Sinopharm Tech Holdings Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee And the Independent Shareholders in Relation to the Acquisition

==> picture [100 x 32] intentionally omitted <==

A letter from the Board is set out on pages 5 to 11 of this circular. A letter from the Independent Board Committee is set out on page 12 of this circular. A letter from Veda Capital to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition is set out on pages 13 to 23 of this circular.

A notice convening the EGM of the Company to be held at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on Thursday, 23 June 2011 at 10:30 a.m. is set out on pages 88 to 89 of this circular. A form of proxy for use at the EGM is enclosed with this circular.

Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same at the Hong Kong branch share registrar of the Company, Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish and in such event, the proxy shall be deemed to be revoked.

This circular will remain on the “Latest Company Announcements” page of the GEM website at http://www.hkgem.com for a minimum period of 7 days from the date of its posting and on the website of the Company at http://www.cvg.com.hk.

* for identification purpose only

8 June 2011

CHARACTERISTICS OF GEM

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

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

	Page
Characteristics of GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	i
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Letter from Veda Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix II – Financial Information of the Cheerfull Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix III – Unaudited Pro-forma Financial Information of the Enlarged Group . . . . . . . . . . .	64
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	88

DEFINITIONS

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

“Ace Bingo”	Ace Bingo Group Limited, a company incorporated in the BVI
	with limited liability, an indirect wholly-owned subsidiary of the
	Company
“Acquisition”	together, the acquisition of the Sale Shares and LF Sale Shares
“Acquisition Agreement”	the sale and purchase agreement of the Sale Shares and LF Sale
	Share entered into by Ace Bingo, Bozone, and the Vendors dated
	15 April 2011
“Announcement”	the announcement dated 15 April 2011 made by the Company in
	relation to the Acquisition
“BVI”	British Virgin Islands
“Board”	the board of Directors from time to time
“Bozone”	Shenzhen Bozone I.T Co., Ltd.,深圳市博眾信息技術有限公司,
	a limited liability company incorporated in the PRC, currently
	holding 99% equity interest in Longjiang Feng Cai
“Bozone Group”	Bozone and its subsidiaries
“Cheerfull”	Cheerfull Group Holdings Limited致富集團控股有限公司, a
	limited liability company incorporated in the BVI, and owned as
	to 51% by Ace Bingo and 49% by the Vendors
“Cheerfull Group”	together, Cheerfull and Bozone Group
“Company”	China Vanguard Group Limited (眾彩科技股份有限公司*), an
	exempted company incorporated in the Cayman Islands with
	limited liability and the Shares of which are listed on GEM
“Completion”	completion of the transactions contemplated under the Acquisition
	Agreement
“connected person”	has the meaning ascribed thereto in the GEM Listing Rules
“Consideration”	HK$27,200,000, being the total consideration payable by Ace
	Bingo to the Vendors for the acquisition of the Sale Shares
“Directors”	the directors of the Company

DEFINITIONS

“EGM” the extraordinary general meeting of the Company to be convened and held on Thursday, 23 June 2011 at 10:30 a.m. to consider and, if thought fit, to approve the Acquisition Agreement and the transactions contemplated thereunder; notice of which is set out in pages 88 to 89 of this circular
“GEM” Growth Enterprise Market of the Stock Exchange “GEM Listing Rules” the Rules Governing the Listing Securities on GEM “Group” the Company and all of its subsidiaries from time to time “HLJ Bozone” Heilongjiang Bozone I.T. Co. Ltd. 黑龍江省博眾信息技術有限公司, a limited liability company incorporated in the PRC, currently being owned as to 65% by Bozone, 10% by Ms. Liu and 25% by an independent third party
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the independent board committee of the Company formed by the Company to advise the Independent Shareholders as to whether the Acquisition is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole
“Independent Financial Advisor” Veda Capital Limited, a licensed corporation to carry out type or “Veda Capital” 6 regulated activities under the SFO, the independent financial advisor to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition
“Independent Shareholders” Shareholders other than the Vendors and their respective associates (as defined under the GEM Listing Rules), who are not involved in or interested in the Acquisition
“Independent Third Party(ies)” any person(s) or company(ies) and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, are third parties independent of the Company and connected persons of the Company
“LF Consideration” HK$300,000 (equivalent to approximately RMB252,100), being the total consideration payable by Bozone to Ms. Liu for the acquisition of the LF Sale Share
“LF Sale Share” the 1% equity interest of Longjiang Feng Cai to be sold by Ms. Liu to Bozone and are fully paid as of the date of the Acquisition Agreement

DEFINITIONS

“LF Transaction” the acquisition by Bozone of the LF Sale Share held by Ms. Liu as contemplated under the Acquisition Agreement and in accordance with the terms of the LF Transfer Agreement
“LF Transfer Agreement” the equity transfer agreement to be entered between Ms. Liu and Bozone as soon as practicable after signing of the Acquisition Agreement to effect the transfer of LF Sale Share from Ms Liu to Bozone
“Latest Practicable Date” 2 June 2011, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
“Loan” the shareholders’ loans in the amount of approximately RMB6,859,600 (equivalent to approximately HK$8,163,000) outstanding as of the date of the Acquisition Agreement owed to the Vendors by Bozone
“Longjiang Feng Cai” Shenzhen Longjiang Feng Cai IT Co., Limited 深圳市龍江風采信息技術有限公司, a limited liability company incorporated in the PRC, currently being owned as to 99% by Bozone and 1% by Ms. Liu
“Ms. Liu” Liu Ling (劉玲), being one of the Vendors, currently holding 1.9% equity interest of Cheerfull, 1% equity interest in Longjiang Feng Cai, and 10% equity interest in HLJ Bozone, after Completion she will continue to hold 10% equity interest in HLJ Bozone
“PRC” the People’s Republic of China, which for the purpose of this circular, shall exclude Hong Kong, Macau Special Administrative Region and Taiwan
“SFO” Securities and Futures Ordinance (cap. 571 of the Laws of Hong Kong)
“Sale Shares” 24,500 ordinary shares of US$1.00 in the issued share capital of Cheerfull to be sold by the Vendors to Ace Bingo, representing 49% of the equity interest in Cheerfull and are fully paid or credited as fully paid as of the date of the Acquisition Agreement
“Share(s)” ordinary share(s) of par value of HK$0.01 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s) from time to time “Stock Exchange” The Stock Exchange of Hong Kong Limited

DEFINITIONS

“Transaction”	the acquisition by Ace Bingo of the Sale Shares held by the
	Vendors
“Vendors”	Xu Ming (許明), Li Jun (李軍), Lin Zhiwei (林志偉), Miao Jian
	(苗劍), Jiang Chuan (姜川), Liu Ling (劉玲), Zhu Yuan (朱原),
	Gao Lei (高蕾), Zhao Peng (趙鵬) and Lv Jie (呂杰)
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United States of
	America
“%”	per cent.

Unless otherwise stated, the conversion of RMB into HK$ is based on the exchange rate of RMB1.00=HK$1.19. Such conversion should not be construed as a representation that the amount in question has been, could have been, or could be converted at any particular rate or at all.

LETTER FROM THE BOARD

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

Executive Directors: Madam Cheung Kwai Lan Mr. Chan Tung Mei Mr. Chan Ting Ms. Chan Siu Sarah Mr. Lau Hin Kun

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

Independent Non-Executive Directors: Mr. Tian He Nian Mr. Zhang Xiu Fu Mr. Yang Qing Cai Mr. To Yan Ming Edmond

Head office and principal place of business in Hong Kong: Room 2201, 22/F Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong

8 June 2011

To the Shareholders and, for information only, the holders of the options and holders of the warrants

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement. Ace Bingo entered into the Acquisition Agreement with the Vendors, pursuant to which Ace Bingo has conditionally agreed to purchase and the Vendors have conditionally agreed to sell the Sale Shares, representing 49% equity interest of Cheerfull, for the consideration of HK$27,200,000. The Consideration will be satisfied fully in cash.

Further, pursuant to the Acquisition Agreement, Bozone has agreed to purchase and Ms. Liu has agreed sell the LF Sale Share, representing 1% of the equity interest of Longjiang Feng Cai, for the consideration of HK$300,000 (equivalent to approximately RMB252,100). The LF Consideration will be satisfied fully in cash.

* for identification purpose only

LETTER FROM THE BOARD

The purpose of this circular is to provide you with information regarding resolution to be proposed at the EGM including (i) the Acquisition; (ii) the recommendation of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition; (iii) the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Acquisition; and (iv) the notice of the EGM.

THE ACQUISITION

Date: 15 April 2011

Parties:

Purchasers: (i) Ace Bingo – purchaser of the Sale Shares; and
(ii) Bozone – purchaser of the LF Sale Shares
Vendors: (i) Xu Ming (許明), a 30.8% shareholder of Cheerfull, a director of Cheerfull and a connected person of the Company;
(ii) Li Jun (李軍), a 4.8% shareholder of Cheerfull, an Independent Third Party;
(iii) Lin Zhiwei (林志偉), a 4.9% shareholder of Cheerfull, an Independent Third Party;
(iv) Miao Jian (苗劍), a 2.5% shareholder of Cheerfull, an Independent Third Party;
(v) Jiang Chuan (姜川), a 1.9% shareholder of Cheerfull, an Independent Third Party;
(vi) Zhu Yuan (朱原), a 0.6% shareholder of Cheerfull, an Independent Third Party;
(vii) Gao Lei (高蕾), a 0.4% shareholder of Cheerfull, an Independent Third Party;
(viii) Zhao Peng (趙鵬), a 0.6% shareholder of Cheerfull, a director of Bozone and a connected person of the Company;
(ix) Lv Jie (呂杰), a 0.6% shareholder of Cheerfull, a director of Bozone and a connected person of the Company; and
(x) Ms. Liu, a 1.9% shareholder of Cheerfull, a 1% shareholder of Longjiang Feng Cai, a 10% shareholder of HLJ Bozone and a connected person of the Company.

LETTER FROM THE BOARD

Assets to be acquired

Pursuant to the Acquisition Agreement, Ace Bingo has conditionally agreed to acquire and the Vendors have conditionally agreed to sell the Sale Shares, representing 49% equity interest of Cheerfull as at the date of this Circular. Cheerfull currently holds 100% equity interest in Bozone.

As at the date of this Circular, the Sale Shares are charged or pledged (the “Charge”) by the Vendors to an independent third party (the “Lender”) for a loan (the “Secured Loan”) and that the Secured Loan remains outstanding. To the best knowledge of the Company after due enquiry, the Charge has not been registered.

The original establishment cost of the Cheerfull shares held by Xu Ming (許明) and Ms. Liu were US$15,407 and US$969 respectively. The original acquisition cost of the Cheerfull Shares held by Zhao Peng (趙鵬) and Lv Jie (呂杰) were US$319 and US$319 respectively.

Further, pursuant to the Acquisition Agreement, Bozone has agreed to purchase and Ms. Liu has agreed sell the LF Sale Share, representing 1% of the equity interest in Longjiang Feng Cai as at the date of the circular. Longjiang Feng Cai was incorporated on 9 July 2003 and Bozone currently holds 99% equity interest in Longjiang Feng Cai.

The original establishment cost of the 1% equity interest in Longjiang Feng Cai held by Ms. Liu was RMB 10,000.

Consideration

The total consideration for the Sale Shares is HK$27,200,000 and shall be payable by Ace Bingo to the Vendors upon the date of Completion.

The total consideration payable to Ms. Liu by Bozone for the sale and purchase of the LF Sale Share is HK$ 300,000 (equivalent to approximately RMB252,100) payable in cash in accordance with the terms of the LF Transfer Agreement.

The Consideration and LF Consideration were the result of arm’s-length commercial negotiation and were arrived at with reference to the net book value of the net assets of the Bozone Group. The Company takes the view that the social welfare lottery in the PRC is a still at an expanding stage with huge growth potential. The lottery-related business under Bozone Group is also a growing section of the Group’s businesses and is profitable. The Acquisition will expand the Group’s profit base and will increase the Group’s administrative efficiency as the Bozone Group will be wholly-owned by the Company following Completion of the Acquisition.

Waiver of Loan

The Vendors agree that, from the date of Completion, they will waive all their rights, interest, benefits and claims in the Loan and that the Ace Bingo and Bozone will no longer be liable to repay the Loan or any other amount to the Vendors. Each Vendor agrees that, upon receipt of the Consideration, he/ she will not have any claim or right or interest in or against Bozone or any of its affiliates.

LETTER FROM THE BOARD

Conditions precedent

Completion of the Transaction and the LF Transaction will be subject to the following:

the clearance of announcement(s) and circular(s) required to be issued by the Company under the GEM Listing Rules and granting of all approvals, if necessary by the Stock Exchange in respect of the Transaction;
the passing by the Shareholders at an extraordinary general meeting of the Company to be convened and held of an ordinary resolution approving the Acquisition Agreement and the transaction contemplated thereunder;
no event having occurred since the date hereof to Completion, the consequence of which is to materially and adversely affect the financial position, business or property, results of operations or business prospects of the Bozone Group;
the representations and warranties of each Vendor in the Acquisition Agreement remain true, accurate and complete in all material respects and are not misleading as at date of Completion and at all times between the date of the Acquisition Agreement and date of Completion, and a certificate to such effect is delivered by such Vendor;
all approvals, consents, authorizations and licenses (so far as necessary) required to be obtained on the part of Ace Bingo in relation to the Transaction contemplated under the Acquisition Agreement having been obtained;
all approvals, consents, authorizations and licenses (so far as necessary) required to be obtained on the part of the Vendors in relation to the Transaction contemplated under the Acquisition Agreement having been obtained;
all approvals, consents, authorizations and licenses (so far as necessary) required to be obtained on the part of the Bozone in relation to the LF Transaction contemplated under the Acquisition Agreement having been obtained;
the LF Transfer Agreement having been filed with the Market Supervision Administration of Shenzhen Municipality; and
if applicable, all approvals, waiver of rights or consents being obtained from the existing convertible bonds holders of the Company to enable the transactions contemplated under the Acquisition Agreement to proceed without resulting in any breach or termination or acceleration of obligations under such convertible bonds.

Ace Bingo may at any time by notice in writing to the Vendors waive any of the conditions set out in Clauses 3 to 9. Conditions set out in Clauses 1 and 2 are incapable of being waived. The Acquisition Agreement shall be terminated forthwith in the event that any of the above conditions precedent cannot be fulfilled or waived three (3) months after the date of the Acquisition Agreement, unless the parties to the Acquisition Agreement agree otherwise in writing.

LETTER FROM THE BOARD

Completion

Completion for the Acquisition shall take place on the third Business Day after fulfilments (or waiver) of the conditions precedent but shall not take place later than three (3) months after the date of the Acquisition Agreement unless all parties to the Acquisition Agreement otherwise have agreed in writing to postpone the date of Completion to a later date. Ace Bingo and Bozone may choose to but are not obliged to complete the Acquisition of the Sale Shares and the LF Sale Share simultaneously.

Pursuant to a letter from the Lender dated 31 May 2011 to the Vendors, the Lender agreed to release the Charge over the Sales Shares on the same day when the Lender receives a total of RMB8,428,333.33 (or an equivalent amount in Hong Kong dollar based on the middle way exchange rate for RMB against Hong Kong dollar as published by People’s Bank of China on Completion date) representing the outstanding principal and interest under the Secured Loan in their designated bank account in Hong Kong (the “ Lender Account ”) provided that such payment will be made to the Lender on or before 14 July 2011.

Ace Bingo has received a letter of instruction from the Vendors requesting Ace Bingo to pay RMB8,428,333.33 (or an equivalent amount in Hong Kong dollar based on the middle way exchange rate for RMB against Hong Kong dollar as published by People’s Bank of China on Completion date) of the Consideration to the Lender’s Account on Completion. The remaining Consideration will be paid to the Vendors pursuant to the terms of the Acquisition Agreement.

The Company finds the resolution with respect to the Charge acceptable as the estimated date for Completion will be on or before 14 July 2011.

INFORMATION ON CHEERFULL GROUP

Cheerfull is an investment holding company incorporated on 6 October 2005 in the BVI with limited liability. Bozone is principally engaged in providing services to the Welfare Lottery centres of Heilongjiang, Zhejiang and Shenzhen and was incorporated on 8 March 2002 in the PRC with limited liability.

Set out in the below is the audited financial information on the Cheerfull Group for the two financial year ended 30 June 2009 and 30 June 2010 and for the six months ended 31 December 2010 prepared in accordance with the Hong Kong Financial Reporting Standards:

	For	the year ended	For the period
		30 June	ended 31 December
	2009	2010	2010
	(HK$’000)	(HK$’000)	(HK$’000)
Profit before taxation	13,802	23,239	8,706
Profit attributable to equity holders	11,946	19,791	6,723

The audited net assets of the Cheerfull Group as at 30 June 2010 and 31 December 2010 were approximately HK$60,357,000 and HK$69,033,000 respectively.

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

The Group is principally engaged in (i) development and operation of technology platforms for IP protection; collection of copyright/royalty fees on behalf of IP owners and the provision of value-added services in karaoke venues in the PRC and (ii) lottery-related businesses in the PRC via Bozone Group.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Company takes the view that the social welfare lottery in the PRC is a still at an expanding stage with huge growth potential. The lottery-related business carried out by the Bozone Group is also a growing section of the Group’s businesses and is profitable. The Completion of the Acquisition will increase the Group’s shareholding in Cheerfull Group from 51% to 100% and would enhance the Group’s return from this business division. Also, the aggregate of the Consideration and the LF Consideration to be paid as compared to the net asset value of the Bozone Group is very attractive. The increase to 100% ownership in Cheerfull will also reinforce the Company’s control over the business division and increase flexibility in utilizing various resources and business units within the Group to create further synergy.

Taking into account the benefits of the Acquisitions, the Board is of the view that the terms of the Acquisitions are fair and reasonable and the Acquisitions are in the interests of the Group and the Shareholders as a whole.

FINANCIAL EFFECT ON THE ACQUISITION

Upon completion of the Acquisition, Cheerfull Group will become wholly-owned subsidiary of the Group, the financial results, assets and liabilities of Cheerfull Group will be 100% consolidated into the accounts of the Group.

As shown in Appendix III to this circular, which illustrates the effect of completion of the Acquisition on the Group assuming that the Acquisition has taken place on 30 June 2010, the completion of the Acquisition will lead to a decrease of about HK$27,500,000 in the total assets of the Group, a decrease of about HK$7,360,000 in the total liabilities of the Group, and a decrease of about HK$20,140,000 in the net equity of the Group.

