) we were in the process of undergoing the relevant environmental protection inspection procedures, (ii) each of our Tianjin and Sichuan production facilities could obtain its pollutant discharge permit after it had passed the inspection procedures, and (iii) our pollution treatment practices at the Tianjin and Sichuan production facilities were in compliance with the relevant PRC environmental protection laws and regulations. In August 2011, our Sichuan production facility obtained the pollutant discharge permit. We are currently in the process of applying for the relevant environmental protection inspection procedures to be undertaken with respect to our Tianjin production facility, and we expect to obtain the pollutant discharge permit

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before the end of 2011. Our PRC legal adviser, Jingtian & Gongcheng, has confirmed that there are no foreseeable legal impediments in obtaining the pollutant discharge permit for our Tianjin production facility. Jingtian & Gongcheng has further advised that each instance of non-compliance at the Sichuan and Tianjin production facilities may subject us to a maximum fine of RMB100,000, for an aggregate amount of RMB200,000.

We seek to optimize resource utilization and water use in our production activities, enhance environmental awareness of our staff, and monitor environment protection programs through pollution indicators. We have implemented environmental protection measures, including procedures and programs related to wastewater discharge management, noise control, resources and energy use control, environmental protection enhancement and sustainable development, internal environmental examination and evaluation, environmental emergency response and impact control. We believe that our operations were in compliance in all material respects with currently applicable national and local environmental protection laws and regulations in the PRC during the Track Record Period and up to the Latest Practicable Date.

We have maintained an IS014001 environmental management system certificate (環境管理體系認證證書) issued by Beijing Century Certification Co., Ltd. (北京新世紀認證有限公司) in relation to LBXX Fujian and LBXX Tianjin, which evidences that our production environment and waste disposal systems meet the latest relevant standards required by IS014001: 2004.

For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we incurred costs of approximately RMB7,000, RMB9,000, RMB20,000 and RMB58,000, respectively, in connection with our compliance with applicable environmental laws and regulations. We expect to incur similar amount of costs in the near future, subject to any future changes in applicable environmental laws and regulations which may arise.

OCCUPATIONAL HEALTH AND SAFETY AND LABOR ISSUES

We have adopted certain management rules on production safety based on the safety laws and regulations of the PRC in order to ensure that we provide a safe working environment for our employees. It is mandatory for all of our employees to abide by these safety rules. We have implemented a number of safety measures and established a safety supervision team that is responsible for formulation and implementation of such safety measures. Our work place safety training program for our employees covers operation of new equipment, as well as each stage of the manufacturing process. Since 2003, we have maintained an occupational health and safety management system certificate from Beijing Century Certification Co., Ltd. (北京新世紀認證有限公司), certifying that our occupational health and safety management system is in conformity with the GB/T 28001-2001 standard. We believe our production facilities were in compliance with the requirements and provisions of applicable PRC production safety laws and regulations in all material respects during the Track Record Period and up to the Latest Practicable Date.

During the Track Record Period, there was no material violation of applicable PRC labor, health and safety regulations, nor were there any material employee safety issues involving us. We intend to fully comply with the new PRC labor contract laws and do not expect such compliance to affect our business operations in any material respect. We believe that by protecting the interests of our employees, we are able to enhance employee morale and long-term retention of quality personnel.

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In order to comply with the relevant PRC laws and regulations, we participate in various defined retirement contribution plans (including pension insurance, medical insurance, unemployment insurance, personal injury insurance and housing provident fund) organized by the PRC provincial and municipal governments for our employees. Prior to February 2011, neither LBXX Fujian nor LBXX Sichuan registered with the relevant authorities, maintained designated accounts, or made any contributions to the housing provident fund. On February 28, 2011 and March 7, 2011, we obtained confirmation letters from Jinjiang Management Department of the Quanzhou City Housing Provident Fund Management Center (泉州市住房公積金管理中心晉江市管理部) and Pujiang Management Department of the Chengdu City Housing Provident Fund Management Center (成都市住房公積金管理中心蒲江縣管理部), respectively, regarding the unpaid housing provident fund contributions prior to February 2011. According to the confirmation letters, the housing provident fund management centers have decided not to impose any financial penalties or other forms of administrative penalties on LBXX Fujian and LBXX Sichuan, or require LBXX Fujian and LBXX Sichuan to make good any overdue contributions. Since February 2011, LBXX Fujian and LBXX Sichuan have registered with the relevant housing provident fund management centers, maintained accounts with designated banks and made contributions to the relevant housing provident funds as required under the contribution plans.

Except for this non-compliance of the housing provident fund, we believe that we were in compliance with the relevant social welfare laws and regulations in all material respects during the Track Record Period and up to the Latest Practicable Date. We also maintain insurance coverage for our employees for any accidents at our production facilities. Our human resources personnel look after our labor, health and safety issues. They generally have sound knowledge of administration and human resources issues, and they endeavor to keep abreast of the latest legal developments in this area and to ensure that we are in compliance with the relevant requirements.

LEGAL PROCEEDINGS AND COMPLIANCE

In September and October 2009, some local governmental authorities in the PRC determined that certain of our product packaging did not adhere to the new food labeling laws, which became effective on June 1, 2009. We promptly reviewed and improved our packaging to bring them into compliance with the new food labeling laws. We wrote off RMB19.3 million in 2009 in relation to the disposal of the non-complying packaging. We have not received any penalty notices from relevant governmental authorities. We have also obtained no-penalty certificates from the relevant local authorities in the PRC in relation to these incidents.

Save as disclosed above, all of our subsidiaries have obtained and currently maintain all necessary permits and licenses required for their production and sales activities, such as their business licenses, food hygiene permits and QS Food Production Permits (食品生產許可證). As of the Latest Practicable Date, we were not aware of any litigation or arbitration proceedings currently existing, pending or threatened against us that could have a material adverse effect on our business, results of operations or financial position.

According to our PRC legal adviser, Jingtian & Gongcheng, save as disclosed in the document, we have complied in all material respects with all applicable laws, rules and regulations in the PRC during the Track Record Period and as of the Latest Practicable Date.

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Preparation of accounts of our Hong Kong subsidiaries

Pursuant to section 122 of the Companies Ordinance, the directors of a company incorporated in Hong Kong are required to cause the profit and loss account and balance sheet of the company to be made up and laid before the company at each of its annual general meetings. Since the incorporation of LBXX Holdings and LBXX Investments, our subsidiaries which were incorporated in Hong Kong on October 8, 2007, their then directors have delegated their secretarial accounting matters to a company secretarial firm associated with a law firm. As confirmed by our Directors, the principal activity of each of LBXX Holdings and LBXX Investments since its respective incorporation is investment holding and it has not carried out any business in Hong Kong since its respective incorporation. In respect of LBXX Holdings, no accounts for each of the two years ended December 31, 2010 (the “LBXX Holdings Accounts”) were prepared and laid before its sole member in a general meeting. In respect of LBXX Investments, no accounts for the period from October 8, 2007 to December 31, 2008 and each of the two years ended December 31, 2010 (the “LBXX Investments Accounts”) were prepared and laid before its sole member in a general meeting.

On November 3, 2011, LBXX Holdings and LBXX Investments applied to the High Court of Hong Kong for an extension of time for laying the LBXX Holdings Accounts and the LBXX Investments Accounts before their respective sole member in a general meeting pursuant to section 122 of the Companies Ordinance. On November 10, 2011, the requested court orders were granted by the High Court of Hong Kong, pursuant to which the period for the laying of the LBXX Holdings Accounts and the LBXX Investments Accounts was extended to December 31, 2011. We will ensure that each of LBXX Holdings and LBXX Investments will lay the LBXX Holdings Accounts and LBXX Investments Accounts, respectively, on or before December 31, 2011 and upon which the aforesaid non-compliance will be fully rectified.

EMPLOYEES

As of October 31, 2011, we had 2,354 employees. The following table provides a breakdown of our employees by responsibilities as of October 31, 2011:

	Number of
Function	Employees

Management and administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		113
Finance and accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		21
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		379
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,700
Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
Quality control and product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		131
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,354

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BUSINESS

We enter into individual employment contracts with our employees covering matters such as wages, employee benefits, safety and sanitary conditions at the workplace, confidentiality obligations for commercial secrets, and grounds for termination. These employment contracts generally have a term of three years and are typically renewed upon expiration. To streamline our operational system and reduce administrative burden, we have historically worked with an Independent Third Party employment agency to engage some of our production line workers. Since 2008, our subsidiary, LBXX Tianjin, has employed workers at our Tianjin production facility through such employment agency. We pay a lump sum to the employment agency which in turn pays wages to the workers and makes contributions to the various statutory employee benefits on behalf of these workers. If the employment agency fails to make the necessary contributions as required by PRC law, we would become jointly and severally liable to compensate the affected workers for any loss and damage suffered. We received confirmations from the employment agency in April 2011 that they had made the necessary contributions in compliance with PRC laws and regulations. During the Track Record Period, approximately 15% to 30% of our employees were retained through the employment agency. We may employ temporary contract workers to cope with increases in workload during peak seasons as a result of increased production volume.

All of our full-time employees are paid a fixed salary and may be granted other allowances, based on their position. Sales and marketing staff are also eligible for commissions. In addition, a year-end bonus may also be awarded to our employees, at our discretion and based on the performance and contribution of the individual staff to our company. Performance appraisals are conducted every year to ensure that our employees receive feedback on their performance. For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, we incurred employee costs (including Directors) of RMB56.8 million, RMB63.7 million, RMB73.0 million and RMB35.7 million, respectively.

We also invest in continuing education and training programs for our management staff and other employees to improve their skills and knowledge. We provide our employees with detailed guidelines in relation to our production process and on-the-job training in various areas, such as sanitary requirements, production safety and quality management. We also provide induction programs and team-building training.

Our employees do not negotiate their terms of employment through any labor union or by way of collective bargaining agreements. We believe we have maintained a good working relationship with our employees. As of the Latest Practicable Date, no significant labor disputes occurred which adversely affected or were likely to have an adverse effect on the operations of our business.

PROPERTIES

Our production facilities and warehouse facilities are situated in Jinjiang, Fujian Province, Tianjin Municipality and Chengdu, Sichuan Province.

Land

As of August 31, 2011, we owned 12 parcels of land with a total site area of approximately 516,373.1 square meters, of which four parcels are located in Jinjiang, Fujian Province, three parcels are located in Chengdu, Sichuan Province, and four parcels are located in Tianjin Municipality and a parcel of land located in Chuzhou, Anhui Province. All the parcels of land were for industrial use. As of the Latest Practicable Date, we had obtained the relevant land use rights with respect to all parcels of land.

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BUSINESS

We own a parcel of land in Chuzhou, Anhui Province which has a total site area of approximately 133,332 square meters, and commenced construction of our Anhui production facility in August 2011. We plan to start manufacturing primarily jelly snacks and jelly beverages at our Anhui production facility in the first half of 2013.

Buildings

Owner-Occupied Buildings

As of August 31, 2011, we owned several floors in six buildings in Jinjiang, Fujian Province, with a total gross floor area of approximately 73,158.4 square meters for employee dormitory and production purposes. We also owned eight buildings with a total gross floor area of 54,517.4 square meters in Chengdu, Sichuan Province for production purposes, and one building with a total gross floor 41,876 square meters in Tianjin Municipality for our production and warehouse facilities, as well as staff quarters and offices.

As of the Latest Practicable Date, we had not obtained the construction works planning permits (建設工程規劃許可證) and the construction permits (建築工程施工許可證), nor had we undertaken the completion acceptance inspection procedures with respect to a structure covering a total gross floor area of 410 square meters at our Fujian production facility, the net book value of which was approximately RMB61,000 as of August 31, 2011. We use such structure as the boiler room. Under relevant PRC laws and regulations, owners of buildings without the requisite permits may be subject to administrative penalties including fines of up to RMB18,000, orders to suspend construction if the buildings are under construction, or orders to demolish completed buildings. Based on our communication with the relevant authorities, we were informed that the boiler room structure did not fit within the application criteria for the relevant permits and certificates. Our PRC legal adviser, Jingtian & Gongcheng, shares the same view of the relevant authorities. We plan to demolish the structure before the end of 2011. Since the structure was only constructed to shelter the LBXX Fujian’s boiler, its demolition will not have a material effect on the production process and the Group’s operation. The aggregate value of the structure and the amount of the potential penalties are insignificant, and would not result in a material adverse effect on our business or financial results. In addition, we had not undertaken the necessary completion acceptance inspection procedures with respect to buildings on properties with a total gross floor area of 7,527.3 square meters at our Tianjin production facility as of the Latest Practicable Date. We currently use such buildings as warehouses for storage purposes. Under relevant PRC laws and regulations, we may be subject to administrative penalties such as fines. Once we have passed the necessary completion acceptance procedures, we plan to apply for the building ownership certificates. Except as disclosed above, we had obtained all the building ownership certificates with respect to all our owned buildings as of the Latest Practicable Date.

Buildings Leased Out By Us

As of August 31, 2011, we had leased out buildings with a total gross floor area of approximately 11,535.8 square meters in the PRC to Independent Third Parties, including our OEM partners, for production purpose.

All of our leased properties are reflected in the property valuation report as set out in Appendix IV of this document.

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

OVERVIEW

Immediately upon completion of the [●], Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hung Kong will, via Alliance Holding, indirectly and beneficially own in total 53.1% of the issued share capital of our Company taking no account Shares which may be issued pursuant to the exercise of the [●] or Shares which may be issued upon the exercise of options granted under the Share Option Scheme, and hence Mr. Zheng Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan, Mr. Li Hung Kong and Alliance Holding are our Controlling Shareholders.

Apart from the business relating to the manufacture of snack food products in China, the associates of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan, and Mr. Li Hung Kong are currently operating other businesses such as the manufacture and sale of super absorbent products, the provision of networking information services, agricultural related business, real estate development, paper packaging and commercial trading (the “Excluded Businesses”). The Excluded Businesses will not form part of our Group after [●].

None of our Controlling Shareholders or Directors is interested in any business which is, whether directly or indirectly, in competition with our business. To ensure that competition will not exist in the future, each of our Controlling Shareholders has entered into the Deed of Non-Competition in favor of our Company to the effect that each of them will not, and will procure each of their respective associates not to, directly or indirectly participate in, or hold any right or interest, or otherwise be involved in any business which may be in competition with our businesses.

DELINEATION OF BUSINESSES

Our Directors are of the view that there is a clear delineation between the Excluded Businesses and our business, as a result of which, none of the Excluded Businesses would compete, or is expected to compete, directly or indirectly with our business.

Operations of our Group are independent and separate from the Excluded Businesses. The Excluded Businesses were not injected into our Group as our Directors are of the view that such businesses neither form part of our core business nor are in line with our strategy to strengthen our market position in the snack food industry. Our Group is a snack food provider in China with a leading position in the jelly products market. On the other hand, the Excluded Businesses comprise principally the manufacture and sale of super absorbent products, the provision of networking information services, agricultural related business, real estate development, paper packaging and commercial trading.

Given the different nature of our business and the Excluded Businesses, our Directors do not expect there to be any overlap or competition of the Excluded Businesses and our Group’s business after the [●].

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

NON-COMPETITION UNDERTAKINGS

Each of our Controlling Shareholders has undertaken to us in the Deed of Non-Competition that it/he will not, and will procure its/his associates (other than members of our Group) not to directly or indirectly be involved in or undertake any business that directly or indirectly competes with our business or undertaking, or hold shares or interest in any companies or business that compete directly or indirectly with our business except where our Controlling Shareholders hold less than 5% of the total issued share capital of any company which is engaged in any business that is or may be in competition with any business engaged by any member of our Group and they do not control 10% or more of the composition of the Board of Directors of our Company.

The Deed of Non-Competition will lapse automatically if our Controlling Shareholders and their associates cease to hold, whether directly or indirectly, any of our Shares.

In order to promote good corporate governance practices and to improve transparency, the Deed of Non-Competition includes the following provisions:

our independent non-executive Directors shall review, at least on an annual basis, the compliance with the Deed of Non-Competition by our Controlling Shareholders;
each of our Controlling Shareholders has undertaken to us that it/he/she will provide all information necessary for the annual review by the independent non-executive Directors for the enforcement of the Deed of Non-Competition;
we will disclose the review by the independent non-executive Directors on the compliance with, and the enforcement of, the Deed of Non-Competition in our [●] or by way of [●] in compliance with the requirements of the [●]; and
each of our Controlling Shareholders will make an annual declaration in our [●] on the compliance with the Deed of Non-Competition in accordance with [●].

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

We believe that our Group is capable of carrying on its business independently of our Controlling Shareholders and their respective associates (other than our Group) after [●] for the following reasons:

(i) as of the Latest Practicable Date, no executive Director had overlapping roles or responsibilities in any business operation other than our business;
(ii) as of the Latest Practicable Date, none of our Directors had an interest in any business which competes or is likely to compete, either directly or indirectly, with our business;

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

(iii) as of the Latest Practicable Date, we had our own independent operation capabilities and independent access to customers and suppliers and we had not entered into any connected transactions with any connected person of our Company. We are also in possession of all relevant licenses necessary to carry on and operate our business and we have sufficient operational capacity in term of capital and employees to operate independently; and
(iv) we are financially independent of our Controlling Shareholders and their associates. All loans, advances and balances due to and from our Controlling Shareholders and their respective associates have been fully settled and that all share pledges and guarantees provided by our Controlling Shareholders and their respective associates on our Group’s borrowing have been fully released. In addition, we have our own internal control and accounting systems, accounting and finance department, independent treasury function for cash receipts and payment and independent access to third-party financing.

Our Directors are satisfied that we are capable of carrying on our business independently from any of our Controlling Shareholders (including their respective associates).

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DIRECTORS AND SENIOR MANAGEMENT

Our Board currently consists of eight Directors, comprising three executive Directors, two non-executive Directors and three independent non-executive Directors. The powers and duties of our Board include convening general meetings and reporting our Board’s work at our Shareholders’ meetings, determining our business and investment plans, preparing our annual financial budgets and financial reports, formulating proposals for profit distributions and for the increase or reduction of our registered capital as well as exercising other powers, functions and duties as conferred by our Memorandum and Bye-laws. We have entered into service contracts with each of our executive Directors. We have also entered into letters of appointment with each of our independent non-executive Directors.

The table below shows certain information in respect of members of the Board of Directors of the Company:

Name	Age	Position

Zheng Yu Long. . . . . . . . . . . . . . . . . . .	46	Chairman and executive Director
Zheng Yu Shuang . . . . . . . . . . . . . . . . .	43	Chief executive officer and executive Director
Zheng Yu Huan . . . . . . . . . . . . . . . . . .	40	Executive Director
Li Gang . . . . . . . . . . . . . . . . . . . . . . . .	37	Non-executive Director
Li Hung Kong . . . . . . . . . . . . . . . . . . .	43	Vice-chairman and non-executive Director
Li Zhi Hai . . . . . . . . . . . . . . . . . . . . . .	57	Independent non-executive Director
Sun Kam Ching . . . . . . . . . . . . . . . . . .	39	Independent non-executive Director
Chung Yau Tong. . . . . . . . . . . . . . . . . .	39	Independent non-executive Director

Executive Directors

Mr. Zheng Yu Long (鄭育龍) , aged 46, is our chairman and executive Director. He was appointed as our Director on June 1, 2004 and was re-designated as an executive Director on September 23, 2011. Mr. Zheng is primarily responsible for the overall operations, strategic planning and business development of our Group. He is also actively involved in the marketing of our products and branding of our Group, and procurement of raw materials of our products from suppliers. Mr. Zheng is a key contact person between our Group and our business partners. He is one of the founders of our jelly products business and is also a director of our subsidiary, Timeluck. Mr. Zheng joined us in 2000 as a managing director of LBXX Fujian. Mr. Zheng has over 20 years of experience in the marketing and manufacturing of snack food products. Since joining our Group in 2000, Mr. Zheng has dedicated the past 11 years to expand and promote our Group’s business from a manufacturer of jelly products to a recognized snack food brand in China. From 1991 to 2000, Mr. Zheng was the general manager of Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司), where he was responsible for the daily operations, sales, production, procurement and business development of this company. Through such experiences, Mr. Zheng has developed extensive relationships with the industry partners and is able to keep abreast of the latest development of the snack food industry. Mr. Zheng is a brother of Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan and a brother-in-law of Mr. Li Hung Kong. Mr. Zheng Yu Long was brought up in the PRC. Mr. Zheng has never been a full time government official of any country, or a full time employee of any state or government-owned/operated entity for a substantial period of time.

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DIRECTORS AND SENIOR MANAGEMENT

Mr. Zheng Yu Shuang (鄭育雙) , aged 43, is our chief executive officer and executive Director. He was appointed as our Director on June 1, 2004 and was re-designated as an executive Director on September 23, 2011. Mr. Zheng is primarily responsible for the overall operations of our Company. He heads our production department and oversees our quality control department. Mr. Zheng is one of the founders of our jelly products business and is also a director of a number of our subsidiaries, including LBXX Investments, LBXX Holdings, LBXX International, LBXX Sichuan, LBXX Anhui, LBXX Fujian, LBXX Tianjin and Timeluck. Mr. Zheng has over 17 years of experience in the manufacture of snack food products. He joined us in 2000 as the general manager of LBXX Fujian. From 1994 to 2000, Mr. Zheng was a general manager of the production and quality control department of Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司). Mr. Zheng received his master’s degree in business administration in May 2006 from Renmin University of China (中國人民大學). He received a certificate qualifying as a senior quality control inspector (高級質量(品質)管理師) from China Professional Development Centre (中國專業人才庫管理中心) in July 2009. Mr. Zheng has also assumed several social positions, such as the honorary chairman of Jinjiang Food Industry Association (晉江市食品行業協會) from 2007 to 2010, a member of the Tianjin Chinese People’s Political Consultative Conference (天津市人民政治協商會議) from 2008 to 2012, and the vice-chairman of China National Confectionary Association (中國食協糖果專業委員會) from May 2010 to May 2013. Mr. Zheng is the brother of Mr. Zheng Yu Long and Mr. Zheng Yu Huan and the brother-in-law of Mr. Li Hung Kong.

Mr. Zheng Yu Huan (鄭育煥) , aged 40, is our executive Director. He was appointed as our Director on June 15, 2004 and was re-designated as an executive Director on September 23, 2011. Mr. Zheng is primarily responsible for our sales and marketing operations, including formulating our advertising and promotional programs. Mr. Zheng is one of the founders of our jelly products business and is also a director of a number of our subsidiaries including LBXX International and Timeluck. Mr. Zheng has over 15 years of experience in sales and marketing of snack food products. He joined us in 2000 as a deputy general manager of LBXX Fujian. From 1996 to 2000, Mr. Zheng was a general manager of the sales and marketing department of Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司). Mr. Zheng received his master’s degree in business administration from Renmin University of China (中國人民大學) in 2006. Mr. Zheng graduated from an executive development program for senior management from Xiamen University (廈門大學) in December 2010. Mr. Zheng has also assumed several social positions, such as a representative of the Eleventh Jinjiang Chinese People’s Political Consultative Conference (中國人民政治協商會議第十一屆福建省晉江市委員會) since 2006, the vice-president of the Sixth Fujian Provincial Youth Federation (第六屆福建省青年聯合會), and member of the Tenth Fujian Provincial Youth Federation (第十屆福建省青年聯合會). He was recognized as one of the China Industrial Economy Top 10 Outstanding Youth (中國工業經濟十大傑出青年) in December 2009 by China Industrial Forum (中國工業論壇). Mr. Zheng is the brother of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and the brother-in-law of Mr. Li Hung Kong.

Non-executive Directors

Mr. Li Gang , aged 37, is our non-executive Director. He was appointed as our non-executive Director on October 24, 2011. Mr. Li has over 12 years of experience in financial management, investor relations and private equity. From 1996 to 2003, Mr. Li was with Agricultural Bank of China, Heilongjiang branch (中國農業銀行黑龍江分行), where he last held the position of the operations manager of the international business division. He served as a quantity analyst in China Securities Co., Ltd. (中信建投證券有限責任公司) in early 2007 and a institution strategy analyst of China Asset Management Co., Ltd. (華夏基金管理有限公司) from 2007 to 2008. From 2008 to 2010, Mr. Li served as the general manager of investment management department of COFCO Trust Co., Ltd. (中糧信託有限責任公司). He is currently

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DIRECTORS AND SENIOR MANAGEMENT

the general manager of investment management department of COFCO Agricultural Industry Fund Management Co., Ltd. (中糧農業產業基金管理有限責任公司). Mr. Li received a bachelor’s degree in economy from China Institute of Finance (中國金融學院) in 1996 and a master’s degree in finance from Concordia University in 2005. Mr. Li is a chartered member of the Chartered Financial Analysts Institute.

Mr. Li Hung Kong (李鴻江) , aged 43, is our vice-chairman and non-executive Director. He was appointed as our Director on June 1, 2004 and was re-designated as a non-executive Director on September 23, 2011. He is an experienced entrepreneur who has over 17 years of experience in investing and managing manufacturing business. He is also a director of a number of our subsidiaries, including LBXX Investments, LBXX Holdings, LBXX Fujian and Timeluck. Mr. Li joined us in 2000 as a director of LBXX Fujian. Prior to joining us, Mr. Li founded the following companies in the 1990s, Jinjiang Xingtai Packing Wear Co., Ltd. (晉江市興泰包裝用品有限公司), Fujian Huatai Packing Co., Ltd. (福建華泰包裝用品有限公司), companies engaged in the paper packaging business, and Jen Yuon Trading Co. (晉融貿易公司), a company engaged in commercial trading, and has been as a director in each of these companies since their establishment. Mr. Li is a brother-in-law of Mr. Zheng Yu Long, Mr. Zheng Yu Shuang and Mr. Zheng Yu Huan.

Independent non-executive Directors

Mr. Li Zhi Hai (李志海) , aged 57, is our independent non-executive Director. He was appointed as our independent non-executive Director on September 23, 2011. Mr. Li has over 20 years of experience in the traditional Chinese medicine and health food industries and held key leadership positions in institutions and societies, including the director of the Specialist Research Center of the China Traditional Chinese Medicine Association (中華中醫藥學會專病研究所) from 2002 to 2004. Mr. Li currently serves as the dean of Tangshan Chinese and Western Medicine Specialist Hospital (唐山中西醫專科醫院) since 1990, the director of Beijing Guofang Traditional Chinese Medicine Research Center (北京國方中醫藥研究院) since 2001, the vice-president of the China Medicine Culture Research Center (中國藥文化研究會) since 2004, and the director of the CHC National Food Production Association (CHC全國高科技食品產業化委員會) since 2007.

Ms. Sun Kam Ching (孫錦程) , aged 39, is our independent non-executive Director. She was appointed as our independent non-executive Director on September 23, 2011. Ms. Sun has over 15 years of experience in business administration and financial management. Ms. Sun joined Jinjiang Aile Group (晉江愛樂集團) (“Jinjiang Aile”) in 1996 and held various positions in Jinjiang Aile, including head of the sales department of Jinjiang Aile Shoes and Clothing Co., Ltd. (晉江愛樂鞋服公司), a subsidiary of Jinjiang Aile, from 1996 to 2000, the chief sales planning officer of Jinjiang Aile since 2003, and the chief financial officer of Jinjiang Aile since 2005. Ms. Sun has also been responsible for the image consultancy of Jinjiang Aile and is involved in the management of certain subsidiaries of Jinjiang Aile, including Jinjiang Aile Holiday Hotel (晋江愛樂假日酒店) and Shishi Aile Holiday Hotel (石獅愛樂假日酒店) since 2000. Ms. Sun received a bachelor’s degree in business administration from Huaqiao University (華僑大學) in 1994. She also attended the training course for independent non-directors conducted by the Shenzhen Stock Exchange in 2008.

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DIRECTORS AND SENIOR MANAGEMENT

Mr. Chung Yau Tong (鍾有棠) , aged 39, is our independent non-executive Director. He was appointed as our independent non-executive Director on September 23, 2011. Mr. Chung has over 16 years of experience in audit practice, financial management and compliance assurance of listed companies in Hong Kong. From 1994 to 2000, Mr. Chung was with PricewaterhouseCoopers, where he last held the position of a manager. Mr. Chung was with CITIC 21CN Company Limited (Stock code: 00241) from 2000 to 2005, where he last held the position as the group financial controller. He was a qualified accountant of Gome Electrical Appliances Holding Company Limited (Stock code: 00493) from 2005 to March 2007. Mr. Chung was the financial controller and company secretary of Vongroup Limited (Stock code: 00318) from March 2007 to December 2007. He currently serves as the financial controller and company secretary of Chaoyue Group Limited (Stock code: 00147) since 2008. Mr. Chung received a bachelor’s degree in business administration from The University of Hong Kong in 1994. He is a fellow of the Association of Chartered Certified Accountants and a certified public accountant of the Hong Kong Institute of Certified Public Accountants.

[Each of our Directors has not been involved in any of the events described under [●]. Save as disclosed above, none of our Directors has been a director of other listed entities for the three years immediately preceding the date of this document.]

SENIOR MANAGEMENT

The table below sets forth certain information concerning our other senior management members:

Name	Age	Position

Yap Yung . . . . . . . . . . . . . . . . . . . . . . .	38	Chief financial officer and company secretary
Lian Xi . . . . . . . . . . . . . . . . . . . . . . . .	48	Head of sales and marketing department
Chen Jian Ming . . . . . . . . . . . . . . . . . .	46	Head of procurement department
Zhang Xiao Dong . . . . . . . . . . . . . . . . .	40	Head of research and development and quality
		control department

Mr. Yap Yung (葉勇) , aged 38, is our chief financial officer and company secretary. He is responsible for the overall management of our finance, accounting and corporate finance matters. Mr. Yap joined us as our financial controller in 2003. Prior to joining us in 2003, Mr. Yap was with PricewaterhouseCoopers from 1995 to 2002, where he last held the position of an audit manager. From August 2002 to August 2003, he was a financial controller at Tai Hing Motors (International) Limited (大興汽車(國際)有限公司). Mr. Yap received his bachelor’s degree in mechanical engineering from The University of Hong Kong in 1995. Mr. Yap obtained the British Chevening Scholarship in 2003 and completed an advanced management program at Cambridge University in 2003 on scholarship. He is an associate of the Hong Kong Institute of Certified Public Accountants.

Mr. Lian Xi (連熙) , aged 48, is the head of our sales and marketing department. He is responsible for the overall sales and marketing of our products. He has over 15 years of experience in the food production industry. Mr. Lian joined us in 2002 as the production manager of LBXX Fujian. From 1984 to 1992, Mr. Lian worked at Fujian Pharmaceutical (福州製藥廠) where he last held the position of an assistant engineer. Prior to joining us in 2002, Mr. Lian was the manager of the marketing department and the deputy manager of the sales department of Fujian Lv De Biology Holding Ltd. (福建綠得生物股份有限公司). Mr. Lian received his bachelor’s degree in light industrial machinery from Fuzhou University (福州大學) in 1984, his postgraduate certificate in business administration from the Open University of Hong Kong in 2001, and his master’s degree in business administration from the Open University of Hong Kong in 2003.

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DIRECTORS AND SENIOR MANAGEMENT

Mr. Chen Jian Ming (陳建明) , aged 46, is the head of our procurement department. He is primarily responsible for the sourcing and procurement of raw materials for the Group. He has over 15 years of commercial experience. Mr. Chen joined us in 2010. Prior to joining us, Mr. Chen served in various positions at China Construction Bank, Quanzhou branch (中國建設銀行泉州分行) between January 1990 and October 2010, including deputy branch manager, deputy manager and manager of the credit department. Mr. Chen received a bachelor’s degree in finance from Hunan University (湖南大學) through online courses in July 2005. He is also recognized as a qualified professional in economics (經濟師) by the Ministry of Human Resources and Social Security of the People’s Republic of China (中華人民共和國人事部).

Mr. Zhang Xiao Dong (張曉東) , aged 40, is the head of research and development and our quality control department. He is responsible for the administration of the development and quality control of our products. He has also been the director of the technical department of LBXX Fujian since February 2010. He has over 15 years of experience in product engineering and product research. Mr. Zhang joined us in May 2005 as the manager of the quality technological department of LBXX Fujian. From July 1994 to December 1995, he was a technician at the food production base of Lanzhou military headquarters (蘭州軍區司令部副食品生產基地). From May 2002 to April 2005, he was a research engineer at Hainan Yi De Food Products Co., Ltd. (海南億德食品有限公司). Mr. Zhang received a bachelor’s degree in food engineering from Gansu Agricultural University (甘肅農業大學) in June 1994.

COMPANY SECRETARY

Mr. Yap Yung is our company secretary for the purposes of [●]. For details of Mr. Yap Yung’s background, please see “– Senior Management” above.

BOARD COMMITTEE

Audit Committee

We have established an audit committee on September 23, 2011 with written terms of reference in compliance with [●] and [●]. The audit committee consists of three independent non-executive Directors, being Mr. Chung Yau Tong, Ms. Sun Kam Ching and Mr. Li Zhi Hai, with Mr. Chung Yau Tong serving as chairman of the audit committee. Mr. Chung Yau Tong has the appropriate professional qualification as set out in [●]. The primary duties of the audit committee are to assist the Board by providing an independent view of the effectiveness of the financial reporting process, internal control and risk management system of the Group, to oversee the audit process and to perform other duties and responsibilities as assigned by our Board.

Remuneration Committee

We have established a remuneration committee on September 23, 2011 with written terms of reference in compliance with [●]. The remuneration committee consists of two independent non-executive Directors, being Mr. Chung Yau Tong and Ms. Sun Kam Ching, and one executive Director, being Mr. Zheng Yu Long, with Mr. Zheng Yu Long serving as chairman of the remuneration committee. The primary duties of the remuneration committee include (but without limitation): (i) making recommendations to the Directors regarding our policy and structure for all remuneration of Directors and senior management and on the establishment of a formal and transparent procedure for developing policies concerning such

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remuneration; (ii) determining the terms of the specific remuneration package of our Directors and senior management; (iii) reviewing and approving performance-based remuneration by reference to corporate goals and objectives resolved by the Directors from time to time; and (iv) considering and approving the grant of share options to eligible participants pursuant to the Share Option Scheme.

Nomination Committee

We have established a nomination committee on September 23, 2011 with written terms of reference as recommended under the [●]. The nomination committee consists of two independent non-executive Directors, being Mr. Li Zhi Hai and Mr. Chung Yau Tong, and one executive Director, being Mr. Zheng Yu Shuang, with Mr. Zheng Yu Shuang serving as chairman of the nomination committee. The primary function of the nomination committee is to make recommendations to our Board on the appointment of members of our Board.

COMPENSATION OF DIRECTORS, SENIOR MANAGEMENT

Our executive Directors, who are also our employees, receive, in their capacity as our employees, compensation in the form of salary and cash bonus.

The aggregate amount of remuneration including fees, salaries, contributions to pension schemes, housing allowances and other allowances and benefits in kind and discretionary bonuses which were paid to our Directors for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 and was RMB9.0 million, RMB8.4 million, RMB2.6 million and RMB1.0 million, respectively.

The aggregate amount of remuneration including fees, salaries, contributions to pension schemes, housing allowances and other allowances and benefits in kind and discretionary bonuses which were paid by our Group to our five highest paid individuals for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 was RMB8.9 million, RMB8.3 million, RMB3.4 million and RMB1.4 million, respectively.

No remuneration was paid by our Group to our Directors or the five highest paid individuals as an inducement to join or upon joining our Group or as a compensation for loss of office in respect of the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011. Save for Mr. Zheng Yu Long, Mr. Zheng Yu Huan and Mr. Zheng Yu Shuang who waived their discretionary bonuses in the year ended December 31, 2010 and the five months ended May 31, 2011, none of our Directors waived any discretionary bonus for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011.

Under our arrangements currently in force, the aggregate remuneration (including fees, salaries, contributions to pension schemes, housing allowances and other allowances and benefits in kind) of our Directors for the year ending December 31, 2011 is estimated to be no more than RMB2.5 million.

We enter into individual employment contracts with our employees. For further details, please see “Business – Employees.”

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As required by PRC regulations as well as compulsory rules of the PRC local governments, we participate in various social welfare schemes including pension, medical, maternity, work-related injury insurances and housing provident fund contributions. We are required under PRC law to make contributions to these schemes based on certain percentages of the salaries, bonuses and certain allowances of our employees in accordance with the respective regulatory requirements, up to a maximum amount specified by the relevant local governments from time to time. The total amount of contributions we made to such social welfare schemes for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 was RMB5.2 million, RMB4.6 million, RMB5.7 million and RMB3.1 million, respectively.

We will adopt a share option scheme for our senior management and employees. You may find detailed information in “Statutory and General Information – D. Other Information – 1. Share Option Scheme” in Appendix VII to this document. As of the date of this document, we have not granted any share option under our Share Option Scheme to any person.

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SHARE CAPITAL

The following is a description of the authorized and issued share capital of our Company in issue and to be issued as fully paid or credited as fully paid as of the date of this document.

	Nominal value

	US$
Authorized Share capital:
5,000,000,000 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	250,000,000.00
Issued Share capital:
546,936,522 Shares in issue as of the date of this document* . . . . . . . . . . . . . . . . .	27,346,826.10

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FINANCIAL INFORMATION

The following discussion should be read in conjunction with our consolidated financial information together with the accompanying notes. Please see the Accountant’s Report in Appendix I to this document. The following discussion contains forward-looking statements that involve risks and uncertainties. Accordingly, you should not place undue reliance on any such statements. Our future results could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth under the section headed “Risk Factors” in this document.

OVERVIEW

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FINANCIAL INFORMATION

Our sales grew from RMB721.1 million in 2008 to RMB771.4 million in 2009 and RMB931.7 million in 2010 and, our share of the total jelly products retail sales value in China grew steadily from 9.0% in 2008 to 9.6% in 2009 and 10.3% in 2010 according to Euromonitor. Our profit for the year was RMB68.6 million, RMB53.5 million and RMB147.8 million in 2008, 2009 and 2010 respectively. Our sales grew by 46.6% from RMB414.4 million for the five months ended May 31, 2010 to RMB607.4 million for the five months ended May 31, 2011.

BASIS OF PRESENTATION

Our Company was incorporated in Bermuda as a company with limited liability on May 4, 2004. Our Group was formed on March 28, 2005 pursuant to a group restructuring exercise. As part of the group restructuring exercise, our Company became the holding company of our various subsidiaries. For more details, please see “History and Corporate Structure.”

The subsidiaries acquired pursuant to the group restructuring exercise under common control have been consolidated using the pooling-of-interest method.

Our consolidated financial information has been prepared in accordance with IFRS issued by the IASB. Our consolidated financial information has been prepared under the historical cost convention and is presented in Renminbi unless otherwise indicated.

Our consolidated financial information as of and for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011 was audited by PricewaterhouseCoopers, Certified Public Accountants, Hong Kong.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business, results of operations and financial condition and prospects have been, and will continue to be, affected by a number of factors, many of which are beyond our control, including:

China’s General Economic Conditions and Spending on Snack Food

Our sales volume and results of operations are influenced by consumer spending on snack food in China, which is largely dependent on the continued growth of China’s economy. During periods of slow economic growth or recession, consumers may reduce their spending on snack food, thereby reducing demand for, and sales of, our products. In recent years, we have benefited from the steady growth of China’s economy, which has led to rapid urbanization and a rise in the affluence of the urban population in China. Disposable income levels and purchasing power of both urban and rural households have

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increased with the growth of China’s economy. For more information, please see “Industry Overview.” We expect that the increased purchasing power of consumers in China will promote their spending on snack food, including our products, and that the demand for such products in China will continue to grow in the near future and serve as a key driver for our sales volume growth. However, if there is any economic slowdown in China, consumer spending on snack food may be negatively impacted, which could in turn have a material adverse effect on our results of operations. Please see “Risk Factors – Risks Relating to the Food and Beverage Industry in China – The food and beverage industry in China is significantly impacted by fluctuations in the global economy and financial markets.”

Pricing of Our Products

We price our products based on a combination of different factors, primarily our ability to differentiate our products from those of our competitors and the extent of market competition. Historically, we have generally maintained our sales prices at desired levels by regularly introducing new or improved products. From time to time, we were able to increase the selling prices of some of our products due to our enhanced brand recognition and market position. Our ability to continue to price our products at desired levels has been, and will continue to be, important to our results of operations and financial performance.

The pricing of our products is affected by the competitive landscape of the snack food industry in China. We face competition from domestic and international manufacturers producing jelly products as well as other snack products. Our competitors may have substantially greater financial resources, stronger distribution capabilities or greater brand recognition than we do. We expect that the competition we face in the snack food industry will further intensify. As a result, our ability to maintain or increase the average selling price of our products will largely depend on our ability to compete effectively by reacting rapidly to market trends and differentiating ourselves through our strong brand recognition, product innovation, nationwide sales and distribution network and extensive product portfolio. Inability to sustain our competitive advantage could adversely affect our pricing and results of operations.

Branding and Promotion of Our Products

Our results of operations and financial position have been, and will continue to be, affected by our ability to maintain and enhance brand recognition and popularity of our products. We market our products under our core brand, “ ” (“Labixiaoxin”), as well as other sub-brands. Our “Labixiaoxin” brand in particular has received significant recognition. Please see “Business – Sales and Marketing – Branding.” We believe our core brand “Labixiaoxin” is a well-recognized brand in the snack food market in China, thereby promoting sales and serving as a competitive advantage.

In order to further strengthen the image and market awareness of our core brand, we plan to increase advertising and promotional activities. We plan to increase our prime time television advertising on national and regional satellite television networks, and [●] certain popular television programs, local sports activities and festive events. From time to time, we may also engage celebrities as our product spokespersons to promote our products. We plan to regularly undertake in-store product promotion campaigns to encourage sales. In addition, we plan to continue to participate in industry and trade shows to enhance our brand and product recognition in the snack food industry in China and attract new buyers. Advertising and promotion activities have contributed to our strong branding, which we believe has been,

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and will continue to be, a factor driving our results of operation. Our advertising and promotion expenses represented 9.9%, 10.6%, 8.3% and 7.3% of our sales for the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011, respectively. Our advertising and promotion expenses are likely to increase as our business scale expands. While advertising and promotional expenditures may affect our profitability, we consider such expenditures a necessary investment for a sustainable and profitable business.

Consumer Perception and Confidence

Demand for our products is also influenced by consumer perceptions of the safety and quality of our products. Media coverage regarding the safety or quality of food and beverages, or the raw materials and additives used or processes involved in their manufacture, may influence consumer confidence in these products. For example, in September 2008, a significant amount of milk and infant formula in China was found to be contaminated with melamine, which affected hundreds of thousands of consumers, and caused the deaths of several infants and illness in thousands of young children. This incident resulted in large-scale dairy product recalls and the closure of one of China’s largest dairy products manufacturers, which resulted in reduced consumer confidence in dairy and dairy-related products in general.

Although some of our confectionary products contain dairy content, none of our confectionary products were contaminated with melamine. Nevertheless, the demand for and sales volume of these products were adversely affected as a result of the reduced consumer confidence, leading to a decrease in sales of our confectionary products by 31.3% from 2008 to 2009 after the outbreak of the melamine scandal. Moreover, in May 2011, governmental authorities in Taiwan determined that certain local suppliers had been illegally using certain types of plasticizers as additives in their raw materials, which were used to manufacture a variety of processed food and beverage products, including snack food products. Although our food products do not contain such plasticizers, contamination or food safety incidents similar to the melamine or the plasticizer incident could affect consumer perception of the safety and quality of food and beverages, including our products, which could in turn materially and adversely harm our business, results of operations and financial position. Please also see “Risk Factors – Risks Relating to Our Business – We may be adversely impacted by any negative publicity suffered by the food and beverage industry in China or abroad.” However, the sales of our confectionary products picked up significantly in 2010 to pre-melamine scandal level due to improved market conditions and our strong product quality control.

Access to Distribution Channels

Our results of operations are affected by our access to distribution channels and the coverage of our distribution network. The market penetration of our products depends on the number and scale of the wholesale distributors with which we work.

As of October 31, 2011, we had established an extensive nationwide sales and distribution network with over 190 independent wholesale distributors located throughout China covering 31 provinces, municipalities and autonomous regions in China, which allows us to reach end consumers nationwide. Maintaining and developing our distribution channels require time, managerial and financial resources, but, based on our proven track record of success, we believe such efforts are an investment in future sales and profitability growth. We actively manage our distribution network with our sales and marketing representatives assigned to service each wholesale distributor across the country, with a view to enhance

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our strong working relationships with our wholesale distributors. Our ability to maintain our existing distribution network and engage additional wholesale distributors to sell our products as our business grows will have a direct impact on our sales volume and hence our results of operations.

Product Mix

We currently offer an extensive variety of products in three broad segments, namely jelly products, confectionary products and other products. We believe our diverse product offerings enable us to capitalize on changing market trends and consumer preferences in China. Different products have different gross profit margins depending on factors such as raw material costs, production costs, product pricing and our marketing and branding strategy. As a result, our overall gross margin will vary depending on product mix across segments.

Our sales composition, margins and profit level have varied and may continue to vary as our product mix evolves. Our ability to expand our product offerings and the diversity of our product mix will have a significant impact on our results of operations and our competitiveness in the snack food industry in China. We intend to continue to optimize our product portfolio in response to the changes in market conditions and consumer preferences to maximize our sales and profits.

Cost of Raw Materials

Our raw materials primarily comprise packaging materials, sugar, canned fruit, jelly powder and other additives. Raw materials accounted for 89.6%, 81.6%, 84.4% and 83.6%, respectively, of our cost of sales during the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011. All of the raw materials we procure, including packaging materials, are purchased from domestic suppliers to ensure adequate supply and efficient delivery to our production facilities. We also manufacture some plastic jelly containers for internal use to minimize the costs of packaging materials used for our products.

The price of raw materials, including packaging materials, are determined principally by market forces such as commodity price fluctuations and changes in governmental policies, as well as our bargaining power vis-a-vis suppliers. During the Track Record Period, we generally experienced rising raw material costs, consistent with the increase in the production price index in China, except for the period following the global financial crisis in the fourth quarter of 2008, when raw materials prices were markedly lower.

As we increase our production in accordance with our expansion plans, we expect that our demand for raw materials will increase. We expect that the prices of our raw materials will continue to fluctuate and be affected by inflation in the near future. We have been able to maintain our production costs at a competitive level by using more economical substitutes to offset the effects of rising prices in certain raw materials while ensuring our product quality. However, we cannot assure you that we will continue to be able to find suitable substitutes at acceptable prices, and any significant increase in raw materials prices could adversely impact our business and results of operations. Please also see “Risk Factors – Risks Relating to Our Business – We are susceptible to fluctuations in raw materials prices.”

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Seasonality

Sales for different products are also subject to different seasonal fluctuations. Historically, we have experienced higher sales of our jelly and confectionary products during the traditional Chinese festival and holiday seasons, such as the Chinese New Year, which is typically in the first quarter of our financial year. Seasonal variations may cause fluctuations in our interim sales and profits. As a result, our results of operations fluctuate and our interim results may not proportionately reflect our annual results.

Taxation

Our profitability may be affected by changes in tax rates, particularly PRC enterprise income tax rates applicable to some of our PRC subsidiaries. PRC companies are subject to the new national enterprise income tax rate of 25% unless the company qualifies under certain limited exceptions pursuant to the new PRC Enterprise Income Tax Law adopted by the National People’s Congress in March 2007 and its implementation rules, effective from January 1, 2008. There are preferential income tax treatments available to eligible companies pursuant to relevant national or local regulations. For example, our PRC subsidiary LBXX Fujian was designated an NHTE in October 2009 and has thus enjoyed a preferential income tax rate of 15% since 2010. LBXX Fujian’s status as an NHTE is subject to review and renewal every three years. We intend to apply for such renewal in 2012. If LBXX Fujian fails to retain its status as an NHTE, it will be subject to the regular PRC enterprise income tax rate of 25%. Under the NHTE Notice, in order to be designated an NHTE, a company must meet a number of criteria, including being engaged in a business which the government considers to involve advanced technologies, having proprietary rights over the know-how or techniques involved in the manufacture of products, having a prescribed minimum ratio of personnel with college or higher degrees to the total number of employees, having a ratio of research and development personnel to total employees of more than 10% and spending on research and development related activities of not less than a prescribed minimum amount.

Under the Notice for Approval of Income Tax Reduction and Exemption (減免稅審批通知書) issued by the Tianjin Municipality Tax Bureau, our PRC subsidiary LBXX Tianjin, a foreign-invested enterprise, was granted full exemption from PRC income tax for two years from its first profit-making year of operation and enjoyed a 50% reduction in income tax rate for the following three years. The first profit-making year for LBXX Tianjin was 2008. Accordingly, LBXX Tianjin enjoyed an applicable tax rate of nil, nil, 12.5% and 12.5% during the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. Such preferential tax treatment is expected to expire in 2012 after which LBXX Tianjin will be subject to the regular PRC enterprise income tax rate of 25%.

We enjoyed tax concessions amounting to RMB9.9 million, RMB0.4 million, RMB21.6 million and RMB12.8 million, respectively, in the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011. Termination of, or changes in, our subsidiaries’ preferential or applicable tax rate that may result from changes in China’s tax policy, will impact on our level of profit after taxation which in turn will affect our results of operations and financial position. Please also see “Risk Factors – Risks Relating to Our Business – The discontinuation of any of the preferential tax treatments currently available would likely increase our enterprise income tax expenses.”

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial information in conformity with IFRS requires the use of certain critical accounting policies and estimates. The methods, estimates and judgments that we use in applying our accounting policies may have a significant impact on our results as reported in our consolidated financial information included elsewhere in this document. Some of the accounting policies require us to make significant and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Below is a summary of the accounting policies and estimates that we believe are both important to the presentation of our financial results and involve the need to make estimates and judgments about the effect of matters that are inherently uncertain. In each case, the determination of these items requires management judgments based on information and financial data that may change in future periods. When reviewing our consolidated financial information, you should consider (i) our selection of critical accounting policies; (ii) the judgment and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. We also have other accounting policies, estimates and judgments that we consider to be less significant which are set forth in detail in Notes 3 and 5 to the Accountant’s Report set out in Appendix I to this document.

