Sisram Medical Ltd - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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(Incorporated in Bermuda with limited liability)

(Stock Code: 723)

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES PROPOSED CHANGE OF COMPANY NAME AND PROPOSED CAPITAL REORGANISATION

Financial adviser to Magnesium Resources Corporation of China Limited

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Independent Financial Adviser to the Independent Board Committee and the Disinterested Shareholders

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A letter from the Independent Board Committee giving its recommendations to the Disinterested Shareholders on the Agreement is set out on page 30 of this circular. A letter from VC Capital, the independent financial adviser, containing its advice to the Independent Board Committee and the Disinterested Shareholders is set out on pages 31 to 39 of this circular.

A notice convening a special general meeting of Magnesium Resources Corporation of China Limited to be held at Boardroom 5, G/F., Renaissance Harbour View Hotel, No. 1 Harbour Road, Wanchai, Hong Kong on Friday, 19 December 2008 at 10:30 a.m. is set out on pages SGM-1 to SGM-3 of this circular. A form of proxy for use at the special general meeting is also enclosed. Such form of proxy is also published on the websites of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) and the Company (www.mrccltd.com).

Whether or not you are able to attend the special general meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting if they so wish.

* For identification purpose only

26 November 2008

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter from VC Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Unaudited pro forma financial information
of the Remaining Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III – Valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV – Reports on forecast underlying the valuation. . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V – Statutory and general information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

DEFINITIONS

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

“2007 Agreement” the agreement dated 28 November 2007 entered into between the Company, PHL and the Guarantor in relation to the Subsidiary
“acting in concert” has the meaning ascribed to it under the Takeovers Code
“Agreement” the conditional agreement dated 15 August 2008 entered into between the Company, PHL and the Guarantor in relation to the Disposal
“Announcement” the announcement of the Company dated 2 September 2008 in relation to the Disposal
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors “Capital Reduction” the proposed reduction of the par value of each issued Existing Share from HK$0.10 to HK$0.01 by cancelling the paid-up capital to the extent of HK$0.09 on each Existing Share
“Capital Reorganisation” the proposed share capital reorganisation as more fully set out under the section headed “Proposed Capital Reorganisation” in this circular
“Company” Magnesium Resources Corporation of China Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Stock Exchange
“Companies Act” the Companies Act 1981 (as amended) of Bermuda
“Completion” completion of the Agreement in accordance with the terms thereof “Consideration” the total consideration of HK$1,624,464,456.5 for the Sale Shares and the Sale Loan under the Agreement
“Convertible Note” the Convertible Note issued by the Company in favour of PHL in an aggregate principal amount of HK$1,092 million but to be surrendered by PHL to the Company pursuant to the Agreement for cancellation and discharge at Completion

“Diminution of Authorised the proposed diminution of authorised share capital of the Share Capital” Company to HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each

“Director(s)”

the director(s) of the Company

DEFINITIONS

“Disinterested Shareholders”	Shareholders other than PHL, the Guarantor, their respective
	associates and parties acting in concert with them
“Disposal”	the proposed disposal of the Sale Shares and the assignment of
	the Sale Loan by the Company to PHL pursuant to the Agreement
“Executive”	the Executive Director of the Corporate Finance Division of the
	Securities and Futures Commission or any of his delegates
“Existing Shares”	ordinary shares of HK$0.10 each in the existing issued share
	capital of the Company prior to the Capital Reduction
“Group”	the Company and its subsidiaries
“Guarantor”	Mr. Yam Tak Cheung, being the guarantor to the Purchaser for the
	purpose of the Agreement and the sole beneficial owner of the
	Purchaser, who is beneficially interested in approximately 28.1%
	of the issued Shares as at the Latest Practicable Date
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“HK GAAP”	the generally accepted accounting principles in Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board	a committee of the Board comprising all the independent
Committee”	non-executive Directors, namely Mr. William Lo Chi Ho, Mr.
	Peleus Chu Kin Wang, and Ms. Lau Wa Chun established for the
	purpose of advising and giving recommendations to the
	Disinterested Shareholders on the Agreement
“Independent Third Party(ies)”	person(s) or company(s) who/which is/are not connected with the
	directors, chief executive or substantial shareholders (as defined
	under the Listing Rules) of the Company and its subsidiaries, or
	any of their respective associates
“Last Full Trading Day”	14 August 2008, being the last full trading day prior to suspension
	of trading in the Shares on the Stock Exchange from 2:30 p.m. on
	15 August 2008
“Latest Practicable Date”	21 November 2008, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange

DEFINITIONS

“Magnesite Mine”	the mine area known as “梨樹溝菱鎂礦(Liaoning Magnestie
	Mine #) containing Magnesite resources located approximately
	18km southwest of Haicheng City of the Liaoning Province and
	approximately 120 km south of Shenyang, the capital city of
	Liaoning Province of the PRC, covering a mining area of
	approximately 0.8643 km 2
“Mr. Cheng”	Mr. Cheng Tun Nei, a former Substantial Shareholder and a
	former Director of the Company
“New Share(s)”	ordinary share(s) of HK$0.01 each in the share capital of the
	Company immediately after the Capital Reorganisation becoming
	effective
“PHL”	Pure Hope Development Limited, a company incorporated in the
	British Virgin Islands with limited liability which is wholly-
	owned by the Guarantor
“PRC”	the People’s Republic of China which, for the purposes of this
	circular, excludes Hong Kong, the Macau Special Administrative
	Region of the PRC and Taiwan
“PRC Company”	海城市東鑫實業有限公司(Haicheng Dongxin Industry Limited #),
	a company established under the laws of the PRC with limited
	liability which is directly owned as to 80% by the Subsidiary and
	as to 20% by the PRC Partner
“PRC Partner”	海城市八里鎮東三道村民委員會(Haicheng Bali County
	Dongsandao Villagers Committee #) which is a villagers
	autonomous organisation (村民自治組織) established in Haicheng
	City, the Liaoning Province of the PRC
“Promissory Note”	the promissory note issued by the Company in favour of PHL
	with principal amount of HK$320 million but to be surrendered
	by PHL to the Company for cancellation and discharge at
	Completion pursuant to the Agreement
“Relevant Period”	the period from 2 March 2008, being the date falling on the six
	months before the date of the Announcement, up to and including
	the Latest Practicable Date
“Remaining Group”	the Group excluding the Sale Group
“Repurchase Code”	the Hong Kong Code on Share Repurchases
“Repurchase Shares”	the 800,000,000 Shares beneficially held by PHL and to be
	transferred to the Company at Completion pursuant to the
	Agreement for cancellation

“RMB”

Renminbi, the lawful currency of the PRC

DEFINITIONS

“Sale Group”	the Subsidiary and the PRC Company
“Sale Loan”	the shareholder’s loan owed by the Subsidiary to the Company on
	the date of Completion
“Sale Shares”	the 50,000 issued shares of the Subsidiary, representing its entire
	issued share capital
“Securities Repurchase”	the proposed cancellation of the Repurchase Shares and the
	Convertible Note by the Company from PHL by way of an off-
	market share repurchase by the Company pursuant to Rule 2 of
	the Repurchase Code as part of the Consideration payable by PHL
	to the Company under the Agreement
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SFO register”	the register of substantial shareholders required to be maintained
	by the Company pursuant to section 336 of the SFO
“SGM”	a special general meeting of the Company to be held at
	Boardroom 5, G/F., Renaissance Harbour View Hotel, No. 1
	Harbour Road, Wanchai, Hong Kong on Friday, 19 December
	2008 at 10:30 a.m. for the purpose of considering, and if thought
	fit, approving the Agreement and the transactions contemplated
	thereunder, the proposed change of Company name and the
	proposed Capital Reorganisation
“Share(s)”	the Existing Shares prior to, or the New Shares after, the Capital
	Reorganisation becoming effective (as the case may be)
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary”	Ling Kit Holding Limited, a company established in the British
	Virgin Islands with limited liability and a wholly-owned
	subsidiary of the Company
“Substantial Shareholder”	has the meaning ascribed to it under the Listing Rules
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Valuer”	Asset Appraisal Limited, the independent qualified valuer engaged
	by the Company for preparing the valuation report on the
	Magnesite Mine

DEFINITIONS

“VC Capital” VC Capital Limited, a corporation licensed to carry out types 1 (dealing in securities) and 6 (advising on corporate finance) regulated activities as defined under the SFO and which is the independent financial adviser to the Independent Board Committee and Disinterested Shareholders regarding the terms of the Agreement “US$” United States dollars, the lawful currency of the United States of America “km” kilometer(s) “km2” square kilometer(s) “%” per cent

Notes:

(i) For the purpose of illustration only, amounts denominated in RMB herein have been translated into HK$ at the rate of RMB0.90 = HK$1 and amounts denominated in US$ have been translated into HK$ at the rate of US$1 = HK$7.8. Such translation should not be construed as a representation that the amounts quoted could have been or could be or will be converted at the stated rate or at any other rates at all.
(ii) The mark * used in this circular denotes that the Chinese name is for identification purpose only
(iii) The mark # denotes that the English translation of the Chinese name is for identification purpose only

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 723)

Executive Directors: Mr. Teoh Tean Chai, Anthony Ms. Chung Oi Ling, Stella

Independent Non-executive Directors:

Mr. Lo Chi Ho, William Mr. Chu Kin Wang, Peleus Ms. Lau Wa Chun

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal Place of Business in Hong Kong: Room 3001-02, Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

26 November 2008

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES PROPOSED CHANGE OF COMPANY NAME AND PROPOSED CAPITAL REORGANISATION

INTRODUCTION

Disposal of the Subsidiary

After the close of trading hours on the Stock Exchange for the morning session on 15 August 2008, the Company entered into the Agreement with PHL and the Guarantor whereby the Company conditionally agreed to sell and assign, and PHL conditionally agreed to purchase and accept the assignment of, the Sale Shares and the Sale Loan at the Consideration of approximately HK$1,624 million, which will be settled by PHL by way of (i) transferring to the Company at Completion the Repurchase Shares, the Convertible Note and the Promissory Note for cancellation; and (ii) payment of HK$464,456.5 to the Company in cash at Completion. The Sale Shares and nearly the entire amount of the Sale Loan were transferred and assigned to the Company by PHL pursuant to the 2007 Agreement, in return for which the Company issued to PHL the Repurchase Shares, the Convertible Note and the Promissory Note. Due to reasons described in the paragraph headed “Background of and reasons for the

LETTER FROM THE BOARD

Agreement” below, the operation of the PRC Company on the Magnesite Mine has recently come to a halt as a result of disturbances caused by large disorderly crowd of people. The Directors believe that the Company would not be able to restore the operation of the Magnesite Mine back to normal without the co-operation of the local people, on which the Directors have not much confidence at this stage. At the request of the Company, PHL and the Guarantor have agreed to effectively cancel the 2007 Agreement entirely by taking back the entire amount of the Sale Shares and the Sale Loan at cost to the Company by way of entering into of the Agreement, whereby the Sale Shares and the Sale Loan will be transferred back to PHL, and PHL will surrender the Repurchase Shares, the Convertible Note and the Promissory Note to the Company for cancellation and discharge at Completion. The Consideration is equal to the sum of the fair value of the consideration paid by the Company to PHL pursuant to the 2007 Agreement as recorded in the books of the Company and the advances made by the Group to the Sale Group since completion of the 2007 Agreement.

The transactions contemplated under the Agreement constitute a very substantial disposal and connected transaction for the Company under the Listing Rules. The cancellation of the Repurchase Shares and the Convertible Note will be effected by an off-market repurchase of shares by the Company pursuant to Rule 2 of the Repurchase Code. The Agreement is conditional as described below. In particular, the Securities Repurchase is subject to approval by at least three-fourths of the votes cast on a poll by Disinterested Shareholders present in person or by proxy at the SGM and by the Executive. There is no assurance that such approvals will be granted or that all conditions precedent of the Agreement will be fulfilled. The SGM will be convened and held to consider and, if thought fit, approve the Agreement and the transactions contemplated therein. The Independent Board Committee has been established to give recommendation to the Disinterested Shareholders regarding the Agreement, and VC Capital has been appointed as the independent financial adviser to the Independent Board Committee and the Disinterested Shareholders regarding the terms of the Agreement.

Proposed change of Company name

The Directors also propose to change the name of the Company from “Magnesium Resources Corporation of China Limited” to “Bright Prosperous Holdings Limited”. The change of name is subject to, among others, passing of the special resolution by the Shareholders at the SGM. However, the proposed change of name is not subject to Completion of the Agreement. Upon the change of name becoming effective, the Company will adopt the new Chinese name “晉盈控股有限公司” in replacement of “中國鎂業資源集團有限公司” for identification purposes only.

Proposed Capital Reorganisation

The Board proposes to put forward a proposal to the Shareholders to effect the Capital Reorganisation which involves:

(i) Capital Reduction: the par value of each Existing Share will be reduced from HK$0.10 to HK$0.01 by the cancellation of HK$0.09 of the paid-up capital on each Existing Share;
(ii) Sub-division: each of the authorised but unissued Shares in the share capital of the Company of par value HK$0.10 shall be sub-divided into 10 New Shares of par value HK$0.01 each; and

LETTER FROM THE BOARD

(iii) Diminution of Authorised Share Capital: immediately following the Capital Reduction and the Sub-division, the authorised share capital of the Company shall be diminished from HK$1,000,000,000 to HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each by the cancellation of 90,000,000,000 New Shares of par value HK0.01 each in the authorised but unissued share capital of the Company.

Following the implementation of the Capital Reorganisation set out above, the Company’s authorised share capital shall be HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each, and its issued share capital shall be HK$29,510,769.30 divided into 2,951,076,930 New Shares of par value HK$0.01 each based on the number of shares in issue as at the Latest Practicable Date before taking into account the effect of the cancellation of the Repurchase Shares and assuming there being no change to the issued share capital from the Latest Practicable Date to the date on which the Capital Reorganisation becoming effective.

Based on the 2,951,076,930 Existing Shares currently in issue, before taking into account the effect of the cancellation of the Repurchase Shares and assuming there being no change to the issued share capital of the Company from the Latest Practicable Date to the date on which the Capital Reorganisation becoming effective, the aggregate amount of HK$265,596,923.70 arising from the above Capital Reduction will be applied to set-off the accumulated losses of the Company as of the effective date of the Capital Reduction with the balance (if any) to be transferred to the contributed surplus account of the Company where it may be utilized in accordance with the bye-laws of the Company and all applicable laws. The accumulated losses of the Company stood at approximately HK$183.33 million as at 31 March 2008.

This circular

The purpose of this circular is to provide you with, among other things, further details of the Agreement, financial information relating to the Group and the Remaining Group, the respective letters of advice from the Independent Board Committee and VC Capital, information regarding the proposed change of Company name and proposed capital reorganisation, the notice of the SGM and other information as required under the Listing Rules and the Repurchase Code.

THE AGREEMENT

Date: 15 August 2008

Parties:

Vendor: The Company. Purchaser: PHL, an investment holding company incorporated in the British Virgin Islands with limited liability. PHL is a Substantial Shareholder holding the Repurchase Shares, the Convertible Note and the Promissory Note.

Guarantor: Yam Tak Cheung, the sole beneficial owner of PHL. To the best knowledge of the Company, Mr. Yam is an investor and has no directorship in any listed companies in Hong Kong.

LETTER FROM THE BOARD

Assets to be disposed of:

(i) The Sale Shares, being the entire issued share capital of the Subsidiary. Based on the audited consolidated financial statements of the Company for the year ended 31 March 2008 and for the six months ended 30 September 2008, the consolidated net assets of the Sale Group attributable to the Company as at 31 March 2008 and 30 September 2008 were approximately HK$1,540.5 million and approximately HK$1,490.3 million respectively (each of which has netted off a shareholder’s loan due to the Company of approximately HK$77.6 million as referred to in the next paragraph); and
(ii) The Sale Loan, being the entire amount of the interest-free shareholder’s loan owed by the Sale Group to the Company as at Completion. As at the Latest Practicable Date, the Sale Loan in an aggregate amount of approximately HK$77.6 million comprises two loan amounts, one in the sum of US$9.95 million (equivalent to approximately HK$77.1 million as recorded by the Sale Group) which represents all the debts owed by the Subsidiary to PHL at completion of the 2007 Agreement and had been assigned to the Company pursuant to the 2007 Agreement, and another in the sum of HK$464,456.5 which represents all advances made by the Group to the Sale Group since completion of the 2007 Agreement. It is expected that there will not be any change in the outstanding principal amount of the Sale Loan at Completion from that of the amount as at the Latest Practicable Date.

Consideration

Pursuant to the Agreement, the total Consideration for the Sale Shares and Sale Loan, amounting to HK$1,624,464,456.5, shall be satisfied by PHL at Completion in the following manner:

(i) as to HK$212,000,000 by PHL transferring to the Company the Repurchase Shares for cancellation at a price of HK$0.265 per Share;
(ii) as to HK$320,000,000 by cancellation of the Promissory Note issued by the Company in favour of PHL;
(iii) as to HK$1,092,000,000 by cancellation of the Convertible Note issued by the Company in favour of PHL; and
(iv) as to HK$464,456.5 by payment in cash.

Upon the repurchase of the Repurchase Shares by the Company at Completion, the Repurchase Shares will be cancelled in accordance with the Companies Act.

The Consideration was determined between the Company and PHL after arm’s length negotiations having taken into account (i) the form of consideration received by PHL from the Company when the latter first acquired the Subsidiary from PHL in March 2008, as more particularly described in the paragraph headed “The 2007 Agreement” below; and (ii) the carrying value of the Sale Shares of approximately HK$1,540.5 million (which has netted off a shareholder’s loan due to the Company of approximately HK$77.6 million) as at 31 March 2008 and of the Sale Loan in the books of the Company

LETTER FROM THE BOARD

of approximately HK$77.6 million. Pursuant to the 2007 Agreement, the consideration as agreed between the parties for the Company to acquire the Subsidiary was HK$1,828 million (the “2007 Consideration”) comprising 800,000,000 consideration shares at the agreed value of HK$416 million (which is equivalent to an agreed issue price of HK$0.52 per Share), the Convertible Note in the amount of HK$1,092 million and the Promissory Note in the amount of HK$320 million. However, as disclosed in note 36 to the financial statements set out in the Company’s annual report for the year ended 31 March 2008, the 2007 Consideration was recorded as HK$1,624 million comprising fair value of the consideration shares at HK$212 million (which is equivalent to an issue prices of HK$0.265 per Share), the Convertible Note in the amount of HK$1,092 million and the Promissory Note in the amount of HK$320 million. The difference between the 2007 Consideration and the Consideration is due to: (i) the difference between the issue price of HK$0.52 per Share for the 800,000,000 consideration shares as provided in, and agreed between the parties under, the 2007 Agreement and the ultimate issue price of HK$0.265 per Share as booked in the accounts of the Company based on the fair value of such consideration shares as determined by reference to the market price of the Shares on the completion date of the 2007 Agreement in accordance with the relevant HK GAAP; and (ii) the advances made by the Group to the Sale Group since completion of the 2007 Agreement of HK$464,456.50.

The Repurchase Shares

The Repurchase Shares amount to 800,000,000 Shares were issued by the Company to PHL on 6 March 2008 and represented approximately 27.1% of the issued share capital of the Company as at the Latest Practicable Date. The Repurchase Shares will be transferred to the Company at the price of HK$0.265 per Share and treated as cancelled.

The price of HK$0.265 per Share agreed by the parties represents:-

(i) the issue price of HK$0.265 per Share for the Repurchase Shares as recorded in the books of the Company as disclosed in note 36 to the financial statements contained in the annual report of the Company for the year ended 31 March 2008;
(ii) a premium of approximately 99.2% over the closing price of HK$0.133 per Share as quoted on the Stock Exchange on the Last Full Trading Day;
(iii) a premium of approximately 99.2% over the closing price of HK$0.133 per Share as quoted on the Stock Exchange for the morning trading session on 15 August 2008, prior to suspension of trading in the Shares on the Stock Exchange from 2:30 p.m. on the same date;
(iv) a premium of approximately 88.2% over the average of the closing price of HK$0.1408 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the morning trading session on 15 August 2008 and counting such session as a trading day;
(v) a premium of approximately 77.6% over the average of the closing price of HK$0.1492 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the morning trading session on 15 August 2008 and counting such session as a trading day;

LETTER FROM THE BOARD

(vi) a premium of approximately 15.2% over the audited net asset value per Share attributable to equity shareholders of the Company as at 31 March 2008 of approximately HK$0.23;
(vii) a premium of approximately 47.2% over the audited net asset value per share attributable to equity shareholders of the Company as at 30 September 2008 of approximately HK$0.18; and
(viii) a premium of approximately 341.7% over the closing price of HK$0.06 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

It is intended that the Repurchase Shares are to be repurchased by the Company with effect from the date of Completion together with all rights attached thereto, including any dividends or other distribution declared (if any), on or after the date of Completion.

Promissory Note

The principal terms of the Promissory Note which will be cancelled at Completion are as follows:

Principal amount:	HK$320 million
Maturity:	The business day falling on the fourth anniversary from the date of issue
	of the Promissory Note
Interest rate:	3% per annum on the principal amount payable annually
Security:	Unsecured

The Agreement provides that all the liabilities and obligations of the Company in connection with the whole of the principal amount of the Promissory Note, together with any interest accrued from date of issue up to the date of Completion, will be cancelled and extinguished on cancellation of the Promissory Note.

Convertible Note

The principal terms of the Convertible Note which will be cancelled at Completion are as follows:

Principal amount:	HK$1,092 million
Maturity date:	The business day falling on the fifth anniversary from the date of issue
	of the Convertible Note
Interest:	1.5% per annum on the principal amount outstanding from time to time
	payable annually
Security:	Unsecured

LETTER FROM THE BOARD

Conversion:

The holder of Convertible Note shall have the right to convert at any time from the date of issue up to the maturity date the whole or part of the principal amount of the Convertible Note in integral multiple of HK$500,000 into Shares.

However, the holder of the Convertible Note shall not exercise the conversion rights to such an extent that results or will result in (a) the holder and any person acting in concert with it holding or having more than 29% of the then issued ordinary share capital of the Company or otherwise being obliged to make a general offer for the Shares in accordance with the Takeovers Code or (b) the Company in breach of any provision of the Listing Rules (including the minimum 25% public float requirement).

Initial Conversion The Convertible Note may be converted into Shares at the initial Price: conversion price of HK$0.52 per Share (subject to adjustment).

No part of the principal amount of the Convertible Note has been converted into Shares since the date of issue. The Agreement provides that all the liabilities and obligations of the Company in connection with the whole of the principal amount of the Convertible Note, together with any interest accrued from date of issue up to the date of Completion, will be cancelled and extinguished on cancellation of the Convertible Note.

Conditions precedent

Completion shall be conditional upon the conditions precedent set out below having been satisfied (or where applicable waived):

(i) the necessary approval by the Executive for any off-market share repurchases to be made by the Company pursuant to the Agreement, including (where applicable) the purchase, redemption and cancellation of the Repurchase Shares and Convertible Note, having been granted pursuant to Rule 2 of the Repurchase Code and not revoked prior to Completion and any condition(s) to which such approval is subject having been satisfied in all respects;
(ii) the Shareholders (other than those who are required to abstain from voting under the Listing Rules, the Repurchase Code and the applicable laws, rules and regulations) having passed the necessary special resolution at general meeting of the Company to approve the Agreement and the transactions contemplated in the Agreement, including the purchase, redemption and cancellation of the Repurchase Shares and Convertible Note, in accordance with the requirements of the Listing Rules, the Repurchase Code, the bye-laws of the Company and the applicable laws and regulations; and
(iii) any other approval, consent or authorization (or where applicable the relevant waiver) of any kind required for the entering into and performance of the terms of the Agreement and the transactions contemplated in the Agreement having been obtained by the Company and PHL under the applicable laws and regulations, the Listing Rules and the Repurchase Code.

LETTER FROM THE BOARD

Conditions (i) and (ii) as stated above are not waiveable. In the event that all the conditions are not fulfilled or where applicable waived on or before 31 December 2008 (or such later date as may be agreed by the parties to the Agreement in writing), the Agreement will lapse and terminate and none of the parties shall have claim against the other save for antecedent breach.

The proposed repurchase and cancellation of the Repurchase Shares and Convertible Note (which carries rights to subscribe for Shares) by the Company constitute off-market share repurchases of the Company. Under Rule 2 of the Repurchase Code, off-market share repurchases must be approved by the Executive. The Executive’s approval, if granted, will normally be conditional upon approval of the proposed repurchase by at least three-fourths of the votes cast on a poll by Disinterested Shareholders present in person or by proxy at a general meeting to be held for such purposes. Due compliance with the aforesaid voting requirement on the Agreement will be made by the Company in this regard.

Completion

Completion shall take place on the third business day after the fulfillment or waiver (as applicable) of the conditions precedent to the Agreement or such other date as the parties to the Agreement may agree in writing.

INFORMATION ON THE SALE GROUP

The Subsidiary is an investment holding company wholly-owned by the Company with its only principal asset being the 80% equity interest in the PRC Company. The Subsidiary was incorporated in the British Virgin Islands in August 2007 with limited liability and was beneficially owned by PHL until March 2008 when the Company acquired the Subsidiary from PHL pursuant to the 2007 Agreement. Further information on the 2007 Agreement is set out in the paragraph headed “Background of and reasons for the Agreement” below.

In November 2007, PHL, through the Subsidiary, acquired an 80% equity interest in the PRC Company from the PRC Partner, as a consequence the PRC Company has been converted into a sinoforeign joint venture company owned as to 80% by the Subsidiary and as to 20% by the PRC Partner, which is a villagers autonomous organization (村民自治組織) set up in Haicheng City, Liaoning Province of the PRC. The PRC Company is principally engaged in magnesite mining at the Magnesite Mine which 2 covers a mining area of approximately 0.8643km .

The Company acquired the entire issued share capital of the Subsidiary in March 2008 pursuant to the 2007 Agreement, as a result of which the PRC Company also became an indirect non-wholly-owned subsidiary of the Group. Save for its 20% shareholding in the PRC Company, the PRC Partner is otherwise an Independent Third Party of the Company.

Upon Completion, the Subsidiary and the PRC Company will cease to be a subsidiary of the Company.

LETTER FROM THE BOARD

Set out below is the shareholding structures of the Subsidiary and the PRC Company (i) before the Guarantor, through the Subsidiary, acquired an 80% equity interest in the PRC Company on 9 November 2007; (ii) immediately before the completion of the 2007 Agreement on 6 March 2008; (iii) after completion of the 2007 Agreement and immediately before completion of the Agreement; and (iv) immediately after completion of the Agreement assuming there is no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date:

i) Prior to the acquisition by the Guarantor, through the Subsidiary, of an 80% equity interest in the PRC Company on 9 November 2007:

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PRC Partner
100.0%
PRC Company
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ii) Immediately before completion of the 2007 Agreement on 6 March 2008:

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

Mr. Cheng A Director Other Public
24.7% 3.6% 70.3%
Guarantor
1.4%
100.0%
PHL the Company
100.0%
The
PRC Partner
Subsidiary
80.0% 20.0%
PRC Company
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LETTER FROM THE BOARD

iii) After completion of the 2007 Agreement on 6 March 2008 and immediately before completion of the Agreement:

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Guarantor A Director Other Public
1.0% 100.0%
2.5% 69.4%
PHL
27.1%
the Company
100.0%
The
PRC Partner
Subsidiary
80.0% 20.0%
PRC Company
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iv) Immediately after completion of the Agreement:

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A Director Other Public
3.5% 95.2%
Guarantor
1.3%
100.0%
PHL the Company
100.0%
The
PRC Partner
Subsidiary
80.0% 20.0%
PRC Company
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LETTER FROM THE BOARD

Financial information

Given that the Subsidiary was incorporated on 20 August 2007, no consolidated financial information of the Sale Group for the year ended 31 March 2007 was available. Set out below is the relevant financial information of the Sale Group attributable to the Group for the year ended 31 March 2008 as prepared under HK GAAP as extracted from the consolidated income statements of the subsidiary set out under part C of the accountants’ report of the Group set out in Appendix I to this circular:

	(HK$’000)
Revenue	1,445
Net loss before taxation	8,412
Net loss after taxation	8,421

Revenue represented the revenue generated from the mining and processing of magnesite ore at the Magnesite Mine carried out by the PRC Company and the net loss after taxation of approximately HK$8.4 million was mainly attributable to the amortization of intangible asset (for further details, please see the combined income statement set out in section headed “C. Event after balance sheet date in Appendix I on page I-90 of this circular). As at 31 March 2008 and 30 September 2008, the Sale Group had net assets attributable to the Company of approximately HK$1,540.5 million and approximately HK$1,490.3 million respectively (each of which has netted off a shareholder’s loan due to the Company of approximately HK$77.6 million).

The principal business of the Sale Group is the mining business of the PRC Company. The PRC Company has its financial year end date on 31 December each year. As the Sale Group was acquired by the Company in March 2008, no audited financial information of the PRC Company for the year ended 31 December 2007 was available to the Company and the Company has not conducted any audit on the PRC Company for the year ended 31 December 2007. The audited financial information of the PRC Company as prepared under HK GAAP for the financial year ended 31 December 2006 and for the ten months ended 31 October 2007 as extracted from the Company’s circular dated 6 February 2008 is as follows. For the financial year ended 31 December 2006, the PRC Company recorded audited turnover from the mining and processing of magnesite ore at the Magnesite Mine of approximately RMB4.2 million (equivalent to approximately HK$4.7 million) and loss before taxation of approximately RMB23,000 (equivalent to approximately HK$26,000). There was no taxation for the PRC Company for the year ended 31 December 2006. For the ten months ended 31 October 2007, the PRC Company recorded audited turnover from the mining and processing of magnesite ore at the Magnesite Mine of approximately RMB7.4 million (equivalent to approximately HK$8.2 million), profit before taxation of approximately RMB1.6 million (equivalent to approximately HK$1.8 million) and profit after taxation of approximately RMB1.1 million (equivalent to approximately HK$1.2 million).

LETTER FROM THE BOARD

BACKGROUND OF AND REASONS FOR THE AGREEMENT

The 2007 Agreement

On 7 December 2007, the Company, PHL and the Guarantor entered into the 2007 Agreement pursuant to which PHL agreed to sell and the Company agreed to acquire all the interests of PHL in the Subsidiary, including all the issued share capital of the Subsidiary (as represented by the Sale Shares) and all the debt owed by the Subsidiary to PHL at completion of the 2007 Agreement, for a total consideration of HK$1,828 million. Such acquisition under the 2007 Agreement constituted a very substantial acquisition for the Company under the Listing Rules. The terms of the 2007 Agreement, including but not limited to the consideration amount, were determined by the parties on arm’s length basis, with reference to, among other things, the inferred magnesite resources of the Magnesite Mine of approximately 27.6 million tonnes. Details of the 2007 Agreement were set out in the circular dated 6 February 2008 of the Company to the Shareholders. Completion of the 2007 Agreement took place on 6 March 2008, upon which the Company satisfied payment of the 2007 Consideration for the said acquisition in the manner as agreed in the 2007 Agreement as follows:

(i) as to HK$416 million by the issue of 800,000,000 new Shares to PHL;
(ii) as to HK$320 million by the issue of the Promissory Note to PHL at 100% of its face value; and
(iii) as to HK$1,092 million by the issue of the Convertible Note to PHL at 100% of its face value.

The Repurchase Shares, the Promissory Note and the Convertible Note that are subject to the Agreement are the same securities issued to PHL by the Company at completion of the 2007 Agreement.

Recent development

Following completion of the 2007 Agreement, apart from the subsequent appointment of a chief operating officer and finance and accounting personnel to the PRC Company to represent the Company’s interest and to oversee the day-to-day operation and financial management functions of the PRC Company, the Company has largely maintained the same operating team and workforce of the PRC Company as before with a view of ensuring smooth transition over the period when change in control and management took place.

In mid July 2008, the PRC Company encountered some interruption in its operation of the Magnesite Mine. A number of villagers gathered around the work places on the Magnesite Mine and blocked the pathways to the Magnesite Mine site, causing disturbance to the progress of the work on the Magnesite Mine. In August 2008, the interruption to the day to day operation of the PRC Company has been accelerated and the mining operation of the PRC Company has been halted on several occasions as the operating mining site of the PRC Company was occupied by a large disorderly crowd of about 300 people unrelated to the PRC Company, which has caused serious interruption to the operation of the PRC Company and its management.

LETTER FROM THE BOARD

The Company was unable to identify (and is not in a position to speculate) those person or persons who organized the initial interruptions and the subsequent acceleration of the interruption. Based on the information available to the management of the Company, the interruptions could be linked to a dispute (the “Dispute”) between the Guarantor, the sole beneficial owner of the Purchaser, and a former representative of the PRC Partner (“Party A”), who is an Independent Third Party, over a sum of money in the amount below HK$10 million. The Dispute was followed by some rumours spreading locally among the villagers against the Guarantor that he has made windfall profit on disposing his 80% equity interest in the PRC Company to the Company pursuant to the 2007 Agreement. The Company has sought legal advice on the matter and is advised that the Dispute would not affect the validity and legality of the Subsidiary’s shareholding interest in the PRC Company, nor would the Dispute affect the Subsidiary’s rights and interests in the PRC Company. The Directors were also informed by the Guarantor that he is seeking legal advice on the appropriate actions to resolve the Dispute.

The Directors understand that the local authorities have been notified of the incident and the local authorities have already been involved in settling the Dispute. Despite this, the Dispute is yet to be resolved and the Directors are not in a position to assess the outcome of any solution to the Dispute. Given that the Dispute is now being dealt with by the local authorities and the Company is not directly involved in nor privy to the Dispute at all, the Company is not able to disclose further details about the Dispute. Furthermore, the Company has no direct and solid evidence of the matters being disputed and allegations of the parties in the Dispute. As advised by the Company’s legal adviser, in the absence of such evidence, if the Company were to disclose the related matters to the public and the Directors were to authorize such disclosure, both the Company and the Directors could be inadvertently exposed to legal liabilities directly in case the disclosures are found to be defamatory. Since the Subsidiary was recently acquired by the Company in March 2008, the Board does not wish to get involved in the Dispute which involves matters between the Guarantor, the PRC Partner and Party A only. The Company considers the matter would not be within the Company’s ability to help or to end.