The Group will also record an earnings of about HK$2,953,000 as a result of the Acquisition, which will be reflected in the reserve of the Group.

LISTING RULE IMPLICATIONS

As the applicable ratios for the Acquisition exceed 25% and the aggregate of the Consideration and LF Consideration exceed HK$10,000,000, the Acquisition constitutes a non-exempted connected transaction for the Company and is subject to the announcement and reporting requirements pursuant to Chapter 20 of the GEM Listing Rules and requires the approval of the Independent Shareholders.

As no Directors have a material interest in the Acquisition, no director had to abstain from voting on the board resolutions with regards to the Acquisition.

LETTER FROM THE BOARD

EGM

A notice convening the EGM to be held at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on Thursday, 23 June 2011 at 10:30 a.m. is set out on pages 88 to 89 of this circular. Ordinary resolutions will be proposed at the EGM to approve, amongst other things, the Acquisition and the transactions contemplated thereunder.

If any of the Vendors hold Share(s) as at the date of the EGM, they and their respective associates (as defined under the GEM Listing Rules) are required to abstain from voting on the resolution(s) in respect of the Acquisition at the EGM. Save for the above, to the best knowledge of the Directors, no other Shareholders are required to abstain from voting on the ordinary resolution(s) for the approval of the Acquisition at the EGM and such approval shall be obtained by way of poll pursuant to Rule 17.47(4) of the GEM Listing Rules.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the Hong Kong branch share registrar of the Company, Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish and in such event, the proxy shall be deemed to be revoked.

An announcement will be made by the Company after the EGM on the results of the EGM.

ADDITIONAL INFORMATION

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

RECOMMENDATION

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Acquisition is fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution approving the Acquisition at the EGM.

In light of the above, the Directors believe that the proposal at the EGM is in the best interests of the Company and its Shareholders. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of all of the resolution to be proposed at the EGM.

Yours faithfully

For and on behalf of the Board of

China Vanguard Group Limited 眾彩科技股份有限公司[*] Chan Siu Sarah Executive Director

* for identification purpose only

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

8 June 2011

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED

We refer to the circular of the Company dated 8 June 2011 (the “Circular”) of which this letter forms part of. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider and advise the Independent Shareholders as to whether, in our opinion, the terms of the Acquisition Agreement, details of which are set out in the letter from the Board contained in the Circular, are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

Having considered the terms of the Acquisition and the advice of the Independent Financial Adviser in relation thereto as set out on pages 13 to 23 of this Circular, we are of the opinion that the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Independent Shareholders and the Company as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the EGM to approve the Acquisition.

Yours faithfully, Tian He Nian Zhang Xiu Fu Yang Qing Cai To Yan Ming Edmond Independent Board Committee

* for identification purpose only

LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition for the purpose of inclusion in this circular.

==> picture [117 x 37] intentionally omitted <==

Veda Capital Limited

Suite 3214, 32/F., COSCO Tower 183 Queen’s Road Central, Hong Kong

8 June 2011

To the Independent Board Committee and the Independent Shareholders of China Vanguard Group Ltd.

Dear Madam/Sir,

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the fairness and the reasonableness of the Acquisition, details of which are set out in the circular to the Shareholders dated 8 June 2011 (the “ Circular ”), of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context requires otherwise.

On 15 April 2011, Ace Bingo, an indirect wholly-owned subsidiary of the Company, entered into the Acquisition Agreement with the Vendors, pursuant to which Ace Bingo has conditionally agreed to purchase and the Vendors have conditionally agreed to sell the Sale Shares, representing 49% equity interest in Cheerfull, for the consideration of HK$27,200,000. The Consideration will be satisfied fully in cash. Further, pursuant to the Acquisition Agreement, Bozone has agreed to purchase and Ms. Liu has agreed to sell the LF Sale Share, representing 1% of the equity interest in Longjiang Feng Cai, for the consideration of HK$300,000 (equivalent to approximately RMB 252,100). The LF Consideration will be satisfied fully in cash.

As the applicable ratios for the Acquisition exceed 25% but less than 100%, the Acquisition constitutes a major transaction of the Company pursuant to Chapter 19 of the GEM Listing Rules and is subject to the Shareholders’ approval at the EGM. As the applicable ratios for the Acquisition exceed 25% and the aggregate of the Consideration and LF Consideration exceed HK$10,000,000, the Acquisition constitutes a non-exempted connected transaction for the Company and is subject to the announcement and reporting requirements pursuant to Chapter 20 of the GEM Listing Rules and requires the approval of the Independent Shareholders.

LETTER FROM VEDA CAPITAL

The Independent Board Committee has been established to advise the Independent Shareholders as to (i) whether the Acquisition is in the ordinary course of business of the Company; (ii) whether the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Independent Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolution to approve the Acquisition at the EGM.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, Directors and management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true as at the date of the EGM.

We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have not, however, conducted any independent in-depth investigation into the business affairs, financial position or future prospects of the Group, nor have we carried out any independent verification of the information provided by the Directors and management of the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In giving our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the Acquisition, we have taken into consideration the following factors and reasons:

A. THE AGREEMENT

1. Information on Cheerfull Group

Cheerfull is an investment holding company incorporated on 6 October 2005 in the BVI with limited liability. Cheerfull holds 100% equity interest in Bozone which is a wholly foreign-owned enterprise established in the PRC principally engaged in providing services to the Welfare Lottery Centres of Heilongjiang, Zhejiang and Shenzhen.

LETTER FROM VEDA CAPITAL

Bozone Group’s suite of services include: software development, integration of network systems, network security solutions, lottery operation solutions and services, and research and development into and the supply and maintenance of POS machines. As mentioned in the interim report 2011 of the Company (“ IR 2011 ”) for the six months ended 31 December 2010 and in the third quarter report of the Company (“ TQR 2011 ”) for the nine months ended 31 March 2011, Bozone has been accredited with the ISO 27001:2005 certification. ISO27001 is the International Standard for Information Security and it formally specifies a management system that is intended to bring information security under explicit management control. The Bozone Group has been continuously upgrading its platform (such as the operating platform, data security, system stability and other auxiliary system) to meet the customers’ changing needs, new game development is currently in process. As advised by the Company, as at the Latest Practicable Date, Longjiang Feng Cai which is owned as to 99% by Bozone and 1% by Ms. Liu and HLJ Bozone which is owned as to 65% by Bozone, 10% by Ms. Liu and 25% by an independent third party are the major subsidiaries of Bozone.

Longjiang Feng Cai is engaged in providing full spectrum of services to the Welfare Lottery Centre in the Zhejiang province and HLJ Bozone is engaged in providing full spectrum of services to the Welfare Lottery Centre in the Heilongjiang province

Set out below is the financial information on the Cheerfull Group for the two financial years ended 30 June 2010 and for the six months ended 31 December 2009 and 31 December 2010 prepared in accordance with the Hong Kong Financial Reporting Standards:

	For the year ended	For the year ended	For the six months ended	For the six months ended
	30 June	30 June	31 December	31 December
	2009	2010	2009	2010
	(audited)	(audited)	(unaudited)	(audited)
	HK$’000	HK$’000	HK$’000	HK$’000
Profit before taxation	13,802	23,239	9,961	8,706
Profit attributable to equity holders	11,946	19,791	8,093	6,723

The audited net assets of the Cheerfull Group as at 31 December 2010 was approximately HK$69.03 million.

As illustrated above, the profit attributable to equity holders of the Cheerfull Group for the year ended 30 June 2010 of approximately HK$19.79 million represented an increase of profit by approximately 65.67% from that of approximately HK$11.95 million for the year ended 30 June 2009. As advised by the Company, the increase in profit was mainly attributable to the growth in revenue and reduced operating costs derived from increasing scale of the lottery-related operations.

The profit attributable to equity holders of Cheerfull Group for the six months ended 31 December 2010 of approximately HK$6.72 million represented a decrease of profit by approximately 16.93% from that of approximately HK$8.09 million for the six months ended 31 December 2009. As advised by the Company, the decrease in profit was mainly attributable to the increase in administrative expense as a result of the overall increase in rental expenses and staff related costs and the decrease in other revenue which are non-recurring in nature.

LETTER FROM VEDA CAPITAL

2. Background and financial information of the Group

(i) Nine months ended 31 March 2011

As set out in the TQR 2011, the Group recorded unaudited revenue from continuing operations of approximately HK$79.03 million, representing an increase of approximately 22.41% from that of the nine months ended 31 March 2010 of approximately HK$64.56 million. As advised by the Company, the increase in revenue was mainly due to the significant growth achieved in business from the lottery-related operations. The Group reported unaudited loss attributable to Shareholders from continuing operations of approximately HK$16.49 million for the nine months ended 31 March 2011, representing a decrease in loss of approximately 83.63% from that of the nine months ended 31 March 2010 of approximately HK$100.71 million. As advised by the Company, the reduction in loss was due to the improved financial performance of the lottery-related business, reduction of financial costs and the recognition of gain from the disposal of investment in subsidiary.

(ii) Financial year ended 30 June 2010

As set out in the annual report 2010 (“ AR 2010 ”) for financial year ended 30 June 2010, the Group recorded revenue from continuing operations of approximately HK$97.51 million, representing an increase of approximately 46% from that of the financial year ended 30 June 2009 of approximately HK$66.79 million. As set out in the AR 2010, the improvement in revenue was mainly driven by the commendable growth in both development and operation of the karaoke content management service system and lottery-related operations.

The Group reported loss attributable to Shareholders of approximately HK$1,047.78 million for financial year ended 30 June 2010, representing an increase in loss of approximately 941.08% from that of the financial year ended 30 June 2009 of approximately HK$100.64 million. As advised by the Company, the increase in loss was mainly because of the one-off impairment loss on goodwill of approximately HK$ 1,061.20 million.

LETTER FROM VEDA CAPITAL

3. Reasons for the Acquisition

As mentioned in the Board Letter, the Company takes the view that the social welfare lottery in the PRC is a still at an expanding stage with huge growth potential. The lottery-related business carried out by the Bozone Group is also a growing section of the Group’s businesses and is profitable. The Completion will increase the Group’s shareholding in Cheerfull Group from 51% to 100% and would enhance the Group’s return from this business division. Also, the aggregate of the Consideration and the LF Consideration to be paid as compared to the net asset value of the Bozone Group is very attractive. The increase to 100% ownership in Cheerfull will also reinforce the Company’s control over the business division and increase flexibility in utilizing various resources and business units within the Group to create further synergy.

Taking into account the benefits of the Acquisition, the Board is of the view that the terms of the Acquisition are fair and reasonable and the Acquisition is in the interests of the Group and the Shareholders as a whole.

According to the website of Ministry of Finance PRC (http://zhs.mof.gov.cn), the national lottery sales for the year 2010 has been increased by approximately 25.5% to approximately RMB 166,248 million from year 2009. For the three months from January to March 2011, the accumulated national lottery sales reached approximately RMB 46,314 million, which has increased by approximately 33.8% as compared with the same period in year 2010.

As set out in the TQR 2011, the sales revenue from lottery-related operation for the nine months ended 31 March 2011 has increased by approximately 32% as compared to the nine months ended 31 March 2010, which also represents approximately 58.10% of the total revenue of the Group for the nine months ended 31 March 2011. As set out in the AR 2010, the turnover from lottery-related operation for the financial year ended 30 June 2010 increased by approximately 23.19% from approximately HK$42.84 million recorded for the financial year ended 30 June 2009 to approximately HK$52.78 million for the financial year ended 30 June 2010, and the increase in revenue contribution is a direct result of the increase of combined lottery sales recorded in the 3 locations being serviced by the Bozone Group. Accordingly, the gross profit ratio of the lottery related business has increased by approximately 4.5% percentage points to approximately 91.4% for the financial year ended 30 June 2010 as compared with that of the financial year ended 30 June 2009 of approximately 86.9%. We have reviewed the financial results of the Company in AR 2010, IR 2011 and TQR 2011 and noticed that, the revenue generated from the lottery-related business segment has been increasing and has been contributing more than 50% of the total revenue of the Group.

We noted from the IR 2011 that the loss before taxation of the Group improved by approximately 61.20% for the six months ended 31 December 2010 whilst the profit before taxation of Cheerfull Group dropped by approximately 12.60% for the six months ended 31 December 2010. As noted from the IR 2011, the Group recorded loss on changes in fair value for derivative financial instruments of approximately HK$31.65 million for the six months ended 31 December 2009 and the Group did not record any loss on changes in fair value for derivative financial instruments for the six months ended 31 December 2010. After deduction of such loss on changes in fair value for derivative financial instruments for the six months ended 31 December 2009, the loss before

LETTER FROM VEDA CAPITAL

tax of the Group for the six months ended 31 December 2010 would represent an increase in loss of approximately 0.58% as compared with that of the six months ended 31 December 2009. As such, the net profit of Cheerfull Group for the six months ended 31 December 2010 did not have a significant impact on the improvement in loss of the Group for the six months ended 31 December 2010 given such improvement was mainly resulted from the absence of the loss on changes in fair value for derivative financial instruments for the six months ended 31 December 2010. Having said that, the increase in gross profit of Cheerfull Group for the six months ended 31 December 2010 (as mentioned below) has enhanced the gross profit of the Group for the six months ended 31 December 2010.

As set out in Appendix II to the Circular, the gross profit and profit attributable to equity holders of Cheerfull Group for the year ended 30 June 2010 represented an increase of approximately 29.53% and approximately 65.67% respectively as compared with those for the year ended 30 June 2009. As advised by the Company, the profit attributable to equity holders of Cheerfull Group for the six months ended 31 December 2010 represented a drop of approximately 16.93% as compared with that for the six months ended 31 December 2009 was a result of the overall increase of approximately HK$4.93 million in rental expenses and staff related costs which was influenced by the overall economic environment to the Cheerfull Group and the decrease in other revenue of approximately HK$2.24 million which are non-recurring in nature. The gross profit of Cheerfull Group for the six months ended 31 December 2010 represented an increase of approximately 15.46% as compared with the gross profit for the six months ended 31 December 2009 and as advised by the Company, by excluding the rental expenses of approximately HK$0.2 million and non-recurring staff related costs of approximately HK$1.7 million which represented an increase of approximately 24% and 50% respectively as compared with the period for the six months ended 31 December 2009 and other non-recurring revenue of approximately HK$2.24 million, the profit attributable to equity holders of Cheerfull Group for the six months ended 31 December 2010 represented an increase of approximately 24.08% to that for the six months ended 31 December 2009.

As advised by the Company, the gross profit contributed by the lottery-related operation for the financial year ended 30 June 2010 was approximately HK$48.22 million, which has been increased by 29.53% as compared with that of the financial year ended 30 June 2009 of approximately HK$37.22 million. The gross profit contributed by the Bozone Group represents approximately 76.24% of the Group’s gross profit of approximately HK$63.25 million as shown in the AR 2010.

The lottery-related business carried out by the Bozone Group is shown to be a growing section of the Group’s businesses and is profitable. The Acquisition of the remaining 49% of Cheerfull Group enables 100% ownership and enhances control over the business which allows the Group to better utilize internal resources to attain synergy effects.

We have been advised by the Company that in order to facilitate the acquisition of the remaining 49% of the Cheerfull Group and obtain 100% of Longjiang Feng Cai, and considered that the LF Consideration is at a discount to the net book value of Longjiang Feng Cai as at 31 December 2010, the Company considers the LF Transfer Agreement as favourable to the Company as a whole. Further analysis on the Consideration and LF Consideration are set out in the section below headed “4. Consideration for the Acquisition”.

LETTER FROM VEDA CAPITAL

Having considered (i) the growing trend of the lottery sales in the PRC as supported by the national lottery sales statistics; (ii) the profitability of the Cheerfull Group for the three financial years ended 30 June 2010 and for the six months ended 31 December 2010 notwithstanding the drop in net profit for the six months ended 31 December 2010 as compared with the net profit in the corresponding period in the previous year due to the overall increase in rental expenses and staff related costs which are influenced by the overall economic environment to the Cheerfull Group and the decrease in other revenue which are non-recurring in nature; (iii) the Acquisition enables the Company to obtain full control over the Cheerfull Group and enhance its profit sharing on Cheerfull Group upon 100% ownership; (iv) the LF Consideration is at a discount to the net book value of Longjiang Feng Cai as at 31 December 2010; and (v) the potential synergies to be brought by the full utilization of internal resources of the enlarged Group upon completion of the Acquisition, we agree with the view of the Directors that the Acquisition is in the ordinary and usual course of business of the Company and in the interests of the Company and the Independent Shareholders as a whole.

4. Consideration for the Acquisition

(a) Consideration

The consideration for the Sale Shares of HK$27,200,000 shall be payable in cash by Ace Bingo to the Vendors upon the date of Completion. The consideration for the LF Sale Share is HK$300,000 and shall be payable in cash in accordance with the terms of the LF Transfer Agreement. As advised by the Company, the Consideration and LF Consideration were agreed in arm’s length commercial negotiation and with reference to the net book value of the Bozone Group as at 31 December 2010.

In order to further assess the fairness and reasonableness of the Consideration and the LF Consideration, we have considered valuation approaches, including discount cash flow, price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Given discount cash flow would require a profit forecast model, of which assumptions on among others, revenue, capital expenditure, future cash flow and discount factor would be involved which will give rise to uncertainties and deviation on the valuation, we consider discount cash flow approaches may not be applicable. As such, we consider the price-to-book ratio, price-toearnings ratio and price-to-sales ratio would be more appropriate, among all the considered approaches, to provide a general reference to assess the reasonableness of the Consideration and the LF Consideration.

The aggregate consideration of approximately HK$55.81 million (the “ Aggregate Consideration ”) which comprised of the consideration of Cheerfull Group (on 100% equity interest basis) of approximately HK$55.51 million and LF Consideration of approximately HK$0.30 million represents a price earnings multiple (“ P/E ”) of approximately 2.8 times, which is calculated by the Aggregate Consideration divided by the sum of the income attributable to owners of the Cheerfull Group of approximately HK$19.79 million for the year ended 30 June 2010 and 1% of the income attributable to owners of Longjiang Feng Cai of approximately HK$0.15 million for the year ended 30 June 2010.