Revenue Recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of our activities. Revenue is shown net of value-added tax, rebates, discounts and sales returns and after eliminating sales within our Group.

We recognize revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.

Sale of goods

Revenue from sale of goods is recognized when the risk and reward of the goods has been transferred to the customer, which is usually at the date when we have delivered products to the customer, the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.

It is the Group’s policy to sell its products to the customers with a right to return due to quality issues caused by the Group. Accumulated experience is used to estimate and provide for such returns at the time of sale.

Interest income

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

Rental income

Rental income under operating leases (net of any incentives given to the lessees) is recognized on a straight-line basis over the lease periods.

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FINANCIAL INFORMATION

Property, Plant and Equipment

Property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

	Useful lives

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5 years
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5-10 years
Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5 years

Construction in progress represents costs incurred in the construction of property, plant and equipment and other tangible assets. Costs comprise direct and indirect costs of construction, including borrowing costs incurred during the period of construction.

Construction in progress is transferred to property, plant and equipment when it is ready for its intended use. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and are ready for its intended use. When the assets concerned are brought to use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive income.

Land Use Rights

Land use rights are stated at cost less accumulated amortization and accumulated impairment losses, if any. Cost represents consideration paid for the rights to use the land on which various plants and buildings are situated for a period of 50 years. Amortization of land use rights is calculated on a straight-line basis over the period of leases.

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FINANCIAL INFORMATION

Impairment of Interests in Associated Company and Jointly Controlled Entity

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The provision for impairment of interests in associated company and jointly controlled entity is determined using the higher of fair value less cost to sell or the value in use of individual cash-generating unit. The fair value less cost to sell method requires the entity to estimate the fair value of the cash-generating unit, which has been prepared on the basis of management’s assumptions and estimates by referring to sales contracts in an arms’ length transaction. If there is a significant adverse change in the estimated fair value of the cash-generating unit, it may be necessary to take an impairment charge to the statement of comprehensive income.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined on a weighted average cost basis. The cost of finished goods and work-in-progress comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Current and Deferred Income Tax

We are subject to income taxes in the PRC. The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where our subsidiaries, associated company and jointly controlled entity operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the relevant tax authorities.

There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax assets relating to certain temporary differences and tax losses are recognized when management considers it is probable that future taxable profits will be available against which the temporary differences or tax losses can be utilized. When the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation charges in the period in which such estimate is changed. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

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FINANCIAL INFORMATION

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated company and jointly controlled entity except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the foreseeable future.

Trade Receivables

Trade receivables are amounts due from customers for merchandise sold in the ordinary course of business. If collection of trade receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

CERTAIN STATEMENT OF COMPREHENSIVE INCOME ITEMS

Sales

We generate sales primarily from the manufacture and sales of a large range of jelly products. We also market and sell confectionary products. In addition, we generate sales from the manufacture and sale of powdered milk tea and market and sell other products, which primarily include dried bean curd products and baked products.

The table below sets forth our sales by product segment for the periods indicated, both in actual terms and as a percentage of total sales, and the sales volume of each product segment:

										Year ended December	Year ended December	Year ended December	Year ended December	Year ended December	31,													months ended May 31,	months ended May 31,	months ended May 31,	months ended May 31,	months ended May 31,	months ended May 31,

						2008							2009							2010							2010							2011

			Sales		Percentage		Sales		Sales			Percentage		Sales		Sales			Percentage		Sales		Sales			Percentage		Sales		Sales			Percentage		Sales
			(RMB	in	of total		volume		(RMB		in	of total		volume		(RMB		in	of total		volume		(RMB		in	of total		volume		(RMB		in	of total		volume
			thousands)			sales	(tons)		thousands)				sales	(tons)		thousands)				sales	(tons)		thousands)				sales	(tons)		thousands)				sales	(tons)

																								(unaudited)
Jelly products
Jelly snacks . .			474,247			65.8%		70,453		486,281			63.0%		68,040		530,201			56.9%		72,872		258,133			62.3%		37,309		330,090			54.4%		42,391
Jelly beverages .			121,380			16.8%		20,187		183,328			23.8%		33,443		245,614			26.4%		44,119		98,623			23.8%		18,684		173,237			28.5%		27,218

			595,627			82.6%		90,640		669,609			86.8%		101,483		775,815			83.3%		116,991		356,756			86.1%		55,993		503,327			82.9%		69,609
Confectionary
products		. . .	107,005			14.8%		6,587		73,563			9.5%		5,037		106,115			11.4%		7,669		40,100			9.7%		2,922		62,127			10.2%		3,453
Other products . .			18,508			2.6%		1,016		28,188			3.7%		1,329		49,750			5.3%		2,153		17,563			4.2%		780		41,990			6.9%		2,032

Total	. .	. . .	721,140			100.0%		98,243		771,360			100.0%		107,849		931,680			100.0%		126,813		414,419			100.0%		59,695		607,444			100.0%		75,094

Note: Other products comprised entirely powdered milk tea in 2008 and 2009 and comprised substantially all powdered milk tea in 2010. In the five months ended May 31, 2011, a majority of the other products were powdered milk tea, while the remainder included dried bean curd products and baked products.

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FINANCIAL INFORMATION

Our sales of jelly products grew to RMB669.6 million in 2009 from RMB595.6 million in 2008, which was primarily due to the increase in our jelly beverages sales to RMB183.3 million in 2009 from RMB121.4 million in 2008. Our sales of jelly products further grew to RMB775.8 million in 2010 from RMB669.6 million in 2009, which was also primarily due to the increase in our jelly beverages sales to RMB245.6 million in 2010 from RMB183.3 million in 2009. Such growth continued in the five months ended May 31, 2011, during which period our sales of jelly products and jelly beverages grew to RMB503.3 million and RMB173.2 million, respectively, from RMB356.8 million and RMB98.6 million for the five months ended May 31, 2010, respectively. Our sales of other products also grew from RMB18.5 million in 2008 to RMB28.2 million in 2009 and then to RMB49.8 million in 2010. Sales of our other products for the five months ended May 31, 2011 amounted to RMB42.0 million, due in part to the launch of our dried bean curd products and baked products.

We sold 70,453 tons, 68,040 tons, 72,872 tons and 42,391 tons of jelly snacks in the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011, respectively, and we sold 20,187 tons, 33,443 tons, 44,119 tons and 27,218 tons of jelly beverages in the same periods, respectively. In addition, we sold 6,587 tons, 5,037 tons, 7,669 tons and 3,453 tons of confectionary products in the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011, respectively, and we sold 1,016 tons, 1,329 tons, 2,153 tons and 2,032 tons of other products in the same periods, respectively. The average selling prices of our jelly products remained relatively stable from 2008 to 2010, amounting to RMB6,571.3 per ton in 2008, RMB6,598.2 per ton in 2009 and RMB6,631.4 per ton in 2010. Due primarily to increases in raw materials prices and the beginning of our engagement with key account agents and the beginning of our initial direct sales efforts to key account customers in 2011, the average selling prices of our jelly products increased to RMB7,230.8 per ton for the five months ended May 31, 2011. We are able to raise our average selling prices in direct sales because (i) we can eliminate the revenue which distributors would otherwise be entitled to had our products been distributed through them, and (ii) we are in a position to sell to our key account customers at higher prices. With respect to our sales to key account agents, we allocate additional time and resources to a series of direct negotiations with our key account customers including the terms of sales and a range of recommended retail prices, and location and size of our shelves in the stores. We also help our key account agents to sell our products through on-site decoration, promotion campaign, and providing training to our key account agents’ product promoters. In addition, we typically grant our key account agents a longer credit terms of 90 days which is in line with the credit term offered by the key account customers. By having such arrangements under which we fulfill a number of functions that are traditionally handled by wholesale distributors, we are in a position to sell our products at higher prices to our key account agents, compared to the prices we usually sell to our wholesale distributors. The average selling prices of our confectionary products decreased from RMB16,244.9 per ton in 2008 to RMB14,604.5 per ton in 2009 and to RMB13,836.9 per ton in 2010, primarily due to our introduction of certain confectionary products with lower average selling prices in 2009 and 2010. The average selling prices of our confectionary products increased to RMB17,992.2 per ton for the five months ended May 31, 2011, primarily due to the beginning of our engagement with key account agents and the beginning of our initial direct sales efforts to key account customers in 2011. We believe that because our other products include different products such as powdered milk tea, dried bean curd products and baked products, a generalized average selling prices of such other products may not accurately reflect how they affected our sales during the Track Record Period.

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FINANCIAL INFORMATION

The table below sets forth our sales by geographical location for the periods indicated:

			Year ended	Year ended	December	December	31,			Five	months	ended May 31,	ended May 31,

		2008		2009			2010			2010		2011

										(unaudited)
					(RMB in		thousands,	except percentages)
Domestic Sales
Eastern China(1)	.	224,160	31.1%	239,422		31.0%	265,449		28.5%	119,723	28.9%	173,988	28.6%
Central China(2)	.	176,148	24.4%	175,790		22.8%	208,307		22.3%	93,990	22.7%	124,564	20.5%
Northern China(3)	.	107,203	14.9%	124,917		16.2%	155,553		16.7%	70,376	17.0%	111,232	18.3%
Western China(4)	.	77,986	10.8%	98,315		12.8%	120,802		13.0%	54,358	13.1%	84,005	13.8%
Southern China(5)	.	76,711	10.6%	87,890		11.4%	109,704		11.8%	47,957	11.6%	80,350	13.2%

Sub-total . . . . .	.	662,208	91.8%	726,334		94.2%	859,815		92.3%	386,404	93.2%	574,140	94.5%
Export Sales . . .	.	58,932	8.2%	45,026		5.8%	71,865		7.7%	28,015	6.8%	33,304	5.5%
Total . . . . . . . .	.	721,140	100.0%	771,360		100.0%	931,680		100.0%	414,419	100.0%	607,444	100.0%

Notes:

(1) Eastern China represents Shanghai, Jiangsu, Zhejiang, Shandong and Anhui.
(2) Central China represents Hubei, Hunan, Henan and Jiangxi.
(3) Northern China represents Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin and Heilongjiang.
(4) Western China represents Sichuan, Chongqing, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Xinjiang, Qinghai and Ningxia.
(5) Southern China represents Guangdong, Guangxi, Hainan and Fujian.

Cost of sales

Our cost of sales consists of costs of raw materials (including packaging materials), direct labor expenses attributable to production personnel, utilities expenses, depreciation and amortization, other production costs and changes in inventories of finished goods.

Costs of raw materials, which mainly comprise packaging materials, jelly powder, sugar, water, canned fruit and flavoring essence, formed the largest component of our cost of sales, representing 89.6%, 81.6%, 84.4% and 83.6%, respectively, of our total cost of sales in 2008, 2009 and 2010 and for the five months ended May 31, 2011. Costs of packaging materials, which is a significant component of our costs of raw materials, mainly comprise plastic containers and packets, cardboard boxes and paper and represented 43.2%, 40.8%, 36.9% and 38.1%, respectively, of our total cost of sales in 2008, 2009 and 2010 and for the five months ended May 31, 2011.

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FINANCIAL INFORMATION

The table below sets forth our cost of sales by product segment for the periods indicated, both in actual terms and as a percentage of total cost of sales:

			Year ended	December 31,			Five months	Five months	ended May	31,

	2008		2009		2010		2010		2011

							(unaudited)
				(RMB in	thousands, except percentages)
Jelly products
Jelly snacks . . . .	263,821	60.2%	302,234	62.6%	324,054	55.0%	158,250	60.3%	190,924	53.0%
Jelly beverages . .	81,458	18.6%	114,054	23.6%	153,145	25.9%	62,794	23.9%	103,179	28.7%
	345,279	78.8%	416,288	86.2%	477,199	80.9%	221,044	84.3%	294,103	81.7%
Confectionary
products. . . . . .	79,462	18.1%	46,526	9.6%	73,636	12.5%	27,479	10.5%	36,523	10.1%
Other products . . .	13,686	3.1%	20,096	4.2%	38,847	6.6%	13,732	5.2%	29,489	8.2%
Total . . . . . . . .	438,427	100.0%	482,910	100.0%	589,682	100.0%	262,255	100.0%	360,115	100.0%

The table below sets forth a breakdown of the components of our cost of sales for the periods indicated, both in actual terms and as a percentage of total cost of sales:

			Year ended	December 31,			Five months	Five months	ended May	31,

	2008		2009		2010		2010		2011

							(unaudited)
				(RMB in	thousands, except percentages)
Raw materials:
Packaging materials .	189,469	43.2%	196,852	40.8%	217,767	36.9%	106,456	40.6%	137,329	38.1%
Other raw materials .	203,528	46.4%	197,425	40.9%	280,013	47.5%	85,132	32.5%	163,793	45.5%

Total raw materials
costs . . . . . . . . .	392,997	89.6%	394,277	81.6%	497,780	84.4%	191,588	73.1%	301,122	83.6%
Direct labor expenses. .	19,281	4.4%	30,071	6.2%	41,349	7.0%	17,570	6.7%	22,375	6.2%
Utilities expenses. . . .	13,206	3.0%	13,670	2.8%	17,353	3.0%	7,537	2.9%	9,776	2.7%
Depreciation and
amortization . . . . .	14,714	3.4%	21,001	4.3%	24,186	4.1%	8,941	3.4%	12,017	3.3%
Other production costs .	7,531	1.7%	9,583	2.0%	9,331	1.6%	3,873	1.5%	3,055	0.9%
Changes in inventories
of finished goods . .	(9,302)	(2.1%)	14,308	3.0%	(317)	(0.1%)	32,746	12.5%	11,770	3.3%
Total . . . . . . . . . .	438,427	100.0%	482,910	100.0%	589,682	100.0%	262,255	100.0%	360,115	100.0%

The packaging materials costs included a one-off inventory write-off in 2009 amounting to RMB19.3 million, representing 2.5% of our total sales in 2009, due to the disposal of packaging materials that were produced in compliance of the then existing legal requirement but did not contain certain additional information required under the new and more stringent labeling standards for packaging materials that were introduced under the Food Safety Law of the PRC (中華人民共和國食品安全法) that became effective in June 2009. The Food Safety Law requires that pre-packaged food needs to bear labels showing

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FINANCIAL INFORMATION

certain additional information such as the general names of the food additives under the national standards and the contact information of the manufacturer. We cannot assure you that the PRC government will not introduce new or more stringent legal requirements on food and beverage products in the future. Any non-compliance with these requirements could cause a disruption in our operations and lead to potential liability, including imposition of fines, confiscation of proceeds from the sales of food products without proper labeling as well as revocation of food production permits in serious cases. The occurrence of any of these may adversely affect our business and results of operations. Please see “Risk Factors – Risks Relating to the Food and Beverage Industry in China – Changes in the existing food safety laws may affect our business operations.”

Other production costs primarily include repair costs for our equipment, employee expenses and benefits with respect to certain supervisory personnel involved in our production process.

Gross profit and gross profit margin

The table below sets forth our gross profit and gross profit margin by each of our product segments for the periods indicated:

			Year ended	December 31,	December 31,		Five	Five	months	ended May	31,	31,

Product segments	2008		2009		2010		2010				2011

		Gross		Gross		Gross			Gross			Gross
	Gross	profit	Gross	profit	Gross	profit	Gross		profit	Gross		profit
	Profit	margin	Profit	margin	Profit	margin	Profit	margin		Profit		margin

							(unaudited)
Jelly products . . . . . . . . . .	250,348	42.0%	253,321	37.8%	298,616	38.5%	135,712		38.0%	209,224		41.6%
Confectionary products . . . . . .	27,543	25.7%	27,037	36.8%	32,479	30.6%	12,621		31.5%	25,604		41.2%
Other products. . . . . . . . . .	4,822	26.1%	8,092	28.7%	10,903	21.9%	3,831		21.8%	12,501		29.8%

For information on gross profit and the reasons for the fluctuation of gross profit margins for each of our product segments, please see “Gross profit and gross profit margin” for the relevant periods in the paragraph headed “Results of Operations” below.

Other income

Other income primarily consists of rental income from the leasing of production plants to an associated company, a jointly controlled entity and independent third parties, and interest income from our bank deposits.

Pursuant to the supplemental agreement to an investment project agreement (蠟筆小新農產品(食品)項目投資補充協議書) entered into between us and an agency of the local government of Pujiang (蒲江縣工業區管委會) dated November 2010, LBXX Sichuan may be eligible to receive certain government grants from 2011. These government grants are typically calculated based on the total income tax paid by a business enterprise in the preceding fiscal year and are granted to eligible business enterprises to incentivize them to invest in local areas, create employment opportunities and introduce new technologies. LBXX Sichuan has paid PRC enterprise income tax at a rate of 25% since it began its operations in 2010.

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FINANCIAL INFORMATION

Selling and distribution expenses

Selling and distribution expenses consist of advertising and promotional expenses, freight and transportation expenses for the delivery of our products from our warehouses to our customers, as well as other expenses related to employee benefits expenses and traveling expenses for our sales representatives.

The table below sets forth the components of our selling and distribution expenses for the periods indicated, both in actual terms and as a percentage of total selling and distribution expenses:

			Year ended	December 31,					months	ended May 31,

	2008		2009		2010			2010		2011

								(unaudited)
				(RMB in thousands, except percentages)
Advertising and promotion
expenses . . . . . . . . . . .	71,119	61.9%	81,572	61.3%	77,675	57.6%	36,818		58.8%	44,227	57.9%
Freight and transportation
expenses . . . . . . . . . . .	23,870	20.8%	32,311	24.3%	35,681	26.5%	17,104		27.3%	20,632	27.0%
Others . . . . . . . . . . . . .	19,846	17.3%	19,255	14.4%	21,434	15.9%	8,661		13.9%	11,535	15.1%

Total. . . . . . . . . . . . . .	114,835	100.0%	133,138	100.0%	134,790	100.0%	62,583		100.0%	76,394	100.0%

Administrative expenses

Administrative expenses primarily consist of salaries and benefits for our management and administrative staff as well as to a lesser extent, depreciation of property, plant and equipment, SGX-ST service fees and related compliance costs and other miscellaneous administrative expenses.

Other (losses)/gains, net

Other net losses or gains primarily consist of gains on sales of scrap materials, such as plastic jelly cups, paper, cardboard and other packaging materials discarded from our production process that we sell to third parties for recycling, offset by losses on disposal of property, plant and equipment and net exchange losses.

Finance costs

Finance costs primarily consist of interest expenses on bank borrowings.

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FINANCIAL INFORMATION

Share of loss of an associated company and impairment of investment in an associated company

Share of loss of an associated company represents loss after taxation that is attributable to us as a result of our investment in an associated company, Super Lifestyle Food, in which we held a 32% equity interest during the Track Record Period. We co-invested in Super Lifestyle Food with Super Coffeemix Manufacturing Limited, an Independent Third Party which held a 50% interest and Chance Cove Group Limited, a company wholly owned by Mr. Zheng Yu Long which held an 18% interest, in 2006 with an aim to manufacturing potato chips for sale in China. As of December 31, 2009, we had made total investment and shareholder loans to the associated company amounting to RMB8.9 million. In 2010, we agreed with our co-investors to cease all business operations of Super Lifestyle Food because the business was making a loss and the business venture no longer appeared to be commercially viable. We are currently working with our co-investors to have the associated company deregistered. As of May 31, 2011, the investment in, and the shareholder loans to, the associated company had been fully provided for.

Share of loss of a jointly controlled entity and impairment of investment in a jointly controlled entity

Share of loss of a jointly controlled entity represents our loss after taxation that is attributable to us as a result of our investment in a jointly controlled entity, Coco Foods. We invested in Coco Foods in May 2007 with Cocoaland Industry Sdn. Bhd, an Independent Third Party, and each held 50% of the equity interest. Coco Foods primarily produced gummy candies. With the view that the jointly controlled entity was incurring losses and its profitability was not expected to significantly improve in the foreseeable future, we recognized an impairment allowance of RMB5.0 million in 2008. In June 2010, we reached an agreement to sell Coco Foods to an Independent Third Party because our joint venture partner decided to pull out of Coco Foods. The purchaser of Coco Foods has since become our OEM partner responsible for manufacturing gummy candies for us.

Income tax expense

Income tax expense primarily consists of income tax payable by our subsidiaries in the PRC. During the Track Record Period, we did not have any assessable income in Bermuda, the BVI and Hong Kong.

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FINANCIAL INFORMATION

RESULTS OF OPERATIONS

The table below summarizes our consolidated results for the years ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2010 and 2011:

Consolidated Statements of Comprehensive Income

	Year	ended December	31,		Five months	ended May	31,

	2008	2009		2010	2010	2011

					(unaudited)
		(RMB		in thousands)
Sales . . . . . . . . . . . . . . . . . . . . . .	721,140	771,360		931,680	414,419	607,444
Cost of sales . . . . . . . . . . . . . . . .	(438,427)	(482,910)	(589,682)		(262,255)	(360,115)
Gross profit . . . . . . . . . . . . . . . . .	282,713	288,450		341,998	152,164	247,329
Other income . . . . . . . . . . . . . . . .	3,488	2,765		1,573	635	560
Selling and distribution expenses. .	(114,835)	(133,138)	(134,790)		(62,583)	(76,394)
Administrative expenses . . . . . . . .	(53,750)	(48,260)		(44,854)	(15,686)	(23,811)
Other (losses)/gains, net . . . . . . . .	(10,384)	283		2,314	738	(456)
Operating profit . . . . . . . . . . . . . .	107,232	110,100		166,241	75,268	147,228
Finance costs . . . . . . . . . . . . . . . .	(2,040)	(3,014)		(3,518)	(1,386)	(3,316)
Share of loss of an associated
company . . . . . . . . . . . . . . . . . .	(2,593)	(4,145)		–	–		–
Provision for impairment of
investment in an associated
company . . . . . . . . . . . . . . . . . .	–	(5,128)		–	–		–
Provision for impairment of loans
to an associated company . . . . .	–	(1,999)		(1,778)	(1,778)		–
Share of loss of a jointly
controlled entity . . . . . . . . . . . .	(1,731)	(1,632)		(432)	(432)		–
Provision for impairment of
investment in a jointly
controlled entity . . . . . . . . . . . .	(5,000)	–		–	–		–
Gain on disposal of investment in
a jointly controlled entity. . . . . .	–	–		344	–		–
Profit before income tax . . . . . . . .	95,868	94,182		160,857	71,672	143,912
Income tax expense . . . . . . . . . . .	(27,237)	(40,694)		(13,019)	(13,076)	(28,334)
Profit and total comprehensive
income for the year/period. . . .	68,631	53,488		147,838	58,596	115,578

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FINANCIAL INFORMATION

Five months ended May 31, 2011 compared to five months ended May 31, 2010

Sales . Our sales increased by 46.6% to RMB607.4 million for the five months ended May 31, 2011 from RMB414.4 million for the five months ended May 31, 2010, primarily attributable to (i) an increase in sales volume from all of our product segments, (ii) a general increase in the average selling prices of some of our products due to increasing raw materials prices, and (iii) an increase in average selling prices due to the beginning of our engagement with key account agents and the beginning of our initial direct sales efforts to key account customers in 2011. For more details, please see “Business – Sales and Marketing – Key account customers and other retailers.”

Jelly products – Sales of jelly products increased by 41.1% to RMB503.3 million for the five months ended May 31, 2011 from RMB356.8 million for the five months ended May 31, 2010, primarily attributable to an increase in the average selling prices of our jelly products, which was in turn primarily due to an increase in raw materials prices, and an increase of sales of our jelly beverage products. The sales of our jelly beverage products increased by 75.7% to RMB173.2 million for the five months ended May 31, 2011 from RMB98.6 million for the five months ended May 31, 2010. Such increase was primarily due to (i) our concentrated sales and marketing efforts to promote certain types of our jelly products, and (ii) the expansion of our distribution network and an increase in the number of retail outlets that carried our jelly beverages products, as evidenced in the increase of our key account customers’ retail outlets, from approximately 760 as of May 31, 2010 to over 1,100 retail outlets as of May 31, 2011, and the trend of an increase in the number of our wholesale distributors during the Track Record Period.
Confectionary products – Sales of confectionary products increased by 54.9% to RMB62.1 million for the five months ended May 31, 2011 from RMB40.1 million for the five months ended May 31, 2010. The increase was primarily due to an increase in market demand for our confectionary products, especially during the Chinese New Year holiday period in 2011, and the increase in average selling prices of our confectionary products.
Other products – Sales of other products increased by 139.1% to RMB42.0 million for the five months ended May 31, 2011 from RMB17.6 million for the five months ended May 31, 2010. The increase was primarily due to (i) an increase in sales of our powdered milk tea by 59.0% to RMB27.9 million for the five months ended May 31, 2011 from RMB17.6 million for the five months ended May 31, 2010, and (ii) the introduction of our dried bean curd products and baked products in 2011.

Cost of sales . Our cost of sales increased by 37.3% to RMB360.1 million for the five months ended May 31, 2011 from RMB262.3 million for the five months ended May 31, 2010. The increase was primarily due to our increased sales volume.

Jelly products – The cost of sales for our jelly products increased by 33.1% to RMB294.1 million for the five months ended May 31, 2011 from RMB221.0 million for the five months ended May 31, 2010, which was primarily due to the increase in sales for our jelly snacks and jelly beverages and the increase in raw materials prices.
Confectionary products – The cost of sales for our jelly products increased by 32.9% to RMB36.5 million for the five months ended May 31, 2011 from RMB27.5 million for the five months ended May 31, 2010, which was primarily due to the increase in sales for our confectionary products and the increase in raw materials prices.

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FINANCIAL INFORMATION

Other products – The cost of sales for our other products increased by 114.7% to RMB29.5 million for the five months ended May 31, 2011 from RMB13.7 million for the five months ended May 31, 2010, primarily due to an increase in sales of our other products, and the introduction of our dried bean curd products and baked products.

Gross profit and gross profit margin . Our gross profit increased by 62.5% to RMB247.3 million for the five months ended May 31, 2011 from RMB152.2 million for the five months ended May 31, 2010. Our gross profit margin increased to 40.7% for the five months ended May 31, 2011 from 36.7% for the five months ended May 31, 2010. Such increase was primarily due to the beginning of our engagement with our key account agents and the beginning of our initial direct sales efforts to our key account customers in 2011, by which we are able to sell our products to them at higher prices, compared to the prices at which we sell our products to our wholesale distributors. For more details, please see “Business – Sales and Marketing – Key account customers and other retailers.” As a result, the gross profit margin from our sales to key account agents and key account customers reached 54.5% for the five months ended May 31, 2011, as compared to the gross profit margin of 38.3% from our sales to wholesale distributors generally in the same period, thus contributing to our overall increase in gross profit margin in the same period.

Jelly products – Gross profit from our jelly products increased by 54.2% to RMB209.2 million for the five months ended May 31, 2011 from RMB135.7 million for the five months ended May 31, 2010. Gross profit margin for our jelly products increased to 41.6% for the five months ended May 31, 2011 from 38.0% for the five months ended May 31, 2010, primarily due to our sales to key account agents and key account customers, and an increase in the average selling prices of our jelly products to wholesale distributors by a margin greater than the increase in raw materials prices that were used in such products.
Confectionary products – Gross profit from our confectionary products increased by 102.9% to RMB25.6 million for the five months ended May 31, 2011 from RMB12.6 million for the five months ended May 31, 2010. Gross profit margin for our confectionary products increased to 41.2% for the five months ended May 31, 2011 from 31.5% for the five months ended May 31, 2010, primarily due to our sales to key account agents and key account customers which carried a higher gross margin, and an increase in the average selling prices of our confectionary products.
Other products – Gross profit from our other products increased by 226.3% to RMB12.5 million for the five months ended May 31, 2011 from RMB3.8 million for the five months ended May 31, 2010. Gross profit margin for our other products increased to 29.8% for the five months ended May 31, 2011 from 21.8% for the five months ended May 31, 2010, primarily due to our sales to key account agents and key account customers which carried a higher gross margin. In addition, we also began selling dried bean curd products and baked products in 2011, both had a higher gross profit margin than that of powdered milk tea.

Other income . Our other income decreased by 11.8% to approximately RMB0.5 million for the five months ended May 31, 2011 from RMB0.6 million for the five months ended May 31, 2010, primarily due to a decrease in rental income, which was attributable to the lower monthly rents we charged.

Selling and distribution expenses . Our selling and distribution expenses increased by 22.1% to RMB76.4 million for the five months ended May 31, 2011 from RMB62.6 million for the five months ended May 31, 2010, primarily due to an increase in our advertising and promotion expenses and an increase in freight and transportation expenses.

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Administrative expenses . Our administrative expenses increased by 51.8% to RMB23.8 million for the five months ended May 31, 2011 from RMB15.7 million for the five months ended May 31, 2010, primarily due to (i) an increase in depreciation of property, plant and equipment, which was primarily due to depreciation attributable to the office buildings located at our Sichuan production facility, which commenced operations in July 2010, and (ii) an increase in fees and expenses associated with the preparation for the [●].

Other (losses)/gains, net . Our other losses amounted to RMB0.5 million for the five months ended May 31, 2011, compared to our other gains amounting to RMB0.7 million for the five months ended May 31, 2010. Our other losses for the five months ended May 31, 2011 were primarily attributable to exchange losses in connection with our Hong Kong dollar-denominated Pre-[●] Investment net proceeds, as the Hong Kong dollar weakened against the Renminbi. Our other gains for the five months ended May 31, 2010 were primarily due to gains from sales of excess raw and scrap materials used in our production process, such as plastic jelly cups, paper, cardboard and other packaging materials.

Finance costs . Our finance costs increased by 139.3% to RMB3.3 million for the five months ended May 31, 2011 from RMB1.4 million for the five months ended May 31, 2010, primarily attributable to an increase in both bank borrowings and the effective interest rates of such borrowings.

Provision for impairment of investment in, and loans to, an associated company. Our provision for impairment of investment in, and loans to, an associated company decreased to nil for the five months ended May 31, 2011 from RMB1.8 million for the five months ended May 31, 2010, because our associated company, Super Lifestyle Food, ceased business operations in 2010.

Share of loss of a jointly controlled entity. Our share of loss of a jointly controlled entity decreased to nil for the five months ended May 31, 2011 from RMB0.4 million for the five months ended May 31, 2010, because in June 2010 we disposed of our interests in our jointly controlled entity, Coco Foods.

Income tax expenses. Our income tax expenses increased by 116.7% to RMB28.3 million for the five months ended May 31, 2011 from RMB13.1 million for the five months ended May 31, 2010, primarily due to (i) an increase in our profit before income tax, and (ii) an increase in our effective tax rate to 19.7% for the five months ended May 31, 2011 from 18.2% for the five months ended May 31, 2010, which was primarily because our Sichuan production facility became subject to the regular PRC enterprise income tax rate of 25% as it commenced production in July 2010 and it incurred nil income tax expenses in the five months ended May 31, 2010 before its commencement.

Profit for the period and net profit margin. As a result of the foregoing, our profit for the period increased by 97.2% to RMB115.6 million for the five months ended May 31, 2011 from RMB58.6 million for the five months ended May 31, 2010, and our net profit margin increased to 19.0% for the five months ended May 31, 2011 from 14.1% for the five months ended May 31, 2010.

Year ended December 31, 2010 compared to year ended December 31, 2009

Sales. Our sales increased by 20.8% to RMB931.7 million in 2010 from RMB771.4 million in 2009, primarily attributable to an increase in sales from all our product segments.

Jelly products – Sales of jelly products increased by 15.9% to RMB775.8 million in 2010 from RMB669.6 million in 2009, primarily attributable to an increase in sales volume from 101,483

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tons in 2009 to 116,991 tons in 2010. The increase in sales volume was primarily driven by an increase in sales volume of jelly beverages by 31.9% in 2010 compared to 2009.

Confectionary products – Sales of confectionary products increased by 44.3% to RMB106.1 million in 2010 from RMB73.6 million in 2009, primarily attributable to a recovery in sales volume from 5,037 tons in 2009 to 7,669 tons in 2010, partially offset by a slight drop in the average selling price of confectionary products as a result of the introduction of certain new products in 2010, which had lower selling prices to attract customers from different income groups.
Other products – Sales of other products increased by 76.5% to RMB49.8 million in 2010 from RMB28.2 million in 2009, primarily attributable to an increase in sales volume from 1,329 tons in 2009 to 2,153 tons in 2010, and an increase in the average selling price of powdered milk tea. The increase in sales volume and average selling price were primarily attributable to the introduction of our improved powdered milk tea formula in late 2009. In addition, we also launched our dried bean curd products in late 2010.

Cost of sales. Our cost of sales increased by 22.1% to RMB589.7 million in 2010 from RMB482.9 million in 2009, which was generally in line with our increased sales volume. Our cost of sales also increased due to an increase in the market prices of raw materials used in production, such as sugar.

Jelly products – The cost of sales of our jelly products increased by 14.6% to RMB477.2 million in 2010 from RMB416.3 million in 2009, primarily due to an increase in our sales volume and an increase in the cost of raw materials used in production, which was in line with general market trends.
Confectionary products – The cost of sales of our confectionary products increased by 58.3% to RMB73.6 million in 2010 from RMB46.5 million in 2009, primarily due to an increase in our sales volume and an increase in the purchase price of confectionary products we paid to our OEM partners which was due to a general increase in raw materials prices.
Other products – The cost of sales of our other products increased by 93.3% to RMB38.8 million in 2010 from RMB20.1 million in 2009, primarily due to an increase in the costs of raw materials used in producing our powdered milk tea.

Gross profit and gross profit margin. Our gross profit increased by 18.6% to RMB342.0 million in 2010 from RMB288.5 million in 2009. Our gross profit margin decreased slightly to 36.7% in 2010 from 37.4% in 2009, primarily attributable to an increase in the cost of raw materials used in production and changes in product mix. Our gross profit margin in 2009 was negatively affected in part by a one-off inventory write-off in 2009 amounting to RMB19.3 million, which represented approximately 2.5% of our sales for that year.

Jelly products – Gross profit from our jelly products increased by 17.9% to RMB298.6 million in 2010 from RMB253.3 million in 2009. The gross profit margin for our jelly products increased to 38.5% in 2010 from 37.8% in 2009, primarily due to the fact that our gross margins in 2009 were negatively affected by the one-off inventory write-off, despite a general increase in raw materials prices in 2010 as compared to those in 2009 as a result of the global economic recovery.

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Confectionary products – Gross profit from our confectionary products increased by 20.1% to RMB32.5 million in 2010 from RMB27.0 million in 2009. The gross profit margin for our confectionary products decreased to 30.6% in 2010 from 36.8% in 2009, primarily due to a general increase in raw materials prices in 2010 as compared to those in 2009 as a result of the global economic recovery.
Other products – Gross profit from our other products increased by 34.7% to RMB10.9 million in 2010 from RMB8.1 million in 2009. The gross profit margin for our other products decreased to 21.9% in 2010 from 28.7% in 2009, primarily due to a general increase in raw materials prices in 2010 as compared to those in 2009 as a result of the global economic recovery.

Other income. Our other income decreased by 43.1% to RMB1.6 million in 2010 from RMB2.8 million in 2009, primarily attributable to a decrease in rental income in 2010. Our associated company, Super Lifestyle Food, ceased its business operations in mid-2010 and no longer needed to lease its production plant from us. As a result, no rental income was derived from Super Lifestyle Food in 2010.

Selling and distribution expenses. Our selling and distribution expenses increased by 1.2% to RMB134.8 million in 2010 from RMB133.1 million in 2009, primarily attributable to an increase in freight and transportation costs from RMB32.3 million in 2009 to RMB35.7 million in 2010, as a result of increased sales volume of our products.

Administrative expenses. Our administrative expenses decreased by 7.1% to RMB44.9 million in 2010 from RMB48.3 million in 2009, primarily because we incurred no share option amortization costs in 2010 as we cancelled all unexercised and outstanding share options under our employee share option scheme in August 2009. Furthermore, we did not pay any bonus to our Directors in 2010, which contributed to lower administrative expenses.

Other (losses)/gains, net. Our other gains increased by 717.7% to RMB2.3 million in 2010 from RMB0.3 million in 2009, primarily due to a decrease in exchange losses in 2010, which was a result of a decrease in the number of Singapore dollar-denominated transactions in connection with our previous [●] on the SGX-ST, offset by gains on sales of scrap materials. Our Singapore dollar-denominated transactions decreased after we delisted from the SGX-ST in 2010.

Finance costs. Our finance costs increased by 16.7% to RMB3.5 million in 2010 from RMB3.0 million in 2009, primarily due to an increase in both bank borrowings and the effective interest rates of such borrowings.

Share of loss of an associated company. Our share of loss of an associated company was nil in 2010 compared to RMB4.1 million in 2009, because our associated company, Super Lifestyle Food, ceased business operations in 2010.

Provision for impairment of investment in, and loans to, an associated company. Our provision for impairment of investment in, and loans to, an associated company decreased by 75.1% to RMB1.8 million in 2010 from RMB7.1 million in 2009, because our associated company, Super Lifestyle Food, ceased business operations in mid-2010, and our investment in, and shareholder loans to, the associated company were fully provided for as of December 31, 2010.

Share of loss of a jointly controlled entity. Our share of loss of a jointly controlled entity decreased by 73.5% to RMB0.4 million in 2010 from RMB1.6 million in 2009, because we only shared loss of our jointly controlled entity, Coco Foods, for the period before we disposed of it in June 2010.

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Gain on disposal of investment in a jointly controlled entity. We received a gain of RMB0.3 million on our disposal of our investment in Coco Foods, our jointly controlled entity, in June 2010.

Income tax expenses. Our income tax expenses decreased by 68.0% to RMB13.0 million in 2010 from RMB40.7 million in 2009, and our effective tax rate decreased to 8.1% in 2010 from 43.2% in 2009. The decrease in income tax expenses and effective tax rate were primarily due to the write-back of an income tax expense provision of RMB21.4 million that we recorded in 2009. Pursuant to Notice No. 59, promulgated by the Ministry of Finance and the State Administration of Taxation issued on April 30, 2009, which became effective retrospectively on January 1, 2008, we determined that LBXX Tianjin, which was under full tax exemption in 2008 and 2009, would be subject to an income tax rate of 25% in 2008 and 2009. Consequently, in 2009 we recorded a provision for the aggregate income tax liability for 2008 and 2009 amounting to RMB21.4 million. In 2010, our Directors sought clarification from the relevant PRC tax authorities on the tax position of LBXX Tianjin, and such PRC tax authorities determined that LBXX Tianjin could continue to enjoy the tax holiday until its expiry in 2012. As such, LBXX Tianjin wrote back the tax provision in 2010.

In addition, there was a reduction in the income tax rate applicable to LBXX Fujian from 25% in 2009 to 15% in 2010 as a result of its designation as an NHTE in 2009, which further contributed to our decrease in income tax expense and effective tax rate.

The above factors were offset by the increase in withholding income tax on dividends paid by our PRC subsidiaries to their non-PRC holding companies which increased by 411.8% to RMB17.2 million in 2010 from RMB3.4 million in 2009. According to the relevant PRC tax laws and regulations, dividends distributed out of profit earned by foreign-invested enterprises in the PRC after January 1, 2008 is subject to PRC corporate withholding income tax at a rate of 5% to 10%. In 2009 and 2010, withholding income tax was provided for our PRC subsidiaries with respect to the dividends distributed and the portion of the retained profits which would be distributed in the foreseeable future at a tax rate of 10%. The increase in the withholding income tax expenses in 2010 was due to the distribution of an interim dividend of RMB76.7 million in 2010, while there was no such dividend distribution in 2009.

Profit for the year and net profit margin. As a result of the foregoing, our profit for the year increased by 176.4% to RMB147.8 million in 2010 from RMB53.5 million in 2009 and our net profit margin increased to 15.9% in 2010 from 6.9% in 2009.

Year ended December 31, 2009 compared to year ended December 31, 2008

Sales. Despite the difficult business environment as a result of the general economic slowdown, our sales increased by 7.0% to RMB771.4 million in 2009 from RMB721.1 million in 2008, primarily attributable to an increase in sales in jelly products and other products, partially offset by a decrease in our sales in confectionary products.

Jelly products – Sales of jelly products increased by 12.4% to RMB669.6 million in 2009 from RMB595.6 million in 2008, primarily attributable to an increase in sales volume from 90,640 tons in 2008 to 101,483 tons in 2009 as a result of increased market demand for our jelly products. The increase in sales volume was primarily driven by an increase in sales volume of jelly beverages by 65.7% in 2009 compared to 2008 as a result of increased market demand and the fact that we had placed more focus and resources on promoting our jelly beverages.

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FINANCIAL INFORMATION

Confectionary products – Sales of confectionary products decreased by 31.3% to RMB73.6 million in 2009 from RMB107.0 million in 2008, primarily attributable to a decrease in the sales volume of some of our confectionary products containing dairy content, as an indirect result of the melamine scandal that occurred in China in 2008. Although none of our confectionary products contained melamine, the scandal had a severe impact on the dairy industry in general as well as consumer confidence in food products containing dairy content.
Other products – Sales of other products increased by 52.3% to RMB28.2 million in 2009 from RMB18.5 million in 2008, primarily attributable to an increase in sales volume and average selling price of our powdered milk tea as a result of the introduction of our “Humor” brand powdered milk tea in late 2009, which was a new product.

Cost of sales. Our cost of sales increased by 10.1% to RMB482.9 million in 2009 from RMB438.4 million in 2008 in line with increased sales. As our sales volume increased, the amount of raw materials used in production also increased, leading to an overall increase in our cost of sales. However, this was partially offset by a decrease in the cost of raw materials and the purchase price of confectionary products we paid to our OEM partners, following the global financial crisis that began in the fourth quarter of 2008.

Gross profit and gross profit margin. Our gross profit increased by 2.0% to RMB288.5 million in 2009 from RMB282.7 million in 2008. Our gross profit margin decreased to 37.4% in 2009 from 39.2% in 2008. Our gross profit margin decreased in 2009 because we had a one-off inventory write-off in 2009 amounting to RMB19.3 million, which represented 2.5% of our sales for that year.

Jelly products – Gross profit from our jelly products increased by 1.2% to RMB253.3 million in 2009 from RMB250.3 million in 2008. The gross profit margin for our jelly products decreased to 37.8% in 2009 from 42.0% in 2008, primarily due to the one-off inventory write-off in 2009, despite a general decrease in raw materials prices in 2009 as compared to those in 2008 as a result of the global economic downturn.
Confectionary products – Gross profit from our confectionary products decreased by 1.8% to RMB27.0 million in 2009 from RMB27.5 million in 2008. Despite a decrease in the average selling prices of our confectionary products from 2008 to 2009, the gross profit margin for our confectionary products increased to 36.8% in 2009 from 25.7% in 2008, primarily due to a general decrease in raw materials prices in 2009 as compared to those in 2008 by a margin greater than the decrease in average selling prices as a result of the global economic downturn.
Other products – Gross profit from our other products increased by 67.8% to RMB8.1 million in 2009 from RMB4.8 million in 2008. The gross profit margin for our other products increased to 28.7% in 2009 from 26.1% in 2008, primarily due to a general decrease in raw materials prices in 2009 as compared to those in 2008 as a result of the global economic downturn.

Other income. Our other income decreased by 20.7% to RMB2.8 million in 2009 from RMB3.5 million in 2008, primarily attributable to a decrease in interest income as a result of a reduction in our bank deposits as we deployed our cash resources for the development of our Sichuan production facility. In addition, our bank deposits accrued interest income at a lower interest rate in 2009.

Selling and distribution expenses. Our selling and distribution expenses increased by 15.9% to RMB133.1 million in 2009 from RMB114.8 million in 2008, primarily attributable to an increase in our

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advertising and promotional expenses, which was largely in line with our increased sales. In addition, the cost of transportation also increased in 2009 compared to 2008 as a result of the general oil price hike in 2009 across China caused in part by the PRC government’s proposal to reform its oil product pricing mechanism based on changes in the domestic and international markets, which put upward pressure on our transportation charges.

Administrative expenses. Our administrative expenses decreased by 10.2% to RMB48.3 million in 2009 from RMB53.8 million in 2008, primarily attributable to the fact that we fully depreciated our property, plant and equipment in connection with the merger of our operations at our Tianjin production facility in 2008, and a decrease in expenses relating to amortization of share options granted pursuant to an employee share option scheme.

Other (losses)/gains, net. We made other losses of RMB10.4 million in 2008 compared to gains of RMB0.3 million in 2009. Our other losses in 2008 were primarily attributable to losses on disposal of machinery and marshmallow production equipment to a third party. Our other gains from sales of scrap materials, such as plastic jelly cups, paper, cardboard and other packaging materials discarded from our production process increased from RMB0.8 million in 2008 to RMB3.9 million in 2009.

Finance costs. Our finance costs increased by 47.8% to RMB3.0 million in 2009 from RMB2.0 million in 2008, primarily attributable to an increase in bank borrowings as we commenced construction of our Sichuan production facility and required additional financing to fund our expansion plan.

Share of loss of an associated company. Share of loss of an associated company increased by 59.9% to RMB4.1 million in 2009 from RMB2.6 million in 2008, primarily attributable to the loss incurred by Super Lifestyle Food, in which we held a 32% equity interest. Our associated company ceased all business operations in 2010.

Share of loss of a jointly controlled entity. Share of loss of a jointly controlled entity decreased by 5.7% to RMB1.6 million in 2009 from RMB1.7 million in 2008, attributable to the loss made by Coco Foods, in which we held a 50% equity interest.

Provision for impairment of investment in jointly controlled entity. We made a provision for impairment of investment in jointly controlled entity of RMB5.0 million in 2008 because our jointly controlled entity, Coco Foods, was incurring losses and its profitability was not expected to substantially improve in the foreseeable future.

Income tax expense. Our income tax expense increased by 49.4% to RMB40.7 million in 2009 from RMB27.2 million in 2008 and our effective tax rate increased to 43.2% in 2009 from 28.4% in 2008, despite a slight decrease in our profit before income tax. This was mainly due to a tax provision amounting to RMB21.4 million we made pursuant to Notice No. 59. Pursuant to Notice No. 59, which became effective retrospectively on January 1, 2008, we determined that our PRC subsidiary, LBXX Tianjin, which was under full tax exemption in 2008 and 2009, would be subject to the regular income tax rate of 25% in 2008 and 2009. Accordingly, we made a provision for the aggregate income tax liability for 2008 and 2009 amounting to RMB21.4 million in the year ended December 31, 2009.

Profit for the year and net profit margin. As a result of the foregoing, our profit for the year decreased by 22.1% to RMB53.5 million in 2009 from RMB68.6 million in 2008 and our net profit margin decreased to 6.9% in 2009 from 9.5% in 2008.

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FINANCIAL INFORMATION

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity and capital requirements primarily relate to capital expenditures for the purchase of property, plant and equipment. We have historically met our working capital and other liquidity requirements principally from cash generated from our operations, bank borrowings and equity contributions from shareholders. Going forward, we expect to fund our foreseeable working capital, capital expenditures and other capital requirements with a combination of various sources, including cash generated from our operations, bank borrowings and [●].

Cash Flows

The following table presents selected cash flow data from our consolidated statements of cash flows for the periods indicated:

	Year	ended December	31,		Five months	ended May 31,

	2008	2009		2010	2010	2011

					(unaudited)
		(RMB		in thousands)
Net cash generated from operating
activities . . . . . . . . . . . . . . . . . .	103,411	96,459		165,495	124,019	92,936
Net cash used in investing
activities. . . . . . . . . . . . . . . . . .	(124,659)	(130,709)	(101,219)		(2,867)	(106,812)
Net cash generated from/(used in)
financing activities . . . . . . . . . .	7,471	10,818		(56,919)	(5,675)	141,645
Net (decrease)/increase in cash
and cash equivalents . . . . . . . . .	(13,777)	(23,432)		7,357	115,477	127,769
Cash and cash equivalents at
beginning of year/period . . . . . .	48,088	34,311		10,879	10,879	18,236
Cash and cash equivalents at
end of year/period. . . . . . . . . .	34,311	10,879		18,236	126,356	146,005

Cash flows from operating activities

For the five months ended May 31, 2011 . Our net cash generated from operating activities was RMB92.9 million for the five months ended May 31, 2011. This net cash inflow was primarily a result of (i) profit for the period in the amount of RMB115.6 million; (ii) the adjustment of income tax expenses amounting to RMB28.3 million; (iii) the adjustment for amortization and depreciation amounting to RMB19.9 million; (iv) an increase in receivables and prepayments in the amount of RMB70.4 million, which was in turn primarily due to an increase in sales and the longer credit terms we granted to our key account agents; and (v) an increase in trade and other payables in the amount of RMB28.1 million, which was in turn due to an increase in raw materials purchases. We paid an income tax of RMB30.0 million.

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For the five months ended May 31, 2010. Our net cash generated from operating activities was RMB124.0 million for the five months ended May 31, 2010. This net cash inflow was primarily a result of (i) profit for the period in the amount of RMB58.6 million; (ii) a decrease in receivables and prepayments in the amount of RMB23.3 million primarily due to higher receivables and prepayments at the end of the previous calendar year and the settlement of such receivables and prepayments during the five months ended May 31, 2010; (iii) the adjustment for amortization and depreciation in the amount of RMB14.2 million; (iv) the adjustment for income tax expenses in the amount of RMB13.1 million; and (v) a decrease in inventories in the amount of RMB34.6 million as inventories accumulated at the end of 2009 in preparation of the Chinese New Year period in 2010 were used or sold during the five months ended May 31, 2010.