The Company has sent its senior management personnel to the Magnesite Mine site on a weekly basis to physically inspect the disorderly situation. The senior management has tried to resolve the interruption by requesting the crowd to leave the site and reporting the interruption to the local police bureau but finds that the situation is beyond the Company’s control or ability to resolve as explained above. Considering the factors including (i) the current disorderly situation on the Magnesite Mine as caused by the crowd gatherings on site, which has resulted in the operation of the Magnesite Mine coming to a halt; (ii) the Company is not directly involved in the Dispute and therefore is not in a position to assess when and how the interruption would end or be settled, and what the effect of the interruption, financially and otherwise, to the future operation of the Magnesite Mine would be; (iii) the Magnesite Mine operates in a small township of population of around 80,000 people and the operation relies on the support of the local people. In the circumstances, the hostility of the local people may have profound adverse impact on the future relationships between the PRC Company and the local people and local authorities and on the operation of the PRC Company in the future. The Company is apprehensive that it is not in a position to control or contain the risk of damages and its management does not have the confidence in continuing its joint venture partnership in the PRC Company; (iv) the unsettled conditions of the PRC Company would make it very difficult for the Company to carry out full speed fund raising activities to fulfill its investment intention of US$100 million in the PRC Company as originally planned given the current capital market condition; (v) the fact that the Company has only made small advances of HK$464,456.5 in total to the Sale Group since completion of the 2007 Agreement as the operation of the

LETTER FROM THE BOARD

Sale Group has largely been self-sufficient to-date, and PHL agrees to take up the assignment of the said advances from the Company under the Agreement. In this case, the Company will not suffer any loss on having made these advances to the Subsidiary before the entering into of the Agreement; and (vi) PHL has agreed to buy back the Sale Group at cost to the Company, the Directors consider that it would be in the interests of the Company to effectively cancel the 2007 Agreement and sell back all its interests in the Sale Group to PHL in order to protect the Company from any losses that it may suffer as a result of a prolonged suspension in operation of the PRC Company due to disturbances beyond the control of the Group.

Since the date of the Announcement and up to the Latest Practicable Date, the operation of the PRC Company has remained suspended as there are still some on-and-off groups of people gathering around the Magnesite Mine site. The PRC Company has tried to resume the operation for a number of times but each time when it attempted to do so, there would come a crowd of local people gathering on the Magnesite Mine site causing normal operation impossible to commence. In view of this, the management determinies not to resume operation until the situation is considered safe enough for its people working on the Magnesite Mine. The Directors consider that it is prudent for the PRC Company not to resume its mining operation unless safety on site is ensured.

The Company has not expected the kind of unrest happening at the Magnestic Mine to occur to the Group’s business, which has seriously affected the business plan of the Group. The Company had agreed to acquire the indirect 80% interest in the PRC Company with a view to commencing a new business in the magnesite mining industry. The Company had decided to pursue the business of the PRC Company on the mutual belief and expectation with the Guarantor that its operation would continue in its ordinary and usual course of business in the same manner as before the Company entering into of the 2007 Agreement. To this end and for the purpose of ensuring the least interruption to the normal operation of the PRC Company that might otherwise be caused by the change of control, the Company has largely maintained the same operating team and workforce of the PRC Company that were established by the PRC Party before. During its due diligence process on the PRC Company for the purpose of the 2007 Agreement, at the various meetings, between the Company, the Guarantor and the Haicheng City Government officials, the Company and its management were given to understand from the local officials that the local authorities will render full support to the Company in its investment in the Magnesite Mine operation. However, it appears that the mutual expectation of the Company and the Guarantor of a smooth operation of the Magnesite Mine post 2007 Agreement is not forthcoming, and the local authorities are yet to be seen to take necessary actions to dispense the crowd gathering at the Magnesite Mine Site, the unrest has made it difficult for the Company to embark on the business of the PRC Company in magnesite mining, and the Company is not able to restore with any confidence the operation of the Magnesite Mine back to normal without the co-operation of the local people. As the PRC Company is not able to command normal operation in the midst of the unrest at the Magnesite Mine, a potential loss on investment by the Company would ensue if the Company does not take immediate action to contain the risk and damages. In the circumstances, the Company approached PHL to unwind the 2007 Agreement. At the request of the Company, PHL and the Guarantor have agreed to effectively cancel the 2007 Agreement, whereby the Sale Shares and the Sale Loan will be transferred back to PHL, and PHL will surrender the Repurchase Shares, the Convertible Note and the Promissory Note to the Company for cancellation and discharge at Completion.

LETTER FROM THE BOARD

In coming to the decision on the Agreement, the Directors have also considered other possible options including keeping its interest in the PRC Company, or selling its interest in the PRC Company to independent third parties. The Directors have come to the view that the Disposal would be the best alternative as the disorderly situation surrounding the Magnesite Mine could possibly last over a prolong period. If the Dispute cannot be resolved within a short period of time, this would adversely affect the fair value of the Company’s interest in the PRC Company. Completion of the Agreement will effectively restore the business and operation of the Group to the same position as before completion of the 2007 Agreement. As the Consideration for the Agreement is at a premium over the carrying value of the Sale Shares and the Sale Loan in the books of the Company as at 30 September 2008, it is expected that the Company would record a gain on disposal of the Subsidiary as a result of the Completion. The financial effects of the Disposal are more particularly discussed in the paragraph headed “Financial effects of the Agreement” below.

As stated in the Company’s circular dated 6 February 2008, at the time of the entering into of the 2007 Agreement, the Directors had considered that the magnesite mining industry in the PRC has good business potential and the acquisition would enable the Group to participate in the industry and broaden the Group’s revenue base by diversifying into the mining and processing of magnesite ore, after having taken into consideration the factors including (i) the PRC is the largest magnesia refractory producer and exporter in the world and has the world’s largest reserves of magnesite resources; (ii) Haicheng City of Liaoning Province contains the largest resources of magnesite in the PRC; (iii) the selling price of the magnesite ore and the magnesia refractory products have been on an upward trend spurred by rising demand in recent years; and (iv) demand for electrically-fused granular powder, sintered magnesite powder, magnesium oxide slagging ball and magnesium oxide dolomite sand in the PRC has been strong due to fast development of the steel industry in the PRC. It was planned that the PRC Company would construct and install new facilities and infrastructure for the processing of magnesite ore mined at the Magnesite Mine to produce such products. To this end, the Board had, in conjunction with its professional parties including financial adviser, Hong Kong and PRC legal advisers, performed necessary due diligence on the acquisition which included, among other things, reviewing the financial information of the Subsidiary and the PRC Company, conducting legal due diligence on the Subsidiary and the PRC Company, reviewing the technical report of the Magnesite Mine, and performing research on the prospects of the magnesite mining industry.

As the interruption did not occur until recently, the Company could not have been aware of the matter during its due diligence on the magnesite mining industry or the PRC Company. The change in circumstances is entirely beyond the Board’s expectation. Given that the Guarantor is willing to effectively cancel the 2007 Agreement with the Company by taking back the Sale Shares and the Sale Loan at cost to the Company and that a gain on disposal is expected to be recorded by the Company on the Disposal, in order to safeguard the Group’s position, the Board considers that it would be the best alternative for the Company to minimize the damages which may cause to the Group by disposing of its interest in the Subsidiary. In coming to the decision on the Disposal, the Board has acted honestly and in good faith in the interest of the Company as a whole in compliance with Rule 3.08 of the Listing Rules.

The executive Directors consider that the terms and conditions of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and that Agreement is in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

The Independent Board Committee has considered the respective terms and conditions of the Agreement and the advice given by VC Capital, and is of the opinion that the terms and conditions of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and that the entering into of the Agreement is in the interest of the Company and the Shareholders as a whole. Please refer to the letter from the Independent Board Committee set out on page 30 of this circular for details of its advice to the Disinterested Shareholders.

VALUATION ON THE MINING RIGHT

In compliance with Rule 14A.59(6) of the Listing Rules, the Company has engaged Asset Appraisal Limited, an independent firm of valuers, to carry out a valuation on the mining rights held by the PRC Company in respect of the Magnesite Mine. The valuer has valued such mining rights at RMB1,135,000,000 (equivalent to approximately HK$1,261.1 million) as at 30 September 2008. In arriving at such valuation, the valuer has applied the income approach with the use of the discounted cash flow method under which, value depends on the present worth of future economic benefits to be derived from ownership of the mining rights. Details of the valuation methodology and assumptions are listed out in the valuation report in Appendix III to this circular.

The Directors are aware that the valuation shall be regarded as a profit forecast of the Group under the Listing Rules and the Takeovers Code. Based on the information available to the Directors following the discussion with the valuer, the Directors consider that the valuation has been made after due care and consideration.

CCIF CPA Limited, the Company’s auditors, have reviewed the arithmetical accuracy of the calculations of the cashflow forecast (the “Underlying Forecast”) underlying the valuation prepared by the management of the Company for the purpose of the valuation of the mining rights. Based on their review, so far as the arithmetical accuracy of the calculations are concerned, the Underlying Forecast has been properly compiled in accordance with the assumptions made by the management of the Company. A copy of the letter from CCIF CPA Limited in relation to the aforesaid is set out in Appendix IV to this circular.

Optima Capital Limited, the Company’s financial adviser, after discussion with the management of the Company and Asset Appraisal Limited regarding the basis and assumptions of the valuation and the Underlying Forecast and reviewing the letter issued by CCIF CPA Limited as set out in Appendix IV to this circular, is of the opinion that the Underlying Forecast, for which the management of the Company is solely responsible, has been made after due care and consideration. A copy of Optima Capital Limited’s letter is reproduced in Appendix IV to this circular

FINANCIAL EFFECTS OF THE AGREEMENT

As illustrated in the unaudited pro forma financial information of the Remaining Group set out in Appendix II to this circular, based on (i) the net asset value of the Sale Group as at 30 September 2008 of approximately 1,490.3 million (which has netted off a shareholder’s loan due by the Sale Group to the Company of approximately HK$77.6 million); (ii) the aggregate principal amount of the Sale Loan as at the Latest Practicable Date of approximately HK$77.6 million; and (iii) the book value of the Consideration as at 30 September 2008 of approximately HK$1,648.1 million (which comprised Repurchased Shares of HK$212.0 million, liability component of the Convertible Note of HK$878.8 million, equity component of the Convertible Note of HK$236.8 million, Promissory Note of HK$320.0 million and cash of HK$464,456.5), it is expected that the Company may record a gain of approximately HK$80.2 million as a result of the Disposal, before expenses. The aforesaid estimated gain has been

LETTER FROM THE BOARD

arrived at without taking into account the estimated expenses to be incurred in relation to the Agreement of approximately HK$4.3 million or the implication of any fair value adjustment, if any, to the value of the Repurchase Shares and Convertible Note on the date of Completion as may be required in accordance with the HK GAAP.

Based on the pro forma financial information of the Remaining Group as set out in Appendix II to this circular, subsequent to the completion of the Agreement and the transactions contemplated therein, including the repurchase and cancellation of the Repurchase Shares, the Convertible Note and the Promissory Note, the total consolidated net assets attributable to equity shareholders of the Company would decrease from approximately HK$516.8 million as at 30 September 2008 to approximately HK$148.2 million on the assumption that the Disposal has taken place on 30 September 2008. Such decrease in total consolidated net assets attributable to equity shareholder of the Company was principally due to the reduction in the share capital and reserve amounts as resulted from the cancellation of Repurchase Shares of approximately HK$212 million and the equity portion of the Convertible Note of approximately HK$236.8 million offset against the estimated gain on Disposal of approximately HK$80.2 million. The net asset value per Share attributable to equity shareholders of the Company would decrease from approximately HK$0.18 per Share as at 30 September 2008 (based on 2,951,077,000 Shares in issued) to approximately HK$0.07 per Share (based on 2,151,077,000 Shares then in issued after the cancellation of the Repurchased Shares) immediately after Completion. The total assets would decrease from HK$2,193.1 million to HK$227.5 million and the total liabilities would decrease from HK$1,275.3 million to HK$70.1 million.

As shown in the audited consolidated income statements of the Sale Group set out in section headed “C. Event after balance sheet date” contained in Appendix I to this circular, the Sale Group contributed turnover of about HK$1.4 million to the Group’s total turnover for the year ended 31 March 2008. The loss from operation of the Sale Group attributable to the Group amounted to approximately HK$8.4 million, which was largely attributable to an operating expense of approximately HK$10.6 million, representing the amortization of intangible asset of the mining right held by the PRC Company. As illustrated in the unaudited pro forma income statement contained in Appendix II to this circular which was prepared to illustrate the pro forma results of the Remaining Group, the consolidated loss attributable to equity shareholders of the Company would decrease from approximately HK$112.9 million for the year ended 31 March 2008 to approximately HK$104.6 million, and the loss per share would increase from HK$0.04 per Share (based on 2,951,077,000 Shares in issue) to approximately HK$0.05 per Share (based on 2,151,077,000 Shares then in issued after the cancellation of the Repurchase Share) after adjusting mainly for the exclusion of the revenue, cost and expenses generated from the operation of the Sale Group but before taking into account of the possible gain on disposal of approximately HK$80.2 million as mentioned above.

As the Sale Group has not made much contribution to the turnover of the Group after it has become a member of the Group on 6 March 2008, Completion would not have any material effect on the turnover of the Group. There will also be no further charges on amortization of intangible asset for the Group’s accounts following Completion. The estimated professional expenses to be incurred in relation to the Agreement of approximately HK$4.3 million will be recorded as administrative expenses of the Company for the year ended 31 March 2009. Such amount of expenses equals to approximately 3.7% of the total net loss of the Group for the year ended 31 March 2008 of approximately HK$114.7 million. The Directors consider such expenses amount not material. Save for the aforesaid professional expenses and the possible gain on disposal as mentioned above, it is not expected that completion of the Agreement and the transactions contemplated therein, including the Securities Repurchase would have any material effect on the results of the Group for the financial year ending 31 March 2009.

LETTER FROM THE BOARD

The cash portion of the Consideration is insignificant. As the Subsidiary has become a member of the Group for only a few months, the operation of the Sale Group remains to be on a relatively small scale, pending completion of the business and operational review by the management of the Sale Group before a detailed business plan was to be approved for implementation. In the circumstances, the working capital requirements of the Sale Group have not been significant to the Group. Taking the above together, the Directors are of the view that Completion of the Agreement would not have any material impact on the working capital of the Group.

In view of the fact that the Company had audited consolidated cash and cash equivalents of approximately HK$80.9 million and audited consolidated net current assets of approximately HK$164.7 million as at 30 September 2008, the payment of the professional expenses to be incurred in relation to the Agreement would not have any material impact on the Company’s working capital position.

The Company had incurred professional fees and other expenses related and incidental to the 2007 Agreement of approximately HK$8.1 million which was recorded as administrative expenses for the year ended 31 March 2008 and equaled to approximately 7.1% of the total net loss of the Group for the year ended 31 March 2008 of approximately HK$114.7 million. The Company considers such expenses amount not material.

USE OF PROCEEDS

Nearly all of the Consideration will be settled by way of the repurchase or redemption (as the case may be) and cancellation of the Repurchase Shares, the Promissory Note and the Convertible Note. The cash portion of the Consideration amounts to a mere sum of HK$464,456.5, which will be used for general working capital of the Remaining Group.

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

The following table sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the Completion assuming there will be no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date up to the date of Completion.

PHL and parties acting in concert with it PHL The Guarantor Subtotal Ms. Chung Oi Ling, Stella_(Note)_ Public Total	As at the Latest Practicable Date Shares % 800,000,000 27.1 28,500,000 1.0 828,500,000 28.1 75,000,000 2.5 2,047,576,930 69.4 2,951,076,930 100.0	Immediately after Completion Shares % 0 0.0 28,500,000 1.3 28,500,000 1.3 75,000,000 3.5 2,047,576,930 95.2 2,151,076,930 100.0	Immediately after Completion Shares % 0 0.0 28,500,000 1.3 28,500,000 1.3 75,000,000 3.5 2,047,576,930 95.2 2,151,076,930 100.0
			1.3 3.5 95.2
			100.0

Note: An executive Director of the Company.

LETTER FROM THE BOARD

The Repurchase Shares purchased by the Company upon Completion will be treated as cancelled. As a result of this, the number of Shares in issue following the Securities Repurchase will be reduced from 2,951,076,930 (being the number of Shares currently in issue) to 2,151,076,930. PHL will hold no more Shares. The Guarantor personally holds 28,500,000 Shares representing approximately 1.0% of the existing issued share capital of the Company. His Shares will not be affected by the cancellation of the Repurchase Shares save for a corresponding change in the percentage shareholding, like all the other Shareholders except PHL. All Shareholders’ (except PHL’s) percentage shareholding in the Company will be proportionately increased by approximately 37.2% as a result of the cancellation of the Repurchase Shares. Based on the SFO register maintained by the Company as at the Latest Practicable Date, the Directors are not aware of any person or group of persons acting in concert who, as a result of the Completion, will become obliged to make a general offer for all the issued Shares of the Company. Not less than 25% of the issued Shares will remain in public hands following Completion. On this basis, the Company will continue to meet the public float requirements of Rule 8.08 of the Listing Rules.

The Company has not repurchased any Shares (whether on the Stock Exchange or otherwise) in the Relevant Period.

PHL and parties acting in concert with it have not dealt for value in any of the Shares in the Relevant Period, except for the allotment and issue of 800,000,000 new Shares (which are the same Shares as the Repurchase Shares under the Agreement) to PHL by the Company as a result of completion of the 2007 Agreement.

PROPOSED CHANGE OF NAME OF THE COMPANY

The Company is an investment holding company. The business of the Group comprises three business segments: building materials supply and installation, property development and magnesite mining. Following Completion, the Group will cease to have any business interests in magnesite mining, but will continue to look for other opportunities to diversify its business. Given the Agreement, the Directors propose to change the name of the Company from “Magnesium Resources Corporation of China Limited” to “Bright Prosperous Holdings Limited”. The proposed change of the Company’s name is subject to passing of a special resolution by the Shareholders at the SGM and the issue of the relevant certificate of incorporation with regard to the change of name by the Registrar of Companies in Bermuda to the Company evidencing such change. However, the proposed change of name is not subject to completion of the Agreement. In other words, whether or not the Agreement is completed in accordance with the terms of the Agreement, the Company will proceed to the name change as long as the conditions precedent to the proposed name change are fulfilled in due course. In the event that the Agreement cannot become unconditional and is not completed eventually, the Directors will duly assess the situation surrounding the PRC Company at the relevant time and then formulate the most appropriate plan regarding its investment in the PRC Company. Upon the change of name becoming effective, the Company will adopt the new Chinese name “晉盈控股有限公司” in replacement of “中國鎂業資源集團有限公司” for identification purposes only. The Company will issue a further announcement in relation to the change of the stock short name.

Completion of the Agreement is conditional on the fulfillment (or waiver, if applicable) of all conditions precedent, the Agreement therefore may or may not be completed in accordance with the terms of the Agreement. Notwithstanding this, the Board considers it to be in the interests of the Company and its Shareholders as a whole to effect the change of name in order not to restrict the emphasis of the business scope of the Group to magnesite resources only.

LETTER FROM THE BOARD

The proposed change of the Company’s name will not affect any of the rights of the Shareholders. All existing Share certificates in issue bearing the present name of the Company will continue to be evidence of title to the Shares and will be valid for trading, settlement and registration purposes after the proposed change of name of the Company becoming effective. Accordingly, there will not be any arrangement for free exchange of existing Share certificates for new Share certificates under the Company’s new name. Any issue of Share certificates thereafter will be under the new name of the Company.

PROPOSED CAPITAL REORGANISATION

The Board proposes to put forward a proposal for approval by the Shareholders to effect the Capital Reorganisation which involves:

(i) Capital Reduction: the par value of each Existing Share will be reduced from HK$0.10 to HK$0.01 by the cancellation of HK$0.09 of the paid-up capital on each Existing Share;
(ii) Sub-division: each of the authorised but unissued Shares in the share capital of the Company of par value HK$0.10 shall be sub-divided into 10 New shares of par value HK$0.01 each; and
(iii) Diminution of Authorised Share Capital: immediately following the Capital Reduction and the Sub-division, the authorised share capital of the Company shall be diminished from HK$1,000,000,000 to HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each by the cancellation of 90,000,000,000 New Shares of par value HK0.01 each in the authorised but unissued share capital of the Company.

Based on the 2,951,076,930 Existing Shares currently in issue, a credit of HK$265,596,923.7 will arise from the Capital Reduction and will be applied to set-off the accumulated losses of the Company as of the effective date of the Capital Reduction with the balance (if any) to be transferred to the contributed surplus account of the Company where it may be utilized in accordance with the bye-laws of the Company and all applicable laws. The accumulated losses of the Company stood at approximately HK$183.3 million as at 31 March 2008.

The Directors consider that, other than the expenses relating to the Capital Reorganisation, implementation of the Capital Reorganisation will not, of itself, affect the underlying assets, liabilities, business operations, management operations and financial position of the Company, or the interests or rights of the Shareholders. The Board believes that the Capital Reorganisation will not have any adverse effect on the financial position of the Group.

LETTER FROM THE BOARD

Set out below is a table illustrating the information in respect of the authorised share capital, issued share capital, accumulated losses and contributed surplus account of the Company before and after the Capital Reorganisation (but before taking into account of the effect of cancellation of the Repurchase Shares) based on the audited accumulated losses and contributed surplus account of the Company for the year ended 31 March 2008 and assuming there will be no change to the issued share capital of the Company from the date of this announcement to the effective date of the Capital Reorganisation:

	Authorised			Contributed
	share capital	Issued share capital	Accumulated losses	surplus account
Before Capital	HK$1,000,000,000	HK$295,107,693	HK$183,332,000	HK$60,733,000
Reorganisation	divided into	divided into
	10,000,000,000	2,951,076,930
	Existing Shares of	Existing Shares of
	par value HK$0.10 each	par value HK$0.10 each
After Capital	HK$100,000,000	HK$29,510,769.30	–	HK$142,997,923
Reorganisation	divided into	divided into
	10,000,000,000	2,951,076,930
	New Shares of par	New Shares of par
	value HK$0.01 each	value HK$0.01 each

Conditions of the Capital Reorganisation

The Capital Reorganisation is subject to the following conditions:

(i) the passing of the necessary resolution(s) by the Shareholders to approve the Capital Reorganisation at the SGM;
(ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New Shares; and
(iii) publication of a notice in relation to the Capital Reorganisation in an appointed newspaper in Bermuda in accordance with the Companies Act 1981 of Bermuda.

The Capital Reorganisation will become effective on the 5th business day immediately after all the above conditions have been duly fulfilled. The expected date of the Capital Reorganisation to become effective is 30 December 2008. Further announcement will be made by the Company once all the above conditions have been duly fulfilled and the Company will announce the first day of trading in the New Shares well in advance.

LETTER FROM THE BOARD

Reasons for the Capital Reorganisation

Since the Shares have recently been trading at below their nominal value and the Company is not permitted under the laws of Bermuda to issue new Shares below their nominal value, the Board believes that the Capital Reorganisation will give greater flexibility to the Company to raise funds through the issue of new Shares in the future should the market price of the Shares still remain below their current nominal value. The Existing Shares of nominal value HK$0.10 each represents:

(i) an approximately 53.85% premium over the closing price of HK$0.0650 per Existing Share on 18 November 2008 (being the last trading day for the Existing Shares prior to the date of the announcement of the Company in relation to the proposed Capital Reorganisation);
(ii) an approximately 52.44% premium over the average of closing prices of the Existing Shares of HK$0.0656 as quoted on the Stock Exchange for the 10 trading days up to and including 18 November 2008; and
(iii) an approximately 47.71% premium over the average of closing prices of the Existing Shares of HK$0.0677 as quoted on the Stock Exchange for the 30 trading days up to and including 18 November 2008.

In addition, the Company can apply the credit arising from the Capital Reduction to offset the accumulated losses of the Company. As advised by the Bermuda counsel to the Company, no amendment to the bye-laws of the Company is required regarding the Capital Reorganisation. Therefore, the Board considers that the Capital Reorganisation is in the interests of the Company and the Shareholders as a whole.

APPLICATION FOR LISTING OF THE NEW SHARES

As at the date of this circular, an application has been made by the Company to the Listing Committee of the Stock Exchange for the grant of the listing of, and permission to deal in, the New Shares to be issued forthwith upon the Capital Reorganisation becoming effective.

REGULATORY REQUIREMENTS

Repurchase Code

The Securities Repurchase constitutes an off-market share repurchase by the Company under the Repurchase Code. The Company has made an application to the Executive for approval of the Securities Repurchase pursuant to Rule 2 of the Repurchase Code. The Executive’s approval, if granted, will normally be conditional upon, among other things, approval of the Securities Repurchase by at least three-fourths of the votes cast on a poll by the Disinterested Shareholders present in person or by proxy at a meeting to be held for such purposes.

As approval of the Executive of the Securities Repurchase is a condition of the Agreement, the Company will not proceed to Completion unless the Executive approves the Securities Repurchase pursuant to Rule 2 of the Repurchase Code. However, there is no assurance that such approval will be granted or that all the conditions precedent to the Agreement will be fulfilled (or where applicable, waived).

LETTER FROM THE BOARD

Listing Rules

Voting

By reason of the requirements of the Repurchase Code and the Listing Rules described above, all parties who are interested in the Agreement are required to abstain from voting in respect of the necessary resolution to be proposed at the SGM concerning the Agreement. Accordingly, PHL, its associates (including the Guarantor) and parties acting in concert with it, who together held 828,500,000 Shares (representing approximately 28.1% of the existing issued share capital of the Company) as at the Latest Practicable Date, will abstain from voting in respect of the resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder. To the best of the knowledge of the Directors after having made all enquiries, save for PHL, its associates (including the Guarantor) and parties acting in concert with it, there are no other persons who are interested in the Agreement and held any Shares as at the Latest Practicable Date.

As for the proposal on the name change and the Capital Reorganisation, no shareholders are required to abstain from voting in respect of the resolutions regarding the change of name of the Company and the Capital Reorganisation.

THE SGM

The SGM will be held at Boardroom 5, G/F, Renaissance Harbour View Hotel. No.1 Harbour Road, Wanchai, Hong Kong on Friday, 19 December 2008 at 10:30 a.m. to consider and, if thought fit, approve, the necessary special resolutions regarding the Agreement, the proposed change of name of the Company and the proposed Capital Reorganisation.

A notice convening the SGM is set out on pages SGM-1 to SGM-3 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Tengis 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 SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjournment meeting thereof if you so wish.

LETTER FROM THE BOARD

RECOMMENDATIONS

The proposed change of Company’s name

Based on the reasons set out in the paragraph headed “Proposed change of name of the Company” above, the Board considers that the proposed change of Company name is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the special resolution no. 1 to be put forward to the Shareholders at the SGM to consider and, if thought fit, approve the proposed change of the Company name.

The proposed Capital Reorganisation

Based on the reasons for the Capital Reorganisation set out in the paragraph headed “Proposed Capital Reorganisation” above, the Board considers that the proposed Capital Reorganisation is in the interests of the Company and the Shareholders as a whole. Accordingly the Board recommends the Shareholders to vote in favour of the special resolution no. 2 to be put forward to the Shareholders at the SGM to consider and, if thought fit, approve the proposed Capital Reorganisation.

The Agreement

A letter from VC Capital containing its advice to the Independent Board Committee and the Disinterested Shareholders regarding the terms of the Agreement is set out on pages 31 to 39 of this circular. A letter from the Independent Board Committee to the Disinterested Shareholders in this regard is set out on pages 30 of this circular. After taking into account the view of VC Capital that the terms of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and the Disposal is in the interest of the Company and the Shareholders as a whole, the Independent Board Committee is of the view that the terms of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and that the Disposal is in the interests of the Company and the Shareholders as a whole and recommend the Disinterested Shareholders to vote in favour of the special resolution no. 3 to be put forward to the Disinterested Shareholders at the SGM to consider and, if thought fit, approve the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter from VC Capital, and the additional information set out in the appendices to this circular.

Yours faithfully,

For and on behalf of the Board

Magnesium Resources Corporation of China Limited Teoh Tean Chai, Anthony Executive Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Bermuda with limited liability)

(Stock Code: 723)

26 November 2008

To the Disinterested Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES

We refer to the circular of the Company dated 26 November 2008 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

We have been appointed by the Board as members of the Independent Board Committee and to advise the Disinterested Shareholders as to whether the terms of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and whether the entering into of the Agreement is in the interests of the Company and its Shareholders as a whole. Details of which are set out in the letter from the Board contained in the Circular.

VC Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Disinterested Shareholders regarding the fairness and reasonableness of the Agreement. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 31 to 39 of the Circular.

Having considered the advice of VC Capital set out on pages 31 to 39 of the Circular, we are of the opinion that the terms of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and that the Disposal is in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Disinterested Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

Yours faithfully,

Independent Board Committee Magnesium Resources Corporation of China Limited Mr. Lo Chi Ho, William Mr. Chu Kin Wang, Peleus Ms. Lau Wa Chun Independent Independent Independent Non-executive Director Non-executive Director Non-executive Director

LETTER FROM VC CAPITAL

The following is the text of a letter of advice for VC Capital to the Independent Board Committee and the Disinterested Shareholders in connection with the Disposal, which has been prepared for the purpose of incorporation into this circular.

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26 November 2008

To the Independent Board Committee and

the Disinterested Shareholders of
Magnesium Resources Corporation of China Limited

Dear Sir or Madam,

Very Substantial Disposal and Connected Transaction involving the Proposed Disposal of a Magnesite Mining Subsidiary and Off-market Repurchase of Shares

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Disinterested Shareholders in respect of the proposed transactions contemplated under the Agreement entered into between PHL, the Guarantor and the Company, details of which are set out in the letter from the Board contained in the circular of the Company dated 26 November 2008 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

The transactions contemplated under the Agreement constitute a very substantial disposal and connected transaction (by virtue of PHL being a Substantial Shareholder) for the Company under the Listing Rules and is therefore subject to the approval by the Disinterested Shareholders by way of poll at the SGM. At the SGM, PHL, its associates (including the Guarantor) and parties acting in concert with it, who together held 828,500,000 Shares (representing approximately 28.1% of the existing issued share capital of the Company) as at the Latest Practicable Date, will abstain from voting in respect of the resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder. The Independent Board Committee has been formed by the Company, comprising Mr. Lo Chi Ho, William, Mr. Chu Kin Wang, Peleus and Ms. Lau Wa Chun, being all the independent non-executive Directors who are considered independent in respect of the transactions contemplated under the Agreement, to advise the Disinterested Shareholders on the Agreement, including the Disposal and the Securities Repurchase, and the action(s) they should take in response to it.

In our capacity as the independent financial adviser to the Independent Board Committee and the Disinterested Shareholders, our role is to give an independent opinion as to whether the transactions contemplated under the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned and whether they are in the interests of the Company and the Shareholders as a whole.

LETTER FROM VC CAPITAL

VC Capital Limited (“ VC Capital ”) is not associated with the Company and its Substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them and, accordingly, is considered eligible to give independent advice on the terms of the Agreement. Apart from normal professional fees payable to us in connection with this engagement, no arrangement exists whereby VC Capital will receive any fees or benefits from the Company or its Substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them.

In formulating our opinion, we have relied on the information and facts supplied and the opinions expressed by the executive Directors and senior management of the Group. We have also assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were prepared or made and will continue to be so up to the date of the SGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations made to us by the executive Directors and senior management of the Group. We have also been advised by the executive Directors that no material facts have been omitted from the Circular and the information provided to us.

We consider we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for advice and have taken reasonable steps as required under Rule 13.80 of the Listing Rules in forming our opinion. We have not, however, conducted any independent investigation into the business and affairs or the future prospects of the Group, nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms of the Agreement and transactions contemplated thereunder are fair and reasonable so far as the Disinterested Shareholders are concerned, and whether they are in the interests of the Company and the Shareholders as a whole, we have taken into account the following principal factors and reasons:

1. Background information

The Agreement was entered into between PHL, the Guarantor and the Company on 15 August 2008 in relation to the disposal of the Sale Shares and the Sale Loan at a consideration of approximately HK$1,624 million. Upon the Completion, the Subsidiary and the PRC Company will cease to be subsidiaries of the Company.

Information on the Sale Group

As disclosed in the “Letter from the Board” in the Circular, the Subsidiary is an investment holding company incorporated in the British Virgin Islands in August 2007 with limited liability which is wholly owned by the Company, and its only principal asset is the 80% equity interest in the PRC Company, which is principally engaged in magnesite mining at the Magnesite Mine. The Subsidiary was beneficially owned by PHL until March 2008 when the Company acquired the Subsidiary from PHL pursuant to the 2007 Agreement.

LETTER FROM VC CAPITAL

Background of the 2007 Agreement and reasons for the Agreement

As stated in the “Letter from the Board” in the Circular, the 2007 Agreement was entered into between PHL, the Guarantor and the Company on 7 December 2007 pursuant to which PHL agreed to sell, and the Company agreed to acquire, all the interests of PHL in the Subsidiary, including all the issued share capital of the Subsidiary (as represented by the Sale Shares) and all the debt owed by the Subsidiary to PHL at completion of the 2007 Agreement, for a total consideration of HK$1,828 million.

Following completion of the 2007 Agreement, apart from the subsequent appointment of a chief operating officer and finance and accounting personnel to the PRC Company to represent the Company’s interests in the PRC Company and to oversee the day-to-day operations and financial management functions of the PRC Company, the Company largely maintained the same operating team and workforce of the PRC Company as those before completion of the 2007 Agreement in order to ensure smooth dayto-day operations in the PRC Company.

The PRC Company first encountered disruption to its operation of the Magnesite Mine in mid-July 2008, which accelerated in August 2008 and caused disturbance and even a halt to the progress of the work on the Magnesite Mine.

The Company was unable to identify (and is not in a position to speculate) those person or persons who organised the initial interruptions and the subsequent acceleration of the interruption. Based on the information available to the management of the Company, the interruptions could be linked to the Dispute which involves matters amongst the Guarantor, the sole beneficial owner of the Purchaser, and a former representative of the PRC Partner, who is an Independent Third Party. The Company is not in a position to assess when and how the interruption would end or be settled. The Company has, nevertheless, sent senior management personnel to visit the Magnesite Mine site on a weekly basis to inspect the disorderly situation and tried to resolve the interruption by requesting the crowd to leave the site and reporting the interruption to the local police bureau, but the situation was found to be beyond the Company’s control or ability to resolve. We understand from the executive Directors that to the best of their knowledge and belief, having made reasonable enquiries, the interruption was still ongoing as at the Latest Practicable Date.