LETTER FROM VEDA CAPITAL

The price-to-book ratio (“ P/B ”) of the Acquisition is approximately 0.76 times, calculated as the Aggregate Consideration divided by the aggregate sum of the equity attributable to owners of the Cheerfull Group of approximately HK$64.49 million as at 31 December 2010, 1% of the equity attributable to owners of Longjiang Feng Cai of approximately HK$0.62 million as at 31 December 2010 and the Loan waived of approximately RMB 6.86 million (equivalently of approximately HK$8.16 million).

The price-to-sales ratio (“ P/S ”) of the Acquisition is approximately 1.05 times, calculated as the Aggregate Consideration divided by the aggregate sum of the revenue of Cheerfull Group of approximately HK$52.78 million for the year ended 30 June 2010 and 1% of the revenue of Longjiang Feng Cai of approximately HK$0.39 million for the year ended 30 June 2010.

As advised by the Company and as shown in the Ministry of Finance PRC (www. mof.gov.cn), revenue of the Cheerfull Group is on the track with the overall sales trend of the lottery industry. The national lottery sales have demonstrated continuing upward trend over the consecutive months as contributed by the expansion of different sales channel and launches of new lottery games in the PRC. As such, we consider revenue and profit of Cheerfull Group for the year ended 30 June 2010 would be more appropriate than the annualized revenue and the annualized profit of Cheerfull Group for the six months ended 31 December 2010 for the P/S and P/E calculation.

In order to access the fairness and reasonableness of the P/E, P/B and P/S of the Acquisition and given the Cheerfull Group is mainly engaged in lottery-related business, we have identified all comparable companies (the “ Industry Comparables ”) being listed companies on the Stock Exchange (on GEM or Main Board) engaging in lottery operation solutions or related business as at 15 April 2011, being the date of the Acquisition Agreement, with their respective revenue generated from the lottery related business represent more than 50% of the total revenue for the latest financial year as set out in the latest annual report/results announcements as published before the date of the Acquisition Agreement. To the best of our knowledge, we have identified 4 Industry Comparables by searching through published information on the Stock Exchange’s website.

The P/E, P/B and P/S are based on the Industry Comparables’ respective market capitalizations as at 15 April 2011, being the date of the Acquisition Agreement, and the annual profit attributable to the equity holders, equity attributable to equity holders and the annual revenue as set out in their latest annual reports or interim reports or results announcements (whichever is the latest) which are published prior to the date of the Acquisition Agreement. We are aware that some Industry Comparables are involved in various business segments whilst certain Industry Comparable is involved in lottery business only, however, in view that (i) the Industry Comparables are all engaged in lottery-related business, which is similar to the business of the Cheerfull Group, with their respective revenue generated from the lottery related business segment represent more than 50% of the total revenue; and (ii) the respective P/Es, P/Bs and P/Ss of the Industry Comparables are determined with reference to the date of the Acquisition Agreement, we consider the Industry Comparables are fair and representative samples.

LETTER FROM VEDA CAPITAL

Independent Shareholders should note that the stated P/Es, P/Bs and P/Ss of the respective companies could be sensitive to, amongst other things, each of their particular businesses, financial position and market price performance of the shares of the respective companies and therefore, the P/Es, P/Bs and P/Ss of the Industry Comparables listed below are for information and reference purposes only.

Industry	Principal business	P/E (times)	P/B (times)	P/S (times)
Comparables
(Stock code)
China LotSynergy	Provision of lottery gaming system, terminal	12.89	2.12	6.94
Holdings Limited	equipment and relevant technologies and
(8161)	consultancy services for the public welfare
	lottery market in China.
Melco International	Provision of catering, entertainment, gaming	Not	1.07	58.60
Development	and related services, gaming technology	applicable
Limited (200)	consultation services in Macau,	because of
	development and sale of financial trading	loss making
	and settlement systems in Asia, and
	property investments and other
	investments.
Melco LottVentures	Lottery business.	Not	Not	0.90
Limited (8198)		applicable	applicable
		because of	because of
		loss making	net liabilities
			position
REXCAPITAL	Lottery system and games development	10.53	1.80	4.15
Financial	business and distribution and marketing
Holdings Ltd	business; securities broking, margin
(555)	financing and investment trading and
	holding; money lending business.
Maximum		12.89	2.12	58.60
Minimum		10.53	1.07	0.90
Mean		11.71	1.67	17.65
Acquisition		2.80	0.76	1.05

Source: www.hkex.com.hk

LETTER FROM VEDA CAPITAL

As indicated in the above table, the P/E and P/B of the Acquisition being 2.8 times and 0.76 times, fall below the range of the P/Es and the P/Bs of the Industry Comparables from approximately 10.53 times to approximately 12.89 times and from approximately 1.07 times to approximately 2.12 times respectively. The P/S of the Acquisition being 1.05 times, falls below the mean and within the range of the P/Ss of the Industry Comparables from approximately 0.90 times to approximately 58.60 times.

We are aware that P/Es calculation were not applicable for two Industry Comparables and P/B calculation was not applicable for one Industry Comparable, however, in light of that the P/E and P/B represented by the Acquisition are below the ranges of those of the Industry Comparables and the P/S represented by the Acquisition is at the lower end of the range of the P/S of the Industry Comparables, we consider the P/E, P/B and P/S represented by the Acquisition are not unreasonable as compared with other companies operating in lottery-related business. In addition, we noted that even without taking into consideration of 1% of the equity attributable to owners of Longjiang Feng Cai and the waived Loan, the Aggregate Consideration of approximately HK$55.81 million has already represented a discount of approximately 19.15% to the audited net assets of Cheerfull Group of approximately HK$69.03 million as at 31 December 2010. Having considered the abovementioned, we consider the Consideration and LF Consideration are fair and reasonable so far as the Independent Shareholders are concerned.

FINANCIAL EFFECTS OF THE ACQUISITION

(i) Net asset value

As set out in Appendix III, the audited net asset value of the Group as at 30 June 2010 was approximately HK$1,975.59 million, upon completion of the Acquisition, the net assets of the Group will decrease by approximately 1.02% to approximately HK$1,955.45 million.

In view of the optimistic prospect of the Cheerfull Group and the synergistic effects to the Group as mentioned in the section headed “3. Reasons for the Acquisition”, we consider such decrease in net assets of the Group is acceptable.

(ii) Earnings

As set out in the Board Letter. the Group will record an earnings of about HK$2.95 million as a result of the Acquisition, which will be reflected in the reserve of the Group.

In view of the profitability of the Cheerfull Group for the three financial years ended 30 June 2010 and for the six months ended 31 December 2010 and the Acquisition enables the Company to control over the Cheerfull Group and enhance its profit sharing on Cheerfull Group upon 100% ownership, we consider that it is a fair expectation that the Acquisition will have a positive impact on the earnings position of the Group upon Completion.

LETTER FROM VEDA CAPITAL

RECOMMENDATION

Having considered the above-mentioned principal factors and reasons, in particular, taking into account that:

(i) the growing trend of the lottery sales in the PRC as supported by the national lottery sales statistics;
(ii) the profitability of the Cheerfull Group for the three financial years ended 30 June 2010 and for the six months ended 31 December 2010 notwithstanding the drop in net profit for the six months ended 31 December 2010 as compared with the net profit in the corresponding period in the previous year due to the overall increase in rental expenses and staff related costs which was influenced by the overall economic environment to the Cheerfull Group and the decrease in other revenue which are non-recurring in nature;
(iii) the Acquisition enables the Company to control over the Cheerfull Group and enhance its profit sharing on Cheerfull Group upon 100% ownership;
(iv) the potential synergies to be brought by the full utilization of internal resources of the enlarged Group upon completion of the Acquisition; and
(v) the Consideration and the LF Consideration in aggregate represents P/E, P/B and P/S which are below the means and fall within/below the ranges of the Industry Comparables,

we consider (i) the Acquisition is in the ordinary course of business of the Company; (ii) the terms of the Acquisition are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the Acquisition and the terms thereof are in the interests of the Company and the Independent Shareholders as a whole. We would therefore recommend the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to approve the Acquisition to be proposed at the EGM.

Yours faithfully, For and on behalf of Veda Capital Limited Hans Wong Julisa Fong Chairman Managing Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

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

Financial information of the Group for each of the three years ended 30 June 2010, 2009 and 2008 and the six months ended 31 December 2010 are disclosed in the following documents which have been published on the websites of the GEM (http://www.hkgem.hk) and the Company (http://www.cvg.com.hk).

annual report of the Company for the year ended 30 June 2010 published on 28 September 2010 (pages 36 to 147);
annual report of the Company for the year ended 30 June 2009 published on 30 September 2009 (pages 44 to 137);
annual report of the Company for the year ended 30 June 2008 published on 25 September 2008 (pages 46 to 128);
interim report of the Company for the six months ended 31 December 2010 published on 14 February 2011 (pages 1 to 22); and
unaudited results of the Company for the nine months ended 31 March 2011 published on 13 May 2011 (pages 1 to 10).

2. INDEBTEDNESS

As at the close of business on 30 April 2011, being the latest practicable date for the purpose of ascertaining the indebtedness of the Enlarged Group prior to the printing of this circular, the Enlarged Group had an aggregate outstanding borrowings of approximately HK$70,333,000 comprising:

(a) principal outstanding and accrued interest of unsecured borrowings of approximately HK$48,239,000;
(b) the principal amount and accrued interest of the convertible bonds as at 30 April 2011 was approximately HK$11,102,000; and
(c) bank overdraft of approximately HK$10,992,000.

Bank overdraft of approximately HK$10,992,000 is secured by fixed deposits in bank.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, loans, bank overdraft or other similar indebtedness, financial lease or hire purchase commitments, liabilities under acceptances or acceptance credits or guarantees or other material contingent liabilities as at 30 April 2011.

Foreign currency amounts have, for the purpose of this indebtedness statement, been translated into Hong Kong dollar at the appreciable rate of exchange ruling at the close of business on 30 April 2011.

3. WORKING CAPITAL

The Directors, after due and careful consideration, are of the opinion that after taking into account the available banking facilities and present internal resources of the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular, in the absence of any unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 30 June 2010, being the date to which the Group’s latest published audited accounts were made up.

5. FINANCIAL AND TRADING PROSPECTS

The Directors are of the view that the Enlarged Group would benefit from the increase in the shareholding in Cheerfull Group from 51% to 100% and would enhance the Enlarged Group’s return from this business division. Also, the aggregate of the Consideration and the LF Consideration to be paid as compared to the net asset value of the Bozone Group is very attractive. The increase to 100% ownership in Cheerfull will also reinforce the Company’s control over the business division and increase flexibility in utilizing various resources and business units within the Group to create further synergy.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

1. ACCOUNTANTS’ REPORT OF CHEERFULL GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, W.H. Tang & Partners CPA Limited.

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==> picture [122 x 43] intentionally omitted <==

8 June 2011

The Directors China Vanguard Group Limited Room 2201, 22/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Cheerfull Group Holdings Limited (“Cheerfull”) and its subsidiaries (together “Cheerfull Group”), including the consolidated statements of financial position of Cheerfull Group for the financial years ended 30 June 2008, 2009, 2010 and the six months period ended 31 December 2010 (the “Relevant Periods”), for inclusion in the circular (the “Circular”) dated 8 June 2011 issued by China Vanguard Group Limited (the “Company”) in relation to the acquisition of 49% equity interests in Cheerfull.

Cheerfull was incorporated on 6 October 2005 in the British Virgin Islands (“BVI”) with limited liability and act as an investment holding company. As at the date of this report, Cheerfull has the following subsidiaries:

	Place of		Percentage of
Name of	incorporation	Registered	equity attributable	Principal
subsidiary	and operations	capital	to Cheerfull	activities
^ Shenzhen Bozone IT	The People’s	RMB10,000,000	100%	Provision of lottery-
Co. Limited#	Republic of China			related hardware and
	(“PRC”)			software systems
^ Shenzhen Longjiang	PRC	RMB1,000,000	99%	Provision of lottery-
Fengcai IT Co.				related hardware and
Limited#				software systems
^ Heilongjiang Bozone IT	PRC	RMB500,000	65%	Provision of lottery-
Co. Limited#				related hardware and
				software systems

Note:

^ The English name of this company represents management‘s best efforts at translating the Chinese name of the company as no English name has been registered.
The statutory financial year end date of these subsidiaries is 31 December.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

The financial statements of Cheerfull Group for each of the three years ended 30 June 2008, 2009 and 2010 have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and were audited by W.H. Tang & Partners CPA Limited, certified public accountants registered in Hong Kong, in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

For the purpose of this report, the directors of Cheerfull have prepared management accounts of Cheerfull Group for the Relevant Periods in accordance with HKFRSs issued by the HKICPA (the “Underlying Financial Statements”). We have, for the purpose of this report, carried out appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements and have carried out such additional procedures as we considered necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of Cheerfull Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were considered necessary to adjust the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of Cheerfull who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of Cheerfull Group and Cheerfull as at 30 June 2008, 2009, 2010 and 31 December 2010 and of the results and cash flows of Cheerfull Group for each of the Relevant Periods.

The comparative consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of Cheerfull Group for the six months period ended 31 December 2009 together with the notes thereon (the “31 December 2009 Financial Information”) have been extracted from Cheerfull Group’s unaudited financial information for the same period which were prepared by the directors of Cheerfull solely for the purpose of this report. We have reviewed the 31 December 2009 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the 31 December 2009 Financial Information consists of making enquiries, 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 Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we could become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the 31 December 2009 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications should be made to the 31 December 2009 Financial Information.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

FINANCIAL INFORMATION

A. Consolidated Statements of Comprehensive Income

Note
Revenue
8
Cost of sales
Gross profit
Other revenue
8
Selling and distribution costs
Administrative expenses
Finance costs
9
Profit before taxation
10
Income tax expenses
13
Profit for the year/period
Attributable to:
Equity holders of Cheerfull
Non-controlling interests
Profit for the year/period
Other comprehensive income
for the year/period:
Exchange differences on
translation of financial
statements of overseas
operations
Total comprehensive income
for the year/period
Attributable to:
Equity holders of Cheerfull
Non-controlling interests

Six months ended
Year ended 30 June
31 December
2008
2009
2010
2009
2010
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
35,715
42,843
52,777
25,834
30,288
(5,401)
(5,619)
(4,559)
(2,260)
(3,069)
30,314
37,224
48,218
23,574
27,219
303
2,304
2,381
825
91
(205)
(212)
(123)
–
(73)
(21,179)
(25,514)
(27,237)
(14,438)
(18,531)
(82)
–
–
–
–
9,151
13,802
23,239
9,961
8,706
(2,298)
(991)
(2,217)
(1,583)
(1,824)
6,853
12,811
21,022
8,378
6,882
6,309
11,946
19,791
8,093
6,723
544
865
1,231
285
159
6,853
12,811
21,022
8,378
6,882
6,853
12,811
21,022
8,378
6,882
2,127
(31)
697
49
1,794
8,980
12,780
21,719
8,427
8,676
8,416
11,915
20,486
8,142
8,352
564
865
1,233
285
324
8,980
12,780
21,719
8,427
8,676

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

B. Consolidated Statements of Financial Position

Note Non-current assets Property, plant and equipment 16 Investment in an associate 17 Other intangible assets 18 Current assets Inventories 19 Trade and other receivables and prepayments 20 Amounts due from intermediate holding companies 21 Amounts due from fellow subsidiaries 22 Amounts due from related companies 23 Amounts due from directors 24 Cash and cash equivalents 25 Current liabilities Trade and other payables 26 Amount due to intermediate holding company 27 Amounts due to fellow subsidiaries 28 Tax liabilities Net current (liabilities) assets Net assets Capital and reserves Share capital 29 Reserves Equity attributable to equity holders of Cheerfull Non-controlling interests	2008 HK$’000 44,671 238 834 45,743 1,566 16,644 – – – – 11,645 29,855 30,851 – 18,350 539 49,740 (19,885) 25,858 390 23,351 23,741 2,117 25,858	As at 30 June 2009 2010 HK$’000 HK$’000 37,386 26,258 – – – – 37,386 26,258 1,340 629 8,888 11,496 – 4,749 – 2,331 – 2,299 – – 40,381 38,552 50,609 60,056 27,308 9,903 – – 20,930 15,531 1,119 523 49,357 25,957 1,252 34,099 38,638 60,357 390 390 35,266 55,752 35,656 56,142 2,982 4,215 38,638 60,357	As at 31 December 2010 HK$’000 23,738 – –
			23,738
			410 13,742 4,426 22,302 14,065 121 11,204
			66,270
			10,379 71 8,278 2,247
			20,975
			45,295
			69,033

			390 64,104
			64,494 4,539
			69,033

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

C. Consolidated Statements of Changes in Equity

Attributable to equity holders of Cheerfull

Share Share Translation capital premium reserve HK$’000 HK$’000 HK$’000 At 1 July 2007 390 7,610 744 Total comprehensive income for the year – – 2,107 At 30 June 2008 and at 1 July 2008 390 7,610 2,851 Total comprehensive income for the year – – (31) At 30 June 2009 and at 1 July 2009 390 7,610 2,820 Total comprehensive income for the year – – 695 At 30 June 2010 and at 1 July 2010 390 7,610 3,515 Total comprehensive income for the period – – 1,629 At 31 December 2010 390 7,610 5,144 For the period ended 31 December 2009 (Unaudited) At 1 July 2009 390 7,610 2,820 Total comprehensive income for the period – – 49 At 31 December 2009 390 7,610 2,869	Retained profits HK$’000 6,581 6,309 12,890 11,946 24,836 19,791 44,627 6,723 51,350 24,836 8,093 32,929	Non- controlling Total interests HK$’000 HK$’000 15,325 1,553 8,416 564 23,741 2,117 11,915 865 35,656 2,982 20,486 1,233 56,142 4,215 8,352 324 64,494 4,539 35,656 2,982 8,142 285 43,798 3,267	Total HK$’000 16,878 8,980
			25,858 12,780
			38,638 21,719
			60,357 8,676
			69,033

			38,638 8,427
			47,065

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

D. Consolidated Statements of Cash Flows

OPERATING ACTIVITIES Profit before taxation Adjustment for: Interest income Interest expense (Gain) loss on disposal of property, plant and equipment Gain on disposal of an associate Depreciation Amortization of other intangible assets Allowances for doubtful receivables Operating cash flows before movements in working capital Decrease in inventories (Increase) decrease in trade and other receivables and prepayments Increase (decrease) in trade and other payables Cash from operations Taxation paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment Proceeds from disposal on property, plant and equipment Proceeds from disposal of an associate	2008 HK$’000 9,151 (75) 82 – – 9,439 1,937 13 20,547 362 (4,593) (3,705) 12,611 (2,775) 9,836 75 (2,634) – –	Year ended 30 June 2009 HK$’000 13,802 (147) – – (15) 10,429 833 – 24,902 226 7,756 (3,543) 29,341 (409) 28,932 147 (3,211) – 253	Six months ended 31 December 2010 2009 2010 HK$’000 HK$’000 HK$’000 (Unaudited) 23,239 9,961 8,706 (263) (104) (91) – – – (3,213) – 7 – – – 10,954 5,470 5,530 – – – – – – 30,717 15,327 14,152 711 92 219 (2,608) (1,420) (2,246) (17,621) 53 476 11,199 14,052 12,601 (2,606) (1,312) (153) 8,593 12,740 12,448 259 104 87 (4,854) (2,105) (2,494) 8,612 – – – – –

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid Amounts due from intermediate holding companies Amounts due from fellow subsidiaries Amounts due from related companies Amounts due from directors Amount due to intermediate holding company Amounts due to fellow subsidiaries Amounts due to related companies Repayment of bank borrowing NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD	Year ended 30 June 2008 2009 HK$’000 HK$’000 (2,559) (2,811) (82) – – – 3,282 – 3 – – – (3,899) – (435) 2,580 (246) – (3,492) – (4,869) 2,580 2,408 28,701 11,710 11,645 (2,473) 35 11,645 40,381	Six months ended 31 December 2010 2009 2010 HK$’000 HK$’000 HK$’000 (Unaudited) 4,017 (2,001) (2,407) – – – (4,749) – 323 (2,331) (5,925) (19,971) (2,295) – (11,762) – – (121) – – 71 (5,399) 4,709 (7,253) – – – – – – (14,774) (1,216) (38,713) (2,164) 9,523 (28,672) 40,381 40,381 38,552 335 50 1,324 38,552 49,954 11,204

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

E. Notes to Financial Information

1. GENERAL INFORMATION

Cheerfull was incorporated in the British Virgin Islands (“BVI”) with limited liability. The address of its registered office is Offshore Incorporations Centre, P.O. Box 957, Road Town, Tortola, BVI. The address of its principal place of business is Room 2201, 22/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Its ultimate holding company is Best Frontier Investments Limited, a company incorporated in the British Virgin Islands with limited liability.