For the year ended December 31, 2010. Our net cash generated from operating activities was RMB165.5 million in 2010. This net cash inflow primarily reflects gross cash generated from operations of RMB195.0 million. This net cash inflow was primarily a result of (i) profit for the year in the amount of RMB147.8 million; (ii) the adjustment of income tax expense amounting to RMB13.0 million; (iii) the adjustment of amortization and depreciation amounting to RMB40.0 million; (iv) an increase in trade and other payables amounting to RMB66.6 million due to increased purchase of raw materials as a result of the commencement of production at our Sichuan production facility, resulted in an operating cash inflow by the same amount; (v) an increase in receivables and prepayments amounting to RMB62.3 million mainly due to an increase in sales volume as a result of an increase in market demand and expansion of our business scale, resulted in an operating cash outflow by the same amount; and (vi) by an increase in inventories amounting to RMB15.4 million due to an increase in our business scale as our Sichuan production facility commenced production, resulted in an operating cash outflow by the same amount. We paid an income tax of RMB29.5 million.

For the year ended December 31, 2009. Our net cash generated from operating activities was RMB96.5 million in 2009. This net cash inflow was primarily a result of (i) profit for the year in the amount of RMB53.5 million; (ii) the adjustment of income tax expense amounting to RMB40.7 million; (iii) the adjustment of amortization and depreciation amounting to RMB33.3 million; (iv) inventories written off of RMB19.3 million; and (v) an increase in receivables and prepayments amounting to RMB45.2 million mainly due to an increase in sales volume as a result of market demand and expansion of our business, resulted in an operating cash outflow by the same amount. We paid an income tax of RMB15.1 million.

For the year ended December 31, 2008. Our net cash generated from operating activities was RMB103.4 million in 2008. This net cash inflow was primarily a result of (i) profit for the year in the amount of RMB68.6 million; (ii) the adjustment of income tax expense amounting to RMB27.2 million; (iii) the adjustment of amortization and depreciation amounting to RMB30.3 million; (iv) loss on disposal of property, plant and equipment amounting to RMB10.2 million with respect to the disposal of a production plant for marshmallow and related machinery and equipment; and (v) an increase in inventories amounting to RMB25.2 million due to an increase in our business as our Tianjin production facility commenced full production, resulted in an operating cash outflow by the same amount. We paid an income tax of RMB23.2 million.

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FINANCIAL INFORMATION

Cash flows from investing activities

For the five months ended May 31, 2011 . Our net cash used in investing activities was RMB106.8 million for the five months ended May 31, 2011. This net cash outflow was primarily due to (i) the payment made for the purchase of land use rights in connection with the parcel of land we purchased in Anhui Province, amounting to RMB46.8 million; and (ii) deposits of RMB42.9 million and payments of RMB17.4 million made to acquire machinery and equipment to expand our production capacity.

For the five months ended May 31, 2010. Our net cash used in investing activities was RMB2.9 million for the five months ended May 31, 2010. This net cash outflow was due to purchases of property, plant and equipment in the amount of RMB1.9 million, and deposits paid for property, plant and equipment in the amount of RMB1.1 million, both of which were for the expansion of our production capacity.

For the year ended December 31, 2010. Our net cash used in investing activities was RMB101.2 million in 2010. This net cash outflow primarily reflected (i) the payment made for the purchase of property, plant and equipment amounting to RMB78.2 million mainly with respect to our Sichuan production facility; and (ii) deposit paid for plant and equipment amounting to RMB26.1 million with respect to deposit paid to a construction company for our Anhui production facility.

For the year ended December 31, 2009. Our net cash used in investing activities was RMB130.7 million in 2009. This net cash outflow primarily reflected (i) the payment made for the purchase of land use rights and property, plant and equipment amounting to RMB115.1 million mainly with respect to our Sichuan production facility; and (ii) deposits paid for plant and equipment amounting to RMB14.7 million with respect to our Sichuan production facility.

For the year ended December 31, 2008. Our net cash used in investing activities was RMB124.7 million in 2008. This net cash outflow primarily reflected (i) the payment made for the purchase of land use rights and property, plant and equipment amounting to RMB107.3 million with respect to the purchase of land for our Sichuan production facility and the purchase of equipment mainly for our Tianjin production facility; and (ii) deposits paid for plant and equipment amounting to RMB18.5 million with respect to our Sichuan production facility.

Cash flows from financing activities

For the five months ended May 31, 2011 . Our net cash generated from financing activities amounted to RMB141.6 million for the five months ended May 31, 2011, which was primarily due to the net proceeds from the Pre-[●] Investment of RMB139.1 million (equivalent to HK$164.8 million based on the specified exchange rate of HK$1.00 to RMB0.8440) and proceeds from our bank borrowings of RMB90.0 million, partially offset by repayment of bank borrowings of RMB43.0 million and the interim dividend we declared and paid in February 2011 for the year ending December 31, 2011, amounting to RMB40.0 million.

For the five months ended May 31, 2010 . Our net cash used in financing activities amounted to RMB5.7 million for the five months ended May 31, 2010, representing primarily repayments of borrowings of RMB20.0 million, partially offset by proceeds from bank borrowings of RMB13.0 million.

For the year ended December 31, 2010. Our net cash used in financing activities was RMB56.9 million in 2010, representing primarily proceeds from bank borrowings of RMB92.0 million, and partially offset by repayment of bank borrowings of RMB57.5 million and dividends paid of RMB76.7 million.

For the year ended December 31, 2009. Our net cash generated from financing activities was RMB10.8 million in 2009, representing primarily proceeds from bank borrowings of RMB102.5 million, and partially offset by repayment of bank borrowings of RMB82.5 million.

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FINANCIAL INFORMATION

For the year ended December 31, 2008. Our net cash generated from financing activities was RMB7.5 million in 2008, representing primarily proceeds from bank borrowings of RMB37.5 million and partially offset by repayment of bank borrowings of RMB20.0 million and dividends paid of RMB10.0 million.

NET CURRENT (LIABILITIES)/ASSETS

Details of our current assets and liabilities at each of the indicated balance sheet dates are as follows:

		of December	31,	31,			As of	As of
							May 31,	September 30,
	2008	2009			2010		2011	2011

								(unaudited)
			(RMB in thousands)
Current assets:
Inventories . . . . . . . . . . . . . . . . .	77,506	61,497			76,860		78,560	55,916
Trade receivables . . . . . . . . . . . .	58,828	106,572			147,615		210,881	161,279
Prepayments and other
receivables . . . . . . . . . . . . . . .	13,276	10,700			31,968		39,071	34,752
Pledged bank deposits . . . . . . . .	10,485	16,653			27,904		29,073	20,536
Cash and cash equivalents . . . . . .	34,311	10,879			18,236		146,005	122,523
	194,406	206,301			302,583		503,590	395,006
Current liabilities:
Trade and other payables. . . . . . .	171,525	162,920			229,684		257,761	177,833
Dividend payable . . . . . . . . . . . .	180	180			–		–	−
Borrowings. . . . . . . . . . . . . . . . .	37,500	57,500			92,000		139,000	139,000
Current income tax liabilities. . . .	5,873	33,353			11,340		11,122	8,263

	215,078 ---------	253,953 ---------		333,024 ---------		407,883 ---------		325,096 ----------

Net current (liabilities)/assets . .	(20,672)	(47,652)			(30,441)		95,707	69,910

Our net current liabilities positions in 2008, 2009 and 2010 were mainly due to the fact that our business operations were expanding rapidly during those years. We constructed our Sichuan production facility as part of our production expansion plan and we mainly financed the development of our Sichuan production facility using our internal cash resources and bank borrowings from 2008 to 2010. As of May 31 and September 30, 2011, we had net current assets of RMB95.7 million and RMB69.9 million, respectively. The key components of our current assets as of September 30, 2011, being the latest practicable date for determining our net current assets, included trade receivables, cash and cash equivalents and inventories. The key components of our current liabilities as of the same date included trade and other payables and borrowings.

WORKING CAPITAL

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as part of our production expansion plan resulted in a large amount of capital expenditures in 2008, 2009 and 2010, which was partially funded by incurring short-term bank borrowings. However, we recorded operating cash inflows during the Track Record Period, in the amount of RMB103.4 million, RMB96.5 million, RMB165.5 million and RMB92.9 million for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. As of May 31, 2011, we recorded net current assets of RMB95.7 million, and as of September 30, 2011, we had unutilized banking facilities in the amount of RMB138.7 million. Taking into account the net proceeds we received in March 2011 from the Pre-[●] Investment of approximately RMB139.1 million (equivalent to HK$164.8 million based on the specified exchange rate of HK$1.00 to RMB0.8440), [●], banking facilities available to us and cash flows from our operations, our Directors believe that we have sufficient working capital to service our bank borrowings and our capital commitments, and to satisfy our reasonably foreseeable cash requirements in our operations for at least the next 12 months from the date of this document. The basis of our Directors’ conclusion includes, but is not limited to, (i) the forecast of demand in our products based on the Chinese economy’s expected growth, (ii) the assumption that we can successfully execute our business strategies, (iii) our planned capital expenditures, (iv) the assumption that there will be no material changes in our ability to manage our working capital, and (v) the assumption that there will be no material change in our operating environment in the PRC or other countries to which we export our products.

CAPITAL EXPENDITURES

Historical Capital Expenditures

We regularly make capital expenditures to expand our operations, maintain our equipment and increase our operating efficiency. The following table sets forth our historical capital expenditures for the periods indicated:

	Year	ended December 31,	ended December 31,	ended December 31,	Five months
					ended May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Property, plant and equipment and land
use rights . . . . . . . . . . . . . . . . . . . . . . .	125,842	129,846		104,324	107,007
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .	125,842	129,846		104,324	107,007

Planned Capital Expenditures

Our capital expenditures are expected to primarily consist of expenditures related to the construction of additional production facilities, and upgrading and expanding existing production facilities. We intend to invest approximately RMB550 million to construct a production facility in Chuzhou, Anhui Province by utilizing [●], and cash generated from our operations. The parcel of land in Chuzhou, Anhui Province which we own for the construction of our Anhui production facility has a total site area of approximately 133,332 square meters, and we commenced construction of our Anhui production facility in August 2011. We plan to start manufacturing primarily jelly snacks and jelly beverages at our Anhui production facility in 2013. Upon full production, the Anhui production facility is expected to have a production capacity of 90,000 tons of jelly products annually.

In addition, we also plan to invest approximately RMB450 million to upgrade our production equipment and technology and expand our existing production capacities at our Tianjin production facility

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FINANCIAL INFORMATION

by utilizing [●], as well as cash generated from our operations. The production capacity of our Tianjin production facility is expected to increase from 55,000 tons to over 100,000 tons of jelly products in the next five years through expansion of this facility.

Furthermore, we are in the process of expanding the jelly products production capacity at our Sichuan production facility by 30,000 tons per year to 80,000 tons per year, and the expansion is expected to be completed in early 2012. We expect the cost of the expansion will amount to approximately RMB70 million when completed. We have been funding and will continue to fund this expansion project with cash generated from our operations, and we may utilize banking facilities available to us if necessary.

Our actual capital expenditures may differ from the amounts set forth above due to various factors, including our future cash flows, results of operations and financial condition, economic conditions in China and the world, the availability of financing on terms acceptable to us, technical or other problems in obtaining or installing equipment, changes in the regulatory environment in the PRC and other factors. We may also pursue new expansion through internal development, acquisitions of existing operations, investments in other businesses, or joint ventures with third parties.

CERTAIN BALANCE SHEET ITEMS

Inventories

Our inventories comprise raw materials (including packaging materials) and finished goods, which we store in our own warehouses. We have not experienced any material shortage of inventory during the Track Record Period.

The following table sets forth our inventory balance as of the dates indicated:

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Raw materials(1) . . . . . . . . . . . . . . . . . . . .	38,003	36,302		51,348	64,818
Finished goods(2) . . . . . . . . . . . . . . . . . . .	39,503	25,195		25,512	13,742
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .	77,506	61,497		76,860	78,560

Notes:

(1) Raw materials mainly represent raw materials used in our production such as packaging materials, sugar, canned fruit, jelly powder and other additives such as flavoring essence.

(2) Finished goods comprises our finished jelly products, confectionary products and powdered milk tea.

Our inventories increased by 2.2% to RMB78.6 million as of May 31, 2011 from RMB76.9 million as of December 31, 2010. The increase was primarily due to an increase in raw materials as we purchased a sizeable amount of inventories at the end of May 2011, largely offset by a decrease in finished products. As of December 31, 2010, we had a higher amount of finished goods on hand to accommodate the expected increased sales during the 2011 Chinese New Year holiday period.

Our inventories increased by 25.0% to RMB76.9 million as of December 31, 2010 from RMB61.5 million as of December 31, 2009. The increase was primarily attributable to an increase in raw materials used as a result of an increase in our operating scale as our Sichuan production facility commenced commercial production.

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FINANCIAL INFORMATION

Our inventories decreased by 20.7% to RMB61.5 million as of December 31, 2009 from RMB77.5 million as of December 31, 2008. The decrease was primarily attributable to a lower level of finished products we accumulated at the end of 2009 as compared to the end of 2008 due to the timing of the Chinese New Year holiday period. In 2009, the Chinese New Year fell in the first week of February, and therefore we accumulated more finished products at the end of 2008 to accommodate the expected increase in demand during the holiday season. However, in 2010, the Chinese New Year fell relatively later, in the third week of February, which gave us sufficient time to prepare for the expected increase in demand and obviated the need for us to start accumulating finished products at the end of 2009. Our level of finished products as of December 2009 and 2010 was relatively stable even though Chinese New Year in 2011 fell in the first week of February because, even though we started to accumulate finished goods inventory at the end of 2010 to accommodate the expected increase in demand during the 2011 Chinese New Year period, strong demand at the end of 2010 consumed much of our finished goods inventory.

For the year ended December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011, our inventory turnover days were 25 days, 29 days, 29 days and 23 days, respectively. We calculate the inventory turnover days using the average of the monthly ending inventory balances for the period, divided by cost of sales for the period, multiplied by the number of days for the relevant period (365 days for 2008, 2009 and 2010 and 151 days for the five months ended May 31, 2011). Inventory turnover days increased slightly in 2009 compared to 2008 because we purchased additional raw materials, such as packaging materials, sugar and canned fruits at the end of 2008 when the prices of raw materials were low following the onset of the global financial crisis in the fourth quarter of 2008. These raw materials are non-perishable and were consumed throughout the year resulting in slightly longer inventory turnover days in 2009.

As of the Latest Practicable Date, approximately 70% of the raw materials and all of the finished goods as of May 31, 2011 were utilized or sold.

Trade Receivables, Prepayments and Other Receivables

Trade receivables mainly represent the balances due from our customers. We typically sell our products on credit and grant most of our customers credit terms ranging from 30 to 60 days depending on a number of factors, such as their credit history, scale of operation and financial resources. Only a small amount of our products are sold and delivered against cash payment. We grant credit terms of 90 days to our key account agents, given our key account customers usually require a credit term of up to 90 days in line with customary market practice. We typically assess our customers’ creditworthiness by reviewing their past sales and payment trends. We grant our customers appropriate credit periods for settlement of orders taking into account seasonal demands, sales and their respective customer base. We also conduct a periodic review of the outstanding balances owing from our customers. For new customers and customers with smaller orders or smaller market share, we typically require cash against delivery. For larger customers or customers with larger market share and especially those with a longer and more reliable track record with us, we may grant more favorable credit terms, in the form of higher credit limits. When the outstanding balance owed to us by a particular customer is close to the credit limit granted to such customer, we will inform the customer accordingly, and request the customer to make payments to reduce the amount outstanding. All credit terms are recommended by our sales and marketing department and are subject to review and approval by our executive Director.

Prepayments and other receivables mainly represent prepayments made to suppliers of raw materials and prepaid advertising and promotional expenses.

Other receivables mainly represent value-added tax recoverable, and rental income owed to us by a jointly controlled entity, an associated company and an Independent Third Party.

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FINANCIAL INFORMATION

The following table sets forth our trade and other receivables of the dates indicated:

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Trade receivables . . . . . . . . . . . . . . . . . . .	58,828	106,572		147,615	210,881
Prepayments and other receivables. . . . . . .	13,276	10,700		31,968	39,071
	72,104	117,272		179,583	249,952

Our trade receivables increased by 42.9% to RMB210.9 million as of May 31, 2011 from RMB147.6 million as of December 31, 2010. The increase was primarily due to an increase in sales and the longer credit term we granted to our key account agents and key account customers.

Our trade receivables increased by 38.5% to RMB147.6 million as of December 31, 2010 from RMB106.6 million as of December 31, 2009. The increase was primarily attributable to an increase in sales volume as a result of increased market demand and an expansion of our business scale.

Our trade receivables increased by 81.2% to RMB106.6 million as of December 31, 2009 from RMB58.8 million as of December 31, 2008. The increase was primarily attributable to an increase in sales volume as a result of increased market demand and an expansion of our business scale. We also offered some of our wholesale distributors more favorable credit terms of up to 60 days during peak seasons in order to consolidate our relationships with these distributors.

For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, our trade receivables turnover days were 30 days, 34 days, 33 days and 41 days, respectively. The increase in our trade receivables turnover days for the five months ended May 31, 2011 was primarily due to our commencement in 2011 of sales to key account agents and key account customers, to which we granted a longer credit term of 90 days. We believe that the increase in trade receivable days does not have a material adverse impact on our liquidity and cash flow. We calculate the trade receivables turnover days using the average of the monthly ending net trade receivable balances for the period, divided by revenue for the period, multiplied by the number of days for the relevant period (365 days for 2008, 2009 and 2010 and 151 days for the five months ended May 31, 2011).

The following table sets forth the aging analysis of our trade receivables as of the dates indicated:

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Less than 30 days. . . . . . . . . . . . . . . . . . .	53,926	83,715		133,161	123,129
Between 31 to 90 days . . . . . . . . . . . . . . .	4,902	22,857		14,454	87,752
	58,828	106,572		147,615	210,881

We have evaluated the credit situation of our specific customers to which such receivables relate and expect to fully recover such receivables. During the Track Record Period, we did not experience significant difficulties in collecting our trade receivables, and as a result did not make any provision for

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impairment of trade receivables. Based on the foregoing, we believe that our credit management and policies on making provisions are appropriate. As of the Latest Practicable Date, substantially all of the trade receivables as of May 31, 2011 were settled.

Trade and Other Payables

Trade payables mainly represent the balances due to our suppliers of raw materials to which we are generally granted credit terms ranging from 30 to 60 days. Bills payable mainly represent purchases of raw materials settled by bank bills. Other payables mainly represent sales rebates accrued and yet to be paid to our wholesale distributors, accrued expenses in relation to employee wages, salaries and bonuses yet to be paid and other tax payables.

The following table sets forth our trade and other payables balance as of the dates indicated:

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Trade payables:
Third parties . . . . . . . . . . . . . . . . . . . . . .	92,547	87,094		114,509	128,622
A jointly controlled entity . . . . . . . . . . . . .	4,019	–		–	–
	96,566	87,094		114,509	128,622
Bills payable: . . . . . . . . . . . . . . . . . . . . .	34,950	31,710		67,548	83,563
	131,516	118,804		182,057	212,185
Other payables:
Amount due to an associated company. . . .	–	272		–	–
Accrued sales rebates . . . . . . . . . . . . . . . .	15,089	16,496		17,676	21,112
Other accrued expenses. . . . . . . . . . . . . . .	13,172	14,109		17,749	15,640
Directors’ fees and emoluments payable. . .	7,327	7,875		4,282	4,904
Sundry creditors . . . . . . . . . . . . . . . . . . . .	4,421	5,364		7,920	3,920
Trade and other payables . . . . . . . . . . . .	171,525	162,920		229,684	257,761

Our trade payables increased by 12.3% to RMB128.6 million as of May 31, 2011 from RMB114.5 million as of December 31, 2010. The increase was primarily due to our purchase of a sizeable amount of raw materials at the end of May 2011 to satisfy our anticipated production needs. As of the Latest Practicable Date, approximately 70% of the raw materials as of May 31, 2011 were utilized.

Our trade payables increased by 31.5% to RMB114.5 million as of December 31, 2010 from RMB87.1 million as of December 31, 2009. The increase was primarily attributable to increased purchase of raw materials as a result of the commencement of production at our Sichuan production facility.

Our trade payables decreased by 9.8% to RMB87.1 million as of December 31, 2009 from RMB96.6 million as of December 31, 2008. The decrease was primarily attributable to a relative decrease in raw material purchases towards the end of 2009. We purchased more raw materials towards the end of 2008 compared to the same period in 2009 because raw materials prices were relatively low in the fourth quarter of 2008 following the economic downturn in China. This resulted in relatively higher trade and other payables as of December 31, 2008 compared to December 31, 2009.

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FINANCIAL INFORMATION

Our bills payable increased by 23.7% to RMB83.6 million as of May 31, 2011 from RMB67.5 million as of December 31, 2010. The increase was primarily due to our increased use of bills payable to enhance our working capital management.

Our bills payable increased by 113.0% to RMB67.5 million as of December 31, 2010 from RMB31.7 million as of December 31, 2009. The increase was primarily attributable to increased raw materials purchased in line with our expanded scale of operations, as well as an increase in our available bank facilities, which provided us with a higher credit limit for bank bills.

Our bills payable decreased by 9.3% to RMB31.7 million as of December 31, 2009 from RMB35.0 million as of December 31, 2008. The decrease was primarily attributable to the same reason that our trade payables decreased as of December 31, 2009 as compared to December 31, 2008.

Our other payables increased by 10.3% from RMB40.0 million as of December 31, 2008 to RMB44.1 million as of December 31, 2009, and further increased by 8.0% to RMB47.6 million as of December 31, 2010. The steady increase was primarily attributable to an increase in sales rebates in line with our increased sales, as well as an increase in value added tax payable in line with our increase in operating scale. Our other payables decreased slightly by 4.3% to RMB45.6 million as of May 31, 2011 from RMB47.6 million as of December 31, 2010.

For the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, our trade payables turnover days were 96 days, 84 days, 85 days and 89 days, respectively. We calculate the trade payables turnover days using the average of the monthly trade payables balances for the period, divided by the purchases for the period, multiplied by the number of days for the relevant period (365 days for 2008, 2009 and 2010 and 151 days for the five months ended May 31, 2011). Trade payables turnover days decreased in 2009 compared to 2008 primarily due to the fact that we purchased a larger amount of raw materials at the end of 2008 due to the lower market price of raw materials following the onset of the economic slowdown in China in the fourth quarter of 2008.

The following table sets forth the aging analysis of our trade payables as of the dates indicated:

			As of December 31,	As of December 31,		As of May 31,
	2008		2009		2010	2011

			(RMB in	thousands)
Less than 30 days. . . . . . . . . . . . . . . . . . .	62,559		61,134		92,329	104,481
Between 31 to 90 days . . . . . . . . . . . . . . .	33,207		25,283		20,624	23,109
Over 90 days . . . . . . . . . . . . . . . . . . . . . .		800	677		1,556	1,032
	96,566		87,094		114,509	128,622

As of December 31, 2008, 2009 and 2010 and for the five months ended May 31, 2011, our bills payable had an average maturity period of within six months.

RELATED PARTY TRANSACTIONS

It is the view of our Directors that each of the related party transactions set out in Note 35(a) and (c) to the Accountant’s Report in Appendix I to this document were conducted in the ordinary and usual

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course of business and on normal commercial terms between the relevant parties. Except for the key management personnel compensation which will continue after [●], other related party transactions (including purchases of finished goods from a jointly controlled entity and rental income from an associated company and a jointly controlled entity) have been terminated before [●]. The related party transaction set out in Note 35(b) to the Accountant’s Report in Appendix I to this document was a one-off transaction and was terminated in February 2009.

INDEBTEDNESS

Borrowings

As of September 30, 2011, we had total borrowings of RMB139.0 million. The following table sets forth our bank borrowings as of the dates indicated:

	As	of December 31,	of December 31,		As of	As of
					May 31,	September	30,
	2008	2009		2010	2011	2011

						(unaudited)
			(RMB	in thousands)
Short-term secured bank
borrowings. . . . . . . . . . . . . . .	37,500	57,500		92,000	–		–
Short-term unsecured bank
borrowings . . . . . . . . . . . . . .	–	–		–	139,000	139,000
Total borrowings. . . . . . . . . . .	37,500	57,500		92,000	139,000	139,000

As of December 31, 2008, 2009 and 2010, May 31, 2011 and September 30, 2011, our outstanding borrowings were RMB37.5 million, RMB57.5 million, RMB92.0 million, RMB139.0 million and RMB139.0 million, respectively. Our borrowings increased in 2008, 2009, 2010 and the five months ended May 31, 2011, primarily attributable to an increase in bank borrowings to satisfy the working capital requirements of the construction of our Sichuan production facility. Our borrowings for the nine months ended September 30, 2011 were also in part attributable to the purchase of land use rights in connection with a parcel of land in Anhui Province on which we have commenced construction of our Anhui production facility and the deposits for property, plant and equipment.

As of December 31, 2008, 2009 and 2010, May 31, 2011 and September 30, 2011, the weighted average effective interest rates of our short-term bank borrowings were 7.65%, 5.03%, 5.54%, 6.03% and 6.29%, respectively.

Certain short-term bank borrowings of our subsidiary, LBXX Fujian, are subject to financial covenants. As of each of December 31, 2008, 2009 and 2010, LBXX Fujian had drawn down on its bank loans in breach of certain financial covenants, under which LBXX Fujian was required to maintain a debt ratio of no more than 50%, a current ratio of no lower than 1.0 and a quick ratio of no lower than 0.8. As of December 31, 2008, 2009 and 2010, LBXX Fujian’s debt ratio was 46%, 51% and 56% respectively, current ratio was 0.91, 0.84 and 0.98 respectively, and quick ratio was 0.58, 0.60 and 0.83 respectively, and certain of them were in breach of the covenants stipulated by the loan agreements. The breaches were mainly because of an increase in bank borrowings primarily used to fund the construction of the Sichuan facility from 2008 to 2010. Due to the breaches of these financial covenants, the lending banks were

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contractually entitled to request early repayment of the outstanding amount of the loans, which amounted to RMB37.5 million, RMB57.5 million and RMB43 million as of December 31, 2008, 2009 and 2010, respectively. However, the lending banks did not request early repayment of these outstanding bank borrowings, and these amounts were subsequently repaid on their respective maturity dates. On March 4, 2011, LBXX Fujian obtained a waiver from the lending bank in respect of breach of financial covenant requirements for the outstanding bank borrowing of RMB43 million as of December 31, 2010. During the five months ended May 31, 2011, LBXX Fujian obtained bank borrowings of RMB32 million from the same bank which were also subject to certain financial covenants, and LBXX Fujian was in breach of one of the financial covenant requirement. LBXX Fujian was in compliance of the financial covenant requirement as of May 31, 2011, and on August 17, 2011, LBXX Fujian obtained a waiver from the lending bank in respect of breach of the financial covenant requirement before May 31, 2011 for the outstanding bank borrowings of RMB32 million. As of the Latest Practicable Date, we had not received indications from the lending bank that it intended on requiring early repayment of the outstanding bank borrowings.

In addition, LBXX Fujian had a short-term bank borrowing from another bank amounting to RMB30 million as of May 31, 2011. The loan agreement relating to such borrowing contains a cross-default provision, pursuant to which the lending bank was entitled to request early repayment of the outstanding amount as a result of LBXX Fujian’s non-compliance of the aforementioned financial covenants. The lending bank did not request early repayment before the loan was subsequently repaid on its maturity date in August 2011.

We believe that we can avoid future breaches of any relevant financial covenants before December 31, 2011 because of (i) the completion of our Sichuan facility construction in 2010, (ii) funds raised through our Pre-[●] Investment, and (iii) projected cash generated from operating activities. To prevent similar breaches in the future, we have assigned an account manager with the duty of monitoring the financial status of the Group to ensure compliance with financial covenants under our loan agreements. The account manager is also responsible for updating the Board on a monthly basis on financial covenants compliance.

As of December 31, 2008 and 2009, our short-term bank borrowings were secured by a corporate guarantee from a third party. As of December 31, 2010, our short-term bank borrowings were secured by a corporate guarantee and personal guarantees granted by a number of our Directors in favor of the lending banks. Such corporate guarantee and personal guarantees granted by our Directors were subsequently released in March 2011.

Our gearing ratio, as calculated by dividing our total borrowings by our total equity, was 7.2%, 9.9%, 14.1% and 16.0% as of December 31, 2008, 2009 and 2010 and May 31, 2011, respectively. Increase in gearing ratio from 2008 to 2010 was primarily attributable to an increase in bank borrowings to satisfy the capital expenditure requirements for the construction of our Sichuan production facility.

As of September 30, 2011, being the latest practicable date for determining indebtedness, we had aggregate banking facilities of RMB266.7 million available, of which RMB128.0 million was utilized and RMB138.7 million remained unutilized. Although we have in place agreed credit limits from our banking facilities, consistent with our experience of Chinese lending practice, the terms of any drawdown thereunder are not set and remain to be agreed prior to any drawdown.

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FINANCIAL INFORMATION

Contingent Liabilities

We did not have any outstanding loan capital, debt securities, debentures, bank overdrafts, liabilities under acceptances or acceptance credits or hire purchase commitments as of September 30, 2011, being the latest practicable date for determining our indebtedness. As of the same date, we had not guaranteed the indebtedness of any independent third parties.

CONTRACTUAL OBLIGATIONS

Capital Commitments

We have entered into production facility construction contracts with respect to our new production facility to be constructed in Chuzhou, Anhui Province.

The table below sets forth the total amount of our capital commitments as of the date indicated:

		As of December 31,	As of December 31,	As of December 31,		As of May 31,
	2008	2009			2010	2011

		(RMB	in	thousands)
Property, plant and equipment – contracted
but not provided for . . . . . . . . . . . . . . .	79,975	34,093			94,436	93,301
Property, plant and equipment and
land use rights – authorized but not
contracted for . . . . . . . . . . . . . . . . . . . .	–		–		229,500	181,394

	79,975	34,093			323,936	274,695

Operating Lease Commitments

We lease a number of properties, which have an average term of one to two years. The table below sets forth our commitment for rental payment as of the dates indicated:

		As of December 31,	As of December 31,		As of May 31,
	2008	2009		2010	2011

		(RMB in	thousands)
Not later than one year . . . . . . . . . . . . . . .	313	344		98	95
Later than one year but not
later than five years. . . . . . . . . . . . . . . .	–	–		98	56
	313	344		196	151

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OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

Except for the contractual obligations set forth above, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our Shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. We do not have any variable interests in any uncombined entity that provides financing, liquidity or credit support to us, or engages in leasing, hedging or research and development services with us.

INFLATION AND DEFLATION RISK

According to the China Statistical Bureau, China’s overall national inflation rate, as represented by the general consumer price index, was approximately 5.9% in the year ended December 31, 2008, but China experienced deflation of approximately 0.7% in the year ended December 31, 2009. According to the China Statistical Bureau, in the year ended December 31, 2010, China experienced inflation of approximately 3.3%. For the five months ended May 31, 2011, China experienced inflation of approximately 5.2% compared to the five months ended May 31, 2010. As of the date of this document, we had not been materially affected by any inflation or deflation.

MARKET RISKS

We are exposed to a variety of market risks in the normal course of business, including foreign exchange risk, credit risk, liquidity risk and interest rate risk, as set out below. We regularly monitor our exposure to these risks and as of the Latest Practicable Date, did not hedge or consider necessary to hedge any of these risks. However, our overall risk management strategy seeks to minimize adverse effects from the unpredictability of financial markets on our financial performance. Our board of Directors is responsible for setting the objectives and underlying principles of financial risk management.

Credit Risk

We are exposed to credit risk primarily arising from trade receivables and bank deposits. Trade receivables are substantially from wholesale distributors with good collection track records with us. For trade receivables, we adopt the policy of dealing only with customers of appropriate credit history to mitigate credit risks. Concentrations of credit risk with respect to trade receivables are limited due to our large number of customers. No doubtful debts were written off for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011. Our Directors believe that no significant credit risk is inherent in our trade receivables.

Bank deposits are mainly deposits with banks with good credit ratings assigned by international credit-rating agencies. For bank deposits, we adopt the policy of dealing only with high credit quality counterparties.

The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as of the end of the reporting period in relation to each class of recognized financial assets was the carrying amounts of those assets as stated on our balance sheets.

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FINANCIAL INFORMATION

Liquidity Risk

Our financial liabilities are all due within the next 12 months from the balance sheet date. We manage the liquidity risk by maintaining sufficient cash and banking facilities to enable us to meet our normal operating and capital commitments.

Interest Rate Risk

Our interest rate risk relates primarily to our bank deposits and bank borrowings. We currently have not entered into interest rate swaps to hedge against our exposure to changes in fair values of our borrowings. It is our policy to maintain an appropriate level between our borrowings so as to balance the fair value and cash flow interest rate risk. In addition, to the extent that we may need to raise debt financing in the future, upward fluctuations in interest rates will increase the cost of new debts. Fluctuations in interest rates can also lead to significant fluctuations in the fair values of our debt obligations. We currently do not use any derivative instruments to manage our interest rate risk. To the extent we decide to do so in the future, there can be no assurance that any future hedging activities will protect us from fluctuations in interest rates. Please see Note 4 to the Accountant’s Report included in Appendix I of this document for further details.

Foreign Exchange Risk

Foreign exchange rate risk refers to the risk that movement in foreign currency exchange rates will affect our financial results and cash flows. Substantially all of our sales, costs and expenses, assets and liabilities are denominated in Renminbi. As a result, our management does not believe we are currently exposed to significant foreign exchange rate risk. However, as we expand our operations, we may incur a significant amount of assets and liabilities in a currency other than the Renminbi. In this case, we would be exposed to risks related to the exchange rate and the currency in which our assets and liabilities is denominated. A depreciation of the Renminbi would require us to use more Renminbi funds to service the same amount of foreign currency liabilities. [●] On the other hand, a depreciation of Renminbi would adversely affect the value of any dividends we pay to our Shareholders [●]. We currently do not engage in hedging activities designed or intended to manage such exchange rate risk. Because the Renminbi is not freely convertible, our ability to reduce foreign exchange rate risk is limited.

PROPERTY INTERESTS

Details relating to our property interests are set out in Appendix IV to this document. Vigers Appraisal And Consulting Limited, an independent property valuer, has valued our property interests as of August 31, 2011. The full text of their letters, summary of valuation and valuation certificates regarding such property interests are set out in Appendix IV to this document.

– 168 –

FINANCIAL INFORMATION

A reconciliation of the net book value of the relevant property interests as of May 31, 2011 to their fair value as stated in Appendix IV to this document is as follows:

RMB in thousands

Net book value of properties as of May 31, 2011 (audited):

Land use rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	156,174
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	321,838
Total as of May 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	478,012
	- - - - - - - - - - - - - -

Movements during the three months ended August 31, 2011 (unaudited):

Depreciation/amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5,033
Net book value as of August 31, 2011 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . .	472,979
Valuation surplus as of August 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19,621
Valuation as of August 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	492,600

DIVIDENDS

During the Track Record Period, we declared and paid cash dividends of RMB10.1 million, nil, RMB76.7 million and RMB40.0 million to our Shareholders for the year ended December 31, 2008, 2009 and 2010 and the five months ended May 31, 2011, respectively. Subject to the Companies Act, through a general meeting we may declare dividends in any currency but no dividend shall be declared in excess of the amount recommended by the Board. Dividends may be paid out of profits of the Company available for distribution or contributed surplus in accordance with the Companies Act.

Except insofar as the rights attaching to, or the terms of issue of, any Share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the Shares in respect whereof the dividend is paid but no amount paid up on a Share in advance of calls shall for this purpose be treated as paid up on the Share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the Shares during any portion or portions of the period in respect of which the dividend is paid. We may deduct from any dividend or other monies payable to any member or in respect of any Shares all sums of money (if any) presently payable by him to us on account of calls or otherwise.

In addition, the declaration of dividends is subject to the discretion of our Directors, and the amounts of dividends actually declared and paid will also depend upon the following factors:

our general business conditions;
our financial results;
our capital requirements;

– 169 –

FINANCIAL INFORMATION

interests of our Shareholders; and
any other factors which the Board may deem relevant.

After the [●], our Directors intend to recommend for distribution no less than 20% of our profits available for distribution for each financial year. We will declare dividends, if any, in Hong Kong dollars with respect to Shares on a per Share basis and will pay such dividends in Hong Kong dollars. Any final dividend for a fiscal year will be subject to our shareholders’ approval.

NO MATERIAL ADVERSE CHANGE

We confirm that there has been no material adverse change in our financial or trading position since May 31, 2011, being the date of the latest audited consolidated financial position of our Group as set out in the Accountant’s Report in Appendix I to this document.

[DISCLOSURE REQUIRED UNDER THE [ ● ]

We confirm that as of the Latest Practicable Date, there were no circumstances that would give rise to disclosure requirements under [●].]

– 170 –

FUTURE PLANS

See the section headed “Business – Our Business Strategies” in this document for a detailed description of our future plans.

– 171 –

APPENDIX I

ACCOUNTANT’S REPORT

[ ● ]

[Draft]

[Date]

The Directors China Lifestyle Food and Beverages Group Limited [●]

Dear Sirs,

We report on the financial information of China Lifestyle Food and Beverages Group Limited (the “Company”) and its subsidiaries (together, the “Group”) which comprises the consolidated balance sheets as at 31 December 2008, 2009 and 2010 and 31 May 2011, the balance sheets of the Company as at 31 December 2008, 2009 and 2010 and 31 May 2011 and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for each of the years ended 31 December 2008, 2009 and 2010 and the five months ended 31 May 2011 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of the Company and is set out in Sections I and II below for inclusion in Appendix I to the Document of the Company dated [●] (the “Document”) in connection with [●].

The Company was incorporated in Bermuda on 4 May 2004 as a company with limited liability under the Companies Act of Bermuda.

As at the date of this report, the Company has direct and indirect interests in the subsidiaries and an associated company as set out in Notes 18 and 19 of Section I below. All of these companies are private companies.

The directors of the Company have prepared the consolidated financial statements of the Company for the Relevant Periods, in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “Underlying Financial Statements”). We have audited the Underlying Financial Statements in accordance with International Standards on Auditing (“ISA”) issued by the International Auditing and Assurance Standards Board (“IAASB”) pursuant to separate terms of engagement with the Company.

The directors of the Company are responsible for the preparation of the Underlying Financial Statements that gives a true and fair view in accordance with IFRSs.

The financial information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with IFRSs, and for such internal controls as the directors determine is necessary to enable the preparation of financial information that is free from material misstatement whether due to fraud or error.

– I-1 –

ACCOUNTANT’S REPORT

APPENDIX I

REPORTING ACCOUNTANT’S RESPONSIBILITY

Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “[●]” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

OPINION

In our opinion, the financial information gives, for the purposes of this report, a true and fair view of the state of affairs of the Company as at 31 December 2008, 2009 and 2010 and 31 May 2011 and of the state of affairs of the Group as at 31 December 2008, 2009 and 2010 and 31 May 2011, and of the Group’s results and cash flows for the Relevant Periods then ended.

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information set out in Section I below included in Appendix I to the Document which comprises the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the five months ended 31 May 2010 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).

The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies set out in Note 3 of Section I below.

Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the IAASB. A review of the Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with ISA and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report, has not been prepared, in all material respects, in accordance with the accounting policies set out in Note 3 of Section I below.

– I-2 –

APPENDIX I

ACCOUNTANT’S REPORT

I. FINANCIAL INFORMATION

(A) Consolidated Statements of Comprehensive Income

					For the five	months ended	months ended	months ended	months ended
		For the	year ended 31 December		31	May

		2008	2009	2010	2010			2011

	Note	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000
					(Unaudited)
Sales	6	721,140	771,360	931,680	414,419			607,444
Cost of sales	8	(438,427) (482,910)		(589,682)	(262,255)			(360,115)
Gross profit		282,713	288,450	341,998	152,164			247,329
Other income	7	3,488	2,765	1,573	635				560
Selling and distribution expenses	8	(114,835) (133,138)		(134,790)	(62,583)			(76,394)
Administrative expenses	8	(53,750) (48,260)		(44,854)	(15,686)			(23,811)
Other (losses)/gains, net	9	(10,384) 283		2,314	738			(456)
Operating profit		107,232	110,100	166,241	75,268			147,228
Finance costs	11	(2,040) (3,014)		(3,518)	(1,386)			(3,316)
Share of loss of an associated
company	19	(2,593) (4,145)		–	–				–
Provision for impairment of
investment in an associated
company	19	–	(5,128)	–	–				–
Provision for impairment of loans
to an associated company	19	–	(1,999)	(1,778)	(1,778)				–
Share of loss of a jointly
controlled entity	20	(1,731) (1,632)		(432)	(432)				–
Provision for impairment of
investment in a jointly
controlled entity	20(a)	(5,000) –		–	–				–
Gain on disposal of investment
in a jointly controlled entity	20(b)	-	–	344	–				–
Profit before income tax		95,868	94,182	160,857	71,672			143,912
Income tax expense	12	(27,237) (40,694)		(13,019)	(13,076)			(28,334)
Profit and total comprehensive
income for the year/period		68,631	53,488	147,838	58,596			115,578


Earnings per share attributable to
equity holders of the Company
(RMB per share)	13
– Basic		0.14	0.11	0.29	0.12			0.22


– Diluted		0.14	0.11	0.29	0.12			0.22

Note: The earnings per share as presented above has not taken into account the [●] pursuant to the shareholders’ resolution dated [●] 2011 because the [●] has not become effective as of the date of this report.

– I-3 –

APPENDIX I

ACCOUNTANT’S REPORT

(B) Consolidated Balance Sheets

					As at
		As at 31 December			31 May

		2008	2009	2010	2011

	Note	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Non-current assets
Land use rights	15	113,700	112,980	110,600	156,174
Property, plant and equipment	16	399,677	478,285	551,675	552,597
Deposits for property, plant and
equipment	17	18,525	33,223	26,095	66,674
Investment in an associated company	19	9,273	–	–	–
Loans to an associated company	19	–	1,778	–	–
Investment in a jointly controlled
entity	20	4,255	2,623	–	–
Deferred income tax assets	21	2,515	3,329	2,784	3,328

		547,945	632,218	691,154	778,773
		- - - - - - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - - -
Current assets
Inventories	22	77,506	61,497	76,860	78,560
Trade receivables	23	58,828	106,572	147,615	210,881
Prepayments and other receivables	24	13,276	10,700	31,968	39,071
Pledged bank deposits	25	10,485	16,653	27,904	29,073
Cash and cash equivalents	26	34,311	10,879	18,236	146,005
		194,406 ---------	206,301 ---------	302,583 ---------	503,590 ---------

Total assets		742,351	838,519	993,737	1,282,363

EQUITY
Capital and reserves attributable to
equity holders of the Company
Share capital	29	205,644	205,644	205,644	220,056
Share premium	29	151,230	151,230	151,230	275,948
Other reserves	31	(25,387)	(33,638)	(26,435)	(26,435)
Retained earnings		192,682	259,278	323,263	398,841
Total equity		524,169	582,514	653,702	868,410
		- - - - - - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - - -
LIABILITIES
Non-current liability
Deferred income tax liabilities	21	3,104	2,052	7,011	6,070
		- - - - - - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - - -
Current liabilities
Trade and other payables	27	171,525	162,920	229,684	257,761
Dividend payable		180	180	–	–
Borrowings	28	37,500	57,500	92,000	139,000
Current income tax liabilities		5,873	33,353	11,340	11,122

		215,078 ---------	253,953 ---------	333,024 ---------	407,883 ---------

Total liabilities		218,182 ---------	256,005 ---------	340,035 ---------	413,953 ---------

Total equity and liabilities		742,351	838,519	993,737	1,282,363

Net current (liabilities)/assets		(20,672)	(47,652)	(30,441)	95,707

Total assets less current liabilities		527,273	584,566	660,713	874,480

– I-4 –

APPENDIX I

ACCOUNTANT’S REPORT

(C) Balance Sheets

					As at
		As at 31 December			31 May

		2008 2009	2010		2011

	Note	RMB’000 RMB’000	RMB’000		RMB’000
ASSETS
Non-current assets
Investments in subsidiaries	18	134,206 134,206	134,206		134,206
Loans to subsidiaries	18	246,549 244,432	251,956		352,701

		380,755 378,638	386,162		486,907
		- - - - - - - - - - - - - - - - - -	- - - - - - - -	-	- - - - - - - -	-
Current assets
Amount due from a subsidiary	18	10,000 20,000		–		–
Prepayments	24	75 75	75		5,262
Cash and cash equivalents	26	80 61	924		29,872
		10,155 20,136 --------- ---------	999 ---------		35,134 ---------

Total assets		390,910 398,774	387,161		522,041


EQUITY
Capital and reserves attributable to
equity holders of the Company
Share capital	29	205,644 205,644	205,644		220,056
Share premium	29	151,230 151,230	151,230		275,948
Share option reserve		15,418 –		–		–
Retained earnings	32	9,180 30,177	24,205		16,411
Total equity		381,472 387,051	381,079		512,415
		- - - - - - - - - - - - - - - - - -	- - - - - - - -	-	- - - - - - - -	-
LIABILITIES
Current liabilities
Other payables	27	9,258 11,543	6,082		9,626
Dividend payable		180 180		–		–
Total liabilities		9,438 11,723 --------- ---------	6,082 ---------		9,626 ---------

Total equity and liabilities		390,910 398,774	387,161		522,041


Net current assets/(liabilities)		717 8,413	(5,083)		25,508


Total assets less current liabilities		381,472 387,051	381,079		512,415

– I-5 –

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be

read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack.

APPENDIX I

ACCOUNTANT’S REPORT

(D) Consolidated Statements of Changes in Equity

														Share		Currency	Currency	Currency
		Share			Share			Merger		Statutory				option		translation			Retained
		capital		premium				reserve			reserves			reserve			reserve			earnings			Total

	Note	RMB’000		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Balance at
1 January 2008		205,644			151,230			(87,600)			40,702			8,405			(41)			140,249			458,589
Profit and total
comprehensive income
for the year			–			–			–			–			–			–		68,631			68,631
Employee share option
scheme
– value of employee
services			–			–			–			–		7,013				–			–		7,013
Transfer to statutory
reserves	31(b)		–			–			–		6,134				–			–		(6,134)			–
Dividends	14		–			–			–			–			–			–		(10,064)			(10,064)

Balance at
31 December 2008		205,644			151,230			(87,600)			46,836			15,418			(41)			192,682			524,169

Balance at
1 January 2009		205,644			151,230			(87,600)			46,836			15,418			(41)			192,682			524,169
Profit and total
comprehensive income
for the year			–			–			–			–			–			–		53,488			53,488
Employee share option
scheme
– cancellation	30		–			–			–			–		4,857				–			–		4,857
– transfer to retained
earnings	30		–			–			–			–		(20,275)				–		20,275			–
Transfer to statutory
reserves	31(b)		–			–			–		7,167				–			–		(7,167)			–

Balance at
31 December 2009		205,644			151,230			(87,600)			54,003				–		(41)			259,278			582,514

Balance at
1 January 2010		205,644			151,230			(87,600)			54,003				–		(41)			259,278			582,514
Profit and total
comprehensive income
for the year			–			–			–			–			–			–		147,838			147,838
Transfer to statutory
reserves	31(b)		–			–			–		7,203				–			–		(7,203)			–
Dividends	14		–			–			–			–			–			–		(76,650)			(76,650)

Balance at
31 December 2010		205,644			151,230			(87,600)			61,206				–		(41)			323,263			653,702

Balance at
1 January 2011		205,644			151,230			(87,600)			61,206				–		(41)			323,263			653,702
Profit and total
comprehensive income
for the period			–			–			–			–			–			–		115,578			115,578
Issue of shares		14,412			124,718				–			–			–			–			–		139,130
Dividends	14		–			–			–			–			–			–		(40,000)			(40,000)

Balance at 31 May 2011		220,056			275,948			(87,600)			61,206				–		(41)			398,841			868,410

Unaudited
Balance at 1 January
2010		205,644			151,230			(87,600)			54,003				–		(41)			259,278			582,514
Profit and total
comprehensive income
for the period			–			–			–			–			–			–		58,596			58,596

Balance at 31 May 2010		205,644			151,230			(87,600)			54,003				–		(41)			317,874			641,110

– I-6 –

APPENDIX I

ACCOUNTANT’S REPORT

(E) Consolidated Statements of Cash Flows

										For the	five	five	months ended	months ended	months ended	months ended	months ended
		For the	year ended 31 December								31		May

		2008		2009			2010			2010					2011

	Note	RMB’000		RMB’000			RMB’000			RMB’000				RMB’000
										(Unaudited)
Cash flows from operating
activities
Cash generated from operations	33	126,642		111,539			195,023			133,655					122,973
Income tax paid		(23,231)		(15,080)			(29,528)			(9,636)					(30,037)
Net cash generated from
operating activities		103,411		96,459			165,495			124,019					92,936
		- - - - - - - - -		- - - - - -	- -	-	- - - - - -	- -	-	- - - - - -	- -	-		- - - - - -		- -	-
Cash flows from investing
activities
Purchase of land use rights		(54,000)		(1,647)					–			–			(46,800)
Purchase of property, plant and
equipment		(53,317)		(113,501)			(78,229)			(1,938)					(17,353)
Deposits paid for property, plant
and equipment		(18,525)		(14,698)			(26,095)			(1,060)					(42,854)
Proceeds from disposal of
property, plant and equipment		3,403		2,437				40				–					–
Loans to an associated company		–		(3,777)					–			–					–
Investment in a jointly controlled
entity		(3,337)				–			–			–					–
Proceeds from disposal of
investment in a jointly
controlled entity		–				–	2,535					–					–
Interest received		1,117			477			530			131					195

Net cash used in investing
activities		(124,659)		(130,709)			(101,219)			(2,867)					(106,812)
		- - - - - - - - -		- - - - - -	- -	-	- - - - - -	- -	-	- - - - - -	- -	-		- - - - - -		- -	-
Cash flows from financing
activities
Proceeds from borrowings		37,500		102,500			92,000			13,000					90,000
Repayments of borrowings		(20,000)		(82,500)			(57,500)			(20,000)					(43,000)
Decrease/(increase) in pledged
deposits		2,055		(6,168)			(11,251)			2,711					(1,169)
Proceeds from issuance of shares,
net		–				–			–			–			139,130
Dividends paid		(10,044)				–	(76,650)					–			(40,000)
Interest paid		(2,040)		(3,014)			(3,518)			(1,386)					(3,316)
Net cash generated from/(used
in) financing activities		7,471 - - - - - - - - -		10,818 - - - - - - - - -			(56,919) - - - - - - - - -			(5,675) - - - - - - - - -				141,645 - - - - - - - - -
Net (decrease)/increase in cash
and cash equivalents		(13,777)		(23,432)			7,357			115,477					127,769
Cash and cash equivalents at the
beginning of the year/period		48,088		34,311			10,879			10,879					18,236
Cash and cash equivalents
at the end of the year/period		34,311		10,879			18,236			126,356					146,005

– I-7 –

APPENDIX I

ACCOUNTANT’S REPORT

NOTES TO THE FINANCIAL INFORMATION

1 ORGANIZATION AND PRINCIPAL ACTIVITIES

China Lifestyle Food and Beverages Group Limited (the “Company”) was incorporated in Bermuda on 4 May 2004 and domiciled in Bermuda. The Company’s immediate and ultimate holding company is Alliance Food and Beverages (Holding) Company Limited, a company incorporated in the British Virgin Islands (“BVI”). The address of the Company’s registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The address of its principal place of business is Wuli Technology Industry Area, Jinjiang, Fujian, the People’s Republic of China (“PRC”) (中國福建省晋江市五里工業園區).