As stated in the “Letter from the Board” in the Circular, the Magnesite Mine site of the PRC Company was occupied by a large disorderly crowd of about 300 people unrelated to the PRC Company. As the Magnesite Mine is situated in a small township with a population of around 80,000 people only, the daily operation of the Magnesite Mine relies heavily on the support of the local people. The executive Directors consider that such hostility of the local people may have profound adverse impact on the future relationships between the PRC Company, the local people and the local authorities and, hence, on the future operations of the PRC Company.

Taking into account that (i) the interruptions have already negatively affected the operation at the Magnesite Mine and the Company is not in a position to control the interruptions, which were still ongoing as at the Latest Practicable Date; (ii) the interruption may have further profound adverse impact on the operation of the Magnesite Mine, the PRC Company and thus the profitability of the Group; (iii) PHL and the Guarantor have agreed to buy back the Sale Group; and (iv) after the Completion, the Company is no longer required to apply resources in the operation of the Magnesite Mine, which is being affected by the interruptions as described above, thus protecting the interests of the Company and its Shareholders, we consider it logical for the Company to dispose of the Sale Group.

LETTER FROM VC CAPITAL

The Board also considers that it would be in the interests of the Company and the Shareholders to cancel the 2007 Agreement and to sell back its entire issued share capital of the Subsidiary to PHL as it would protect the Company from any possible losses that may arise from (i) the prolonged suspension in the operation of the PRC Company due to disturbances beyond the control of the Group; and (ii) the potential loss from disposal of the PRC Company to any independent third party at a fair value that will likely be adversely affected by the interruptions. The Directors believe that the Disposal is the best alternative for the Company as the Completion will effectively restore the business and operation of the Group to the same position as before completion of the 2007 Agreement. We concur with the Directors’ view that the Disposal is in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Agreement

The Consideration for the Sale Shares and the Sale Loan, being HK$1,624,464,456.50, will be settled by PHL by way of (i) transferring to the Company at Completion the Repurchase Shares with a fair value of HK$212 million (determined by reference to the fair value of the Shares on the completion date of the 2007 Agreement, as recorded in the financial statements as set out in the Company’s annual report for the year ended 31 March 2008 in accordance with HK GAAP) for cancellation; (ii) cancellation of the Convertible Note in the principal amount of HK$1,092 million; (iii) cancellation of the Promissory Note in the principal amount of HK$320 million; and (iv) payment of HK$464,456.50 to the Company in cash at Completion.

3. Basis of the Consideration

As disclosed in the “Letter from the Board” in the Circular, the Consideration was determined between the Company and PHL after arm’s length negotiations with reference to (i) the form of consideration received by PHL from the Company pursuant to the 2007 Agreement which was completed in March 2008; and (ii) the carrying value of the Sale Shares of approximately HK$1,540.5 million (which has netted off a shareholder’s loan due to the Company of approximately HK$77.6 million) as at 31 March 2008 and of the Sale Loan in the accounts of the Company of approximately HK$77.6 million.

Pursuant to the 2007 Agreement, the consideration as agreed by the parties thereto for the acquisition of the Subsidiary was HK$1,828 million, which was based on an issue price of HK$0.52 per Share for the 800,000,000 consideration shares. The consideration was subsequently recorded in the Company’s annual report for the year ended 31 March 2008 as approximately HK$1,624 million, which was with reference to the fair value of the 800,000,000 consideration shares of HK$0.265 per Share on the completion date of the 2007 Agreement in accordance with HK GAAP. Such consideration of approximately HK$1,624 million comprises fair value of the consideration shares at HK$212 million (which is equivalent to an issue price of HK$0.265 per Share), the Convertible Note in the amount of HK$1,092 million and the Promissory Note in the amount of HK$320 million. The difference between the 2007 Consideration and the Consideration is due to: (i) the difference between the issue price of HK$0.52 per Share for the 800,000,000 consideration shares as provided in, and agreed between the parties under, the 2007 Agreement and the ultimate issue price of HK$0.265 per Share as booked in the accounts of the Company based on the fair value of such consideration shares as determined by reference to the market price of the Shares on the completion date of the 2007 Agreement in accordance with the relevant HK GAAP; and (ii) the advances made by the Group to the Sale Group since completion of the 2007 Agreement of HK$464,456.50.

LETTER FROM VC CAPITAL

As illustrated in the paragraph headed “Financial effects of the Agreement” in the “Letter from the Board” in the Circular, it is expected that the Company may record a gain of approximately HK$80.2 million as a result of the Disposal, before estimated expenses to be incurred in relation to the Agreement of approximately HK$4.3 million and without taking into account the implication of any fair value adjustment to the value of the Repurchase Shares and Convertible Note on the date of Completion (if any, which cannot be finalised until after the date of Completion) as may be required in accordance with the HK GAAP.

Having considered that (i) the Consideration is equal to the sum of the fair value of the consideration paid by the Company to PHL pursuant to the 2007 Agreement of HK$1,624 million as recorded in the Company’s annual report for the year ended 31 March 2008, and the advances of HK$464,456.50 made by the Group to the Sale Group since completion of the 2007 Agreement, which means that such advances will be returned by PHL to the Company; (ii) both the Promissory Note and the Convertible Note will be cancelled without any interest or other costs incurred; and (iii) it is expected that the Company may record a gross gain of approximately HK$80.2 million as a result of the Disposal, we consider that the Consideration is fair and reasonable so far as the Disinterested Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

4. Independent valuation of the mining right of the Magnesite Mine

According to the valuation report as set out in Appendix III to the Circular, the Magnesite Mine was valued at approximately RMB1,135 million (approximately HK$1,261.1 million) (the “ Independent Valuation ”) as at 30 September 2008 by an independent firm of valuers, based on income approach with the use of the discounted cash flow method under which value depends on the present worth of future economic benefits to be derived from ownership of the mining rights over the useful life of such mining rights. In the Independent Valuation, it is assumed that interruptions to the operations of the Magnesite Mine could be resolved in the fourth quarter of 2009 such that mining operations at the Magnesite Mine could be resumed.

We note that the Independent Valuation as at 30 September 2008 is approximately 38.0% lower than the valuation of the Magnesite Mine as at 31 March 2008 of approximately RMB1,830.0 million (approximately HK$2,033.3 million) before the interruptions disrupted the operations at the Magnesite Mine. We understand from the Valuer that in his opinion, the drop in the Independent Valuation as at 30 September 2008 as compared with that as at 31 March 2008 is mainly attributable to (i) the delay in the commencement of the operations at the Magnesite Mine due to the interruptions; (ii) the decrease in the assumed annual growth rate of the selling prices of the products from the operations at the Magnesite Mine; and (iii) the adoption of a higher discount rate in the Independent Valuation as at 30 September 2008 due to a change in risks and performance of comparable companies from 31 March 2008 to 30 September 2008.

We have reviewed the bases and assumptions of the Independent Valuation and discussed the same with the management of the Group and consider that they are fair and reasonable. We note that there is an assumption in the Independent Valuation that the mining operations at the Magnesite Mine could be resumed in the fourth quarter of 2009. We understand from the management of the Group that such time is assumed by the Company for preparation of the Independent Valuation on a going concern basis, and is

LETTER FROM VC CAPITAL

considered by the Company as the earliest possible time that the mining operations at the Magnesite Mine could be resumed. The Disinterested Shareholders should note, nevertheless, that as the interruptions are beyond the control of the Group, there is no guarantee that the interruptions could indeed be resolved and that the operations at the Magnesite Mine could indeed be resumed in the fourth quarter of 2009. If the mining operations at the Magnesite Mine cannot be resumed in the fourth quarter of 2009, it is not unreasonable to assume that cash inflow from the operations of the Magnesite Mine would be delayed and the valuation of the Magnesite Mine would hence be adversely affected.

Having considered that (i) the disruptions to the operations at the Magnesite Mine had adversely affected the value of the mining right of the Magnesite Mine, as evidenced by the decrease in valuation of the Magnesite Mine between 31 March 2008 and 30 September 2008; (ii) the uncertainty as to when normal operations at the Magnesite Mine could be resumed; and (iii) the entering into of the Agreement represents a good opportunity for the Company to dispose of the Sale Group to PHL and the Guarantor, thereby protecting the interests of the Company and the Shareholders from further possible loss if the interruptions remain unresolved, we consider that the Disposal at the Consideration is fair and reasonable so far as the Disinterested Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

5. Financial effects of the Agreement

Upon the Completion, the Company will have no interests in the Sale Group and the Subsidiary and the PRC Company will cease to be subsidiaries of the Company.

As stated in the section headed “Unaudited Pro Forma Financial Information of the Remaining Group” in Appendix II to the Circular, the Disposal generally improves the financial statements of the Group in the following aspects:

(i) the Disposal would lead to a slight reduction in the pro forma adjusted turnover of the Group to approximately HK$121.59 million, as compared to audited turnover of the Group of approximately HK$123.04 million for the year ended 31 March 2008. Nevertheless, the Disposal would help to reduce the loss making situation of the Group. The pro forma net loss of the Group attributable to equity Shareholders would be approximately HK$104.63 million, which is approximately 7.32% lower than the audited net loss of approximately HK$112.89 million for the year ended 31 March 2008. The Company is expected to record a gain of approximately HK$80.22 million on the Disposal. As a whole, the Disposal would not have any material adverse effect on the operating performance of the Group;
(ii) the Disposal would lead to an immaterial reduction of pro forma adjusted cash and cash equivalent balance to approximately HK$80.59 million, as compared to the cash and cash equivalent balance of the Group of approximately HK$80.94 million as at 30 September 2008;

LETTER FROM VC CAPITAL

(iii) the Disposal would lead to the elimination of (a) the Group’s interest in the Sale Group, which was principally recorded as intangible assets of approximately HK$1,959.01 million in the Group’s audited consolidated balance sheet as at 30 September 2008; and (b) the Group’s liabilities, including the Convertible Note of approximately HK$878.85 million and the Promissory Note of HK$320 million, incurred in relation to the previous acquisition of the Sale Group. As a result, a material reduction in the pro forma adjusted total assets and total liabilities of the Group to approximately HK$227.49 million and HK$70.14 million respectively was recorded, as compared to the audited consolidated total assets and total liabilities of the Group of approximately HK$2,193.07 million and approximately HK$1,275.30 million respectively as at 30 September 2008.

The net assets of the Group would also be reduced as a result of the Disposal, the pro forma adjusted net assets of the Group would amount to approximately HK$157.35 million as compared to the audited consolidated net assets of the Group of approximately HK$917.77 million as at 30 September 2008. Such reduction was principally derived from the cancellation of share capital as a result of the Securities Repurchase and the elimination of reserves which includes the share premium amounting to HK$132,000,000, the equity component of the Convertible Note amounting to HK$236,787,000 and the negative goodwill amounting to HK$2,011,000 which were made related to the acquisition during the year ended 31 March 2008. The net asset value per Share attributable to equity Shareholders would be reduced from approximately HK$0.18 per Share (being the net assets attributable to equity Shareholders of approximately HK$516.81 million divided by 2,951,076,930 Shares in issue) as at 30 September 2008 to approximately HK$0.07 per Share (being the net assets attributable to equity Shareholders of approximately HK$148.25 million divided by 2,151,076,930 Shares in issue) immediately after Completion. Having said that, as a result of the Disposal, the Group would be able to get rid of an operation which is affected by the interruptions and the liabilities incurred to such operation, and hence it helps to strengthen the balance sheet of the Group; and

(iv) the Disposal would bring about a substantial improvement in the gearing ratio (being total liabilities divided by total assets) of the Group. The Group’s gearing ratio is expected to decrease from approximately 58.15% (being total liabilities of approximately HK$1,275.30 million divided by total assets of approximately HK$2,193.07 million) as at 30 September 2008 to approximately 30.83% (being total liabilities of approximately HK$70.14 million divided by total assets of approximately HK$227.49 million) immediately after Completion. Such reduction in the gearing ratio is mainly attributable to the material reduction in noncurrent liabilities as a result of the cancellation of the Convertible Note and the Promissory Note pursuant to the Agreement.

Having considered the aforesaid financial effects of the transactions as contemplated under the Agreement taken as a whole, we consider that the Disposal is in the interests of the Company and the Shareholders as a whole.

LETTER FROM VC CAPITAL

6. Effects on the shareholding structure of the Company

As disclosed in the “Letter from the Board” in the Circular, upon the Completion, the Company will effectively restore the business and operations of the Group to the same position as before completion of the 2007 Agreement. The following table sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the Completion, assuming that there will not be any change in the shareholding structure of the Company from the Latest Practicable Date up to and including the date of Completion.

PHL and parties acting in concert with it PHL The Guarantor Subtotal Ms. Chung Oi Ling, Stella_(Note)_ Public Total	As at the Latest Practicable Date Shares % 800,000,000 27.1 28,500,000 1.0 828,500,000 28.1 75,000,000 2.5 2,047,576,930 69.4 2,951,076,930 100.0	Immediately after Completion Shares % 0 0.0 28,500,000 1.3 28,500,000 1.3 75,000,000 3.5 2,047,576,930 95.2 2,151,076,930 100.0	Immediately after Completion Shares % 0 0.0 28,500,000 1.3 28,500,000 1.3 75,000,000 3.5 2,047,576,930 95.2 2,151,076,930 100.0
			1.3 3.5 95.2
			100.0

Note: An executive Director of the Company

Following the Completion, the Repurchase Shares will be cancelled such that the number of Shares in issue will be reduced from 2,951,076,930 Shares (being the number of Shares in issue as at the Latest Practicable Date) to 2,151,076,930 Shares. The percentage shareholdings of all Shareholders will increase proportionately and not less than 25% of the issued Shares will remain in the hands of the public following the Completion. Based on the SFO register maintained by the Company as at the Latest Practicable Date and to the best knowledge of the Directors, having made reasonable enquiry, there is no person or group of persons acting in concert who, as a result of the transactions contemplated under the Agreement, will become obliged to make a general offer for all the issued Shares, and the Disposal will not result in any change in control of the Company.

7. Future plans of the Company

As stated in the Company’s circular dated 6 February 2008 (the “ February Circular ”), the entering into of the 2007 Agreement was meant to broaden the Group’s revenue base by diversifying into the mining and processing of magnesite ore. The Company has been carrying out the development plans as stated in the February Circular. However, the interruptions (which are entirely beyond the Board’s expectation) has brought uncertainties to the operation of the PRC Company and severely affected the feasibility of such plans, leaving the Company with the uncertainty of realizing the benefits as disclosed in the February Circular. In order to safeguard the Group’s position, the Board considers that the Disposal would be the best alternative for the Company to minimize the damages which may be incurred by the Group as a result of the interruptions to its operations at the Magnesite Mine.

LETTER FROM VC CAPITAL

The development plans as stated in the February Circular would be suspended as a result of the Disposal. Nevertheless, as confirmed by the executive Directors, the Company will continue to look for other opportunities to diversify its business and broaden the revenue base and enhance the profitability of the Company, so as to maximize the interests of the Company and the Shareholders as a whole. Taking into account the adverse effect that the interruptions may have on the operations of the Group, and that the Disposal will release the Group from the operation at the Magnesite Mine which is disrupted by the interruptions and the liabilities arising therefrom, such that the Group could concentrate its resources in its future development, we consider that the Disposal is in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

Having considered the above-mentioned principal factors and reasons, we consider that the terms of the Agreement are fair and reasonable so far as the Disinterested Shareholders are concerned, and that the Disposal is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Disinterested Shareholders to vote in favour of the relevant resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

Shareholders should note that the approval by the Executive for the Securities Repurchase is one of the conditions precedent to the Agreement which cannot be waived, and the Executive’s approval of the Securities Repurchase will be conditional upon approval of the same by at least three-fourths of the votes cast on a poll by Disinterested Shareholders present in person or by proxy at the SGM. If the Securities Repurchase is not approved by the Disinterested Shareholders at the SGM, the Agreement will not proceed. Accordingly, we recommend the Independent Board Committee to advise the Disinterested Shareholders to vote in favour of the special resolution to be proposed at the SGM to approve the Securities Repurchase.

Yours faithfully For and on behalf of VC Capital Limited

CHAU King Fai LOU Ming Managing Director Executive Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular received from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

The Directors

Magnesium Resources Corporation of China Limited

==> picture [87 x 61] intentionally omitted <==

26 November 2008

Dear Sirs,

We set out below our report on the financial information relating to Magnesium Resources Corporation of China Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) including the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for each of the three years ended 31 March 2006, 2007 and 2008 and the six months ended 30 September 2008 (the “Relevant Periods”) and the consolidated and company balance sheet as at 31 March 2006, 2007 and 2008 and 30 September 2008, together with explanatory notes thereto (the “Financial Information”), for the inclusion in the circular of the Company dated 26 November 2008 (the “Circular”).

The Company was incorporated in Bermuda as an exempted company with limited liability on 30 April 1991 under the Companies Act 1981 of Bermuda (as amended). During the Relevant Periods, the principal activity of the Company is investment holding, the principal activities of the subsidiaries comprise home appliances; real estate development; building materials supply and installation; and mining and processing of magnesite ore.

We have acted as the auditor of the Group and have audited the consolidated financial statement of the Group for the Relevant Periods.

BASIS OF PREPARATION

The Financial Information has been prepared by the directors of the Company based on the audited financial statements of the Group in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), the collective terms of which include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), after making such adjustments as are appropriate. Adjustments have been made for the purpose of this report, due to the disposal of certain operations during the Relevant Periods, which constituted discontinued operations under HKFRS 5 “Noncurrent Assets Held for Sale and Discontinued Operation”, certain comparative figures have been

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

reclassified to conform with the presentation. The Financial Information also includes the applicable disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

The directors of the Company are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with HKFRSs. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

It is our responsibility to express an independent opinion, based on our audit and review, on the Financial Information.

PROCEDURES PERFORMED IN RESPECT OF THE SIX MONTHS ENDED 30 SEPTEMBER 2007

For the purpose of this report, we have also reviewed the consolidated financial information for the six months ended 30 September 2007 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. A review consists principally of making enquiries of the Group’s management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the consolidated financial information for the six months ended 30 September 2007. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Information.

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

PROCEDURES PERFORMED IN RESPECT OF THE RELEVANT PERIODS

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have carried out appropriate audit procedures in respect of the Financial Information of the Relevant Periods in accordance with HKSAs and have also carried out such procedures as we considered necessary in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement. In addition, we have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by HKICPA.

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

We have not audited any financial statements of the companies comprising the Group in respect of any period subsequent to 30 September 2008.

OPINION IN RESPECT OF THE RELEVANT PERIODS

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group and the Company as at 31 March 2006, 2007 and 2008 and 30 September 2008 and, of the consolidated results and consolidated cash flows of the Group for the Relevant Periods.

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. FINANCIAL INFORMATION

Consolidated Income Statements

Note CONTINUING OPERATIONS TURNOVER 8 COST OF SALES GROSS PROFIT OTHER REVENUE 8 Selling and distribution expenses Administrative expenses Other operating expenses 10 LOSS FROM OPERATIONS 9 Finance costs 9(a) Share of loss of an associate LOSS BEFORE TAXATION Income tax 13 LOSS FOR THE YEAR/PERIOD FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Loss for the year/period from discontinued operations 14 LOSS FOR THE YEAR/PERIOD ATTRIBUTABLE TO: Equity shareholders of the Company Minority interests Dividends Dividends per share LOSS PER SHARE Basic 16(a) – Continuing operations – Discontinued operations Diluted 16(b)	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) – 6,691 123,037 – (5,764) (108,351) – 927 14,686 220 1,145 14,909 – (140) (4,182) (5,020) (19,479) (43,294) (755) (2,404) (19,279) (5,555) (19,951) (37,160) (150) (244) (2,050) (2,874) (5,544) – (8,579) (25,739) (39,210) – 131 (1,881) (8,579) (25,608) (41,091) (51,320) (29,775) (73,639) (59,899) (55,383) (114,730) (59,736) (55,027) (112,892) (163) (356) (1,838) (59,899) (55,383) (114,730) – – – – – – (1.46 cents) (1.87 cents) (2.00 cents) (8.67 cents) (2.19 cents) (3.74 cents) (10.13 cents) (4.06 cents) (5.74 cents) N/A N/A N/A	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) 45,296 67,424 (37,999) (61,233) 7,297 6,191 5,997 2,450 (399) (1,751) (14,768) (14,349) – (83,518) (1,873) (90,977) (14) (36,879) – – (1,887) (127,856) (1,012) (516) (2,899) (128,372) (45,855) (13,642) (48,754) (142,014) (50,249) (123,357) 1,495 (18,657) (48,754) (142,014) – – – – (0.25 cents) (3.74 cents) (2.62 cents) (0.47 cents) (2.87 cents) (4.21 cents) N/A N/A	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) 45,296 67,424 (37,999) (61,233) 7,297 6,191 5,997 2,450 (399) (1,751) (14,768) (14,349) – (83,518) (1,873) (90,977) (14) (36,879) – – (1,887) (127,856) (1,012) (516) (2,899) (128,372) (45,855) (13,642) (48,754) (142,014) (50,249) (123,357) 1,495 (18,657) (48,754) (142,014) – – – – (0.25 cents) (3.74 cents) (2.62 cents) (0.47 cents) (2.87 cents) (4.21 cents) N/A N/A
			6,191 2,450 (1,751) (14,349) (83,518)
			(90,977) (36,879) –
			(127,856) (516)
			(128,372) (13,642)
			(142,014)

			(123,357) (18,657)
			(142,014)

			–

			–

			(3.74 cents) (0.47 cents)
			(4.21 cents)

			N/A

I – 4

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheets

Note NON-CURRENT ASSETS Property, plant and equipment 17 Interests in leasehold land held for own use under operating leases 18 Goodwill 19 Intangible assets 21 Interest in an associate 22 CURRENT ASSETS Inventories 23 Interest in leasehold land held for own use under operating leases 18 Trade and other receivables 24 Pledged deposits 27 Cash and cash equivalents 26 CURRENT LIABILITIES Bank loans and overdrafts 27 Trade and other payables 28 Finance lease payables 29 Provision for taxation 30 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance leases payables 29 Deferred tax liabilities 30 Convertible notes 31 Promissory notes 32 NET ASSETS CAPITAL AND RESERVES Share capital 33 Reserves 35(a) Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	2006 HK$’000 82,714 5,142 – – 16,108 103,964 34,189 226 39,655 7,320 12,242 93,632 23,903 58,202 1,116 – 83,221 10,411 114,375 935 5,529 – – 6,464 107,911 76,864 30,969 107,833 78 107,911	As at 30 As at 31 March September 2007 2008 2008 HK$’000 HK$’000 HK$’000 89,332 46,519 3,426 4,984 2,244 268 4,957 – – – 2,022,541 1,959,006 – – – 99,273 2,071,304 1,962,700 94,304 58,341 39,565 158 66 5 48,793 82,272 73,769 12,019 30,211 36,091 45,245 119,338 80,940 200,519 290,228 230,370 26,877 39,552 13,664 90,036 46,681 49,534 1,657 58 – 4,015 2,845 2,440 122,585 89,136 65,638 77,934 201,092 164,732 177,207 2,272,396 2,127,432 833 – – 18,235 19,579 10,814 – 855,213 878,849 – 320,000 320,000 19,068 1,194,792 1,209,663 158,139 1,077,604 917,769 154,492 289,885 295,107 (10,253) 368,302 221,703 144,239 658,187 516,810 13,900 419,417 400,959 158,139 1,077,604 917,769	As at 30 As at 31 March September 2007 2008 2008 HK$’000 HK$’000 HK$’000 89,332 46,519 3,426 4,984 2,244 268 4,957 – – – 2,022,541 1,959,006 – – – 99,273 2,071,304 1,962,700 94,304 58,341 39,565 158 66 5 48,793 82,272 73,769 12,019 30,211 36,091 45,245 119,338 80,940 200,519 290,228 230,370 26,877 39,552 13,664 90,036 46,681 49,534 1,657 58 – 4,015 2,845 2,440 122,585 89,136 65,638 77,934 201,092 164,732 177,207 2,272,396 2,127,432 833 – – 18,235 19,579 10,814 – 855,213 878,849 – 320,000 320,000 19,068 1,194,792 1,209,663 158,139 1,077,604 917,769 154,492 289,885 295,107 (10,253) 368,302 221,703 144,239 658,187 516,810 13,900 419,417 400,959 158,139 1,077,604 917,769
			1,962,700
			39,565 5 73,769 36,091 80,940
			230,370
			13,664 49,534 – 2,440
			65,638
			164,732
			2,127,432
			– 10,814 878,849 320,000
			1,209,663
			917,769

			295,107 221,703
			516,810 400,959
			917,769

I – 5

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Company Balance Sheets

Note NON-CURRENT ASSETS Property, plant and equipment 17 Interest in subsidiaries 20 Interest in an associate 22 CURRENT ASSETS Trade and other receivables 24 Pledged deposits Cash and cash equivalents 26 CURRENT LIABILITIES Trade and other payables 28 Finance leases payables 29 NET CURRENT (LIABILITIES)/ ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance leases payables 29 Convertible notes 31 Promissory notes 32 NET ASSETS CAPITAL AND RESERVES Share capital 33 Reserves 35(b) TOTAL EQUITY	As at 30 As at 31 March September 2006 2007 2008 2008 HK$’000 HK$’000 HK$’000 HK$’000 189 629 1,083 1,717 112,007 110,280 1,691,154 1,685,617 923 – – – 113,119 110,909 1,692,237 1,687,334 533 544 2,199 2,398 – 3,600 27,550 33,500 1,283 10,369 113,942 75,684 1,816 14,513 143,691 111,582 7,291 255 5,540 16,340 – 70 58 – 7,291 325 5,598 16,340 (5,475) 14,188 138,093 95,242 107,644 125,097 1,830,330 1,782,576 – 64 – – – – 855,213 878,849 – – 320,000 320,000 – 64 1,175,213 1,198,849 107,644 125,033 655,117 583,727 76,864 154,492 289,885 295,107 30,780 (29,459) 365,232 288,620 107,644 125,033 655,117 583,727	As at 30 As at 31 March September 2006 2007 2008 2008 HK$’000 HK$’000 HK$’000 HK$’000 189 629 1,083 1,717 112,007 110,280 1,691,154 1,685,617 923 – – – 113,119 110,909 1,692,237 1,687,334 533 544 2,199 2,398 – 3,600 27,550 33,500 1,283 10,369 113,942 75,684 1,816 14,513 143,691 111,582 7,291 255 5,540 16,340 – 70 58 – 7,291 325 5,598 16,340 (5,475) 14,188 138,093 95,242 107,644 125,097 1,830,330 1,782,576 – 64 – – – – 855,213 878,849 – – 320,000 320,000 – 64 1,175,213 1,198,849 107,644 125,033 655,117 583,727 76,864 154,492 289,885 295,107 30,780 (29,459) 365,232 288,620 107,644 125,033 655,117 583,727
		1,687,334
		2,398 33,500 75,684
		111,582
		16,340 –
		16,340
		95,242
		1,782,576
		– 878,849 320,000
		1,198,849
		583,727

		295,107 288,620
		583,727

I – 6

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

		Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company		Total equity HK$’000 136,727 1,862 (1,220) (671) – 9,151 21,961 (59,899)
Share capital HK$’000 45,752 – – – – 9,151 21,961 – 76,864 76,864 – – – – – – – – 76,864 764 – – 154,492 154,492 30,700 – 24,693 80,000 – – – – – – – 289,885	Share premium HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – 122,800 (5,972) – 132,000 – – – – – – – 248,828	Contributed Distributable surplus reserve HK$’000 HK$’000 2,789 4,995 – – – – – – – – – – – – – – 2,789 4,995 2,789 4,995 – – – (2,779) – – – – – – – – – – – – – – – – – – – – 2,789 2,216 2,789 2,216 – – – – – – – – – – – – – – – – – – – – – – 2,789 2,216	Property revaluation reserve HK$’000 15,865 1,862 (1,220) – (417) – – – 16,090 16,090 9,105 – – (1,892) (27) – – (709) – – – – 22,567 22,567 – – – – (2,437) – 4,976 – (1,344) – – 23,762	Fair value reserve HK$’000 – – – – – – – – – – – – 8,783 – – – – – – – – – 8,783 8,783 – – – – – – – – – – – 8,783	Equity component reserve HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 236,787 – – – 236,787	Retained Exchange profits/ fluctuation (accumulated reserve losses) HK$’000 HK$’000 587 66,464 – – – – (637) – – 417 – – – – – (59,736) (50) 7,145 (50) 7,145 – – – – – – – – – – – – – – – 709 – – – – – (55,027) 615 – 565 (47,173) 565 (47,173) – – – – – – – – – 2,437 – – – – – – – – – (112,892) 2,200 – 2,765 (157,628)
							107,911

							107,911 9,105 (2,779) 8,783 (1,892) – 13,831 (10) – 76,864 764 (55,383) 945
							158,139

							158,139 153,500 (5,972) 24,693 212,000 – 406,503 4,976 236,787 (1,344) (114,730) 3,052
							1,077,604

I – 7

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company	Attributable to equity shareholders of the Company		Total equity HK$’000 1,077,604 5,222 (23,699) 7 (142,014) 649
Share capital HK$’000 289,885 5,222 – – – – 295,107 154,492 30,700 – 10,806 – – – 195,998	Share premium HK$’000 248,828 – – – – – 248,828 – 122,800 (5,972) – – – – 116,828	Contributed Distributable surplus reserve HK$’000 HK$’000 2,789 2,216 – – – – – – – – – – 2,789 2,216 2,789 2,216 – – – – – – – – – – – – 2,789 2,216	Property revaluation reserve HK$’000 23,762 – (23,699) 7 – – 70 22,567 – – – (1,370) – – 21,197	Fair value reserve HK$’000 8,783 – – – – – 8,783 8,783 – – – – – – 8,783	Equity component reserve HK$’000 236,787 – – – – – 236,787 – – – – – – – –	Exchange fluctuation Accumulated reserve losses HK$’000 HK$’000 2,765 (157,628) – – – – – – – (123,357) 450 – 3,215 (280,985) 565 (47,173) – – – – – – – 1,370 – (50,249) 889 – 1,454 (96,052)
							917,769

							158,139 153,500 (5,972) 10,806 – (48,754) 1,224
							268,943

I – 8

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

Note CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation – Continuing operations – Discontinued operations Adjustments for: Amortisation of land lease premium Negative goodwill 37 Amortisation of intangible assets 21 Finance costs Share of loss of an associate Interest income Loss on disposal of a subsidiary 38 Loss/(gain) on disposal of property, plant and equipment Depreciation Write-down of inventories 23(d) Impairment losses on trade and other receivables Impairment loss on goodwill 19 Impairment losses on property, plant and equipment Net gain on deemed disposal of inventories Exchange difference, net Operating loss before changes in working capital Decrease/(increase) in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Increase/(decrease) in bank loans (trading nature) Cash used in operations Overseas taxes refunded/(paid) NET CASH OUTFLOW FROM OPERATING ACTIVITIES	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) (8,579) (25,739) (39,210) (51,496) (29,775) (73,625) 142 149 158 – – (2,011) – – 10,589 2,334 2,671 3,340 2,874 5,544 – (120) (1,326) (3,800) – 67 24,450 2,162 (861) (4,401) 10,634 10,122 7,486 13,546 4,344 3,733 1,723 1,362 10,878 – 2,327 4,957 – – 10,466 – – – – – 2,485 (26,780) (31,115) (44,505) 15,174 (12,335) 13,934 (3,053) (1,824) (70,423) 2,327 7,953 (20,087) 4,307 (559) 7,115 (8,025) (37,880) (113,966) 176 – (3,065) (7,849) (37,880) (117,031)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) (1,887) (127,856) (45,855) (13,642) 66 3 – – – 63,535 951 36,879 – – (1,626) (720) – 13,643 (7,074) 230 5,101 299 – 19,753 8,012 903 – – 19,768 – (186) – – (38) (22,730) (7,011) 15,188 (296) (15,207) 7,513 (21,914) (10,139) (3,846) (18,714) (48,509) (28,647) (3,072) (929) (51,581) (29,576)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) (1,887) (127,856) (45,855) (13,642) 66 3 – – – 63,535 951 36,879 – – (1,626) (720) – 13,643 (7,074) 230 5,101 299 – 19,753 8,012 903 – – 19,768 – (186) – – (38) (22,730) (7,011) 15,188 (296) (15,207) 7,513 (21,914) (10,139) (3,846) (18,714) (48,509) (28,647) (3,072) (929) (51,581) (29,576)
			(7,011) (296) 7,513 (10,139) (18,714)
			(28,647) (929)
			(29,576)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		For the year ended		For the six months	For the six months
		31 March		ended 30 September
	2006	2007	2008	2007	2008
Note	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Restated)	(Restated)	(Restated)	(Unaudited)
				(Restated)

CASH FLOWS FROM INVESTING ACTIVITIES

Payment to acquire property, plant and equipment and land lease premium Proceeds from disposal of property, plant and equipment Net cash (outflow)/inflow from disposal of a subsidiary 38 Net cash inflow from acquisition of subsidiaries 37 Increase in mould deposits Increase in pledged deposits Interest received Settlement of note receivable NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Placement and subscription of shares (net of expenses) Rights issue Bonus warrants Repayment of other loan Interest paid Interest element of finance lease payments Capital element of finance lease payments NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 26	(4,732) 2,404 – – (6,701) (6,319) 120 4,500 (10,728) 9,151 21,961 – (5,475) (2,216) (118) (1,206) 22,097 3,520 8,826 (656) 11,690	(4,543) 2,693 (38) 7,191 (5,167) (4,699) 1,326 – (3,237) – 74,085 764 (325) (2,413) (258) (2,036) 69,817 28,700 11,690 770 41,160	(2,348) 22,104 4,308 3,147 – (18,192) 3,800 – 12,819 147,528 – 24,693 – (1,396) (93) (2,431) 168,301 64,089 41,160 308 105,557	(457) 12,223 – – (751) (3,156) 1,626 – 9,485 147,530 – 10,806 (250) (888) (63) (888) 156,247 114,151 41,160 1,229 156,540
					(1,224) – (178) – – (5,880) 720 –
					(6,562)
					– – 5,222 – (246) (7) (29)
					4,940 (31,198) 105,557 (27) 74,332

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Magnesium Resources Corporation of China Limited (the “Company”) was incorporated in Bermuda as an exempted company with limited liability under the Bermuda Companies Act 1981 and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company by passing of a special resolution by the shareholders of the Company at the annual general meeting held on 31 August 2007, changed its name from Anex International Holdings Limited to China Rise International Holdings Limited with effect from 31 August 2007.