Cheerfull is an investment holding company. The principal activities of Cheerfull Group are provision of lotteryrelated hardware and software systems.

The Financial Information is presented in Hong Kong dollar (“HK$”), which is the same as functional currency of Cheerfull.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The Financial Information has been prepared in accordance with HKFRSs and accounting principles generally accepted in Hong Kong. HKFRSs comprise Hong Kong Financial Reporting Standards (“HKFRS”); Hong Kong Accounting Standards (“HKAS”); and Interpretations. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The GEM of the Stock Exchange of Hong Kong Limited (the ”GEM Listing Rules”) and by the disclosure requirements of the Hong Kong Companies Ordinance.

The Financial Information has been prepared under the historical cost convention.

For the purpose of preparing and presenting Financial Information for the Relevant Periods, Cheerfull has adopted all the applicable HKFRSs which are effective for accounting periods beginning on or after 1 July 2010. Cheerfull Group has not applied the new HKFRSs that have been issued but are not yet effective. Cheerfull Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a material impact on its results of operations and financial position.

The preparation of Financial Information in conformity with HKFRSs requires the use of certain key assumptions and estimates. It also requires the directors to exercise its judgements in the process of applying the accounting policies. The areas where assumptions and estimates are significant to the Financial Information, are disclosed in note 3.

The significant accounting policies applied in the preparation of the Financial Information are set out below.

(b) Consolidation

The Financial Information includes the financial statements of Cheerfull and its subsidiaries made up to 30 June. Subsidiaries are entities over which Cheerfull Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Cheerfull Group has control.

Subsidiaries are fully consolidated from the date on which control is transferred to Cheerfull Group. They are de-consolidated from the date the control ceases.

The gain or loss on the disposal of a subsidiary that results in a loss of control represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that subsidiary and (ii) Cheerfull’s share of the net assets of that subsidiary plus any remaining goodwill relating to that subsidiary and any related accumulated exchange reserve.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

Intragroup transactions, balances and unrealized profits are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Cheerfull Group.

Non-controlling interests represent the equity in subsidiaries not attributable, directly or indirectly, to Cheerfull. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity. Non-controlling interests are presented in the consolidated statement of comprehensive income as an allocation of profit or loss and total comprehensive income for the period between the non-controlling shareholders and owners of Cheerfull. Profit or loss and each component of other comprehensive income are attributed to the owners of Cheerfull and to the noncontrolling shareholders even if this results in the non-controlling interests having a deficit balance.

Changes in Cheerfull’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of Cheerfull.

In Cheerfull’s statement of financial position, the investment in subsidiary is stated at cost less allowance for impairment losses. The result of subsidiary is accounted for by Cheerfull on the basis of dividends received and receivable.

(c) Business combination and goodwill

Acquisition prior to 1 July 2009

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

The excess of the cost of acquisition over Cheerfull’s share of the net fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill. Any excess of Cheerfull’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognized in the consolidated profit or loss.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses of goodwill are recognized in the consolidated profit or loss and are not subsequently reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing.

The interests of non-controlling interests in the subsidiary are initially measured at the non-controlling shareholders’ proportion of the net fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities at the acquisition date.

Acquisition on or after 1 July 2009

The acquisition method is used to account for the acquisition of a subsidiary in a business combination. The cost of acquisition is measured at the acquisition-date fair value of the assets given, equity instruments issued, liabilities incurred and contingent consideration.

Acquisition-related costs are recognized as expenses in the periods in which the costs are incurred and the services are received. Identifiable assets and liabilities of the subsidiary in the acquisition are measured at their acquisition-date fair values.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

The excess of the cost of acquisition over Cheerfull’s share of the net fair value of the subsidiary’s identifiable assets and liabilities is recorded as goodwill. Any excess of Cheerfull’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized in consolidated profit or loss as a gain on bargain purchase which is attributed to Cheerfull.

In a business combination achieved in stages, the previously held equity interest in the subsidiary is remeasured at its acquisition-date fair value and the resulting gain or loss is recognized in consolidated profit or loss. The fair value is added to the cost of acquisition to calculate the goodwill.

If the changes in the value of the previously held equity interest in the subsidiary were recognized in other comprehensive income, the amount that was recognized in other comprehensive income is recognized on the same basis as would be required if the previously held equity interest were disposed of.

Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is measured at cost less accumulated impairment losses. The method of measuring impairment losses of goodwill is the same as that of other assets as stated in the accounting policy below.

Impairment losses of goodwill are recognized in the consolidated profit or loss and are not subsequently reversed. Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the acquisition for the purpose of impairment testing.

The non-controlling interests in the subsidiary are initially measured at the non-controlling shareholders’ proportionate share of the net fair value of the subsidiary’s identifiable assets and liabilities at the acquisition date.

(d) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes.

Revenue from the provision of lottery-related hardware and software system is recognized when the services are rendered.

Interest income from a financial asset (other than a financial assets at fair value through profit or loss) is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

(e) Property, plant and equipment

Property, plant and equipment, comprising leasehold land and buildings, leasehold improvement, furniture, fixtures and equipment, plant and machinery, motor vehicles and computer equipment, are stated at cost less accumulated depreciation and any identified impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the property, plant and equipment to its working condition and location for its intended use. Expenditure incurred after property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the consolidated statement of comprehensive income in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the property, plant and equipment, the expenditure is capitalized as an additional cost of that property, plant and equipment.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

Property, plant and equipment are depreciated at rates sufficient to write off their cost less accumulated impairment losses over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold land and buildings 3%-5% or over the lease term but limited to 15 years Furniture, fixtures and equipment 7%-25% Plant and machinery 3%-12% Leasehold improvement Over the lease term Motor vehicles 6%-20% Computer equipment 20%-25%

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued used of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statement of comprehensive income in the year in which the item is derecognized.

(f) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is calculated using the weightedaverage method. Net realizable value represents the estimated selling price in the ordinary course of business less estimated costs to completion and the estimated costs necessary to make the sales.

(g) Leasing

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

Cheerfull Group as lessor

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

Cheerfull Group as lessee

Rentals payable under operating leases are charged to profit and loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognized as reduction of rental expense over the lease term on a straight-line basis.

Leasehold land and building

Land and building elements of a lease of land and building are considered separately for the purpose of lease classification, leasehold land which title is not expected to pass to the lessee by the end of the lease term is classified as an operating lease unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is classified as a finance lease and accounted for as property, plant and equipment.

(h) Impairment losses on assets other than goodwill

At each end of the reporting period, Cheerfull Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognized as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other standard.

(i)

Intangible assets

Intangible assets acquired separately are capitalized at cost and those acquired from a business combination are capitalized at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. Intangible assets, excluding development costs, created within the business are not capitalized and expenditure is charged against the profit in the year in which the expenditure is incurred.

Useful lives of acquired intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful lives are stated at cost less accumulated amortization and any accumulated impairment losses. Intangible assets with indefinite useful lives are stated at cost less any subsequent accumulated impairment losses.

Amortization for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

Intangible assets are tested for impairment annually either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and, where applicable, adjustments are made on a prospective basis.

An intangible asset is derecognized on disposal or no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of the intangible asset, calculated as the difference between the net disposal proceeds and the carrying amount of the intangible asset, is recognized in the statement of comprehensive income in the year the intangible asset is derecognized.

Computer software

Costs incurred on the acquisition of computer software are capitalized in the consolidated statement of financial position at cost less amortization and any identified impairment losses.

Impairment

Intangible assets with indefinite useful lives are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimated of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.

Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

(j) Taxation

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

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

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

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, associates and interest in jointly controlled entities, except where Cheerfull Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

Deferred tax assets and liabilities are measured of the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the consolidated statement of comprehensive income, except when it relates to items that are recognized in other comprehensive income or directly in equity, in which case the deferred tax is also recognized in other comprehensive income or directly in equity, respectively.

(k) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the exchange rate prevailing on the dates of the transactions. At each end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Cheerfull Group’s net investment in a foreign operation, in which case, such exchange differences are recognized in other comprehensive income in consolidated financial statements and will be reclassified from equity to profit or loss on disposal of the foreign operation. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for exchange differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

For the purposes of presenting the consolidated financial statements, the assets and liabilities of Cheerfull Group‘s foreign operations are translated into the presentation currency of Cheerfull Group (i.e. Hong Kong dollars) using the exchange rates prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulation in equity under the heading of foreign currency translation reserve (attributed to non-controlling interests as appropriate).

(l) Cash and cash equivalents

Cash and cash equivalents are carried in the consolidated statement of financial position at cost.

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

(m) Provisions

Provisions are recognized when Cheerfull Group has a present obligation (legal or constructive) as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the consideration required to settle the present obligation at the end of the reporting period, and taking into account the risk and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect is material).

(n)

Employee benefits

(a) Retirement benefits schemes

Cheerfull Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the consolidated statement of comprehensive income as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of Cheerfull Group in an independently administered fund. Cheerfull Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of Cheerfull Group’s subsidiary that operated in the People’s Republic of China are required to participate in a central pension scheme operated by the local municipal government and Central Provident Fund Scheme, respectively. These subsidiaries are required to contribute pension, based on a certain percentage of their payroll costs, to the pension schemes. The contributions are charged to consolidated statement of comprehensive income as they become payable in accordance with the rules of the pension schemes.

(o) Retirement benefit costs

Payments to mandatory provident fund scheme (“MPF scheme”) and state-managed retirement benefits scheme and the defined contribution schemes are charged as expense as they fall due.

(p) Dividends

Dividends proposed or declared after the end of the reporting period is not recognized as a liability at the end of the reporting period.

APPENDIX II

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

(q) Borrowing costs

Borrowing costs are directly attributable to the acquisition, construction or production of qualifying asset that necessarily take a substantial period of time to get ready for its intended use or sale are capitalized as part of the costs of that asset. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are charged to the consolidated statement of comprehensive income in the year in which they are incurred.

(r) Related parties

A party is considered to be related to Cheerfull Group if:

(i) directly, or indirectly through one or more intermediaries, the party:
controls, is controlled by, or is under common control with, Cheerfull or Cheerfull Group;
has an interest in the Cheerfull that gives it significant influence over Cheerfull or Cheerfull Group; or
has joint control over Cheerfull or Cheerfull Group;
(ii) the party is an associate;
(iii) the party is a jointly-controlled entity;
(iv) the party is a member of the key management personnel of Cheerfull or of its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of employees of Cheerfull or Cheerfull Group, or of any entity that is a related party of Cheerfull or Cheerfull Group.

(s) Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

Cheerfull Group’s financial assets are classified into loans and receivables. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or where appropriate, a shorter period to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments (other than financial assets classified as FVTPL, of which interest income is included in net gains and losses.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each end of the reporting period subsequent to initial recognition, loans and receivables including trade and other receivables and prepayments and bank balances and cash are carried at amortized cost using the effective interest method, less any identified impairment losses. (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

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

For loans and receivables, objective evidence of impairment could include:

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

For trade receivables that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include Group’s past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.

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

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

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

Financial liabilities and equity

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

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

APPENDIX II

An equity instrument is any contract that evidences a residual interest in the assets of Cheerfull Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Effective interest method

The effective interest method is a method of calculating the amortized cost of financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest expense is recognized on an effective interest basis.

Other financial liabilities

Other financial liabilities including trade and other payables are subsequently measured at amortized cost, using the effective interest rate method.

Derecognition

Financial assets are derecognized only when the contractual rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards or ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognized directly in equity is recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial liabilities are derecognized when and only when, the Group’s obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognized in profit or loss.

3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying Cheerfull Group’s accounting policies, which are described in note 2, management has made the following judgments that have significant effect on the amounts recognized in the financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of relevant periods, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are also discussed below:

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking into account of their estimated residual value. The determination of the useful lives and residual values involve management’s estimation. Cheerfull Group assesses annually the residual value and the useful life of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year and the estimate will be changed in the future period.

Amortization of other intangible assets

Other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. The determination of useful lives and residual values involve management’s estimation. Cheerfull Group assesses annually the useful life of other intangible assets and if the expectation differs from the original estimate, such a difference may impact the amortization in the year and the estimate will be changed in the future period.

Estimated allowance of trade receivables

Cheerfull Group makes allowance of trade receivables based on an assessment of the recoverability of receivables. Allowance is applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of allowance requires the use of judgments and estimates. Where the expectation on the recoverability of trade receivables is different from the original estimate, such difference will impact the carrying value of trade receivables and doubtful debt expenses in the periods in which such estimate has been changed.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

4. CAPITAL RISK MANAGEMENT

Cheerfull Group manages its capital to ensure that entities in Cheerfull Group will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.

The capital structure of Cheerfull Group consists of cash and cash equivalents and equity attributable to equity holders of Cheerfull, comprising issued share capital and share premium disclosed in note 29 and 30 respectively, reserves as disclosed in consolidated statements of changes in equity.

The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, Cheerfull Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt. Cheerfull Group’s overall strategy remains unchanged.

5. FINANCIAL INSTRUMENTS

Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortized cost	2008 HK$’000 28,289 49,201	As at 30 June 2009 HK$’000 49,269 48,238	2010 HK$’000 59,427 25,434	As at 31 December 2010 HK$’000 65,860

				18,728

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Cheerfull Group’s major financial instruments include trade and other receivables and prepayments, bank balances and cash, trade and other payables. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

Cheerfull Group’s credit risk is primarily attributable to its trade and other receivables and prepayments and bank balances. At the end of each reporting period, Cheerfull Group’s maximum exposure to credit risk which will cause a financial loss to Cheerfull Group due to failure to discharge an obligation by the counterparties arising from the carrying amount of the respective recognized financial assets stated in the consolidated statement of financial position.

In order to minimize the credit risk, the management of the Cheerfull has monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, Cheerfull Group reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Cheerfull consider that Cheerfull Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are authorized banks in the Hong Kong and the PRC.

Foreign currency risk

Cheerfull Group collects most of its revenue in Renminbi (“RMB”) and incurs most of its expenditure including capital expenditure in RMB. Future exchange rates of RMB could vary significantly from the current or historical exchange rates as a result of controls that could be imposed by the PRC government. The exchange rates may also be affected by economic developments and political changes domestically and internationally, and supply and demand of RMB. The appreciation or devaluation of RMB against foreign currencies may have positive or negative impact on the results of operations of the Cheerfull Group.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

Cheerfull Group currently does not have a foreign currency hedging policy. However, management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises. The directors of Cheerfull considered that Cheerfull Group’s exposure to foreign currency exchange risk is insignificant as the majority of the Cheerfull Group’s transactions are denominated in the functional currency of the respective group entities.

Cheerfull Group uses a 5% sensitivity rate to report foreign currency risk internally to key management personnel and represents management’s assessment of the reasonable possible change in foreign exchange rates. If RMB had strengthened/weakened by 5%, profit for the period ended 31 December 2010 would have been increased/ decreased by approximately HK$398,000 as a result of foreign exchange losses/gains on translation of transactions denominated in Hong Kong dollars (30 June 2010: increased/decreased by approximately HK$1,066,000, 30 June 2009: increased/decreased by approximately HK$797,000 and 30 June 2008: increased/decreased by approximately HK$310,000).

Interest rate risk

Cheerfull Group has no significant interest-bearing borrowings and Cheerfull Group’s income and operating cash flows are substantially independent of changes in market interest rates. Management does not anticipate significant impact on interest-bearing assets resulted from the changes in interest rates because the interest rates of bank deposits are not expected to change significantly.

In the opinion of the directors of Cheerfull, sensitive analysis is not presented by considering that Cheerfull Group has not exposed to significant interest rate risk.