The Company was listed on the main board of the Singapore Exchange Securities Trading Limited (“SGX”) since 26 August 2005. Pursuant to a special general meeting held on 7 April 2010, the Company was delisted from SGX with effect from 6 May 2010.

The principal activity of the Company is investment holding. The principal activities of the Company’s subsidiaries are described in Note 18.

This financial information is presented in Renminbi (“RMB”), unless otherwise stated.

2 BASIS OF PREPARATION

The financial information has been prepared in accordance with IFRSs. All IFRSs in issue which are effective for accounting period beginning on 1 January 2011 and are relevant to the Group have been applied for the Relevant Periods presented. This financial information has been prepared under the historical cost convention.

The preparation of financial information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial information are disclosed in Note 5.

New accounting standards and amendment to standards

The following new standards and amendment to standards have been issued and are mandatory for the Group’s accounting periods beginning on or after 1 January 2012 and which the Group has not early adopted. [●].

IAS 1 (Amendment)	Presentation of financial statements(2)
IAS 12 (Amendment)	Deferred tax – recovery of underlying assets(1)
IAS 19 (Amendment)	Employee benefits(2)
IAS 27 (2011)	Separate financial statements(2)
IAS 28 (2011)	Investments in associates and joint ventures(2)
IFRS 7 (Amendment)	Disclosures – transfers of financial assets(1)
IFRS 9	Financial instruments(2)
Additions to IFRS 9	Financial instruments – financial liabilities(2)
IFRS 10	Consolidated financial statements(2)
IFRS 11	Joint arrangements(2)
IFRS 12	Disclosures of interests in other entities(2)
IFRS 13	Fair value measurement(2)

(1) Effective for the Group for annual period beginning on or after 1 January 2012

(2) Effective for the Group for annual period beginning on or after 1 January 2013

Going concern basis

As at 31 December 2010, the Group’s current liabilities exceeded its current assets by RMB30,441,000. In addition, a subsidiary of the Group had breached certain bank covenants as at 31 December 2008, 2009 and 2010. Subsequent to 31 December 2010, the subsidiary had obtained a waiver from the bank in respect of the covenant requirements for the bank borrowings as at 31 December 2010 (Note 28). As at 31 May 2011, the Group is in a net current assets position of RMB95,707,000. However, the subsidiary had breached certain bank covenant clauses during January to May 2011. Subsequent to 31 May 2011, the subsidiary had obtained a waiver from the bank in respect of the aforementioned covenant requirements.

[●]

– I-8 –

APPENDIX I

ACCOUNTANT’S REPORT

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the financial information are set out below. These policies have been consistently applied to all the years/periods presented, unless otherwise stated.

3.1 Consolidation

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying by a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.

All business combinations, if any, are accounted for using the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition- related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiaries acquired in the case of a bargain purchase, the difference is recognized directly in the statement of comprehensive income.

In preparing the consolidated financial statements, inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet, investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(b) An associated company and a jointly controlled entity

An associated company is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

A jointly controlled entity is an entity over which the Group has contractual arrangements to jointly share the control over the economic activity of the entity with one or more parties.

The Group’s interests in an associated company and a jointly controlled entity are accounted for using the equity method of accounting and are initially recognized at cost and subsequently net of any accumulated impairment losses (Note 3.6).

The Group’s share of its associated company or jointly controlled entity’s post-acquisition profits or losses is recognized in the statement of comprehensive income and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associated company or a jointly controlled entity equals or exceeds its interests in the associated company or the jointly controlled entity, including any other unsecured receivables, the Group does not recognize further losses, unless it has obligations or has made payments on behalf of the associated company or the jointly controlled entity.

Unrealized gains on transactions between the Group and its associated company and jointly controlled entity are eliminated to the extent of the Group’s interests in the associated company and the jointly controlled entity. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of an associated company and a jointly controlled entity have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.

Dilution gains and losses arising in investments in an associated company or a jointly controlled entity are recognized in the statement of comprehensive income.

3.2 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors that makes strategic decisions.

– I-9 –

APPENDIX I

ACCOUNTANT’S REPORT

3.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial information of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial information is presented in RMB, which is the Company’s functional and the Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income.

Foreign exchange gains and losses are presented in the statement of comprehensive income within “other (losses)/gains, net”.

(c) Group companies

The results and financial position of all the Group’s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) all resulting exchange differences are recognized in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the statement of comprehensive income as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

3.4 Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

	Useful lives	Useful lives

Buildings		20 years
Leasehold improvements		5 years
Plant and equipment		5-10 years
Motor vehicles		5 years

– I-10 –

APPENDIX I

ACCOUNTANT’S REPORT

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 3.6).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive income.

3.5 Land use rights

3.6 Impairment of investments in subsidiaries, an associated company, a jointly controlled entity and non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

3.7 Inventories

3.8 Financial assets

3.8.1 Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of the Group’s financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period which are classified as non-current assets. The Group’s loans and receivables include trade and other receivables, bank deposits, and loans to an associated company in the consolidated balance sheet.

(c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period.

During the Relevant Periods, the Group did not hold any significant financial assets at fair value through profit or loss and available-for-sale financial assets.

– I-11 –

APPENDIX I

ACCOUNTANT’S REPORT

3.8.2 Recognition and measurement

Regular way purchases and sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category, if any, are presented in the statement of comprehensive income within “other (losses)/gains, net” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the statement of comprehensive income as part of other income when the Group’s right to receive payments is established.

Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in other comprehensive income.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of comprehensive income as “gains and losses from investment securities”.

Interest on available-for-sale securities calculated using the effective interest method is recognized in the statement of comprehensive income as part of other income. Dividends on available-for-sale equity instruments are recognized in the statement of comprehensive income as part of other income when the Group’s right to receive payments is established.

3.8.3 Impairment of financial assets

(a) Assets carried at amortized cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

(i) Significant financial difficulty of the issuer or obligor;
(ii) A breach of contract, such as a default or delinquency in interest or principal payments;
(iii) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
(iv) It becomes probable that the borrower will enter bankruptcy or other financial reorganization;
(v) The disappearance of an active market for that financial asset because of financial difficulties; or
(vi) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
adverse changes in the payment status of borrowers in the portfolio;
national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of comprehensive income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

– I-12 –

APPENDIX I

ACCOUNTANT’S REPORT

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the statement of comprehensive income.

(b) Assets classified as available-for-sale

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria refer to (a) above. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the separate statement of comprehensive income. Impairment losses recognized in the separate statement of comprehensive income on equity instruments are not reversed through the separate statement of comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the separate statement of comprehensive income.

Impairment testing of the investments in subsidiaries, an associated company or a jointly controlled entity is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary, associated company or jointly controlled entity in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

3.9 Trade receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

3.10 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, less bank overdrafts and pledged deposits. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities.

3.11 Share capital

Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

3.12 Trade and other payables

Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities.

Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

3.13 Borrowings and borrowing costs

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

Borrowing costs incurred for the construction of any qualifying assets are capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are charged to the statement of comprehensive income in the period in which they are incurred.

3.14 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.

– I-13 –

APPENDIX I

ACCOUNTANT’S REPORT

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries, associated company and jointly controlled entity operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the relevant tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated company and jointly controlled entity except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

3.15 Employee benefits

(a) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as social security plans in the PRC, and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. The Group’s contributions to defined contribution plans are recognized in the financial year to which they relate.

(b) Share-based payments

The Group operates an equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

(i) including any market performance conditions (for example, an entity’s share price);
(ii) excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
(iii) including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognized over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

If the grant of option is cancelled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), the Company shall account for the cancellation as an acceleration of vesting, and shall therefore recognize immediately the amount that otherwise would have been recognized for service received over the remainder of the vesting period.

– I-14 –

APPENDIX I

ACCOUNTANT’S REPORT

3.16 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

3.17 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, rebates, discounts and sales returns and after eliminating sales within the Group.

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.

(a) Sale of goods

Revenue from sale of goods is recognized when the risk and reward of the goods has been transferred to the customer, which is usually at the date when a group entity has delivered products to the customer, the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.

(b) Interest income

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

(c) Rental income

Rental income under operating leases (net of any incentives given to the lessees) is recognized on a straight-line basis over the lease periods.

3.18 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

3.19 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

– I-15 –

APPENDIX I

ACCOUNTANT’S REPORT

4 FINANCIAL RISK MANAGEMENT

4.1 Financial risk factors

The Group’s activities expose it to market risks (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management strategy seeks to minimize adverse effects from the unpredictability of financial markets on the Group’s financial performance. The board of directors is responsible for setting the objectives and underlying principles of financial risk management for the Group.

(a) Market risk

(i) Currency risk

The Group’s dominant operations are in the PRC and most of the transactions are denominated in RMB. Entities in the Group sometimes transact in currencies other than RMB. The Group is exposed to currency risk arising from various currency exposures, primarily with respect to the Hong Kong Dollar (“HKD”), United States Dollar (“USD”) and Singapore Dollar (“SGD”).

Currency risk arises when transactions are denominated in foreign currencies. The Group’s currency exposure as at 31 December 2008, 2009 and 2010 and 31 May 2011 is as follows:

	RMB	HKD		USD	SGD	Total

	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
At 31 December 2008
Financial assets
Cash and cash equivalents	32,899	1,412		–	–	34,311
Pledged bank deposits	10,485		–	–	–	10,485
Trade and other receivables	61,022		124	3,128	–	64,274
Financial liabilities
Trade and other payables	(153,591)	(1,313)		–	(1,532)	(156,436)
Dividend payable	–		–	–	(180)	(180)
Borrowings	(37,500)		–	–	–	(37,500)

Net financial
(liabilities)/assets	(86,685)		223	3,128	(1,712)	(85,046)

Currency exposure			223	3,128	(1,712)	1,639

At 31 December 2009
Financial assets
Cash and cash equivalents	10,434		445	–	–	10,879
Pledged bank deposits	16,653		–	–	–	16,653
Trade and other receivables	105,111		102	5,035	–	110,248
Loans to an associated company	1,778		–	–	–	1,778
Financial liabilities
Trade and other payables	(141,965)	(1,601)		–	(2,858)	(146,424)
Dividend payable	–		–	–	(180)	(180)
Borrowings	(57,500)		–	–	–	(57,500)

Net financial
(liabilities)/assets	(65,489)	(1,054)		5,035	(3,038)	(64,546)

Currency exposure		(1,054)		5,035	(3,038)	943

– I-16 –

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be

read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack.

APPENDIX I

ACCOUNTANT’S REPORT

	RMB	HKD		USD	SGD	Total

	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
At 31 December 2010
Financial assets
Cash and cash equivalents	17,130	1,106		–	–	18,236
Pledged bank deposits	27,904		–	–	–	27,904
Trade and other receivables	149,420		102	–	–	149,522
Financial liabilities
Trade and other payables	(209,585)	(2,423)		–	–	(212,008)
Borrowings	(92,000)		–	–	–	(92,000)

Net financial liabilities	(107,131)	(1,215)		–	–	(108,346)

Currency exposure		(1,215)		–	–	(1,215)

At 31 May 2011
Financial assets
Cash and cash equivalents	115,958	30,047		–	–	146,005
Pledged bank deposits	29,073		–	–	–	29,073
Trade and other receivables	212,713		27	–	–	212,740
Financial liabilities
Trade and other payables	(231,898)	(4,751)		–	–	(236,649)
Borrowings	(139,000)		–	–	–	(139,000)

Net financial (liabilities)/assets	(13,154)	25,323		–	–	12,169

Currency exposure		25,323		–	–	25,323

– I-17 –

APPENDIX I

ACCOUNTANT’S REPORT

The Company’s currency exposure as at 31 December 2008, 2009 and 2010 and 31 May 2011 is as follows:

	RMB	HKD	SGD	Total

	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2008
Financial assets
Cash and cash equivalents	–	80	–	80
Amount due from a subsidiary	10,000	–	–	10,000
Financial liabilities
Other payables	(6,726)	(1,000)	(1,532)	(9,258)
Dividend payable	–	–	(180)	(180)

Net financial assets/(liabilities)	3,274	(920)	(1,712)	642

Currency exposure		(920)	(1,712)	(2,632)

At 31 December 2009
Financial assets
Cash and cash equivalents	–	61	–	61
Amount due from a subsidiary	20,000	–	–	20,000
Financial liabilities
Other payables	(7,275)	(1,410)	(2,858)	(11,543)
Dividend payable	–	–	(180)	(180)

Net financial assets/(liabilities)	12,725	(1,349)	(3,038)	8,338

Currency exposure		(1,349)	(3,038)	(4,387)

At 31 December 2010
Financial assets
Cash and cash equivalents	–	924	–	924
Financial liabilities
Other payables	(4,282)	(1,800)	–	(6,082)

Net financial liabilities	(4,282)	(876)	–	(5,158)

Currency exposure		(876)	–	(876)

At 31 May 2011
Financial assets
Cash and cash equivalents	–	29,872	–	29,872
Financial liabilities
Other payables	(4,904)	(4,722)	–	(9,626)

Net financial (liabilities)/assets	(4,904)	25,150	–	20,246

Currency exposure		25,150	–	25,150

– I-18 –

APPENDIX I

ACCOUNTANT’S REPORT

If HKD, USD and SGD change against the RMB by 5% with all other variables including tax rate being held constant, the effects arising from the net financial assets/liabilities position will be as follows:

									For	the five months	the five months	the five months	the five months
	For the		year ended		31	December			ended		31 May

	2008			2009			2010		2010			2011

						Increase/(decrease)

	Profit			Profit			Profit		Profit			Profit
	after tax			after tax			after tax		after tax			after	tax

	RMB’000			RMB’000			RMB’000		RMB’000			RMB’000
									(Unaudited)
Group
HKD against RMB
– strengthened		11			(53)			(61)		(182)			1,266
– weakened	(11)				53			61		182			(1,266)
USD against RMB
– strengthened	156				252			–		–			–
– weakened	(156)			(252)				–		–			–
SGD against RMB
– strengthened	(86)			(152)				–		–			–
– weakened	86				152			–		–			–

Company
HKD against RMB
– strengthened	(46)				(67)			(44)		(196)			1,258
– weakened	46				67			44		196			(1,258)
SGD against RMB
– strengthened	(86)			(152)				–		–			–
– weakened	86				152			–		–			–

(ii) Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. Apart from the bank balances, the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s borrowings are in fixed rate, the interest rate of which is highly regulated by People’s Bank of China in the PRC. Other financial liabilities are non-interest bearing. As the Group has no variable-rate borrowings, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

(b) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. For trade receivables, the Group adopts the policy of dealing only with customers of appropriate credit history to mitigate credit risk. For other financial assets, the Group adopts the policy of dealing only with high credit quality counterparties.

The maximum exposure to credit risk for each class of financial assets is the carrying amount of that class of financial assets presented on the balance sheet. The Group’s and Company’s major classes of financial assets are bank deposits, trade and other receivables, loans to an associated company and inter-company accounts with subsidiaries.

Trade receivables are substantially from distributors and key account agents with good collection track records with the Group. Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers. [●]. Bank deposits are mainly deposits with banks with good credit-ratings assigned by international credit-rating agencies.

(c) Liquidity risk

The Group’s and the Company’s financial liabilities are all due within the next 12 months from the balance sheet date. The Group and the Company manage the liquidity risk by maintaining sufficient cash and banking facilities to enable them to meet their normal operating and capital commitments.

As at 31 December 2008, a wholly owned subsidiary of the Group had given a guarantee to a financial institution for a loan of RMB20 million to a company owned by certain directors of the Company. The maximum amount the Group could be required to pay under this guarantee was RMB20 million. This guarantee had been subsequently discharged in February 2009.

– I-19 –

APPENDIX I

ACCOUNTANT’S REPORT

As disclosed in Note 28 to the financial information, a subsidiary of the Group has breached certain bank covenants as at 31 December 2008, 2009 and 2010 and during the five months ended 31 May 2011.

In March 2011, the Company has issued 43,754,922 new shares to a new shareholder for a cash consideration of approximately RMB139,130,000. [●]

4.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholders’ value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares or obtain new borrowings. There is no specific requirement for the Group and the Company to maintain gearing ratio at certain level.

4.3 Fair value estimation

As at 31 December 2008, 2009 and 2010 and 31 May 2011, the Group and the Company did not have any financial assets or financial liabilities in the balance sheet which is measured at fair value. The carrying amounts of the Group’s financial assets, including cash and cash equivalents, pledged bank deposits, trade and other receivables, loans to an associated company and amounts due from subsidiaries and the Group’s financial liabilities, including trade and other payables, dividend payable and borrowings, approximate their fair values due to their short maturities. The nominal values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment of interests in associated company and jointly controlled entity

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount in accordance with the accounting policy stated in Note 3.6. The provision for impairment of interests in associated company and jointly controlled entity is determined using fair value less cost to sell on individual CGU. The fair value less cost to sell method requires the entity to estimate the fair value of the CGU, which has been prepared on the basis of management’s assumptions and estimates, by referencing to sales contracts of arm’s length transactions etc. If there is a significant adverse change in the estimated fair value of the CGU, it may be necessary to take an impairment charge to the statement of comprehensive income.

(b) Current and deferred income taxes

The Group is subject to income taxes in the PRC. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred income tax assets relating to certain temporary differences are recognized when management considers it is probable that future taxable profits will be available against which the temporary differences can be utilized. When the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation charges in the period in which such estimate is changed.

6 SEGMENT INFORMATION

The Group is principally engaged in the manufacturing and sale of jelly products, confectionary products and other food and beverages products.

The chief operating decision-maker (“CODM”) has been identified as the executive directors of the Company. CODM reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

– I-20 –

APPENDIX I ACCOUNTANT’S REPORT

CODM considers the business by products and assesses the performance of the following operating segments:

i. Jelly products
ii. Confectionary products
iii. Other products

CODM assesses the performance of the operating segments based on measure of segment results. Finance costs, share of results of associated company and jointly controlled entity, corporate income and expenses are not included in the results for each operating segment that is reviewed by the CODM. Other information provided to the CODM is measured in a manner consistent with that in the financial information.

Sales to external customers are after elimination of inter-segment sales. Sales between segments are carried out at mutually agreed terms. The revenue from external parties reported to the CODM is measured in a manner consistent with that in the consolidated statement of comprehensive income.

During the Relevant Periods, none of the individual customer account for 10% or more of the Group’s external revenue. As at 31 December 2008, 2009, 2010 and 31 May 2011, substantially all of the Group’s assets, liabilities and capital expenditure are located or utilized in the PRC.

		For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	2008	2008

								Reportable
				Confectionary		Other		segments
	Jelly products			products		products		Total

	RMB’000			RMB’000		RMB’000		RMB’000
Revenue
Sales to external customers	595,627			107,005		18,508		721,140
Cost of sales	(345,279)			(79,462)		(13,686)		(438,427)

Gross profit	250,348				27,543	4,822		282,713

Results of reportable segments	153,193				12,444	2,241		167,878


A reconciliation of results of reportable segments to profit for the year		is	as follows:
Results of reportable segments								167,878
Corporate income								4,241
Corporate expenses								(64,887)

Operating profit								107,232
Finance costs								(2,040)
Share of loss of an associated company								(2,593)
Share of loss of a jointly controlled entity								(1,731)
Provision for impairment of investment
in a jointly controlled entity								(5,000)

Profit before income tax								95,868
Income tax expense								(27,237)

Profit for the year								68,631

Amortization of land use rights	1,628				–		–	1,628

Depreciation of property, plant and equipment	28,683				–		29	28,712

Inventories written-off		–			–		–	–

– I-21 –

APPENDIX I

ACCOUNTANT’S REPORT

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	2009	2009
	Jelly products		Confectionary products			Other products			Reportable segments Total
	RMB’000		RMB’000			RMB’000			RMB’000
Revenue
Sales to external customers	669,609			73,563		28,188			771,360
Cost of sales	(416,288)		(46,526)			(20,096)			(482,910)
Gross profit	253,321			27,037		8,092			288,450
Results of reportable segments	135,391			15,912		4,009			155,312


A reconciliation of results of reportable segments to profit for the year is		as follows:
Results of reportable segments									155,312
Corporate income									6,620
Corporate expenses									(51,832)
Operating profit									110,100
Finance costs									(3,014)
Share of loss of an associated company									(4,145)
Provision for impairment of investment in an associated company									(5,128)
Provision for impairment of loans to an associated company									(1,999)
Share of loss of a jointly controlled entity									(1,632)
Profit before income tax									94,182
Income tax expense									(40,694)
Profit for the year									53,488
Amortization of land use rights	2,367				–			–	2,367
Depreciation of property, plant and equipment	30,648				–		330		30,978
Inventories written-off	19,348				–			–	19,348

		For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	2010	2010

								Reportable
				Confectionary		Other		segments
	Jelly products			products		products		Total

	RMB’000			RMB’000		RMB’000		RMB’000
Revenue
Sales to external customers	775,815			106,115		49,750		931,680
Cost of sales	(477,199)			(73,636)		(38,847)		(589,682)

Gross profit	298,616				32,479	10,903		341,998

Results of reportable segments	183,192				20,580	3,436		207,208


A reconciliation of results of reportable segments to profit for the year		is	as follows:
Results of reportable segments								207,208
Corporate income								4,493
Corporate expenses								(45,460)

Operating profit								166,241
Finance costs								(3,518)
Provision for impairment of loans
to an associated company								(1,778)
Share of loss of a jointly controlled entity								(432)
Gain on disposal of investment
in a jointly controlled entity								344

Profit before income tax								160,857
Income tax expense								(13,019)

Profit for the year								147,838
Amortization of land use rights	2,380				–		–	2,380

Depreciation of property, plant and equipment	36,367				–	1,280		37,647

Inventories written-off		–			–		–	–

– I-22 –

APPENDIX I

ACCOUNTANT’S REPORT

For the five months ended 31 May 2010 (Unaudited)

						Reportable
			Confectionary	Other		segments
	Jelly products		products	products		Total

	RMB’000		RMB’000	RMB’000		RMB’000
Revenue
Sales to external customers	356,756		40,100	17,563		414,419
Cost of sales	(221,044)		(27,479)	(13,732)		(262,255)

Gross profit	135,712		12,621	3,831		152,164

Results of reportable segments	80,409		7,479	1,693		89,581


A reconciliation of results of reportable segments to profit for the period		is	as follows:
Results of reportable segments						89,581
Corporate income						1,665
Corporate expenses						(15,978)

Operating profit						75,268
Finance costs						(1,386)
Provision for impairment of loans to an associated
company						(1,778)
Share of loss of a jointly controlled entity						(432)

Profit before income tax						71,672
Income tax expense						(13,076)

Profit for the period						58,596
Amortization of land use rights	992		–		–	992

Depreciation of property, plant and equipment	12,884		–		349	13,233

Inventories written-off	–		–		–	–

	For the five months	For the five months	For the five months	ended 31 May	ended 31 May	2011	2011

							Reportable
			Confectionary	Other			segments
	Jelly products		products	products			Total

	RMB’000		RMB’000	RMB’000			RMB’000
Revenue
Sales to external customers	503,327		62,127	41,990			607,444
Cost of sales	(294,103)		(36,523)	(29,489)			(360,115)

Gross profit	209,224		25,604	12,501			247,329

Results of reportable segments	143,790		19,063	8,082			170,935


A reconciliation of results of reportable segments to profit for the period		is	as follows:
Results of reportable segments							170,935
Corporate income							1,177
Corporate expenses							(24,884)

Operating profit							147,228
Finance costs							(3,316)

Profit before income tax							143,912
Income tax expense							(28,334)

Profit for the period							115,578
Amortization of land use rights	1,226		–			–	1,226

Depreciation of property, plant and equipment	17,944		–		714		18,658

Inventories written-off	–		–			–	–

– I-23 –

APPENDIX I

ACCOUNTANT’S REPORT

7 OTHER INCOME

								For the	five	months ended	months ended
	For the	year ended		31	December				31	May

	2008		2009			2010		2010			2011

	RMB’000		RMB’000			RMB’000		RMB’000			RMB’000
								(Unaudited)
Rental income	2,371		2,288			1,043			504		365
Interest income on bank deposits	1,117			477			530		131		195

	3,488		2,765			1,573			635		560

8 EXPENSES BY NATURE

				For the five	months ended	months ended
	For the	year ended 31 December		31	May

	2008	2009	2010	2010		2011

	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000
				(Unaudited)
Purchases of raw materials, finished goods
and consumables	420,306	405,448	534,142	198,032		325,919
Changes in inventories of raw materials
and finished goods	(25,230)	(3,339)	(15,363)	34,620		(1,700)
Inventories written-off (note)	–	19,348	–	–		–
Advertising and promotion expenses	71,119	81,572	77,675	36,818		44,227
Employee benefit expenses (including
directors’ emoluments)
(Note 10)	56,849	63,684	73,043	28,610		35,724
Freight and transportation expenses	23,870	32,311	35,681	17,104		20,632
Depreciation of property, plant and
equipment (Note 16)	28,712	30,978	37,647	13,233		18,658
Amortization of land use rights (Note 15)	1,628	2,367	2,380	992		1,226
Operating leases rentals	1,373	346	345	147		32
Auditors’ remuneration	1,583	1,828	1,800	750		750
Other expenses	26,802	29,765	21,976	10,218		14,852

Total cost of sales, selling and distribution
and administrative expenses	607,012	664,308	769,326	340,524		460,320

Note: During the year ended 31 December 2009, the Group has written off inventories of RMB19,348,000 as a result of the new Food Safety Law implemented by the PRC Government in 2009.

9 OTHER (LOSSES)/GAINS, NET

						For the	five	months ended	months ended
	For the	year ended		31 December			31	May

	2008		2009		2010	2010			2011

	RMB’000		RMB’000		RMB’000	RMB’000			RMB’000
						(Unaudited)
Gain on sales of raw materials and scrap
materials	753		3,855		2,920	1,030			617
Loss on disposal of property, plant and
equipment	(10,223)		(1,478)		(375)		(131)		(48)
Exchange losses, net	(914)		(2,094)		(231)		(161)		(1,025)

	(10,384)			283	2,314		738		(456)

– I-24 –

APPENDIX I

ACCOUNTANT’S REPORT

10 EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS’ EMOLUMENTS)

						For the	five	months ended	months ended
	For the	year ended 31		December			31	May

	2008		2009		2010	2010			2011

	RMB’000		RMB’000		RMB’000	RMB’000			RMB’000
						(Unaudited)
Salaries and bonuses	44,615		54,190		67,387	26,387			32,616
Employer’s contribution to defined
contribution plans	5,221		4,637		5,656	2,223			3,108
Share option expense	7,013		–		–		–		–
Cancellation of share options	–		4,857		–		–		–

	56,849		63,684		73,043	28,610			35,724

(a) Directors’ emoluments

The aggregate amounts of emoluments paid and payable to each of the director of the Company by the Group during the Relevant Periods are set out below:

Year ended 31 December 2008:

			Other		Discretionary
Name of directors	Fee	Salaries	benefits		bonuses	Total

	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000
Executive directors
Mr. Zheng Yu Long	–	800		–	1,642	2,442
Mr. Zheng Yu Shuang	–	800		–	1,642	2,442
Mr. Zheng Yu Huan	–	800		–	1,642	2,442
Non-executive director
Mr. Li Hung Kong	600	–		–	–		600
Independent non-executive directors
Dr. Wang Kai Yuen	200	–		161	–		361
Mr. Tan Soo Kiat	200	–		161	–		361
Mr. Lam Ming Yung	200	–		161	–		361

	1,200	2,400		483	4,926	9,009

Year ended 31 December 2009:

			Other		Discretionary
Name of directors	Fee	Salaries	benefits		bonuses	Total

	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000
Executive directors
Mr. Zheng Yu Long	–	800		–	1,479	2,279
Mr. Zheng Yu Shuang	–	800		–	1,479	2,279
Mr. Zheng Yu Huan	–	800		–	1,479	2,279
Non-executive director
Mr. Li Hung Kong	600	–		–	–		600
Independent non-executive directors
Dr. Wang Kai Yuen	200	–		116	–		316
Mr. Tan Soo Kiat	200	–		116	–		316
Mr. Lam Ming Yung	200	–		116	–		316

	1,200	2,400		348	4,437	8,385

– I-25 –

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be

read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack.

APPENDIX I

ACCOUNTANT’S REPORT

Year ended 31 December 2010:

			Other	Discretionary
Name of directors	Fee	Salaries	benefits	bonuses (4)	Total

	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive directors
Mr. Zheng Yu Long	–	800	–	–		800
Mr. Zheng Yu Shuang	–	800	–	–		800
Mr. Zheng Yu Huan	–	800	–	–		800
Non-executive director
Mr. Li Hung Kong	–	–	–	–		–
Independent non-executive directors
Dr. Wang Kai Yuen (1)	117	–	–	–		117
Mr. Tan Soo Kiat (2)	97	–	–	–		97
Mr. Lam Ming Yung (3)	–	–	–	–		–

	214	2,400	–	–	2,614

(1) Resigned on 18 October 2010

(2) Resigned on 31 May 2010

(3) Resigned on 17 November 2010

(4) During the year ended 31 December 2010, the executive directors have waived their entitlement to discretionary bonuses.

Five months ended 31 May 2010 (unaudited):

			Other	Discretionary
Name of directors	Fee	Salaries	benefits	bonuses (4)	Total

	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive directors
Mr. Zheng Yu Long	–	333	–	–		333
Mr. Zheng Yu Shuang	–	333	–	–		333
Mr. Zheng Yu Huan	–	333	–	–		333
Non-executive director
Mr. Li Hung Kong	–	–	–	–		–
Independent non-executive directors
Dr. Wang Kai Yuen (1)	–	–	–	–		–
Mr. Tan Soo Kiat (2)	97	–	–	–		97
Mr. Lam Ming Yung (3)	–	–	–	–		–

	97	999	–	–	1,096

(1) Resigned on 18 October 2010

(2) Resigned on 31 May 2010

(3) Resigned on 17 November 2010

(4) During the five months ended 31 May 2010, the executive directors have waived their entitlement to discretionary bonuses.

– I-26 –

APPENDIX I

ACCOUNTANT’S REPORT

Five months ended 31 May 2011:

			Other	Discretionary
Name of directors	Fee	Salaries	benefits	bonuses (3)	Total

	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive directors
Mr. Zheng Yu Long	–	333	–	–	333
Mr. Zheng Yu Shuang	–	333	–	–	333
Mr. Zheng Yu Huan	–	333	–	–	333
Non-executive directors
Mr. Li Hung Kong	–	–	–	–	–
Mr. Li Gang (1)	–	–	–	–	–
Independent non-executive directors
Mr. Li Zhi Hai (2)	–	–	–	–	–
Ms. Sun Kam Ching (2)	–	–	–	–	–
Mr. Chung Yau Tong (2)	–	–	–	–	–

	–	999	–	–	999

(1) Appointed on 24 October 2011

(2) Appointed on 23 September 2011

(3) During the five months ended 31 May 2011, the executive directors have waived their entitlement to discretionary bonuses.

(b) Five highest paid individuals

The five highest paid individuals include 4, 4, 3, 3 and 3 directors for each of the year ended 31 December 2008, 2009 and 2010, and for the five months ended 31 May 2010 and 2011, respectively, whose emoluments are included in the above disclosures. The emoluments of the remaining 1, 1, 2, 2 and 2 individuals for the years ended 31 December 2008, 2009 and 2010, and for the five months ended 31 May 2010 and 2011, respectively, are as follows:

							For the	five	months ended	months ended
	For the	year ended		31	December			31	May

	2008		2009			2010	2010			2011

	RMB’000		RMB’000			RMB’000	RMB’000			RMB’000
							(Unaudited)
Salaries and bonuses	602			704		944		393		401
Employer’s contribution to defined
contribution plans	10			10		13		5		6
Share option expenses	343			160		–		–		–

	955			874		957		398		407

The emoluments fell within the following bands:

Number of individuals

								For the	five	months ended	months ended
	For	the	year ended		31	December			31	May

	2008			2009			2010	2010			2011

								(Unaudited)
Nil – HK$1,000,000
(equivalent to Nil – RMB830,000)		–			–		2		2		2
HK$1,000,001 – HK$1,500,000 (equivalent
to RMB830,001 – RMB1,245,000)		1			1		–		–		–

(c) During the Relevant Periods, no emoluments have been paid to the directors of the Company or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

– I-27 –

APPENDIX I

ACCOUNTANT’S REPORT

11 FINANCE COSTS

										For the	five	months ended	months ended
					For the	year ended 31		December			31	May

					2008		2009		2010	2010			2011

					RMB’000		RMB’000		RMB’000	RMB’000			RMB’000
										(Unaudited)
Interest	expenses	on	bank	borrowings	2,040		3,014		3,518	1,386			3,316

12 INCOME TAX EXPENSE

					For the five	months ended	months ended
	For the	year ended 31 December			31	May

	2008		2009	2010	2010		2011

	RMB’000		RMB’000	RMB’000	RMB’000		RMB’000
					(Unaudited)
Current income tax – PRC	23,291		42,560	32,007	10,667		29,819
Overprovision in prior year	–		–	(24,492)	(3,039)		–
Deferred income tax (Note 21)	3,946		(1,866)	5,504	5,448		(1,485)

	27,237		40,694	13,019	13,076		28,334

During the Relevant Periods, the Group did not have any assessable income in Bermuda, BVI and Hong Kong.

The subsidiaries in the PRC are subject to income tax rate of 25% on their taxable profit during the Relevant Periods. Certain of the subsidiaries were granted full exemption from the PRC income tax for two years from their first profit-making year of operation, and followed by a 50% reduction in income tax rate for the next three years.

A subsidiary in Fujian province, PRC, was designated an New and Hi-Tech Enterprises (“高新技術企業”) in October 2009 and has thus enjoyed a preferential income tax rate of 15% since 2010 and subject to review and renewal every three years.

In addition, pursuant to Article 9 of Circular Caishui [2009] No.59 issued on 30 April 2009, which became effective retrospectively on 1 January 2008, a subsidiary under the full-exemption tax holiday period in 2008 and 2009 was subject to an income tax rate of 25% in 2008 and 2009. Consequently, a provision for income tax liability amounting to RMB 21,400,000 was made in the year ended 31 December 2009. In 2010, the directors have sought clarification from the relevant PRC tax authorities on the tax position of the subsidiary and determined that the subsidiary can continue to enjoy the tax holiday till its expiry in 2012. As such, the subsidiary has written back the tax provision in 2010.

– I-28 –

APPENDIX I

ACCOUNTANT’S REPORT

The income tax expense on profit differs from the amount that would arise using the PRC applicable income tax rate is as explained below:

					For the five	months ended	months ended
	For the	year ended 31 December			31	May

	2008		2009	2010	2010		2011

	RMB’000		RMB’000	RMB’000	RMB’000		RMB’000
					(Unaudited)
Profit before income tax	95,868		94,182	160,857	71,672		143,912

Tax calculated at PRC applicable income
tax rate	23,967		23,546	40,214	17,918		35,978
Effects of:
– Tax concession	(9,875)		(424)	(21,606)	(8,254)		(12,840)
– Different tax rates	2,187		2,834	669	469		605
– Income not subject to tax	(212)		–	(41)	–		(364)
– Expenses not deductible for tax
purposes	7,995		11,724	1,850	1,346		1,451
– Withholding tax on unremitted profits
(note)	3,104		3,359	17,193	3,840		3,504
– Overprovision in prior year	–		–	(24,492)	(3,039)		–
– Others	71		(345)	(768)	796		–

Tax charge	27,237		40,694	13,019	13,076		28,334

Note: According to the relevant PRC tax rules and regulations, dividend distribution out of profit earned by foreign-invested enterprises in the PRC after 1 January 2008 is subject to PRC corporate withholding income tax at tax rate of 5% to 10%. During the Relevant Periods, withholding income tax was provided for the dividend distributed and the portion of the retained profits which will be distributed in the foreseeable future for the Group’s PRC subsidiaries at a tax rate of 10%.

13 EARNINGS PER SHARE

								For the	five	months ended	months ended
	For the		year ended 31			December			31	May

	2008			2009			2010	2010			2011

								(Unaudited)
Net profit attributable to the equity holders
of Company (RMB’000)	68,631			53,488			147,838	58,596			115,578

Weighted average number of ordinary
shares outstanding for basic earnings per
share (’000)	503,182			503,182			503,182	503,182			523,176
Adjustment for share options (’000)		–			–		–		–		–

Weighted average number of ordinary
shares outstanding for diluted earnings
per share (’000)	503,182			503,182			503,182	503,182			523,176

Basic earnings per share (RMB per share)		0.14			0.11		0.29		0.12		0.22

Diluted earnings per share (RMB per share)		0.14			0.11		0.29		0.12		0.22

– I-29 –

APPENDIX I

ACCOUNTANT’S REPORT

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to the Company’s equity holders by the weighted average number of ordinary shares outstanding during the year/period.

(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted for the effects of all dilutive potential ordinary shares. In 2008 and 2009, the Company had one category of dilutive potential ordinary shares: share options that were anti-dilutive. On 27 August 2009, all unexercised outstanding share options were cancelled. Consequently, the Company has no potential dilutive ordinary shares as at 31 December 2009 and 2010 and 31 May 2010 and 2011.

The basic earnings per share and diluted earnings per share as presented on the consolidated statements of comprehensive income have not taken into account the [●].

14 DIVIDENDS

						For the	five	months ended	months ended
	For the	year ended 31		December			31	May

	2008		2009		2010	2010			2011

	RMB’000		RMB’000		RMB’000	RMB’000			RMB’000
						(Unaudited)
Final dividend, paid, of
(2008: RMB0.020; 2009: Nil; 2010: Nil;
2011: Nil) per share	10,064		–		–		–		–

Interim dividends, paid, of
(2008: Nil; 2009: Nil; 2010: RMB0.152;
2011: RMB0.079) per share	–		–		76,650		–		40,000

15 LAND USE RIGHTS

			The	Group

		As at 31 December			As at 31 May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Cost
At 1 January	63,373		117,373	119,020	119,020
Additions	54,000		1,647	–	46,800

At 31 December/31 May	117,373		119,020	119,020	165,820
	- - - - - - - - - - -		- - - - - - - - - - -	- - - - - - - - - - -	- - - - - - - - - - -
Accumulated amortization
At 1 January	2,045		3,673	6,040	8,420
Amortization	1,628		2,367	2,380	1,226

At 31 December/31 May	3,673 -----------		6,040 -----------	8,420 -----------	9,646 -----------

Net book amount
At 31 December/31 May	113,700		112,980	110,600	156,174

The land use rights of the Group are outside Hong Kong and held on leases with remaining periods of between 40 to 50 years.

As at 31 December 2008 and 2009, the legal title of certain land use rights in the PRC with net book amounts of approximately RMB13,591,000 and RMB13,314,000, respectively, had not been transferred to the Group because certain administrative procedures with the local government authorities have not been completed. The directors are of the opinion that as payment for the land use rights has been made and the Group is enjoying the use of the land, the risks and rewards of the land use rights have been transferred to the Group. As at 31 December 2010 and 31 May 2011, the legal title of the above-mentioned land use rights were transferred to the Group.

– I-30 –

APPENDIX I

ACCOUNTANT’S REPORT

16 PROPERTY, PLANT AND EQUIPMENT

The Group

		Leasehold	Leasehold	Plant and		Construction-	Construction-
	Buildings	improvements		equipment	Motor vehicles	in-progress		Total

	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000		RMB’000
Year ended 31 December 2008
Cost
At 1 January 2008	226,568		2,225	147,981	9,837	12,594		399,205
Additions	–		–	76,577	232	14,117		90,926
Disposals	–		(2,225)	(27,338)	(680)		–	(30,243)
Transfer to/(from)	18,235		–	–	–	(18,235)		–

At 31 December 2008	244,803		–	197,220	9,389	8,476		459,888
	- - - - - - - - -	- - - -	- - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - -	-	- - - - - - - - -
Accumulated depreciation
At 1 January 2008	6,950		1,239	36,228	3,699		–	48,116
Depreciation charge	10,990		986	15,025	1,711		–	28,712
Disposals	–		(2,225)	(13,862)	(530)		–	(16,617)

At 31 December 2008	17,940 ---------	----	– -----	37,391 ---------	4,880 ---------	--------	– -	60,211 ---------

Net book value
At 31 December 2008	226,863		–	159,829	4,509	8,476		399,677

Year ended 31 December 2009
Cost
At 1 January 2009	244,803		–	197,220	9,389	8,476		459,888
Additions	–		–	24,111	382	89,008		113,501
Disposals	–		–	(5,391)	–		–	(5,391)

At 31 December 2009	244,803		–	215,940	9,771	97,484		567,998
	- - - - - - - - -	- - - -	- - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - -	-	- - - - - - - - -
Accumulated depreciation
At 1 January 2009	17,940		–	37,391	4,880		–	60,211
Depreciation charge	10,548		–	19,143	1,287		–	30,978
Disposals	–		–	(1,476)	–		–	(1,476)

At 31 December 2009	28,488 ---------	----	– -----	55,058 ---------	6,167 ---------	--------	– -	89,713 ---------

Net book value
At 31 December 2009	216,315		–	160,882	3,604	97,484		478,285

Year ended 31 December 2010
Cost
At 1 January 2010	244,803		–	215,940	9,771	97,484		567,998
Additions	1,323		–	82,371	235	27,523		111,452
Disposals	–		–	(850)	–		–	(850)
Transfer to/(from)	125,007		–	–	–	(125,007)		–

At 31 December 2010	371,133		–	297,461	10,006		–	678,600
	- - - - - - - - -	- - - -	- - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - -	-	- - - - - - - - -
Accumulated depreciation
At 1 January 2010	28,488		–	55,058	6,167		–	89,713
Depreciation charge	13,829		–	22,586	1,232		–	37,647
Disposals	–		–	(435)	–		–	(435)

At 31 December 2010	42,317 ---------	----	– -----	77,209 ---------	7,399 ---------	--------	– -	126,925 ---------

Net book value
At 31 December 2010	328,816		–	220,252	2,607		–	551,675

– I-31 –

APPENDIX I

ACCOUNTANT’S REPORT

		Leasehold	Plant and		Construction-	Construction-
	Buildings	improvements	equipment	Motor vehicles	in-progress		Total

	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000
Five months ended 31 May 2011
Cost
At 1 January 2011	371,133	–	297,461	10,006		–	678,600
Additions	–	–	8,964	180	10,484		19,628
Disposals	–	–	(481)	–		–		(481)

At 31 May 2011	371,133	–	305,944	10,186	10,484		697,747
	- - - - - - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - - -	- - - - - - - -	-	- - - - - -	- - -
Accumulated depreciation
At 1 January 2011	42,317	–	77,209	7,399		–	126,925
Depreciation charge	6,978	–	11,233	447		–	18,658
Disposals	–	–	(433)	–		–		(433)

At 31 May 2011	49,295 ---------	– ---------	88,009 ---------	7,846 ---------	--------	– -	145,150 ---------

Net book value
At 31 May 2011	321,838	–	217,935	2,340	10,484		552,597

17 DEPOSITS FOR PROPERTY, PLANT AND EQUIPMENT

The balance represents deposits paid for acquisition of machineries and equipment, and construction of production facilities of PRC subsidiaries.

18 INTERESTS IN SUBSIDIARIES

(a) Investments in subsidiaries

							The Company	The Company

				As at 31		December						As	at		31 May

		2008			2009			2010						2011

		RMB’000			RMB’000			RMB’000				RMB’000
Unlisted equity investments, at cost		134,206				134,206			134,206						134,206


								Equity holding

	Country of business/						As	at 31	December						As at 31 May
Name of companies	incorporation	Principal	activities				2008	2009		2010					2011

Directly held
Timeluck International Limited	BVI	Investment		holding			100%	100%			100%				100%
(“Timeluck”) (i)
Labixiaoxin International	BVI	Investment		holding			100%	100%			100%				100%
Company Limited
(“LBXX Intl”) (i)
Labixiaoxin Holdings Company	Hong Kong	Investment		holding			100%	100%			100%				100%
Limited (“LBXX Hldgs”) (ii)
Labixiaoxin Investments Company	Hong Kong	Investment		holding			100%	100%			100%				100%
Limited (“LBXX Inv”) (iii)

– I-32 –

APPENDIX I

ACCOUNTANT’S REPORT

				Equity	holding

	Country of business/		As	at 31 December		As at 31 May
Name of companies	incorporation	Principal activities	2008	2009	2010	2011

Indirectly held
蠟筆小新(福建)食品工業有限公司	PRC#	Manufacture and	100%	100%	100%	100%
(Labixiaoxin (Fujian) Food		sale of food and
Stuff Industry Co., Ltd)		beverages
(“LBXX Fujian”) (iv)		products
Wax Crayon Xiao Xin (Tianjin)	PRC#	Manufacture and	100%	–	–	–
Food Stuff Industry Co., Ltd.		sale of food and
(“LBXX Xiqing”) (v)		beverages
		products
蠟筆小新(安徽)有限公司	PRC#	Manufacture and	–	–	100%	100%
(Labixiaoxin (Anhui) Co. Ltd.)		sale of food and
(iii)		beverages
		products
蠟筆小新(天津)有限公司	PRC#	Manufacture and	100%	100%	100%	100%
(Labixiaoxin (Tianjin) Co. Ltd.)		sale of food and
(“LBXX Tianjin”) (vi)		beverages
		products
蠟筆小新(四川)有限公司	PRC#	Manufacture and	100%	100%	100%	100%
(Labixiaoxin (Sichuan) Co.		sale of food and
Ltd.) (“LBXX Sichuan”) (vii)		beverages
		products

(i) No audited financial statements were issued for these companies as there were no requirements, statutory or otherwise, to issue audited financial statements.
(ii) CC Alliance CPA & Co. were the statutory auditors for the year ended 31 December 2008. No audited financial statements were issued for the company for years ended 31 December 2009 and 2010.
(iii) No statutory audit since incorporation.
(iv) 廈門泓正會計師事務所有限公司 (Xiamen Hongzheng Certified Public Accountants) were the statutory auditors for the year ended 31 December 2008 and 泉州名城有限責任會計師事務所 (Quanzhou Mingcheng Certified Public Accountants Co. Ltd) were the statutory auditors for the years ended 31 December 2009 and 2010.
(v) Pursuant to the directors resolutions effective on 2008, LBXX Xiqing merged with LBXX Tianjin. The company was de-registered during the year ended 31 December 2009. No audited financial statements were issued for the company for year ended 31 December 2008.
(vi) 天津廣信有限責任會計師事務所 (Tianjin Guangxin Certified Public Accountants Co., Ltd) were the statutory auditors for the years ended 31 December 2008, 2009 and 2010.
(vii) 四川昌明會計師事務所有限責任公司 (Sichuan Changming Certified Public Accountants Co. Ltd) were the statutory auditors for the years ended 31 December 2009 and 2010. No audited financial statements were issued for the company for year ended 31 December 2008.
The companies are established as wholly foreign-owned enterprises in the PRC.

– I-33 –

APPENDIX I

ACCOUNTANT’S REPORT

(b) Loans to/amount due from subsidiaries

			The Company	The Company

		As at 31 December			As at 31 May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Current
Amount due from a subsidiary
– dividend receivable	10,000		20,000	–	–

Non-current
Loans to subsidiaries	246,549		246,857	256,792	357,537
Provision for impairment	-		(2,425)	(4,836)	(4,836)

	246,549		244,432	251,956	352,701

The amount due from a subsidiary approximates its fair value.

Loans to subsidiaries are non-trade in nature and are stated at cost. These loans are unsecured, interest-free and have no fixed terms of repayment. These loans are regarded as equity contributions to the subsidiaries.