The Company by passing of a special resolution by the shareholders of the Company at the special general meeting held on 29 February 2008, changed its name from China Rise International Holdings Limited to Magnesium Resources Corporation of China Limited with effect from 29 February 2008.

The principal activity of the Company is investment holding. The principal activities of the subsidiaries comprise real estate development; building materials supply and installation; and mining and processing of magnesite ore.

2. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 4 provides information on the changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

The Group disposed of certain operations during the Relevant Periods, which constituted discontinued operations under HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. Therefore, the results derived from such operations are presented as discontinued operations in current accounting period. The comparative figures for the corresponding years have been reclassified to conform with the presentation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The consolidated financial statements for the Relevant Periods comprise the Company and its subsidiaries (together referred to as the “Group”).

The measurement basis used in the preparation of the financial statements is the historical cost basis except that buildings held for own use (see note 3(e)) are stated at their fair value as explained in the accounting policies set out below.

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

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

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next years are discussed in note 6.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b) SUBSIDIARIES AND MINORITY INTERESTS

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases.

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

Minority interests represent the portion of the net assets of subsidiaries attributable to interest that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet in accordance with notes 3(m) depending on the nature of the liability.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 3(h)), unless the investment is classified as held for sale.

c) ASSOCIATES

An associate is an entity in which the Group or company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the associate’s net assets, unless it is classified as held for sale. The consolidated income statement includes the Group’s share of the post-acquisition, post-tax results of the associates for the years, including any impairment loss on goodwill relating to the investments in associates recognised for the year (see note 3(h)).

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the jointly controlled entity. For this purpose, the Group’s interest in the associate is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in income statement.

In the Company’s balance sheet, investments in associates are stated at cost less impairment losses (see note 3(h)), unless it is classified as held for sale.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

d) GOODWILL

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 3(h)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the interest in the associate.

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognised immediately in income statement.

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

e) PROPERTY, PLANT AND EQUIPMENT

The following properties held for own use are stated in the balance sheet at their revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation:

land held under operating leases and buildings thereon, where the fair values of the leasehold interest in the land and buildings cannot be measured separately at the inception of the lease and the building is not clearly held under an operating lease.

Revaluations are performed with sufficient regularity to ensure that the carrying amount of these assets does not differ materially from that which would be determined using fair values at the balance sheet date.

Other items of plant and equipment are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses.

Changes arising on the revaluation of properties held for own use are generally dealt with in reserves. The only exceptions are as follows:

when a deficit arises on revaluation, it will be charged to income statement to the extent that it exceeds the amount held in the reserve in respect of that same asset immediately prior to the revaluation; and
when a surplus arises on revaluation, it will be credited to income statement to the extent that a deficit on revaluation in respect of that same asset had previously been charged to income statement.

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in income statement on the date of retirement or disposal. Any related revaluation surplus is transferred from the revaluation reserve to retained profits.

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

Buildings	Over the unexpired term of lease
Furniture and fixtures	5 years
Machinery, engineering and other equipment	10 years
Motor vehicles	10 years
Moulds	10 years

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

I – 13

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

f) INTANGIBLE ASSETS (OTHER THAN GOODWILL)

Intangible assets acquired by the Group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 3(h)). Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets of mining rights with finite useful lives is charged to income statement on a straight-line basis over it estimated useful lives of 16 years. Both the period and method of amortisation are reviewed annually.

g)

LEASED ASSETS

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

i) Classification of assets leased to the Group

Assets that are held by group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exceptions:

Land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee, or at the date of construction of those buildings, if later.

ii) Assets acquired under finance leases

Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Company or group will obtain ownership of the asset, the life of the asset, as set out in note 3(e). Impairment losses are accounted for in accordance with the accounting policy as set out in note 3(h). Finance charges implicit in the lease payments are charged to income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are written off as an expense of the accounting period in which they are incurred.

iii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to income statement in the accounting period in which they are incurred. The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property.

I – 14

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

h) IMPAIRMENT OF ASSETS

i) Impairment of receivables

Current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty or the debtors;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological market, economic or legal environment that have an adverse effect on the debtors; and

If any such evidence exists, any impairment loss is determined and recognised as follows:

For trade receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective Group.

If in a subsequent period the amount of an impairment loss decrease and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through income statement. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in income statement.

ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment (other than properties carried at revalued amounts);

prepaid interests in leasehold land classified as being held under an operating lease;
intangible assets;
investments in subsidiaries and associates; and
goodwill.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

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

Recognition of impairment losses

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

Reversals of impairment losses

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

Interim financial reporting and impairment

Under the Rules Governing the Listing, of Securities on the Stock Exchange, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see above).

Impairment losses recognised in an interim period in respect of goodwill carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial years to which the interim period relates.

i) INVENTORIES

i) Home appliances manufacturing

Inventories are carried at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, is determined on the first-in, first-out basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

I – 16

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ii) Real estate development

Inventories in respect of real estate development activities are carried at the lower of cost and net realisable value. Cost and net realizable values are determined as follows:

Properties under development for sale

The cost of properties under development for sale comprises specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses and an appropriate proportion of overheads. Net realizable value represents the estimated selling price less estimated costs of completion and costs to be incurred in selling the property.

Completed properties held for resale

In the case of completed properties developed by the Group, cost is determined by apportionment of the total development costs for that development project, attributable to the unsold properties. Net realizable value represents the estimated selling price less costs to be incurred in selling the property.

The cost of completed properties held for sale comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

j) TRADE AND OTHER RECEIVABLES

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment losses for bad and doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment losses for bad and doubtful debts (see note 3(h)).

k) CONVERTIBLE NOTES

Convertible notes that contain an equity component

Convertible notes that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments which contain both a liability component and an equity component.

At initial recognition the liability component of the convertible notes is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount initially recognised as the liability component is recognised as the equity components. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds.

The liability component is subsequently carried at amortised cost. The interest expense recognised in income statement on the liability component is calculated using the effective interest method. The equity component is recognised in the capital reserve until either the note is converted or redeemed.

If the note is converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, the capital reserve is released directly to retained profits.

I – 17

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

l) CASH AND CASH EQUIVALENTS

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

m) TRADE AND OTHER PAYABLES

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

n) INTEREST-BEARING BORROWINGS

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in income statement over the period of the borrowings using the effective interest method.

o)

TAXATION

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in income statement except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity. Current tax is the expected tax payable on the taxable income for the years, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

I – 18

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

p) CONSTRUCTION CONTRACTS

The accounting policy for contract revenue is set out in note 3(r). When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

Construction contracts in progress at the balance sheet date are recorded in the balance sheet at the net amount of costs incurred plus recognised profits less recognised losses and progress billings, and are presented in the balance sheet as the “Gross amount due from customers for contract work” (as an asset) or the “Gross amount due to customers for contract work” (as a liability), as applicable. Progress billings not yet paid by the customer are included in the balance sheet under “Trade and other receivables”. Amounts received before the related work is performed are included in the balance sheet, as a liability, as “Advances received”.

q) FINANCIAL GUARANTEES ISSUED, PROVISIONS AND CONTINGENT LIABILITIES

i) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset, Where no such consideration is received or receivable, an immediate expense is recognised in income statement on initial recognition of any deferred income.

The amount of the guarantee initially recognised as deferred income is amortised in income statement over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with note 3(q)(iii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ii) Contingent liabilities acquired in business combinations

Contingent liabilities acquired as part of a business combination are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 3(q)(iii). Contingent liabilities acquired in a business combination that cannot be reliably fair valued are disclosed in accordance with note 3(q)(iii).

iii) Other provisions and contingent liabilities

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

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

r) REVENUE RECOGNITION

Revenue is recognised when it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in income statement as follows:

i) Sale of goods

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

ii) Contract revenue

When the outcome of a construction contract can be estimated reliably:

revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract; and
revenue from a cost plus contract is recognised by reference to the recoverable costs incurred during the period plus an appropriate proportion of the total fee, measured by reference to the proportion that costs incurred to date bear to the estimated total costs of the contract.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable.

iii) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the effective interest method.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

s) TRANSLATION OF FOREIGN CURRENCIES

Foreign currency transactions during the years are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

t) BORROWING COSTS

Borrowing costs are expensed in income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

u)

DISCONTINUED OPERATIONS

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. It also occurs when the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the income statement, which comprises:

the post-tax profit or loss of the discontinued operation; and
the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

v) RELATED PARTIES

For the purpose of these financial statements, parties are considered to be related to the Group if:

i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
ii) the Group and the party are subject to common control;
iii) the party is an associate of the Group or a joint venture in which the Group is a venturer;
iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; or
v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals, or
vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

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

w) EMPLOYEE BENEFITS

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

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

ii) The employees of the Group’s subsidiaries which operate in mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries are required to contribute a percentage of their payroll costs to the central pension scheme. The contributions are charged to income statement as they become payable in accordance with rules of the central pension scheme.
iii) Share-based payments

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

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

iv) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

x) SEGMENT REPORTING

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purpose of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses.

4. CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group.

There have been no significant changes to the accounting policies applied in these financial statements for the years presented as a result of these developments. However, as a result of the adoption of HKFRS 7, Financial instruments: Disclosures and the amendment to HKAS 1, Presentation of financial statements: Capital disclosures , there have been some additional disclosures provided as follows:

As a result of the adoption of HKFRS 7, the financial statements include expanded disclosure about the significance of the Group’s financial instruments and the nature and extent of risks arising from those instruments, compared with the information previously required to be disclosed by HKAS 32, Financial instruments: Disclosure and presentation. These disclosures are provided throughout these financial statements, in particular in note 5.

The amendment to HKAS 1 introduces additional disclosure requirements to provide information about the level of capital and the Group’s and the Company’s objectives, policies and processes for managing capital. These new disclosures are set out in note 35(e).

Both HKFRS 7 and the amendment to HKAS 1 do not have any material impact on the classification, recognition and measurement of the amounts recognised in the financial instruments.

The Group has not applied any new standard or interpretation that is not yet effective for the Relevant Periods (see note 43).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL RISK MANAGEMENT OBJECTIVE AND POLICIES

The Group’s major financial instruments include trade and other receivables, bank balances and cash, pledged deposit, bank loans, finance lease payables, trade and and other payables. Details of these financial instruments are disclosed in respective notes. The risk 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.

(a) Credit risk

The Group’s credit risk is primarily attributable to bank deposits, trade and other receivables.

For trade and other receivables, management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade and other receivables, credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 30 and 180 days from the date of billing.

Debtors with balances that are more than 6 months past due are requested to settle all outstanding balances before any further credit is granted.

None of the Group’s financial assets are secured by collateral or other credit enhancements.

The Group’s concentration of credit risk by geographical locations is all in Asia Pacific. The Group has concentration of credit risk by customers as for 67% and 33% of the total receivables were due from the Group’s five largest customers and the largest customer respectively as at 31 March 2008.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance. Except for the financial guarantees given by the Group as set out in note 40, the Group does not provide any other guarantees which would expose the Group or the Company to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the balance sheet date is disclosed in note 40.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 24.

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the raising of loans to cover expected cash demands, subject to approval by the holding company’s board. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from bankers to meet its liquidity requirements in the short and longer term.

I – 24

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

The Group

	As at 31 March 2006	As at 31 March 2006
Weighted average effective interest rate Nil – 9% 7.5% 7.25%	Total Within contractual 1 year Carrying undiscounted or on amount cash flow demand HK$’000 HK$’000 HK$’000 58,202 58,410 57,310 2,051 2,175 1,203 23,903 24,337 24,337 84,156 84,922 82,850 As at 31 March 2007		More than 1 year but less than 2 years HK$’000 1,100 790 – 1,890	More than 2 years but less than 5 years HK$’000 – 182 –
				182


Weighted average effective interest rate – 3.9% – 7.5% 7.25%	Total Within contractual 1 year Carrying undiscounted or on amount cash flow demand HK$’000 HK$’000 HK$’000 90,036 90,036 90,036 2,490 2,595 2,524 26,877 27,369 27,369 119,403 120,000 119,929 As at 31 March 2008		More than 1 year but less than 2 years HK$’000 – 71 – 71	More than 2 years but less than 5 years HK$’000 – – –
				–


Weighted average effective interest rate – 7.5% 4.75% – 5.25% 1.5% 3%	Total contractual Carrying undiscounted amount cash flow HK$’000 HK$’000 46,681 46,681 58 71 39,552 40,038 855,213 1,173,900 320,000 358,400 1,261,504 1,619,090	Within 1 year or on demand HK$’000 46,681 71 40,038 16,380 9,600 112,770	More than 1 year but less than 2 years HK$’000 – – – 16,380 9,600 25,980	More than 2 years but less than 5 years HK$’000 – – – 1,141,140 339,200
				1,480,340

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

	As at 30 September 2008	As at 30 September 2008
Weighted average effective interest rate – 4.75% – 5.25% 1.5% 3%	Total Within contractual 1 year Carrying undiscounted or on amount cash flow demand HK$’000 HK$’000 HK$’000 49,534 49,534 49,534 13,664 13,835 13,835 878,849 1,141,140 16,380 320,000 339,200 9,600 1,262,047 1,543,709 89,349 As at 31 March 2006		More than 1 year but less than 2 years HK$’000 – – 16,380 9,600 25,980	More than 2 years but less than 5 years HK$’000 – – 1,108,380 320,000
				1,428,380


Weighted average effective interest rate Nil – 9%	Total Within contractual 1 year Carrying undiscounted or on amount cash flow demand HK$’000 HK$’000 HK$’000 7,291 7,499 7,499 7,291 7,499 7,499 As at 31 March 2007		More than 1 year but less than 2 years HK$’000 – –	More than 2 years but less than 5 years HK$’000 –
				–


Weighted average effective interest rate – 3.9% – 7.5%	Total Within contractual 1 year Carrying undiscounted or on Amount cash flow demand HK$’000 HK$’000 HK$’000 255 255 255 134 164 93 389 419 348 As at 31 March 2008		More than 1 year but less than 2 years HK$’000 – 71 71	More than 2 years but less than 5 years HK$’000 – –
				–


Weighted average effective interest rate – 7.5% 1.5% 3%	Total contractual Carrying undiscounted amount cash flow HK$’000 HK$’000 5,540 5,540 58 71 855,213 1,173,900 320,000 358,400 1,180,811 1,537,911	Within 1 year or on Demand HK$’000 5,540 71 16,380 9,600 31,591	More than 1 year but less than 2 years HK$’000 – – 16,380 9,600 25,980	More than 2 years but less than 5 years HK$’000 – – 1,141,140 339,200
				1,480,340

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Trade and other payables Convertible notes Promissory notes		As at 30 September 2008	As at 30 September 2008
	Weighted average effective interest rate – 1.5% 3%	Total contractual Carrying undiscounted amount cash flow HK$’000 HK$’000 16,340 16,340 878,849 1,141,140 320,000 339,200 1,215,189 1,496,680	Within 1 year or on Demand HK$’000 16,340 16,380 9,600 42,320	More than 1 year but less than 2 years HK$’000 – 16,380 9,600 25,980	More than 2 years but less than 5 years HK$’000 – 1,108,380 320,000
					1,428,380

(c) Foreign currency risk

The Group is exposed to foreign currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which they relate. The currency giving rise to this risk is primarily denominated in Renminbi (“RMB”). As the estimated foreign currency exposure in respect of committed future sales and purchases and estimated foreign currency exposure in respect of highly probable forecast sales and purchases is not significant, no hedging on foreign currency risk has been carried out during the Relevant Periods under review.

The following table details the Group’s exposure at the balance sheet date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they related.

Cash and bank balances Pledged deposits Trade and other receivables Trade and other payables Overall net exposure arising from recognised assets and liabilities	2006 RMB’000 5,338 – 10,548 (18,920) (3,034)	As at 31 March 2007 2008 RMB’000 RMB’000 23,945 4,004 2,953 2,661 2,019 3,437 (16,249) (5,955) 12,668 4,147	As at 30 September 2008 RMB’000 1,033 2,279 9,206 (1,837)
			10,681

Sensitivity analysis

The following table indicates the approximate change in the Group’s loss after tax and accumulated losses in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date.

RMB	As at 31 March 2006 2007 2008 Increase/ Effect on loss Increase/ Effect on loss Increase/ Effect on loss (decrease) after tax and (decrease) after tax and (decrease) after tax and in foreign accumulated in foreign accumulated in foreign accumulated exchange rate losses exchange rate losses exchange rate losses HK$’000 HK$’000 HK$’000 5% (152) 5% 633 5% 207 (5%) 152 (5%) (633) (5%) (207)	As at 30 September
		2008 Increase/ Effect on loss (decrease) after tax and in foreign accumulated exchange rate losses HK$’000 5% 534 5% (534)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The sensitivity analysis has been determined assuming that the change in foreign exchange rate had occurred at the balance sheet date and had been applied to each of the Group entities exposure to currency risk for the financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.

The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. Results of the analysis as presented in the above table represent the effects on each of the Group entities’ loss after tax measured in the functional currency, translated into HK dollars at the exchange rate ruling at the balance sheet date for presentation purposes. The analysis is performed on the same basis for Relevant Periods.

(d) Interest rate risk

The Group manages its interest rate exposure based on interest rate level and outlook as well as potential impact on the Group’s financial position arising from volatility. The Group currently does not have any interest rate hedging policy in relation to fair value and cash flow interest rate risks. The directors monitor the Group’s exposure on an ongoing basis and will consider hedging the interest rate should the need arises.

The Group’s fair value interest rate risk relates primarily to fixed-rate borrowings and bank deposits carrying fixed interest rates and cash flow interest rate risk in relation to borrowings and short-term deposits placed in banks and financial institutions that are interest-bearing at market interest rates. The directors consider the Group’s exposure of the bank deposits to fair value interest rate risk is not significant as interest bearing bank deposits are within short maturity period. Floating-rate interest income is recognised in the income statement as incurred.

(i) Interest rate profile

The following table details the interest rate profile of the Group’s and the Company’s borrowings at the balance sheet date:

	The Group	The Group		The Company	The Company
	As at 31 March	2008 Effective Interest rates % HK$’000 7.5% 58 6.75% 855,213 3% 320,000 1,175,271 4.75% – 5.25% 39,552 1,214,823 97%		As at 31 March	2008 Effective interest rates % HK$’000 7.5% 58 6.75% 855,213 3% 320,000 1,175,271 – – 1,175,271 100%	As at 30 September
2006 Effective interest rates % HK$’000 7.5% 2,051 – – – – 2,051 7.25% 23,903 25,954 8%	2007 Effective interest rates % HK$’000 3.9%– 7.5% 2,490 – – – – 2,490 7.25% 26,877 29,367 8%		2006 Effective interest rates % HK$’000 – – – – – – – – – – –	2007 Effective interest rates % HK$’000 3.9%– 7.5% 134 – – – – 134 – – 134 100%		2008
						Effective interest rates % HK$’000 – – 6.75% 878,849 3% 320,000 1,198,849 – – 1,198,849 100%

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Sensitivity analysis

The sensitivity analysis has been determined based on the exposure to interest rates in its variable-rate borrowings and bank deposits at the balance sheet date. The analysis is prepared assuming the amount of borrowings and deposits outstanding at the balance sheet date were outstanding for the whole years. A 50 basis point increase or decrease is used by the management for the assessment of the possible change in interest rates. The analysis is performed on the same basis for Relevant Periods.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s loss for the years ended 31 March 2006, 2007 and 2008 and period ended 30 September 2008 would decrease/increase by approximately HK$52,000, HK$152,000, HK$550,000 and HK$517,000.

(e) Fair value

The carrying amounts of the Group’s financial assets and including cash and cash equivalents, trade receivables and other receivables, and financial liabilities including trade and other payables, approximate to their fair values due to their short maturities.

6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial years are discussed below.

a) Depreciation of property, plant and equipment

The Group management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or nonstrategic assets that have been abandoned or sold.

b) Impairment of trade and other receivables

The Group tests annually whether assets have suffered any impairment. The recoverable amounts of cash-generating units have been determined on the value-in-use calculation. These calculations require use of estimate.

c) Construction contracts

The Group’s revenue and profit recognition on an uncompleted project is dependent on estimating the total outcome of the construction contact, the gross billing to date as well as the work done to date. Based on the Group’s recent experience and the nature of the construction activity undertaken by the Group, the Group makes estimates of the point at which it considers the work is sufficiently advanced such that the costs to complete and revenue can be reliably estimated. As a result, until this point is reached the amounts due from customers for contact work as disclosed in note 25 will not include profit which the Group may eventually realize from the work done to date. In addition, actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the balance sheet date, which would affect the revenue and profit recognised in future years as an adjustment to the amounts recorded to date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

d) Write-down of inventories

Inventories are written down to net realisable value based on an assessment of the realisability of inventories. Write-down of inventories are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgements and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-down of inventories in the periods in which such estimate has been changed.

e) Impairment of goodwill

The Group performs annual tests on whether there has been impairment of goodwill in accordance with the accounting policy stated in note 3(h). The recoverable amounts of cash generating units are determined based on value-in-use calculations. These calculations require the use of estimates and assumptions made by management on the future operation of the business, pre-tax discount rates, and other assumptions underlying the value-in-use calculations.

f) Amortisation of intangible assets

Intangible assets are amortised on a straight-line basis over their estimated useful lives. The determination of the useful lives involves management’s estimation. The Group reassesses the useful life of the intangible assets and if the expectation differs from the original estimate, such a difference may impact the amortisation in the years and the estimate will be changed in the future period.

7. SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

Business segments

During the Relevant Periods, the Group discontinued by way of disposal of subsidiaries (see note 38) the home appliances segment which included the design and manufacture of home appliances and trading of merchandise.

The Group comprises the following main business segments:

Real estate: the development and sale of commercial premises and residential properties.

Building materials: the construction work of building and construction project of building material.

Mining: mining and processing of magnesite ore.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment revenue Revenue from external customers Segment result Interest income Unallocated operating income and expenses Loss from operations Finance costs Share of loss of an associate Income tax credit Loss after taxation ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Depreciation and amortization for the year Unallocated corporate expenses Impairment losses of – Trade and other receivables – Mould deposits Significant non-cash expenses – Write down of inventories Capital expenditure incurred during the year Unallocated corporate capital expenditure		For theyear ended 31 March 2006(Restated) Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – 182,324 182,324 – – – (49,422) (49,422) 10 110 120 (5,565) – (5,565) (5,555) (49,312) (54,867) (150) (2,184) (2,334) (2,874) – (2,874) – 176 176 (8,579) (51,320) (59,899) – – – 179,296 179,296 18,300 197,596 – – – 76,798 76,798 12,887 89,685 – – – 10,768 10,768 8 10,776 – – – 768 768 – – – 955 955 13,546 13,546 – – – 9,035 9,035 189 9,224	For theyear ended 31 March 2006(Restated) Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – 182,324 182,324 – – – (49,422) (49,422) 10 110 120 (5,565) – (5,565) (5,555) (49,312) (54,867) (150) (2,184) (2,334) (2,874) – (2,874) – 176 176 (8,579) (51,320) (59,899) – – – 179,296 179,296 18,300 197,596 – – – 76,798 76,798 12,887 89,685 – – – 10,768 10,768 8 10,776 – – – 768 768 – – – 955 955 13,546 13,546 – – – 9,035 9,035 189 9,224
		Continuing operations
	Real estate HK$’000 – – – – – – – –	Building materials HK$’000 – – – – – – – –	Mining HK$’000 – – – – – – – –

I – 31

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment revenue Revenue from external customers Segment result Interest income Unallocated operating income and expenses Loss from operations Finance costs Share of loss an associate Income tax Loss after taxation ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Depreciation and amortization for the year Unallocated corporate expenses Impairment losses of – trade and other receivables – goodwill – mould deposits Significant non-cash expenses – Write down of inventories Capital expenditure incurred during the year Unallocated corporate capital expenditure		For theyear ended 31 March 2007(Restated) Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 6,691 – 6,691 203,010 209,701 (2,854) – (3,869) (27,800) (31,669) 874 452 1,326 (16,956) – (16,956) (19,951) (27,348) (47,299) (244) (2,427) (2,671) (5,544) – (5,544) 131 – 131 (25,608) (29,775) (55,383) 12,089 – 99,960 184,557 284,517 15,275 299,792 9,140 – 34,086 88,937 123,023 18,630 141,653 12 – 20 10,122 10,142 129 10,271 20 – 20 – 20 2,327 – 2,327 – 2,327 – – – 1,342 1,342 – – – 4,344 4,344 207 – 710 7,908 8,618 532 9,150	For theyear ended 31 March 2007(Restated) Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 6,691 – 6,691 203,010 209,701 (2,854) – (3,869) (27,800) (31,669) 874 452 1,326 (16,956) – (16,956) (19,951) (27,348) (47,299) (244) (2,427) (2,671) (5,544) – (5,544) 131 – 131 (25,608) (29,775) (55,383) 12,089 – 99,960 184,557 284,517 15,275 299,792 9,140 – 34,086 88,937 123,023 18,630 141,653 12 – 20 10,122 10,142 129 10,271 20 – 20 – 20 2,327 – 2,327 – 2,327 – – – 1,342 1,342 – – – 4,344 4,344 207 – 710 7,908 8,618 532 9,150
		Continuing operations
	Real estate HK$’000 – (1,015) 87,871 24,946 8 – – – – 503	Building materials HK$’000 6,691 (2,854) 12,089 9,140 12 20 2,327 – – 207	Mining HK$’000 – – – – – – – – – –

I – 32

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment revenue Revenue from external customers Segment result Interest income Unallocated operating income and expenses Loss from operations Finance costs Loss on disposal of subsidiaries Income tax Loss after taxation ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Depreciation and amortization for the year Unallocated corporate expenses Impairment of – trade and other receivables – goodwill – property, plant and equipment – moulds deposits Significant non-cash expenses – Write down of inventories Capital expenditure incurred during the year Unallocated corporate capital expenditure		For theyear ended 31 March 2008 Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 121,592 1,445 123,037 99,817 222,854 6,794 (8,503) (15,416) (48,086) (63,502) 3,599 201 3,800 (25,343) – (25,343) (37,160) (47,885) (85,045) (2,050) (1,290) (3,340) – (24,450) (24,450) (1,881) (14) (1,895) (41,091) (73,639) (114,730) 76,809 2,027,549 2,170,528 – 2,170,528 191,004 2,361,532 67,823 5,079 94,584 – 94,584 1,189,344 1,283,928 35 10,597 10,697 5,963 16,660 1,573 18,233 2,766 – 2,866 2,499 5,365 – – 4,957 – 4,957 – – – 10,466 10,466 – – – 5,513 5,513 – – 3,733 – 3,733 96 4 299 1,488 1,787 561 2,348	For theyear ended 31 March 2008 Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 121,592 1,445 123,037 99,817 222,854 6,794 (8,503) (15,416) (48,086) (63,502) 3,599 201 3,800 (25,343) – (25,343) (37,160) (47,885) (85,045) (2,050) (1,290) (3,340) – (24,450) (24,450) (1,881) (14) (1,895) (41,091) (73,639) (114,730) 76,809 2,027,549 2,170,528 – 2,170,528 191,004 2,361,532 67,823 5,079 94,584 – 94,584 1,189,344 1,283,928 35 10,597 10,697 5,963 16,660 1,573 18,233 2,766 – 2,866 2,499 5,365 – – 4,957 – 4,957 – – – 10,466 10,466 – – – 5,513 5,513 – – 3,733 – 3,733 96 4 299 1,488 1,787 561 2,348
		Continuing operations
	Real estate HK$’000 – (13,707) 66,170 21,682 65 100 4,957 – – 3,733 199	Building materials HK$’000 121,592 6,794 76,809 67,823 35 2,766 – – – – 96	Mining HK$’000 1,445 (8,503) 2,027,549 5,079 10,597 – – – – – 4

I – 33

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment revenue Revenue from external customers Segment result Interest income Unallocated operating income and expenses Loss from operations Finance costs Income tax Loss after taxation ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Depreciation and amortization for the period Unallocated corporate expenses Impairment of – trade and other receivables – property, plant and equipment – moulds deposits Capital expenditure incurred during the period Unallocated corporate capital expenditure	For the six months ended 30 September 2007(Unaudited) (Restated) Discontinued Continuing operations operations Real Building Home estate materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 45,296 – 45,296 62,309 107,605 (1,907) 6,374 – 4,467 (43,026) (38,559) 1,466 160 1,626 (7,806) (2,052) (9,858) (1,873) (44,918) (46,791) (14) (937) (951) (1,012) – (1,012) (2,899) (45,855) (48,754) 40,691 27,364 – 68,055 111,094 179,149 200,943 380,092 15,916 18,629 – 34,545 62,864 97,409 13,740 111,149 27 13 – 40 5,000 5,040 127 5,167 – – – – 2,499 2,499 – – – – 19,768 19,768 – – – – 5,513 5,513 82 9 – 91 1,465 1,556 8 1,564	For the six months ended 30 September 2007(Unaudited) (Restated) Discontinued Continuing operations operations Real Building Home estate materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 45,296 – 45,296 62,309 107,605 (1,907) 6,374 – 4,467 (43,026) (38,559) 1,466 160 1,626 (7,806) (2,052) (9,858) (1,873) (44,918) (46,791) (14) (937) (951) (1,012) – (1,012) (2,899) (45,855) (48,754) 40,691 27,364 – 68,055 111,094 179,149 200,943 380,092 15,916 18,629 – 34,545 62,864 97,409 13,740 111,149 27 13 – 40 5,000 5,040 127 5,167 – – – – 2,499 2,499 – – – – 19,768 19,768 – – – – 5,513 5,513 82 9 – 91 1,465 1,556 8 1,564	For the six months ended 30 September 2007(Unaudited) (Restated) Discontinued Continuing operations operations Real Building Home estate materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 45,296 – 45,296 62,309 107,605 (1,907) 6,374 – 4,467 (43,026) (38,559) 1,466 160 1,626 (7,806) (2,052) (9,858) (1,873) (44,918) (46,791) (14) (937) (951) (1,012) – (1,012) (2,899) (45,855) (48,754) 40,691 27,364 – 68,055 111,094 179,149 200,943 380,092 15,916 18,629 – 34,545 62,864 97,409 13,740 111,149 27 13 – 40 5,000 5,040 127 5,167 – – – – 2,499 2,499 – – – – 19,768 19,768 – – – – 5,513 5,513 82 9 – 91 1,465 1,556 8 1,564
		Continuing operations
	Real estate HK$’000 – (1,907) 40,691 15,916 27 – – – 82	Building materials HK$’000 45,296 6,374 27,364 18,629 13 – – – 9	Mining HK$’000 – – – – – – – – –

I – 34

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment revenue Revenue from external customers Segment result Interest income Unallocated operating income and expenses Loss from operations Finance costs Loss on disposal of subsidiaries Income tax Loss after taxation ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities OTHER INFORMATION Depreciation and amortization for the period Unallocated corporate expenses Impairment of – trade and other receivables – inventories – real estate Capital expenditure incurred during the period Unallocated corporate capital expenditure		For the six months ended 30 September 2008 Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 57,293 10,131 67,424 – 67,424 (228) (61,962) (83,231) – (83,231) 720 – 720 (8,466) 1 (8,465) (90,977) 1 (90,976) (36,879) – (36,879) – (13,643) (13,643) (516) – (516) (128,372) (13,642) (142,014) 65,937 1,966,041 2,079,613 – 2,079,613 113,457 2,193,070 32,446 6,311 60,017 – 60,017 1,215,284 1,275,301 16 63,590 63,651 – 63,651 186 63,837 – 903 903 – 903 – – 19,753 – 19,753 16 128 144 – 144 1,080 1,224	For the six months ended 30 September 2008 Discontinued Continuing operations operations Building Home materials Mining Sub-total appliances Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 57,293 10,131 67,424 – 67,424 (228) (61,962) (83,231) – (83,231) 720 – 720 (8,466) 1 (8,465) (90,977) 1 (90,976) (36,879) – (36,879) – (13,643) (13,643) (516) – (516) (128,372) (13,642) (142,014) 65,937 1,966,041 2,079,613 – 2,079,613 113,457 2,193,070 32,446 6,311 60,017 – 60,017 1,215,284 1,275,301 16 63,590 63,651 – 63,651 186 63,837 – 903 903 – 903 – – 19,753 – 19,753 16 128 144 – 144 1,080 1,224
		Continuing operations
	Real estate HK$’000 – (21,041) 47,635 21,260 45 – 19,753 –	Building materials HK$’000 57,293 (228) 65,937 32,446 16 – – 16	Mining HK$’000 10,131 (61,962) 1,966,041 6,311 63,590 903 – 128

I – 35

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical segments

The following table presents revenue for the Group’s geographical segment based on the location of external customers.