Liquidity risk

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

The following tables analyze Cheerfull Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Cheerfull Group can be required to pay:

As at 31 December 2010

Total contractual undiscounted Carrying cash amount flows HK$'000 HK$'000 Trade and other payables 10,379 10,379 Amount due to intermediate holding company 71 71 Amounts due to fellow subsidiaries 8,278 8,278 18,728 18,728 As at 30 June 2010 Total contractual undiscounted Carrying cash amount flows HK$’000 HK$’000 Trade and other payables 9,903 9,903 Amounts due to fellow subsidiaries 15,531 15,531 25,434 25,434	Within 1 year or on demand HK$'000 10,379 71 8,278 18,728 Within 1 year or on demand HK$’000 9,903 15,531 25,434	More than 1 year but less than 2 years HK$'000 – – – – More than 1 year but less than 2 years HK$’000 – – –	More than 2 years but less than 5 years HK$'000 – – – – More than 2 years but less than 5 years HK$’000 – – –	Over 5 years HK$'000 – – –
				–

				Over 5 years HK$’000 – –
				–

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

As at 30 June 2009

Total contractual undiscounted Carrying cash amount flows HK$’000 HK$’000 Trade and other payables 27,308 27,308 Amounts due to fellow subsidiaries 20,930 20,930 48,238 48,238 As at 30 June 2008 Total contractual undiscounted Carrying cash amount flows HK$’000 HK$’000 Trade and other payables 30,851 30,851 Amounts due to fellow subsidiaries 18,350 18,350 49,201 49,201	Within 1 year or on demand HK$’000 27,308 20,930 48,238 Within 1 year or on demand HK$’000 30,851 18,350 49,201	More than 1 year but less than 2 years HK$’000 – – – More than 1 year but less than 2 years HK$’000 – – –	More than 2 years but less than 5 years HK$’000 – – – More than 2 years but less than 5 years HK$’000 – – –	Over 5 years HK$’000 – –
				–

				Over 5 years HK$’000 – –
				–

7. SEGMENT INFORMATION

No business segment analysis is presented as the revenue and results of Cheerfull Group are wholly contributed from its operations in the PRC in providing of lottery-related hardware and software systems.

As at the Relevant Periods, the identifiable assets of Cheerfull Group are mainly located in the PRC. Accordingly, no analysis on carrying amount of segment assets is presented.

8. REVENUE AND OTHER REVENUE

The principal activities of Cheerfull Group is the provision of lottery-related hardware and software systems.

Revenue represents invoices value of sales, net of returns, discounts allowed or sales taxes where applicable.

Revenue recognized during the year/period is as follows:

Provision of lottery-related hardware and software systems Other revenue recognized during the year/period is as follows: Interest income Others	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 35,715 42,843 52,777 75 147 263 228 2,157 2,118 303 2,304 2,381	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 25,834 30,288 104 91 721 – 825 91	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 25,834 30,288 104 91 721 – 825 91

			91 –
			91

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

9. FINANCE COSTS

				Six months	ended
	Year	ended 30 June		31 December
	2008	2009	2010	2009	2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Interest on borrowings wholly
repayable within five years	82	–	–	–	–

10. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging: Staff costs (excluding directors' emoluments): – wages and salaries – retirement benefits scheme contributions Total staff costs Cost of inventories sold Auditors' remuneration – Provided for the year – Under provision in last year Depreciation of property, plant and equipment Minimum lease payments under operating leases: – Land and buildings (Gain) loss on disposal of property, plant and equipment Allowances for doubtful receivables Amortization of other intangible assets Gain on disposal of an associate Bad debts written off Inventories written off Exchange losses (gains), net	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 3,306 4,366 7,406 – – 28 3,306 4,366 7,434 5,401 5,619 4,559 6 15 3 – – – 9,439 10,429 10,954 1,085 1,895 2,198 – – (3,213) 13 – – 1,937 833 – – (15) – – 1,254 198 – – – (427) 8 (12)	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 2,873 4,166 16 18 2,889 4,184 2,261 3,069 – 7 – 8 5,470 5,530 993 1,374 – 7 – – – – – – – – – 29 (5) 10	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 2,873 4,166 16 18 2,889 4,184 2,261 3,069 – 7 – 8 5,470 5,530 993 1,374 – 7 – – – – – – – – – 29 (5) 10
			4,184

			3,069 7 8 5,530 1,374 7 – – – – 29 10

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

11. INDIVIDUALS WITH HIGHEST REMUNERATION

Of the five individuals with the highest emoluments in Cheerfull Group for the Relevant Periods. None of them are the directors of Cheerfull. The emoluments in respect of the five individuals with highest remuneration were as follows:

Number of individuals Salaries Contributions to retirement scheme benefits The emoluments fell with the following Emoluments band Nil - HK$1,000,000	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 5 5 5 852 864 1,864 – – 12 852 864 1,876 bands: Year ended 30 June 2008 2009 2010 No. of No. of No. of individuals individuals individuals 5 5 5	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 5 5 802 817 10 6 812 823 Six months ended 31 December 2009 2010 No. of No. of individuals individuals (Unaudited) 5 5

12. STAFF COSTS

Wages and salaries Retirement benefits scheme contributions	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 3,306 4,366 7,406 – – 28 3,306 4,366 7,434	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 2,873 4,166 16 18 2,889 4,184	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 2,873 4,166 16 18 2,889 4,184
			4,184

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

13. INCOME TAX EXPENSES

The amount of tax charged (credited) to the consolidated statements of comprehensive income represent:

The charge comprises: Current year – Hong Kong Profits Tax – Other jurisdictions Income tax expenses charged for the year/period (Over) under provision in prior years – Hong Kong Profits Tax – Other jurisdictions Income tax expenses charged for the year/period	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 – – – 2,285 1,812 2,170 2,285 1,812 2,170 – – – 13 (821) 47 2,298 991 2,217	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) – – 1,583 1,824 1,583 1,824 – – – – 1,583 1,824	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) – – 1,583 1,824 1,583 1,824 – – – – 1,583 1,824
			1,824
			– –
			1,824

No provision for Hong Kong Profits Tax has been made in the consolidated financial statements as Cheerfull Group had no assessable profits derived in Hong Kong for the Relevant Periods.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

The amount of income tax expenses charged to the consolidated statements of comprehensive income reconciled to the profit per consolidated statements of comprehensive income is as follows:

Profit before taxation Tax at Hong Kong Profits Tax rate Tax effect on expenses not deductible Tax effect on income not taxable Tax effect on tax loss not recognized (Over) under provision in prior years Effect of different tax rates of subsidiaries operating in other jurisdictions	Year ended 30 June 2008 2009 2010 HK$’000 HK$’000 HK$’000 9,151 13,802 23,239 1,510 2,277 3,834 – 13 102 (69) – (1,538) – 4,183 276 13 (821) 47 844 (4,661) (504) 2,298 991 2,217	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 9,961 8,706 1,644 1,436 102 – (946) (309) 141 137 – – 642 560 1,583 1,824	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 9,961 8,706 1,644 1,436 102 – (946) (309) 141 137 – – 642 560 1,583 1,824

			1,436 – (309) 137 – 560
			1,824

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

At 31 December 2010, Cheerfull Group has unused tax losses of approximately HK$10,691,000 (30 June 2010: approximately HK$10,428,000, 30 June 2009: approximately HK$7,272,000 and 30 June 2008: approximately HK$7,286,000) available for offset against future profits.

No deferred tax asset has been recognized in respect of the unused tax losses due to unpredictability of future utilization of tax losses.

14. DIVIDENDS

No dividends have been paid or proposed by Cheerfull since its incorporation.

15. EARNINGS PER SHARE

No earnings per share information is presented as it is not considered meaningful for the purpose of this report.

APPENDIX II

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

16. PROPERTY, PLANT AND EQUIPMENT

COST As at 1 July 2007 Additions Exchange realignment As at 30 June 2008 and at 1 July 2008 Additions Exchange realignment As at 30 June 2009 and at 1 July 2009 Additions Disposal Exchange realignment As at 30 June 2010 and at 1 July 2010 Additions Disposal Exchange realignment As at 31 December 2010 DEPRECIATION As at 1 July 2007 Charge for the year Exchange realignment As at 30 June 2008 and at 1 July 2008 Charge for the year Exchange realignment As at 30 June 2009 and at 1 July 2009 Charge for the year Disposal Exchange realignment As at 30 June 2010 and at 1 July 2010 Charge for the period Disposal Exchange realignment As at 31 December 2010 NET BOOK VALUES As at 31 December 2010 As at 30 June 2010 As at 30 June 2009 As at 30 June 2008	Leasehold land and buildings HK$’000 6,368 – 679 7,047 – (13) 7,034 – (7,118) 84 – – – – – 534 447 82 1,063 472 (2) 1,533 236 (1,790) 21 – – – – – – – 5,501 5,984	Furniture, fixtures and equipment HK$’000 1,198 367 128 1,693 671 (3) 2,361 2,082 (165) 28 4,306 384 (138) 109 4,661 221 280 39 540 361 (1) 900 646 (125) 17 1,438 387 (131) 45 1,739 2,922 2,868 1,461 1,153	Plant and Leasehold machinery improvement HK$’000 HK$’000 40,898 – – 486 4,365 – 45,263 486 1,798 – (85) (1) 46,976 485 2,245 363 – – 563 6 49,784 854 1,766 344 – – 1,258 21 52,808 1,219 3,785 – 7,714 134 837 8 12,336 142 8,146 162 (37) (1) 20,445 303 8,528 177 – – 326 5 29,299 485 4,604 111 – – 851 15 34,754 611 18,054 608 20,485 369 26,531 182 32,927 344	Motor vehicles HK$’000 385 1,781 41 2,207 742 (4) 2,945 164 – 29 3,138 – – 65 3,203 71 89 12 172 470 (1) 641 548 – 11 1,200 290 – 31 1,521 1,682 1,938 2,304 2,035	Computer equipment HK$’000 3,739 – 399 4,138 – (8) 4,130 – – 50 4,180 – – 106 4,286 986 775 149 1,910 818 (5) 2,723 819 – 40 3,582 138 – 94 3,814 472 598 1,407 2,228	Total HK$’000 52,588 2,634 5,612
						60,834 3,211 (114)
						63,931 4,854 (7,283) 760
						62,262 2,494 (138) 1,559
						66,177
						5,597 9,439 1,127
						16,163 10,429 (47)
						26,545 10,954 (1,915) 420
						36,004 5,530 (131) 1,036
						42,439
						23,738

						26,258

						37,386

						44,671

Leasehold land and buildings of Cheerfull Group is located in the PRC and held under medium lease term.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

17. INVESTMENT IN AN ASSOCIATE

2008 HK$’000 Cost of unlisted investment 238 Disposal – 238 Cheerfull Group had interest in the following associate: Form of Place of business incorporation/ Name of company structure operation Shenzhen Bozone Technology Limited PRC Services Co. Ltd. liability company	As at 30 June 2009 HK$’000 238 (238) – Class of share held Registered capital	As at 31 December 2010 2010 HK$’000 HK$’000 – – – – – – Proportion of nominal value of registered capital held by Cheerfull Nature of Group business 24.99% Provision of lottery-related hardware and software systems	As at 31 December 2010 HK$’000 – –
			–

Note: Shenzhen Bozone Technology Services Co. Ltd. was deregistered in year 2009.

Summarized financial information in respect Cheerfull Group’s associate is as follows:

									As at
				As at 30	June				31 December
		2008			2009		2010		2010
	HK$’000			HK$’000			HK$’000		HK$’000
Total assets		569			573		–		–
Total liabilities		(4)			(6)		–		–
Net assets		565			567		–		–
Cheerfull Group’s share of an
associate’s net assets		277			278		–		–

							Six months ended
	Year ended			30 June			31	December
	2008		2009		2010		2009		2010
	HK$’000	HK$’000			HK$’000		HK$’000		HK$’000
Revenue	–			–		–		–	–
Loss for the year/period	–			–		–		–	–
Cheerfull Group’s share of result of
an associate	–			–		–		–	–

(Note)

Note: From 1 July 2008 to date of deregistration.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

18. OTHER INTANGIBLE ASSETS

	Computer
	software
	in lottery systems
	HK$’000
COST
At 1 July 2007	4,913
Exchange realignment	525
At 30 June 2008 and 1 July 2008	5,438
Exchange realignment	(11)
At 30 June 2009 and 1 July 2009	5,427
Exchange realignment	65
At 30 June 2010 and 1 July 2010	5,492
Exchange realignment	139
At 31 December 2010	5,631
AMORTIZATION
At 1 July 2007	2,310
Charge for the year	1,937
Exchange realignment	357
At 30 June 2008 and 1 July 2008	4,604
Charge for the year	833
Exchange realignment	(10)
At 30 June 2009 and 1 July 2009	5,427
Exchange realignment	65
At 30 June 2010 and 1 July 2010	5,492
Exchange realignment	139
At 31 December 2010	5,631
CARRYING VALUES
At 31 December 2010	–
At 30 June 2010	–
At 30 June 2009	–
At 30 June 2008	834

Computer software in lottery systems are amortized on a straight-line basis over 5 years.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

19. INVENTORIES

INVENTORIES
Raw materials and consumables Finished goods	2008 HK$’000 151 1,415 1,566	As at 30 June 2009 HK$’000 181 1,159 1,340	2010 HK$’000 251 378 629	As at 31 December 2010 HK$’000 146 264
				410

All inventories are stated at cost.

20. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

Trade receivables Other receivables and prepayments Allowances for doubtful debts for other receivables	2008 HK$’000 12,417 4,241 16,658 (14) 16,644	As at 30 June 2009 HK$’000 6,590 2,298 8,888 – 8,888	2010 HK$’000 9,618 1,878 11,496 – 11,496	As at 31 December 2010 HK$’000 9,381 4,361
				13,742 –
				13,742

Payment terms with customers are mainly on credit together with deposits in advances.

Invoices are normally payable within 180 days of issuance.

The following is an aged analysis of trade receivables at the end of the reporting period:

0 to 30 days 31 to 60 days 61 to 365 days Over 1 year	2008 HK$’000 6,317 3,534 2,511 55 12,417	As at 30 June 2009 HK$’000 3,966 573 2,051 – 6,590	2010 HK$’000 5,754 1,455 2,409 – 9,618	As at 31 December 2010 HK$’000 6,836 2,468 77 –
				9,381

As at 31 December 2010, trade receivables with carrying amounts of approximately HK$9,304,000 (30 June 2010: of approximately HK$7,209,000, 30 June 2009: of approximately HK$6,590,000 and 30 June 2008: of approximately HK$12,417,000) are neither past due nor impaired at the reporting date.

As at 31 December 2010, included in Cheerfull Group’s trade receivables with a carrying amounts approximately of HK$77,000 (30 June 2010: approximately of HK$2,409,000, 30 June 2009: Nil and 30 June 2008: Nil) which are past due at the reporting date for which Cheerfull Group has not provided as there has not been a significant change in credit quality of the customers nor the customers have any history for collectibility problem.

Cheerfull Group does not hold any collateral over trade receivables.

As at 31 December 2010, other receivables of Cheerfull Group included the amounts due from shareholders of approximately HK$2,880,000 (30 June 2010: approximately HK$398,000, 30 June 2009: approximately HK$376,000 and 30 June 2008: approximately HK$377,000).

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

				As at
		As at 30 June		31 December
	2008	2009	2010	2010
	HK$’000	HK$’000	HK$’000	HK$’000
Maximum amount outstanding during the
year/period:
Amounts due from shareholders	377	376	398	2,880

As at 31 December 2010, the amounts due from shareholders of approximately HK$2,472,000 (30 June 2010: Nil, 30 June 2009: Nil and 30 June 2008: Nil) are unsecured, interest bearing and have fixed repayment terms. The remaining amounts due from shareholders are unsecured, interest free and have no fixed repayment terms.

21. AMOUNTS DUE FROM INTERMEDIATE HOLDING COMPANIES

China Vanguard Group Limited Ace Bingo Group Limited Maximum amount outstanding during the year/period: China Vanguard Group Limited Ace Bingo Group Limited	2008 HK$’000 – – – – –	As at 30 June 2009 HK$’000 – – – – –	2010 HK$’000 323 4,426 4,749 323 4,426	As at 31 December 2010 HK$’000 – 4,426
				4,426

				– 4,426

Amounts due from intermediate holding companies are unsecured, interest free and have no fixed repayment terms.

22. AMOUNTS DUE FROM FELLOW SUBSIDIARIES

B&B International Marketing (HK) Limited B&B Food & Beverage Limited B&B (Shenzhen) Limited Shuang Liao City Step Gain Technology Limited Maximum amount outstanding during the year/period: B&B International Marketing (HK) Limited B&B Food & Beverage Limited B&B (Shenzhen) Limited Shuang Liao City Step Gain Technology Limited	2008 HK$’000 – – – – – – – – –	As at 30 June 2009 HK$’000 – – – – – – – – –	2010 HK$’000 1,611 720 – – 2,331 1,611 720 – –	As at 31 December 2010 HK$’000 2,440 1,503 18,241 118
				22,302

				2,440 1,503 18,241 118

Amounts due from fellow subsidiaries are unsecured, interest free and have no fixed repayment terms.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

23. AMOUNTS DUE FROM RELATED COMPANIES

2008 HK$’000 Shenzhen Bolu Enterprise Management Consultancy Limited – China Culture Development Digital Technology Co., Limited – Chongqing Lightsoft Technology Development Co., Limited – – Maximum amount outstanding during the year/period: Shenzhen Bolu Enterprise Management Consultancy Limited – China Culture Development Digital Technology Co., Limited – Chongqing Lightsoft Technology Development Co., Limited –	As at 30 June 2009 HK$’000 – – – – – – –	2010 HK$’000 – – 2,299 2,299 – – 2,299	As at 31 December 2010 HK$’000 10,529 2,354 1,182
			14,065

			10,529 2,354 1,182

Amount due from Shenzhen Bolu Enterprise Management Consultancy Limited is unsecured, interest free and has no fixed repayment term.

Amounts due from China Culture Development Digital Technology Co., Limited and Chongqing Lightsoft Technology Development Co., Limited are unsecured, interest bearing and have fixed repayment terms.

China Culture Development Digital Technology Co., Limited and Chongqing Lightsoft Technology Development Co., Limited are jointly controlled entities of China Vanguard Group Limited.

CHEUNG Kwai Lan and CHAN Ting are the directors of Shenzhen Bolu Enterprise Management Consultancy Limited.