19 INTERESTS IN AN ASSOCIATED COMPANY

			The	Group

					For the five
					months ended
	For	the	year ended 31 December		31 May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Investment in an associated company
Beginning of the year/period	11,866		9,273	–	–
Share of losses	(2,593)		(4,145)	–	–
Provision for impairment (note)		–	(5,128)	–	–

End of the year/period	9,273		–	–	–

Loans to an associated company
Beginning of the year/period		–	–	1,778	–
Loans to the associated company		–	3,777	–	–
Provision for impairment (note)		–	(1,999)	(1,778)	–

End of the year/period		–	1,778	–	–

The summarized Group’s share of financial
information of the associated company:
– Assets	11,609		11,548	10,791	10,791
– Liabilities	2,336		6,420	6,153	6,153
– Revenue	724		1,601	–	–
– Net loss	2,593		4,145	–	–

– I-34 –

APPENDIX I

ACCOUNTANT’S REPORT

% of attributable interest held indirectly

	Place of	Particulars of issued share	As at	31 December	31 December	As at 31 May
Name	incorporation	capital	2008	2009	2010	2011	Principal activities

Tianjin Super	PRC	US$4,999,990	32%	32%	32%	32%	Manufacturing and
Lifestyle Food							distribution of
Development							snack foods
Company Ltd.							in the PRC

Note: As at 31 December 2009, the Group’s total investments in the associated company amounted to RMB5,128,000 before impairment allowance. The directors were of the view that the associated company had been incurring losses and its profitability was not expected to significantly improve in the foreseeable future, management assessed the recoverable amount of the Group’s investment in the associated company at its estimated fair value less cost to sell by referencing to price in sales contracts of arm’s length transactions. Impairment allowance of RMB5,128,000 was made on the investment in the associated company in 2009. As at 31 December 2009 and 2010, management further assessed the recoverability of the Group’s loans to the associated company and determined that RMB1,999,000 and RMB1,778,000, respectively, were impaired.

Loans to the associated company were unsecured, interest free and had no fixed terms of repayment.

20 INTERESTS IN A JOINTLY CONTROLLED ENTITY

The Group

						For the five
						months ended
	For the	year ended 31		December		31 May

	2008		2009		2010	2011

	RMB’000		RMB’000		RMB’000	RMB’000
Beginning of the year/period	7,649		4,255		2,623	–
Capital injection	3,337			–	–	–
Share of losses	(1,731)		(1,632)		(432)	–
Provision for impairment (note (a))	(5,000)			–	–	–
Disposal (note (b))	–			–	(2,191)	–

End of the year/period	4,255		2,623		–	–

The summarized Group’s share of financial
information of the jointly controlled entity:
– Assets	13,070		11,015		–	–
– Liabilities	3,861		3,438		–	–
– Revenue	4,504		1,995		–	–
– Net loss	1,731		1,632		–	–

– I-35 –

APPENDIX I

ACCOUNTANT’S REPORT

% of attributable interest held indirectly

	Place of	Particulars of issued share	As at	31 December	31 December	As at 31 May
Name	incorporation	capital	2008	2009	2010	2011	Principal activities

Coco (Fujian) Foods	PRC	US$2,999,842	50%	50%	–	–	Manufacturing and
Company Ltd.							distribution of
							snack food in the
							PRC

Note:

(a) As at 31 December 2008, the Group’s investment in the jointly controlled entity amounted to RMB9,255,000 before impairment allowance. With the view that the jointly controlled entity had been incurring losses and its profitability was not expected to significantly improve in foreseeable future, management assessed the recoverable amount of the investment in the jointly controlled entity at its estimated fair value less cost to sell by referencing to price in sales contracts of arm’s length transactions. An impairment allowance of RMB5 million was recognized on the investment in a jointly controlled entity in 2008.
(b) In 2010, the jointly controlled entity was disposed to a third party for a consideration of RMB2,535,000 and a gain of RMB344,000 was recognized in the consolidated statement of comprehensive income.

21 DEFERRED INCOME TAX

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority.

Movement in deferred income tax account is as follows:

					The Group

						For the	five	months ended
	For the	year ended		31 December			31	May

	2008		2009		2010	2010			2011

	RMB’000		RMB’000		RMB’000	RMB’000			RMB’000
						(Unaudited)
Deferred income tax assets
Beginning of the year/period	3,357		2,515		3,329	3,329			2,784
(Charged)/credited to the statement
of comprehensive income (Note 12)	(842)			814	(545)	(1,706)			544

End of the year/period	2,515		3,329		2,784	1,623			3,328

Deferred income tax liabilities
Beginning of the year/period	–		3,104		2,052	2,052			7,011
Charged/(credited) to the statement
of comprehensive income (Note 12)	3,104		(1,052)		4,959	3,742			(941)

End of the year/period	3,104		2,052		7,011	5,794			6,070

At 31 December 2008, 2009 and 2010 and 31 May 2011, deferred income tax assets are recognized for accrued sales rebates, to the extent that realization of the related tax benefits through future taxable profits is probable which are calculated in full on temporary differences under the liability method using principal tax rates ranging from 12.5% to 25%.

– I-36 –

APPENDIX I

ACCOUNTANT’S REPORT

Deferred income tax liabilities represented deferred tax effect on the withholding tax payable on the undistributed profits of certain PRC subsidiaries. The amounts are shown on the consolidated balance sheet as follows:

			The	Group

		As at 31 December			As at 31 May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Deferred income tax assets
– to be recovered within one year	2,515		3,329	2,784	3,328

Deferred income tax liabilities
– to be settled within one year	3,104		2,052	4,444	6,070
– to be settled after one year	–		–	2,567	–

	3,104		2,052	7,011	6,070

As at 31 December 2008, 2009 and 2010 and 31 May 2011, there are temporary differences relating to the undistributed profits of certain Group’s PRC subsidiaries amounted to RMB109,611,000, RMB161,364,000, RMB178,753,000 and RMB263,649,000, respectively. Deferred tax liabilities of RMB7,673,000, RMB11,295,000, RMB10,865,000 and RMB18,875,000, respectively, have not been recognized in respect of the tax that would be payable on the distribution of these retained profits, as the Company controls the dividend policy of these PRC subsidiaries and the directors have determined that these profits are not likely to be distributed in the foreseeable future.

22 INVENTORIES

		The	Group

		As at 31 December		As at 31 May

	2008	2009	2010	2011

	RMB’000	RMB’000	RMB’000	RMB’000
Raw materials	38,003	36,302	51,348	64,818
Finished goods	39,503	25,195	25,512	13,742

	77,506	61,497	76,860	78,560

The cost of inventories recognized as expense and included in “cost of sales” amounted to RMB395,076,000, RMB421,457,000, RMB518,779,000, RMB232,652,000 and RMB324,219,000 for the years ended 31 December 2008, 2009 and 2010 and the five months ended 31 May 2010 and 2011, respectively.

23 TRADE RECEIVABLES

The Group’s sales are generally on credit term ranging from 30 to 90 days. As at the balance sheet dates, the aging analysis of trade receivables, based on invoice date, is as follows:

		The	Group

		As at 31 December		As at 31 May

	2008	2009	2010	2011

	RMB’000	RMB’000	RMB’000	RMB’000
Less than 30 days	53,926	83,715	133,161	123,129
31 days – 90 days	4,902	22,857	14,454	87,752

	58,828	106,572	147,615	210,881

For the trade receivables that are not past due nor impaired, the directors were of the opinion that no impairment provision was required as those customers did not have recent default history.

– I-37 –

APPENDIX I

ACCOUNTANT’S REPORT

As at 31 December 2008, 2009 and 2010 and 31 May 2011, trade receivables of RMB538,000, RMB Nil, RMB Nil and RMB Nil, respectively, were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The Group does not hold any collateral as security over these debtors. The ageing analysis of these receivables is as follows:

												The	Group

											As	at 31 December		As at 31 May

										2008		2009	2010	2011

										RMB’000		RMB’000	RMB’000	RMB’000
Past	due	by	less	than	3	months	but	not	impaired	538		–	–	–

During the Relevant Periods, no trade receivables were impaired. As at 31 December 2008, 2009 and 2010 and 31 May 2011, no trade receivables are considered to be impaired.

The carrying amounts of trade receivables approximate their fair values.

24 PREPAYMENTS AND OTHER RECEIVABLES

				The Group	The Group	The Group							The	Company	Company	Company

								As at										As at
	As	at		31 December				31 May		As	at		31 December					31 May

	2008			2009		2010		2011		2008			2009			2010		2011

	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000			RMB’000			RMB’000		RMB’000
Prepayment for purchase
of raw materials	6,654			–		12,695		24,578		–				–		–		–
Prepayment for advertising
expenses	–			6,278		7,200		2,804		–				–		–		–
Other prepayments	1,176			746		75		5,262		75				75		75		5,262
Value-added tax
recoverable	–			–		10,091		4,568		–				–		–		–
Amount due from a jointly
controlled entity
(non-trade)	949			1,829		–		–		–				–		–		–
Amount due from an
associated company
(non-trade)	1,355			346		–		–		–				–		–		–
Sundry assets	3,142			1,501		1,907		1,859		–				–		–		–

	13,276			10,700		31,968		39,071		75				75		75		5,262

The carrying amounts of prepayments and other receivables approximate their fair values.

The non-trade amounts due from a jointly controlled entity and an associated company are unsecured, interest free and have no fixed terms of repayment.

25 PLEDGED BANK DEPOSITS

As at 31 December 2008, 2009 and 2010 and 31 May 2011, short-term bank deposits of the Group were with initial terms of over three months and pledged to banks as security for bills payable (Note 27).

As at 31 December 2008, 2009 and 2010 and 31 May 2011, weighted average effective interest rates of short-term bank deposits are 0.36%, 0.46%, 0.36% and 0.50% respectively.

The carrying amounts of pledged bank deposits approximate their fair values.

– I-38 –

APPENDIX I

ACCOUNTANT’S REPORT

26 CASH AND CASH EQUIVALENTS

				The	Group					The Company	The Company	The Company

						As at							As at
		As	at 31 December			31 May		As	at 31 December				31 May

		2008		2009	2010	2011	2008			2009		2010	2011

		RMB’000		RMB’000	RMB’000	RMB’000	RMB’000			RMB’000		RMB’000	RMB’000
Cash	at bank and
on	hand	34,311		10,879	18,236	146,005		80			61	924	29,872

The carrying amounts of cash and cash equivalents approximate their fair values.

27 TRADE AND OTHER PAYABLES

		The Group	The Group	The Group						The	Company	Company	Company

					As at										As at
	As	at 31 December			31 May		As	at		31 December					31 May

	2008	2009		2010	2011		2008			2009			2010		2011

	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000			RMB’000			RMB’000		RMB’000
Trade payables
– third parties	92,547	87,094		114,509	128,622		–				–		–			–
– a jointly controlled entity	4,019	–		–	–		–				–		–			–

	96,566	87,094		114,509	128,622		–				–		–			–
Bills payable	34,950	31,710		67,548	83,563		–				–		–			–

Trade and bills payables	131,516	118,804		182,057	212,185		–				–		–			–
Amount due to an associated
company (non-trade)	–	272		–	–		–				–		–			–
Accrued sales rebates	15,089	16,496		17,676	21,112		–				–		–			–
Other accrued expenses	13,172	14,109		17,749	15,640		1,931			3,668			1,800		4,722
Directors’ fees and emoluments
payable	7,327	7,875		4,282	4,904		7,327			7,875			4,282		4,904
Sundry creditors	4,421	5,364		7,920	3,920		–				–		–			–

	171,525	162,920		229,684	257,761		9,258			11,543			6,082		9,626

The credit periods granted by suppliers generally range from 30 to 60 days. As at the respective balance sheet dates, the aging analysis of trade payables is as follows:

The Group

		As at 31 December		As at 31 May

	2008	2009	2010	2011

	RMB’000	RMB’000	RMB’000	RMB’000
Less than 30 days	62,559	61,134	92,329	104,481
31 days – 90 days	33,207	25,283	20,624	23,109
Over 90 days	800	677	1,556	1,032

	96,566	87,094	114,509	128,622

Bills payable of the Group amounting to RMB34,950,000, RMB31,710,000, RMB67,548,000 and RMB83,563,000 as at 31 December 2008, 2009 and 2010 and 31 May 2011, respectively, were secured by short-term bank deposits of RMB10,485,000, RMB16,653,000, RMB27,904,000 and RMB29,073,000, respectively (Note 25).

As at 31 December 2008, 2009 and 2010 and 31 May 2011, the bills payable were with average maturity period of within six months.

The carrying amounts of trade and other payables approximate their fair values.

– I-39 –

APPENDIX I

ACCOUNTANT’S REPORT

28 BORROWINGS

					The	Group

				As	at 31 December		As at 31 May

			2008		2009	2010	2011

			RMB’000		RMB’000	RMB’000	RMB’000
Short-term	bank	borrowings	37,500		57,500	92,000	139,000

At 31 December 2008 and 2009, the short-term bank borrowings were secured by corporate guarantee from a third party. At 31 December 2010, the short-term bank borrowings were secured by corporate guarantee from a third party and guaranteed by certain directors and a subsidiary of the Group. The corporate guarantee from the third party and personal guarantees of the directors were released in March 2011.

At 31 December 2008, 2009 and 2010 and 31 May 2011, the weighted average effective interest rates of the short-term bank borrowings were 7.65%, 5.03%, 5.54% and 6.03% per annum respectively.

Certain short-term borrowing contracts of a subsidiary from a bank contain covenant clauses which require the subsidiary to meet certain financial ratios. As at 31 December 2008, 2009 and 2010, the subsidiary did not meet certain of the stipulated financial ratios. Accordingly, the bank was contractually entitled to request early repayment of the outstanding amounts of RMB37,500,000, RMB57,500,000 and RMB43,000,000 respectively. However, the bank did not request for early repayment for the bank borrowings of RMB37,500,000, RMB57,500,000 and RMB43,000,000 as at 31 December 2008, 2009 and 2010, respectively, and these amounts were repaid on their respective maturity dates. Subsequent to 31 December 2010, the subsidiary had obtained a waiver in respect of the aforementioned covenant requirements for the bank borrowings of RMB43,000,000 as at 31 December 2010.

During the five months ended 31 May 2011, the subsidiary has obtained new short-term bank borrowings of RMB32,000,000 from the same bank which also requires the subsidiary to meet certain financial covenants. The subsidiary did not meet one of the stipulated financial ratios during January to May 2011. However, the bank did not request for early repayment for these bank borrowings. Subsequent to 31 May 2011, the subsidiary had obtained waiver in respect of the aforementioned covenant requirements for the bank borrowings of RMB32,000,000 as at 31 May 2011.

In addition, this subsidiary has a short-term bank borrowing from another bank amounting to RMB30,000,000 as at 31 December 2010 and 31 May 2011. The borrowing contract for this short-term borrowing contains certain cross-default clauses. Due to the breach of the aforementioned bank covenants, this bank was also entitled to request early repayment of the outstanding amount of this loan before its maturity. As of the date of this financial information, the loan has been repaid on its maturity date.

The carrying amounts of the short-term bank borrowings approximate their fair values.

29 SHARE CAPITAL AND SHARE PREMIUM

Authorized share capital

The total authorized number of ordinary shares is 1,000,000,000 shares with a par value of US$0.05 per share.

Issued share capital

	Number of
	shares		Amount

				Total share
				capital and
	Issued share		Share	share
	capital	Share capital	premium	premium

		RMB’000	RMB’000	RMB’000
The Company
As at 1 January 2008, 31 December 2008,
2009 and 2010	503,181,600	205,644	151,230	356,874
Issue of new shares	43,754,922	14,412	124,718	139,130

As at 31 May 2011	546,936,522	220,056	275,948	496,004

Pursuant to the directors resolutions passed on 21 March 2011, the Company issued 43,754,922 new shares at par value of US$0.05 each to COFCO Agriculture and Food Investment Limited for an aggregate cash consideration of RMB139,130,000. The amount is credited to share capital and share premium accounts. These shares rank pari passu in all respects with the existing shares.

All issued ordinary shares are fully paid.

– I-40 –

APPENDIX I

ACCOUNTANT’S REPORT

30 SHARE OPTIONS

The Scheme for key management personnel and employees of the Group was approved by members of the Company at an Extraordinary General Meeting on 28 April 2006. The Scheme was subsequently modified and was approved at a Special General Meeting on 20 April 2007. The Scheme provides an opportunity for employees of the Group, except for the Company’s controlling shareholders and their associates, to participate in the equity of the Company so as to motivate them to extend greater dedication, loyalty and higher standards of performance. The Company’s directors, except for independent directors, are not eligible to participate in the Scheme. The Scheme became operative on 15 June 2006.

On 15 June 2006 and 17 August 2007, the Company granted 31,600,000 and 29,800,000 share options to the employees pursuant to the Scheme respectively. On 27 August 2009, all unexercised outstanding share options were cancelled at the recommendation of members of the Company’s Employees’ Share Option Scheme Committee (“ESOS”) and RMB4,857,000, representing the amount that otherwise would have been recognized for services received over the remainder of the vesting period, was charged to the statement of comprehensive income in 2009. Consequently, the Company has no outstanding share options as at 31 December 2009 and 2010, and 31 May 2011.

Movements in the number of unissued ordinary shares under the Scheme for the Relevant Periods and the exercise price of the options were as follows:

	Number of unissued ordinary shares under the Scheme	Number of unissued ordinary shares under the Scheme	Number of unissued ordinary shares under the Scheme	Number of unissued ordinary shares under the Scheme	Number of unissued ordinary shares under the Scheme

			At
			31 December		At
	At	Forfeited	2008 and	Cancelled	31 December
	1 January	during the	1 January	during the	2009 and
	2008	year	2009	year	2010

Company
Options granted on 15 June 2006(1)	24,100,000	(3,000,000)	21,100,000	(21,100,000)	–
Options granted on 17 August
2007(2)	29,800,000	–	29,800,000	(29,800,000)	–

	53,900,000	(3,000,000)	50,900,000	(50,900,000)	–

(1) Exercise price of the options was S$0.302. Exercise period was from 15 June 2007 to 14 June 2011.

(2) Exercise price of the options was S$0.403. Exercise period was from 17 August 2008 to 16 August 2012.

The fair value of options granted on 15 June 2006, determined using the Trinomial valuation model, was approximately S$2,537,000 (approximately RMB12,685,000). The significant inputs into the model were share price of S$0.305, at the grant date, exercise price shown above, the option life shown above, risk-free interest rate of 2.96% – 3.25%, expected volatility of 50% and expected forfeiture rate of 10%.

The fair value of options granted on 17 August 2007, determined using the Trinomial valuation model, was approximately S$2,059,000 (approximately RMB10,294,000). The significant inputs into the model were share price of S$0.385, at the grant date, exercise price shown above, the option life shown above, risk-free interest rate of 2.30% – 2.56%, expected volatility of 45% and expected forfeiture rate of 10%.

31 RESERVES

(a) Merger reserve

The Group was formed on 28 March 2005 pursuant to a group restructuring exercise. The subsidiaries acquired pursuant to the group restructuring exercise under common control have been consolidated using the pooling-of-interest method. Under the pooling-of-interest method, the consolidated financial statements of the Group have been presented as if the Group’s structure immediately after the group restructuring exercise has been in exercise since the earliest financial year presented and the assets and liabilities are brought into the consolidated financial statements at their carrying amounts. The merger reserve of the Group represents the difference between the nominal amount of share capital issued by the Company and the nominal amount of the share capital of the subsidiaries transferred to the Company pursuant to the group restructuring exercise.

(b) Statutory reserves

In accordance with the PRC Company Law and the PRC subsidiaries’ Articles of Association, every year the subsidiaries are required to transfer 0-10% of the profit after taxation determined in accordance with PRC Accounting Standards to the statutory reserves until the balance reaches 50% of the registered capital. Such reserve can be used to reduce any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital.

– I-41 –

APPENDIX I

ACCOUNTANT’S REPORT

32 RETAINED EARNINGS

Movements in retained earnings of the Company are as follows:

							For the	five	months	months	ended
	For the	year ended		31	December			31	May

	2008		2009			2010	2010			2011

	RMB’000		RMB’000			RMB’000	RMB’000			RMB’000
							(Unaudited)
Beginning of the year/period	21,177		9,180			30,177	30,177				24,205
Net (loss)/profit	(1,933)			722		70,678	(3,173)				32,206
Transfer from share option reserve	–		20,275			–		–			–
Dividends (Note 14)	(10,064)			–		(76,650)		–			(40,000)

End of the year/period	9,180		30,177			24,205	27,004				16,411

The (loss)/profit attributable to shareholders for the years ended 31 December 2008, 2009 and 2010 and the five months ended 31 May 2010 and 2011 is dealt with in the financial statements of the Company to the extent of RMB(1,933,000), RMB722,000, RMB70,678,000, RMB(3,173,000) and RMB32,206,000 respectively.

Movements in retained earnings of the Group are shown in the consolidated statements of changes in equity.

33 CASH GENERATED FROM OPERATIONS

				For the	five	months ended	months ended
	For the	year ended 31 December			31	May

	2008	2009	2010	2010			2011

	RMB’000	RMB’000	RMB’000	RMB’000			RMB’000
				(Unaudited)
Profit for the year/period	68,631	53,488	147,838	58,596			115,578
Adjustments for:
– Income tax expense	27,237	40,694	13,019	13,076			28,334
– Amortization and depreciation	30,340	33,345	40,027	14,225			19,884
– Inventories written-off	–	19,348	–		–		–
– Employee share option expense	7,013	4,857	–		–		–
– Share of loss of an associated company	2,593	4,145	–		–		–
– Share of loss of a jointly controlled
entity	1,731	1,632	432		432		–
– Provision for impairment of
investments in a jointly
controlled entity/an associated
company and loans to an associated
company	5,000	7,127	1,778	1,778			–
– Gain on disposal of investment in a
jointly controlled entity	–	–	(344)		–		–
– Loss on disposal of property, plant and
equipment	10,223	1,478	375		131		48
– Interest income	(1,117)	(477)	(530)		(131)		(195)
– Interest expense	2,040	3,014	3,518	1,386			3,316

Operating cash flow before working
capital changes	153,691	168,651	206,113	89,493			166,965
Change in working capital
– Receivables and prepayments	(642)	(45,168)	(62,311)	23,299			(70,369)
– Inventories	(25,230)	(3,339)	(15,363)	34,620			(1,700)
– Trade and other payables	(1,177)	(8,605)	66,584	(13,757)			28,077

Cash generated from operations	126,642	111,539	195,023	133,655			122,973

– I-42 –

APPENDIX I

ACCOUNTANT’S REPORT

34 COMMITMENTS

(a) Capital commitments

The Group had the following capital commitments not provided for in respect of land use rights and property, plant and equipment at the respective balance sheet dates:

			The	Group

		As at 31 December			As at 31 May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Authorized but not contracted for
– Property, plant and equipment	–		–	184,500	181,394
– Land use rights	–		–	45,000	–
Contracted but not provided for
– Property, plant and equipment	79,975		34,093	94,436	93,301

	79,975		34,093	323,936	274,695

(b) Operating lease commitments

The future aggregate minimum lease payments in respect of land and buildings under non-cancellable operating leases at the respective balance sheet dates were as follows:

			The	Group

		As at 31 December			As at 31	May

	2008		2009	2010	2011

	RMB’000		RMB’000	RMB’000	RMB’000
Not later than one year	313		344	98		95
Later than one year but not later than five years	–		–	98		56

	313		344	196		151

(c) Other commitment

Pursuant to a joint venture agreement dated 21 May 2007 and the supplementary agreement dated 11 December 2008, LBXX Inv and Cocoaland Industry Sdn. Bhd (a company incorporated in Malaysia) agreed to set up a jointly controlled entity in Fujian, PRC, known as Coco (Fujian) Foods Company Limited (the “jointly controlled entity”). The registered capital of the jointly controlled entity was US$5 million (approximately RMB38 million).

As of 31 December 2008, the Group had injected US$1.5 million (equivalent to RMB10,986,000) in cash into the jointly controlled entity. At 31 December 2008 and 2009, the Group’s remaining commitment in respect of the jointly controlled entity amounted to US$1.0 million (approximately RMB7.0 million). In 2010, the jointly controlled entity was disposed to a third party with a gain of RMB344,000.

– I-43 –

APPENDIX I

ACCOUNTANT’S REPORT

35 RELATED PARTY TRANSACTIONS

In addition to the information disclosed elsewhere in the financial information, the following transactions took place between the Group and related parties at terms agreed between the parties:

(a) Sale and purchase of goods and services:

						The Group

							For the	five	months ended
	For the	year ended		31	December			31	May

	2008		2009			2010	2010			2011

	RMB’000		RMB’000			RMB’000	RMB’000			RMB’000

							(Unaudited)
Purchase of finished goods from a jointly
controlled entity (note (i))	8,948		3,506			1,533	1,533			–
Rental income from
– an associated company (note (ii))	1,080		1,080			–		–		–
– a jointly controlled entity (note (ii))	949			879		366		366		–

Note:

(i) Purchase of goods was made at mutually agreed prices. The transactions were discontinued in the year ended 31 December 2010.
(ii) Rental income was calculated based on the relevant agreements. The transactions were discontinued in the year ended 31 December 2010.
(b) As at 31 December 2008, a wholly owned subsidiary of the Group had given a guarantee to a financial institution for a loan of RMB20 million to a company owned by certain directors of the Company. This guarantee had been subsequently discharged in February 2009.
(c) Key management personnel compensation:

							The Group	The Group

									For the	five	months ended
	For the		year ended		31	December				31	May

	2008			2009			2010		2010			2011

	RMB’000			RMB’000			RMB’000		RMB’000			RMB’000

									(Unaudited)
Directors’ fee	1,200			1,200				214		97		–
Salaries and other employee benefits	8,520			8,066			3,462		1,428			1,660
Share options expenses		990			517			–		–		–

	10,710			9,783			3,676		1,525			1,660

36 EVENTS AFTER BALANCE SHEET DATE

The following event took place subsequent to 31 May 2011:

Pursuant to a shareholders’ resolution dated [●] 2011, conditional on the share premium account of the Company being credited as a result of [●] described in the document, the Company will capitalize an amount of [●], standing to the credit of its share premium account by applying such sum to pay up in full at par a total of [●] Shares for allotment and issue to the shareholders as at [●] 2011 on a pro rata basis.

– I-44 –

ACCOUNTANT’S REPORT

APPENDIX I

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Company or any of the companies comprising the Group in respect of any period subsequent to 31 May 2011 and up to the date of this report. Save as disclosed in this report, no dividend or other distribution has been declared, made or paid by the Company or any of its subsidiaries in respect of any period subsequent to 31 May 2011.

Yours faithfully,

[PricewaterhouseCoopers]

Certified Public Accountants Hong Kong

– I-45 –

APPENDIX IV

PROPERTY VALUATION REPORT

The following is the text of a report from Vigers Appraisal and Consulting Limited, an independent valuer, in respect of the property valuation report of the Group as set out in this appendix and prepared for the sole purpose of inclusion in this document.

==> picture [56 x 54] intentionally omitted <==

Vigers Appraisal and Consulting Limited The Grande Building 398 Kwun Tong Road Kowloon Hong Kong Tel: (852) 2810 1100 Fax: (852) 3101 9041 www.Vigers.com

[Date]

The Board of Directors China Lifestyle Food and Beverages Group Limited Room 1104, Asia-Pac Commercial Centre, 10 North Point Road, North Point, Hong Kong

Dear Sirs,

In accordance with your instruction for us to value the property interests of various properties held by “China Lifestyle Food and Beverages Group Limited” (referred to as “the Company”) and its subsidiaries (hereinafter together referred to as “the Group”), we confirm that we have inspected the properties, made relevant enquiries and investigations as well as obtained such further information as we consider necessary for the purpose of providing our opinion of values of the property interests of the properties as at 31st August 2011 (the “Valuation Date”).

BASIS OF VALUATION

Our valuations are our opinion of market values of the property interests of the properties in concern which is defined as intended to mean “ the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller on an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion ”. Our valuations have been prepared in accordance with “The HKIS Valuation Standards on Properties (First Edition 2005)” published by The Hong Kong Institute of Surveyors, the relevant provisions in the Companies Ordinance and [●].

– IV-1 –

APPENDIX IV

PROPERTY VALUATION REPORT

PROPERTY CATEGORISATION

In the course of our valuations, we have categorized the property interests of the properties in concern into the following three groups.

Group I

The property interests of the properties in concern are held by the Group in the PRC for owner-occupation purpose. Due to lack of suitable market comparables, the property interests of the properties held by the Group have been valued on the basis of depreciated replacement cost (“DRC”) whereby “DRC is based on an estimate of the market value for the existing use of the land, plus the current gross replacement (reproduction) costs of the improvements, less allowances for physical deterioration and all relevant forms of obsolescence and optimization”. Value of the property interests of the properties derived from the basis of DRC is subject to adequate potential profitability of the business in concern.

Group II

The property interest of the property in concern is held by the Group in the PRC for future development purpose. In the course of our valuation, we have employed the direct comparison method of valuation whereby comparisons based on actual sales transactions of comparable properties have been made. Comparable properties with similar use, location, size and so on are analyzed and carefully weighed against all respective advantages and disadvantages of the property in order to arrive at a fair comparison of value.

Group III

In respect of the property interest of the property in Group II which is a property leased by the Group in Hong Kong, we are of the opinion that the property interest of the property in concern has no commercial value due to the prohibition against assignment or sub-letting or otherwise due to lack of substantial profit rent and/or the short term nature of the property interest thereof.

TITLE INVESTIGATION

In respect of the properties located in the PRC, we have been given extracted copies of relevant title documents for the property in concern but we have not checked title to the property interests of the properties nor scrutinized the original title documents. We have relied on the advice given by the Group and its legal advisers on the laws of the PRC, “Jingtian & Gongcheng” (hereinafter referred to as the “PRC Legal Advisers”) regarding title to the property interests of the properties located in the PRC. For the purpose of our valuations, we have taken the legal opinion of the PRC Legal Advisers into account. While we have exercised our professional judgement in arriving at our valuations, you are urged to consider our valuations assumptions with caution.

With respect to the property located in Hong Kong, we have conducted land searches at the Land Registry but we have not searched the original documents to ascertain ownership nor to verify any lease amendments which may not appear on the copies handed to us. All documents have been used for reference purposes and all dimensions, measurements and areas are therefore approximations.

– IV-2 –

APPENDIX IV

PROPERTY VALUATION REPORT

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the property interests of the properties can be sold in the prevailing market in existing state without the effect of any deferred term contract, lease back, joint venture, management agreement or any other similar arrangement which may serve to affect the values of the property interests of the properties. In addition, no account has been taken into of any option or right of pre-emption concerning or affecting the sale of the property interests of the properties, and no allowance is made for the property interests of the properties to be sold to a single party and/or as a portfolio or portfolios. In valuing the property interests of the properties, we have assumed that the owners of the property interests have free and uninterrupted rights to use and assign the properties during the whole of the respective unexpired terms granted subject to the payment of usual land-use fees or Government Rent.

No investigation has been carried out to determine the suitability of the ground conditions or the services for any property development(s) erected or to be erected on the properties in concern. Our valuations have been carried out on the assumption that these aspects are satisfactory. We have also assumed that all necessary consents, approvals and licences from relevant government authorities have been or will be granted without onerous conditions or delay.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the property interests of the properties being valued or for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, we have assumed that the property interests of the properties are free from any encumbrances, restrictions and outgoings of an onerous nature which may serve to affect the values of the property interests of the properties in concern.

We have not carried out detailed on-site measurement to verify the correctness of the site and floor areas in respect of the properties in concern but we have assumed that the site and floor areas shown on the documents handed to us are correct. Other special assumptions for each of the property interests of the property have been stated in the footnotes of the valuation certificate for the respective property, if any.

VALUATION CONSIDERATION

We have inspected the properties but we have not carried out any structural survey nor have we inspected woodwork or other parts of the structures which are covered, unexposed or inaccessible to us. We are therefore unable to report whether such part of the properties is free from any structural or non-structural defect.

Having examined all relevant documents, we have relied to a considerable extent on the information given by the Group, particularly in respect of planning approvals, statutory notices, easements, tenure, land-use rights, site areas, floor areas, occupancy status and in the identification of the properties in concern.

Unless otherwise stated, all dimensions, measurements and areas included in the valuation certificate are based on the information contained in the documents provided to us by the Group and are therefore approximations. We have had no reason to doubt the truth and accuracy of the information made available to us and we have been advised by the Group that no material facts have been omitted from the information so given.

– IV-3 –

APPENDIX IV

PROPERTY VALUATION REPORT

REMARKS

We declare hereby that we are independent to the Group and we are not interested directly or indirectly in any shares in any member of the Group. We do not have any right or option whether legally enforceable or not to subscribe for or to nominate persons to subscribe for any shares in any member of the Group.

Unless otherwise stated, all monetary amounts stated herein are in the currency of Renminbi (“RMB”), the lawful currency of the PRC.

We enclose herewith our Summary of Values and Valuation Certificates.

Yours faithfully, For and on behalf of

VIGERS APPRAISAL AND CONSULTING LIMITED

David W. I. Cheung

MRICS MHKIS RPS(GP) CREA MCIArb

Executive Director

Note: Mr. David W. I. Cheung is a Registered Professional Surveyor in General Practice Division with over 28 years’ valuation experience on properties in various regions including Hong Kong and the PRC, who has been vetted on the list of property valuers for undertaking valuations for incorporation or reference in listing particulars and circulars and valuations in connection with takeovers and mergers published by The Hong Kong Institute of Surveyors, and is suitably qualified for undertaking valuations relating to listing exercises.

– IV-4 –

APPENDIX IV

PROPERTY VALUATION REPORT

SUMMARY OF VALUES

		Capital value		Capital value
		in existing		attributable to
		state as at	Interest	the Group as at
		31st August	attributable to	31st August
No.	Property	2011	the Group	2011
Group I – Property Interest Held by		the Group in the PRC for Owner-occupation Purpose
1.	Various parcels of land with	RMB69,600,000	100%	RMB69,600,000
	workshops, main office block,
	management block and staff
	quarters erected thereon,
	Wuli Technology
	Industry Area,
	Jinjiang City,
	Fujian Province,
	the PRC
2.	A parcel of land with various	RMB71,300,000	100%	RMB71,300,000
	workshop block erected thereon,
	Wuli Technology
	Industry Area,
	Jinjiang City,
	Fujian Province,
	the PRC
3.	Various parcels of land with	RMB129,800,000	100%	RMB129,800,000
	workshops, staff quarters, staff
	hall and canteen, and office
	erected thereon,
	No. 38 Kaiyuan Road and
	No. 8 Quanfeng Road,
	Wuqing Industrial Zone,
	Tianjin Municipality,
	the PRC
4.	Various parcels of land with	RMB176,900,000	100%	RMB176,900,000
	workshops and staff quarter
	erected thereon,
	Heshan Town Industrial Area,
	Pujiang,
	Chengdu, Sichuan Province,
	the PRC

– IV-5 –

APPENDIX IV

PROPERTY VALUATION REPORT

		Capital value		Capital value
		in existing		attributable to
		state as at	Interest	the Group as at
		31st August	attributable to	31st August
No.	Property	2011	the Group	2011

Group II – Property Interest Held by the Group in the PRC for Future Development Purpose

A parcel of land located at the RMB45,000,000 100% RMB45,000,000 north-eastern side of the junction between Shanghai Road and Wuhu Road, Chuzhou, Anhui Province, the PRC

Group III – Property Interest Leased by the Group in Hong Kong

Room 1104, 11th Floor, No Commercial No Commercial No. 10 North Point Road, Value Value North Point, Hong Kong GRAND TOTAL RMB492,600,000 RMB492,600,000

– IV-6 –

APPENDIX IV

PROPERTY VALUATION REPORT

VALUATION CERTIFICATE

Group I – Property Interest Held by the Group in the PRC for Owner-occupation Purpose

				Capital Value
				in Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

1.	Various parcels of	The property comprises three parcels	7 shops in factory	RMB69,600,000
	land with workshops,	of land together with a 7-storey	block J with gross floor
	main office block,	management block, a 7-storey office	area of approximately	(100% interest
	management block	building, a 7-storey staff quarters and	889.1 square metres	attributable to the
	and staff quarters	various 2-3 storey factory blocks	was let for a monthly	Group:
	erected thereon,	located in Wuli Technology Industrial	rental of RMB6,400 for	RMB69,600,000)
	Wuli Technology	Area completed in or about 2000 and	a term of commencing
	Industry Area,	2007.	on 1st November 2010
	Jinjiang City,		and expiring on 1st
	Fujian Province,	Pursuant to the Certificates of State-	November 2011; whilst
	the PRC	owned Land Use, the property has a	the remainder of the
		total site area of approximately	property is occupied
		25,780.00 square metres	and used by the owner
			as manufacturing
		According to the Certificates of	facilities, office and
		Building Ownership and as advised by	staff quarters.
		the Company, the property has a total
		gross floor area of approximately
		44,019.21 square metres and with
		breakdown as follows:
		Portion Gross Floor Area

		(square metres)
		Workshops: 15,087.78
		Staff quarter: 11,582.97
		Management block: 2,909.95
		Main office block: 3,174.12
		Workshop blocks F, 11,264.39
		G, H, I and J:

		Total: 44,019.21

		Moreover, as informed by the
		Company, a boiler room with a total
		gross floor area of approximately
		410.00 square metres have not been
		yet granted with Certificate of
		Building Ownership.
		The property is held under land use
		rights for a common term expiring on
		26th November 2052.

Note (Property 1):

Pursuant to Certificates of State-owned Land Use (Document Nos.: Jin Guo Yong Nos. 00285, 00286 and 00287) all dated 11th March 2003, the land use rights of three parcels of land located at Wuli Industrial Area, Jinjiang City, Fujian Province, the PRC with total site area of approximately 25,780.00 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) with land use rights’ term to be expired on 26th November 2052 for industrial use.

– IV-7 –

APPENDIX IV

PROPERTY VALUATION REPORT

Pursuant to Certificate of Building Ownership (Document No.: Jin Fang Quan Zheng Yuan Qu Bian Zi No. 18-200011) dated 16th October 2003, the building ownership of a industrial building located at Wuli Industrial Area, Jinjiang City, Fujian Province, the PRC with total gross floor area of approximately 11,264.39 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) with land use rights’ term to be expired on 26th November 2052 for industrial use.
Pursuant to Certificate of Building Ownership (Document No.: Jin Fang Quan Zheng Ling Yuan Zi No. 18-200139) dated 23rd March 2009, the building ownership of an industrial building located at Wuli Industrial Area, Jinjiang City, Fujian Province, the PRC with total gross floor area of approximately 32,754.82 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) with land use rights’ term to be expired on 26th November 2052 for industrial use.
In the course of our valuation, we have ascribed no commercial value to the boiler room having an aggregate gross floor area of approximately 410.00 square metres since Certificate(s) of Building Ownership has/have not yet been granted for this portion of the property. Upon obtaining the corresponding Certificate(s) of Building Ownership for this portion of the property, our opinion to the capital value of this portion of the property would be in the sum of RMB450,000.
“蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) carrying limited liability is an indirectly wholly owned subsidiary of the Company established in accordance with the laws of the PRC.
A summary of major certificates as at the Valuation Date is shown as follows:
i. Certificate of State-owned Land-use: Yes ii. Certificate of Building Ownership: Part
The PRC Legal Advisers have stated in their legal opinion, including but not limited to the following:
i. The property, expect for the boiler room, is legally vested in “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) which has the right to occupy, use, transfer, lease out, mortgage or by other means dispose of the property.
ii. No Permission Certificate of Construction Works Planning, Permission Certificate for Construction Works Commencement and Construction Quality and Completion Acceptance Procedure has been obtained for the boiler room of the property. Upon obtaining a valid Certificate of Building Ownership, such portion of the property can be occupied, used, transferred, leased out, mortgaged or by other means disposed of.
iii. The property is not subject to mortgage or other material encumbrances.

– IV-8 –

APPENDIX IV

PROPERTY VALUATION REPORT

				Capital Value in
				Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

2.	A parcel of land with	The property comprises a parcel of	Portion of the property	RMB71,300,000
	various workshop block	land located and two 5-storey factory	on 1st, 2nd, 4th and
	erected thereon,	building located in Wuli Technology	5th floor was let to “四	(100% interest
	Wuli Technology	Industrial Area completed in or about	川都江堰天旺食品工業	attributable to the
	Industry Area,	2007.	有限責任公司” at an	Group:
	Jinjiang City,		annual rental of	RMB71,300,000)
	Fujian Province,	Pursuant to the Certificates of State-	RMB546,552 for a
	the PRC	owned Land Use, the property has a	term of commencing on
		total site area of approximately 13,300	1st January 2011 and
		square metres (inclusive of 1,101	expiring on 31st
		square metres for construction of	December 2011;
		public road).	another portion of the
			property on 3rd floor
		According to the Certificates of Real	was let to “可可(福建)
		Estate Ownership, the building erected	食品有限公司” at an
		above the land has a total gross floor	annual rental of
		area of approximately 38,291.91	RMB305,571 for a
		square metres.	term of commencing on
			1st January 2011 and
		The property is held under land use	expiry on 31st
		rights for a term expiring on 8th	December 2011; whilst
		December 2055.	the remainder of the
			property is occupied
			and used by the owner
			as manufacturing
			facilities and storage.

Note (Property 2):

Pursuant to Certificate of State-owned Land Use (Document No.: Jin Guo Yong (2010) No. 00860) dated 21st September 2010, the land use rights of a parcel of land located at Jinjiang Economic Development Area with total site area of approximately 11,515 square metres (inclusive of land for public facilities of 1,101 square metres) is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) with land use rights’ term to be expired on 8th December 2055 for industrial uses.
Pursuant to Certificate of Building Ownership (Document No.: Jin Fang Quan Zheng Jin Jiang Zi No. 003031) dated 3rd November 2010, the building ownership of a 5-storey industrial building located at No. 1 Zongren Road, Jinjiang Economic Development Area, Jinjiang City, Fujian Province, the PRC with total gross floor area of approximately 29,139.17 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.).
Pursuant to Certificate of State-owned Land Use (Document No.: Jin Guo Yong (2011) No. 00407) dated 11th April 2011, the land use rights of a parcel of land located at Jinjiang Economic Development Area with total site area of approximately 1,785 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) with land use rights’ term to be expired on 8th December 2055 for industrial uses.
Pursuant to Certificate of Building Ownership (Document No.: Jin Fang Quan Zheng Jin Jiang Zi No. 004300) dated 14th April 2011, the building ownership of a 5-storey industrial building located at No. 1 Zongren Road, Jinjiang Economic Development Area, Jinjiang City, Fujian Province, the PRC with total gross floor area of approximately 9,152.74 square metres is vested in the name of “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.).
“蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) carrying limited liability is an indirectly wholly owned subsidiary of the Company established in accordance with the laws of the PRC.

– IV-9 –

APPENDIX IV

PROPERTY VALUATION REPORT

A summary of major certificates as at the Valuation Date is shown as follows:
i. Certificate of State-owned Land-use: Yes ii. Certificate of Building Ownership: Yes
The PRC Legal Advisers have stated in their legal opinion, including but not limited to the following:
i. The property is legally vested in “蠟筆小新(福建)食品工業有限公司” (Labixiaoxin (Fujian) Food Stuff Industry Co., Ltd.) which has the right to occupy, use, transfer, lease out, mortgage or by other means dispose of the property.
ii. The property is not subject to mortgage or other material encumbrances.

– IV-10 –

APPENDIX IV

PROPERTY VALUATION REPORT

				Capital Value in
				Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

3.	Various parcels of	The property comprises four parcels	Upon our inspection,	RMB129,800,000
	land with workshops,	of land and a 4-storey staff quarter, a	portion of the property
	staff quarters, staff hall	2-storey staff hall and canteen and	is currently occupied	(100% interest
	and canteen, and office	seven single storey workshop	by the owner as	attributable to the
	erected thereon,	buildings located on the northern side	manufacturing	Group:
	No. 38 Kaiyuan Road	of No. 38 Kaiyuan Road and No. 8	facilities, office and	RMB129,800,000)
	and No. 8 Quanfeng	Quanfeng Road, Wuqing Industrial	staff quarters; whilst
	Road,	Zone completed in or about 2007 and	the remainder of the
	Wuqing Industrial	2008.	land are currently
	Zone,		vacant.
	Tianjin Municipality,	Pursuant to the Certificates of State-
	the PRC	owned Land Use, the property has a
		total site area of approximately
		145,756.60 square metres
		According to the Certificate of
		Building Ownership and Permission
		Certificates for Construction Works
		Commencement provided by the
		Company, portion of the property is
		currently occupied by various
		buildings with a total gross floor area
		of approximately 49,402.80 square
		metres and with breakdown as
		follows:

Portion			Gross Floor Area

			(square metres)
Staff hall and			4,322.27
canteen:
Staff quarter:			4,147.35
Staff quarter:			5,138.94
Fruit workshop:			4,590.25
Jelly workshop:			6,095.55
Leisure workshop:			6,095.55
Finishing workshop: 2,937.15
Integrated			8,548.44
workshop:
Leisure workshop			7,527.30
(Phase II) and
Fruit workshop
(Phase II):

Total:			49,402.80

The Leisure workshop (Phase II) and Fruit workshop (Phase II) with total gross floor area of approximately 7,527.30 square metres have not yet granted with Certificate of Building Ownership and Construction Quality and Completion Acceptance.

The property is held under land use rights for a common term expiring on 5th August 2056.

– IV-11 –

APPENDIX IV

PROPERTY VALUATION REPORT

Note (Property 3):

Pursuant to Certificates of State-owned Land Use (Document Nos.: Wu Dan Guo Yong (2006) Nos. 124, 125, 126 and 127) all dated 27th September 2006, the land use rights of four parcels of land located on the northern side of Kaiyuan Road, Wuqing Industrial Zone, Tianjin Municipality, the PRC with total site area of approximately 145,756.60 square metres is vested in the name of “蠟筆小新(天津)有限公司” (Labixiaoxin (Tianjin) Co., Ltd.) with land use rights’ term to be expired on 5th August 2056 for industrial uses.
Pursuant to Certificate of Building Ownership (Document No.: Fang Di Zheng Zi No. 122011011239) dated 11th May 2010, the building ownership of a 4-storey staff quarter, a 2-storey staff hall and canteen and five single storey workshops located at No. 38 Kaiyuan Road and No. 8 Quanfeng Road, Wuqing District, Tianjin Municipality, the PRC with total gross floor area of approximately 41,875.50 square metres is vested in the name of “蠟筆小新(天津)有限公司” (Labixiaoxin (Tianjin) Co., Ltd.).
Pursuant to Permission Certificates for Construction Land Use Planning (Document Nos: 2006039, 2006110, 2006112 and 2006113) dated 4th April 2006, 18th July 2006 and 24th August 2006 respectively, a parcel of land located on the northern side of Kaiyuan Road, Wuqing Industrial Zone, Tianjin Municipality, the PRC with total site area of approximately 145,756.60 square metres is in compliance with the urban and rural planning requirements.
Pursuant to Permission Certificate for Construction Works Planning (Document No. Wu Qing Jian Zheng No. 0130) dated 13th August 2007, the construction works of a leisure workshop (Phase II) and a fruit workshop (Phase II) with total floor area of approximately 7,527.40 square metres are in compliance with the urban and rural planning requirements.
Pursuant to Permission Certificate for Construction Works Commencement (Document No.: 1222210200711638) dated 7th November 2007, the construction work of a leisure workshop (Phase II) and a fruit workshop (Phase II) with total floor area of approximately 7,527.30 square metres are in compliance with the requirements for construction works commencement.
In the course of our valuation, we have ascribed no commercial value to the leisure workshop (Phase II) and fruit workshop (Phase II) having an aggregate gross floor area of approximately 7,527.30 square metres since Certificate(s) of Building Ownership and Construction Quality and Completion Acceptance have not yet been granted for this portion of the property. Upon obtaining the corresponding Certificate(s) of Building Ownership for this portion of the property, our opinion to the capital value of this portion of the property would be in the sum of RMB16,100,000.
“蠟筆小新(天津)有限公司” (Labixiaoxin (Tianjin) Co., Ltd.) carrying limited liability is an indirectly wholly owned subsidiary of the Company established in accordance with the laws of the PRC.
A summary of major certificates as at the Valuation Date is shown as follows:

	i.	Certificate of State-owned Land-use:	Yes
	ii.	Certificate of Building Ownership:	Part
	iii.	Certificate for Construction Works Planning:	Yes
	iv.	Permission Certificate for Construction Works Commencement:	Yes
9.	The	PRC Legal Advisers have stated in their legal opinion, including but not limited to the following:

i. The property is legally vested in “蠟筆小新(天津)有限公司” (Labixiaoxin (Tianjin) Co., Ltd.) which has the right to occupy, use, transfer, lease out, mortgage or by other means dispose of the property.
ii. The leisure workshop (Phase II) and fruit workshop (Phase II) were not granted with Construction Quality and Completion Acceptance Procedure.
iii. The property is not subject to mortgage or other material encumbrances.

– IV-12 –

APPENDIX IV

PROPERTY VALUATION REPORT

				Capital Value in
				Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

4.	Various parcels of	The property comprises three parcels	Upon our inspection,	RMB176,900,000
	land with workshops	of land and a single storey warehouse	portion of the property
	and staff quarter	(Block A), a 3-storey workshop	is currently occupied	(100% interest
	erected thereon,	(Block B), two single storey	by the owner as	attributable to the
	Heshan Town	workshops (Block C and D), a	manufacturing	Group:
	Industrial Area,	7-storey staff quarter with hall and	facilities, office and	RMB176,900,000)
	Pujiang,	canteen, a single storey distribution	staff quarters; whilst
	Chengdu,	room, a single storey boiler room and	the remainder of the
	Sichuan Province,	a single storey warehouse located in	land are currently
	the PRC	Heshan Town Industrial Area, Pujiang	vacant
		Province, Chengdu, the PRC.
		Pursuant to the Certificates of State-
		owned Land Use, the property has a
		total site area of approximately
		199,989.49 square metres
		According to the Certificates of Real
		Estate Ownership provided by the
		Company, portion of the property is
		currently occupied by various
		buildings with a total gross floor area
		of approximately 54,517.36 square
		metres and with breakdown as
		follows:
		Portion Gross Floor Area

		(square metres)
		Warehouse 13,539.36
		(Block A):
		Workshop 8,608.66
		(Block B):
		Workshops 6,803.36
		(Block C):
		Workshops 6,803.36
		(Block C):
		Staff quarter with 15,719.24
		hall and canteen:
		Distribution room: 377.86
		Boiler room: 190.96
		Warehouse: 2,474.56

		Total: 54,517.36

The property is held under land use rights for a common term expiring on 29th June 2057.