		For theyear ended 31 March	For theyear ended 31 March			For the six months ended 30 September	For the six months ended 30 September	For the six months ended 30 September
2006 (Restated)		2007 (Restated)		2008		2007 (Unaudited) (Restated)		2008
Continuing Discontinued operations operations HK$’000 HK$’000 – 90,544 – 58,416 – 13,760 – 11,111 – 5,752 – 2,741 – 182,324	Total HK$’000 90,544 58,416 13,760 11,111 5,752 2,741	Continuing Discontinued operations operations HK$’000 HK$’000 – 92,769 – 69,713 – 17,095 6,691 7,141 – 11,423 – 4,869 6,691 203,010	Total HK$’000 92,769 69,713 17,095 13,832 11,423 4,869	Continuing Discontinued operations operations HK$’000 HK$’000 – 35,153 – 28,272 – 14,328 123,037 8,155 – 10,039 – 3,870 123,037 99,817	Total HK$’000 35,153 28,272 14,328 131,192 10,039 3,870	Continuing Discontinued operations operations HK$’000 HK$’000 – 24,944 – 18,264 – 5,367 45,296 5,123 – 6,321 – 2,290 45,296 62,309	Total HK$’000 24,944 18,264 5,367 50,419 6,321 2,290	Continuing Discontinued operations operations HK$’000 HK$’000 – – – – – – 67,424 – – – – – 67,424 –	Total HK$’000 – – – 67,424 – –
	182,324		209,701		222,854		107,605		67,424

Carrying amount of segment assets and capital expenditure by location of assets are as follows:

			As at 31 March	As at 31 March				As at 30 September	As at 30 September	As at 30 September	As at 30 September
2006 (Restated)			2007 (Restated)		2008			2007 (Unaudited) (Restated)		2008
Continuing Discontinued operations operations HK$’000 HK$’000 – 4,394 – 7,483 – 6,001 18,300 158,611 – 2,427 – 380 18,300 179,296		Total HK$’000 4,394 7,483 6,001 176,911 2,427 380	Continuing Discontinued operations operations Total HK$’000 HK$’000 HK$’000 – 8,941 8,941 – 3,652 3,652 – 4,406 4,406 115,235 165,567 280,802 – 1,401 1,401 – 590 590 115,235 184,557 299,792 As at 31 March	Total HK$’000 8,941 3,652 4,406 280,802 1,401 590	Continuing Discontinued operations operations HK$’000 HK$’000 – – – – – – 2,361,532 – – – – – 2,361,532 –		Total HK$’000 – – – 2,361,532 – –	Continuing Discontinued operations operations HK$’000 HK$’000 – 10,931 – – – 1,181 268,998 97,092 – 1,890 – – 268,998 111,094	Total HK$’000 10,931 – 1,181 366,090 1,890 –			Total HK$’000 – – – 2,193,070 – –
		197,596		299,792			2,361,532		380,092			2,193,070


	2006 (Restated)		2007 (Restated)			2008		2007 (Unaudited) (Restated)			2008
Continuing Discontinued operations operations HK$’000 HK$’000 – 13 – – – – 189 9,022 – – – – 189 9,035		Total HK$’000 13 – – 9,211 – –	Continuing Discontinued operations operations HK$’000 HK$’000 – 14 – 16 – – 1,242 7,878 – – – – 1,242 7,908	Total HK$’000 14 16 – 9,120 – –	Continuing Discontinued operations operations HK$’000 HK$’000 – – – – – – 860 1,488 – – – – 860 1,488		Total HK$’000 – – – 2,348 – –	Continuing Discontinued operations operations HK$’000 HK$’000 – – – – – – 99 1,465 – – – – 99 1,465	Total HK$’000 – – – 1,564 – –	Continuing Discontinued operations operations HK$’000 HK$’000 – – – – – – 1,224 – – – – – 1,224 –		Total HK$’000 – – – 1,224 – –
		9,224		9,150			2,348		1,564			1,224

I – 36

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. TURNOVER AND OTHER REVENUE

Turnover represents the net invoiced value of good sold, after allowances for returns and trade discounts and revenue from construction contracts.

An analysis of turnover and other revenue is as follows:

			For theyear ended 31 March	For theyear ended 31 March	For theyear ended 31 March				For the	For the	six months ended 30 September	six months ended 30 September	six months ended 30 September	six months ended 30 September
Continuing operations			Discontinued operations				Consolidated		Continuing operations		Discontinued	operations	Consolidated
2006 HK$’000 (Restated) – – –	2007 HK$’000 (Restated) – 6,691 6,691	2008 HK$’000 (Restated) 1,445 121,592 123,037	2006 HK$’000 (Restated) 182,324 – 182,324	2007 HK$’000 (Restated) 203,010 – 203,010	2008 HK$’000 (Restated) 99,817 – 99,817	2006 HK$’000 (Restated) 182,324 – 182,324	2007 HK$’000 (Restated) 203,010 6,691 209,701	2008 HK$’000 (Restated) 101,262 121,592 222,854	2007 HK$’000 (Unaudited) (Restated) – 45,296 45,296	2008 HK$’000 12,794 54,630 67,424	2007 HK$’000 (Unaudited) (Restated) 62,309 – 62,309	2008 HK$’000 – – –	2007 HK$’000 (Unaudited) (Restated) 62,309 45,296 107,605	2008 HK$’000 12,794 54,630
														67,424
10 – 210	874 – 271	3,599 – 417	110 396 175	452 966 1,658	201 – 5,889	120 396 385	1,326 966 1,929	3,800 – 6,306	1,466 – 43	720 – 1,730	160 859 2,017	– – 4	1,626 859 2,060	720 – 1,734
220	1,145	4,016	681	3,076	6,090	901	4,221	10,106	1,509	2,450	3,036	4	4,545	2,454
– – – –	– – – –	8,791 – 2,011 91	– – – –	861 – – –	(4,390) – – 10	– – – –	861 – – –	4,401 – 2,011 101	4,302 186 – –	– – – –	2,772 – – –	– – – –	7,074 186 – –	– – – –
– 220 220	– 1,145 7,836	10,893 14,909 137,946	– 681 183,005	861 3,937 206,947	(4,380) 1,710 101,527	– 901 183,225	861 5,082 214,783	6,513 16,619 239,473	4,488 5,997 51,293	– 2,450 69,874	2,772 5,808 68,117	– 4 4	7,260 11,805 119,410	– 2,454
														69,878

It represented total interest income on financial assets not at fair value through profit or loss.

I – 37

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. LOSS FROM OPERATIONS

The Group’s loss from operations are arrived at after charging/(crediting):

==> picture [458 x 334] intentionally omitted <==

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

For the year ended 31 March For the six months ended 30 September
Continuing operations Discontinued operations Consolidated Continuing operations Discontinued operations Consolidated
2006 2007 2008 2006 2007 2008 2006 2007 2008 2007 2008 2007 2008 2007 2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated) (Restated)
a) Finance costs
Interest on bank loans
and other loans
wholly repayable
within five years 150 229 182 2,066 2,184 1,214 2,216 2,413 1,396 5 246 883 – 888 246
Interest on convertible
notes and promissory
notes – – 1,851 – – – – – 1,851 – 36,626 – – – 36,626
Finance charges on
obligations under
finance leases – 15 17 118 243 76 118 258 93 9 7 54 – 63 7
Total interest expenses
on financial liabilities
not at fair value through
profit or loss 150 244 2,050 2,184 2,427 1,290 2,334 2,671 3,340 14 36,879 937 – 951 36,879
b) Staff costs
Salaries, wages and
other benefits 1,385 16,295 15,611 31,990 30,352 19,716 33,375 46,647 35,327 7,652 5,218 12,300 – 19,952 5,218
Severance payments – – – 2,165 371 524 2,165 371 524 – – 79 – 79 –
Pension scheme
contributions 23 187 240 479 422 221 502 609 461 120 121 152 – 272 121
1,408 16,482 15,851 34,634 31,145 20,461 36,042 47,627 36,312 7,772 5,339 12,531 – 20,303 5,339
----- End of picture text -----

I – 38

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s loss from operations are arrived at after charging/(crediting):

Continuing operations 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) Other items Cost of inventories sold * – – 646 Depreciation – 12 1,523 Amortisation of land lease premium 62 8 158 Minimum lease payments under operating leases for land and buildings (including directors’ quarters) 73 939 1,499 Auditor’s remuneration – audit services 70 285 1,243 – other services – 110 672 70 395 1,915 Impairment losses on trade receivables – 20 1,928 Impairment losses on retention receivables – – 938		For theyear ended 31 March		For	theperiod ended 30 September Discontinued operations Consolidated 2007 2008 2007 2008 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Restated) (Restated) 68,989 – 68,989 7,414 2.241 – 5,101 299 – – 66 3 320 – 492 1,079 – – – – – – 216 320 – – 216 320 2,499 – 2,499 903 – – – –
	Continuing operations	Discontinued operations	Consolidated	Continuing operations	Discontinued operations
		2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 166,051 189,137 104,622 10,634 10,110 5,963 80 141 – 744 798 159 320 315 28 – – – 320 315 28 13 – 2,499 – – –	2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 166,051 189,137 105,268 10,634 10,122 7,486 142 149 158 817 1,737 1,658 390 600 1,271 – 110 672 390 710 1,943 13 20 4,427 – – 938	2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) – 7,414 2,860 299 66 3 172 1,079 – – 216 320 216 320 – 903 – –	2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) 68,989 – 2.241 – – – 320 – – – – – – – 2,499 – – –

Cost of inventories sold includes depreciation of HK$8,088,000, HK$7,789,000, HK$4,766,000, HK$1,477,000 and HK$Nil and staff costs of HK$16,163,000, HK$21,251,000, HK$13,038,000, HK$7,880,000 and HK$Nil for the years ended 31 March 2006, 2007 and 2008, and period ended 30 September 2007 and 2008 respectively, the amount of which is also included in the respective total amounts disclosed separately above.

I – 39

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. OTHER OPERATING EXPENSES

			For theyear ended 31 March	For theyear ended 31 March	For theyear ended 31 March				For the	For the	six months ended 30 September	six months ended 30 September	six months ended 30 September	six months ended 30 September
Continuing operations			Discontinued operations				Consolidated		Continuing operations		Discontinued	operations	Consolidated
2006 HK$’000 (Restated) – – – – – – – 755 – 755	2007 HK$’000 (Restated) 77 – – – 2,327 – – – – 2,404	2008 HK$’000 – – 3,733 10,589 4,957 – – – –	2006 HK$’000 (Restated) – 2,162 12,964 – – 955 – – – 16,081	2007 HK$’000 (Restated) (10) – – – – 1,342 – – – 1,332	2008 HK$’000 139 – – – – 5,513 10,466 – –	2006 HK$’000 (Restated) – 2,162 12,964 – – 955 – 755 – 16,836	2007 HK$’000 (Restated) 67 – – – 2,327 1,342 – – – 3,736	2008 HK$’000 139 – 3,733 10,589 4,957 5,513 10,466 – –	2007 HK$’000 (Unaudited) (Restated) – – – – – – – – – –	2008 HK$’000 – 230 19,753 63,535 – – – – –	2007 HK$’000 (Unaudited) (Restated) – – – – – 5,513 19,768 – 139 25,420	2008 HK$’000 – – – – – – – – –	2007 HK$’000 (Unaudited) (Restated) – – – – – 5,513 19,768 – 139 25,420	2008 HK$’000 – 230 19,753 63,535 – – – – –
		19,279			16,118			35,397		83,518		–		83,518

I – 40

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows:

For theyear ended 31 March 2006	For theyear ended 31 March 2006	For theyear ended 31 March 2006
Fees HK$’000 – – – – – – – – – – 10 23 25 50 10 8 50 10 8 50 23 – 257 267	Salaries Retirement and other scheme benefits contributions HK$’000 HK$’000 716 10 168 2 1,120 11 918 6 1,686 24 420 12 233 6 – – 336 2 5,597 73 – – – – – – – – – – – – – – – – – – – – – – – – – – 5,597 73	Total HK$’000 726 170 1,131 924 1,710 432 239 – 338
		5,670
		10
		23 25 50 10 8 50 10 8 50 23 –
		257
		5,937

I – 41

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For theyear ended 31 March 2007	For theyear ended 31 March 2007	For theyear ended 31 March 2007
Fees HK$’000 – – – – – – – 32 61 93 180 120 60 360 453	Salaries Retirement and other scheme benefits contributions HK$’000 HK$’000 1,289 12 1,324 12 1,564 – 494 – 50 – 2,578 12 7,299 36 – – – – – – – – – – – – – – 7,299 36	Total HK$’000 1,301 1,336 1,564 494 50 2,590
		7,335
		32 61
		93
		180 120 60
		360
		7,788

I – 42

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For theyear ended 31 March 2008	For theyear ended 31 March 2008	For theyear ended 31 March 2008
Fees HK$’000 – – – – – – – – 58 42 100 17 58 58 50 50 150 – 383 483	Salaries Retirement and other scheme benefits contributions HK$’000 HK$’000 1,300 12 233 6 517 7 1,140 12 720 – 228 – 2,200 10 6,338 47 – – – – – – – – – – – – – – – – – – – – – – 6,338 47	Total HK$’000 1,312 239 524 1,152 720 228 2,210
		6,385
		58 42
		100
		17 58 58 50 50 150 –
		383
		6,868

I – 43

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the six months ended 30 September 2007	For the six months ended 30 September 2007	(Unaudited)
Fees HK$’000 – – – – – – – – 42 8 50 90 50 1 50 8 8 207 257	Salaries Retirement and other scheme benefits contributions HK$’000 HK$’000 600 6 900 10 1,322 10 418 5 1,200 6 10 – 10 – 4,460 37 – – – – – – – – – – – – – – – – – – – – 4,460 37	Total HK$’000 606 910 1,332 423 1,206 10 10
		4,497
		42 8
		50
		90 50 1 50 8 8
		207
		4,754

I – 44

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the six months ended 30 September 2008	For the six months ended 30 September 2008	For the six months ended 30 September 2008
Fees HK$’000 – – – – 33 33 50 42 8 50 150 183	Salaries Retirement and other scheme benefits contributions HK$’000 HK$’000 400 6 480 6 240 6 1,120 18 – – – – – – – – – – – – – – 1,120 18	Total HK$’000 406 486 246
		1,138
		33
		33
		50 42 8 50
		150
		1,321

I – 45

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five highest paid individuals for the years ended 31 March 2006, 2007 and 2008, and period ended 30 September 2007 and 2008 included four, four, four, four and three directors respectively, details of whose remuneration are set out in note 11 above. Details of the emoluments of the remaining one, one, one, one and two non-director, highest paid individual for the years ended 31 March 2006, 2007 and 2008, and period ended 30 September 2007 and 2008 respectively are as follows:

The Group
For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 564 1,289 1,330 12 12 12 576 1,301 1,342 The Group	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) 600 840 6 12 606 852
		852


For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 1 – – – 1 1 1 1 1	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) 1 2 – – 1 2
		2

13. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

a) Income tax in the consolidated income statement represents:

No provision for Hong Kong Profits Tax has been provided as the Group did not generate any assessable profit arising in Hong Kong for financial year ended 31 March 2006 and 2007.

Hong Kong Profits Tax has been provided at the rate of 17.5% of the estimated assessable profits arising in Hong Kong for the years ended 31 March 2008, and period ended 30 September 2007 and 2008.

Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

Current tax – Hong Kong – Overseas Overprovision – Hong Kong Tax expense/(credit)		For theyear ended 31 March		For the six months ended 30 September	For the six months ended 30 September	For the six months ended 30 September
	Continuing operations	Discontinued operations	Consolidated	Continuing operations	Discontinued operation	s Consolidated
	2006 2007 200 HK$’000 HK$’000 HK$’00 (Restated) (Restated) – (131) 1,60 – – 27 – – – (131) 1,88	8 2006 2007 2008 0 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 4 – – – 7 (176) – 14 – – – – 1 (176) – 14	2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) – (131) 1,604 (176) – 291 – – – (176) (131) 1,895	2007 2008 2007 200 HK$’000 HK$’000 HK$’000 HK$’00 (Unaudited) (Unaudited) (Restated) (Restated) 438 387 – 574 774 – – (645) – 1,012 516 –		8 2007 2008 0 HK$’000 HK$’000 (Unaudited) (Restated) – 438 387 – 574 774 – – (645) – 1,012 516

I – 46

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

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

Loss before taxation – Continuing operations – Discontinued operations (note 14) Notional tax on loss before taxation, calculated at the rates applicable to (losses)/profits in the countries concerned Tax effect of non-taxable income Tax effect of non-deductible expenses Tax losses utilised from previous periods Tax effect of tax losses not recognised Others Actual tax expense/(credit)	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (8,579) (25,739) (39,210) (51,496) (29,775) (73,625) (60,075) (55,514) (112,835) (14,259) (11,549) (38,364) (210) (1,311) (3,023) 503 1,652 10,706 – (9) – 13,790 11,086 32,309 – – 267 (176) (131) 1,895	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) (1,887) (127,856) (45,855) (13,642) (47,742) (141,498) (1,251) (19,559) (1,055) (296) 5,950 17,666 – – (2,632) 3,352 – (647) 1,012 516

14. DISCONTINUED OPERATIONS

On 8 December 2007, the Company entered into a sales and purchase agreement with Ocean Alliance (HK) Limited, an independent third party, to dispose of the entire equity interest in Antec Appliance Limited and Anex Electrical Company Limited and the entire amounts owing by Antex Appliance Limited and its subsidiaries (collectively “Antec Group”) and Anex Electrical Company Limited and its subsidiaries (collectively “AECL Group’) to the Group. Antec Group and AECL Group are principally engaged in the home appliances business. The disposal was completed on 31 January 2008.

On 24 September 2008, the Company entered into a sales and purchase agreement with Rich Kind Investment Development Limited, an independent third party, to dispose of the entire equity interest in Anco Industrial Company Limited and its subsidiaries (collectively “Anco Group”). The Anco Group are principally engaged in the property holding for home appliances business. The disposal was completed on 30 September 2008.

I – 47

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Therefore, the operations of Antec Group, AECL Group and Anco Group are classified as discontinued operations and the loss arising from discontinued operations is analysed as follows:

Gain/(loss) on discontinued operations for the year/period Loss on disposal of discontinued operations_(note 38)_	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (51,320) (29,775) (49,189) – – (24,450) (51,320) (29,775) (73,639)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) (45,855) 1 – (13,643) (45,855) (13,642)

The results of the discontinued operations which have been included in the consolidated income statement for the Relevant Periods are as follows:

Turnover Cost of sales Gross profit/(loss) Other revenue and gains Operating expenses Gain/(loss) from operations Finance costs Loss before tax Income tax Attributable to: Equity shareholders of the Company Minority interest	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 182,324 203,010 99,817 (166,051) (189,137) (109,274) 16,273 13,873 (9,457) 681 3,937 1,710 (66,266) (45,158) (40,138) (49,312) (27,348) (47,885) (2,184) (2,427) (1,290) (51,496) (29,775) (49,175) 176 – (14) (51,320) (29,775) (49,189) (51,157) (29,707) (49,189) (163) (68) – (51,320) (29,775) (49,189)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (Restated) 62,309 – (68,989) – (6,680) – 5,808 4 (44,046) (3) (44,918) 1 (937) – (45,855) 1 – – (45,855) 1 (45,863) 1 8 – (45,855) 1

During the years ended 31 March 2006, 2007 and 2008 and six month ended 30 September 2007 and 2008, Antec Group, AECL Group and Anco Group contributed HK$8,025,000, HK$12,452,000, HK$12,786,000, HK$2,836,000 and HK$Nil to the Group’s net operating cash flows, contributed HK$10,728,000, HK$13,478,000, HK$4,180,000, HK$2,200,000 and HK$Nil in respect of investing activities and paid HK$22,097,000, HK$4,463,000, HK$2,355,000, HK$1,782,000 and HK$Nil in respect of financing activities.

The carrying amounts of the assets and liabilities of the discontinued operations at the date of disposal are disclosed in note 38.

I – 48

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. LOSS ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated loss attributable to equity shareholders of the Company includes a loss of HK$37,250,000, HK$57,460,000, HK$90,924,000 and HK$76,612,000 for the years ended 31 March 2006, 2007 and 2008, and period ended 30 September 2008 respectively, which has been dealt with in the financial statements of the Company.

16. LOSS PER SHARE

a) Basic loss per share for continuing and discontinued operation

The calculation of basic loss per share is based on the loss attributable to equity shareholders of the Company and the weighted average number of ordinary shares in issue during the year.

Loss attributable to equity shareholders of the Company used in the basic loss per share calculation – From continuing operations – From discontinued operations	For the year ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 (8,579) (25,320) (39,253) (51,157) (29,707) (73,639) (59,736) (55,027) (112,892)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (4,386) (109,715) (45,863) (13,642) (50,249) (123,357)	For the six months ended 30 September 2007 2008 HK$’000 HK$’000 (Unaudited) (4,386) (109,715) (45,863) (13,642) (50,249) (123,357)
			(123,357)

Weighted average number of ordinary shares

Issued ordinary shares at 1 April Effect of shares issued under rights issue Effect of shares issued under placement and subscription Effect of shares issued under bonus warrants Effect of consideration shares issued for the acquisition of subsidiaries Weighted average number of ordinary shares at 31 March	2006 No. of shares ’000 457,525 – 132,033 – – 589,558	As at 31 March 2007 2008 No. of shares No. of shares ’000 ’000 768,642 1,544,925 585,274 – – 229,619 222 135,150 – 56,986 1,354,138 1,966,680	As at 30 September 2007 2008 No. of shares No. of shares ’000 ’000 1,553,413 2,898,859 – – 151,813 – 46,233 28,857 – – 1,751,459 2,927,716	As at 30 September 2007 2008 No. of shares No. of shares ’000 ’000 1,553,413 2,898,859 – – 151,813 – 46,233 28,857 – – 1,751,459 2,927,716
				2,927,716

b) Diluted loss per share

No diluted loss per share has been disclosed in the outstanding bonus warrants and convertible notes had an antidilutive effect on the basic loss per share for the years ended 31 March 2007 and 2008, and period ended 30 September 2007 and 2008.

Diluted loss per share for the year ended 31 March 2006 has not been disclosed as no diluting events existed during the year.

I – 49

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT

The Group

Buildings held for own use carried at fair value HK$’000 Cost or valuation At 1 April 2005 41,235 Additions – Disposals (1,471) Written off – Revaluation surplus 636 Exchange realignment – At 31 March 2006 40,400 Analysis of cost or revaluation At cost – At valuation 40,400 40,400 At 1 April 2006 40,400 Disposal of a subsidiary – Additions 117 Disposals (1,530) Revaluation surplus 8,030 Exchange realignment 3 At 31 March 2007 47,020 Analysis of cost or revaluation At cost – At valuation 47,020 47,020 At 1 April 2007 47,020 Acquisition of subsidiaries – Disposal of subsidiaries_(note e) – Additions – Disposals (6,810) Revaluation surplus 3,796 Exchange realignment 24 At 31 March 2008 44,030 Analysis of cost or revaluation At cost – At valuation 44,030 44,030 At 1 April 2008 44,030 Disposal of subsidiaries(note g)_ (43,800) Additions – Disposals – Revaluation surplus 5 Exchange realignment 5 Written off – At 30 September 2008 240 Analysis of cost or revaluation At cost – At valuation 240 240	Machinery, Furniture engineering and and other fixtures equipment HK$’000 HK$’000 11,445 18,367 2,367 3,067 – (2,007) (2,816) (3,337) – – (76) – 10,920 16,090 10,920 16,090 – – 10,920 16,090 10,920 16,090 (27) – 2,872 2,514 (188) – – – 64 – 13,641 18,604 13,641 18,604 – – 13,641 18,604 13,641 18,604 70 – (5,322) (13,455) 871 91 (8,010) (5,240) – – 12 – 1,262 – 1,262 – – – 1,262 – 1,262 – – – 1,224 – – – – – 9 – – – 2,495 – 2,495 – – – 2,495 –	Motor vehicles HK$’000 3,434 – (3,259) – – – 175 175 – 175 175 – 585 – – 7 767 767 – 767 767 651 (175) 256 – – 28 1,527 1,527 – 1,527 1,527 – – (342) – 22 – 1,207 1,207 – 1,207	Moulds HK$’000 53,988 3,790 (2,151) (3,455) – – 52,172 52,172 – 52,172 52,172 – 3,062 – – – 55,234 55,234 – 55,234 55,234 – (48,482) 1,130 (7,882) – – – – – – – – – – – – – – – – –	Total HK$’000 128,469 9,224 (8,888) (9,608) 636 (76) 119,757 79,357 40,400 119,757 119,757 (27) 9,150 (1,718) 8,030 74 135,266 88,246 47,020 135,266 135,266 721 (67,434) 2,348 (27,942) 3,796 64 46,819 2,789 44,030 46,819 46,819 (43,800) 1,224 (342) 5 36 – 3,942 3,702 240 3,942

I – 50

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Buildings held for own use carried at fair value HK$’000 Accumulated depreciation At 1 April 2005 – Charge for the year 1,230 Written back on disposals (4) Write off – Elimination on revaluation (1,226) Exchange realignment – At 31 March 2006 – At 1 April 2006 – Charge for the year 1,102 Written back on disposals (28) Elimination on revaluation (1,075) Exchange realignment 1 At 31 March 2007 – At 1 April 2007 – Acquisition of subsidiaries – Charge for the year 1,248 Written back on disposals of subsidiaries_(note e) – Written back on disposals (68) Elimination on revaluation (1,180) Impairment(note f)_ – Exchange realignment – At 31 March 2008 – At 1 April 2008 – Charge for the period 2 Write back on disposals – Written off – Elimination on revaluation (1) Exchange realignment (1) At 30 September 2008 – Net book value At 31 March 2006 40,400 At 31 March 2007 47,020 At 31 March 2008 44,030 At 30 September 2008 240	Furniture and fixtures HK$’000 6,366 2,075 – (2,816) – (62) 5,563 5,563 2,036 (183) – 54 7,470 7,470 1 1,659 (3,471) (5,477) – – 2 184 184 216 – – – 1 401 5,357 6,171 1,078 2,094	Machinery, engineering and other equipment HK$’000 9,456 1,772 (890) (3,337) – – 7,001 7,001 1,699 – – – 8,700 8,700 – 1,409 (4,869) (5,240) – – – – – – – – – – – 9,089 9,904 – –	Motor vehicles HK$’000 3,016 141 (3,125) – – – 32 32 54 – – – 86 86 6 86 (64) – – – 2 116 116 81 (83) – – 1 115 143 681 1,411 1,092	Moulds HK$’000 23,442 5,416 (956) (3,455) – – 24,447 24,447 5,231 – – – 29,678 29,678 – 3,084 (41,073) (2,155) – 10,466 – – – – – – – – – 27,725 25,556 – –	Total HK$’000 42,280 10,634 (4,975) (9,608) (1,226) (62) 37,043 37,043 10,122 (211) (1,075) 55 45,934 45,934 7 7,486 (49,477) (12,940) (1,180) 10,466 4 300 300 299 (83) – (1) 1 516 82,714 89,332 46,519 3,426

I – 51

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

a) The net book value of property, plant and equipment held under finance leases included in the total amount of machinery, engineering and other equipment which held by Antec Group and AECL Group (see note (e)) and motor vehicles at 31 March 2006, 2007 and 2008, and 30 September 2008 amounted to HK$2,877,000, HK$5,312,000, HK$Nil, and HK$Nil; and HK$Nil, HK$307,000, HK$273,000 and HK$Nil respectively.
b) The Group’s buildings held for own use were revalued at their open market value by adopting the depreciated replacement cost approach and direct comparison method at 31 March 2006 by an independent valuer DTZ Debenham Tie Leung Limited, and at 31 March 2007 and 2008 and 30 September 2008 by an independent valuer RHL Appraisal Limited. Both valuers who have among their staff, Fellows of Hong Kong Institute of Surveyors, with recent experience in the location and category of property being revalued.
c) The analysis of net book value of buildings at balance sheet date is as follows:

	The Group
2006 HK$’000 10,270 30,130 40,400 40,400	As at 31 March 2007 2008 HK$’000 HK$’000 6,810 – 40,210 44,030 47,020 44,030 47,020 44,030	As at 30 September 2008 HK$’000 – 240
		240

		240

At 31 March 2006, 2007 and 2008, and 30 September 2008 the Group’s properties been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been approximately HK$29,438,000, HK$26,095,000, HK$18,153,000 and HK$115,000 respectively.

d) At 31 March 2006, 2007 and 2008 and 30 September 2008, certain of the Group’s properties in Hong Kong with a net book value of HK$10,270,000, HK$6,810,000, HK$Nil and HK$Nil respectively were pledged to secure general banking facilities granted to the Group (see note 27).
e) The disposal of subsidiaries refer to the disposal of Antec Group and AECL Group, which were principally engaged in the design and manufacturing and trading of home appliances business during the year ended 31 March 2008 (see note 38(b)).
f) During the year ended 31 March 2008, a number of moulds in the home appliances were obsolesces. As a result, the Group assessed the recoverable amount of those moulds and considered the carrying amount of the moulds has to write down by HK$10,466,000 (included in “other operating expenses”). The assessment of recoverable amount were based on the moulds’ fair values less cost to sell, determined by reference to the recent observable market prices for similar assets within the same industry.
g) During the period ended 30 September 2008, the Group disposed Anco Industrial Company Limited and its subsidiaries, which were principally properties holding for home appliances (see note 38(a)).

I – 52

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company

Leasehold improvement HK$’000 Cost At 1 April 2005 – Additions – At 31 March 2006 – At 1 April 2006 – Additions – At 31 March 2007 – At 1 April 2007 – Additions 236 At 31 March 2008 236 At 1 April 2008 236 Additions 827 Disposals – At 30 September 2008 1,063 Accumulated depreciation At 1 April 2005 – Charge for the year – At 31 March 2006 – At 1 April 2006 – Charge for the year – At 31 March 2007 – At 1 April 2007 – Charge for the year – At 31 March 2008 – At 1 April 2008 – Charge for the period 107 Written back on disposals – At 30 September 2008 107	Furniture and other equipment HK$’000 – 189 189 189 190 379 379 69 448 448 253 – 701 – – – – 58 58 58 68 126 126 53 – 179	Motor vehicles HK$’000 – – – – 342 342 342 256 598 598 – (342) 256 – – – – 34 34 34 39 73 73 27 (83) 17	Total HK$’000 – 189 189 189 532 721 721 561 1,282 1,282 1,080 (342) 2,020 – – – – 92 92 92 107 199 199 187 (83) 303

I – 53

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Net book value At 31 March 2006 At 31 March 2007 At 31 March 2008 At 30 September 2008	Leasehold improvement HK$’000 – – 236 956	Furniture and other equipment HK$’000 189 321 322 522	Motor vehicles HK$’000 – 308 525 239	Total HK$’000 189

				629

				1,083

				1,717

18. INTERESTS IN LEASEHOLD LAND HELD FOR OWN USE UNDER OPERATING LEASES

The Group

Cost At 1 April 2005 Disposals At 31 March 2006 At 1 April 2006 Additions Disposals Exchange realignment At 31 March 2007 At 1 April 2007 Additions Disposals Exchange realignment At 31 March 2008 At 1 April 2008 Disposals of subsidiaries Exchange realignment At 30 September 2008	HK$’000 8,010 (830)
	7,180
	7,180 240 (433) 7
	6,994
	6,994 – (3,696) 27
	3,325
	3,325 (3,051) 7
	281

I – 54

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Accumulated amortisation
At 1 April 2005
Charge for the year
Written back on disposals
At 31 March 2006
At 1 April 2006
Charge for the year
Written back on disposals
At 31 March 2007
At 1 April 2007
Charge for the year
Written back on disposals of subsidiaries
At 31 March 2008
At 1 April 2008
Charge for the period
Written back on disposals
At 30 September 2008
Net book value
At 31 March 2006
At 31 March 2007
At 31 March 2008
At 30 September 2008

HK$’000
1,846
142
(176)
1,812
1,812
149
(109)
1,852
1,852
158
(995)
1,015
1,015
3
(1,010)
8
5,368
5,142
2,310
273

a) At 31 March 2006, 2007 and 2008 and 30 September 2008, certain of the Group’s leasehold land in Hong Kong with net book value of HK$3,204,000 HK$2,793,000, HK$Nil and HK$Nil respectively was pledged to a bank to secure the banking facility granted to the Group (see note 27).

I – 55

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b) Analysed as reporting purpose:

Current portion Non-current portion 19. GOODWILL The Group Cost At 1 April 2005 and 31 March 2006 At 1 April 2006 Acquisition of subsidiaries (note 37(b)) At 31 March 2007 Acquisition of subsidiaries (note 37(a)) At 31 March 2008 Acquisition of subsidiaries At 30 September 2008 Accumulated impairment losses At 1 April 2005 and 31 March 2006 At 1 April 2006 Impairment loss At 31 March 2007 Impairment loss At 31 March 2008 Impairment loss At 30 September Carrying amount At 31 March 2006 At 31 March 2007 At 31 March 2008 At 30 September 2008	2006 HK$’000 226 5,142 5,368	As at 31 March 2007 2008 HK$’000 HK$’000 158 66 4,984 2,244 5,142 2,310	As at 30 September 2008 HK$’000 5 268
			273

			HK$’000 –
			– 7,284
			7,284 –
			7,284 –
			7,284
			–
			– 2,327
			2,327 4,957
			7,284 –
			7,284
			–

			4,957

			–

			–

I – 56

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment test for goodwill

Goodwill is allocated to the Group’s cash generating units (“CGU”) identified according to business segment.

				As at 30
		As at 31 March		September
	2006	2007	2008	2008
	HK$’000	HK$’000	HK$’000	HK$’000
Real estate	–	4,957	–	–

In accordance with HKAS 36 “Impairment of Assets”, and following the allocation of goodwill to CGU, the impairment test for goodwill was carried out by comparing the recoverable amounts to the carrying amounts as at the balance sheet date. The recoverable amount of a CGU is determined based on value-in-use calculations. The calculation use pre-tax cash flow projections based on financial budgets approved by management covering a twelve month period and the estimated terminal value at the end of the twelve month period. Management determined profit forecast based on past performance and its expectation for the future changes in costs and sales prices. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. Future cashflows are discounted at Nil, 7.75%, 7.75% and Nil at 31 March 2006, 2007 and 2008, and 30 September 2008 respectively. The discount rates used are pre-tax and reflect specific risks relating to the relevant CGU.

a) BIP (HK) was engaged in construction related activities and provision of project management service. For the purpose of streamlining the overall building materials business operation of the Group, the business of BIP (HK) have been transferred to its fellow subsidiaries. Therefore the business activities of BIP (HK) have slowed down significantly and there is little or no indication of profit generating ability in the foreseeable future. The directors consider that a full provision for impairment of the carrying amount of goodwill of HK$2,327,000 is required. The provision has been charged to the income statement for the year ended 31 March 2007.
b) Ancen Properties Limited was engaged in real estate development during the year ended 31 March 2008. The Group has acquired new business segment and therefore the business profile of the Group was restructured. As the result, the real estate development business will be slowed down significantly and the indication of profit generating ability in the foreseeable future is limited. The directors consider that a full provision for impairment of the carrying amount of goodwill of HK$4,957,000 is required. The provision has been charged to the income statement for the year ended 31 March 2008.

I – 57

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Less: impairment losses		The Company	As at 30 September 2008 HK$’000 1,565,854 135,576 1,701,430 (15,813) 1,685,617
	2006 HK$’000 60,953 212,236 273,189 (161,182) 112,007	As at 31 March 2007 2008 HK$’000 HK$’000 79,920 1,565,854 240,521 172,634 320,441 1,738,488 (210,161) (47,334) 110,280 1,691,154

a) The amounts due from subsidiaries are unsecured, interest-free and not expected to be received within one year, except for an amount due from a subsidiary of HK$4,050,000 as at 31 March 2006, which bears interest at a rate ranging from 5.0% to 7.5% per annum.