24. AMOUNTS DUE FROM DIRECTORS

CHEUNG Kwai Lan CHAN Ting Maximum amount outstanding during the year/period: CHEUNG Kwai Lan CHAN Ting	2008 HK$’000 – – – – –	As at 30 June 2009 HK$’000 – – – – –	2010 HK$’000 – – – – –	As at 31 December 2010 HK$’000 118 3
				121

				118 3

Amounts due from directors are unsecured, interest free and have no fixed repayment terms.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

25. CASH AND CASH EQUIVALENTS

Cash and cash equivalents denominated in: Hong Kong dollar Renminbi	2008 HK$’000 – 11,645 11,645	As at 30 June 2009 HK$’000 6 40,375 40,381	2010 HK$’000 139 38,413 38,552	As at 31 December 2010 HK$’000 26 11,178
				11,204

As at 31 December 2010, cash and cash equivalents were of approximately HK$11,178,000 (30 June 2010: approximately HK$38,413,000, 30 June 2009: approximately HK$40,375,000 and 30 June 2008: approximately HK$11,645,000), representing bank deposits denominated in Renminbi placed with banks in the PRC by Cheerfull Group. The remittance of these funds out of the PRC is subject to the exchange control restrictions imposed by the PRC government.

26. TRADE AND OTHER PAYABLES

Trade payables Other payables	2008 HK$’000 – 30,851 30,851	As at 30 June 2009 HK$’000 60 27,248 27,308	2010 HK$’000 – 9,903 9,903	As at 31 December 2010 HK$’000 – 10,379
				10,379

The following is an aged analysis of trade payables at the end of the reporting period:

0 to 30 days 31 to 60 days 61 to 365 days Over 1 year	2008 HK$’000 – – – – –	As at 30 June 2009 HK$’000 45 – 15 – 60	2010 HK$’000 – – – – –	As at 31 December 2010 HK$’000 – – – –
				–

As at 31 December 2010, other payables of Cheerfull Group included the amounts due to shareholders of approximately HK$7,546,000 (30 June 2010: approximately HK$7,360,000, 30 June 2009: approximately HK$17,570,000 and 30 June 2008: approximately HK$17,603,000).

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

27. AMOUNT DUE TO INTERMEDIATE HOLDING COMPANY

				As at
		As at 30 June		31 December
	2008	2009	2010	2010
	HK$’000	HK$’000	HK$’000	HK$’000
China Vanguard Group Limited	–	–	–	71

The amount is unsecured, interest free and has no fixed repayment term.

28. AMOUNTS DUE TO FELLOW SUBSIDIARIES

Loyalion Limited B&B International Marketing (HK) Limited B&B (Shenzhen) Limited	2008 HK$’000 3,918 – 14,432 18,350	As at 30 June 2009 HK$’000 4,604 1,954 14,372 20,930	2010 HK$’000 8,278 – 7,253 15,531	As at 31 December 2010 HK$’000 8,278 – –
				8,278

The above companies are subsidiaries of China Vanguard Group Limited.

The amounts are unsecured, interest free and have no fixed repayment terms.

29. SHARE CAPITAL

Authorized: 50,000 ordinary shares of HK$7.8 (US$1.0) each Issued and fully paid: 50,000 ordinary shares of HK$7.8 (US$1.0) each SHARE PREMIUM 50,000 ordinary shares of HK$152.2 each	2008 HK$’000 390 390 2008 HK$’000 7,610	As at 30 June 2009 HK$’000 390 390 As at 30 June 2009 HK$’000 7,610	2010 HK$’000 390 390 2010 HK$’000 7,610	As at 31 December 2010 HK$’000 390

				390

				As at 31 December 2010 HK$’000 7,610

30. SHARE PREMIUM

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

31. LEASE COMMITMENT

At the end of Relevant Periods, Cheerfull Group had commitments for future minimum lease payments in respect of rental premises under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive	2008 HK$’000 1,519 1,238 2,757	As at 30 June 2009 HK$’000 1,420 209 1,629	2010 HK$’000 1,337 535 1,872	As at 31 December 2010 HK$’000 2,317 964
				3,281

Operating lease payments represent rental payable by Cheerfull Group for certain of its office premises.

32. CONTINGENT LIABILITIES

Cheerfull Group and Cheerfull did not have any significant contingent liabilities as at 31 December 2010.

33. RELATED PARTY TRANSACTIONS

(a) Compensation of directors and key management personnel

The remuneration of directors and other members of key management during the Relevant Periods were as follows:

Short term benefits Post-employment benefits	Year ended 30 2008 2009 HK$’000 HK$’000 852 998 – – 852 998	June 2010 HK$’000 2,055 12 2,067	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 877 817 10 6 887 823	Six months ended 31 December 2009 2010 HK$’000 HK$’000 (Unaudited) 877 817 10 6 887 823
				823

(b) Transactions with related party

				Six months	ended
		Year ended 30	June	31 December
	2008	2009	2010	2009	2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Interest income received from
related company	–	–	4	–	23

(c) Balances with related parties

Balances with related parties as at the end of Relevant Periods were disclosed in note 20, 21, 22, 23, 24, 26, 27 and 28.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

34. FINANCIAL INFORMATION OF CHEERFULL

(a) Statements of financial position

Non-current assets Property, plant and equipment Investment in subsidiary Current assets Other receivables and prepayments Amount due from intermediate holding company Amount due from fellow subsidiary Cash and cash equivalents Current liabilities Other payables Amount due to intermediate holding company Amount due to subsidiary Amounts due to fellow subsidiaries Net current assets (liabilities) Total assets less current liabilities NET ASSETS Capital and reserves Share capital Share premium Retained profits (deficit) TOTAL EQUITY	2008 HK$’000 – 7,692 7,692 – – 4,424 – 4,424 – – – 3,918 3,918 506 8,198 8,198 390 7,610 198 8,198	As at 30 June 2009 HK$’000 494 7,692 8,186 14 – 4,415 6 4,435 6 – – 6,548 6,554 (2,119) 6,067 6,067 390 7,610 (1,933) 6,067	2010 HK$’000 381 7,692 8,073 – 429 4,426 139 4,994 3 – – 8,669 8,672 (3,678) 4,395 4,395 390 7,610 (3,605) 4,395	As at 31 December 2010 HK$’000 324 7,692 8,016 21 – 4,426 26 4,473 4 242 402 8,277 8,925 (4,452) 3,564 3,564 390 7,610 (4,436) 3,564

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

(b) Changes in Equity

Share capital HK$’000 At 1 July 2007 390 Total comprehensive income for the year – At 30 June 2008 and at 1 July 2008 390 Total comprehensive income for the year – At 30 June 2009 and at 1 July 2009 390 Total comprehensive income for the year – At 30 June 2010 and at 1 July 2010 390 Total comprehensive income for the period – At 31 December 2010 390 For the period ended 31 December 2009 (Unaudited) At 1 July 2009 390 Total comprehensive income for the period – At 31 December 2009 390	Share premium HK$’000 7,610 – 7,610 – 7,610 – 7,610 – 7,610 7,610 – 7,610	Retained profits HK$’000 (221) 419 198 (2,131) (1,933) (1,672) (3,605) (831) (4,436) (1,933) (859) (2,792)	Total HK$’000 7,779 419 8,198 (2,131) 6,067 (1,672) 4,395 (831) 3,564 6,067 (859) 5,208

APPENDIX II

FINANCIAL INFORMATION OF THE CHEERFULL GROUP

35. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF CHEERFULL

Place of Percentage of Name of incorporation Registered equity attributable Principal subsidiary and operations capital to Cheerfull activities ^ Shenzhen Bozone IT The People’s RMB10,000,000 100% Provision of lotteryCo. Limited[ #] Republic of related hardware and China (“PRC”) software systems ^ Shenzhen Longjiang PRC RMB1,000,000 99% Provision of lotteryFengcai IT Co. related hardware and Limited[#] software systems ^ Heilongjiang Bozone IT PRC RMB500,000 65% Provision of lotteryCo. Limited[#] related hardware and software systems

Note:

^ The English name of this company represents management‘s best efforts at translating the Chinese name of the company as no English name has been registered.

The statutory financial year end date of these subsidiaries is 31 December.

F. Subsequent Financial Statements

No audited financial statements have been prepared by Cheerfull Group in respect of any period subsequent to 31 December 2010. In addition, no dividend or distribution has been declared, made or paid by Cheerfull Group in respect of any period subsequent to 31 December 2010.

Yours faithfully,

W. H. Tang & Partners CPA Limited

Certified Public Accountants Hong Kong

TANG Wai Hung

Practising Certificate Number P03525

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

2. MANAGEMENT DISCUSSION AND ANALYSIS OF CHEERFULL GROUP

Cheerfull is an investment holding company incorporated on 6 October 2005 in the BVI with limited liability. Bozone is principally engaged in providing services to the Welfare Lottery Centres of Heilongjiang, Zhejiang and Shenzhen and was incorporated on 8 March 2002 in the PRC with limited liability.

The financial information of Cheerfull Group was prepared in accordance with HKFRS for the three financial years ended 30 June 2010, 2009 and 2008 and the period ended 31 December 2010, which is set out in this appendix.

Set out below is the management discussion and analysis on the performance of Cheerfull Group for the three financial years ended 30 June 2010, 2009 and 2008 and the period ended 31 December 2010. The financial data in respect of Cheerfull Group is derived from the accountants’ report on Cheerfull Group.

Cheerfull Group recorded audited revenue of approximately HK$30,288,000 for the six months ended 31 December 2010, representing an increase of about 17.2% as compared to approximately HK$25,834,000 (unaudited) for the previous corresponding period. For the year ended 30 June 2010, Cheerfull Group recorded an audited revenue of approximately HK$52,777,000, representing an increase of about 23.2% as compared to approximately HK$42,843,000 for the year ended 30 June 2009. For the year ended 30 June 2009, Cheerfull Group recorded an audited revenue of approximately HK$42,843,000, representing an increase of about 20.0% as compared to approximately HK$35,715,000. Cheerfull Group have exhibited commendable growth for the financial year ended 30 June 2010, 2009 and 2008 respectively and for the period ended 31 December 2010.

Operating Results

Cheerfull Group reported audited revenue of approximately HK$30,288,000 for the six months ended 31 December 2010, and audited revenue of approximately HK$52,777,000, HK$42,843,000, and HK$35,715,000 for each of the three financial year ended 30 June 2010, 2009 and 2008 respectively.

Cheerfull Group reported audited net profit attributable to equity holders of approximately HK$6,723,000 for the six months ended 31 December 2010, and audited net profit attributable to equity holders of approximately HK$19,791,000, HK$11,946,000, and HK$6,309,000 for each of the three financial year ended 30 June 2010, 2009 and 2008 respectively.

Capital Resources and Liquidity

As at 31 December 2010, Cheerfull Group maintained cash and bank balances of approximately HK$11,204,000. As at 30 June 2010, 2009 and 2008, Cheerfull Group maintained cash and bank balances of approximately HK$38,552,000, HK$40,381,000 and HK$11,645,000 respectively.

Cheerfull Group’s net assets as at 31 December 2010 was HK$69,033,000. As at 30 June 2010, 2009 and 2008, Cheerfull Group recorded net assets of HK$60,357,000, HK$38,638,000 and HK$25,858,000 respectively.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

The gearing ratio as at 31 December 2010, 30 June 2010, 2009 and 2008, which was calculated on the basis of non-current liabilities dividend by shareholders’ fund of Cheerfull Group, were 0%, 0%, 0% and 0% respectively.

Contingent Liabilities

For the six months ended 31 December 2010, Cheerfull Group had no contingent liabilities. For the three financial year ended 30 June 2010, 2009 and 2008, Cheerfull Group had no contingent liabilities.

Material Acquisition and Disposal of Subsidiaries

Save as disclosed, Cheerfull Group had no material acquisition or disposal of subsidiary or associated company during the period ended 31 December 2010 and for each of the three financial year ended 30 June 2010, 2009 and 2008 respectively.

Charges on Cheerfull Group’s Assets

As at 31 December 2010 and each of the three financial year ended 30 June 2010, 2009 and 2008 respectively, no assets of Cheerfull Group were pledged.

Analysis of Segmental Information

No segment information was presented as Cheerfull Group operated only in lottery-related business during the period ended 31 December 2010 and for each of the three financial year ended 30 June 2010, 2009 and 2008 respectively.

Employees, Remuneration Policies and Share Option Scheme

As at 31 December 2010, Cheerfull Group had 98 staff, for each of the three financial year ended 30 June 2010, 2009 and 2008, Cheerfull Group had 98, 84 and 75 staff respectively. For the period ended 31 December 2010, staff cost of Cheerfull Group was approximately HK$4,166,000. For each of the three financial year ended 30 June 2010, 2009 and 2008 staff cost of Cheerfull Group were approximately HK$7,406,000, HK$4,366,000 and HK$3,306,000 respectively.

Exposure to Fluctuations in Exchange Rates and Any Related Hedges

No significant exchange risk is expected as Cheerfull Group’s cash, borrowings, income and expenses are settled in Hong Kong dollars or RMB. Cheerfull Group’s major investment and financing strategies are to invest in domestic projects in the PRC by RMB. As the exchange rate of RMB against Hong Kong dollars is relatively stable and Cheerfull Group’s operating income is substantially denominated in RMB, Cheerfull Group did not perform any foreign currency hedging activities during the year.

Future Plans for Material Investments or Capital Assets

As at 31 December 2010, Cheerfull Group had no plans for material investments or capital assets.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

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

1. Unaudited Pro Forma Consolidated Statement of Assets and Liabilities

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group (the “Unaudited Pro Forma Financial Information”) has been prepared in accordance with Rule 7.31 of the GEM Listing Rules for the purpose of illustrating the effect of the acquisition of 49% equity interest in Cheerfull Group Holdings Limited (the “Acquisition”) as if the Acquisition had been completed on 30 June 2010.

The Unaudited Pro Forma Financial Information is prepared based on the audited consolidated statement of financial position of the Group as at 30 June 2010 as extract from published audited financial statements of the Group for the year ended 30 June 2010 set out in the annual report of the Company for the year ended 30 June 2010 (page 36 to 147) which are published on both the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.cvg.com.hk), after incorporating the unaudited pro forma adjustments described in the accompanying notes.

The Unaudited Pro Forma Financial Information is based on a number of assumptions, estimates and uncertainties. Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 30 June 2010. The Unaudited Pro Forma Financial Information does not purport to predict the future financial position of the Enlarged Group.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical financial information of the Group as set out in Appendix I to this circular and other financial information included elsewhere in this circular. The Unaudited Pro Forma Financial Information does not take account of any trading or other transactions subsequent to the dates of the respective financial statements of the companies comprising the Group included in the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group following completion of the Disposal or at any future date.

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. Unaudited Pro Forma Consolidated Statement of Assets and Liabilities of the Enlarged Group

Non-current assets Property, plant and equipment Goodwill Other tangible assets Available-for-sale financial assets Current assets Inventories Trade and other receivables and prepayments Tax recoverable Pledged bank deposits Bank balances and cash Assets classified as held for sale Current liabilities Trade payables, accrued liabilities and other payable Tax liabilities Derivative financial instruments Bank and other borrowings Liabilities associated with assets classified as held for sale Net current assets Total assets less current liabilities Non-current liabilities Net assets	The Group as at Pro forma 30-Jun-10 adjustments HK$’000 HK$’000 Notes (Audited) (Unaudited) 42,472 1,154,768 11,381 63,780 1,272,401 3,897 24,337 50 5,128 96,456 (27,500) 1 129,868 1,079,773 1,209,641 29,707 (7,360) 2 539 17,722 20,351 68,319 375,041 443,360 766,281 2,038,682 63,089 1,975,593	Pro forma Enlarged Group HK$’000 (Unaudited) 42,472 1,154,768 11,381 63,780
		1,272,401
		3,897 24,337 50 5,128 68,956
		102,368 1,079,773
		1,182,141
		22,347 539 17,722 20,351
		60,959 375,041
		436,000
		746,141
		2,018,542
		63,089
		1,955,453

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company Non-controlling interests Total equity	The Group as at Pro forma 30-Jun-10 adjustments HK$’000 HK$’000 Notes (Audited) (Unaudited) 32,119 1,474,454 10,313 1 & 2 1,506,573 469,020 (30,453) 1 1,975,593	Pro forma Enlarged Group HK$’000 (Unaudited) 32,119 1,484,767
		1,516,886 438,567
		1,955,453

Notes:

The adjustment reflects the acquisition of 49% equity interest in Cheerfull Group Holdings Limited at a consideration of HK$27,200,000 in cash and the acquisition of 1% equity interest in Shenzhen Longjiang Feng Cai IT Co., Limited by Shenzhen Bozone IT Co., Ltd. at a consideration of approximately HK$300,000 in cash.

In accordance with Hong Kong Accounting Standard No. 27 “Consolidated and Separate Financial Statements” issued by the Hong Kong Institute of Certified Public Accountants, once control in a subsidiary has been achieved, further transactions whereby the parent entity acquires further equity interests from noncontrolling interests are accounted for as equity transactions and the adjustment to equity will be:

Fair value of consideration Carrying amounts of non-controlling interests* Positive movement in parent’s equity	HK$’000 27,500 30,453
	(2,953)

Carrying amounts of non-controlling interests of Cheerfull Group of approximately HK$30,453,000 was extracted from non-controlling interests of China Vanguard Group Limited as at 30 June 2010.
The adjustment reflects the waiver of amounts due to non-controlling interests of approximately HK$7,360,000 upon the completion of acquisition. The carrying amount of the amounts due to noncontrolling interests derecognized upon the completion of acquisition is recognized in profit and loss.

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, W.H. Tang & Partners CPA Limited.

==> picture [256 x 78] intentionally omitted <==

==> picture [122 x 43] intentionally omitted <==

8 June 2011

The Directors

China Vanguard Group Limited Room 2201, 22/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong

Dear Sirs,

We report on the unaudited pro forma consolidated statement of assets and liabilities (the “ Unaudited Pro Forma Financial Information ”) of China Vanguard Group Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Group ”) set out in Section 1 of Appendix III to the circular of the Company dated 8 June 2011 (the “ Circular ”) in connection with the acquisition of 49% equity interest in Cheerfull Group Holdings Limited (the “ Acquisition ”). The Unaudited Pro Forma Financial Information has been prepared by the Directors of the Company for illustrative purposes only to provide information about how the Acquisition might have affected the assets and liabilities of the Group if the completion of the Acquisition had taken place on 30 June 2010. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the introduction and notes to the Unaudited Pro Forma Financial Information as set out in Section 1 of this Appendix.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the Directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “ GEM Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.

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

OPINION

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules.