Notes (Property 4):

Pursuant to Certificates of State-owned Land Use (Document Nos.: Pu Guo Yong Nos.: 689, 690 and 691) dated 19th September 2008 and 18th September 2008 respectively, the land use rights of three parcels of land located in Heshan Town Industrial Area, Pujiang, Chengdu, Sichuan Province, the PRC with total site area of approximately 199,989.49 square metres is vested in the name of “蠟筆小新(四川)有限公司” (Labixiaoxin (Sichuan) Co., Ltd.) with land use rights’ term to be expired on 5th August 2056 for industrial use.

– IV-13 –

THIS WEB PROOF INFORMATION PACK IS IN DRAFT FORM. The information contained herein is incomplete and subject to change and it must be

read in conjunction with the section headed “Warning” on the cover of this Web Proof Information Pack.

APPENDIX IV PROPERTY VALUATION REPORT

Pursuant to Certificates of Building Ownership (Document No.: Pu Fang Quan Zheng Jian Zi Nos. 0092511, 0092512, 0092513, 0092514, 0092515, 0092516, 0092517 and 0092518) all dated 1st June 2010, the building ownership of a single storey warehouse (Block A), a 3-storey workshop (Block B), two single storey workshops (Block C and D), a 7-storey staff quarter with hall and canteen, a single storey distribution room, a single storey boiler room and a single storey warehouse located at Heshan Town Industrial Area, Pujiang, Chengdu, Sichuan Province, the PRC with total gross floor area of approximately 54,517.36 square metres is vested in the name of “蠟筆小新(四川)有限公司” (Labixiaoxin (Sichuan) Co., Ltd.).
“蠟筆小新(四川)有限公司” (Labixiaoxin (Sichuan) Co., Ltd.) carrying limited liability is an indirectly wholly owned subsidiary of the Company established in accordance with the laws of the PRC.
A summary of major certificates as at the Valuation Date is shown as follows:
i. Certificate of State-owned Land-use: Yes ii. Certificate of Building Ownership: Yes
The PRC Legal Advisers have stated in their legal opinion, including but not limited to the following:
i. The property is legally vested in “蠟筆小新(四川)有限公司” (Labixiaoxin (Sichuan) Co., Ltd.) which has the right to occupy, use, transfer, lease out, mortgage or by other means dispose of the property
ii. The property is not subject to mortgage or other material encumbrances.

– IV-14 –

APPENDIX IV

PROPERTY VALUATION REPORT

Group II −Property Interest Held by the Group in the PRC for Future Development Purpose

				Capital Value in
				Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

5.	A parcel of land	The property comprises a parcel of	Upon our inspection,	RMB45,000,000
	located at the north-	land located at the north-eastern side	the property is in its
	eastern side of the	of the junction between Shanghai	preliminary stage of	(100% interest
	junction between	Road and Wuhu Road, Chuzhou,	construction.	attributable to the
	Shanghai Road and	Anhui Province, the PRC.		Group:
	Wuhu Road,			RMB45,000,000)
	Chuzhou,	Pursuant to the Certificate of State-
	Anhui Province,	owned Land Use, the property has a
	the PRC	total site area of approximately
		111,219 square metres
		The property is held under land-use
		rights for a term to be expired on
		19th March 2061.

Notes (Property 5):

Pursuant to the State-owned Land-use Rights Grant Contract (Document No. 3541100 Chu Rang (2011) 042) dated 13th June 2011, “蠟筆小新(安徽)有限公司” (Labixiaoxin (Anhui) Co., Ltd.) agreed to acquire the land-use rights of a parcel of land located at the north-eastern side of the junction between Shanghai Road and Wuhu Road, Chuzhou, Anhui Province, the PRC with total site area of approximately 133,332 square metres (inclusive of site area for public facilities of approximately 22,113 square metres). According to the Grant Contract, the property is subject to the following development conditions:

User	:	Industrial
Gross Floor Area	:	Not less than 111,219 square metres
Site Coverage	:	Not higher than 30%
Plot Ratio	:	Not lower than 1.0
Building Covenant	:	To commence construction on 8th April 2011 and complete not later than 8th June 2013

Pursuant to Certificate of State-owned Land-use (Document No.: Chu Guo Yong (2011) No. 05216), the land use right of the land located at the north-eastern side of the junction between Shanghai Road and Wuhu Road, Chuzhou, Anhui Province, the PRC with total site area of approximately 111,219 square metres is vested in the name of “蠟筆小新(安徽)有限公司” (Labixiaoxin (Anhui) Co., Ltd.) with land use rights’ term to be expired on 19th March 2061 for industrial use.
Pursuant to the Certificate of Land-use Planning (Document No. Di Zi No. 341100201100012 Chu Kai 344) issued by Urban and Rural Planning Bureau of Chuzhou on 18th March 2011, a parcel of land located at the north-eastern side of the junction between Shanghai Road and Wuhu Road, Chuzhou, Anhui Province, the PRC with total site area of approximately 111,219 square metres is in compliance with the urban and rural planning requirement.
Pursuant to the Certificate of Land Permission (Document No. 341100 (2011060)) issued by Urban and Rural Planning Bureau of Chuzhou on 25th March 2011, the construction period of the property is from March 2011 to March 2012.
Pursuant to the Certificate of Construction Works Planning (Document No.: Chu Kai F-450) issued by Urban and Rural Planning Bureau of Chuzhou on 8th June 2011, the construction works of 7 workshops, a warehouse, a staff quarter, a material recycling room and a office block are in compliance with the urban and rural planning requirements. The gross floor areas permitted to be built are tabulated as follows:

i. Workshops Nos. 1, 2 & 3 : 17,244 square metres ii. Workshop No. 4 : 3,936 square metres iii. Workshop Nos. 5 & 6 : 12,640 square metres iv. Workshop No. 7 : 7,568.2 square metres v. Warehouse : 2,960.5 square metres vi. Staff quarter : 14,020.9 square metres vii. Material recycling room : 1,440 square metres viii. Office block : 2,100.8 square metres Total 61,910.4 square metres

– IV-15 –

APPENDIX IV

PROPERTY VALUATION REPORT

A summary of major certificates as at the Valuation Date is shown as follows:

i.	State-owned Land-use Rights Grant Contract:	Yes
ii.	Certificate of State-owned Land-use:	Yes
iii.	Certificate of Building Ownership:	No
iv.	Certificate for Construction Works Planning:	Yes
v.	Permission Certificate for Construction Works Commencement:	No

The PRC Legal Advisers have stated in their legal opinion, including but not limited to the following:
i. The property is legally vested in “蠟筆小新(安徽)有限公司” (Labixiaoxin (Anhui) Co., Ltd.) which has the right to occupy, use, transfer, lease out, mortgage or by other means dispose of the property.
ii. The property is not subject to mortgage or other material encumbrances.

– IV-16 –

APPENDIX IV

PROPERTY VALUATION REPORT

Group III – Property Interest Leased by the Group in Hong Kong

				Capital Value in
				Existing State as at
No.	Property	Description and Tenure	Occupancy Status	31st August 2011

6.	Room 1104,	The property comprise of one of the	The property is subject	No commercial value
	11th Floor,	various office unit on the 11th floor	to a tenancy agreement
	No. 10 North Point	of the building completed in or about	at a monthly rent of
	Road,	1999. As measured on the registered	HK$9,560.00 for a
	North Point,	floor plan, the property has a saleable	term of two years
	Hong Kong	area of approximately 37.25 square	commencing on 1st
		metre (401 square feet).	January 2011 and
	No sub-division		expiring on 31st
	registration for the	Inland Lot No. 6819, 6820 and 6821	December 2012.
	property is found from	are held under Government Lease for	(exclusive of Rates,
	the land title search at	a term of 75 years commencing on	Government Rent and
	the Land Registry. The	5th September 1921 and renewed for	management fees.)
	property together with	a further term of 75 years.
	various other units are
	registered at the Land
	Registry as The
	Remaining Portion of
	Inland Lot No. 6819,
	Inland Lot No. 6820
	and Inland Lot No.
	6821.

Note (Property 6):

The current registered owner of the property is “On Luck Limited” by an Assignment of IL 6819 & 6820 vide Memorial No. UB6843915 dated 11th November 1996.
The property lies on an area zoned “Commercial/Residential” under North Point Outline Zoning Plan (No. S/H8/24) approved on 30th November 2010.

– IV-17 –

APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

REGULATIONS

This section sets out summaries of certain aspects of PRC laws and regulations, which are relevant to our group’s operation and business.

Establishment, operation and management of a wholly foreign-owned enterprise

The establishment, operation and management of corporate entities in China are governed by the Company Law of the PRC (中華人民共和國公司法) (the “ Company Law ”), which was adopted by the Standing Committee of the National People’s Congress (全國人民代表大會常務委員會) on December 29,1993 and with effect from July 1, 1994. It was last amended on October 27, 2005 and with effect from January 1, 2006. Under the Company Law, Companies are generally classified into two categories – limited liability companies and companies limited by shares. The Company Law also applies to foreign-invested limited liability companies. According to the Company Law, where laws on foreign investment have other stipulations, such stipulations shall prevail.

The establishment procedures, approval procedures, registered capital requirements, foreign exchange, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are regulated by the Wholly Foreign-owned Enterprise Law of the PRC (中華人民共和國外資企業法) (the “ Wholly Foreign-owned Enterprise Law ”), which was promulgated on April 12, 1986 and amended on October 31, 2000, and the Implementation Rules to the Wholly Foreign-owned Enterprise Law (中華人民共和國外資企業法實施細則), which were promulgated on December 12, 1990 and amended on April 12, 2001.

Investment in the PRC conducted by foreign investors and foreign-owned enterprises is governed by The Catalog of Industries for Guiding Foreign Investment (外商投資產業指導目錄) (the “ Catalog ”), which was amended and promulgated by the Ministry of Commerce of the PRC (中華人民共和國商務部) and the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會) on October 31, 2007, with effect from December 1, 2007. The Catalog contains specific provisions guiding market access of foreign capital, stipulating in detail the rules of entry according to the categories of encouraged industries, restricted industries and prohibited industries. Industries not listed in the Catalog are generally open to foreign investment unless specifically prohibited or restricted by other PRC laws and regulations. Foreign investment in the encouraged category is entitled to certain preferential treatment and incentives extended by the government, while foreign investment in the restricted category is permitted but subject to certain restrictions under PRC Law. Foreign investment in the prohibited category is not allowed.

Manufacture and sales of Food

Licensing System for Food Production and Trading

Pursuant to Regulations on Food Safety Law of the PRC (中華人民共和國食品安全法) (the “ Food Safety Law ”), which was promulgated on February 28, 2009, and with effect from June 1, 2009, and Implementing Rules on the Food Safety Law of the PRC (中華人民共和國食品安全法實施條例) (the “ Implementing Rules on the Food Safety Law ”), which was promulgated on July 20, 2009 and with effect from the same date, the state adopts a licensing system for food production and trading. To engage

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

in food production, food circulation, and catering services, the food production license, food circulation license, and catering service license shall be obtained in accordance with the law. Food producers who have obtained food production license do not need to obtain food circulation license for selling the food produced by them at their production place; the catering service providers who have obtained the catering service license do not need to obtain the food production or circulation license for selling the food produced by them at their catering service place.

According to Measures for the Administration of Food Production Licensing (食品生產許可管理辦法), which was promulgated on April 7, 2010, and with effect from June 1, 2010, the validity term for a food production license is three years. If the enterprise that has the food production license needs to continue the production upon expiry of the validity term, it shall file an application for replacement of the license with the original licensing authority within six months prior to the expiry of the validity term of the food production license. If the replacement is approved, the number of the food production license shall remain unchanged. Where no application is filed for replacement of license upon expiry of the validity term, it shall be deemed that the enterprise has no license. Where the enterprise intends to continue the production of food, it shall file a new application for re-issuance of the license and a new number of the license, the validity term of which shall be calculated from the date of permission.

Personnel Health Management System

In accordance with Food Safety Law as well as Implementing Rules on the Food Safety Law, Food producers and traders shall establish and implement a personnel health management system. The personnel suffering from dysentery, typhoid, viral hepatitis or any other infectious disease of digestive tract or suffering from active tuberculosis, purulent or seeping skin disease or any other disease that affects the food safety shall not engage in work that involves contact with ready-to-eat food. Food producers and traders shall have physical check-up each year and shall obtain healthy certificates prior to working.

Procurement Check Record System and Food Ex-factory Check Record System

According to Food Safety Law as well as Implementing Rules on the Food Safety Law, Food producers purchasing food raw materials, food additives and food-related products shall check the licenses and food eligibility certification documents of the suppliers. The food raw materials whose eligibility certification documents are unavailable shall be checked in accordance with the food safety standards; no food raw materials, food additives or food-related products inconsistent with the food safety standards may be procured or used. Food production enterprises shall establish a procurement check record system of food raw materials, food additives and food-related products, and truthfully record the names, specifications, quantities, names and contact information of suppliers, dates of purchase, etc. of food raw materials, food additives and food-related products. The procurement check records of food raw materials, food additives and food-related products shall be true, and shall be kept for at least two years. Food production enterprises shall establish a food ex-factory check record system, to check the inspection certificates and the safety conditions of ex-factory food and truthfully record the names, specifications, quantities, dates of production, lot numbers of production, numbers of inspection certificates, names and contact methods of purchasers, dates of sales, etc. of food. The food ex-factory check records shall be true, and shall be kept for at least two years.

Still under Food Safety Law as well as Implementing Rules on the Food Safety Law, Food production and trading enterprises may either carry out inspection on the food produced by themselves or entrust the inspection to a food inspection institution complying with the provisions of this Law.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

According to Implementation Rules for the Supervision and Administration on the Quality Safety of the Food Manufacturing and Processing Enterprises (For Trial) (食品生產加工企業質量安全監督管理實施細則 (試行)), the market access symbol for food quality safety i.e. the symbol for food manufacturing permit, is a quality symbol, and shall be represented by the English abbreviation of quality safety – “QS”, (hereinafter referred to as the “QS”), the QS symbol shall be printed (pasted) on the packaging or label of the food subject to the market access system for food quality safety before leaving factory. Those without the QS symbol shall not leave factory for sale. Article 48 Where an enterprise uses the QS symbol indicates that it promises that its product has passed the inspection and meets the basic requirements of food quality safety. Where a quality problem, not due to any improper use or storage of customers, occurs to the food with a QS symbol printed (pasted) before its expiration date, the manufacturer and the seller shall assume their liabilities in accordance with their respective duties.

The Packages of Pre-packed Food

Also under Food Safety Law as well as Implementing Rules on the Food Safety Law, the packages of pre-packed food shall bear labels. The labels shall state the following matters, such as name, specifications, net content and date of production; list of ingredients or components; producer’s name, address and contact methods; shelf life; product standard code; storage conditions; the general name of the food additives used in the national standards; category number of food production license; and other items that must be indicated according to laws, regulations or food safety standards. The labels of the staple and supplementary food exclusively for infants shall also indicate the principal ingredients and their contents.

Food Recall System

Also under Food Safety Law as well as Implementing Rules on the Food Safety Law, the state will establish a food recall system. Where a food producer finds that the food produced by it does not comply with the food safety standards, it shall immediately stop the production, recall the food on the market for sale, notify the relevant producers and traders, as well as consumers, and record the recall and notification. Where a food trader finds that the food traded by it does not comply with the food safety standards, it shall immediately stop the trading, notify the relevant producers and traders, as well as consumers, record the cessation of trading and the notification. Where the food producers consider that the food should be recalled, the food shall be recalled immediately. The food producers shall take such measures as remedy, destruction and harmless treatment for the recalled food, and report the recalling and treatment of the recalled food to the quality supervision department at or above the county level. Where the food producers or traders fail to recall or stop trading of the food failing to comply with the food safety standards in accordance with the provisions of this Article, the quality supervision, administration for industry and commerce, food and drug supervision and administration departments at and above the county level shall order them to recall or stop trading.

Production Licensing system of Industrial Products

Pursuant to Administrative Regulations of the PRC on the Production License for Industrial Products (中華人民共和國工業產品生產許可證管理條例), which was promulgated on July 9, 2005 and with effect from September 1, 2005, and Implementing Measures for the Regulations for Administration of Production License of Industrial Products of the PRC (中華人民共和國工業產品生產許可證管理條例實施辦法), which was last amended on April 21, 2010 and became effective from June 1, 2010, only enterprises

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

granted with production license are eligible to produce the important industrial products for which a production licensing system is implemented by the state. Furthermore, the period of validity of a production license shall be five years, other than for production licenses for food processing enterprises, for which the period of validity shall be three years. Where, during the period of validity of a production license, there is any change in the relevant standards and requirements for the product, the competent authorities may organize a further examination and inspection in accordance with the provisions of relevant Regulations. And where, during the period of validity of a production license, there is a change in the production conditions, inspection method, production technology or technique of the enterprise, the enterprise shall file an application with the relevant authorities, and the competent authorities shall organize a further examination and inspection in light of the provisions of the relevant Regulations.

Food Import and Export

Also under Food Safety Law as well as Implementing Rules on the Food Safety Law, the imported food, food additives and food-related products shall be consistent with the national food safety standards of China. A food importer shall apply for inspection with the entry and exit inspection and quarantine institution at the place of customs on the strength of necessary vouchers and relevant documents such as contract, invoices, packing note, bill of lading, etc.. The food imported shall be qualified in the inspection conducted by the entry and exit inspection and quarantine institution. The customs shall release the imported food on the strength of a customs clearance certificate issued by the entry and exit inspection and quarantine institution. The imported food shall be subject to the inspection conducted by the institution for entry and exit inspection and quarantine, and the customs office shall release the imported food on the basis of a customs clearance certificate issued by the institution for entry and exit inspection and quarantine. For any food that is imported for the first time and has neither been regulated by the requirements of the national food safety standards or a new variety of food additives or a new variety of food-related products imported for the first time, the importer shall file an application with and submit the relevant safety assessment materials to the health administration department under the State Council.

The imported pre-packed food shall be accompanied with labels and instructions in Chinese. The labels and instructions shall be consistent with the provisions of this Law and other relevant laws and administrative regulations of China and the requirements of the national food safety standards, and indicate the origin of food and name, address and contact methods of a domestic agent. Where any pre-packed food is not accompanied with labels or instructions in Chinese or the labels or instructions are not consistent with the requirements, the pre-packed food shall not be imported. The importer shall establish a food import and sale record system to truthfully record the names, specifications, quantities, dates of production, lot numbers of production or import, shelf life, names and contact methods of exporters, names and contact methods of purchasers, dates of delivery, etc. of food. The food import and sale records shall be true, and shall be kept for at least two years.

The food to be exported shall be subject to supervision and sample inspection of the entry and exit inspection and quarantine institution. The customs office shall release the food on the basis of a customs clearance certificate issued by the institution for entry and exit inspection and quarantine. The production enterprises of exported food and the planting and breeding farms of raw materials for exported food shall file a record with the department of entry and exit inspection and quarantine department of the state.

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APPENDIX V

SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Food Safety

Pursuant to Food Safety Law as well as Implementing Rules on the Food Safety Law, Food producers and traders shall engage in production and trading activities in accordance with the laws, regulations and food safety standards, be responsible for the society and the public, ensure food safety, accept social supervision, and undertake social responsibility. And in accordance with Law of the PRC on the Protection of Minors (中華人民共和國未成年人保護法), which was promulgated on September 4, 1991, and with effect from June 1, 2007, the food, drugs, toys, utensils and amusement facilities, etc. produced and sold for minors shall meet the national standards or industrial standards, and may not be harmful to the safety or health of minors. If the points for attention need to be indicated, they shall be indicated at an eye-catching position

Pursuant to Circular of the General Administration of Quality Supervision, Inspection and Quarantine of PRC on Printing and Distributing the Implementation Rules for the Examination of Pastry and other six types of Food Production License (國家品質監督檢驗檢疫總局關於印發糕點等7類食品生產許可證審查細則的通知), which was promulgated on August 25, 2006 and with effect on September 1, 2006, special requirements is applied in raw materials, licenses check, supervision check and ex-factory check of jelly industry.

Food Identification Management System

Pursuant to the Food Identification Management Requirement (食品標識管理規定) promulgated by General Administration of Quality Supervision, Inspection and Quarantine of the PRC (國家質量監督檢驗檢疫總局) (the “ AQSIQ ”) on August 27, 2007 and effective from September 1, 2008, and the amendments dated October 22, 2009, food identification labels should state the name, place and date of production, expiry date, net content, list of ingredients, names and addresses and contact information of producers, and standardization numbers of national standards, industry standards, local standards or enterprise standards for those who have filed these to the authorities. Food components or ingredients are required to be disclosed on food labels. Nutritional ingredients and their percentage labeling are required with respect to staple and supplementary food for babies, infants or other specified groups of people. Food labels with wordings such as “nutrition” or “strengthened” in their names or descriptions are required to state the nutrition and calories of such food in accordance with the relevant national standards and comply with the quantity identification required by the national standards. Food which is under the production licensing management scheme is required to show its Food Production License number and QS mark on the food label.

Supervision on the use of food additives

Pursuant to the Food Safety Law, no food additive may be used in food unless it is technically deemed necessary and has been proven to be safe and reliable after passing risk assessments. The health administrative department of the State Council shall, on the basis of the technical requirements and the results of the food safety risk assessments, revise the varieties, scope of use and standard on the dosage of food additives in a timely manner. A food producer should use food additives in accordance with the food safety standards in relation to the varieties, scope of use and dosage of food additives, and should not, during the process of food production, use any chemical substances other than food additives or any other substances which may cause potential harm to human health.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

A food producer should inspect the license and product compliance certification document from the supplier when purchasing raw materials for producing food, food additives and food-related products. For any supplier who is unable to provide a compliance certification document, an inspection on the raw materials for producing food shall be implemented in accordance with the food safety standards. No raw material for food, food additives or food-related products with which the food safety standards have not been complied shall be purchased or used. A food production enterprise shall establish an inspection record system for the raw materials purchased for producing food, food additives and food-related products, which records information such as the names, specifications and quantities of the raw materials for producing food, food additives and food-related products, names and contact information of the suppliers and the date of purchase. Such inspection record must be true and be kept for at least two years.

As the Measures for the Administration of New Varieties of Food Additives (食品添加劑新品種管理辦法) was promulgated by the Ministry of Health of the PRC (中華人民共和國衛生部) (the “ MOH ”) on March 30, 2010, the Measures for the Hygienic Administration of Food Additives (食品添加劑衞生管理辦法) issued on March 28, 2002 was abolished. According to these new measures, new varieties of food additives refer to the varieties which are not set by food safety national standards, or not listed in the permitted use catalog announced by the MOH, or not part of the varieties whose scope or dosage has been enlarged. The MOH is responsible for the examination and permission of the application submitted by enterprises or individuals who engage in producing, operating, using or importing new varieties of food additives. In accordance with the technical features and food safety risk analysis of the above-mentioned new variety of food additives, the MOH shall make public and announce the permitted food additives varieties, scope of use and dosage to become food safety national standards. The MOH shall make a timely reassessment when safety problems of food varieties caused are proved by scientist research or other proof, or the technical need is not essential. Approved varieties of food additives may be revoked and the scope of use and dosage may be revised by the MOH if the applicant fails the re-examination.

Under the Administrative Measures for the Record of Use of Food Additive by Food Production and Processing Enterprises (Trial) (食品生產加工企業食品添加物質使用備案管理辦法(試行)) promulgated on and implemented since April 19, 2007 by AQSIQ, an enterprise engaged in food processing in the PRC shall file at the county-level Bureau of Quality and Technical Supervision (質量技術監督局) where it is located a record of the varieties, the use and the dosages of all food additives used in the food, and be responsible for the authenticity of its contents. In case of a change in the basic contents of the record made by such enterprise, a new record should be made within 15 days.

The Notice of Recent Rectification Work for the Nationwide Combating of the Illegal Addition of Non-edible Substances and Abused Use of Food Additives (全國打擊違法添加非食用物質和濫用食品添加劑專項整治近期工作重點及要求), jointly issued by nine authorities including the MOH on March 6, 2009, has specifically emphasized that no addition of non-edible substances, such as leather hydrolyte, melamine, B-lactamase, and sodium sulfocyanate should be added into milk and dairy products, and that the use of thickeners, fragrance and color agents, etc., should not be abused in the production of milk and dairy products either.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Foreign-Investment in Commercial Field

Pursuant to Measures for The Administration On Foreign Investment In Commercial Field (外商投資商業領域管理辦法), which were promulgated on April 16, 2004 and with effect from June 1, 2004, foreign-funded commercial enterprises refer to enterprises with foreign investment engaged in commission agency, wholesale, retail or franchising. All foreign-invested commercial enterprises must meet the following conditions: (A)the minimum registered capital must accord with the relevant provisions as stated in the Company Law; (B) the relevant provisions as to the registered capital and total investment of the Foreign-invested Enterprises must be complied with;(C)the period of operation of a foreign-invested commercial enterprise must not exceed 30 years in general, and the term of operation of a foreign-invested commercial enterprise established in the middle and western areas must not exceed 40 years in general.

According to Circular of the MOFCOM on Delegating Matters Concerning the Examination and Approval of Foreign-invested Commercial Enterprises (商務部關於下放外商投資商業企業審批事項的通知), which was promulgated and with effect from September 12, 2008, the establishment of commercial enterprises with foreign investment and changes in the relevant items as to the established foreign-invested commercial enterprises shall be examined and verified by the commercial departments at provincial level, except that the Ministry of Commerce shall continue to examine and approve the establishment and changes in the relevant items as to the foreign-invested enterprise that engaged in non-store retailing through TV, telephone, mail order, Internet, vending machines, etc. or which deal with the wholesale of audio-visual products or the sale of books, newspapers and periodicals.

Importation and Exportation of goods

Pursuant to the Foreign Trade Law of the PRC (中華人民共和國對外貿易法) (the “ Foreign Trade Law ”), which was promulgated on April 6, 2004 and with effect form July 1, 2004, foreign trade dealers engaged in the import and export of goods or technologies shall register with the authority responsible for foreign trade under the State Council or its authorized bodies unless laws, regulations and the authority responsible for foreign trade under the State Council do not so require. Where foreign trade dealers fail to register as required, the Customs authority shall not process the procedures of declaration, examination and release of the imported and exported goods.

According to the Circular of the Ministry of Commerce on Relevant Issues Concerning the Record Keeping and Registration of the Right to Foreign Trade by Foreign-funded Enterprises (商務部關於外商投資企業外貿權備案登記有關問題的通知), which was promulgated and with effect from August 17, 2004, where foreign-funded enterprises duly established before July 1, 2004 apply for the addition of any import/export business to their approved scope of business, they must, in accordance with the Measures for the Record-keeping and Registration by Foreign Trade Dealers (對外貿易經營者備案登記辦法), complete the formalities of adding business items to the enterprises’ business licenses and shall, in accordance with the relevant procedures, complete the formalities of record-keeping and registration (note: no formalities of change are required in regard to the approval certificate for its establishment) on the strength of the approval certificate for its establishment, business license with the business addition made, and any other documents as required under the Measures for the Record-keeping and Registration. The registration authorities shall affix a stamp indicating “business of distribution of import goods excluded” on the registration form.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Pursuant to the Administrative Provisions for the Registration of Customs Declaration Agents by the PRC Customs Authorities (中華人民共和國海關對報關單位註冊登記管理規定), which was promulgated on March 31, 2005 and with effect from June 1, 2005, “consignor or consignee of export or import goods” means any legal person, other organization or individual that directly imports or exports goods within the territory of the PRC. Consignors or consignees of import or export goods shall go through registration formalities with their local Customs authorities in accordance with the applicable provisions. After going through the registration formalities with Customs authorities, consignors or consignees of import or export goods may handle their own declarations at any customs port or any other places where customs supervisory affairs are concentrated within the customs territory of the PRC. And a PRC Customs Declaration Registration Certificate for Consignor or Consignee of Import or Export Goods shall be valid for a period of 3 years.

Taxation

Income tax

Prior to 1 January 2008, income tax payable by Foreign-invested Enterprises in the PRC was governed by the Foreign-invested Enterprise and Foreign Enterprise Income Tax Law of the PRC (中華人民共和國外商投資企業和外國企業所得稅法) (the “ FIE Tax Law ”) promulgated on April 9, 1991 and with effect from July 1, 1991 and the related implementation rules. Pursuant to the FIE Tax Law, a foreign-invested enterprise was subject to a national income tax at the rate of 30% and a local income tax at the rate of 3% unless a lower rate was provided by laws or administrative regulations. The income tax on Foreign-invested Enterprises established in Special Economic Zones, foreign enterprises which have establishments or places in Special Economic Zones engaged in production or business operations, and on Foreign-invested Enterprises of a production nature in Economic and Technological Development Zones, was levied at the reduced rate of 15%. The income tax on Foreign-invested Enterprises of a production nature established in coastal economic open zones or in the old urban districts of cities where the Special Economic Zones or the Economic and Technological Development Zones are located, was levied at the reduced rate of 24%. Any foreign-invested enterprise of a production nature scheduled to operate for a period of not less than ten years was exempted from income tax for two years commencing from the first profit-making year (after offsetting all tax losses carried forward from previous years) and allowed a 50% reduction in the following three consecutive years.

According to the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) (the “ New Tax Law ”), which was promulgated on March 16, 2007, the income tax for both domestic and Foreign-invested Enterprises is at the same rate of 25% effective from 1 January 2008. The Implementation Rules To the New Tax Law (中華人民共和國企業所得稅法實施條例) (the “ Implementation Rules ”) was promulgated on December 6, 2007 and with effect from January 1, 2008. The New Tax Law provides certain relief during the transaction period that apply to enterprises that were established prior to March 16, 2007 (i) if Foreign-invested Enterprises enjoy reduced tax rates under the laws and regulations, the tax rate will be gradually increased to coincide with the new tax rate within five years starting from 2008; and (ii) if Foreign-invested Enterprises enjoy tax holidays for a fixed period under laws and regulations, such Foreign-invested Enterprises can continue the holiday until its expiry. However, if an enterprise has not started to enjoy the tax holiday due to a lack of profit, 2008 will be regarded as the first profit-making year and the enterprise starts to enjoy the tax holiday.

Also under the New Tax Law, High and new technology Enterprises that require key state support are subject to the applicable enterprise income tax rate with a reduction of 15%.

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APPENDIX V

SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Value-added tax

Pursuant to the Provisional Regulations on Value-added Tax of the PRC (中華人民共和國增值稅暫行條例) last amended on November 5, 2008 and with effect from January 1, 2009 and its implementation rules, all entities or individuals in the PRC engaging in the sale of goods, the provision of processing services, repairs and replacement services, and the importation of goods are required to pay value-added tax (“VAT”). The amount of VAT payable is calculated as “output VAT” minus “input VAT”. The rate of VAT is 17% for those engaging in the sale or importation of goods except as otherwise provided by paragraph (2) and paragraph (3) of Article 2 in the Provisional Regulations on Value-added Tax of the PRC and is also 17% for those providing processing services, repairs and replacement services.

Urban Maintenance and Construction Tax as well as Education Surtax

According to Circular of the State Council on Unifying the System of Urban Maintenance and Construction Tax and Education Surtax Paid by Domestic and Foreign-invested Enterprises and Individuals (國務院關於統一內外資企業和個人城市維護建設稅和教育費附加制度的通知), which was promulgated and with effect from October 18, 2010, from December 1, 2010, the Tentative Regulations of the PRC on Urban Maintenance and Construction Tax promulgated in 1985 and the Tentative Provisions on the Collection of Educational Surtax promulgated in 1986 by the State Council shall be applicable to foreign-invested enterprises, foreign enterprises and individual foreigners.

Pursuant to Tentative Regulations of the PRC on Urban Maintenance and Construction Tax (中華人民共和國城市維護建設稅暫行條例), which was promulgated on February 8, 1985 and with effect from 1985, and Circular of the State Administration of Taxation on Issues Concerning the Collection of the Urban Maintenance and Construction Tax (國家稅務總局關於城市維護建設稅徵收問題的通知), which was promulgated on March 12, 1994 and with effect from January 1,1994, any unit or individual liable to consumption tax, value-added tax and business tax shall also be required to pay urban maintenance and construction tax. Payment of urban maintenance and construction tax shall be based on the consumption tax, value-added tax and business tax which a taxpayer actually pays and shall be made simultaneously when the latter are paid. Furthermore, the rates of urban maintenance and construction tax shall be 7%, 5% and 1% for a taxpayer in a city, in a county town or town and in a place other than a city, county town or town respectively.

In accordance with Tentative Provisions on the Collection of Educational Surtax (徵收教育費附加的暫行規定), which was last revised on August 20, 2005 and with effect from October 1, 2005, all units and individuals who pay consumption tax, value-added tax and business tax shall also be required to pay educational surtax in accordance with these Provisions. The educational surtax rate is 3% of the amount of value-added tax, business tax and consumption tax actually paid by each unit or individual, and the educational surtax shall be paid simultaneously with value-added tax, business tax and consumption tax.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Foreign currency exchange and dividend distribution

Foreign currency exchange

The principal regulation governing foreign currency exchange in China is the Foreign Exchange Administration Rules of the PRC (中華人民共和國外匯管理條例) (the “ Foreign Exchange Administration Rules ”). There were promulgated by the State Council of the PRC (中華人民共和國國務院) on January 29,1996 and with effect from April 1, 1996 and were amended on 14 January 1997 and 1 August 2008. Under these rules, Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loans unless the prior approval by the competent authorities for the administration of foreign exchange is obtained.

Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE for paying dividends by providing certain evidencing documents (board resolutions, tax certificates, etc.), or for trade and services-related foreign exchange transactions by providing commercial documents evidencing such transactions. They are also allowed to retain foreign currency (subject to a cap approval by SAFE) to satisfy foreign exchange liabilities. In addition, foreign exchange transactions involving overseas direct investment or investment and trading in securities, derivative products abroad are subject to registration with the competent authorities for the administration of foreign exchange and approval or filings with the relevant governmental authorities (if necessary).

Dividend distribution

Before the promulgation of the New Tax Law, the principal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises include the Wholly Foreign-owned Enterprise Law, the FIE Tax Law and their respective Implementation Regulations.

Under these regulations, wholly foreign-owned enterprises in China may only pay dividends from accumulated after-tax profit, if any, determined in accordance with PRC accounting standards and regulations. And dividends paid to its foreign investors are exempt from withholding tax. However, this exemption provision has been revoked by the New Tax Law which prescribes a standard withholding tax rate of 20% on dividends and other China-sourced passive income of non-resident enterprises. The Implementation Rules reduced the rate from 20% to 10%, effective from January 1, 2008.

The PRC and the government of Hong Kong SAR signed Arrangement between the Mainland of the PRC and Hong Kong SAR for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (內地和香港特別行政區關於對所得稅避免雙重徵稅和防止偷漏稅的安排) on August 21, 2006 (the “ Arrangement ”). According to the Arrangement, the withholding tax rate 5% applies to dividends paid by a PRC company to a Hong Kong resident, provided that such Hong Kong resident directly holds at least 25% of the equity interests of the PRC company. The 10% withholding tax rate applies to dividends paid by a PRC company to a Hong Kong resident if such Hong Kong resident holds less than 25% of the equity interests of the PRC company.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Furthermore, pursuant to the Circular of the State Administration of Taxation on Relevant Issues relating to the Implementation of Dividend Clauses in Tax Treaty Agreements (國家稅務總局關於執行稅收協定股息條款有關問題的通知), which was promulgated and with effect from February 2, 2009, all of the following requirements should be satisfied where a fiscal resident of the other party to the tax agreement needs to be entitled to such tax agreement treatment as being taxed at a tax rate specified in the tax agreement for the dividends paid to it by a Chinese resident company: a) such a fiscal resident who obtains dividends should be a company as provided in the tax agreement; b) owner’s equity interests and voting shares of the Chinese resident company directly owned by such a fiscal resident reaches a specified percentage; and c) the equity interests of the Chinese resident company directly owned by such a fiscal resident, at any time during the twelve months prior to the obtainment of the dividends, reach a percentage specified in the tax agreement.

In addition, according to the Circular on Printing and Issuing the Administrative Measures (Trial) for Enjoying Treatment Under Taxation Treaties by Non-resident Individuals and Enterprises (關於印發《非居民享受稅收協定待遇管理辦法（試行）》的通知) (“Administrative Measures”) which came into force on October 1, 2009, where a non-resident enterprise (as defined under the PRC tax laws) that receives dividends from a PRC resident enterprise wishes to enjoy the favorable tax benefits under the tax arrangements, it shall submit an application for approval to the competent tax authority. Without being approved, the non-resident enterprise may not enjoy the favorable tax treatments provided in the tax treaties.

Product Quality

The principal legal provisions governing product liability are set out in the Product Quality Law of the PRC (中華人民共和國產品品質法) (the “ Product Quality Law ”), which was promulgated on February 22, 1993 and amended on July 8, 2000.

The Product Quality Law is applicable to all activities of production and sale of any product within the territory of the PRC, and the producers and sellers shall be liable for product quality in accordance with the Product Quality Law.

According to the Product Quality Law, consumers or other victims who suffer personal injury or property losses due to product defects may demand compensation from the producer as well as the seller. Where the responsibility for product defects lies with the producer, the seller shall, after settling compensation, have the right to recover such compensation from the producer, and vice versa.

Violations of the Product Quality Law may result in the imposition of fines. In addition, the seller or producer may be ordered to suspend operation and its business license may be revoked. Criminal liability may be incurred in serious cases.

Consumer Protection

The principal legal provisions for the protection of consumer interests are set out in the Consumer Protection Law of the PRC (中華人民共和國消費者權益保護法) (the “ Consumer Protection Law ”), which was promulgated on October 31, 1993 and with effect from January 1, 1994.

According to the Consumer Protection Law, the rights and interests of the consumers who buy or use commodities for the purposes of daily consumption or those who receive services are protected and all manufacturers and distributors involved must ensure that the products and services will not cause damage to persons and properties.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Violations of the Consumer Protection Law may result in the imposition of fines. In addition, the operator will be ordered to suspend operations and its business license will be revoked. Criminal liability may be incurred in serious cases.

Anti-Monopoly Law

Pursuant to the Anti-Monopoly Law of the PRC (中華人民共和國反壟斷法) (the “ Anti-Monopoly Law ”), which was promulgated on August 30, 2007 and effective from August 1, 2008, “dominant market position” shall refer to a position where in an operator may manipulate the price, volume and other trade conditions of commodity on relevant market, or may obstruct or otherwise effect the entrance of other operators into relevant markets. And operators who hold a dominant market position shall be prohibited from engaging in such practices which may be classified as an abuse of said position as: a) selling products at unfairly high or unfairly low prices, b) selling products at a price lower than cost without legitimate grounds, c) refusing to trade with the other trading party without legitimate grounds, d) forcing the other trading party to trade only with said operator or other operators specified by said operator without legitimate grounds, e) conducing tie-in sales or adding other unreasonable conditions on a deal without legitimate grounds, f) discriminating among trading parties of the same qualifications with regards to trade price, etc. without legitimate grounds, or g) other practices recognized by the anti-monopoly law enforcement authorities as abuse of dominant market position. Furthermore, where an operator violates the provisions of the Anti-Monopoly Law by abusing dominant market position, the anti-monopoly law enforcement authorities shall order a halt to the offending behavior, confiscate the illegal earnings, and impose a fine of 1-10% of the previous year’s sales revenue.

Competition Law

Competitions among the business operators are generally governed by the Law of the PRC for Anti-Unfair Competition (中華人民共和國反不正當競爭法) (the “ Anti-Unfair Competition Law ”). According to the Anti-Unfair Competition Law, when trading on the market, operators shall abide by the principles of voluntaries, equality, fairness, honesty and credibility, and observe generally recognized business ethics. And acts of operators which contravene the provisions of the Anti-Unfair Competition Law, with a result of damaging the lawful rights and interests of other operators, and disturbing the socio-economic order shall constitute unfair competition. When the lawful rights and interests of an operator are damaged by the acts of unfair competition, it or he may institute proceedings in a people’s court. In comparison, where an operator commits unfair competition in contravention of the provisions of the Anti-Unfair Competition law and causes damage to another operator, it or he shall bear the responsibility for compensating for the damages. Where the losses suffered by the injured operator are difficult to calculate, the amount of damages shall be the profit gained by the infringer during the period of infringement through the infringing act. The infringer shall also bear all reasonable costs paid by the injured operator in investigating the acts of unfair competition committed by the operator suspected of infringing its or his lawful rights and interests.

Price Law

Pursuant to the Price Law of The PRC (中華人民共和國價格法) (the “ Price Law ”), which was promulgated on December 29, 1997 and with effect from May 1, 1998, the operators shall, in determining prices, abide by the principle of fairness, being in conformity with law, honesty and credibility. And production and management costs and market supply and demand situation shall be the fundamental basis for the determination of prices by the operators.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

The operators shall, in selling, procuring commodities and providing services, display the clearly marked price in accordance with the provisions of the competent departments of price of the government. And the operators shall not sell commodities with additional price besides the marked price and shall not collect any fee not indicated. Furthermore, the operators shall not commit such unfair price acts as manipulating market price in collusion to the detriment of the lawful rights and interests of other operators or consumers and so on. Any operator who commits any of the unfair price acts prescribed in the Price Law shall be ordered to make a rectification, confiscated of the illegal gains and may be concurrently imposed a fine of less than five times of the illegal gains; where the circumstances are serious, an order shall be issued for the suspension of business operations for consolidation, or the business license revoked by the agency of industry and commerce administration. In addition, any operator who causes consumers or other operators to pay more prices for illegal price acts should refund the portion overpaid; where damage has been caused, liability for compensation shall be borne according to law. And any operator who violates the provision of clearly marking prices shall be ordered to make a rectification, confiscated of the illegal gains and may be concurrently imposed a fine of less than RMB5,000.

Intellectual Property Rights

Copyright

According to the Copyright Law of the PRC (中華人民共和國著作權法) (the “ Copyright Law ”), which was amended in 2010 and with effect from April 1, 2010, copyrights include personal rights such as the right of publication and that of attribution as well as property rights such as the right of production and that of distribution. Reproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to the public via an information network without permission from the owner of the copyright therein, unless otherwise provided in the Copyright Law, shall constitute infringements of copyrights. The infringer shall, according to the circumstances of the case, undertake to cease the infringement, take remedial action, offer an apology, pay damages, etc.

Trademark

Pursuant to the Trademark Law of the PRC (中華人民共和國商標法) (the “ Trademark Law ”), which was revised on 27 October 2001 and with effect from December 1, 2001, the right to exclusive use of a registered trademark shall be limited to trademarks which have been approved for registration and to goods for which the use of trademark has been approved. The period of validity of a registered trademark shall be ten years, counted from the day the registration is approved. And according to the Trademark Law, using a trademark that is identical with or similar to a registered trademark in connection with the same or similar goods without the authorization of the owner of the registered trademark constitutes an infringement of the exclusive right to use a registered trademark. Where a dispute arises after a party commits any of the acts infringing upon another party’s exclusive right to use a registered trademark as enumerated in the Trademark Law, the parties involved shall settle the dispute through consultation. Where the parties refuse to pursue consultation or where consultation has failed, the trademark registrant or any interested party may institute legal proceedings with the People’s Court or ask the administrative authorities for industry and commerce to handle the matter upon determining that trademark infringement has taken place.

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APPENDIX V

SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Patent

Pursuant to the Patent Law of the PRC (中華人民共和國專利法) (the “ Patent Law ”), which was revised on 27 December 2008 and with effect from October 1, 2009, the term “invention” used in it refers to any new technical solution relating to a product, a process or improvement thereof, and the term “utility model” used therein refers to any new technical solution relating to the shape, the structure, or their combination, of a product, which is fit for practical use, while the term “design” used therein refers to any new design of the shape, pattern or their combination and the combination of color and shape or pattern, of a product, which creates an aesthetic feeling and is fit for industrial application.

After the grant of the patent right for an invention or utility model, except where otherwise provided for in the Patent Law, no entity or individual may, without the authorization of the patent owner, exploit the patent, that is, make, use, offer to sell, sell or import the patented product, or use the patented process, or use, offer to sell, sell or import any product which is a direct result of the use of the patented process, for production or business purposes. And after a patent right is granted for a design, no entity or individual shall, without the permission of the patent owner, exploit the patent, that is, for production or business purposes, manufacture, offer to sell, sell, or import any product containing the patented design.

Besides, the duration of patent right for inventions shall be twenty years and the duration of patent right for utility models and designs shall be ten years, both commencing from the date of application. Furthermore, where a dispute arises as a result of the exploitation of a patent without the authorization of the patentee, that is, the infringement of the patent right of the patentee, it shall be settled through consultation by the parties. Where the parties are not willing to consult with each other or where the consultation fails, the patent owner or any interested party may institute legal proceedings with the people’s court, or request the administrative authority for patent affairs to handle the matter.

Domain Name

Pursuant to the Measures for the Administration of Internet Domain Names of China (中國互聯網域名管理辦法), which was promulgated on 5 November 2004 and effective from December 20, 2004, “domain name” shall refer to the character mark of hierarchical structure, which identifies and locates a computer on the Internet and corresponds to the Internet protocol (IP) address of that computer. And the principle of “first come, first serve” is followed for the domain name registration service. After completing the domain name registration, the applicant becomes the holder of the domain name registered by him/it. Furthermore, the holder shall pay operation fees for registered domain names on schedule. If the domain name holder fails to pay the corresponding fees as required, the original domain name registrar shall write it off and notify the holder of the domain name in written form.

Environmental Protection

According to the Environmental Protection Law of the PRC (中華人民共和國環境保護法) (the “ Environmental Protection Law ”), which was promulgated and with effect from December 26, 1989:

any entity that discharges pollutants must establish environmental protection rules and adopt effective measures to control or properly treat waste gas, waste water, waste residues, dust, malodorous gases, radioactive substances, noise, vibration and electromagnetic radiation and other hazards it produces;

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

any entity that discharges pollutants must report to and register with the relevant environmental protection authorities; and
any entity that discharges pollutants in excess of the prescribed national or local standards must pay a fee therefor.

The Ministry of Environmental Protection of the PRC Government authorities shall impose different penalties on persons or enterprises in violation of the Environmental Protection Law depending on the individual circumstances and the extent of contamination. Such penalties include warnings, fines, decisions to impose deadlines for cure, orders to stop production, orders to re-install contamination prevention and cure facilities which have been removed or left unused, imposition of administrative actions against relevant responsible persons, or orders to close down those enterprises or authorities.

Prevention and Control of Water Pollution

Pursuant to Law of the PRC on Prevention and Control of Water Pollution (中華人民共和國水污染防治法), which was revised on February 28, 2008 and with effect from June 1, 2008. the State adopts license system for pollutant discharge. Enterprises and institutions that discharge industrial waste water or medical treatment sewage directly or indirectly into a water body, as well as other enterprises and institutions that can discharge waste water or sewage only after obtaining license for pollutant discharge shall obtain license for pollutant discharge. The specific measures and implementation procedures for the license for pollutant discharge shall be formulated by the State Council (國務院).

Enterprises, institutions and individually-owned industrial and/or commercial businesses that discharge pollutants directly or indirectly into a water body shall, pursuant to the regulations of the competent environmental protection authorities under the State Council (國務院), report to and register with the competent environmental protection authorities under the local people’s government at or above the county level their existing facilities for discharging and treating pollutants, and the categories, quantities and concentrations of pollutants discharged under their normal operating conditions, and also provide to the same department technical information concerning prevention and control of water pollution. The enterprises, institutions and individually-owned industrial and/or commercial businesses shall report without delay any substantial change in categories, quantities or concentrations of the pollutants discharged. Their facilities for treating water pollutants must be kept in normal functioning operation enterprises, institutions and individually-owned industrial and/or commercial businesses that discharge pollutants into a water body shall build sewage outlets in accordance with relevant laws, administrative regulations and the provisions of competent environmental protection authorities under the State Council. Those that build any sewage outlet in a river or lake shall also abide by the provisions of the competent authorities of water conservancy administration under the State Council (國務院水行政管理部門).

Prevention and Control of Atmospheric Pollution

In accordance with Law of the PRC on the Prevention and Control of Atmospheric Pollution (中華人民共和國大氣污染防治法), which was revised on April 29, 2000, and with effect from September 1, 2000, the relevant local people’s governments in the areas where the total amount of the atmospheric pollutants discharged is kept under control shall, in compliance with the requirements and procedures

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

prescribed by the State Council and in line with the principles of openness, fairness and impartiality, check and fix the total amounts of the main atmospheric pollutants discharged by enterprises and institutions and issue them permits for discharge for such pollutants. The enterprises and institutions that undertake to control their total amounts of atmospheric pollutants discharged shall discharge pollutants in conformity with the checked and fixed total amounts of the main atmospheric pollutants to be discharged and the requirements in respect of their discharge prescribed by the permits.

Units that discharge atmospheric pollutants shall, pursuant to the regulations laid down by the administrative department for environmental protection under the State Council (國務院環境保護行政主管部門), report to the local administrative department for environmental protection the facilities installed for discharging and treating pollutants and the categories, quantities and density of the pollutants discharged under regular operation conditions and submit to the same department the relevant technical data concerning the prevention and control of atmospheric pollution. The units that discharge pollutants, as mentioned in the preceding paragraph, shall without delay report on any substantial change in the categories, quantities or density of the atmospheric pollutants discharged. They shall keep their facilities for treating atmospheric pollutants in regular operation; where the said facilities are to be dismantled or left idle, the matter shall be reported to the local administrative department for environmental protection under the people’s government at or above the county level for approval in advance.