At 31 March 2006, 2007 and 2008 and 30 September 2008, the impairment losses represented the write-down of amounts due from subsidiaries of HK$161,182,000, HK$210,161,000, HK$47,334,000 and HK$15,813,000 respectively.

b) The subsidiaries engaged in the home appliances business have recurring operating losses with low liquidity ratios, the directors determine the recoverable amount based on value-in-use calculation using the discount rate at 7.75% and consider that recognition of impairment loss on due from subsidiaries of HK$210,161,000 is required and the amount of HK$48,979,000 has been charged to the income statement of the Company for the years ended 31 March 2007.

During the year ended 31 March 2008, the impairment losses of HK$210,161,000 have been reversed upon the disposal of the subsidiaries engaged in home appliances business.

c) At 31 March 2008, several subsidiaries engaged in real estate business and corporate have recurring operating losses with low liquidity ratios. Due to the poor performance of the subsidiaries, the directors determine the recoverable amount based on value-in-use calculation using the discount rate at 7.75%. The directors consider that recognition of impairment loss on due from those subsidiaries engaged in real estate business and corporate activity of HK$2,670,000 and HK$44,664,000 respectively is required. The amount has been charged to the income statement of the Company for the years ended 31 March 2008.
d) During the period ended 30 September 2008, the impairment losses of HK$32,534,000 have been reversed upon the disposal of the subsidiaries. Due to the poor performance of the subsidiaries, the directors determine the recoverable amount based on value-in-use calculation using the discount rate at 7.75%. The directors consider that provision on impairment of the amount due from those subsidiaries engaged in corporate activity of HK$15,813,000 is required. The amount has been charged to the income statement of the Company for the period ended 30 September 2008.

I – 58

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

e) Particulars of the subsidiaries are as follows:

	Place of	Nominal value of	Percentage of	Percentage of
	incorporation/	ordinary	equity
	registration	share capital/	attributable to		Principal
Name	and operations	registered capital	the Company		activities
			directly	indirectly
Anex Construction	Hong Kong	HK$1	–	100	Dormant
and Engineering
Limited
Anex International	Hong Kong	HK$1	100	–	Human
Management					resources
Limited					management
Anex Construction	British Virgin Islands	US$1	100	–	Dormant
and Engineering
Holdings Limited
Anex Properties	British Virgin Islands	US$1	100	–	Dormant
Holdings Limited
Ancen Properties	Hong Kong	HK$100	70	–	Investment
Limited					holding
(“Ancen Properties”)
東莞嘉湖山莊	mainland China	RMB128,276,445	–	70	Real estate
建造有限公司					development
(“東莞嘉湖山莊”) *
United Anex	Hong Kong	HK$10,000	–	60	Building
Engineering					material
Limited					business
United Anex	Macau	MOP$25,000	–	60	Building
(Macau) Limited					material
					business
BIP (HK)	Hong Kong	HK$10,000	–	100	Dormant
Company Limited
(“BIP (HK)”)
Idealboom Group	British Virgin Islands	US$1	100	–	Investment
Limited					holding
Total Growth	Hong Kong	HK$1	100	–	Properties
Limited					investment
Anex Far East	Hong Kong	HK$1	–	100	Building
Limited					material
					business

I – 59

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Place of	Nominal value of	Percentage of	Percentage of
		incorporation/	ordinary	equity
		registration	share capital/	attributable to		Principal
Name		and operations	registered capital	the Company		activities
				directly	indirectly
Ling Kit Holding		British Virgin Islands	US$50,000	100	–	Investment
Ltd. #(“Ling Kit”)						holding
Anex Overseas Ltd.		Samoa	US$1	100	–	Dormant
Joyful Rise Investments		British Virgin Islands	US$100	–	100	Investment
Ltd. #						holding
海城市東鑫實業		mainland China	RMB5,200,000	–	80	Mining and
有限公司						processing of
(Haicheng Dongxin						magnesite ore
Industry Ltd.)						at magnesite mine
(“Haicheng
Dongxin”) # *
Bright Prosperous		Hong Kong	HK$1	–	100	Dormant
Holdings Limited
(Formerly known as
Magnesium Corporation
of China Ltd.)
北京晉嘉宏采投資		mainland China	RMB100,000	–	100	Properties
咨詢有限公司						investment
(Beijing Joyful Rise						and consulting
Investment Consulting
Company Ltd.) # ^
Ever Think Holdings		British Virgin Islands	US$1,000	–	70	Investment
Company Limited	Δ					holding
Ever Think Technology		Hong Kong	HK$1	–	70	Building
Limited Δ						material
						Business

Δ Subsidiaries set up during the period ended 30 September 2008.

Subsidiaries set up/acquired during the year ended 31 March 2008.

^ Wholly-foreign owned enterprise registered in mainland China.

Sino-foreign owned enterprise registered in mainland China.

I – 60

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. INTANGIBLE ASSETS

The Group

Cost At 1 April 2005 and 31 March 2006 At 1 April 2006 and 31 March 2007 At 1 April 2007 Acquisition from subsidiaries (note 37(a)) At 31 March 2008 At 1 April 2008 and 30 September 2008 Accumulated amortisation At 1 April 2005 and 31 March 2006 At 1 April 2006 and 31 March 2007 At 1 April 2007 Charge for the year At 31 March 2008 At 1 April 2008 Charge for the period At 30 September 2008 Net book value At 31 March 2006 At 31 March 2007 At 31 March 2008 At 30 September 2008	HK$’000 –
	–
	– 2,033,130
	2,033,130
	2,033,130
	–
	–
	– 10,589
	10,589
	10,589 63,535
	74,124
	–

	–

	2,022,541

	1,959,006

a) Intangible assets represent the mining rights held by the Group.

b) The mining rights are stated at cost less accumulated amortisation and any impairment losses. The mining rights are amortised in straight-line basis over its estimated useful lives of 16 years. The amortisation charge for the year is grouped under other operating expenses in the consolidated income statement.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

c) As described in note 37, the Group acquired the entire equity interest of Ling Kit in March 2008 which is solely engaged in holding of 80% equity interest in the Haicheng Dongxin. Haicheng Dongxin is engaged in mining and processing of magnesite ore. The mining rights of the magnesite mine is covered by the mining licences summarized below:

Licence number	Mining Areas (km 2)	Expiry date
2100000431318	0.3110	November 2009
2100000330769	0.2297	May 2004
		(Note (i))
2100000421523	0.3535	September 2009
		(Note (ii))
	0.8942

Notes:

i) As further explained in (d) below, the relevant government authority has approved the temporary extension of the mining right to October 2009.
ii) The completion of the acquisition is subject to the approval by the relevant government authority.
d) As advised by the Company’s PRC legal adviser, the relevant PRC local government authority has promulgated certain policies to consolidate mines in Liaoning Province for the purpose of, among others, improving the utilisation of mines and environmental protection. Pursuant to these policies, in September 2007, the relevant PRC authorities certified the three mining licences as mentioned in (c) above to be consolidated into one. However as at 30 September 2008 and up to the date of the circular, the formal approval and certificate has not been completed and issued by the relevant authorities in mainland China.

To the best of the knowledge of the Company’s directors, the relevant PRC government authorities’ certified the mining areas in respect of the consolidated mining rights exclude certain minor areas, which represented approximately 3% of the aggregated mining areas of the mining licences as mentioned above, for the reason that the excluded areas do not contain any magnesite resources.

As further advised by the Company’s PRC legal advisor, Haicheng Dongxin had applied the consolidated mining licence for an area covering 0.8643 km2, and the application is in process, and there is no foreseeable legal impediments for Haicheng Dongxin to obtain the consolidated mining licence.

e) The Group had entered into an agreement with Pure Hope Development Limited and the guarantor whereby the Group conditionally agreed to sell the 100% equity interest of Ling Kit at the consideration of approximately HK$1,624,000,000. Ling Kit is an investment holding company and its principal asset is 80% interest in Haicheng Dongxin. Haicheng Dongxin is principally engaged in the mining of magnesite ore at the Magnesite Mine in the PRC.

The director considered that no impairment for the intangible assets as at 30 September 2008.

I – 62

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. INTEREST IN AN ASSOCIATE

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 – – – – – – – –	As at 31 March		2008 HK$’000 – – – –	As at 30 September
2006 HK$’000 – 15,185 923 16,108	2007 HK$’000 – – – –	2006 HK$’000 – – 923 923	2007 HK$’000 – – – –		2008 HK$’000 – – –
					–

Notes:

a) The amount due from an associate is unsecured, interest free and has no fixed terms of repayment.
b) Particulars of the associate at 31 March 2006 are as follows:

			Percentage of	Percentage of
		Place of	ownership	interest
	Business	incorporation	attributable to		Principal
Name	structure	and operations	the Company		activity
			directly	indirectly
Ancen Properties	Corporate	Hong Kong	40%	–	Investment
					holding
東莞嘉湖山莊	Sino-foreign	mainland China	–	40%	Real estate
	cooperated				development
	corporation

c) Extracts of the financial statements of the Group’s associate are as follows:

	As at 31 March 2007 2008 HK$’000 HK$’000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A	As at 30 September	As at 30 September
2006 HK$’000 10,481 (7,186) 4,819 58,639 (17,713) (7,782)	2007 HK$’000 N/A N/A N/A N/A N/A N/A	2007 HK$’000 (Unaudited) N/A N/A N/A N/A N/A N/A	2008 HK$’000 N/A N/A

			N/A N/A N/A N/A

d) During the year ended 31 March 2007, the Company acquired additional 30% equity interest of Ancen Properties and it became the subsidiary of the Company (note 37(b)). The share of loss of an associated of HK$5,544,000 recorded during the year ended 31 March 2007 represent the Group’s share of loss of Ancen Properties from 1 April 2006 up to the date of conversion of Ancen Properties from an associate to a subsidiary of the Group.

I – 63

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. INVENTORIES

a) Inventories in the consolidated balance sheet comprise:

The Group As at 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 Home appliances Raw materials 12,055 23,884 – Work in progress 9,895 9,690 – Finished goods 12,239 7,892 – 34,189 41,466 – Real estate Properties under development for sale – 40,115 43,300 Completed properties held for sale – 12,723 15,041 – 52,838 58,341 Total inventories 34,189 94,304 58,341 The analysis of carrying value of land held for properties under development for sale is as follows: As at 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 Outside Hong Kong – mainland China Long term lease – 40,115 43,300		The Group
			As at 30 September 2008 HK$’000 – – –
			–
			27,300 12,265
			39,565
			39,565

			As at 30 September 2008 HK$’000 27,300

b) The analysis of carrying value of land held for properties under development for sale is as follows:

Based on the legal opinion obtained by the Group, the Group continues to enjoy the rights of use of the parcel of land and income derived from the parcel of land including lease income and from other lawful means not withstanding the fact that the certificate of state-owned land use right is not registered under the name of東莞嘉湖山莊.

c) The completed properties held for sale are located in mainland China and on the leasehold land with long term lease.
d) The analysis of the amount of inventories recognised as an expense is as follows:

The amount of write-down of inventories recognised as an expense during the year ended 31 March 2006, 2007 and 2008, and period ended 30 September 2008 is HK$13,546,000, HK$4,344,000, HK$3,733,000 and HK$19,753,000 respectively.

e) The amount of properties under development for sale expected to be recovered after more than one years is HK$Nil, HK$40,115,000, HK$43,300,000 and HK$27,300,000 as at 31 March 2006, 2007 and 2008, and 30 September 2008 respectively. All of the other inventories including the completed properties held for sale and inventories for home appliances segment are expected to be recovered within one year.

I – 64

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER RECEIVABLES

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 26,048 64,653 (1,209) (2,933) 24,839 61,720 1,672 8,317 – 256 7,061 556 33,572 70,849 3,077 5,434 10,316 – 1,828 5,989 48,793 82,272	As at 31 March		2008 HK$’000 – – – – – 420 420 1,779 – – 2,199	As at 30 September
2006 HK$’000 25,021 (1,189) 23,832 – – 1,959 25,791 5,002 8,862 – 39,655	2007 HK$’000 26,048 (1,209) 24,839 1,672 – 7,061 33,572 3,077 10,316 1,828 48,793	2006 HK$’000 – – – – – – – 533 – – 533	2007 HK$’000 – – – – – 94 94 450 – – 544		2008 HK$’000 – –
					– – – 178
					178 2,220 – –
					2,398

a) All of the trade and other receivables are expected to be recovered or recognised as expense within one year.
b) Aging analysis

Trade receivables less provision for impairment losses of HK$1,189,000, HK$1,209,000, HK$2,933,000, and HK$3,844,000 for each the three year ended 31 March 2006, 2007 and 2008, and 30 September 2008 respectively.

The ageing analysis of trade receivables as of the balance sheet date is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days		The Group
	2006 HK$’000 15,945 7,119 658 110 23,832	As at 31 March 2007 2008 HK$’000 HK$’000 10,451 44,267 9,099 15,175 2,163 – 3,126 2,278 24,839 61,720	As at 30 September 2008 HK$’000 14,552 – – 34
			14,586

The Group’s trading terms with its customers are mainly on credit and letters of credit, except for new customers where payment in advance and cash on delivery are normally required. Invoices are normally payable between 30 and 180 days after issuance. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimize credit risk. Overdue balances are reviewed regularly by senior management.

I – 65

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

c) The Group incurred labour cost, raw materials and other expenses for mould construction and recorded these amounts as mould deposits. When the mould is completed, the amount will be recognised as moulds and classify under property, plant and equipment. During the year ended 31 March 2006, 2007 and 2008 and 30 September 2008, the mould deposits of HK$3,190,000 HK$2,372,000, HK$4,803,000 and HK$Nil respectively were transferred to moulds under property, plant and equipment.

Due to the decision of discontinue certain product lines, the director determine the construction cost of the moulds could not be recovered and therefore the impairment on the carrying amount of these mould deposits HK$955,000, HK$1,342,000, HK$5,513,000 and HK$Nil for the years ended 31 March 2006, 2007 and 2008 and period ended 30 September 2008 respectively. The mould deposits are related to the home appliances segment and therefore the impairment are fully charged to the consolidated income statement under the loss for the year from discontinued operations for the years ended 31 March 2006, 2007 and 2008 period ended 30 September 2008.

d) The Group had impaired HK$Nil, HK$Nil, HK$938,000 and HK$Nil for the ended 31 March 2006, 2007 and 2008 and period ended 30 September 2008 respectively, for retention receivable, which related to projects abandoned during the year ended 31 March 2008 and the directors expected the amount cannot be recovered.
e) Impairment of trade receivables

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

The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 1,189 1,209 – 106 20 4,427 – – – (2,499) – (310) 1,209 2,933	As at 31 March		2008 HK$’000 – – – – – – –	As at 30 September
2006 HK$’000 1,176 – 13 – – – 1,189	2007 HK$’000 1,189 – 20 – – – 1,209	2006 HK$’000 – – – – – – –	2007 HK$’000 – – – – – – –		2008 HK$’000 – – – – – –
					–

The Group had impaired HK$Nil, HK$20,000, HK$1,928,000 and HK$903,000 for the continuing operations, HK$13,000, HK$Nil, HK$2,499,000 and HK$Nil for the discontinued operations as at 31 March 2006, 2007 and 2008 and 30 September 2008 respectively. The individually impaired receivables related to customers that were outstanding for over a year as at the balance sheet date or in financial difficulties. The Group does not hold any collateral over these balances.

I – 66

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

f) Trade receivables that are not impaired

The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows:

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 14,294 59,442 5,256 – 5,289 2,278 10,545 2,278 24,839 61,720	As at 31 March		2008 HK$’000 – – – – –	As at 30 September
2006 HK$’000 23,064 – 768 768 23,832	2007 HK$’000 14,294 5,256 5,289 10,545 24,839	2006 HK$’000 – – – – –	2007 HK$’000 – – – – –		2008 HK$’000 –
					– –
					–
					–

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

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

25. CONTRACT WORK IN PROGRESS

The Group	The Group
For theyear ended 31 March 2006 2007 2008 HK$’000 HK$’000 HK$’000 – 18,147 140,221 – (20,807) (140,640) – (2,660) (419) – 1,828 5,989 – (4,488) (6,408) – (2,660) (419)		As at 30 September
2006 HK$’000 – – – – – –	2007 HK$’000 18,147 (20,807) (2,660) 1,828 (4,488) (2,660)	2008 HK$’000 212,301 (179,983)
		32,318

		32,318 –
		32,318

The amount of retentions receivable from customers recorded within “trade and other receivables” is HK$Nil, HK$1,672,000, HK$8,317,000 and HK$9,059,000 at 31 March 2006, 2007 and 2008 and 30 September 2008 respectively.

I – 67

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. CASH AND CASH EQUIVALENTS

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 45,245 119,338 45,245 119,338 (4,085) (13,781) 41,160 105,557	As at 31 March		2008 HK$’000 113,942 113,942	As at 30 September
2006 HK$’000 12,242 12,242 (552) 11,690	2007 HK$’000 45,245 45,245 (4,085) 41,160	2006 HK$’000 1,283 1,283	2007 HK$’000 10,369 10,369		2008 HK$’000 75,684
					75,684

27. BANK LOANS AND OVERDRAFTS

	The Group
2006 HK$’000 552 23,351 23,903 2006 HK$’000 23,903	As at 31 March 2007 2008 HK$’000 HK$’000 4,085 13,781 22,792 25,771 26,877 39,552 As at 31 March 2007 2008 HK$’000 HK$’000 26,877 39,552	As at 30 September 2008 HK$’000 6,608 7,056
		13,664

		As at 30 September 2008 HK$’000 13,664

The Group’s bank loans and overdrafts are secured by:

a) At 31 March 2006, 2007 and 2008, and 30 September 2008, certain of the Group’s leasehold land and buildings with a net book value of HK$3,204,000, HK$2,793,000, HK$Nil and HK$Nil (Note 18(a)) and HK$10,270,000, HK$6,810,000, HK$Nil and HK$Nil (Note 17(d)) respectively were pledged to secure general banking facilities granted to the Group;
b) At 31 March 2006, 2007 and 2008 and 30 September 2008, the minimum amount of the Group’s time deposits at HK$7,320,000, HK$7,800,000, HK$30,211,000 and HK$36,091,000 and as at balance sheet date, the Group’s pledged deposit was HK$7,320,000, HK$12,019,000, HK$30,211,000 and HK$36,091,000 respectively;
c) A corporate guarantee given by the minority shareholder of a subsidiary as at 31 March 2006, 2007 and 2008 and 30 September 2008 amounted to HK$Nil, HK$12,000,000, HK$54,500,000 and HK$22,500,000 respectively.

I – 68

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. TRADE AND OTHER PAYABLES

	The Group	The Company	The Company	The Company
	As at 31 March 2007 2008 HK$’000 HK$’000 35,553 18,699 – – 35,001 13,034 – – 4,488 6,408 – – 7,207 8,540 3,680 – 1,695 – 1,312 – 1,100 – 90,036 46,681	As at 31 March		2008 HK$’000 – – 5,119 – – 371 50 – – – – 5,540	As at 30 September
2006 HK$’000 31,473 – 16,725 6,000 – – – – 1,968 611 1,425 58,202	2007 HK$’000 35,553 – 35,001 – 4,488 – 7,207 3,680 1,695 1,312 1,100 90,036	2006 HK$’000 – – 1,291 6,000 – – – – – – – 7,291	2007 HK$’000 – – 255 – – – – – – – – 255		2008 HK$’000 – – 16,107 – – 233 – – – – –
					16,340

a) An aged analysis of the Group’s trade payables as at the balance sheet date, based on invoiced date is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days		The Group
	2006 HK$’000 11,198 5,951 4,080 10,244 31,473	As at 31 March 2007 2008 HK$’000 HK$’000 6,311 18,159 3,095 5 5,457 3 20,690 532 35,553 18,699	As at 30 September 2008 HK$’000 3,377 2,519 – 2,109
			8,005

b) The amount was unsecured, interest bearing at a rate of 1% per annum over and above the Hong Kong Dollar Prime Lending Rate as quoted by Hang Seng Bank Limited (the “Prime Rate”) and is repayable on or before 28 August 2007. The loan has been fully settled on 29 June 2006. Both of the Prime Rate at 31 March 2006 and 2007 is 7.75% per annum.
c) The amounts are unsecured, interest free and have no fixed terms of repayment.
d) A deposit of Euro 123,000 (equivalent to HK$1,266,000) was pledged to a bank as security for the Group’s compensation in connection with the goods return incurred during the year ended 31 March 2007. The deposit released upon the settlement of compensation during the year ended 31 March 2008.
e) The amount represented the accrual for long service payment for Antec Group and AECL Group as at 31 March 2006 and 2007. The amount were paid during the year ended 31 March 2008.
f) The loan was advanced from Tenham Investment Limited, an independent third party, is unsecured, bearing interest at rate of 5.25% to 9.00% and 9.00% per annum for the year ended 31 March 2006 and 2007 and has no fixed terms of repayment. The loan has been settled on 12 October 2007.

I – 69

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. FINANCE LEASE PAYABLES

The Group and the Company leases certain of its engineering equipment and motor vehicles. These leases are classified as finance leases and have remaining lease terms from one to three years.

At the balance sheet date, the total future minimum lease payments under finance leases and their present values were as follows:

						The Group	The Group
			As at 31 March							As at 30 September
	2006				2007			2008				2008
Present value of the minimum lease payments HK$’000 1,116 757 178 935 2,051	Interest expense relating to future periods HK$’000 87 33 4 37 124	Total minimum lease payments HK$’000 1,203	Present value of the minimum lease payments HK$’000 1,657 833 – 833 2,490		Interest expense relating to future periods HK$’000 103 28 – 28 131	Total minimum lease payments HK$’000 1,760		Interest expense relating to future periods HK$’000 13 – – – 13	Total minimum lease payments HK$’000 71	Present value of the minimum lease payments HK$’000 – – – – –		Interest expense relating to future periods HK$’000 – – – – –	Total minimum lease payments HK$’000 –
		790 182				861 –			– –				– –
		972				861			–				–
		2,175				2,621			71				–


				As at 31 March							As at 30 September
	2006				2007			2008				2008
Present value of the minimum lease payments HK$’000 – – –	Interest expense relating to future periods HK$’000 – – –	Total minimum lease payments HK$’000 – –	Present value of the minimum lease payments HK$’000 70 64 134		Interest expense relating to future periods HK$’000 16 14 30	Total minimum lease payments HK$’000 86 78	Present value of the minimum lease payments HK$’000 58 – 58	Interest expense relating to future periods HK$’000 13 – 13	Total minimum lease payments HK$’000 71 –	Present value of the minimum lease payments HK$’000 – – –		Interest expense relating to future periods HK$’000 – – –	Total minimum lease payments HK$’000 – –
		–				164			71				–

I – 70

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. INCOME TAX IN THE BALANCE SHEET

a) Current taxation in the balance sheet represents:

At 1 April Acquisition of subsidiaries Provision for profits tax for the year – Hong Kong – Overseas Over-provision Exchange difference Tax paid At 31 March		The Group	As at 30 September 2008 HK$’000 2,845 – 387 774 (645) 8 (929) 2,440
	2006 HK$’000 – – – – – – – –	As at 31 March 2007 2008 HK$’000 HK$’000 – 4,015 4,146 – (131) 1,604 – 291 – – – – – (3,065) 4,015 2,845

b) The components of deferred tax liabilities recognised in the consolidated balance sheet and the movement during the year is as follows:

At 1 April 2005 Deferred tax charged to reserves At 31 March 2006 At 1 April 2006 Deferred tax charged to reserves Acquisition of subsidiaries_(note 37(b)) At 31 March 2007 At 1 April 2007 Deferred tax charged to reserves At 31 March 2008 At 1 April 2008 Disposal of subsidiaries(Note 38(a))_ At 30 September 2008	Fair value gains on properties under development for sale HK$’000 – – – – – 10,814 10,814 10,814 – 10,814 10,814 – 10,814	Revaluation on building HK$’000 4,309 1,220 5,229 5,529 1,892 – 7,421 7,421 1,344 8,765 8,765 (8,765) –	Total HK$’000 4,309 1,220 5,529 5,529 1,892 10,814 18,235 18,235 1,344 19,579 19,579 (8,765) 10,814

I – 71

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 March 2006, 2007 and 2008 and 30 September 2008, the Group has tax losses arising in Hong Kong of HK$142,754,000, HK$154,791,000, HK$43,534,000 and HK$62,185,000 respectively that are available for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised as it is not probable that future taxable profits against which the losses can be utilised will be available for the companies in which losses arose. The tax losses do not expire under current tax legislation.

Save as disclosed above, there was no other significant deferred tax liabilities that required to be provided for in the consolidated financial statements for the years ended 31 March 2006, 2007 and 2008 and period ended 30 September 2008.

31. CONVERTIBLE NOTES

The Group and the Company

On 6 March 2008, the Company issued convertible notes in an aggregate principal amount of HK$1,092,000,000 at 1.5% interest per annum payable on an annual basis. Subject to certain adjustments, the convertible notes will be convertible into the shares of the Company at an initial conversion price of HK$0.52 per share. The Company will redeem the convertible notes on the maturity date (i.e. 5 March 2013) at 100% of its outstanding principal amount together with the accrued interest.

Conversion may occur at any time between 6 March 2008 and 5 March 2013. However, the holder of the convertible notes shall not exercise the conversion rights to such an extent that results or will result in (a) the holder and any person acting in concert with it holding or having more than 29% of the then issued ordinary share capital of the Company or otherwise being obliged to make a general offer for the ordinary share capital of the Company in accordance with the Hong Kong Code on Takeovers and Mergers or (b) the Company in breach of any provision of the Listing Rules including the minimum 25% public float requirement.

The convertible notes may be assigned or transferred (in integral multiple of HK$500,000) to any third party (whether such party is a connected person of the Company or not) subject to the Listing Rules and the applicable law. The Company undertakes to notify the Stock Exchange upon becoming aware of any dealings in the convertible notes by any connected persons of the Company as defined in the Listing Rules.

The convertible notes contain two components, the liability and the equity components. The equity component is presented in equity as an “Equity component reserve”. The effective interest rate of the liability component is approximately 6.75%.

The movement of the liability component of the convertible notes for the year is set out below:

Proceeds from issuance of the convertible notes Equity component_(note 35)_ Liability component at date of issue Balance bought forward Interest charged Interest payable Balance carried forward	2006 HK$’000 – – – – – – – –	As at 31 March 2007 2008 HK$’000 HK$’000 – 1,092,000 – (236,787) – 855,213 – 855,213 – – – 1,167 – (1,167) – 855,213	As at 30 September 2008 HK$’000 1092,000 (236,787) 855,213 – 855,213 31,826 (8,190) 878,849

I – 72

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. PROMISSORY NOTES

The Group and the Company

On 6 March 2008, the Company issued promissory notes in an aggregate principal amount of HK$320,000,000. Interest shall accrue on the principle amount of the promissory note at 3% per annum and payable annually in arrears. The promissory notes may be assigned or transferred (in integral multiple of HK$500,000) to any third party (whether such party is a connected person to the Company or not) subject to the Listing Rules and the applicable laws. The Company may repay all or part of the principle amount at any time prior to the maturity date (i.e. 5 March 2012) by giving the holder not less than seven days’ prior written notice specifying the amount and date of repayment provided that the amount shall be at least HK$500,000. Otherwise, the payment of principal and last interest payment of promissory notes shall be made in full upon the maturity date.

33. SHARE CAPITAL

The Group and the Company

	As at 31 March	As at 30 September	As at 30 September
2006 No. of shares ’000 HK$’000 800,000 80,000 2,200,000 220,000 3,000,000 300,000 457,525 45,752 219,612 21,961 – – 91,505 9,151 – – 768,642 76,864	2007 No. of shares ’000 HK$’000 3,000,000 300,000 – – 3,000,000 300,000 768,642 76,864 768,642 76,864 7,641 764 – – – – 1,544,925 154,492	2008 No. of shares ’000 HK$’000 3,000,000 300,000 7,000,000 700,000 10,000,000 1,000,000 2,898,859 289,885 – – 52,218 5,222 – – – – 2,951,077 295,107
			1,000,000

			289,885 – 5,222 – –
			295,107

Note:

a) On 30 March 2006, the Company held a special general meeting to increase its authorized share capital from HK$80,000,000 comprising of 800,000,000 shares of HK$0.10 each to HK$300,000,000 comprising of 3,000,000,000 shares of HK$0.10 each by the creation of an additional 2,200,000,000 shares of HK$0.10 each.

The Company’s authorised share capital was increased from HK$300,000,000 to HK$1,000,000,000 to be divided into 10,000,000,000 shares, by the creation of additional 7,000,000,000 ordinary shares of HK$0.10 each, ranking pari passu with the existing ordinary shares of the Company in all respects. The increase in authorised share capital of the Company was duly passed by the shareholders at the Special General Meeting held on 29 February 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b) Rights issue
i) On 17 November 2005, rights issue of two rights shares for every five existing shares was made, at an issue price of HK$0.10 per rights share, resulting in the issue of 219,611,926 shares of HK$0.10 each for a total consideration. The gross proceeds amounted to HK$21,961,000 and the net proceeds from the rights issue of HK$21,000,000. The net proceeds from right issue will be used for purchasing new machinery and upgrading existing production facilities, procuring enterprise resource planning system and expansion of electronic networking system, to repay certain borrowings and used as general working capital of the Group.
ii) On 30 June 2006, rights issue of one rights share for every existing share was made, at an issue price of HK$0.10 per rights share resulting in the issue of 768,642,000 shares of HK$0.1 each for a total cash consideration of HK$76,864,000.

Up to 27 June 2006, the Company had received 22 valid acceptances for a total of 598,828,191 rights shares provisionally allotted under the rights issue and 26 valid applications for a total of 37,747,000 excess rights shares, resulting in a total valid applications for 636,575,000 right shares, representing applications for 82.8% of the total number of rights shares available under the rights issue. The underwriter has procured the subscription of the remaining 132,067,012 rights share.

c) The Company issued 307,456,696 bonus warrants to those persons who have validly accepted and paid for the rights shares as mentioned in note (b)(ii) above (“Bonus Warrant”). The Bonus Warrant will expire on 4 July 2008. During the years ended 31 March 2007 and 2008 and period ended 30 September 2008, warrant-holders exercised the Bonus Warrant to subscribe for approximately 7,641,000 ordinary shares, 246,934,000 ordinary shares and 52,217,000 ordinary shares in the Company at exercise price of HK$0.10 each. The last day of subscription of the Bonus Warrant is 4 July 2008.
d) On 28 September 2005, the Company successfully placed 91,504,969 new shares to independent investors at a price of HK$0.10 per new share on a fully underwritten basis. The gross proceeds amounted to HK$9,151,000 and the net proceeds from the placing of HK$8,500,000. The net proceeds from the placing has been used as general working capital of the Company.

On 22 June 2007, the Company, Mr. Cheng, a former director of the Company, and Taiwan Securities (Hong Kong) Limited (“Placing Agent”) entered into an agreement pursuant to which the Placing Agent has agreed to procure, on a best-effort basis, purchasers to purchase up to 307,000,000 existing shares, at the placing price of HK$0.50 per share owned by Mr. Cheng.

Pursuant to the Agreement, Mr. Cheng has conditionally agreed to subscribe up to 307,000,000 new shares at the placing price of HK$0.50 per share.

On 26 June 2007, the Placing Agent has successfully placed 307,000,000 existing shares at placing price of HK$0.50 per share to independent third parties. In addition, the subscription of new shares to Mr. Cheng was completed on 6 July 2007. The net proceeds from top-up subscription were HK$147,500,000.

On 6 March 2008, the Company issued 800,000,000 ordinary shares of HK$0.10 each at the issue price of HK$0.265 per share (the market price on the completion date) as part of the consideration for the acquisition of subsidiaries (see note 37(a)).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Scheme”) and the principal terms of the Scheme are as follows:

i) Purpose

The purpose of the Scheme is to provide incentives and rewards to eligible participants who contribute to the success of the Group’s operation.

ii) Eligible participants

Eligible participants of the share option scheme include the Company’s directors and other employees of the Group.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5,000,000 within any 12month period, are subject to shareholders’ approval in advance in a general meeting.

iii) Maximum number of shares

The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue as at the date of passing the Ordinary Resolution on 9 September 2002 and 22 August 2006. The total number of shares available for issue under the Scheme is 45,752,484, 153,728,348, 191,477,268 and 191,477,268, representing 5.95%, 9.95%, 6.61% and 6.49% of the issued share capital as at 31 March 2006, 2007 and 2008, and 30 September 2008 respectively.

iv) Maximum entitlement of each eligible participant

The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time.

v) Option period

The Scheme became effective on 9 September 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

vi) Acceptance of offer

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on the date which is not later than 10 years from the date of the offer of the share options or the expiry date of the Scheme, if earlier.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

vii) Exercise price

The Exercise price of the share options is determinable by the directors, but may not be less than the highest of (i) the Stock Exchange closing price of the Company’s shares on the date of offer of the share options; and (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s shares.

viii) The remaining life of the Scheme

The directors shall be entitled at any time within 10 years commencing on 9 September 2002 to offer the grant of an option to any eligible participants.