Yours faithfully,

W. H. Tang & Partners CPA Limited Certified Public Accountants Hong Kong

TANG Wai Hung

Practising Certificate Number P03525

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY ASSOCIATED CORPORATION

As at the Latest Practicable Date, the interests of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they have taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

(1) Long positions in the ordinary shares of the Company or any of its associated corporations

		Number of ordinary shares held	Number of ordinary shares held	Number of ordinary shares held
	Company/
	Name of	Interest in				Approximate
	associated	controlled	Beneficial	Family	Total	percentage of
Name of Director	corporation	corporation	owner	interest	interest	shareholding
Cheung Kwai Lan	Company	1,823,457,322	2,070,000	–	1,825,527,322	56.66%
		(Note 1)	(Note 2)
Chan Tung Mei	Company	–	–	1,825,527,322	1,825,527,322	56.66%
				(Notes 1& 2)
Lau Hin Kun	Company	–	1,410,000	–	1,410,000	0.04%
Cheung Kwai Lan	Best Frontier	–	909	1	910	–
				(Note 3)
Chan Tung Mei	Best Frontier	–	1	909	910	–
				(Note 3)

GENERAL INFORMATION

APPENDIX IV

Notes:

The 1,823,457,322 Shares are owned by Best Frontier which is owned as to 99.89% and 0.11% by Madam Cheung Kwai Lan and Mr. Chan Tung Mei respectively, who are spouse to each other. Accordingly, Madam Cheung Kwai Lan is deemed to be interested in the Shares held by Best Frontier and Mr. Chan Tung Mei is deemed to be interested in all 1,823,457,322 Shares by virtue of being the spouse of Madam Cheung Kwai Lan under the SFO.
The 2,070,000 Shares are owned by Madam Cheung Kwai Lan who is the spouse of Mr. Chan Tung Mei. Accordingly, Mr. Chan Tung Mei is deemed to be interested in the Shares under the SFO.
The 1 share and 909 shares of US$1 each in Best Frontier is owned respectively by Mr. Chan Tung Mei and Madam Cheung Kwai Lan who are spouse to each other. Accordingly, Madam Cheung Kwai Lan and Mr. Chan Tung Mei are deemed to be interested in the shares held by each other under the SFO.

(2) Share option of the Company

The Company has adopted a share option scheme on 18 October 2002 (the “Share Option Scheme”), under which the Board may, at its discretion, invite any persons who satisfies the criteria of the Share Option Scheme to take up options to subscribe for the Shares.

The Share Option Scheme will remain valid for a period 10 years commencing from 18 October 2002, subject to terms and conditions thereof. Particulars of the options to subscribe for Shares granted to the Directors pursuant to the Share Option Scheme as at the Latest Practicable Date are set out below:

					Maximum number
				Exercise	of Shares subject
	Capacity /Nature			period of	to the outstanding
Name of Directors	of interest	Date of grant	Exercise price	share options	options
			HK$
Cheung Kwai Lan	Beneficial	23/11/2006	0.62	23/11/2006 –	1,560,000
(Note 1)	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	1,560,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	3,120,000
				17/10/2012
Chan Tung Mei	Beneficial	23/11/2006	0.62	23/11/2006 –	1,560,000
(Note 1)	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	1,560,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	3,120,000
				17/10/2012

APPENDIX IV

GENERAL INFORMATION

					Maximum number
				Exercise	of Shares subject
	Capacity /Nature			period of	to the outstanding
Name of Directors	of interest	Date of grant	Exercise price	share options	options
			HK$
Chan Ting	Beneficial	23/11/2006	0.62	23/11/2006 –	1,560,000
	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	1,560,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	3,120,000
				17/10/2012
Lau Hin Kun	Beneficial	23/11/2006	0.62	23/11/2006 –	350,000
	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	350,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	700,000
				17/10/2012
Tian He Nian	Beneficial	23/11/2006	0.62	23/11/2006 –	260,000
	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	260,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	530,000
				17/10/2012
To Yan Ming Edmond	Beneficial	23/11/2006	0.62	23/11/2006 –	260,000
	owner/personal			17/10/2012
		23/11/2006	0.62	23/05/2007 –	260,000
				17/10/2012
		23/11/2006	0.62	23/11/2007 –	530,000
				17/10/2012
					22,220,000

GENERAL INFORMATION

APPENDIX IV

Notes:

As Mr. Chan Tung Mei and Madam Cheung Kwai Lan are the spouse to each other, each of Mr. Chan Tung Mei and Madam Cheung Kwai Lan is deemed to be interested in the Shares which may be allotted to his/her spouse pursuant to the exercise of the options referred to in the above table under the SFO.
As at the Latest Practicable Date, all the options referred to in the table above remain outstanding and have not been exercised.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at the Latest Practicable Date, so far as is known to the Directors or the chief executives of the Company, the following persons (other than a Director or chief executive of the Company) had, or was deemed taken to have, an interest or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital, carrying rights to vote in all circumstances at general meeting of any member of the Group:

(1) Long positions in the Shares

				Approximate
		Number of	Shares held	percentage of
Name of Shareholder	Capacity	Long position	Short position	shareholding
Best Frontier	Beneficial owner	1,823,457,322	–	56.60%
		(Note)

Note:

The 1,823,457,322 shares are owned by Best Frontier which is owned as to 99.89% and 0.11% by Madam Cheung Kwai Lan and Mr. Chan Tung Mei respectively, who are spouse to each other.

APPENDIX IV

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, there was no substantial Shareholder of the Company (other than a Director or chief executive of the Company) who had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO; or, had direct or indirect interests amounting to 10% of more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of the Company and/or any other member of the Group, or were required, pursuant to section 336 of the SFO, to be entered in the register referred to therein.

(2) Interest of other persons in the Company

==> picture [398 x 160] intentionally omitted <==

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Approximate
Number of Shares held percentage of
Name of Shareholder Capacity Long position Short position shareholding
Tarascon Asia Absolute Beneficial owner 194,120,000 – 6.03%
Fund (Cayman) Ltd
Integrated Asset Beneficial owner 169,433,478 – 5.26%
Management (Asia) (Note)
Limited (note 1)
Note:
----- End of picture text -----

The 169,433,478 shares are owned by Integrated Asset Management (Asia) Limited which is 100% owned by Yam Tak Cheung.

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or chief executives of the Company, there was no substantial Shareholder of the Company (other than a Director or chief executive of the Company) who had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO; or, had direct or indirect interests amounting to 5% of more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of the Company.

GENERAL INFORMATION

APPENDIX IV

4. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Group within the two years immediately preceding the date of this circular and are, or may be, material. The material contracts can be summarised into the following: (i) the agreements in relation to the convertible bonds issued by Grand Promise International Limited in November 2007 (“GPIL Bonds” and “GPIL” respectively) which were taken up by the Company upon the acquisition of GPIL; (ii) the placing of existing shares of Hong Kong Life Group Holdings Limited (formerly known as Aptus Holdings Limited)(“HKLG”) by Precise Result Profits Limited, a wholly-owned subsidiary of the Company (“Precise Result”); and (iii) acquisition of effective interest in CCD. Details as follows:

(a) the deed of amendment dated 17 June 2009 between the Company, GPIL and Evolution Master Fund Ltd. SPC, Segregated Portfolio M (“Evolution”), amended the GPIL Bonds issued to Evolution (“Evo GPIL Bonds”), amongst other things, the put options have been replaced by (i) an obligation on Evolution to request for redemption of a specified amount of the outstanding Evo GPIL Bonds on 24 June 2009; and (ii) an option exercisable by Evolution in respect of all or any part of the outstanding Evo GPIL Bonds during the option period;
(b) the deed of amendment dated 17 June 2009 between the Company, GPIL and Liberty Harbor Master Fund I, L.P. (“LH”) amended the GPIL Bonds issued to LH (“LH GPIL Bonds”), amongst other things, the put options have been replaced by (i) an obligation on the LH to request for redemption of a specified amount of the outstanding LH GPIL Bonds on 24 June 2009; and (ii) an option exercisable by LH in respect of all or any part of the outstanding LH GPIL Bonds during the option period;
(c) the deed of undertaking dated 17 June 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds (the “Undertaking”), amongst other things, (i) certain restrictions were imposed on withdrawals or transfers from the bank accounts maintained or controlled by any the Group member and (ii) GPIL agreed that it shall on or prior to 15 July 2009, enter into definitive legally binding and enforceable documentation (in form and substance reasonably satisfactory to each of GPIL, LH and Evolution) required to implement the restructuring of all amounts outstanding under the GPIL Bonds;
(d) the amendment and undertaking agreement dated 15 July 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, (i) the term “Undertaking Period” under the Undertaking was amended by replacing “15 July 2009” with “5 August 2009”; and (ii) each of Evolution and LH undertook not to exercise the holder put option under the Evo GPIL Bonds or the LH GPIL Bonds (as the case may be) prior to 5 August 2009;

APPENDIX IV

GENERAL INFORMATION

(e) the deed of amendment dated 4 August 2009 between the Company, GPIL and Evolution further amending the Evo GPIL Bonds, amongst other things, the period during which the Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 15 July 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 31 August 2009 to the date falling 15 business days thereafter (inclusive)”;
(f) the deed of amendment dated 4 August 2009 between the Company, GPIL and LH further amending the LH GPIL Bonds, amongst other things, the period during which the LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 15 July 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 31 August 2009 to the date falling 15 business days thereafter (inclusive)”;
(g) the amendment and undertaking agreement dated 4 August 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and undertaking agreement: (a) the term “Undertaking Period” under the Undertaking was amended by replacing “5 August 2009” with “31 August 2009”; and (b) the reference to “HK$8,000,000” in the Undertaking in relation to certain permitted withdrawal or transfer from bank accounts by any Group member during the Undertaking Period was changed to “HK$12,000,000”;
(h) the amendment and undertaking agreement dated 28 August 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, (i) with effect from the date of the amendment and undertaking agreement the term “Undertaking Period” under the Undertaking was amended by replacing “31 August 2009” with “15 September 2009” and (ii) each of Evolution and LH undertook not to exercise the holder put option to require for redemption under the Evo GPIL Bonds or the LH GPIL Bonds (as the case may be) prior to 15 September 2009;
(i) the amendment and undertaking agreement dated 14 September 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, (i) with effect from the date of the amendment and undertaking agreement the term “Undertaking Period” under the Undertaking was amended by replacing “15 September 2009” with “the 15th business day after 31 August 2009; and (ii) each of Evolution and LH undertook not to exercise the holder put option to require for redemption under the Evo GPIL Bonds or the LH GPIL Bonds (as the case may be) prior to the 15th business day after 31 August 2009;
(j) the deed of amendment dated 22 September 2009 between the Company, GPIL and Evolution further amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 31 August 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 30 September 2009 to the date falling 15 business days thereafter (inclusive);

GENERAL INFORMATION

APPENDIX IV

(k) the deed of amendment dated 22 September 2009 between the Company, GPIL and LH further amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 31 August 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 30 September 2009 to the date falling 15 business days thereafter (inclusive);
(l) the amendment and undertaking agreement dated 22 September 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and undertaking agreement the term “Undertaking Period” under the and Undertaking was amended by replacing “the 15th business day after 31 August 2009” with “30 September 2009”;
(m) the arrangement fee letter dated 22 September 2009 between the Company, Evolution and LH in relation to the GPIL Bonds, amongst other things, whereby the Company agreed to pay HK$2,500,000 to LH and HK$1,000,000 to Evolution as a fee for their assistance in arranging refinancing of the GPIL Bonds;
(n) the amendment and undertaking agreement dated 29 September 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, (i) with effect from the date of the amendment and undertaking agreement the term “Undertaking Period” was amended by replacing “30 September 2009” with “17 October 2009”; and (ii) each of Evolution and LH undertakes not to exercise the holder put option to require redemption under the GPIL Bonds prior to 17 October 2009;
(o) the deed of amendment dated 30 October 2009 between the Company, GPIL and Evolution further amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 30 September 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 30 November 2009 to 13 January 2010 (inclusive)”;
(p) the deed of amendment dated 30 October 2009 between the Company, GPIL and LH further amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 30 September 2009 to the date falling 15 business days thereafter (inclusive)” to “the period from 30 November 2009 to 13 January 2010 (inclusive)”;
(q) the amendment and undertaking agreement dated 30 October 2009 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and undertaking agreement the definition of term “Undertaking Period” was amended by replacing “17 October 2009” with “13 January 2010” and the terms governing restrictions on withdrawals or transfers from bank accounts maintained or controlled by the Group were amended;

GENERAL INFORMATION

APPENDIX IV

(r) the extension letter dated 30 October 2009 between the Company, Evolution and LH in relation to the GPIL Bonds, amongst other things, in consideration for Evolution and LH agreeing not to exercise the put option before 30 November 2009, the extension fees and the daily extension fees were payable by the Company upon the terms of the extension letter. The extension letter also provided that the Company was entitled to require, and Evolution and LH will be obliged to accept, redemption of the current GPIL Bonds provided that the Company may not exercise such option in respect of any GPIL Bonds which are the subject of an outstanding exercise of the put option;
(s) the placing agreement dated 14 December 2009 between Precise Result and Convoy Investment Services Limited in relation to the placing of up to a total 120,000,000 existing shares of HKLG owned by Precise Result at the placing price of HK$0.25 each by Convoy Investment Services Limited for and on behalf of Precise Result;
(t) the placing agreement dated 16 December 2009 between Precise Result and Kingston Securities Ltd., in relation to the placing of up to a total 200,000,000 existing shares of HKLG owned by Precise Result at the placing price of HK$0.25 each by Kingston Securities Ltd., for and on behalf of Precise Result;
(u) the deed of amendment dated 13 January 2010 between the Company, GPIL and Evolution amending the Evo GPIL Bonds amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 30 November 2009 to 13 January 2010 (inclusive)” to “the period from 14 January 2010 to 26 February 2010 (inclusive)”;
(v) the deed of amendment dated 13 January 2010 between the Company, GPIL and LH amending the LH GPIL Bond, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 30 November 2009 to 13 January 2010 (inclusive)” to “the period from 14 January 2010 to 26 February 2010 (inclusive)”;
(w) the amendment and restatement agreement dated 13 January 2010 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and restatement agreement, the definition of the term “Undertaking Period” was amended by replacing “13 January 2010” with “26 February 2010” and imposing certain new terms regarding no disposal from the Group during the “Undertaking Period”;
(x) the variation letter dated 13 January 2010 between the Company, Evolution and LH in relation to the GPIL Bonds, amongst other things, varying the terms of the extension letter dated 30 October 2009 with effect from 13 January 2010 to effect that the obligation of the Company to pay a daily extension fee was amended;

GENERAL INFORMATION

APPENDIX IV

(y) the placing agreement dated 19 February 2010 between Precise Result and VC Brokerage Limited, in relation to the placing of up to a total 140,000,000 existing shares of HKLG owned by Precise Result at the placing price of HK$0.28 each by VC Brokerage Limited, for and on behalf of Precise Result;
(z) the deed of amendment dated 25 February 2010 between the Company, GPIL and Evolution amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 14 January 2010 to 26 February 2010 (inclusive)” to “the period from 27 February 2010 to 31 March 2010 (inclusive)”;
(aa) the deed of amendment dated 25 February 2010 between the Company, GPIL and LH amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 14 January 2010 to 26 February 2010 (inclusive)” to “the period from 27 February 2010 to 31 March 2010 (inclusive)”;
(bb) the amendment and restatement agreement dated 25 February 2010 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and restatement agreement, the definition of the term “Undertaking Period” was amended by replacing “26 February 2010” with “31 March 2010”;
(cc) the deed of amendment dated 31 March 2010 between the Company, GPIL and Evolution amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 27 February 2010 to 31 March 2010 (inclusive)” to “the period from 1 April 2010 to 30 April 2010 (inclusive)”;
(dd) the deed of amendment dated 31 March 2010 between the Company, GPIL and LH amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 27 February 2010 to 31 March 2010 (inclusive)” to “the period from 1 April 2010 to 30 April 2010 (inclusive)”;
(ee) the amendment and restatement agreement dated 31 March 2010 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and restatement agreement, the definition of the term “Undertaking Period” was amended by replacing “31 March 2010” with “30 April 2010”;
(ff) the placing agreement dated 13 April 2010 between Precise Result and VC Brokerage Limited, in relation to the placing of up to a total 280,000,000 existing shares of HKLG owned by Precise Result at the placing price of HK$0.28 each by VC Brokerage Limited, for and on behalf of Precise Result;

APPENDIX IV

GENERAL INFORMATION

(gg) the deed of amendment dated 30 April 2010 between the Company, GPIL and Evolution amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 1 April 2010 to 30 April 2010 (inclusive)” to “the period from 1 May 2010 to 16 July 2010 or, if 16 July 2010 is not a business day, the next following business day (inclusive)”;
(hh) the deed of amendment dated 30 April 2010 between the Company, GPIL and LH amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 1 April 2010 to 30 April 2010 (inclusive)” to “the period from 1 May 2010 to 16 July 2010 or, if 16 July 2010 is not a business day, the next following business day (inclusive)”;
(ii) the amendment and restatement agreement dated 30 April 2010 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and restatement agreement, the definition of the term “Undertaking Period” was amended by replacing “30 April 2010” with “16 July 2010” and imposing certain new terms regarding the settlement of step up fees and final fees either in cash of by way of issue of warrants at the election of Evolution and LH (as the case may be);
(jj) the deed of amendment dated 16 July 2010 between the Company, GPIL and Evolution amending the Evo GPIL Bonds, amongst other things, the period during which Evolution may require redemption of the outstanding principal amounts of the Evo GPIL Bonds was changed from “the period from 1 May 2010 to 16 July 2010 or, if 16 July 2010 is not a business day, the next following business day (inclusive)” to “the period from 17 July 2010 to 30 July 2010 or, if 30 July 2010 is not a business day, the next following business day (inclusive)”;
(kk) the deed of amendment dated 16 July 2010 between the Company, GPIL and LH amending the LH GPIL Bonds, amongst other things, the period during which LH may require redemption of the outstanding principal amounts of the LH GPIL Bonds was changed from “the period from 1 May 2010 to 16 July 2010 or, if 16 July 2010 is not a business day, the next following business day (inclusive)” to “the period from 17 July 2010 to 30 July 2010 or, if 30 July 2010 is not a business day, the next following business day (inclusive)”;
(ll) the amendment and restatement agreement dated 16 July 2010 between the Company, GPIL, Evolution and LH in relation to the GPIL Bonds, amongst other things, with effect from the date of the amendment and restatement agreement, the definition of the term “Undertaking Period” was amended to end on or prior to 30 July 2010 and that each of Evolution and LH undertook not to exercise the put option prior to 30 July 2010 unless as directed by GPIL;