Prevention and Control of Environmental Noise Pollution

Pursuant to Law of the PRC on Prevention and Control of Environmental Noise Pollution (中華人民共和國環境噪聲污染防治法), which was revised on and with effect from October 29, 1996, the industrial noise emitted to the living environment of the neighborhood within an urban area shall be kept within the limits set by the State on emission of environmental noise within the boundary of an industrial enterprise. Any industrial enterprise that produces environmental noise pollution due to the use of permanent equipment in the course of industrial production must, in accordance with the regulations of the competent administrative department for environmental protection under the State Council (國務院環境保護行政主管部門), report to the competent administrative department for environmental protection of the local people’s government at or above the county level the types and quantity of its equipment that produces environmental noise pollution, the noise level produced under normal operation and the facilities installed for prevention and control of such pollution, and provide technical information relating to the prevention and control of noise pollution. Any industrial enterprise that intends to make a substantial change in the types or quantity of the equipment that produces environmental noise pollution, in the noise level or facilities for prevention and control of such pollution must submit a report without delay and take prevention and control measures as it should. Industrial enterprises that produce environmental noise pollution shall take effective measures to minimize the impact of noise on the living environment of the neighborhood.

Prevention and Control of Environmental Pollution by Solid Waste

Pursuant to the Law of the PRC on the Prevention and Control of Environmental Pollution by Solid Wastes (中華人民共和國固體廢物污染環境防治法), which was promulgated on December 29, 2004 and with effect from April 1, 2005, entities discharging industrial solid wastes shall establish and improve the responsibility system for the prevention and control of environmental pollution and adopt measures for the prevention and control of environmental pollution by industrial solid wastes.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

The State institutes a system of declaration and registration for industrial solid wastes. The entities discharging industrial solid wastes shall, in accordance with the regulations enacted by the environmental protection administrative department of the State Council (國務院環境保護行政主管部門), provide information about the categories, discharging amount, flow direction, storage, treatment and other materials concerning industrial solid wastes to the environmental protection administrative department of the local people’s government at or above the county level where such entities are located. Any significant modification of the declaration matters as prescribed in the preceding paragraph shall be declared in a timely manner. Enterprises and public institutions shall make use of industrial solid wastes produced thereby pursuant to economic and technical conditions; for those industrial solid wastes that will not or can’t be utilized temporarily, enterprises and public institutions shall, in accordance with the regulations of the environmental protection administrative department of the State Council (國務院環境保護行政主管部門), build facilities and sites for their safe and classified storage or carry out the harmless treatment for them. The construction of facilities and sites for storing and treating industrial solid wastes shall comply with state standards on environmental protection.

Standards of Collecting Fees for Discharge of Pollutants

According to Circular on the Standards of Collecting Fees for Discharge of Pollutants (排污費徵收標準管理辦法), which was promulgated on February 28, 2003, and with effect from July 1, 2003, environmental protection authorities under the local people’s government at or above the county level shall collect the fee for pollutant discharge according to the following matters: Enterprises, institutions and individually-owned industrial and/or commercial businesses that directly discharge pollutants into a water body shall pay the fee for pollutant discharge according to the kinds and quantity of the water pollutants discharged and the standards for collecting the fee for pollutant discharge. Enterprises that pay fees to facilities for centralized treatment of urban sewage according to the kinds and quantity of the water pollutants discharged, shall not pay the fee for discharge of pollutants. enterprises, institutions and individually-owned industrial and/or commercial businesses that discharge atmospheric pollutants shall pay the fee for pollutant discharge on the basis of the categories and quantities of the atmospheric pollutants discharged. If construction of facilities and sites for storing and treating industrial solid wastes haven’t been built or haven’t complied with state standards on environmental protection, Enterprises, institutions and individually-owned industrial and/or commercial businesses shall pay fees for solid wastes discharge according to the kinds and quantity of the solid wastes pollutants discharged. Enterprises, institutions and individually-owned industrial and/or commercial businesses that produce environmental noise pollution that impairs the living environment of the neighborhood shall pay fees for excessive emission of such pollution.

Construction Project Environmental Protection

According to the Regulations on Administration of Construction Project Environmental Protection (建設項目環境保護管理條例), which were promulgated and with effect from November 29, 1998, the PRC practices a system that evaluates the environmental impact of a construction project. A construction unit should, in the phase of construction project feasibility study, submit the construction project environmental impact report, environmental impact statement or environmental impact registration form for approval. For a construction project that necessitates no feasibility study pursuant to relevant state provisions, the construction unit should, prior to the start of the construction of the construction project, submit the construction project environmental impact report, environmental impact statement or

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

environmental impact registration form for approval. Besides, the construction unit should, upon the completion of the construction project, file an application with the competent department of environmental protection administration that examined and approved the said construction project environmental impact report, environmental impact statement or environmental impact registration form for acceptance checks on completion of matching construction of environmental protection facilities required for the said construction project. For construction projects that are built in phases, go into production or are delivered for use in phases, acceptance checks for their corresponding environmental protection facilities should be conducted in phases.

Labour Contracts

Pursuant to the Labor Contract Law of the PRC (中華人民共和國勞動合同法) (the “ Labor Contract Law ”), which was adopted by the Standing Committee of the National People’s Congress on June 29, 2007 and with effect from January 1, 2008, to establish a labor relationship, a written labor contract should be concluded. In the event that no written labor contract is concluded at the time when a labor relationship is established, such a written contract should be concluded within one month from the date when the employer employs the employee. Where the employer fail to conclude a written labor contract with the employee for more than one month but less than a year from the date it starts employing him, it shall pay the employee two times his salary for each month. In addition, if the employer fails to conclude a written labor contract with the employee within one year as of the date when it employs the employee, it shall be deemed to have concluded an open-ended contract with the employee.

Social Insurance and Housing Provident Fund

According to the Social Insurance Law of the PRC (中華人民共和國社會保險法), which was promulgated on October 28th, 2010 and with effect from July 1st, 2011, employees shall participate in basic pension insurance, basic medical insurance and unemployment insurance schemes. Basic pension, medical insurance and unemployment insurance contributions shall be paid by both employers and employees. Employees shall participate in work-related injury insurance and maternity insurance schemes. Work-related injury insurance and maternity insurance contributions shall be paid by employers rather than employees.

Pursuant to the Social Insurance Law of the PRC, if an employer fails to pay work-related injury insurance contributions in accordance with law, it shall pay work-related injury insurance benefits in the case of a work-related injury accident. If the employer fails to make such payment, the benefits shall first be reimbursed by the work-related injury insurance fund. Work-related injury insurance benefits reimbursed by the work-related injury insurance fund shall be repaid by the employer. If the employer fails to make repayment, social insurance agencies may recover such benefits from the employer in accordance with the Social Insurance Law of the PRC.

Furthermore, as to the unemployment insurance, employers shall provide unemployed individuals with certification of the expiry or termination of their employment relations in a timely manner, and within 15 days of such expiry or termination, inform social insurance agencies of the list of the unemployed individuals. Unemployed individuals shall undertake the procedures for unemployment registration with the designated public employment service institutions in a timely manner by producing their former employers’ certification of the expiry or termination of employment relations. The period for receiving unemployment insurance benefits shall be calculated from the date of unemployment registration.

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APPENDIX V SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

An employer shall make registration with the local social insurance agency in accordance with the provisions of the Social Insurance Law of the PRC. Moreover, an employer shall declare and make social insurance contributions in full and on time. Except for mandatory exceptions such as force majeure, social insurance may not be paid late, reduced or be exempted. If an employer fails to report the social insurance premium payable in accordance with the relevant regulations, the social insurance agency shall provisionally set the amount payable at 110% of the premium paid in the previous month. Once the employer has retroactively undertaken the reporting procedures, the social insurance agency shall settle the amount in accordance with the relevant regulations. Where an employer fails to make social insurance contributions in full and on time, the social insurance agency may order rectification within a specified time limit. If the employer fails to rectify within the specified time limit, the social insurance agency may enquire with the relevant bank(s) and other financial institution(s) in which the employer has an account; and may apply with the relevant administrative department above the county level for an administrative order to allocate and transfer the unpaid social insurance contributions and notify the relevant bank or other financial institution in writing to allocate and transfer the unpaid social insurance contributions. Where the balance in the employer’s bank account is less than the overdue social insurance contributions, the social insurance agency may request the employer to provide a guarantee and sign a social insurance payment agreement for the delayed payment. If the employer does not make the social insurance contributions within the specified time limit and fail to provide a guarantee with respect to the same, the social insurance agency may request the people’s court to seize the property of the employer (equivalent in value to the unpaid overdue social insurance contributions), and collect the overdue social insurance contributions from the proceeds obtained from the auction of such property.

Regulations on Management of Housing Provident Fund (住房公積金管理條例), promulgated and with effect from March 24, 2004, are applicable to enterprises with foreign investment. Enterprises are required to pay housing provident fund for their employees. To the details, enterprises shall register with the relevant housing provident fund management center within 30 days from the date of establishment, and open housing provident fund accounts with designated bank on behalf of their employees within 20 days from the date of the registration with the verified documents of the housing provident fund management center. And when employing new employees, enterprises shall register with the housing provident fund management center within 30 days from the date of the employment of such employees, and open housing provident fund accounts for such employees at the designated bank with the verified documents of the housing provident fund management center. Furthermore, the housing provident fund to be paid and deposited by an employee shall be withheld from his/her salary by the enterprise, and the enterprise itself shall pay and deposit housing provident fund on schedule and in full, and may not be overdue in the payment and deposit or underpay the housing provident fund. The payment and deposit rate for housing provident fund (either for the employee or for the enterprise) shall not be less than five percent of the average monthly salary of the employee concerned in the previous year.

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APPENDIX V

SUMMARY OF PRINCIPAL PRC LAWS AND REGULATIONS RELATING TO OUR BUSINESS

Production Safety

Pursuant to the Production Safety Law of the PRC (中華人民共和國安全生產法), which was promulgated on June 29, 2002 and with effect from November 1, 2002, special equipment that concerns the safety of life or is rather dangerous, the containers of hazardous substances, or transportation tools that any production and business operation entity uses must, according to the relevant provisions of the state, be manufactured by specialized production entities, and may only be put into use after it has passed the detections and tests of those detecting and testing institutions that have been equipped with the professional qualifications for which a certificate for safe use or a mark of safety has been obtained. In addition, the production, business operation, transportation, storage, and use of any dangerous substances or the disposal of or abandonment of dangerous substances shall be subject to the examination and approval as well as the supervision and administration of the relevant administrative departments according to the provisions of the relevant laws and regulations, national standards, or industrial standards.

Pursuant to the Regulations on Safety Supervision of Special Equipment (特種設備安全監察條例), promulgated on March 11, 2003 and with effect from June 1, 2003 (amended on January 14, 2009 and with effect from May 1, 2009), “special equipment” used in the regulations refers to boilers, pressure vehicles (including gas cylinders, same below), pressure pipelines, elevators, lifting alliances, passenger ropeways, and large amusement devices, which relate to safety of human lives or having high risks. As required by the Regulations, prior to the putting-into-service of any special equipment or within 30 days after such putting-into-service, units using special equipment shall register with competent departments for safety supervision and administration of special equipment. The registration mark shall be placed or attached to a prominent position of the special equipment. Furthermore, operators and the relevant managerial staff of boilers, pressure vessels, elevators, lifting appliances, passenger ropeways and large amusement devices (referred to as the “operators of special equipment”) shall not engage in corresponding operation or management until they have passed the examination organized by the departments for safety supervision and administration of special equipment as required by the State and acquired certificates for operators of special equipment with a nationally unified formula.

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APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

Set out below is a summary of certain provisions of the memorandum of association (the “Memorandum of Association”) and bye-laws (the “Bye-laws”) of the Company and of certain aspects of Bermuda company law.

1. MEMORANDUM OF ASSOCIATION

The Memorandum of Association states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the Company is an exempted company as defined in the Companies Act. The Memorandum of Association also sets out the objects for which the Company was formed which are unrestricted and that the Company has the capacity, rights, powers and privileges of a natural person. As an exempted company, the Company will be carrying on business outside Bermuda from a place of business within Bermuda.

In accordance with and subject to section 42A of the Companies Act, the Memorandum of Association empowers the Company to purchase its own shares and pursuant to its Bye-laws, this power is exercisable by the board of Directors (the “board”) upon such terms and subject to such conditions as it thinks fit.

2. BYE-LAWS

The Bye-laws were adopted on September 23, 2011. The following is a summary of certain provisions of the Bye-laws:

(a) Directors

(i) Power to allot and issue shares and warrants

Subject to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Act, any preference shares may be issued or converted into shares that are liable to be redeemed, at a determinable date or at the option of the Company or, if so authorised by the Memorandum of Association, at the option of the holder, on such terms and in such manner as the Company before the issue or conversion may by ordinary resolution determine. The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

Subject to the provisions of the Companies Act, the Bye-laws, any direction that may be given by the Company in general meeting and, where applicable, the rules of any Designated Stock Exchange (as defined in the Bye-laws) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

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Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any of its subsidiaries

There are no specific provisions in the Bye-laws relating to the disposal of the assets of the Company or any of its subsidiaries.

Note: The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Bye-laws or the Companies Act to be exercised or done by the Company in general meeting.

(iii) Compensation or payments for loss of office

Payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

(iv) Loans and provision of security for loans to Directors

There are no provisions in the Bye-laws relating to the making of loans to Directors. However, the Companies Act contains restrictions on companies making loans or providing security for loans to their directors, the relevant provisions of which are summarised in the paragraph headed “Bermuda Company Law” in this Appendix.

(v) Financial assistance to purchase shares of the Company

Neither the Company nor any of its subsidiaries shall directly or indirectly give financial assistance to a person who is acquiring or proposing to acquire shares in the Company for the purpose of that acquisition whether before or at the same time as the acquisition takes place or afterwards, provided that the Bye-laws shall not prohibit transactions permitted under the Companies Act.

(vi) Disclosure of interests in contracts with the Company or any of its subsidiaries

A Director may hold any other office or place of profit with the Company (except that of auditor of the Company) in conjunction with his office of Director for such period and, subject to the Companies Act, upon such terms as the board may determine, and may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Bye-laws. A Director may be or become a director or other officer of, or a member of, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration,

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profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Bye-laws, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

Subject to the Companies Act and to the Bye-laws, no Director or proposed or intending Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his associates is materially interested but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his associate(s) any security or indemnity in respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of his associates at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company; or
(ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s), as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates.

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(vii) Remuneration

The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such remuneration (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably incurred or expected to be incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration provided for by or pursuant to any other Bye-law. A Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependants or any class or classes of such persons.

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependants, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependants are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(viii) Retirement, appointment and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) will retire from office by rotation provided that every Director shall be subject to retirement at least once every three years. The Directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot.

Note: There are no provisions relating to retirement of Directors upon reaching any age limit.

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The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board or, subject to authorisation by the members in general meeting, as an addition to the existing board but so that the number of Directors so appointed shall not exceed any maximum number determined from time to time by the members in general meeting. Any Director appointed by the board to fill a casual vacancy shall hold office until the first general meeting of Members after his appointment and be subject to re-election at such meeting and any Director appointed by the board as an addition to the existing board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.

A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention to do so and be served on such Director fourteen (14) days before the meeting and, at such meeting, such Director shall be entitled to be heard on the motion for his removal. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors unless otherwise determined from time to time by members of the Company.

The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period (subject to their continuance as Directors) and upon such terms as the board may determine and the board may revoke or terminate any of such appointments (but without prejudice to any claim for damages that such Director may have against the Company or vice versa). The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(ix) Borrowing powers

The board may from time to time at its discretion exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Act, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

Note: These provisions, in common with the Bye-laws in general, can be varied with the sanction of a special resolution of the Company.

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(b) Alterations to constitutional documents

The Bye-laws may be rescinded, altered or amended by the Directors subject to the confirmation of the Company in general meeting. The Bye-laws state that a special resolution shall be required to alter the provisions of the Memorandum of Association, to confirm any such rescission, alteration or amendment to the Bye-laws or to change the name of the Company.

(c) Alteration of capital

The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Act:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;
(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares as the directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association;
(v) change the currency denomination of its share capital;
(vi) make provision for the issue and allotment of shares which do not carry any voting rights; and
(vii) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may, by special resolution, subject to any confirmation or consent required by law, reduce its authorised or issued share capital or, save for the use of share premium as expressly permitted by the Companies Act, any share premium account or other undistributable reserve.

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Act, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Bye-laws relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons or (in the case of a member being a corporation) its duly authorised representative holding or representing by proxy not less than one-third in nominal value of the

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issued shares of that class and at any adjourned meeting two holders present in person or (in the case of a member being a corporation) its duly authorised representative or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him.

(e) Special resolution-majority required

A special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice of not less than twenty-one (21) clear days and not less than ten (10) clear business days specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that if permitted by the Designed Stock Exchange (as defined in the Bye-laws), except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five per cent. (95%) in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which notice of less than twenty-one (21) clear days and not less than ten (10) clear business days has been given.

(f) Voting rights

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Bye-laws, at any general meeting on a poll every member present in person or by proxy or (being a corporation) by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share.

A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case every member present in person (or being a corporation, is present by a duly authorized representative), or by proxy(ies) shall have one vote provided that where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares held by that clearing house (or its nominee(s)) in respect of the number and class of shares specified in the relevant authorisation, including, where a show of hands is allowed, the right to vote individually on a show of hands.

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APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

Where the Company has any knowledge that any shareholder is, under the rules of the Designated Stock Exchange (as defined in the Bye-laws), required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

(g) Requirements for annual general meetings

An annual general meeting of the Company must be held in each year other than the year in which its statutory meeting is convened at such time (within a period of not more than 15 months after the holding of the last preceding annual general meeting unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Bye-laws)) and place as may be determined by the board.

(h) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the provisions of the Companies Act or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

The accounting records shall be kept at the registered office or, subject to the Companies Act, at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right of inspecting any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting.

Subject to the Companies Act, a printed copy of the Directors’ report, accompanied by the balance sheet and profit and loss account, including every document required by law to be annexed thereto, made up to the end of the applicable financial year and containing a summary of the assets and liabilities of the Company under convenient heads and a statement of income and expenditure, together with a copy of the auditors’ report, shall be sent to each person entitled thereto at least twenty-one (21) days before the date of the general meeting and at the same time as the notice of annual general meeting and laid before the Company at the annual general meeting in accordance with the requirements of the Companies Act provided that this provision shall not require a copy of those documents to be sent to any person whose address the Company is not aware or to more than one of the joint holders of any shares or debentures; however, to the extent permitted by and subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Bye-laws), the Company may send to such persons summarised financial statements derived from the Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

Subject to the Companies Act, at the annual general meeting or at a subsequent special general meeting in each year, the members shall appoint an auditor to audit the accounts of the Company and such auditor shall hold office until the members appoint another auditor. Such auditor may be a member but no Director or officer or employee of the Company shall, during his continuance in office, be eligible to act as an auditor of the Company. The remuneration of the auditor shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than Bermuda. If the auditing standards of a country or jurisdiction other than Bermuda are used, the financial statements and the report of the auditor should disclose this fact and name such country and jurisdiction.

(i) Notices of meetings and business to be conducted thereat

An annual general meeting shall be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days and any special general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by notice of at least twenty-one (21) clear days and not less than ten (10) clear business days. All other special general meetings shall be called by notice of at least fourteen (14) clear days and not less than ten (10) clear business days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such.

(j) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered,

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in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in Bermuda or such other place in Bermuda at which the principal register is kept in accordance with the Companies Act.

The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Bye-laws) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in an appointed newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Bye-laws), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year.

(k) Power for the Company to purchase its own shares

The Bye-laws supplement the Company’s Memorandum of Association (which gives the Company the power to purchase its own shares) by providing that the power is exercisable by the board upon such terms and conditions as it thinks fit.

(l) Power for any subsidiary of the Company to own shares in the Company

There are no provisions in the Bye-laws relating to ownership of shares in the Company by a subsidiary.

(m) Dividends and other methods of distribution

Subject to the Companies Act, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board. The Company in general meeting may also make a distribution to its members out of contributed surplus (as ascertained in accordance with the Companies Act). No dividend shall be paid or distribution made out of contributed surplus if to do so would render the Company unable to pay its liabilities as they become due or the realisable value of its assets would thereby become less than the aggregate of its liabilities and its issued share capital and share premium account.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to a member by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

(n) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.

(o) Call on shares and forfeiture of shares

Subject to the Bye-laws and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall

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pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or instalments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect.

Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines.

(p) Inspection of register of members

The register and branch register of members shall be open to inspection between 10:00 a.m. and 12:00 noon on every business day by members of the public without charge at the registered office or such other place in Bermuda at which the register is kept in accordance with the Companies Act, unless the register is closed in accordance with the Companies Act.

(q) Quorum for meetings and separate class meetings

For all purposes the quorum for a general meeting shall be two members present in person or (in the case of a member being a corporation) by its duly authorised representative or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

(r) Rights of the minorities in relation to fraud or oppression

There are no provisions in the Bye-laws relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Bermuda law, as summarised in paragraph 4(e) of this Appendix.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

(s) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Act, divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(t) Untraceable members

The Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Bye-laws) giving notice of its intention to sell such shares and a period of three months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Bye-laws), has elapsed since such advertisement and the Designated Stock Exchange (as defined in the Bye-laws) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.

(u) Other provisions

The Bye-laws provide that to the extent that it is not prohibited by and is in compliance with the Companies Act, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

The Bye-laws also provide that the Company is required to maintain at its registered office a register of directors and officers in accordance with the provisions of the Companies Act and such register is open to inspection by members of the public without charge between 10:00 a.m. and 12:00 noon on every business day.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

3. VARIATION OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS

The Memorandum of Association may be altered by the Company in general meeting. The Bye-laws may be amended by the Directors subject to the confirmation of the Company in general meeting. The Bye-laws state that a special resolution shall be required to alter the provisions of the Memorandum of Association or to confirm any amendment to the Bye-laws or to change the name of the Company. For these purposes, a resolution is a special resolution if it has been passed by a majority of not less than three-fourths of the votes cast by such members of the Company as, being entitled to do so, vote in person or, in the case of such members as are corporations, by their respective duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than twenty-one (21) clear days’ and not less than ten clear business days’ notice specifying the intention to propose the resolution as a special resolution has been duly given. Except in the case of an annual general meeting, the requirement of twenty-one (21) clear days’ notice may be waived by a majority in number of the members having the right to attend and vote at the relevant meeting, being a majority together holding not less than 95 percent in nominal value of the shares giving that right.

4. BERMUDA COMPANY LAW

The Company is incorporated in Bermuda and, therefore, operates subject to Bermuda law. Set out below is a summary of certain provisions of Bermuda company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Bermuda company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Share capital

The Companies Act provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”, to which the provisions of the Companies Act relating to a reduction of share capital of a company shall apply as if the share premium account was paid up share capital of the company except that the share premium account may be applied by the company:

(i) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares;
(ii) in writing off:
(aa) the preliminary expenses of the company; or
(bb) the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or
(iii) in providing for the premiums payable on redemption of any shares or of any debentures of the company.

In the case of an exchange of shares the excess value of the shares acquired over the nominal value of the shares being issued may be credited to a contributed surplus account of the issuing company.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

The Companies Act permits a company to issue preference shares and subject to the conditions stipulated therein to convert those preference shares into redeemable preference shares.

The Companies Act includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. Where provision is made by the memorandum of association or bye-laws for authorising the variation of rights attached to any class of shares in the company, the consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required, and where no provision for varying such rights is made in the memorandum of association or bye-laws and nothing therein precludes a variation of such rights, the written consent of the holders of three-fourths of the issued shares of that class or the sanction of a resolution passed as aforesaid is required.

(b) Financial assistance to purchase shares of a company or its holding company

A company is prohibited from providing financial assistance for the purpose of an acquisition of its own or its holding company’s shares unless there are reasonable grounds for believing that the company is, and would after the giving of such financial assistance be, able to pay its liabilities as they become due. In certain circumstances, the prohibition from giving financial assistance may be excluded such as where the assistance is only an incidental part of a larger purpose or the assistance is of an insignificant amount such as the payment of minor costs.

(c) Purchase of shares and warrants by a company and its subsidiaries

A company may, if authorised by its memorandum of association or bye-laws, purchase its own shares. Such purchases may only be effected out of the capital paid up on the purchased shares or out of the funds of the company otherwise available for dividend or distribution or out of the proceeds of a fresh issue of shares made for the purpose. Any premium payable on a purchase over the par value of the shares to be purchased must be provided for out of funds of the company otherwise available for dividend or distribution or out of the company’s share premium account. Any amount due to a shareholder on a purchase by a company of its own shares may (i) be paid in cash; (ii) be satisfied by the transfer of any part of the undertaking or property of the company having the same value; or (iii) be satisfied partly under (i) and partly under (ii). Any purchase by a company of its own shares may be authorised by its board of directors or otherwise by or in accordance with the provisions of its bye-laws. Such purchase may not be made if, on the date on which the purchase is to be effected, there are reasonable grounds for believing that the company is, or after the purchase would be, unable to pay its liabilities as they become due. The shares so purchased may either be cancelled or held as treasury shares. Any purchased shares that are cancelled will, in effect, revert to the status of authorised but unissued shares. If shares of the company are held as treasury shares, the company is prohibited to exercise any rights in respect of those shares, including any right to attend and vote at meetings, including a meeting under a scheme of arrangement, and any purported exercise of such a right is void. No dividend shall be paid to the company in respect of shares held by the company as treasury shares; and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) shall be made to the company in respect of shares held by the company as treasury shares. Any shares allotted by the company as fully paid bonus shares in respect of shares held by the company as treasury shares shall be treated for the purposes of the Companies Act as if they had been acquired by the company at the time they were allotted.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Bermuda law that a company’s memorandum of association or its bye-laws contain a specific provision enabling such purchases.

Under Bermuda law, a subsidiary may hold shares in its holding company and in certain circumstances, may acquire such shares. The holding company is, however, prohibited from giving financial assistance for the purpose of the acquisition, subject to certain circumstances provided by the Companies Act. A company, whether a subsidiary or a holding company, may only purchase its own shares if it is authorised to do so in its memorandum of association or bye-laws pursuant to section 42A of the Companies Act.

(d) Dividends and distributions

A company may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realisable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Contributed surplus is defined for purposes of section 54 of the Companies Act to include the proceeds arising from donated shares, credits resulting from the redemption or conversion of shares at less than the amount set up as nominal capital and donations of cash and other assets to the company.

(e) Protection of minorities

Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong done to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result in the violation of the company’s memorandum of association and bye-laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than actually approved it.

Any member of a company who complains that the affairs of the company are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members, including himself, may petition the court which may, if it is of the opinion that to wind up the company would unfairly prejudice that part of the members but that otherwise the facts would justify the making of a winding up order on just and equitable grounds, make such order as it thinks fit, whether for regulating the conduct of the company’s affairs in future or for the purchase of shares of any members of the company by other members of the company or by the company itself and in the case of a purchase by the company itself, for the reduction accordingly of the company’s capital, or otherwise. Bermuda law also provides that the company may be wound up by the Bermuda court, if the court is of the opinion that it is just and equitable to do so. Both these provisions are available to minority shareholders seeking relief from the oppressive conduct of the majority, and the court has wide discretion to make such orders as it thinks fit.

Except as mentioned above, claims against a company by its shareholders must be based on the general laws of contract or tort applicable in Bermuda.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

A statutory right of action is conferred on subscribers of shares in a company against persons, including directors and officers, responsible for the issue of a prospectus in respect of damage suffered by reason of an untrue statement therein, but this confers no right of action against the company itself. In addition, such company, as opposed to its shareholders, may take action against its officers including directors, for breach of their statutory and fiduciary duty to act honestly and in good faith with a view to the best interests of the company.

(f) Management

The Companies Act contains no specific restrictions on the power of directors to dispose of assets of a company, although it specifically requires that every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Furthermore, the Companies Act requires that every officer should comply with the Companies Act, regulations passed pursuant to the Companies Act and the bye-laws of the company. The directors of a company may, subject to the bye-laws of the company, exercise all the powers of the company except those powers that are required by the Companies Act or the bye-laws to be exercised by the members of the company.

(g) Accounting and auditing requirements

The Companies Act requires a company to cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company.

Furthermore, it requires that a company keeps its records of account at the registered office of the company or at such other place as the directors think fit and that such records shall at all times be open to inspection by the directors or the resident representative of the company. If the records of account are kept at some place outside Bermuda, there shall be kept at the office of the company in Bermuda such records as will enable the directors or the resident representative of the company to ascertain with reasonable accuracy the financial position of the company at the end of each three month period, except that where the company is listed on an appointed stock exchange, there shall be kept such records as will enable the directors or the resident representative of the company to ascertain with reasonable accuracy the financial position of the company at the end of each six month period.

The Companies Act requires that the directors of the company must, at least once a year, lay before the company in general meeting financial statements for the relevant accounting period. Further, the company’s auditor must audit the financial statements so as to enable him to report to the members. Based on the results of his audit, which must be made in accordance with generally accepted auditing standards, the auditor must then make a report to the members. The generally accepted auditing standards may be those of a country or jurisdiction other than Bermuda or such other generally accepted auditing standards as may be appointed by the Minister of Finance of Bermuda under the Companies Act; and where the generally accepted auditing standards used are other than those of Bermuda, the report of the auditor shall identify the generally accepted auditing standards used. All members of the company are entitled to receive a copy of every financial statement prepared in accordance with these requirements, at least five

– VI-17 –

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

(5) days before the general meeting of the company at which the financial statements are to be tabled. A company the shares of which are listed on an appointed stock exchange may send to its members summarized financial statements instead. The summarized financial statements must be derived from the company’s financial statements for the relevant period and contain the information set out in the Companies Act. The summarized financial statements sent to the company’s members must be accompanied by an auditor’s report on the summarized financial statements and a notice stating how a member may notify the company of his election to receive financial statements for the relevant period and/or for subsequent periods.

The summarized financial statements together with the auditor’s report thereon and the accompanied notice must be sent to the members of the company not less than twenty-one (21) days before the general meeting at which the financial statements are laid. Copies of the financial statements must be sent to a member who elects to receive the same within seven (7) days of receipt by the company of the member’s notice of election.

(h) Auditors

At each annual general meeting, a company must appoint an auditor to hold office until the close of the next annual general meeting; however, this requirement may be waived if all of the shareholders and all of the directors, either in writing or at the general meeting, agree that there shall be no auditor.

A person, other than an incumbent auditor, shall not be capable of being appointed auditor at an annual general meeting unless notice in writing of an intention to nominate that person to the office of auditor has been given not less than twenty-one (21) days before the annual general meeting. The company must send a copy of such notice to the incumbent auditor and give notice thereof to the members not less than seven (7) days before the annual general meeting. An incumbent auditor may, however, by notice in writing to the secretary of the company waive the requirements of the foregoing.

Where an auditor is appointed to replace another auditor, the new auditor must seek from the replaced auditor a written statement as to the circumstances of the latter’s replacement. If the replaced auditor does not respond within fifteen (15) days, the new auditor may act in any event. An appointment as auditor of a person who has not requested a written statement from the replaced auditor is voidable by a resolution of the shareholders at a general meeting. An auditor who has resigned, been removed or whose term of office has expired or is about to expire, or who has vacated office is entitled to attend the general meeting of the company at which he is to be removed or his successor is to be appointed; to receive all notices of, and other communications relating to, that meeting which a member is entitled to receive; and to be heard at that meeting on any part of the business of the meeting that relates to his duties as auditor or former auditor.

(i) Exchange control

An exempted company is usually designated as “non-resident” for Bermuda exchange control purposes by the Bermuda Monetary Authority. Where a company is so designated, it is free to deal in currencies of countries outside the Bermuda exchange control area which are freely convertible into currencies of any other country. The permission of the Bermuda Monetary Authority is required for the issue of shares and securities by the company and the subsequent transfer of such shares and securities.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

In granting such permission, the Bermuda Monetary Authority accepts no responsibility for the financial soundness of any proposals or for the correctness of any statements made or opinions expressed in any document with regard to such issue. Before the company can issue or transfer any further shares and securities in excess of the amounts already approved, it must obtain the prior consent of the Bermuda Monetary Authority.

The Bermuda Monetary Authority has granted general permission for the issue and transfer of shares and securities to and between persons regarded as resident outside Bermuda for exchange control purposes without specific consent for so long as any equity securities, including shares, are listed on an appointed stock exchange (as defined in the Companies Act). Issues to and transfers involving persons regarded as “resident” for exchange control purposes in Bermuda will be subject to specific exchange control authorisation.

(j) Taxation

Under present Bermuda law, no Bermuda withholding tax on dividends or other distributions, nor any Bermuda tax computed on profits or income or on any capital asset, gain or appreciation will be payable by an exempted company or its operations, nor is there any Bermuda tax in the nature of estate duty or inheritance tax applicable to shares, debentures or other obligations of the company held by non-residents of Bermuda. Furthermore, a company may apply to the Minister of Finance of Bermuda for an assurance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, that no such taxes shall be so applicable until 28th March 2016, although this assurance will not prevent the imposition of any Bermuda tax payable in relation to any land in Bermuda leased or let to the company or to persons ordinarily resident in Bermuda.

(k) Stamp duty

An exempted company is exempt from all stamp duties except on transactions involving “Bermuda property”. This term relates, essentially, to real and personal property physically situated in Bermuda, including shares in local companies (as opposed to exempted companies). Transfers of shares and warrants in all exempted companies are exempt from Bermuda stamp duty.

(l) Loans to directors

Bermuda law prohibits the making of loans by a company to any of its directors or to their families or companies in which they hold more than a twenty per cent. (20%) interest, without the consent of any member or members holding in aggregate not less than nine-tenths of the total voting rights of all members having the right to vote at any meeting of the members of the company. These prohibitions do not apply to (a) anything done to provide a director with funds to meet the expenditure incurred or to be incurred by him for the purposes of the company, provided that the company gives its prior approval at a general meeting or, if not, the loan is made on condition that it will be repaid within six months of the next following annual general meeting if the loan is not approved at or before such meeting, (b) in the case of a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, anything done by the company in the ordinary course of that business, or (c) any advance of moneys by the company to any officer or auditor under Section 98(2)(c) of the Companies Act which allows the company to advance moneys to an officer or auditor of the

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

company for the costs incurred in defending any civil or criminal proceedings against them, on condition that the officer or auditor shall repay the advance if any allegation of fraud or dishonesty is proved against them. If the approval of the company is not given for a loan, the directors who authorised it will be jointly and severally liable for any loss arising therefrom.

(m) Inspection of corporate records

Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda which will include the company’s certificate of incorporation, its memorandum of association (including its objects and powers) and any alteration to the company’s memorandum of association. The members of the company have the additional right to inspect the bye-laws of a company, minutes of general meetings and the company’s audited financial statements, which must be presented to the annual general meeting. Minutes of general meetings of a company are also open for inspection by directors of the company without charge for not less than two (2) hours during business hours each day. The register of members of a company is open for inspection by members of the public without charge. The company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside Bermuda. Any branch register of members established by the company is subject to the same rights of inspection as the principal register of members of the company in Bermuda. Any person may on payment of a fee prescribed by the Companies Act require a copy of the register of members or any part thereof which must be provided within fourteen (14) days of a request. Bermuda law does not, however, provide a general right for members to inspect or obtain copies of any other corporate records.

A company is required to maintain a register of directors and officers at its registered office and such register must be made available for inspection for not less than two (2) hours in each day by members of the public without charge. If summarized financial statements are sent by a company to its members pursuant to section 87A of the Companies Act, a copy of the summarized financial statements must be made available for inspection by the public at the registered office of the company in Bermuda.

(n) Winding up

A company may be wound up by the Bermuda court on application presented by the company itself, its creditors or its contributors. The Bermuda court also has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Bermuda court, just and equitable that such company be wound up.

A company may be wound up voluntarily when the members so resolve in general meeting, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval.

Where, on a voluntary winding up, a majority of directors make a statutory declaration of solvency, the winding up will be a members’ voluntary winding up. In any case where such declaration has not been made, the winding up will be a creditors’ voluntary winding up.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW

In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators within the period prescribed by the Companies Act for the purpose of winding up the affairs of the company and distributing its assets. If the liquidator at any time forms the opinion that such company will not be able to pay its debts in full, he is obliged to summon a meeting of creditors.

As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This final general meeting requires at least one month’s notice published in an appointed newspaper in Bermuda.

In the case of a creditors’ voluntary winding up of a company, the company must call a meeting of creditors of the company to be summoned on the day following the day on which the meeting of the members at which the resolution for winding up is to be proposed is held. Notice of such meeting of creditors must be sent at the same time as notice is sent to members. In addition, such company must cause a notice to appear in an appointed newspaper on at least two occasions.

The creditors and the members at their respective meetings may nominate a person to be liquidator for the purposes of winding up the affairs of the company provided that if the creditors nominate a different person, the person nominated by the creditors shall be the liquidator. The creditors at the creditors’ meeting may also appoint a committee of inspection consisting of not more than five persons.

If a creditors’ winding up continues for more than one year, the liquidator is required to summon a general meeting of the company and a meeting of the creditors at the end of each year to lay before such meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year. As soon as the affairs of the company are fully wound up, the liquidator must make an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon shall call a general meeting of the company and a meeting of the creditors for the purposes of laying the account before such meetings and giving an explanation thereof.

5. GENERAL

Conyers Dill & Pearman, the Company’s legal advisers on Bermuda law, have sent to the Company a letter of advice summarising certain aspects of Bermuda company law. This letter, together with a copy of the Companies Act, is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix VIII. Any person wishing to have a detailed summary of Bermuda company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

– VI-21 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT OUR GROUP

1. Incorporation of our Company

Our Company was incorporated in Bermuda under the Companies Act as an exempted company with limited liability on May 4, 2004 and was registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company under Part XI of the Companies Ordinance on October 10, 2011. We have established a principal place of business in Hong Kong at Room 1104, Asia-Pac Commercial Centre, 10 North Point Road, Hong Kong. Mr. Yap Yung who resides at Flat H, 52/F, Tower 7, The Pacifica, 9 Sham Shing Road, Lai Chi Kok, Hong Kong has been appointed as the authorized representative of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong.

As our Company was incorporated in Bermuda, we operate subject to the Companies Act and its constitution comprising the Memorandum of Association and Bye-laws. A summary of certain provisions of its constitution and relevant aspects of the Companies Act is set out in Appendix VI to this document.

2. Change in the share capital of our Company

Our authorized share capital as at the date of our incorporation was US$12,000 divided into 12,000 shares of US$1.00 each. On March 28, 2005, our Company increased its authorized share capital to US$50,000,000 divided into 50,000,000 Shares of US$1.00 each. On the same date, our Company subdivided all its issued and unissued shares with par value of US$1.00 each into 1,000,000,000 Shares, with a par value of US$0.05 each.

Pursuant to the Subscription Agreement, on March 24, 2010, we allotted and issued 43,754,922 Shares to COFCO BVI.

Pursuant to the resolutions in writing of the shareholders of our Company passed on September 23, 2011 below, the authorized share capital of our Company was increased from US$50,000,000 to US$250,000,000 by the creation of an additional 4,000,000,000 Shares. We allotted and issued an aggregate of 353,063,478 Shares to our then existing Shareholders pursuant to the [●].

Immediately following completion of [●], assuming that [●] is not exercised and taking no account of any Shares which may be issued upon the exercise of any options which may be granted under the Share Option Scheme, the issued share capital of our Company will be US$[56,280,000] divided into [1,125,600,000] Shares, all fully paid or credited as fully paid and [3,874,400,000] Shares will remain unissued.

Save for the aforesaid and as mentioned in the sub-section headed “Resolutions in writing of the Shareholders of our Company” below, there has been no alteration in the share capital of our Company since its incorporation.

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APPENDIX VII STATUTORY AND GENERAL INFORMATION

3. Resolutions in writing of the Shareholders of our Company

(i) Pursuant to the written resolutions passed by the shareholders of our Company on September 23, 2011:
- (a) we approved and conditionally adopted the Bye-laws; and
- (b) the authorized share capital of our Company was increased from US$50,000,000 to US$250,000,000 by the creation of an additional 4,000,000,000 Shares;
(ii) Pursuant to the written resolutions passed by the shareholders of our Company on November [●], 2011:
- [●]

4. Changes in share capital of subsidiaries

Our Company’s subsidiaries are referred to in the Accountant’s Report in Appendix I to this document. The following sets out the changes to the share capital made by the subsidiaries of our Company during the two years preceding the date of this document:

(a) The registered capital of LBXX Tianjin was increased from HK$200,000,000 to HK$228,080,000 on October 13, 2010.

Save for the subsidiaries mentioned in the Accountant’s Report in Appendix I to this document, our Company has no other subsidiaries.

Save as disclosed above, there has been no alteration in the share capital of any of the subsidiaries of our Company within the two years immediately preceding the date of this document.

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APPENDIX VII STATUTORY AND GENERAL INFORMATION

5. Particulars of our subsidiaries in the PRC

Set out below is a summary of the corporate information of our subsidiaries established in the PRC:

(a) LBXX Fujian ( 蠟筆小新 ( 福建 ) 食品工業有限公司 )

Date of Establishment: March 15, 2000 Place of Establishment: PRC Nature: Limited liability company Registered Capital: HK$53,880,000 Shareholder(s): Timeluck

(b) LBXX Sichuan ( 蠟筆小新 ( 四川 ) 有限公司 )

Date of Establishment: January 17, 2008 Place of Establishment: PRC Nature: Limited liability company Registered Capital: HK$150,000,000 Shareholder(s): LBXX Holdings

(c) LBXX Tianjin ( 蠟筆小新 ( 天津 ) 有限公司 )

Date of Establishment: January 24, 2006 Place of Establishment: PRC Nature: Limited liability company Registered Capital: HK$228,080,000 Shareholder(s): Timeluck

(d) LBXX Anhui ( 蠟筆小新 ( 安徽 ) 有限公司 )

Date of Establishment: November 3, 2010 Place of Establishment: PRC Nature: Limited liability company Registered Capital: HK$180,000,000 Shareholder(s): LBXX Holdings

– VII-3 –

STATUTORY AND GENERAL INFORMATION

APPENDIX VII

6. [ ● ]

B. INFORMATION ABOUT THE BUSINESS

1. Summary of material contracts

The following contracts (not being contracts in the ordinary course of business) have been entered into by us or any of our subsidiaries within the two years preceding the date of this document and are or may be material:

(a) a share transfer agreement and a supplemental share transfer agreement both dated June 1, 2010 entered into between LBXX Investments as transferor and Zheng Hong Xiong as transferee regarding the transfer of a 50% interest in Coco Foods at a consideration of US$425,000;
(b) a trademark application transfer agreement dated March 9, 2011 entered into between Labixiaoxin (Xiamen) Trading Co., Ltd. (蠟筆小新 (廈門)商貿有限公司) and LBXX Fujian pursuant to which Labixiaoxin (Xiamen) Trading Co., Ltd. (蠟筆小新 (廈門)商貿有限公司) agreed to transfer three trademark applications to LBXX Fujian at a consideration of RMB1,000;
(c) the subscription agreement dated March 21, 2011 entered into between our Company and COFCO BVI pursuant to which COFCO BVI agreed to subscribe 43,754,922 Shares at a consideration of the Hong Kong dollars equivalent to RMB139,130,435.61;
(d) a trademark transfer agreement dated August 20, 2011 entered into between Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司) and LBXX Fujian pursuant to which Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司) agreed to transfer 20 trademarks to LBXX Fujian at a consideration of RMB1,000;
(e) the deed of indemnity dated September 23, 2011 entered into by our Controlling Shareholders in favor of our Company (for itself and as trustee for each of its present subsidiaries) in respect of, amongst others, taxation and property matters referred to in the paragraph headed “Tax and other indemnities” in this Appendix;
(f) the deed of non-competition dated September 23, 2011 entered into by our Controlling Shareholders in favor of our Company as detailed in the paragraph headed “Relationship with our Controlling Shareholders – Non-competition Undertakings” of this document; and
(g) [●]

– VII-4 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

2. Intellectual property rights of the Group

(a) Trademarks

As of the Latest Practicable Date, our Group was the registered proprietor of the following trademarks:

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	1470228	29	LBXX	PRC	2010.11.07	2020.11.06
			Fujian
	1954434	30	LBXX	PRC	2002.11.28	2012.11.27
			Fujian
	3847322	29	LBXX	PRC	2006.03.21	2016.03.20
			Fujian
	4713948	30	LBXX	PRC	2008.05.07	2018.05.06
			Fujian
	3987953	36	LBXX	PRC	2007.01.14	2017.01.13
			Fujian
	3987952	37	LBXX	PRC	2007.01.14	2017.01.13
			Fujian
	3978088	39	LBXX	PRC	2006.12.28	2016.12.27
			Fujian
	3978087	40	LBXX	PRC	2006.12.28	2016.12.27
			Fujian
	3978086	41	LBXX	PRC	2006.12.28	2016.12.27
			Fujian
	3978085	42	LBXX	PRC	2006.12.28	2016.12.27
			Fujian

– VII-5 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	3978077	44	LBXX	PRC	2006.12.28	2016.12.27
			Fujian
	3987951	45	LBXX	PRC	2007.01.14	2017.01.13
			Fujian
	1289025	29	LBXX	PRC	2009.06.28	2019.06.27
			Fujian
	1316511	29	LBXX	PRC	2009.09.21	2019.09.20
			Fujian
	1319010	29	LBXX	PRC	2009.09.28	2019.09.27
			Fujian
	1328886	29	LBXX	PRC	2009.10.28	2019.10.27
			Fujian
	1328886	30	LBXX	PRC	2009.10.28	2019.10.27
			Fujian
	3208551	29	LBXX	PRC	2003.06.21	2013.06.20
			Fujian
	3912459	29	LBXX	PRC	2006.06.28	2016.06.27
			Fujian
	3916150	29	LBXX	PRC	2005.12.07	2015.12.06
			Fujian
	4148315	30	LBXX	PRC	2006.10.14	2016.10.13
			Fujian
	4049339	30	LBXX	PRC	2006.05.21	2016.05.20
			Fujian
	4049338	29	LBXX	PRC	2006.05.21	2016.05.20
			Fujian
	4550083	32	LBXX	PRC	2007.10.28	2017.10.27
			Fujian
	4049337	29	LBXX	PRC	2006.05.21	2016.05.20
			Fujian
	4060972	29	LBXX	PRC	2006.05.28	2016.05.27
			Fujian
	4073904	29	LBXX	PRC	2006.06.14	2016.06.13
			Fujian
	4148314	29	LBXX	PRC	2006.10.14	2016.10.13
			Fujian

– VII-6 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	4166969	30	LBXX	PRC	2006.10.21	2016.10.20
			Fujian
	4172148	30	LBXX	PRC	2006.10.21	2016.10.20
			Fujian
	4322233	30	LBXX	PRC	2007.05.28	2017.05.27
			Fujian
	4328629	29	LBXX	PRC	2007.03.14	2017.03.13
			Fujian
	4527230	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527229	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527468	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527469	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527470	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527471	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527472	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4527473	29	LBXX	PRC	2007.10.07	2017.10.06
			Fujian
	4708381	29	LBXX	PRC	2008.03.07	2018.03.06
			Fujian
	4708380	30	LBXX	PRC	2008.03.07	2018.03.06
			Fujian
	4708379	32	LBXX	PRC	2008.03.07	2018.03.06
			Fujian
	4742801	30	LBXX	PRC	2008.03.07	2018.03.06
			Fujian
	4756440	29	LBXX	PRC	2008.03.21	2018.03.20
			Fujian
	4768579	32	LBXX	PRC	2008.04.07	2018.04.06
			Fujian
	4791632	29	LBXX	PRC	2008.04.07	2018.04.06
			Fujian
	4791631	29	LBXX	PRC	2008.06.07	2018.06.06
			Fujian

– VII-7 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	4850312	30	LBXX	PRC	2008.07.14	2018.07.13
			Fujian
	4864596	29	LBXX	PRC	2008.05.14	2018.05.13
			Fujian
	4921694	29	LBXX	PRC	2008.06.21	2018.06.20
			Fujian
	3883912	29	LBXX	PRC	2005.11.28	2015.11.27
			Fujian
	3892416	30	LBXX	PRC	2005.12.07	2015.12.06
			Fujian
	4495990	30	LBXX	PRC	2007.09.07	2017.09.06
			Fujian
	3800160	29	LBXX	PRC	2009.11.07	2019.11.06
			Fujian
	4172147	30	LBXX	PRC	2007.02.21	2017.02.20
			Fujian
	4172150	30	LBXX	PRC	2009.01.07	2019.01.06
			Fujian
	4341710	30	LBXX	PRC	2007.06.21	2017.06.20
			Fujian
	4742800	29	LBXX	PRC	2009.05.21	2019.05.20
			Fujian
	4745606	30	LBXX	PRC	2009.09.28	2019.09.27
			Fujian
	4791633	30	LBXX	PRC	2009.04.07	2019.04.06
			Fujian
	5077666	29	LBXX	PRC	2008.10.28	2018.10.27
			Fujian
	5077669	29	LBXX	PRC	2008.10.28	2018.10.27
			Fujian
	5253276	30	LBXX	PRC	2010.03.14	2020.03.13
			Fujian
	5334768	29	LBXX	PRC	2009.04.21	2019.04.20
			Fujian
	5426899	29	LBXX	PRC	2009.11.07	2019.11.06
			Fujian
	5427027	30	LBXX	PRC	2009.07.28	2019.07.27
			Fujian
	5463251	30	LBXX	PRC	2010.01.07	2020.01.06
			Fujian