No share option has been granted since the Scheme became effective on 9 September 2002.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

35. RESERVES

a) The Group

Note At 1 April 2005 Surplus on revaluation Deferred tax charged in the revaluation reserve 30 Exchange realignment Revaluation reserve released on disposal Loss for the year At 31 March 2006 At 1 April 2006 Surplus on revaluation Rights issue expense Fair value adjustment Deferred tax charged in the revaluation reserve 30 Property revaluation reserve Exchange realignment Revaluation reserve released on disposal Loss for the year At 31 March 2007 At 1 April 2007 Shares issued under placement and subscription Shares issue expense Revaluation reserve released on disposal Consideration shares issued for the acquisition of subsidiaries Surplus on revaluation Issuance of convertible notes 31 Deferred tax charged in the revaluation reserve 30 Loss for the year Exchange realignment At 31 March 2008	Share Contributed Distributable premium surplus reserve HK$’000 HK$’000 HK$’000 – 2,789 4,995 – – – – – – – – – – – – – – – – 2,789 4,995 – 2,789 4,995 – – – – – (2,779) – – – – – – – – – – – – – – – – – – – 2,789 2,216 – 2,789 2,216 122,800 – – (5,972) – – – – – 132,000 – – – – – – – – – – – – – – – – – 248,828 2,789 2,216	Property revaluation reserve HK$’000 15,865 1,862 (1,220) – (417) – 16,090 16,090 9,105 – – (1,892) (27) – (709) – 22,567 22,567 – – (2,437) – 4,976 – (1,344) – – 23,762	Fair value reserve HK$’000 – – – – – – – – – – 8,783 – – – – – 8,783 8,783 – – – – – – – – – 8,783	Equity component reserve HK$’000 – – – – – – – – – – – – – – – – – – – – – – – 236,787 – – – 236,787	Retained Exchange profits/ fluctuation (accumulated reserve losses) HK$’000 HK$’000 587 66,464 – – – – (637) – – 417 – (59,736) (50) 7,145 (50) 7,145 – – – – – – – – – – 615 – – 709 – (55,027) 565 (47,173) 565 (47,173) – – – – – 2,437 – – – – – – – – – (112,892) 2,200 – 2,765 (157,628)	Total HK$’000 90,700 1,862 (1,220) (637) – (59,736)
						30,969

						30,969 9,105 (2,779) 8,783 (1,892) (27) 615 – (55,027)
						(10,253)

						(10,253) 122,800 (5,972) – 132,000 4,976 236,787 (1,344) (112,892) 2,200
						368,302

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Attributable to equity	Attributable to equity	shareholders of	the Company
Share Contributed Distributable premium surplus reserve HK$’000 HK$’000 HK$’000 248,828 2,789 2,216 – – – – – – – – – – – – 248,828 2,789 2,216 – 2,789 2,216 122,800 – – (5,972) – – – – – – – – – – – 116,828 2,789 2,216	Property revaluation reserve HK$’000 23,762 (23,699) 7 – – 70 22,567 – – (1,370) – – 21,197	Fair value reserve HK$’000 8,783 – – – – 8,783 8,783 – – – – – 8,783	Equity component reserve HK$’000 236,787 – – – – 236,787 – – – – – – –	Exchange fluctuation Accumulated reserve losses HK$’000 HK$’000 2,765 (157,628) – – – – – (123,357) 450 – 3,215 (280,985) 565 (47,173) – – – – – 1,370 – (50,249) 889 – 1,454 (96,052)	Total HK$’000 368,302 (23,699) 7 (123,357) 450
					221,703

					(10,253) 122,800 (5,972) – (50,249) 889
					57,215

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

b) The Company

Note At 1 April 2005 Loss for the year At 31 March 2006 At 1 April 2006 Loss for the year Rights issue expense At 31 March 2007 At 1 April 2007 Placement of shares 33 Share issue expense Consideration share issued for the acquisition of subsidiaries 33 Issuance of convertible notes 31 Loss for the year At 31 March 2008 At 1 April 2008 Loss for the period At 30 September 2008	Share premium HK$’000 – – – – – – – 122,800 (5,972) 132,000 – – 248,828 248,828 – 248,828	Contributed Distributable surplus reserve HK$’000 HK$’000 60,733 4,995 – – 60,733 4,995 60,733 4,995 – – – (2,779) 60,733 2,216 60,733 2,216 – – – – – – – – – – 60,733 2,216 60,733 2,216 – – 60,733 2,216	Retained Equity profits/ component (accumulated reserve losses) HK$’000 HK$’000 – 2,302 – (37,250) – (34,948) – (34,948) – (57,460) – – – (92,408) – (92,408) – – – – – – 236,787 – – (90,924) 236,787 (183,332) 236,787 (183,332) – (76,612) 236,787 (259,944)	Total HK$’000 68,030 (37,250)
				30,780

				30,780 (57,460) (2,779)
				(29,459)

				(29,459) 122,800 (5,972) 132,000 236,787 (90,924)
				365,232

				365,232 (76,612)
				288,620

c) Nature of purposes of the reserves

i) Contributed surplus

The contributed surplus of the Company represents the excess of the fair value of the shares of the subsidiaries acquired pursuant to the Group reorganisation in June 1991, over the nominal value of the Company’s shares issued in exchange thereof. Under the Bermuda Companies Act 1981 (as amended), the contributed surplus is distributable to shareholders in certain circumstances.

ii) Distributable reserve

Pursuant to a special resolution passed on 15 September 2003, the share premium account of the Company was reduced by an amount of HK$103,948,000 to HK$Nil and of which HK$98,953,000 was applied towards the elimination of the accumulated losses of the Company as at 31 March 2003, with the remaining balance of HK$4,995,000 being credited to a distributable reserve of the Company. The reduction of share premium account was effective on 6 October 2003.

iii) Exchange fluctuation reserve

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

iv) Fair value reserve

The fair value reserve represents the difference between the fair value and carrying amount of the net assets attributable to the additional interest in a subsidiary being acquired on 20 October 2006 from a minority shareholder.

v) Equity component reserve

The value of the unexercised equity component of convertible notes issued by the Company recognised in accordance with the accounting policy adopted for convertible notes in note 3(k).

vi) Property revaluation reserve

The revaluation reserve has been set up and is dealt with in accordance with the accounting policies adopted for land and buildings in note 3(e).

d) Distributability of reserves

At 31 March 2006, 2007 and 2008, and 30 September 2008, the aggregate amount of reserves available for the distribution to equity shareholders of the Company calculated in accordance with the Bermuda Companies Act 1981 (as amended) was HK$Nil, HK$Nil, HK$65,496,000, and HK$Nil in certain circumstances.

e) Capital risk management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concerns, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher level of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

The Group monitors, its capital structure on the basis of a net debt-to-adjusted capital ratio. For this purpose the Group defines net debt as total debt (which includes loan notes and other financial liabilities) less bank deposits and cash. Adjusted capital comprises all components of equity less unaccrued proposed dividends.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

During the year ended 31 March 2008, the Group’s strategy, which unchanged from 2006 and 2007, was to maintain the net debt-to-adjusted capital ratio as low as feasible. In order to maintain or adjust the ratio. The Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The debt-to-adjusted capital ratio at 31 March 2006, 2007 and 2008, and 30 September 2008 were as follows:

Trade and other payables Bank loan and overdrafts Finance lease payables Convertible notes Promissory notes Total debt Less: cash and cash equivalents pledged deposits Net debt Total equity Total capital Net debt-to-adjusted capital ratio	2006 HK$’000 58,202 23,903 2,051 – – 84,156 (12,242) (7,320) 64,594 107,833 172,427 37%	As at 31 March 2007 2008 HK$’000 HK$’000 90,036 46,681 26,877 39,552 2,490 58 – 855,213 – 320,000 119,403 1,261,504 (45,245) (119,338) (12,029) (30,211) 62,129 1,111,955 144,239 658,187 206,368 1,770,142 30% 63%	As at 30 September 2008 HK$’000 49,534 13,664 – 878,849 320,000 1,262,047 (80,940) (36,091) 1,145,016 516,810 1,661,826 69%

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

36. MAJOR NON-CASH TRANSACTIONS

a) Moulds

During the Relevant Periods, the mould construction amounting to HK$3,190,000, HK$2,372,000, HK$4,803,000 and HK$Nil as at 31 March 2006, 2007 and 2008 and 30 September 2008 respectively which were completed and transferred from mould deposits to moulds under property, plant and equipment.

b) Property, plant and equipment

During the Relevant Periods, addition to property, plant and equipment of the Group financed by new finance lease were HK$1,302,000, HK$2,475,000, HK$Nil and HK$Nil as at 31 March 2006, 2007 and 2008 and 30 September 2008 respectively.

c) Acquisition of subsidiaries

During the year ended 31 March 2008, the Group acquired the subsidiaries in the consideration of 1,828,000,000 including HK$416,000,000 by the issue and allotment 800,000,000 of new shares of HK$0.10 each in its ordinary share capital at the issue price of HK$0.52 per share; HK$320,000,000 by the issue of promissory notes; and HK$1,092,000,000 by the issue of convertible notes promissory notes. Details please refer to note 37(a).

d) Disposal of motor vehicles

During the period ended 30 September 2008, the Company has entered into a transfer agreement with Mr. Cheng to transfer a motor vehicle from the Company on 1 September 2008 for a consideration HK$29,000 and was settled by the transfer of the outstanding balance of finance lease to Mr. Cheng.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. ACQUISITION OF SUBSIDIARIES

a) On 28 November 2007, the Company entered into a sales and purchase agreement with Pure Hope Development Limited (“Pure Hope”), an independent third party, to acquire the entire issued share capital and shareholder’s loan of Ling Kit for a total consideration of HK$1,828,000,000. Ling Kit is principally engaged in investment holding of 80% equity interest in Haicheng Dongxin which is principally engaged in the mining and processing of magnesite ore.

The consideration is satisfied by the Company in the following manner:

i) as to HK$416,000,000 by the issue and allotment 800,000,000 of new shares of HK$0.10 each in its ordinary share capital at the issue price of HK$0.52 per share. At the completion date, the fair value of the consideration share is at HK$0.265 per share, being the market price of the share of the company (note 33(d));
ii) as to HK$320,000,000 by the issue of promissory notes (note 32); and
iii) as to HK$1,092,000,000 by the issue of convertible notes (note 31).

The acquisition was completed on 6 March 2008 upon the approval duly passed by the shareholders at the special general meeting held on 29 February 2008.

The net assets acquired in the transaction and the goodwill arising are as follows:

Intangible assets Plant and equipment Trade and other receivables Cash and bank balances Trade and other payables Minority interest Negative goodwill Total consideration Total consideration satisfied by: Fair value of the consideration shares at the issue price of HK$0.265 per share as at completion date Convertible Notes Promissory Notes	Acquiree’s carrying amount before combination HK$’000 – 714 294 3,147 (4,771)	Fair value adjustment HK$’000 2,033,130 – – – –	Fair value HK$’000 2,033,130 714 294 3,147 (4,771) 2,032,514 (406,503) (2,011) 1,624,000 212,000 1,092,000 320,000 1,624,000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Analysis of the net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries:

Total consideration settled in cash Cash and cash equivalents in subsidiaries acquired Cash inflow on acquisition of subsidiaries	HK$’000 – 3,147
	3,147

Ling Kit and its subsidiary contributed loss of HK$63,000 to the Group’s loss for the period between the date of acquisition and the balance sheet date.

It is not possible to estimate the amount that the above subsidiaries would have contributed to the revenue and net loss of the Group had the acquisition taken place at the beginning of the year as the above subsidiaries has a different years end and different accounting policies. The cost of preparing such information would be excessive.

b) On 1 November 2006, the Group acquired the entire equity interest of BIP (HK) for cash consideration of HK$3,068,000 and the amount of goodwill arising as a result of the acquisition was HK$2,327,000. BIP (HK) was principally engaged in building materials supply and installation.

On 20 October 2006, the Group acquired 30% equity interest of Ancen Properties for cash consideration of HK$18,967,000 and the amount of goodwill arising as a result of the acquisition was HK$4,957,000. Ancen Properties and its subsidiary (“Ancen Group”) were principally engaged in real estate development. The Group originally held 40% equity interest of Ancen Group and was previously accounted for as an associate.

The net assets acquired in the transactions and the goodwill arising are as follows:

	BIP (HK)	Ancen Group	Ancen Group	Total fair value HK$’000 29,226 52,294 3,610 2,280 (15,472) (4,096) (8,022) (10,814) (66) (1,500) (14,010)
Acquiree’s carrying amount before combination HK$’000 1,571 – 1,192 2,280 (2,570) (166) – – (66) (1,500) – 741	Fair value adjustment HK$’000 – – – – – – – – – – – –	Acquiree’s carrying amount before combination HK$’000 27,655 19,525 2,418 – (12,902) (3,930) (8,022) – – – (7,423) 17,321	Fair value adjustment HK$’000 – 32,769 – – – – – (10,814) – – (6,587) 15,368
				33,430 7,284
				40,714

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Analysis of the net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries:

Total consideration settled in cash Cash and cash equivalents in subsidiaries acquired Cash inflow on acquisition of subsidiaries	HK$’000 (22,035) 29,226 7,191

BIP (HK) contributed loss of HK$1,344,000 to the Group’s loss for the period between the date of acquisition and the balance sheet date.

Ancen Group contributed loss of HK$1,575,000 to the Group’s loss for the period between the date of acquisition and the balance sheet date.

Goodwill is attributable to the benefit of expected synergies, revenue growth and future market development of BIP (HK) and Ancen Group. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured.

If the acquisitions had been completed on 1 April 2006, total group revenue for the year would have been changed to HK$216,234,000 and loss for the year would have been changed to HK$68,513,000. The pro-forma information is for illustrative purpose only and is not necessarily an indication of revenue and results of the Group that actually would have been achieved had the acquisition been completed on 1 April 2006, nor is it intended to be a projection of future results.

38. DISPOSAL OF SUBSIDIARIES

a) The net liabilities of Anco Group at 30 September 2008 being the date of disposal were as follows:

Property, plant and equipment Interest in leasehold land held for own use under operating leases Cash and bank balances Other receivables Deferred tax liabilities Amounts due to the Group Revaluation reserve Sale loan* Loss on disposal of subsidiaries_(note 14)_ Total consideration Satisfied by: Cash consideration	HK$’000 43,800 2,041 178 88 (8,765) (66,242) (23,699) (52,599) 66,242 13,643 (13,643) – –

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Analysis of net outflow of cash and cash equivalents in respect of the disposal of subsidiaries:

Cash received Cash and bank balances disposed of Net outflow of cash and cash equivalents in respect of the disposal of subsidiaries	HK$’000 – (178) (178)

Total consideration of the disposal is HK$1.
Sale loan represented the shareholder’s loan owed by Anco Group to the Group on the completion date of the disposal.
b) The net liabilities of Antec Group and AECL Group at 31 January 2008 being the date of disposal were as follows:

Antec Group HK$’000 Property, plant and equipment 16,290 Cash and bank balances 2,938 Inventories 17,535 Trade and other receivables 6,072 Bank loans and overdrafts – Trade and other payables (12,550) Amounts due to the Group (4,529) 25,756 Exchange reserve – 25,756 Assignment of amounts due to the Group Loss on disposal of subsidiaries_(note 14)_ Total consideration Satisfied by: Cash consideration Analysis of the net inflow of cash and cash equivalents in respect of the disposal Cash received Cash and bank balances disposed of Bank overdrafts disposed of Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries	AECL Group HK$’000 1,667 1,369 – 20,288 (12,751) (16,580) (167,155) (173,162) 172 (172,990) of subsidiaries:	Total HK$’000 17,957 4,307 17,535 26,360 (12,751) (29,130) (171,684) (147,406) 172 (147,234) 171,684 24,450 (24,450) – – HK$’000 – * (4,307) 8,615 4,308

Total consideration of the disposal is HK$4.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

c) In March 2007, the Group disposed of Anex Japan Corporation, a company being dormant, to an independent third party. The net liabilities of Anex Japan Corporation at 31 March 2007 as the date of disposal were as follows:

Property, plant and equipment
Cash and bank balances
Other receivables
Due from the Group
Other payables
Minority interests
Exchange reserve
Loss on disposal of a subsidiary
Satisfied by:
Cash consideration
Waiver of amount due from the Group
Analysis of the net outflow of cash and cash equivalents in respect of the disposal of the subsidiary:
Cash received
Cash and bank balances disposed of
Net outflow of cash and cash equivalents in respect of
the disposal of the subsidiary

HK$’000
27
38
8
171
(40)
204
(10)
44
238
(67)
171
–
171
171
HK$’000
–
(38)
(38)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. MATERIAL RELATED PARTY TRANSACTIONS

a) Key management personnel remuneration

The key management personnel of the Group are the directors of the Company. Details of the remuneration paid to them are set out in note 11 to the financial statements.

b) Other related party transactions

			The Group	The Group
					As at 30
			As at 31 March		September
		2006	2007	2008	2008
	Notes	HK$’000	HK$’000	HK$’000	HK$’000
Rental of directors’ quarters
paid to a related company	(i)	484	540	450	–
Rental of office premises paid to a
related company	(ii)	73	880	880	–
Management fee paid and payable
to a minority shareholder	(iii)	–	–	864	384
Service fee paid and payable to a minority shareholder	(iv)	–	–	–	489
Service fee paid and payable to a related company	(v)	–	–	–	456
Rental of car park paid to a related company	(vi)	–	–	15	19
Motor vehicle purchased from a director	(vii)	–	342	–	–
Acquisition of a subsidiary from a director	(viii)	–	3,068	–	–
Interest expense paid to a director	(ix)	45	163	–	–
Motor vehicle sold to a director	(x)	–	–	–	29

(i) A subsidiary of the Group has entered into a lease agreement with a related company, Mountain-Dew Limited, a company controlled by Mr. Kwok Hon Lam, a director of the Company, to lease directors’ quarters for a period of 33 months commencing on 1 March 2006 at a monthly rental of HK$45,000, HK$45,000 and HK$45,000 for the years ended 31 March 2006, 2007 and 2008 respectively. The lease has been terminated on 31 January 2008. No outstanding balance at 31 March 2006, 2007 and 2008.
(ii) A subsidiary of the Group has entered into a lease agreement with a related company, Gold Regent International Limited, a company controlled by Mr. Cheng, a director of the Company, to lease an office premises for a period of two years commencing on 1 March 2006 at a monthly rental of HK$73,000, HK$73,000 and HK$73,000 for the years ended 31 March 2006, 2007 and 2008 respectively. No outstanding balance at 31 March 2006, 2007 and 2008.
(iii) During the year 31 March 2008, two subsidiaries of the Group have entered into two agreements with a minority shareholder, United Marble Company Limited, who provide project management services for the building material business to two subsidiaries at aggregated monthly management fee of HK$64,000 commencing on 1 April 2007. HK$480,000 and HK$384,000 was outstanding as at 31 March 2008 and 30 September 2008 respectively.
(iv) During the period ended 30 September 2008, a minority shareholder, United Marble Company Limited, provide staff services to the subsidiary of the Company at monthly fee HK$81,500 commencing on 1 April 2008. HK$420,000 was outstanding as at 30 September 2008.
(v) During the period ended 30 September 2008, a subsidiary of the Group entered into a agreement with a related company, Ever Think Technology Development Limited, a company controlled by a minority shareholder, to provide administrative and accounting services to the subsidiary at a monthly fee HK$104,000 commencing on 20 May 2008. No outstanding balance as at 30 September 2008.
(vi) The Company has entered into a lease agreement with a related company, Gold Regent International Limited, a Company controlled by Mr. Cheng, to lease a car park commencing on 1 December 2007 at a monthly rental of HK$3,850. No outstanding balance at 31 March 2008.
(vii) The Company has entered into a transfer agreement with Mr. Cheng to transfer his motor vehicle to the Company on 1 April 2006 for a consideration of HK$342,000. The consideration was settled in cash of HK$143,000 and the transfer of the outstanding balance of a finance lease. The present value of the minimum lease payment at 31 March 2006, 2007 and 2008 is HK$Nil, HK$134,000 and HK$58,000 respectively.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(viii) During the year ended 31 March 2007, the Company acquired 100% equity interest in BIP (HK) for cash consideration of HK$3,068,000, in which Mr. Cheng and Mr. Cheng Tze Kit, Larry are shareholders and directors of BIP (HK). No outstanding balance at 31 March 2007 (note 37(b)).
(ix) The interest expense related to an advance from a director of the Company, Mr. Cheng. The interest is calculated at a rate of 1% per annum over and above the Prime Rate. The advance has been fully settled on 29 June 2006.
(x) The Company has entered into a transfer agreement with Mr. Cheng to transfer a motor vehicle from the Company on 1 September 2008 for a consideration HK$29,000 and was settled by the transfer of the outstanding balance of a finance lease to Mr. Cheng.

40. CONTINGENT LIABILITIES

Financial guarantees issued

The Group

A subsidiary of the Company undertook the obligation under a buy-back undertaking entered into with a bank of approximately RMB18,232,000 (equivalent to HK$18,232,000), approximately RMB20,927,000 (equivalent to HK$20,927,000), RMB17,750,000 (equivalent to approximately HK$19,703,000) and RMB15,795,000 (equivalent to HK$17,956,000) as at 31 March 2006, 2007, 2008 and 30 September 2008, respectively relating to the mortgage loans arranged for certain purchasers of the Group’s properties sold. Pursuant to the terms of the undertaking, in the event of any default in mortgage payments by any of these purchasers, the subsidiary of the Company is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the subsidiary of the Company is entitled to take over the legal title and possession of the related properties. The subsidiary of the Company’s guarantee period commences from the dates of the drawdown of the relevant mortgage loans and ends when the subsidiary of the Company obtains the “property title certificate” for the mortgagees.

A deposit of RMB2,284,000 (equivalent to HK$2,284,000), RMB2,953,000 (equivalent to HK$2,953,000), RMB2,395,000 (equivalent to HK$2,661,000) and RMB2,279,000 (equivalent to HK$2,591,000) was pledged to a bank as security as at 31 March 2006, 2007 and 2008 and 30 September 2008 respectively for the subsidiary of the Company’s obligation under the above undertaking.

For the year ended 31 March 2006, 2007 and 2008 and 30 September 2008, the Group provided corporate guarantees of HK$Nil, HK$Nil, HK$4,500,000 and HK$15,500,000 respectively and a deposit pledged of HK$Nil, HK$3,000,000, HK$6,150,000 and HK$15,500,000 respectively to a bank for the issuance of performance bonds, in favour of the independent third parties relating to the construction contracts, amounting to HK$Nil, HK$3,000,000, HK$6,150,000 and HK$15,500,000 respectively.

No recognition was made because the fair value of the undertaking and guarantee as above were insignificant and that the directors did not consider it probable that a claim would be made against the Group under the undertaking or guarantees. The maximum liability of the Group at the year ended 31 march 2006, 2007 and 2008 and 30 September 2008 under the undertaking is HK$Nil, HK$20,927,000, HK$22,381,000 and HK$33,456,000 respectively.

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FINANCIAL INFORMATION OF THE GROUP

The Company

At the balance sheet date, contingent liabilities not provided for in the financial statements were as follows:

Guarantees granted to subsidiaries for: Banking facilities Finance lease payables	2006 HK$’000 39,800 2,051 41,851	As at 31 March 2007 2008 HK$’000 HK$’000 42,000 57,500 2,355 – 44,355 57,500	As at 30 September 2008 HK$’000 33,500 –
			33,500

The Company is also one of the entities covered by a cross guarantee arrangement issued by the Company and its subsidiaries to a bank in respect of banking facilities granted to the Group which remains in force so long as the Group has drawn down under the banking facilities. Under the guarantee, the Company and all the subsidiaries that are a party to the guarantee are jointly and severally liable for all and any of the borrowings of each of them from the bank which is the beneficiary of the guarantee. The maximum liability of the Company at the balance sheet date under the corporate guarantee is the amount drawn by the subsidiaries that are covered by the cross guarantee, being HK$Nil, HK$26,877,000, HK$39,552,000 and HK$13,664,000 as at 31 March 2006, 2007, 2008 and 30 September 2008 respectively.

No recognition was made because the fair value of the guarantee was insignificant and that the directors did not consider it probable that a claim would be made against the Company under the guarantee.

41. OPERATING LEASE COMMITMENTS

The Group leases certain of its directors’ quarters and office premises under operating leases. Leases for these properties are negotiated for terms ranging one to two years.

At the balance sheet date, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within one year In the second to fifth years, inclusive	The Group As at 30 As at 31 March September 2006 2007 2008 2008 HK$’000 HK$’000 HK$’000 HK$’000 1,420 1,970 2,322 2,105 1,707 714 1,920 812 3,127 2,684 4,242 2,917	The Company	The Company
		As at 30 As at 31 March September 2006 2007 2008 2008 HK$’000 HK$’000 HK$’000 HK$’000 880 807 2,055 2,055 807 – 1,920 812 1,687 807 3,975 2,867
			2,867

42. CAPITAL COMMITMENTS

As at the balance sheet date, the Group had the following capital commitments:

Contracted, but not provided for	The Group
	As at 30 As at 31 March September 2006 2007 2008 2008 HK$’000 HK$’000 HK$’000 HK$’000 1,450 1,479 6,271 2,241

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APPENDIX I

43. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIODS

Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the Relevant Periods and which have not been adopted in these financial statements.

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Company’s results of operations and financial position.

In addition, the following developments may result in new or amended disclosures in the financial statements:

		Effective for
		accounting periods
		beginning on or after
HKAS 1 (Revised)	Presentation of Financial Statements	1 January 2009
HKAS 23 (Revised)	Borrowing Costs	1 January 2009
HKAS 27 (Revised)	Consolidated and Separate Financial Statements	1 July 2009
HKAS 32 & HKAS 1
Amendment	Amendments to HKAS 32 Financial
	Instruments: Presentation and HKAS 1
	Presentation of Financial Statements –
	Puttable Financial Instruments and
	Obligations Arising On Liquidation	1 January 2009
HKFRS 2 Amendment	Share based Payment – Vesting Conditions and Cancellations	1 January 2009
HKFRS 3 (Revised)	Business Combinations	1 July 2009
HKFRS 8	Operating Segments	1 January 2009
HK(IFRIC) – Int 13	Customer Loyalty Programmes	1 July 2008
HK(IFRIC) – Int 15	Agreements for the Construction of Real Estate	1 January 2009
HK(IFRIC) – Int 16	Hedges of a Net Investment in a Foreign Operation	1 October 2008

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APPENDIX I

C. EVENT AFTER BALANCE SHEET DATE

Subsequent to 30 September 2008, the Group has the following significant post balance sheet events:

(a) Disposal of mining business

On 15 August 2008, the Company had entered into the sale and purchases agreement, pursuant to which the Company agreed to dispose of the entire issued share capital of Ling Kit, and the right of and benefits in the Sale Loan. The details of transaction have been disclosed in the Company’s announcement dated 2 September 2008.

Below are the consolidated income statements, the consolidated balance sheet and the consolidated cash flow statements of the Ling Kit:

(i) Consolidated Income Statements

Turnover
Cost of sales
Gross profit
Other revenue
Selling and distribution costs
Administrative expenses
Other operating expenses
Loss from operations
Finance costs
Loss before taxation
Income tax
Loss for the year/period
Attributable to:
Equity holders of the parent
Minority interests

For the year
For the six months
ended 31 March
ended 30 September
2006
2007
2008
2007
2008
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
–
–
1,445
–
10,131
–
–
(646)
–
(5,335)
–
–
799
–
4,796
–
–
–
–
270
–
–
(80)
–
(1,679)
–
–
(645)
–
(1,814)
–
–
(10,589)
–
(63,535)
–
–
(10,515)
–
(61,962)
–
–
–
–
–
–
–
(10,515)
–
(61,962)
–
–
(11)
–
(773)
–
–
(10,526)
–
(62,735)
–
–
(8,421)
–
(50,188)
–
–
(2,105)
–
(12,547)
–
–
(10,526)
–
(62,735)

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) Consolidated Balance Sheets

NON-CURRENT ASSETS Plant and equipment Intangible assets Total non-current assets CURRENT ASSETS Trade and other receivables Cash and cash equivalents Total current assets CURRENT LIABILITIES Other payables and accruals Provision for taxation Due to ultimate controlling parent company Total current liabilities NET CURRENT LIABILITIES NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholder of the Company Minority interests TOTAL EQUITY	2006 HK$’000 – – – – – – – – – – – – – – – – –	As at 31 March 2007 2008 HK$’000 HK$’000 – 711 – 2,022,541 – 2,023,252 – 376 – 3,921 – 4,297 – 5,068 – 11 – 77,577 – 82,656 – (78,359) – 1,944,893 – 388 – 1,540,107 – 1,540,495 – 404,398 – 1,944,893	As at 30 September 2008 HK$’000 800 1,959,006 1,959,806 5,420 814 6,234 5,954 357 77,577 83,888 (77,654) 1,882,152 388 1,489,913 1,490,301 391,851 1,882,152

For the purpose of presentation of the above combined balance sheets, the balances of the issued capital and reserves represent the combined issued capital and reserves of the Company’s subsidiaries which conducted the Disposal Business respectively.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(iii) Consolidated Cash Flow Statements

				For the year				For the six	months
			ended 31 March					ended 30 September
		2006		2007		2008		2007	2008
	HK$’000			HK$’000	HK$’000			HK$’000	HK$’000
							(Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss before taxation		–		–		(10,515)		–	(61,962)
Adjustment for:
Depreciation		–		–		7		–	55
Amortistion of intangible assets		–		–		10,589		–	63,535
Impairment losses on trade receivables		–		–		–		–	900
Operating profit before changes
in working capital		–		–		81		–	2,528
Increase in trade and other receivables		–		–		(82)		–	(5,944)
Increase in other payables and accruals		–		–		631		–	886
Increase in amount due to group companies		–		–		(240)		–	–
Exchange difference, net		–		–		–		–	(109)
CASH GENERATED FROM/
(USED IN) OPERATIONS		–		–		390		–	(2,639)
Overseas tax paid		–		–		–		–	(427)
NET CASH INFLOW/(OUTFLOW)
FROM OPERATING ACTIVITIES		–		–		390		–	(3,066)
CASH FLOWS FROM INVESTMENT
ACTIVITIES
Payment to acquire property,
plant and equipment		–		–		(4)		–	(127)
Net cash inflow from acquisition
of a subsidiary		–		–		3,147		–	–
NET CASH INFLOW/(OUTFLOW)
FROM INVESTING ACTIVITIES		–		–		3,143		–	(127)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceed from issue of share capital		–		–		388		–	–
NET CASH INFLOW FROM
FINANCING ACTIVITIES		–		–		388		–	–
NET INCREASE IN CASH AND
CASH EQUIVALENTS		–		–		3,921		–	(3,193)
EXCHANGE DIFFERENCE		–		–		–		–	86
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEARS/PERIOD		–		–		–		–	3,921
CASH AND CASH EQUIVALENTS
AT END OF YEARS/PERIOD		–		–		3,921		–	814

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Proposed change of company name

The Board proposes to change the name of the Company from “Magnesium Resources Corporation of China Limited” to “Bright Prosperous Holdings Limited”. The proposed change of the Company’s name is subject to passing of a special resolution by the Shareholders at a special general meeting of the Company and the entry of the new name of the Company on the register of companies by the Registrar of Companies in Bermuda. Upon the change of name becoming effective, the Company will adopt the new Chinese name “晉盈控股有限公司” in replacement of “中國鎂業資源集團有限公司” for identification purposes only. The details of information have been disclosed in the Company’s announcement dated 19 November 2008.

(c) Proposed capital reorganisation

The Board proposes to put forward a proposal to the Shareholders to effect the Capital Reorganisation which involves:

(i) Capital Reduction: the par value of each Existing Share will be reduced from HK$0.10 to HK$0.01 by the cancellation of HK$0.09 of the paid-up capital on each Existing Share;
(ii) Sub-division: each of the authorised but unissued Shares in the share capital of the Company of par value HK$0.10 shall be sub-divided into 10 New Shares of par value HK$0.01 each; and
(iii) Diminution of Authorised Share Capital: immediately following the Capital Reduction and the Sub-division, the authorised share capital of the Company shall be diminished from HK$1,000,000,000 to HK$100,000,000 divided into 10,000,000,000 New Shares of par value HK$0.01 each by the cancellation of 90,000,000,000 New Shares of par value HK0.01 each in the authorised but unissued share capital of the Company.

The proposed capital reorganisation is subject to passing of a special resolution by the Shareholders at a special general meeting of the Company. The details of information have been disclosed in the Company’s announcement dated 19 November 2008.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Company or any of its subsidiaries have been prepared in respect of any periods subsequent to 30 September 2008 and up to the date of this report.

CCIF CPA Limited

Certified Public Accountants Hong Kong

Kwok Cheuk Yuen

Practising Certificate Number P02412

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INDEBTEDNESS

As at the close of business of 30 September 2008, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the Group had aggregate bank facilities of approximately HK$33,500,000, comprising bank overdrafts, trust receipts loans and import trade loans, among which HK$13,664,000 had been utilised by the Group at that date. All of the utilised bank borrowings of the Group are secured.

As at the close of business on 30 September 2008, the Group’s bank borrowings comprised bank overdrafts of approximately HK$6,609,000, trust receipt loans of approximately HK$1,691,000 and import trade loans of approximately HK$5,364,000.

Security and guarantees

As at the close of business on 30 September 2008, the Group’s banking facilities were supported by the following:

(i) pledged deposits of approximately HK$33,500,000, in which HK$18,000,000 was applied to pledge the banking facilities of overdrafts and trade loans and HK$15,500,000 was applied to pledge the issuance of the performance bonds (as detailed below);
(ii) corporate guarantee provided by the Group.

Commitment

As at the close of business on 30 September 2008, the Group had capital commitment contracted but not provided for in respect of (i) property development expenditure of approximately RMB1,250,000 (equivalent to approximately HK$1,421,000); and (ii) others of approximately HK$820,000.

As at the close of business on 30 September 2008, the Group had total future minimum lease payments under non-cancelable operating leases in respect of rented premises amounting to approximately HK$2,917,000.

Contingent liabilities

As at 30 September 2008, a subsidiary of the Company which is principally engaged in real estate development as the property developer, undertook the obligation under a buy-back undertaking entered with a bank of RMB15,795,000 (equivalent to HK$17,956,000) relating to the mortgage loans arranged by the bank for certain purchasers of the Group’s properties developed by the subsidiary. Pursuant to the terms of the undertaking, in the event of any default in mortgage payments by any of these purchasers, the subsidiary of the Company is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the subsidiary of the Company is entitled to take over the legal title and possession of the related properties. The subsidiary of the Company’s guarantee period commences from the dates of the drawdown of the relevant mortgage loans and ends when the subsidiary of the Company obtains the “property title certificate” for the mortgagees. It was a common market practice in the PRC for the developers to provide buy-back

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

undertaking to the banks which provide mortgage facility to the purchasers of the properties developed by the developer. During the process of selling of the residential units of the subject properties, the subsidiary was requested by the mortgage bank to provide such undertaking as usual practice in the industry.

A deposit of RMB2,279,000 (equivalent to HK$2,591,000) was pledged to a bank as security for the Group’s obligation under the above undertaking.

The Group provided the corporate guarantees of HK$15,500,000 and the deposit pledged of HK$15,500,000, to a bank for the issuance of the performance bonds, in favour of the independent third parties relating to the construction contract, amounting to HK$15,500,000.

No recognition was made because the fair value of the undertaking or guarantee as above was insignificant and that the directors did not consider it probable that a claim would be made against the Group under the undertaking or guarantee. The maximum liability of the subsidiary of the Company at the balance sheet date under the undertaking was HK$33,456,000.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities and normal accounts payable and bills payables in the ordinary course of business, the Group did not have any outstanding mortgages, charges, debentures, loans capital and overdrafts or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptable credits or any guarantees or other material contingent liabilities as at the close of business on 30 September 2008.