APPENDIX IV

GENERAL INFORMATION

(mm) the deed of amendment and undertaking dated 26 July 2010 between the Company, GPIL, Precise Result and Tarascon Asia Absolute Fund (Cayman) Limited (“Tarascon” and “Tarascon Deed” respectively) in relation to, amongst other things, the amendments to the LH GPIL Bonds as transferred to Tarascon (“Tarascon GPIL Bond”)(as per the note purchase agreement dated 28 July 2010 between Tarascon and LH) amongst other things, (i) the period during which Tarascon may require redemption of the outstanding principal amounts of the Tarascon GPIL Bonds was changed from “the period from 17 July 2010 to 30 July 2010 or, if 30 July 2010 is not a business day, the next following business day (inclusive)” to “the period from 30 July 2010 to 30 November 2010 or, if 30 November 2010 is not a business day, the next following business day (inclusive)”; (ii) that Tarascon undertook not to exercise the put option prior to 30 November 2010 unless as directed by GPIL; (iii) Precise Result pledged 300,000,000 of shares of HKLG to Tarascon for the purpose of securing the obligations of the Company, GPIL and/or Precise Result; and (iv) the Company agreed to pay certain extension fees;
(nn) the share charge in respect of 300,000,000 shares of HKLG dated 26 July 2010 entered into between Precise Result and Tarascon for the purpose of securing the obligations of the Company, GPIL and/or Precise Result under the Tarascon Deed;
(oo) the note purchase agreement dated 28 July 2010 entered into between Tarascon, LH and GPIL pursuant to which the LH GPIL Bonds was transferred by LH to Tarascon;
(pp) the assignment and novation agreement dated 28 July 2010 between the Company, GPIL, LH, Evolution and Tarascon in relation to the assignment and novation of the rights and obligations under the relevant documents relating to the issuance of the GPIL Bonds, Birdview share charge and the deed of adherence as it related to LH;
(qq) the termination agreement dated 29 July 2010 between the Company, GPIL, LH and Evolution pursuant to which, amongst other things, the undertaking dated 17 June 2009 (as amended and/or restated from time to time) was terminated;
(rr) the amendment and undertaking agreement dated 29 July 2010 between the Company, GPIL and Evolution (“Evo Undertaking Agreement”) in relation to, amongst other things, the amendments to the Evo GPIL Bonds, amongst other things, with effect from the date of the Evo Undertaking Agreement, the definition of the term “Undertaking Period” was amended to end on or prior to 30 November 2010 and that Evolution undertook not to exercise the put option prior to 30 November 2010 unless as directed by GPIL;
(ss) the amendment and restatement agreement dated 13 August 2010 between the Company, GPIL, Precise Result and Evolution restating and amending the Evo Undertaking Agreement, amongst other things, (i) the Company agreed to pay the revised step up fees and the delay fees to Evolution; (ii) Precise Result pledged 100,000,000 of shares of HKLG to Evolution for the purpose of securing the obligations of the Company, GPIL and/or Precise Result; and (iii) the issuance of an aggregate of 40,000,000 warrants to Evolution and Tarascon;

GENERAL INFORMATION

APPENDIX IV

(tt) the deed of amendment dated 14 August 2010 between the Company, GPIL, Precise Result and Tarascon in relation to, amongst other things, the issuance of an aggregate of 40,000,000 warrants to Evolution and Tarascon;
(uu) the amendment agreement dated 18 August 2010 between the Company, GPIL, Precise Result and Evolution amending the terms of the warrants;
(vv) the amendment agreement dated 18 August 2010 between the Company, GPIL, Precise Result and Tarascon amending the terms of the warrants;
(ww) the warrant deed poll dated 26 August 2010 issued by the Company to Evolution for 30,000,000 warrants;
(xx) the warrant deed poll dated 26 August 2010 issued by the Company to Tarascon for 10,000,000 warrants;
(yy) the note purchase agreement dated 30 December 2010 entered into between Tarascon, Capital Day Investment Limited (“Capital Day”) and GPIL pursuant to which the Tarascon GPIL Bonds was transferred by Tarascon to Capital Day (“CD GPIL Bonds”);
(zz) the note purchase agreement dated 30 December 2010 entered into between Evolution, Evo Fund (“Evofund”) and GPIL pursuant to which the Evo GPIL Bonds was transferred by Evolution to Evofund (“Evofund GPIL Bonds”);
(aaa) the assignment and novation agreement dated 30 December 2010 between the Company, GPIL, Tarascon, Evolution, Evofund and Capital Day in relation to the assignment and novation of the rights and obligations under the relevant documents relating to the issuance of the GPIL Bonds, Birdview share charge and the deed of adherence as it related to Tarascon;
(bbb) the assignment and novation agreement dated 30 December 2010 between the Company, GPIL, Tarascon, Evolution, Evofund and Capital Day in relation to the assignment and novation of the rights and obligations under the relevant documents relating to the issuance of the GPIL Bonds, Birdview share charge and the deed of adherence as it related to Evolution;
(ccc) the deed of termination dated 30 December 2010 between the Company, GPIL, Precise Result and Tarascon pursuant to which, amongst other things, the undertaking dated 26 July 2010 (as amended and/or restated from time to time) and the share charge dated 26 July 2010 were terminated;

APPENDIX IV

GENERAL INFORMATION

(ddd) the deed of amendment and undertaking dated 30 December 2010 between the Company, GPIL, and Capital Day (“CD Deed”) in relation to, the amendments to the CD GPIL Bonds amongst other things, (i) the period during which Capital Day may require redemption of the outstanding principal amounts of the CD GPIL Bonds was changed to “the period from 31 December 2010 to 30 June 2011 or, if 30 June 2011 is not a business day, the next following business day (inclusive)”; (ii) that Capital Day undertook not to exercise the put option prior to 30 June 2011 unless as directed by GPIL; and (iii) the Company agreed to pay certain extension fees;
(eee) the deed of amendment and undertaking dated 30 December 2010 between the Company, GPIL, Precise Result and Evofund (“Evofund Deed”) in relation to, amongst other things, the amendments to the Evofund GPIL Bonds amongst other things, (i) the period during which Evofund may require redemption of the outstanding principal amounts of the Evofund GPIL Bonds was changed to “the period from 31 December 2010 to 31 March 2011 or, if 31 March 2011 is not a business day, the next following business day (inclusive)”; (ii) that Evofund undertook not to exercise the put option prior to 31 March 2011 unless as directed by GPIL; (iii) Precise Result pledged 10,000,000 shares of HKLG to Evofund for the purpose of securing the obligations of the Company, GPIL and/or Precise Result; (iv) the issuance of 30,000,000 warrants to Evofund; and (v) the Company agreed to pay certain extension fees;
(fff) the termination agreement dated 31 December 2010 between the Company, GPIL, Precise Result, Evolution and Evofund pursuant to which, amongst other things, the undertaking dated 29 July 2010 (as amended and/or restated from time to time) was terminated;
(ggg) the warrant deed poll dated 11 January 2011 issued by the Company to Evofund for 30,000,000 warrants;
(hhh) the sale and purchase agreement dated 15 March 2011 entered between Champion Day Holdings Limited (“Champion Day”), a wholly-owned subsidiary of the Company, and the vendors of Glory Man Holdings Limited in relation to the acquisition of an effective 10% equity interest in CCD for total consideration of HK$80,000,000 to be settled as to HK$10,000,000 in cash and as to HK$70,000,000 by the Company issuing consideration shares;
(iii) the sale and purchase agreement dated 15 March 2011 entered between Champion Day and the vendors of Sky Wings Holdings Limited in relation to the acquisition of an effective 20% equity interest in CCD for total consideration of HK$160,000,000 to be settled as to HK$115,000,000 in cash and as to HK$45,000,000 by the Company issuing consideration shares; and
(jjj) the Acquisition Agreement.

GENERAL INFORMATION

APPENDIX IV

5. DIRECTORS’ SERVICE CONTRACTS

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

6. LITIGATION

Save as disclosed above, as at the Latest Practicable Date, no member of the Group is engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

7. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or substantial Shareholder or any of their respective associates had any interest in business which competes with or may compete with the business of the Group or has any other conflict of interests which any person has or may have with the Group.

8. DIRECTORS’ INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 30 June 2010, being the date to which the latest published audited financial statements of the Group were made up.

9. DIRECTORS’ INTEREST IN CONTRACTS

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group.

GENERAL INFORMATION

APPENDIX IV

10. EXPERT AND CONSENT

The following is the qualification of the experts who have given opinion or advice which are contained in this circular:

Name Qualification Veda Capital Limited a licensed corporation to carry out type 6 regulated activities under the SFO W.H. Tang & Partners CPA Limited Certified Public Accountants

Each of the above experts has given and confirmed that it has not withdrawn its written consent to the issue of this circular with the inclusion of its letter dated 8 June 2011 and/or references to their name in the form and context in which it appears. Each of the above experts has further confirmed that as at the Latest Practicable Date, they were not interested in the share capital of any member of the Enlarged Group, nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group. They are not interested in any assets which have been, since 30 June 2010 (being the date to which the Company’s latest audited financial statements were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

11. GENERAL

(a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands and the head office and principal place of business in Hong Kong is at 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(c) The company secretary of the Company is Mr. Chow Chun Hong Ernest, who is a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants, and an associate member of the Institute of Chartered Accountants in England and Wales.
(d) The compliance officer of the Company is Mr. Chan Ting, an executive Director and Chief Executive Officer of the Group.

APPENDIX IV

GENERAL INFORMATION

(e) The Company established an audit committee with written terms of reference in compliance with Rules 5.28 and 5.29 of the GEM Listing Rules. The primary duties of the audit committee are to review and supervise the financing reporting process and internal control system of the Group. The audit committee comprises four members, all are independent nonexecutive Directors. Set out below are their background and directorships (present and past) of other companies listed on GEM, the main board of the Stock Exchange or other stock exchanges.

Mr. Tian He Nian, aged 70, was the Deputy Head of the Department of United Front Work of the Central Government of the PRC from 1998 to 2003. He is the Vice-Chairman of China Overseas Association. He was previously an independent non-executive director and audit committee member of HKLG for the period from 30 September 2004 to 18 June 2010. He joined the Group in November 2004.

Mr. Zhang Xiu Fu, aged 76, is also a member of remuneration committee of the Company. He devoted himself to the Chinese Revolution in August 1948 and joined in the Communist Party in March 1950. He had served as the Head of the Municipal Police of Hangzhou City, Zhejiang Province, the Chief Officer of the Provincial Police of Zhejiang Province, a member of the Communist Party’s Provincial Standing Committee in Zhejiang Province and the Secretary of the Political and Legislative Affairs Committee. He had also served as the Commissar of the Chinese People’s Armed Police, the Vice Minister and the Vice Head of the party organization of the Chinese Ministry of Legislation, a representative of the Nine National People’s Congress, a member of the Legislation Committee of the National People’s Congress and the Vice President of China Law Science Association. He currently served as the President of the China Legal Aid Foundation. He was previously an independent non-executive director and a member of the audit committee and remuneration committee of HKLG for the period from 25 January 2008 to 23 June 2010. He joined the Group in January 2008.

Mr. Yang Qing Cai, aged 64, is also a member of remuneration committee of the Company. He was formerly the Vice Governor of the Jilin Province. He had also served as the Deputy Director of the Rural Affairs Department of the Jilin Provincial Committee, the Deputy Secretary General of the Government of the Jilin Province, and the Vice Director of the Standing Committee of the National People’s Congress of Jilin Province. He joined the Group in April 2011

GENERAL INFORMATION

APPENDIX IV

Mr. To Yan Ming Edmond, aged 39, is the chairman of the audit committee and also a member of the remuneration committee. Mr. To holds a bachelor degree in Commerce in Accounting from Curtin University of Technology in Western Australia. He is a practicing accountant and presently the director of Edmond To CPA Limited and Zhonglei (HK) CPA Company Limited. He is a member of both the CPA Australia and Hong Kong Institute of Certified Public Accountants. He worked for one of the international accounting firms, Deloitte Touche Tohmatsu and has over 10 years of experience in auditing, accounting, floatation and taxation matters. Mr. To was appointed as an independent non-executive director and members of the audit and remuneration committee of BEP International Holdings and Theme International Holdings Limited (the securities of both companies are listed on the Main Board of the Stock Exchange) on 5 June 2009 and 5 November 2009 respectively. Mr. To was appointed as an independent non-executive director, member and chairman of the audit committee, and member of remuneration and nomination committee of Wai Chun Group Holdings Limited (the securities of which are listed on the Main Board of the Stock Exchange) on 29 September 2009. Mr. To was previously an independent non-executive director, chairman of the audit committee and member of the remuneration committee of HKLG for the period from 11 January 2006 to 26 October 2010. Mr. To joined the Group in January 2006.

(f) The English version of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at Room 2201, 22/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(c) the letter from the Independent Board Committee dated 8 June 2011, the text of which is set out in this circular;
(d) the letter from Veda Capital dated 8 June 2011, the text of which is set out in this circular;
(e) the report from W.H. Tang & Partners CPA Limited on the unaudited pro forma financial information of the Group, the text of which is set out in Appendix III to this circular;
(f) the written consents referred to in paragraph headed “Expert and Consent” of this appendix;

GENERAL INFORMATION

APPENDIX IV

(g) the annual reports of the Company for each of the two financial years ended 30 June 2009 and 2010;
(h) the circular of the company dated 11 October 2010 in relation to the disposal mandate regarding proposed disposal of shares of Aptus Holdings Limited (now known as Hong Kong Life Group Holdings Limited) which constituted a possible major transaction;
(i) the circular of the company dated 31 March 2011 in relation to the possible discloseable transaction involving issue of consideration shares under a specific mandate; and
(j) this circular.

NOTICE OF EGM

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8156)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of China Vanguard Group Limited (the “ Company ”) will be held at Room 2201, 22/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on Thursday, 23 June 2011 at 10:30 a.m., for the purpose of considering and, if thought fit, passing the following resolution:

AS ORDINARY RESOLUTIONS:

“THAT:

the acquisition agreement dated 15 April 2011 (the “ Acquisition Agreement ”) entered into between Ace Bingo Group Limited (the “ Purchaser ”) and Xu Ming (許明), Li Jun (李軍), Lin Zhiwei (林志偉), Miao Jian (苗劍), Jiang Chuan (姜川), Liu Ling (劉玲), Zhu Yuan (朱原),Gao Lei (高蕾), Zhao Peng (趙鵬) and Lv Jie (呂杰) (the “ Vendors ”) in relation to the acquisition of the 49% equity interest of Cheerfull Group Holdings Limited 致富集團控股有限公司(the “ Acquisition ”) (a copy of which has been produced to the meeting marked “A” and initiated by the chairman of the meeting for identification purpose) and the transactions contemplated thereunder and the performance by the Company thereof be and are hereby confirmed, ratified and approved; and
any one director of the Company (each a “ Director ”) be and is hereby generally and unconditionally authorised in the best interests of the Company to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company by hand or in case of execution of documents under seal, to do so jointly with any second Director, a duly authorized representative of the Directors or the secretary of the Company as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Acquisition.

Yours faithfully,

For and on behalf of the Board of

China Vanguard Group Limited

**眾彩科技股份有限公司[*]**

Chan Siu Sarah Director

Hong Kong, 8 June 2011

* for identification purpose only

NOTICE OF EGM

Registered office: Head office and principal place Cricket Square of business in Hong Kong: Hutchins Drive Room 2201, 22/F P.O. Box 2681 Hopewell Centre Grand Cayman KY1-1111 183 Queen’s Road East Cayman Islands Wanchai, Hong Kong

Notes:

A member entitled to attend and vote at the extraordinary general meeting convened by the above notice is entitled to appoint one or, if he is a holder of more than one share, more proxies to attend and, subject to the provisions of the articles of association of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the extraordinary general meeting to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised in writing, or if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorised to sign the same.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the Company’s branch share registrar in Hong Kong, Tricor Standard Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the extraordinary general meeting or any adjournment thereof. Completion and return of a form of proxy will not preclude a shareholder of the Company from attending in person and voting at the extraordinary general meeting or any adjournment thereof, should he/she/it so wish and in such event, the proxy shall be deemed to be revoked.

AI assistant

Sinopharm Tech Holdings Limited — Proxy Solicitation & Information Statement 2011

51300_rns_2011-06-07_32aeaf31-5ee3-44cf-a1fe-108d3d170ea7.pdf

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CHARACTERISTICS OF GEM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION

Parties:

LETTER FROM THE BOARD

Assets to be acquired

Consideration

Waiver of Loan

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Completion

INFORMATION ON CHEERFULL GROUP

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

REASONS FOR AND BENEFITS OF THE ACQUISITION

FINANCIAL EFFECT ON THE ACQUISITION

LISTING RULE IMPLICATIONS

LETTER FROM THE BOARD

EGM

ADDITIONAL INFORMATION

RECOMMENDATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED

Veda Capital Limited

MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 49% EQUITY INTEREST IN CHEERFULL GROUP HOLDINGS LIMITED

INTRODUCTION

LETTER FROM VEDA CAPITAL

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. THE AGREEMENT

1. Information on Cheerfull Group

LETTER FROM VEDA CAPITAL

2. Background and financial information of the Group

(i) Nine months ended 31 March 2011

LETTER FROM VEDA CAPITAL

3. Reasons for the Acquisition

LETTER FROM VEDA CAPITAL

4. Consideration for the Acquisition

(a) Consideration

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

FINANCIAL EFFECTS OF THE ACQUISITION

(i) Net asset value

(ii) Earnings

RECOMMENDATION

1. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS

3. WORKING CAPITAL

4. MATERIAL ADVERSE CHANGE

5. FINANCIAL AND TRADING PROSPECTS

1. ACCOUNTANTS’ REPORT OF CHEERFULL GROUP

The statutory financial year end date of these subsidiaries is 31 December.

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

FINANCIAL INFORMATION

A. Consolidated Statements of Comprehensive Income

B. Consolidated Statements of Financial Position

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

C. Consolidated Statements of Changes in Equity

Attributable to equity holders of Cheerfull

D. Consolidated Statements of Cash Flows

APPENDIX II FINANCIAL INFORMATION OF THE CHEERFULL GROUP

E. Notes to Financial Information

1. GENERAL INFORMATION

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

(b) Consolidation

Sinopharm Tech Holdings Limited Proxy Solicitation & Information Statement 2011