– VII-8 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	5478175	30	LBXX	PRC	2009.06.07	2019.06.06
			Fujian
	5488075	30	LBXX	PRC	2009.07.21	2019.07.20
			Fujian
	5488076	30	LBXX	PRC	2009.06.07	2019.06.06
			Fujian
	5622940	30	LBXX	PRC	2009.07.21	2019.07.20
			Fujian
	5982730	30	LBXX	PRC	2010.08.07	2020.08.06
			Fujian
	6044024	30	LBXX	PRC	2010.01.14	2020.01.13
			Fujian
	6126333	30	LBXX	PRC	2010.06.07	2020.06.06
			Fujian
	6126332	29	LBXX	PRC	2009.08.28	2019.08.27
			Fujian
	6128424	30	LBXX	PRC	2010.01.07	2020.01.06
			Fujian
	6140497	30	LBXX	PRC	2010.01.14	2020.01.13
			Fujian
	6140496	30	LBXX	PRC	2010.01.14	2020.01.13
			Fujian
	6140495	29	LBXX	PRC	2010.05.28	2020.05.27
			Fujian
	6140498	30	LBXX	PRC	2010.02.07	2020.02.06
			Fujian
	6376920	29	LBXX	PRC	2009.10.21	2019.10.20
			Fujian
	6376924	29	LBXX	PRC	2009.10.21	2019.10.20
			Fujian
	6422221	30	LBXX	PRC	2010.03.21	2020.03.20
			Fujian
	6422218	29	LBXX	PRC	2009.11.07	2019.11.06
			Fujian
	6490263	29	LBXX	PRC	2009.11.28	2019.11.27
			Fujian
	6805121	30	LBXX	PRC	2010.06.21	2020.06.20
			Fujian
	6814475	30	LBXX	PRC	2010.10.14	2020.10.13
			Fujian

– VII-9 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	6846178	30	LBXX	PRC	2010.07.21	2020.07.20
			Fujian
��	6932927	29	LBXX	PRC	2010.09.21	2020.09.20
			Fujian
��	6939611	29	LBXX	PRC	2010.04.07	2020.04.06
			Fujian
	7206077	30	LBXX	PRC	2010.07.28	2020.07.27
			Fujian
	7206088	29	LBXX	PRC	2010.09.28	2020.09.27
			Fujian
	7206107	29	LBXX	PRC	2010.09.28	2020.09.27
			Fujian
	7206124	32	LBXX	PRC	2010.08.21	2020.08.20
			Fujian
	7338241	30	LBXX	PRC	2010.10.21	2020.10.20
			Fujian
	7359162	32	LBXX	PRC	2010.08.28	2020.08.27
			Fujian
	7365127	32	LBXX	PRC	2010.08.28	2020.08.27
			Fujian
	7365134	32	LBXX	PRC	2010.08.28	2020.08.27
			Fujian
	7365139	32	LBXX	PRC	2010.10.14	2020.10.13
			Fujian
	7365160	32	LBXX	PRC	2010.08.28	2020.08.27
			Fujian
	7365177	30	LBXX	PRC	2010.08.28	2020.08.27
			Fujian
	7365241	29	LBXX	PRC	2010.10.21	2020.10.20
			Fujian
	7421614	32	LBXX	PRC	2010.09.07	2020.09.06
			Fujian
	7421624	32	LBXX	PRC	2010.09.07	2020.09.06
			Fujian
	7458052	43	LBXX	PRC	2010.11.07	2020.11.06
			Fujian
	7458074	43	LBXX	PRC	2010.11.07	2020.11.06
			Fujian
	7474734	30	LBXX	PRC	2010.09.14	2020.09.13
			Fujian
	7474753	29	LBXX	PRC	2010.10.28	2020.10.27
			Fujian
	7490020	30	LBXX	PRC	2010.09.14	2020.09.13
			Fujian

– VII-10 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	7495451	30	LBXX	PRC	2010.09.07	2020.09.06
			Fujian
	7545686	30	LBXX	PRC	2010.09.14	2020.09.13
			Fujian
	7723972	29	LBXX	PRC	2011.01.28	2021.01.27
			Fujian
	2014422	30	LBXX	PRC	2002.09.07	2012.09.06
			Fujian
	3000762	30	LBXX	PRC	2003.01.21	2013.01.20
			Fujian
	3875558	30	LBXX	PRC	2005.11.28	2015.11.27
			Fujian
	1743404	30	LBXX	PRC	2002.04.07	2012.04.06
			Fujian
	1723079	32	LBXX	PRC	2002.02.28	2012.02.27
			Fujian
	4302678	30	LBXX	PRC	2007.03.07	2017.03.06
			Fujian
	4862881	29	LBXX	PRC	2008.07.28	2018.07.27
			Fujian
`��`	6914091	30	LBXX	PRC	2011.02.21	2021.02.20
			Fujian
	4930216	30	LBXX	PRC	2008.09.28	2018.09.27
			Fujian
	154387	29	LBXX	Dominica	2006.05.31	2016.05.31
			Fujian
	300135477	30	LBXX	HK	2003.12.31	2013.12.30
			Fujian
	13592	29	LBXX	Laos	2006.02.16	2016.02.16
			Fujian
	932581	29	LBXX	Mexico	2006.02.27	2016.02.27
			Fujian
	0700169LM	29	LBXX	Nicaragua	2007.01.31	2017.01.30
			Fujian

– VII-11 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	36946	29	LBXX	Trinidad	2006.02.14	2016.02.13
			Fujian
	300042245	29	LBXX	HK	2003.07.04	2013.07.03
			Fujian
	168197	29	LBXX	Costa Rica	2007.06.11	2017.06.11
			Fujian
	836031	30	LBXX	Chile	2008.12.12	2018.12.12
			Fujian
	7354-08	30	LBXX	Ecuador	2008.09.22	2018.09.22
			Fujian
	00149312	30	LBXX	Peru	2009.02.27	2019.02.27
			Fujian
	322165	30	LBXX	Paraguay	2009.07.21	2019.07.21
			Fujian
	180980	30	LBXX	Costa Rica	2008.10.17	2008.10.17
			Fujian
	1081748	30	LBXX	Mexico	2008.07.15	2018.07.15
			Fujian
	173646-01	30	LBXX	Panama	2008.08.07	2018.08.07
			Fujian
	122003-C	30	LBXX	Bolivia	2010.07.29	2010.07.29
			Fujian
	900534257	30	LBXX	Brazil	2010.07.20	2020.07.20
			Fujian
	01337779	29	LBXX	Taiwan	2008.11.16	2018.11.15
			Fujian
	01337924	30	LBXX	Taiwan	2008.11.16	2018.11.15
			Fujian
	N/035419	29	LBXX	Macao	2008.09.30	2015.09.30
			Fujian
	N/035420	30	LBXX	Macao	2008.09.30	2015.09.30
			Fujian
	08007385	30	LBXX	Malaysia	2008.04.16	2018.04.16
			Fujian

– VII-12 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	08007384	29	LBXX	Malaysia	2008.04.16	2018.04.16
			Fujian
	4-2008-500224	29	LBXX	Philippines	2008.08.25	2018.08.25
			Fujian
	4-2008-500224	30	LBXX	Philippines	2008.08.25	2018.08.25
			Fujian
	IDM000238785	29	LBXX	Indonesia	2010.03.02	2020.03.02
			Fujian
	IDM000238786	30	LBXX	Indonesia	2010.03.02	2020.03.02
			Fujian
	138396	29	LBXX	Vietnam	2009.12.14	2019.12.14
			Fujian
	138396	30	LBXX	Vietnam	2009.12.14	2019.12.14
			Fujian
	17092	29	LBXX	Laos	2008.03.26	2018.03.25
			Fujian
	17093	30	LBXX	Laos	2008.03.26	2018.03.25
			Fujian
	T08/02639I	29	LBXX	Singapore	2008.03.03	2018.03.03
			Fujian
	T08/02639I	30	LBXX	Singapore	2008.03.03	2018.03.03
			Fujian
	Kor324317	29	LBXX	Thailand	2009.06.30	2019.06.29
			Fujian
	Kor324318	30	LBXX	Thailand	2009.06.30	2019.06.29
			Fujian
	KH/30666/09	29	LBXX	Cambodia	2008.06.10	2018.06.10
			Fujian
	KH/30665/09	30	LBXX	Cambodia	2008.06.10	2018.06.10
			Fujian
	301040543	29	LBXX	HK	2008.01.28	2018.01.27
			Fujian

– VII-13 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

			Name of
	Registration		Registered	Place of	Date of
Trademark	Number	Class	Proprietor	Registration	Registration	Expiry Date

	39712	29	LBXX	Brunei	2008.06.19	2018.06.19
			Fujian
	39712	30	LBXX	Brunei	2008.06.19	2018.06.19
			Fujian

As of the Latest Practicable Date, our Group had applied for the registration of the following trademarks:

	Application		Name of	Place of	Date of
Trademark	Number	Class	Applicant	Application	Application

	5386756	30	LBXX	PRC	2006.05.31
			Fujian
	6805114	30	LBXX	PRC	2008.06.30
			Fujian
	8210287	30	LBXX	PRC	2010.04.15
			Fujian
	8308036	29	LBXX	PRC	2010.05.18
			Fujian
	8333779	29	LBXX	PRC	2010.05.26
			Fujian
	8333770	29	LBXX	PRC	2010.05.26
			Fujian
	8333804	29	LBXX	PRC	2010.05.26
			Fujian
	8333760	29	LBXX	PRC	2010.05.26
			Fujian
	8479115	32	LBXX	PRC	2010.07.14
			Fujian
	8440362	30	LBXX	PRC	2010.06.30
			Fujian
	8551764	29	LBXX	PRC	2010.08.06
			Fujian
	7338275	29	LBXX	PRC	2009.04.20
			Fujian
	7425486	29	LBXX	PRC	2009.05.26
			Fujian
	7425498	32	LBXX	PRC	2009.05.26
			Fujian
	7429233	30	LBXX	PRC	2009.05.27
			Fujian

– VII-14 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

	Application		Name of	Place of	Date of
Trademark	Number	Class	Applicant	Application	Application

	7458026	30	LBXX	PRC	2009.06.09
			Fujian
	7490003	30	LBXX	PRC	2009.06.22
			Fujian
	8206460	30	LBXX	PRC	2010.04.14
			Fujian
	7513155	32	LBXX	PRC	2009.07.01
			Fujian
	8668980	29	LBXX	PRC	2010.09.14
			Fujian
	8676356	30	LBXX	PRC	2010.09.16
			Fujian
	8810633	30	LBXX	PRC	2010.11.04
			Fujian
	8810673	29	LBXX	PRC	2010.11.04
			Fujian
	8831178	30	LBXX	PRC	2010.11.10
			Fujian
	8616339	29	Labixiaoxin	PRC	2011.03.09
			(Xiamen)
			Trading
			Co., Ltd.
			(蠟筆小新(廈
			門)商貿有限
			公司)
谷力棒	8880405	30	LBXX	PRC	2010.11.24
			Fujian
谷力卷	8880414	30	LBXX	PRC	2010.11.24
			Fujian
	6805114	30	LBXX	PRC	2008.06.25
			Fujian
	3987954	29	LBXX	PRC	2004.03.30
			Fujian
	3978089	38	LBXX	PRC	2004.03.25
			Fujian
	4172146	30	LBXX	PRC	2004.07.16
			Fujian
	4902391	30	LBXX	PRC	2005.09.19
			Fujian
	5067190	29	LBXX	PRC	2005.12.19
			Fujian
	6807239	30	LBXX	PRC	2008.06.26
			Fujian

– VII-15 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

	Application		Name of	Place of	Date of
Trademark	Number	Class	Applicant	Application	Application

	6805120	30	LBXX	PRC	2008.06.25
			Fujian
	5684508	29	LBXX	PRC	2006.10.27
			Fujian
	6932934	29	LBXX	PRC	2008.09.02
			Fujian
	9237918	30	LBXX	PRC	2011.03.21
			Fujian
	9175451	30	LBXX	PRC	2011.03.04
			Fujian
	9669216	30	LBXX	PRC	2011.07.01
			Fujian
	9663945	30	LBXX	PRC	2011.06.30
			Fujian
	9663938	30	LBXX	PRC	2011.06.30
			Fujian
	9663929	30	LBXX	PRC	2011.06.30
			Fujian
	1424103	29	LBXX	India	2006.02.23
			Fujian
	003047	29	LBXX	Guatemala	2006.10.04
			Fujian
	01608047	30	LBXX	India	2007.10.01
			Fujian
	2009-00279	30	LBXX	Nicaragua	2009.02.03
			Fujian
	29597-08	30	LBXX	Honduras	2008.08.27
			Fujian
	2009-00022	30	LBXX	Guatemala	2009.01.06
			Fujian
	141848	30	LBXX	Sri Lanka	2007.10.15
			Fujian
	01646140	29	LBXX	India	2008.01.25
			Fujian
	01646140	30	LBXX	India	2008.01.25
			Fujian
	LK/T/1/144540	29	LBXX	Sri Lanka	2008.03.28
			Fujian

– VII-16 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

	Application		Name of	Place of	Date of
Trademark	Number	Class	Applicant	Application	Application

	LK/T/1/144541	30	LBXX	Sri Lanka	2008.03.28
			Fujian
	5394/2008	29	LBXX	Myanmar	2008.07.02
			Fujian
	5394/2008	30	LBXX	Myanmar	2008.07.02
			Fujian
	N/A	29	LBXX	East Timor	2008.03.24
			Fujian
	N/A	30	LBXX	East Timor	2008.03.24
			Fujian
	8616339	29	Labixiaoxin	PRC	2010.08.27
			(Xiamen)
			Trading Co.,
			Ltd.
			(蠟筆小新(廈
			門)商貿有限
			公司)
			(Note 1)

– VII-17 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

As of the Latest Practicable Date, the following trademarks were being transferred to our Group and upon completion of such transfers, our Group will be the registered proprietor of these trademarks:

	Registration			Place of
Trademark	Number	Class	Name of Registered Proprietor	Registration	Validity Period

	8568433	29	Labixiaoxin (Xiamen) Trading	PRC	2011.10.28 –
			Co., Ltd.		2021.10.27
			(蠟筆小新(廈門)商貿有限公司)
			(Note 1)
	8568438	29	Labixiaoxin (Xiamen) Trading	PRC	2011.10.21 –
			Co., Ltd.		2021.10.20
			(蠟筆小新(廈門)商貿有限公司)
			(Note 1)
	1953222	32	Jinjiang Weili Foods Co., Ltd.	PRC	2003.5.21 –
			(晉江市味力食品有限公司)		2013.5.20
			(Note 2)
	3064883	35	Jinjiang Weili Foods Co., Ltd.	PRC	2003.5.14 –
			(晉江市味力食品有限公司)		2013.5.13
			(Note 2)
	3064884	16	Jinjiang Weili Foods Co., Ltd.	PRC	2004.1.28 –
			(晉江市味力食品有限公司)		2014.1.27
			(Note 2)
	3064885	14	Jinjiang Weili Foods Co., Ltd.	PRC	2003.3.7 –
			(晉江市味力食品有限公司)		2013.3.6
			(Note 2)
	3064886	3	Jinjiang Weili Foods Co., Ltd.	PRC	2004.3.21 –
			(晉江市味力食品有限公司)		2014.3.20
			(Note 2)
	3064887	5	Jinjiang Weili Foods Co., Ltd.	PRC	2004.1.28 –
			(晉江市味力食品有限公司)		2014.1.27
			(Note 2)
	3082225	9	Jinjiang Weili Foods Co., Ltd.	PRC	2003.5.14 –
			(晉江市味力食品有限公司)		2013.5.13
			(Note 2)

– VII-18 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

	Registration			Place of
Trademark	Number	Class	Name of Registered Proprietor	Registration	Validity Period

	3082226	12	Jinjiang Weili Foods Co., Ltd.	PRC	2003.6.7 –
			(晉江市味力食品有限公司)		2013.6.6
			(Note 2)
	3082227	24	Jinjiang Weili Foods Co., Ltd.	PRC	2003.4.21 –
			(晉江市味力食品有限公司)		2013.4.20
			(Note 2)
	3082228	20	Jinjiang Weili Foods Co., Ltd.	PRC	2003.4.7 –
			(晉江市味力食品有限公司)		2013.4.6
			(Note 2)
	3257083	34	Jinjiang Weili Foods Co., Ltd.	PRC	2003.8.7 –
			(晉江市味力食品有限公司)		2013.8.6
			(Note 2)
	3257084	33	Jinjiang Weili Foods Co., Ltd.	PRC	2003.8.7 –
			(晉江市味力食品有限公司)		2013.8.6
			(Note 2)
	3257085	26	Jinjiang Weili Foods Co., Ltd.	PRC	2004.5.28 –
			(晉江市味力食品有限公司)		2014.5.27
			(Note 2)
	3257086	11	Jinjiang Weili Foods Co., Ltd.	PRC	2003.11.14 –
			(晉江市味力食品有限公司)		2013.11.13
			(Note 2)
	3257087	8	Jinjiang Weili Foods Co., Ltd.	PRC	2003.10.7 –
			(晉江市味力食品有限公司)		2013.10.6
			(Note 2)
	3257088	6	Jinjiang Weili Foods Co., Ltd.	PRC	2004.2.14 –
			(晉江市味力食品有限公司)		2014.2.13
			(Note 2)

– VII-19 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

	Registration			Place of
Trademark	Number	Class	Name of Registered Proprietor	Registration	Validity Period

	3257089	2	Jinjiang Weili Foods Co., Ltd.	PRC	2004.5.21 –
			(晉江市味力食品有限公司)		2014.5.20
			(Note 2)
	4195832	24	Jinjiang Weili Foods Co., Ltd.	PRC	2008.3.14 –
			(晉江市味力食品有限公司)		2018.3.13
			(Note 2)
	4195833	14	Jinjiang Weili Foods Co., Ltd.	PRC	2007.7.21 –
			(晉江市味力食品有限公司)		2017.7.21
			(Note 2)
	1603350	32	Jinjiang Weili Foods Co., Ltd.	PRC	2011.7.14 –
			(晉江市味力食品有限公司)		2021.7.13
			(Note 2)

Notes:

(1) The trademarks are still registered under the name of Labixiaoxin (Xiamen) Trading Co., Ltd. (蠟筆小新(廈門)商貿有限公司), a company owned by Zheng Yu Ting, daughter of Zheng Yu Shuang, and Zheng Jia Bao, daughter of Zheng Yu Long. Applications have been made to transfer the above trademarks to LBXX Fujian.
(2) The trademarks are still registered under the name of Jinjiang Weili Foods Co., Ltd. (晉江市味力食品有限公司), a company jointly owned by two of our executive Directors, Mr. Zheng Yu Long and Mr. Zheng Yu Huan. Applications have been made to transfer the above trademarks to LBXX Fujian.

– VII-20 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(b) Patents

As of the Latest Practicable Date, our Group was the registered proprietor of the following patents:

			Name of
			Registered	Place of
Patent Type	Patent	Patent No.	Proprietor	Registration	Validity

Appearance	包裝袋	ZL201030238916.3	LBXX Fujian	PRC	2010.7.15 –
design . . . . . .	(鮮Q草苺)				2020.7.14
Appearance	包裝袋	ZL201030238911.0	LBXX Fujian	PRC	2010.7.15 –
design . . . . . .	(鮮Q葡萄)				2020.7.14
Appearance	包裝袋	ZL201030238914.4	LBXX Fujian	PRC	2010.7.15 –
design . . . . . .	(鮮Q香橙)				2020.7.14
Appearance	糖果包裝袋	ZL200930316826.9	LBXX Fujian	PRC	2009.9.18 –
design . . . . . .	(黑加倫)				2019.9.17
Appearance	果凍包裝容器	ZL200430081083.9	LBXX Fujian	PRC	2004.8.26 –
design . . . . . .	(異度果包)				2014.8.27
Appearance	包裝袋	ZL200830157128.4	LBXX Fujian	PRC	2008.12.12 –
design . . . . . .	(禮品包)				2018.12.11
Appearance	果凍杯	ZL201030108675.0	LBXX Fujian	PRC	2010.2.11 –
design . . . . . .					2011.2.10
Appearance	糖果包裝紙	ZL200930306254.6	LBXX Fujian	PRC	2009.6.16 –
design . . . . . .	(富貴滿堂)				2019.6.15
Appearance	罐貼	ZL200930172125.2	LBXX Fujian	PRC	2009.5.27 –
design . . . . . .					2019.5.26
Appearance	糖果包裝袋	ZL201030300460.9	LBXX Fujian	PRC	2010.1.7 –
design . . . . . .	(粟米軟糖)				2020.1.6

As of the Latest Practicable Date, our Group had applied for the registration of the following patents:

		Application
Patent Type	Patent	Number	Name of Applicant	Date of Application

Utility Model . . . . .	一種陳列櫃	201020240503.3	LBXX Fujian	2010.6.24
Appearance design .	糖果包裝袋	201030616096.7	LBXX Fujian	2010.11.16
	(台灣貢酥)
Appearance design .	包裝袋（鮮Q水蜜桃）	201030238913.X	LBXX Fujian	2010.7.15
Appearance design .	糖果包裝袋	200930316826.9	LBXX Fujian	2009.9.18
Invention . . . . . . . .	青梅果粒果凍及其製備	201010188619.1	LBXX Fujian	2010.6.2
	方法
Invention . . . . . . . .	合生元果凍及其製作	201010031398.7	LBXX Tianjin	2010.1.21
	方法		& Tianjin
			University of
			Science &
			Technology

– VII-21 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

As of the Latest Practicable Date, the Group held the exclusive right to use the following patent:

				Name of
			Application	Registered		Exclusive
Patent Type		Patent	Number	Proprietor	Validity	Right Period

Invention	. . . . .	魔芋葡甘聚糖可	200610069246.X	Fujian	2006.9.27–	2009.7.1 –
		食性兒童玩具及		Agriculture and	2026.9.26	2014.6.30
		其製備方法		Forestry
				University

Note: Pursuant to an agreement dated July 1, 2009 entered into between our Company and Fujian Agriculture and Forestry University, Fujian Agriculture and Forestry University agreed to grant us an exclusive right to use the patent for a period of five years commencing from the date of the Agreement for a fee of RMB50,000.

(c) Domain names

As of the Latest Practicable Date, our Group was the registered proprietor of the following domain name:

	Name of Registered
Domain name	Proprietor	Date of Registration	Expiry Date

www.lbxx.cn . . . . . . . . . . . . . . . . . .	LBXX Fujian	2003.11.24	2011.11.24
www.lbxxgroup.com . . . . . . . . . . . . .	LBXX Holdings	2011.03.05	2012.03.05

(d) Copyrights

As of the Latest Practicable Date, our Group was the registered proprietor of the following copyrights:

			Name of
		Registration	Registered
Copyright Type	Copyright	Number	Proprietor	Registration Date

Art. . . . . . . . . . . . .	卡通人物形象	13-2009-F-0176	LBXX Fujian	2009.03.09
Art. . . . . . . . . . . . .	卡通人物形象	13-2009-F-0177	LBXX Fujian	2009.03.09
Art. . . . . . . . . . . . .	卡通人物形象	13-2009-F-0178	LBXX Fujian	2009.03.09
Art . . . . . . . . . . . .	卡通人物形象	13-2009-F-0179	LBXX Fujian	2009.03.09

– VII-22 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

C. [ ● ]

1. [ ● ]

(b) Particulars of service contracts

Each of our executive Directors has entered into a service contract with our Company for a term of three years commencing from the [●], which may be terminated by not less than three months’ notice in writing served by either party on the other.

Each of our non-executive Directors has entered into a service contract with our Company for a term of one year commencing from the [●], which may be terminated by not less than three months’ notice in writing served by either party on the other.

(c) Directors’ remuneration

Each of our executive Directors is entitled to the following respective amount of annual emolument for acting as the director and committee member of and/or holding other positions with our Company or other members of the Group:

Name			Annual Emolument

			([RMB])
Zhong	Yu	Long . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	800,000
Zhong	Yu	Shuang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	800,000
Zheng	Yu	Huan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	800,000

Each of Mr. Zhong Yu Long, Mr. Zhong Yu Zhuang and Mr. Zheng Yu Huan shall also be entitled to a bonus for each financial year of our Company which is at the discretion of the Board and determined by reference to the performance of each Director concerned and our Group’s performance for the financial year concerned and based on the recommendation from the remuneration committee of our Company.

Our independent non-executive Directors have been appointed for a term of one year. Our Company intends to pay a director’s fee of HK$200,000 per annum to each of our non-executive and independent non-executive Directors.

Further details of the terms of the above service contracts are set out in the paragraph headed “Particulars of service contracts” in the subsection headed “Directors” in this Appendix.

– VII-23 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

2. [ ● ]

[●]

3. Agency fees or commissions received

Save as disclosed in this document, no commissions, discounts, brokerages or other special terms were granted in connection with the issue or sale of any capital of any member of our Group within the two years preceding the date of this document.

4. Disclaimers

Save as disclosed herein:

(a) [●]
(b) [●]
(c) none of our Directors is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to the business of our Group taken as a whole;
(d) none of our Directors has any existing or proposed service contracts with any member of our Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation));
(e) [●]
(f) [●]
(g) save as disclosed in this document, so far as is known to our Directors, none of our Directors, their respective associates (as defined under the [●]) or shareholders of our Company who are interested in more than 5% of the issued share capital of our Company has any interests in the five largest customers or the five largest suppliers of our Group.

D. OTHER INFORMATION

1. Share Option Scheme

The following is a summary of the principal terms of the Share Option Scheme conditionally adopted by the written resolutions of our Shareholders passed on September 23, 2011.

(a) Purpose

The Share Option Scheme is a share incentive scheme prepared in accordance with [●] and is established to recognize and acknowledge the contributions that the Eligible Participants (as defined in paragraph (b) below) had or may have made to the Group. The Share Option Scheme will provide the Eligible Participants an opportunity to have a personal stake in our Company with the view to achieving the following objectives:

– VII-24 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

(i) motivate the Eligible Participants to optimize their performance efficiency for the benefit of the Group; and
(ii) attract and retain or otherwise maintain an on-going business relationship with the Eligible Participants whose contributions are or will be beneficial to the long-term growth of the Group.

(b) Who may join

The Board may, at its discretion, offer to grant an option to the following persons (collectively the “Eligible Participants”) to subscribe for such number of new Shares as the Board may determine at an exercise price determined in accordance with paragraph (f) below:

(i) any full-time or part-time employees, executives or officers of our Company or any of its subsidiaries;
(ii) any directors (including independent non-executive directors) of our Company or any of its subsidiaries; and
(iii) any advisors, consultants, suppliers, customers, distributors and such other persons who in the sole opinion of the Board will contribute or have contributed to our Company or any of its subsidiaries.

Upon acceptance of the option, the grantee shall pay HK$1.00 to our Company by way of consideration for the grant. Any offer to grant an option to subscribe for Shares may be accepted in respect of less than the number of Shares for which it is offered provided that it is accepted in respect of [●] on [●] or an integral multiple thereof and such number is clearly stated in the duplicate offer document constituting the acceptance of the option. To the extent that the offer to grant an option is not accepted by any prescribed acceptance date, it shall be deemed to have been irrevocably declined.

(c) Acceptance of an offer of Options

An option shall be deemed to have been granted and accepted by the grantee and to have taken effect when the duplicate offer document constituting acceptances of the options duly signed by the grantee, together with a remittance in favor of our Company of HK$1.00 by way of consideration for the grant thereof, is received by our Company on or before the relevant acceptance date. Such payment shall in no circumstances be refundable. Any offer to grant an option to subscribe for Shares may be accepted in respect of less than the number of Shares for which it is offered provided that it is accepted in respect of [●] on [●] or an integral multiple thereof and such number is clearly stated in the duplicate offer document constituting acceptance of the option. To the extent that the offer to grant an option is not accepted by any prescribed acceptance date, it shall be deemed to have been irrevocably declined.

Subject to paragraphs (l), (m), (n), (o) and (p), an Option shall be exercised in whole or in part and, other than where it is exercised to the full extent outstanding, shall be exercised in integral multiples of such number of Shares as shall represent [●] on [●] for the time being, by the grantee by giving notice in writing to our Company stating that the Option is thereby exercised and the number of Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the Exercise Price for the Shares in respect of which the notice is given. Within 21 days after receipt of the

– VII-25 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

notice and the remittance and, where appropriate, receipt of the certificate by the auditors to our Company or the approved independent financial advisor as the case may be pursuant to paragraph (r), our Company shall allot and issue the relevant number of Shares to the grantee credited as fully paid and issue to the Grantee certificates in respect of the Shares so allotted.

The exercise of any Option shall be subject to the Shareholders in general meeting approving any necessary increase in the authorized share capital of our Company.

(d) Maximum number of Shares

The maximum number of Shares in respect of which options may be granted under the Share Option Scheme and under any other share option schemes of our Company must not in aggregate exceed 10% of the total number of Shares in issue immediately following completion of the [●], being [112,560,000] Shares, excluding for this purpose Shares which would have been issuable pursuant to options which have lapsed in accordance with the terms of the Share Option Scheme (or any other share option schemes of our Company). Subject to the issue of a circular by our Company and the approval of the shareholders in general meeting and/or such other requirements prescribed under the [●] from time to time, the Board may:

(i) renew this limit at any time to 10% of the Shares in issue as at the date of the approval by the shareholders in general meeting; and/or
(ii) grant options beyond the 10% limit to Eligible Participants specifically identified by the Board. The circular issued by our Company to the shareholders shall contain a generic description of the specified Eligible Participants who may be granted such options, the number and terms of the options to be granted, the purpose of granting options to the specified Eligible Participants with an explanation as to how the options serve such purpose, the information required under [●] and the disclaimer required under [●].

Notwithstanding the foregoing and subject to paragraph (r) below, the maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of our Company at any time shall not exceed 30% of the Shares in issue from time to time. No options shall be granted under any schemes of our Company (including the Share Option Scheme) if this will result in the 30% limit being exceeded. The maximum number of Shares in respect of which options may be granted shall be adjusted, in such manner as the auditors of our Company or an approved independent financial adviser shall certify to be appropriate, fair and reasonable in the event of any alteration in the capital structure of our Company in accordance with paragraph (r) below whether by way of consolidation, capitalization issue, rights issue, sub-division or reduction of the share capital of our Company but in no event shall exceed the limit prescribed in this paragraph.

– VII-26 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(e) Maximum number of options to any one individual

The total number of Shares issued and which may fall to be issued upon exercise of the options granted under the Share Option Scheme and any other share option schemes of our Company (including both exercised and outstanding options) to each Eligible Participant in any 12-month period up to the date of grant shall not exceed 1% of the Shares in issue as at the date of grant. Any further grant of options in excess of this 1% limit shall be subject to:

(i) the issue of a circular by our Company containing the identity of the Eligible Participant, the numbers of and terms of the options to be granted (and options previously granted to such participant) the information as required under [●] and the disclaimer required of the [●]; and
(ii) the approval of the shareholders in general meeting and/or other requirements prescribed under the [●] from time to time with such Eligible Participant and his associates (as defined in the [●]) abstaining from voting. The numbers and terms (including the exercise price) of options to be granted to such participant must be fixed before the shareholders’ approval and the date of the Board meeting at which the Board proposes to grant the options to such Eligible Participant shall be taken as the date of grant for the purpose of calculating the subscription price of the Shares. The Board shall forward to such Eligible Participant an offer document in such form as the Board may from time to time determine (or, alternatively, documents accompanying the offer document which state), among others:
(aa) the Eligible Participant’s name, address and occupation;
(bb) the date on which an Option is offered to an Eligible Participant which must be a date on which [●] is open for the business [●];
(cc) the date upon which an offer for an Option must be accepted;
(dd) the date upon which an Option is deemed to be granted and accepted in accordance with paragraph (c);
(ee) the number of Shares in respect of which the Option is offered;
(ff) the subscription price and the manner of payment of such price for the Shares on and in consequence of the exercise of the Option;
(gg) the date of the notice given by the grantee in respect of the exercise of the Option; and
(hh) the method of acceptance of the Option which shall, unless the Board otherwise determines, be as set out in paragraph (c).

– VII-27 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(f) Price of Shares

Subject to any adjustments made as described in paragraph (r) below, the subscription price of a Share in respect of any particular option granted under the Share Option Scheme shall be such price as the Board in its absolute discretion shall determine, save that such price must be at least the higher of:

==> picture [38 x 9] intentionally omitted <==

(ii) [●]
(iii) the nominal value of a Share.

(g) Granting options to connected persons

Any grant of options to a director, chief executive or [●] (as defined in the [●]) of our Company or any of their respective associates (as defined in the [●]) is required to be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the Options). If the Board proposes to grant options to a [●] or any independent non-executive Director or their respective associates (as defined in the [●]) which will result in the number of Shares issued and to be issued upon exercise of options granted and to be granted (including options exercised, canceled and outstanding) to such person in the 12-month period up to and including the date of such grant:

==> picture [38 x 9] intentionally omitted <==

(ii) [●]

The circular to be issued by our Company to the shareholders pursuant to the above paragraph shall contain the following information:

(i) the details of the number and terms (including the exercise price) of the options to be granted to each selected Eligible Participant which must be fixed before the shareholders’ meeting and the date of Board meeting for proposing such further grant shall be taken as the date of grant for the purpose of calculating the exercise price of such options;
(ii) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options) to the independent shareholders as to voting;
(iii) the information required under [●] and the disclaimer required under [●]; and
(iv) the information required under [●].

(h) Restrictions on the times of grant of Options

A grant of options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published pursuant to the requirements of the [●]. In particular, no options may be granted during the period commencing one month immediately preceding the earlier of:

– VII-28 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(i) the date of the Board meeting (as such date to first notified to the [●] in accordance with the [●]) for the approval of [●] (whether or not required under the [●]); and
(ii) the deadline for our Company to [●] (whether or not required under the [●])

and ending on the date of actual publication of [●], and where an option is granted to a Director:

(iii) no options shall be granted during the period of 60 days immediately preceding the publication date of the [●] or, if shorter, the period from the end of the relevant financial year up to the publication date of [●]; and
(iv) during the period of 30 days immediately preceding the publication date of the [●] (if any) and [●] or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of [●].

(i) Rights are personal to grantee

An option is personal to the grantee and may be exercised or treated as exercised, as the case may be, in whole or in part. No grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favor of any third party over or in relation to any option or attempt so to do (save that the grantee may nominate a nominee in whose name the Shares issued pursuant to the Share Option Scheme may be registered). Any breach of the foregoing shall entitle our Company to cancel any outstanding options or any part thereof granted to such grantee.

(j) Time of exercise of Option and duration of the Share Option Scheme

An option may be exercised in accordance with the terms of the Share Option Scheme at any time after the date upon which the option is deemed to be granted and accepted and prior to the expiry of 10 years from that date. The period during which an option may be exercised will be determined by the Board in its absolute discretion, save that no option may be exercised more than 10 years after it has been granted. No option may be granted more than 10 years after the date of approval of the Share Option Scheme. Subject to earlier termination by our Company in general meeting or by the Board, the Share Option Scheme shall be valid and effective for a period of 10 years from the date of its adoption.

– VII-29 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(k) Performance target

A grantee may be required to achieve any performance targets as the Board may then specify in the grant before any options granted under the Share Option Scheme can be exercised.

(l) Rights on ceasing employment or death

If the grantee of an option ceases to be an employee of our Company or any of its subsidiaries

(i) by any reason other than death or termination of his employment on the grounds specified in paragraph (m) below, the grantee may exercise the option up to the entitlement of the grantee as at the date of cessation (to the extent not already exercised) within a period of one month from such cessation; or
(ii) by reason of death, his personal representative(s) may exercise the option within a period of 12 months from such cessation, which date shall be the last actual working day with our Company or the relevant subsidiary whether salary is paid in lieu of notice or not, failing which it will lapse.

(m) Rights on dismissal

If the grantee of an option ceases to be an employee of our Company or any of its subsidiaries on the grounds that he has been guilty of serious misconduct, or in relation to an employee of the Group (if so determined by the Board) on any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with the Group, or has been convicted of any criminal offense involving his integrity or honesty, his option will lapse and not be exercisable after the date of termination of his employment.

(n) Rights on takeover

If a general offer is made to all the shareholders (or all such shareholders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror (as defined in the Takeovers Codes)) and such offer becomes or is declared unconditional during the option period of the relevant option, the grantee of an option shall be entitled to exercise the option in full (to the extent not already exercised) at any time within 14 days after the date on which the offer becomes or is declared unconditional.

(o) Rights on winding-up

In the event a notice is given by our Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up our Company, our Company shall forthwith give notice thereof to all grantees and thereupon, each grantee (or his legal personal representative(s)) shall be entitled to exercise all or any of his options (to the extent not already exercised) at any time not later than two business days prior to the proposed general meeting of our Company referred to above by giving notice in writing to our Company, accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given, whereupon our Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting, allot the relevant Shares to the grantee credited as fully paid and register the grantee as holder thereof.

– VII-30 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(p) Rights on compromise or arrangement between our Company and its members or creditors

If a compromise or arrangement between our Company and its members or creditors is proposed for the purposes of a scheme for the reconstruction of our Company or its amalgamation with any other companies pursuant to the laws of jurisdictions in which our Company was incorporated, our Company shall give notice to all the grantees of the options on the same day as it gives notice of the meeting to its members or creditors summoning the meeting to consider such a scheme or arrangement and any grantee may by notice in writing to our Company accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given (such notice to be received by our Company not later than two business days prior to the proposed meeting), exercise the option to its full extent or to the extent specified in the notice and our Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Shares to the grantee which falls to be issued on such exercise of the option credited as fully paid and register the grantee as holder thereof.

With effect from the date of such meeting, the rights of all grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. If for any reason such compromise or arrangement does not become effective and is terminated or lapses, the rights of grantees to exercise their respective options shall with effect from such termination be restored in full but only upon the extent not already exercised and shall become exercisable.

(q) Ranking of Shares

The Shares to be allotted upon the exercise of an option will not carry voting rights until completion of the registration of the grantee (or any other person) as the holder thereof. Subject to the aforesaid, Shares allotted and issued on the exercise of options will rank pari passu in all respects and shall have the same voting, dividend, transfer and other rights, including those arising on liquidation as attached to the other fully-paid Shares in issue on the date of exercise.

(r) Effect of alterations to capital

In the event of any alteration in the capital structure of our Company whilst any option may become or remains exercisable, whether by way of capitalization issue, rights issue, open offer, consolidation, sub-division or reduction of share capital of our Company, or otherwise howsoever, such corresponding alterations (if any) shall be made in the number or nominal amount of Shares subject to any options so far as unexercised and/or the subscription price per Share of each outstanding option as the auditors of our Company or an independent financial adviser shall certify in writing to the Board to be in their/his opinion fair and reasonable in compliance with [●] and the note thereto and the supplementary guidance issued by [●] on September 5, 2005 and any future guidance and interpretation of the [●] issued by [●] from time to time and the note thereto. The capacity of the auditors of our Company or the approval independent financial adviser, as the case may be, in this paragraph is that of experts and not arbitrations and their certificate shall, in absence of manifest error, be final and conclusive and binding on the Company and the grantees.

– VII-31 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

Any such alterations will be made on the basis that a grantee shall have the same proportion of the issued share capital of our Company for which any grantee of an Option is entitled to subscribe pursuant to the Options held by him before such alteration and the aggregate subscription price payable on full exercise of any option is to remain as nearly as possible the same (and in any event not greater than) as it was before such event. No such alteration will be made the effect of which would be to enable a Share to be issued at less than its nominal value. The issue of securities as consideration in a transaction is not to be regarded as a circumstance requiring any such alterations.

(s) Expiry of option

An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i) the date of expiry of the option as may be determined by the Board;
(ii) the expiry of any of the periods referred to in paragraphs (l), (m), (n), (o) or (p);
(iii) the date on which the scheme of arrangement of our Company referred to in paragraph (p) becomes effective;
(iv) subject to paragraph (o), the date of commencement of the winding-up of our Company;
(v) the date on which the grantee ceases to be an Eligible Participant by reason of such grantee’s resignation from the employment of our Company or any of its subsidiaries or the termination of his or her employment or contract on any one or more of the grounds that he or she has been guilty of serious misconduct, or has been convicted of any criminal offense involving his or her integrity or honesty, or in relation to an employee of the Group (if so determined by the Board), or has been insolvent, bankrupt or has made compositions with his/her creditors generally or any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with the Group. A resolution of the Board to the effect that the employment of a grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive; or
(vi) the date on which the Board shall exercise our Company’s right to cancel the option at any time after the grantee commits a breach of paragraph (i) above or the options are canceled in accordance with paragraph (u) below.

(t) Alteration of the Share Option Scheme

The Share Option Scheme may be altered in any respect by resolution of the Board except that:

(i) any alteration to the advantage of the grantees or the Eligible Participants (as the case may be) in respect of the matters contained in [●]; and
(ii) any material alteration to the terms and conditions of the Share Option Scheme or any change to the terms of options granted,

– VII-32 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

shall first be approved by the shareholders in general meeting provided that if the proposed alteration shall adversely affect any option granted or agreed to be granted prior to the date of alteration, such alteration shall be further subject to the grantees’ approval in accordance with the terms of the Share Option Scheme. The amended terms of the Share Option Scheme shall still comply with [●] and any change to the authority of the Board in relation to any alteration to the terms of the Share Option Scheme must be approved by shareholders in general meeting.

(u) Cancellation of Options

Subject to paragraph (i) above, any cancellation of options granted but not exercised must be approved by the grantees of the relevant options in writing. For the avoidance of doubt, such approval is not required in the event any Option is cancelled pursuant to paragraph (m).

(v) Termination of the Share Option Scheme

Our Company may by resolution in general meeting or the Board at any time terminate the Share Option Scheme and in such event no further option shall be offered but the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any option granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options granted prior to such termination but not yet exercised at the time of termination shall continue to be valid and exercisable in accordance with the Share Option Scheme.

(w) Administration of the Board

The Share Option Scheme shall be subject to the administration of the Board whose decision as to all matters arising in relation to the Share Option Scheme or its interpretation or effect (save as otherwise provided herein) shall be final and binding on all parties.

(x) Condition of the Share Option Scheme

The Share Option Scheme is conditional on:

[●]

If the conditions in paragraph (x) above are not satisfied within two calendar months from the Adoption Date:

(i) the Share Option Scheme shall forthwith determine;
(ii) any option granted or agreed to be granted pursuant to the Share Option Scheme and any offer of such a grant shall be of no effect; and
(iii) no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the Share Option Scheme or any option granted thereunder.

(y) Disclosure in [ ● ]

Our Company will disclose details of the Share Option Scheme in its [●] including the number of options, date of grant, exercise price, exercise period and vesting period during the financial year/period in the [●] in accordance with the [●] in force from time to time.

– VII-33 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(z) Present status of the Share Option Scheme

As of the Latest Practicable Date, no option had been granted or agreed to be granted under the Share Option Scheme.

3. Tax and other indemnities

Alliance Holding, Mr. Zhong Yu Long, Mr. Zheng Yu Shuang, Mr. Zheng Yu Huan and Mr. Li Hung Kong have entered into a deed of indemnity with and in favor of our Company (for itself and as trustee for each of its present subsidiaries) (being the contract referred to in paragraph (c) of the sub-section headed “Summary of material contracts” in this Appendix) to provide indemnities on a joint and several basis in respect of, among other matters, taxation resulting from income, profits or gains earned, accrued or received as well as any property claim to which any member of our Group may be subject and payable on or before the date when the [●] becomes unconditional.

4. Litigation

As of the Latest Practicable Date, no member of our Group was engaged in any litigation or arbitration of material importance and, so far as the Directors are aware, no litigation or claim of material importance is pending or threatened by or against any member of our Group.

5. [ ● ]

[●]

6. [ ● ]

[●]

7. [ ● ]

[●]

8. Taxation of holders of Shares

(a) Hong Kong

The sale, purchase and transfer of Shares registered with our Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty, the current rate charged on each of the purchaser and seller is 0.1% of the consideration of, if higher, of the fair value of the Shares being sold or transferred. Profits from dealings in the Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax. Our Directors have been advised that no material liability for estate duty under the laws of China or Hong Kong would be likely to fall upon any member of our Group.

(b) Bermuda

Under the present Bermuda law, there is no stamp duty payable in Bermuda on transfers of Shares.

– VII-34 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(c) Consultation with professional advisers

Intending holders of the Shares are recommended to consult their professional advisers if they are in doubt as to the taxation implications of subscribing for, purchasing, holding or disposing of or dealing in the Shares. It is emphasized that none of our Company, our Directors can accept responsibility for any tax effect on, or liabilities of, holders of Shares resulting from their subscription for, purchase, holding or disposal of or dealing in Shares or exercise of any rights attaching to them.

9. [ ● ]

[●]

10. [ ● ]

[●]

11. [ ● ]

[●]

12. [ ● ]

[●]

13. [ ● ]

[●]

14. Miscellaneous

(a) Save as disclosed in this document, within the two years immediately preceding the date of this document:
(i) no share or loan capital of our Company or any of our subsidiaries has been issued or agreed to be issued or is proposed to be fully or partly paid either for cash or a consideration other than cash;
(ii) no share or loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
(iii) no commissions, discounts, brokerages or other special terms have been granted or agreed to be granted in connection with the issue or sale of any share or loan capital of our Company or any of our subsidiaries;
(iv) no commission has been paid or is payable for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any share in our Company or any of our subsidiaries;

– VII-35 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(b) save as disclosed in this document, there are no founder, management or deferred shares nor any debentures in our Company or any of our subsidiaries;
(c) our Directors confirm that there has been no material adverse change in the financial or trading position or prospects of our Group since May 31, 2011 (being the date to which the latest audited consolidated financial statements of our Group were made up);
(d) there has not been any interruption in the business of our Group which may have or has had a significant effect on the financial position of our Group in the 12 months preceding the date of this document;
(e) [●]
(f) no company within our Group is presently listed on any stock exchange or traded on any trading system;
(g) our Directors have been advised that under the Companies Act the use of a Chinese name by our Company does not contravene the Companies Act; and
(h) save as disclosed in this document, our Company has no outstanding convertible debt securities or debentures.

15. [ ● ]

[●]

– VII-36 –

AI assistant

Labixiaoxin Snacks Group Limited — Proxy Solicitation & Information Statement 2011

49809_rns_2011-12-09_645fedfc-05c7-45fc-b01f-195ae1648c1e.pdf

Web Proof Information Pack of

China Lifestyle Food and Beverages Group Limited 中國休閒食品集團有限公司

WARNING

CONTENTS

SUMMARY

OVERVIEW

SUMMARY

OUR COMPETITIVE STRENGTHS

OUR BUSINESS STRATEGIES

SUMMARY FINANCIAL INFORMATION

SUMMARY

Summary Data of Consolidated Statements of Comprehensive Income

SUMMARY

Summary Data of Consolidated Balance Sheets

SUMMARY

DIVIDEND POLICY

SUMMARY

PRE-[ ● ] INVESTMENT WITH COFCO BVI AND STRATEGIC COOPERATION RELATIONSHIP WITH COFCO

WORKING CAPITAL

SUMMARY

DELISTING FROM SGX-ST

OUR “LABIXIAOXIN” TRADEMARK

SUMMARY

SUMMARY

PRODUCT QUALITY

RISK FACTORS

Risks Relating to Our Business

SUMMARY

Risks Relating to the Food and Beverage Industry in China

SUMMARY

Risks Relating to the PRC

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS

RISK FACTORS

RISKS RELATING TO OUR BUSINESS

We may face challenges to our intellectual property rights and market confusion regarding our “Labixiaoxin” brand name.

RISK FACTORS

Sales of our products are subject to changes in consumer perception, preferences and tastes.

We may be subject to product liability claims.

RISK FACTORS

We face intense competition from other manufacturers of jelly products as well as other snack food products.

We may be adversely impacted by any negative publicity suffered by the food and beverage industry in China or abroad.

RISK FACTORS

We may not be able to introduce new products successfully.

Our expansion plan may not be successful and we may not successfully manage our growth.

RISK FACTORS

We are susceptible to fluctuations in raw materials prices.

We depend on wholesale distributors, key account agents and export agents to sell our products.

RISK FACTORS

We may be unable to effectively manage our wholesale distributors or key account agents.

We are dependent on a skilled workforce to run our production facilities.

We rely on third-party manufacturers for the manufacture of some of our products.

RISK FACTORS

Delays in delivery by independent third-party logistics providers, wholesale distributors, key account agents or export agents may affect our sales and damage our reputation.

Sales of some of our products are subject to seasonality.

RISK FACTORS

Counterfeiting or imitation of our products may damage our reputation and brand names as well as lead to higher administrative costs.

We consider the formulas of our products to be our trade secrets, and our ability to compete could be harmed if such trade secrets were disclosed to third parties.

RISK FACTORS

Our operations are subject to production malfunctions and other risks and routine shutdowns for maintenance.

Any disruption in the supply of utilities or an outbreak of fire or other calamities at our production facilities may disrupt our business operations.

Our workers are subject to risks of serious injury caused by the use of production equipment and tools.

RISK FACTORS

The discontinuation of any of the preferential tax treatments currently available would likely increase our enterprise income tax expenses.

We have limited insurance to cover our potential losses and claims.

RISK FACTORS

We are reliant on our key management personnel.

We and entities with which we collaborate to export our products may not be able to meet regulatory requirements imposed by the governments of the PRC or our export destinations.

RISK FACTORS

We recorded net current liabilities as of each of December 31, 2008, 2009 and 2010 and we cannot assure you that we will not continue to record net current liabilities.

Labixiaoxin Snacks Group Limited Proxy Solicitation & Information Statement 2011