WORKING CAPITAL

In the absence of unforeseen circumstances, the Directors are of the opinion that after taking into account, the existing credit facilities and present financial resources available to the Group, the Group has sufficient working capital for its present requirement that is for at least 12 months from the date of this Circular.

FINANCIAL AND TRADING PROSPECTS

The financial year 2008 was another difficult year for the Group. The persistent hardship and keen competition constrained the performance of home appliances manufacturing business. The decision to dispose the business was made in December 2007 and the disposal was completed on 31 January 2008. Upon completion of the Disposal, the Group will focus its resources in its building materials business and in the development of property projects in Dongguan, the PRC.

For the period ended 30 September 2008, the turnover of the Group’s building materials business was approximately HK$57.3 million (2007: HK$45.3 million). The business has been focusing on marble and light-weight building materials supply and installation. In view of the development in the property markets in Hong Kong and Macau, the Group expects the contribution from the building material business will continue to grow at a steady pace in the coming years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group is also engaged in the development of property projects in Dongguan, Guangdong Province in the PRC. The final phase of Jia Lake Mountain Villa in Liaobu, Dongguan will be developed into a residential and commercial estate with total GFA of approximately 47,000 square meters. The renovation of the shopping mall in Dongguan has been completed and leasing activities have commenced.

The Group will continue to look for the opportunity of other business and exploring more investment to offer steady growth to its business and in order to enhance shareholders’ value.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

REVIEW OF RESULTS

The principal businesses of the Remaining Group are building materials supply and installation and property development business. At present, the Remaining Group has a residential property development project namely, Jia Lake Mountain Villa, in Liaobu, Dongguan, the PRC with a GFA of approximately 47,000 square meters. Besides, the Remaining Group has also renovated and revitalized the existing shopping mall with floor space of approximately 13,000 square meters. The building materials business has been developed with concentrating in marble, trendy and light-weight building materials supply and installation. As at 30 September 2008, the Remaining Group’s contract sum of the incompleted projects was over HK$300 million. In view of the development in property market in Macau and Hong Kong, the Group expects the contribution from the building material business to be considerable in the coming financial year. For the period ended 30 September 2008, the turnover of the Remaining Group from continuing operation amounted to approximately HK$57.3 million which were derived from the contract revenue generated by the Remaining Group’s building materials supply and installation business. The Remaining Group recorded loss attributable to the Shareholders from continuing operations of approximately HK$73.2 million for the six months ended 30 September 2008.

LIQUIDITY AND FINANCIAL RESOURCES

For the period ended 30 September 2008, the Remaining Group has implemented a prudent financial management policy. Based on the unaudited pro forma consolidated balance sheet as set out in Appendix II to this circular, as at 30 September 2008, the Remaining Group has cash and bank balances (including pledged bank deposits) amounting to approximately HK$116.7 million.

The Remaining Group’s gearing ratio expressed as a percentage of total interest-bearing borrowings over equity attributable to the Company’s equity holders was 9.22% as at 30 September 2008.

As at 30 September 2008, the Remaining Group has HK$13.7 million interest-bearing borrowings of HK$6.6 million in bank overdrafts, HK$1.7 million in secured trust receipt loans and HK$5.4 million in trade loans, which were denominated in Hong Kong Dollars and repayable within one period. All bank borrowings were applied to finance the Remaining Group’s building materials supply and installation business in Hong Kong and Macau.

As at 30 September 2008, the Remaining Group’s working capital was approximately HK$165.3 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 30 September 2008, the Remaining Group has issued corporate guarantee and pledged bank balances in the amount of HK$33.5 million as securities for the issuance of a performance bond and general banking facilities to certain subsidiaries.

As at 30 September 2008, the Remaining Group undertook the obligation under a buy-back undertaking entered with a bank of approximately RMB15,795,000 (equivalent to approximately HK$17,956,000) relating to the mortgage loans arranged for certain purchasers of the Remaining Group’s properties sold. Pursuant to the terms of the undertaking, in the event of any default in mortgage payments by any of these purchasers, the Remaining Group is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the Remaining Group is entitled to take over the legal title and possession of the related properties. The Remaining Group’s guarantee period commences from the dates of the drawdown of the relevant mortgage loans and ends when the Remaining Group obtains the “property title certificate” for the mortgagees.

A deposit of RMB2,279,000 (equivalent to HK$2,591,000) was pledged to the bank as security for the Remaining Group’s obligation under the above undertaking.

No recognition was made because the fair value of the undertaking or guarantee as above was insignificant and that the directors did not consider it probable that a claim would be made against the Remaining Group under the undertaking or guarantee. The maximum liability of the Remaining Group as at 30 September 2008 under the undertaking was HK$33,456,000.

HUMAN RESOURCES AND REMUNERATION POLICY

As at 30 September 2008, the Remaining Group has approximately 45 employees in Hong Kong and the PRC. The total remuneration paid by the Remaining Group to its employees (including directors) for the period was approximately HK$5.0 million.

In order to retain and attract high caliber executives and employees, the Remaining Group rewards its employees according to prevailing market practices, employees’ individual experience and performance are reviewed regularly. In addition to the provision of annual bonus, provident fund scheme and medical insurance coverage, discretionary bonuses and share option are also available to employees based on their performance.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND ASSOCIATED COMPANIES

The Remaining Group did not undertake any significant acquisition or disposal of subsidiaries or assets during the period ended 30 September 2008, except the followings:–

On 15 August 2008, the Company entered into an agreement for the disposal of its entire interest in Ling Kit Holding Limited to Pure Hope Development Limited for approximately HK$1,624 million. The consideration will be settled by cancellation of 800 million Repurchase Shares, the Convertible Notes and Promissory Notes. The disposal is subject to shareholders’ approval in the SGM.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 30 September 2008, the Company sold its entire interest in Anco Industrial Company Limited and its subsidiaries (“Anco”) to an independent third party not connected with the Company or its connected person and is not an existing shareholder of the Company, for a consideration of HK$1.00 and reported a loss of HK$13.6 million for the six months ended 30 September 2008.

CAPITAL COMMITMENT

The Remaining Group’s contracted capital commitments outstanding as at 30 September 2008 not provide for in the financial statements was HK$2,241,000.

EXPOSURE TO EXCHANGE RISK

The Remaining Group mainly operates in Asia Pacific, including the PRC, Macau and Hong Kong. Most of the Remaining Group’s transactions, assets and liabilities are denominated in Renminbi and Hong Kong Dollars.

Foreign exchange risk arises from fluctuations of exchange rates of foreign currencies. The Remaining Group manages its foreign exchange risks by performing regular review and monitoring its foreign exchange exposures.

FINANCIAL INSTRUMENTS FOR HEDGING PURPOSES

The Remaining Group had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the period.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

With rapid growth in the building materials sector, the Remaining Group will continue to allocate resources in this business. The Remaining Group will also seek for other investment opportunities which are beneficial to its long term development, with an aim to generate the best return for its shareholders.

MATERIAL CHANGE

The Directors confirmed that as at the Latest Practicable Date, there is no material change in the financial or trading position or outlook of the Group since 30 September 2008, being the date to which the latest published audited consolidated financial statements of the Company were made up.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. Unaudited Pro Forma Consolidated Balance Sheet

The following is an illustrative and unaudited pro forma consolidated balance sheet of Magnesium Resources Corporation of China Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) which have been prepared to illustrate the effect of the proposed disposal (the “Disposal”) of the entire 100% equity interest in Ling Kit Holdings Limited and its subsidiaries (collectively referred to as the “Disposal Group”) and entire amounts owing by Ling Kit Holdings Limited to the Group, on the financial position of the Group immediately after completion as if the Disposal had taken place on 30 September 2008.

The unaudited pro forma consolidated balance sheet was prepared based on the audited consolidated balance sheet of the Group as at 30 September 2008 as set out in the accountants’ report on the Group in Appendix I to this circular, after adjusting mainly for the exclusion of the carrying values of assets and liabilities of the Disposal Group as at 30 September 2008.

The unaudited pro forma consolidated balance sheet was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Group excluding the Disposal Group, (collectively referred to as “Remaining Group”) as at 30 September 2008, had the Disposal taken place on 30 September 2008, or at any future dates.

II – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

The Group as at 30 September 2008 HK$’000 (Note 1) NON-CURRENT ASSETS Property, plant and equipment 3,426 Interests in leasehold land held for own use under operating leases 268 Intangible assets 1,959,006 1,962,700 CURRENT ASSETS Inventories 39,565 Interest in leasehold land held for own use under operating leases 5 Trade and other receivables 73,769 Pledged deposits 36,091 Cash and cash equivalents 80,940 230,370 CURRENT LIABILITIES Bank loans and overdrafts 13,664 Trade and other payables 49,534 Finance lease payables – Due to ultimate controlling parent company – Provision for taxation 2,440 65,638 NET CURRENT ASSETS/ (LIABILITIES) 164,732 TOTAL ASSETS LESS CURRENT LIABILITIES 2,127,432	Pro forma adjustments relating to the Disposal HK$’000 HK$’000 (Note 2) (Note 3) (800) – – – (1,959,006) – (1,959,806) – – – – – (5,420) – – – (814) 464 (6,234) 464 – – (5,954) – – – (77,577) 77,577 (357) – (83,888) 77,577 77,654 (77,113) (1,882,152) (77,113)	Adjusted balance of the Remaining Group
		HK$’000 2,626 268 –
		2,894 39,565 5 68,349 36,091 80,590
		224,600 13,664 43,580 – – 2,083
		59,327
		165,273
		168,167

II – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

The Group
as at
30 September
2008
HK$’000
(Note 1)
NON-CURRENT LIABILITIES
Deferred tax liabilities
10,814
Convertible notes
878,849
Promissory notes
320,000
1,209,663
NET ASSETS/ (LIABILITIES)
917,769
CAPITAL AND RESERVES
Share capital
295,107
Reserves
221,703
Total equity attributable to equity
shareholders of the Company
516,810
Minority interests
400,959
TOTAL EQUITY
917,769

Notes:

The audited consolidated balance sheet of the Group as at 30 September 2008 was derived from the Accountants’ Report of the Group which is set out in Appendix I to this circular.
The adjustment represents the exclusion of the assets and liabilities attributable to the Disposal Group as at 30 September 2008 as if the Disposal had been completed on 30 September 2008.
The adjustment represented the total consideration of approximately HK$1,624 millions, which will be settled by way of (i) repurchase shares amount to 800,000,000 shares of HK$0.1 each in its ordinary share capital for cancellation at a price of HK$0.265 per shares; (ii) cancellation of the Convertible Note amount to HK$1,092,000,000 (including the liability component of HK$855,213,000 and equity component of HK$236,787,000 of the convertible notes at the inception date) plus accrued interest HK$23,636,000 as at 30 September 2008; (iii) cancellation of the Promissory Note amount to HK$320,000,000; and (iv) payment of HK$464,456.5 to the Group in cash of completion.

The total amount of HK$77,577,000, being the entire amount of the interest-free shareholder’s loan owed by the Disposal Group to the Company as at completion date, has been disposed as if the Disposal had been completed on 30 September 2008.

II – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

The estimated unaudited gain on disposal of the subsidiary

Repurchases of share
Equity component of convertible notes_(Note 5)
Liabilities component of convertible notes(Note 5)
Promissory notes
Cash consideration
Total consideration
Net assets value of the Disposal Group as at 30 September 2008
Sales loan
Gain on disposal
Reconciliation for the movement of reserve
Reserve as per above
Less: Net assets value of the Disposal Group as at 30 September 2008
Share premium(Note 4)_
Equity component of convertible notes

HK$’000
212,000
236,787
878,849
320,000
464
1,648,100
(1,490,301)
157,799
(77,577)
80,222
HK$’000
1,201,736
(1,490,301)
(288,565)
132,000
236,787
80,222

The amounts were excluded in the consolidated balance sheet of the Company if the Disposal had been completed on 30 September 2008.

The adjustment represented the total share premium for the repurchases of 800,000,000 shares of HK$0.1 each in its ordinary share capital for cancellation at a price of HK$0.265 per share.
The liability component of convertible notes of the Company was valued as at 6 March 2008 on an income approach based on 6.75% discount rates and 5 years duration of the convertible notes. The difference between the proceeds of the issued amount and the fair value of the liability component is assigned to the equity component. The valuation was performed by Grant Sherman Appraisal Limited, an independent professional valuer.

II – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

2. Unaudited Pro Forma Consolidated Income Statement

As the Disposal Group was acquired by the Group on 6 March 2008, and was not a subsidiary of the Group at the beginning of the financial year ended 31 March 2008, the pro forma consolidated income statement was prepared as if the Disposal Group had not been acquired during the financial year ended 31 March 2008. The unaudited pro forma consolidated income statement was prepared based on the audited consolidated income statement of the Group for the year ended 31 March 2008 as set out in the accountants’ report on the Group in Appendix I to this circular, after adjusting mainly for the exclusion of the revenue, cost and expenses generated from the operations of the Disposal Group.

The unaudited pro forma consolidated income statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the results of the Remaining Group for the year ended 31 March 2008 or for any further financial periods.

CONTINUING OPERATIONS Turnover Cost of sales Gross profit/(loss) Other revenue Selling and distribution expenses Administrative expenses Other operating expenses Gain on disposal of subsidiary (Note 5) Profit/(loss) from operations Finance costs Profit/(loss) before taxation Income tax Profit/(loss) for the year from continuing operations	The Group year ended 31 March 2008 HK$’000 (Note 1) 123,037 (108,351) 14,686 14,909 (4,182) (43,294) (19,279) – (37,160) (2,050) (39,210) (1,881) (41,091)		Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (1,445) – – 646 – – (799) – – – (2,011) – 80 – – 645 – – 10,589 – – – – – 10,515 (2,011) – – – 1,851 10,515 (2,011) 1,851 11 – – 10,526 (2,011) 1,851	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (1,445) – – 646 – – (799) – – – (2,011) – 80 – – 645 – – 10,589 – – – – – 10,515 (2,011) – – – 1,851 10,515 (2,011) 1,851 11 – – 10,526 (2,011) 1,851	Adjusted balance of the Remaining Group HK$’000 121,592 (107,705) 13,887 12,898 (4,102) (42,649) (8,690) – (28,656) (199) (28,855) (1,870) (30,725)
			HK$’000 (Note 2) (1,445) 646 (799) – 80 645 10,589 – 10,515 – 10,515 11 10,526	HK$’000 (Note 3) – – – (2,011) – – – – (2,011) – (2,011) – (2,011)

II – 5

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) – – – 10,526 (2,011) 1,851 8,421 (2,011) 1,851 2,105 – – 10,526 (2,011) 1,851	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) – – – 10,526 (2,011) 1,851 8,421 (2,011) 1,851 2,105 – – 10,526 (2,011) 1,851	Adjusted balance of the Remaining Group
HK$’000 (Note 2) – 10,526 8,421 2,105 10,526	HK$’000 (Note 3) – (2,011) (2,011) – (2,011)	HK$’000 (73,639)
		(104,364)

		(104,631) 267
		(104,364)

Notes:

The audit consolidated income statement of the Group for the year ended 31 March 2008 was derived from the Accountants’ Report of the Group which is set out in Appendix I of this circular.
The adjustment represents the exclusion of results attributable for the year ended 31 March 2008 as if the Disposal Group had not been acquired during the financial year ended 31 March 2008. This unaudited pro forma adjustment will not have continuing income statement effect to the Remaining Group.
The adjustment reflects the effect of the exclusion of the negative goodwill arising from the acquisition as if the Disposal Group had not been acquired during the financial year ended 31 March 2008. This unaudited pro forma adjustment will not have continuing income statement effect to the Remaining Group.
The adjustment reflects the effect of the exclusion of the accrued interest for promissory note and convertible notes as if the Disposal Group had not been acquired during the financial year ended 31 March 2008. This unaudited pro forma adjustment will not have continuing income statement effect to the Remaining Group.

Calculation basis for accrued interest: Promissory notes ($320,000,000 x 3% x26/365) Convertible notes ($1,092,000,000 x 1.5% x26/365) Total accrued interest for promissory notes and convertible notes as at 31 March 2008	HK$’000 684 1,167
	1,851

The Company issued the promissory notes and convertible notes on 6 March 2008. Therefore, the accrued interest accounted for 26 days as at 31 March 2008.
As the Disposal Group was acquired by the Group on 6 March 2008, and was not a subsidiary of the Group at the beginning of the financial year ended 31 March 2008, no gain/loss on disposal of subsidiaries on the income statement as if the Disposal had been completed on 1 April 2007 was presented. In addition, the adjustment has not taken into account of the estimated payment for transaction cost (including legal and professional fee and printing charges) of approximately HK$4,300,000 which are directly attributable to the Disposal.

II – 6

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

3. Unaudited Pro Forma Consolidated Cash Flow Statement

As the Disposal Group was acquired by the Group on 6 March 2008, and was not a subsidiary of the Group at the beginning of the financial year ended 31 March 2008, the pro forma consolidated cash flow statement was prepared as if the Disposal Group had not been acquired during the financial year ended 31 March 2008. The following unaudited consolidated cash flow statement was prepared based on the audited consolidated cash flow statement of the Group for the year ended 31 March 2008 as set out in the accountants’ report on the Group in Appendix I to this circular, after adjusting mainly for the exclusion of the cash flows arising from the activities of the Disposal Group and the inclusion of the cash flows relating to the Disposal.

The unaudited pro forma consolidated cash flow statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the cash flows of the Remaining Group for the year ended 31 March 2008, had the Disposal Group had not been acquired during the financial year ended 31 March 2008, or for any future financial periods.

CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation – Continuing operations – Discontinued operations Adjustment for: Amortisation of land lease premium Negative goodwill Amortisation of intangible assets Finance costs Interest income Loss on disposal of a subsidiary Gain on disposal of property, plant and equipment Depreciation Write-down of inventories Impairment losses on trade and other receivables Impairment loss on goodwill Impairment losses on property, plant and equipment Exchange difference, net Operating loss before changes in working capital	The Group year ended 31 March 2008 HK$’000 (Note 1) (39,210) (73,625) 158 (2,011) 10,589 3,340 (3,800) 24,450 (4,401) 7,486 3,733 10,878 4,957 10,466 2,485 (44,505)		Pro forma adjustments HK$’000 HK$’000 (Note 2) (Note 3) 10,515 (160) – – – – – 2,011 (10,589) – – (1,851) – – – – – – (7) – – – – – – – – – – – (81) –	Adjusted balances of the Remaining Group HK$’000 (28,855) (73,625) 158 – – 1,489 (3,800) 24,450 (4,401) 7,479 3,733 10,878 4,957 10,466 2,485 (44,586)
			HK$’000 (Note 2) 10,515 – – – (10,589) – – – – (7) – – – – – (81)

II – 7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Decrease in inventories Increase in trade and other receivables Decrease in trade and other payables Increase in bank loans (trading nature) Increase in amount due to related company Cash used in operations Overseas tax paid NET CASH USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payment to acquire property, plant and equipment and land lease premium Proceeds from disposal of property, plant and equipment Net cash inflow from disposal of a subsidiary Net cash inflow from acquisition of subsidiaries Increase in pledged deposits Interest received NET CASH INFLOW FROM INVESTING ACTIVITIES	The Group year ended 31 March 2008 HK$’000 (Note 1) 13,934 (70,423) (20,087) 7,115 – (113,966) (3,065) (117,031) (2,348) 22,104 4,308 3,147 (18,192) 3,800 12,819		Pro forma adjustments HK$’000 HK$’000 (Note 2) (Note 3) – – 82 – (631) – – – 240 – (390) – – – (390) – 4 – – – – – (3,147) – – – – – (3,143) –	Adjusted balances of the Remaining Group HK$’000 13,934 (70,341) (20,718) 7,115 240 (114,356) (3,065) (117,421) (2,344) 22,104 4,308 – (18,192) 3,800 9,676
			HK$’000 (Note 2) – 82 (631) – 240 (390) – (390) 4 – – (3,147) – – (3,143)

II – 8

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

CASH FLOWS FROM FINANCING ACTIVITIES Placement and subscription of shares (net of expenses) Bonus warrants Interest paid Interest element of finance lease payments Capital element of finance lease payments NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank Bank overdrafts	The Group year ended 31 March 2008 HK$’000 (Note 1) 147,528 24,693 (1,396) (93) (2,431) 168,301 64,089 41,160 308 105,557 119,338 (13,781) 105,557		Pro forma adjustments HK$’000 HK$’000 (Note 2) (Note 3) – – – – – – – – – – – – (3,533) – – – – – (3,533) – (3,533) – – – (3,533) –	Adjusted balances of the Remaining Group HK$’000 147,528 24,693 (1,396) (93) (2,431) 168,301 60,556 41,160 308 102,024 115,805 (13,781) 102,024
			HK$’000 (Note 2) – – – – – – (3,533) – – (3,533) (3,533) – (3,533)

II – 9

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

The audited consolidated cash flow statement of the Group for the year ended 31 March 2008 was derived from the Accountants’ Report of the Group which is set out in Appendix I of this circular. This unaudited pro forma adjustment will not have continuing cash flow effect to the Remaining Group.
The adjustment represents the exclusion of cash flows of the Disposal Group for the year ended 31 March 2008 as if the Disposal Group had not been acquired by the Group during the financial year ended 31 March 2008. This unaudited pro forma adjustment will not have continuing cash flow effect to the Remaining Group.
The adjustment represents the exclusion of non-cash item of negative goodwill amounting HK$2,011,000 and the accrued interest expenses for promissory notes and convertible notes amounting HK$1,851,000 for the year ended 31 March 2008 as if the Disposal Group had not been acquired by the Group during the financial year ended 31 March 2008. This unaudited pro forma adjustment will not have continuing cash flow effect to the Remaining Group.

II – 10

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is the text of a report prepared for the purpose of incorporation in this circular received from CCIF CPA Limited, the independent reporting accountants.

B. LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP.

==> picture [87 x 61] intentionally omitted <==

26 November 2008

The Directors Magnesium Resources Corporation of China Limited Room 3001-2, Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Magnesium Resources Corporation of China Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), excluding Ling Kit Holdings Limited and its subsidiaries (collectively referred to as the “Disposal Group”) (hereinafter referred to as the “Remaining Group”), set out on pages II-1 to II-10 in this Appendix to the circular dated 26 November 2008 (the “Circular”) issued by the Company in connection with a very substantial disposal resulting from the proposed disposal of the entire 100% equity interest of Ling Kit Holdings Limited (the “Disposal”). The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, solely for illustrative purposes to provide information about how the Disposal might have affected the financial information presented in respect of the Group. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages II-1 to II-10 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

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

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

II – 11

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard in Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. 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 Rule 4.29(1) of the 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 Remaining Group as at 30 September 2008 or any future dates; or
the results and cash flows of the Remaining Group for the year ended 31 March 2008 or any future periods.

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 Rule 4.29(1) of the Listing Rules.

CCIF CPA Limited

Certified Public Accountants Hong Kong

Kwok Cheuk Yuen

Practising Certificate Number P02412

II – 12

VALUATION REPORT

APPENDIX III

The following is the text of a valuation report prepared for the purpose of incorporation in this circular received from Asset Appraisal Limited, an independent valuer, in connection with its valuation as at 30 September 2008 of the mining rights held by the Group

==> picture [176 x 35] intentionally omitted <==

電話傳真

Date : 26 November 2008

The Board of Directors

Magnesium Resources Corporation of China Limited

Rooms 3001-2 Top Glory Tower No. 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

Re: Valuation of the Mining Rights in Lishugou Magnesite Mine in Liaoning Province, the People’s Republic of China.

In accordance with the instructions from Magnesium Resources Corporation of China Limited (referred to as the “ Company ”) to value the mining rights (referred to the “Mining Rights) in Lishugou Magnesite Mine (梨樹溝菱鎂礦, referred to as the “ Magnesite Mine ”), held by Haicheng Dongxin Industry Limited (海城市東鑫實業有限公司referred to as “ Dongxin ”). We confirm that we have inspected the Magnesite Mine, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing our opinion of the fair value of the Mining Rights as at 30 September 2008 (referred to as the “ Valuation Date ”).

Dongxin which was established in the PRC in 1993 and is a company with 80% interests owned by Ling Kit Holding Limited , a company established in the BVI with limited liability which is whollyowned by Magnesium Resources Corporation of China Limited (formerly known as China Rise International Holdings Limited ).

The Magnesite Mine is situated approximately 120 kilometres south of Shengyang City (瀋陽市), the capital city of Liaoning Province, and 18 kilometres southeast of Haicheng City (海城市) in Liaoning Province.

III – 1

VALUATION REPORT

APPENDIX III

Geographic Location of the Magnesite Mine

==> picture [351 x 299] intentionally omitted <==

As revealed from the legal opinion prepared by Beijing Kangda Law Firm Shenyang Office, the Municipal Government of Liaoning Province has taken initiative to consolidate three magnesite mines namely Dongxin Lishugou Magnesite Mine, Dongxin Lishugou No. 2 Magnesite Mine and the magnesite mine of Haicheng Zhenbo Mining Co. Ltd. (海城市振博礦業有限公司) into one magnesite mine. The consolidated magnesite mine have been set aside to Dongxin for its operations. As the magnesite mine of Haicheng Zhenbo Mining Co. Ltd. was not originally held by Dongxin, Dongxin entered into a Mining Right Transfer Agreement with Haicheng Zhenbo Mining Co. Ltd. on 10 October 2007 and the mining right transfer has been completed. Therefore, Dongxin is entitled to obtain a consolidated mining permit (which shall supersede the original two mining permits held by Dongxin over the Dongxin Lishugou Magnesite Mine and the Dongxin Lishugou No. 2 Magnesite Mine) for all the three magnesite mines from the Government with a mining right period of 16 years.

As revealed from the Mining Area Delineation Approval (ref no. Liao Gao Tu Zi Kuang Hua Zhi [2008]0121) issued by the Liaoning Province State Land Resource Department on 4 November 2008, the Magnesite Mine covering a mining site area of 0.8643 square kilometers has been reserved to Dongxin for a period of 1 year expiring in November 2009. Dongxin is required to complete mining registration procedures and to obtain a consolidated exploitation permit for the Magnesite Mine before November 2009.

III – 2

APPENDIX III

VALUATION REPORT

As confirmed by the Company, it has submitted application together with all necessary information to the Land Resources Bureau for the issue of the consolidated exploitation permit. The PRC lawyer opines that Dongxin shall be issued with the consolidated exploitation permit if the submitted information is acceptable to the Government as sufficient and accurate for the processing of the mining right registration.

The Magnesite Mine has a general mining area of approximately 0.8643km2 and the permissible mining elevation is from 363 metres to 102 metres. The inflexion points of the mining area of the Magnesite Mine are set out as follows:–

Point	X-Coordinate	Y-Coordinate
1	4,512,684.00	41,487,185.00
2	4,513,020.00	41,487,640.00
3	4,513,239.00	41,487,895.00
4	4,513,454.00	41,488,353.00
5	4,513,520.00	41,489,162.00
6	4,513,279.00	41,489,207.00
7	4,512,962.00	41,488,494.00
8	4,513,054.00	41,488,459.00
9	4,512,666.00	41,487,851.00
10	4,512,353.00	41,487,428.00
11	4,512,574.00	41,487,238.00

The Magnesite Mine is located at the junction between the eastern extremity of the east-west trending Yingshan-Tianshan tectonic zone and the uplofted northeast structural zone. Subordinately, the project lies within the major Yingluo-Caohekou-Taipingshao synclinorium, located at the western end of Yingkou-Kuandian structural zone. The magnesite mineralization occurs along a strike length of 2,500m from west to east. Individual mineralised zones are generally 600m long, and range from 2m to 76m wide.

According to the information provided by the independent technical adviser namely Coffey Mining Pty Limited (referred to as the “ Coffey Mining ”), the estimated magnesite resources of the Magnesite Mine, in accordance with the Chinese Standards, are catagorised as below:–

Lishugou Project Magnesite Resource Estimate No. 404 Brigade (as at 31 December 2006)

Chinese Standard
Resource Category	Tonnes Estimated	Average	Grade(%)
		MgO	CaO	SiO2
333	27,626,500	45.90	0.82	2.23
334	120,229,000	45.80	0.80	2.89
Total (333+334)	147,855,500	45.80	0.81	2.75

III – 3

APPENDIX III

VALUATION REPORT

Coffey Mining is an Australian based mining industry consulting firm which has been providing services and advice to the international minerals industry and financial institutions since 1987 and the technical review for the Magnesite Mine has been conducted by members of the Australasian Institute of Mining and Metallurgy who have the appropriate relevant qualifications, experience, competence and independence to be considered as “Expert” and “Competent Person” under the definitions provided in the “Australasian Code for Reporting Mineral Resources and Ore Reserves” (2004 edition) published by the Joint Ore Reserves Committee (“JORC”) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the “JORC Code”).

Dongxin has principally engaged in the mining of magnesite ore at the Dongxin Lishugou Magnesite Mine and the Dongxin Lishugou No. 2 since 1999. Raw ore exploited by Dongxin from the Magnesite Mine has been directly sold to third parties for further processing. In mid July 2008, the mining operations of the Magnesite Mine were interrupted by groups of local villagers who gathered around and block the pathways of the Magnesite Mine. All blasting and ore transporting activities of the Magnesite Mine could not be performed and the mining operations have been halted in the presence of the groups of local villagers.

==> picture [211 x 158] intentionally omitted <==

==> picture [212 x 159] intentionally omitted <==

Work Face of the Lishugou Magnesite Mine Work Face of the Lishugou Magnesite Mine

Dongxin has planned to construct its own processing plants for the manufacturing of light calcined magnesite powder (輕燒鎂粉) and electro-fused magnesia-chrome sinter (電熔鎂鉻砂) at a budgeted cost of RMB165,000,000. However, the implementation of the development plans has been interrupted by incidence of gathering of local villagers as mentioned above and therefore the construction of the processing plant has to be deferred until the incidence can be settled.

MAGNESITE REFRACTORY MATERIAL INDUSTRY IN THE PRC

In the past three years, the PRC’s annual output of refractory materials has grown steadily, accounting for nearly a half of the world total. The causes for this can be attributed to the country’s resource and labor advantages, as well as strong domestic demand as a result of its ongoing nationwide economic construction.

The PRC ranks first in the world in terms of consumption volume of refractory materials. Products are extensively used in most of the country’s large-scale basic industries like the steel, cement, and glass industries, which are all pillar industries and have made substantial contributions to the country’s national economy.

III – 4

VALUATION REPORT

APPENDIX III

Affected by macro regulation policies, the PRC’s export of refractory materials in 2007 dropped by 39.20 percent compared with 2006. In the same year, refractory material import grew by 30.39 percent.

The PRC has abandoned export tax rebates for most refractory raw materials, and will reduce the tax rebates for finished products. This indicates export of refractory materials is further limited, which will have impact on advanced countries which import most refractory raw materials and products from the mainland. They have to move their factories to the mainland. As a result, the PRC’s refractory industry would rely more on domestic demands.

Also, due to high cost and more severe environmental restrictions, the refractory manufacturers is exposing to escalating production costs which is hurting their profit margins.

According to figures from the National Bureau of Statistics (NBS), the PRC’s GDP reaches to 20.16 trillion yuan (2.96 trillion U.S. dollars) in the first three quarters of 2008, up 9.9 percent from the same period of last year. The GPD growth was 10.6 percent for the first quarter, 10.1 percent for the second quarter and 9 percent for the third quarter. The decline in the third quarter is attributed to recent global economic and financial crisis and the macro control measures have seen notable effects in the quarter.

Consumer Price Index (CPI) is a main indicator of inflation. In the first nine months of this year, the inflation indicator rose 7.0 percent from the same period last year and rose 4.6 percent in September over the same period last year. The figure, compared with 7.1 percent in June, 6.3 percent in July, 4.9 percent in August and a nearly 12-year-high of 8.7 percent in February, was broadly in line with most forecasts.

In recent months, most of the PRC’s economic figures indicated that the country’s economy has cooled down. However, the fundamentals of the Chinese economy remained good compared with the global economy. This was marked by stable and rapid economic growth, falling consumer prices, a generally optimized industrial structure and improved economic operations.

Due to the recent gloomy global economic and financial environment, the world’s refractory material consumers are expected to scale down their normal productions and inevitably cut down their demands on refractory products. Coupling with the beleaguered manufacturing sectors of the mainland, it is submitted that the previously escalating trend of demand on refractory products shall flatten in the year ahead.

III – 5

VALUATION REPORT

APPENDIX III

Prices for Shanhai Chanjiang Magnesium Spot Prices over the period from September 2005 to October 2008 are exhibited in the graph below:

==> picture [430 x 308] intentionally omitted <==

Source: Bloomberg

BASIS OF VALUATION

The Mining Rights have been valued on the basis of “Fair Value” in the premise of continued use which, in our appraisal, reflects the future economic benefit to be derived from the ownership of the Mining Rights (including mining operations and processing of ore exploited from the Magnesite Mine) on the basis that the holders of the Mining Rights shall have no legal impediment and substantial extra costs to obtain or to renew the exploitation permit from the PRC Government from time to time until the expiry of the mining rights period to be granted by the Government. Fair Value in continued use premise is defined as the estimated amount at which an asset might be expected to exchange on the Valuation Date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion and with the buyer and seller contemplating retention of the asset for continuation of current operations and implementation of the business plans in associate with the asset.

III – 6

VALUATION REPORT

APPENDIX III

The definition of fair value adopted in this valuation report is similar and/or interchangeable with definitions of the valuation standards below:

Market Value

According to The Hong Kong Business Valuation Forum – Business Valuation Standards, market value is defined as the estimated amount for which an asset (a property) should exchange on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Fair Market Value

The International Valuation Glossary defines fair market value as the amount at which an asset would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.

For the purpose of this valuation, the term fair value will be used throughout this valuation report. Our valuation has been prepared in accordance with the HKIS Valuation Standards on Trade related Business Assets and Business Enterprise (First Edition 2004) published by the Hong Kong Institute of Surveyors and the Business Valuation Standards (First Printed 2005) published by the Hong Kong Business Valuation Forum, which are generally accepted valuation standards followed by relevant professional practitioners in Hong Kong. These standards contain detailed guidelines on the basis and valuation approaches in valuing assets used in the operation of a trade or business and business enterprises.

Our appraisal included on-site inspection of the Magnesite Mine, discussions with the management of the Company in relation to the history and nature of Dongxin’s operations; a study of the financial statements; a review of the information provided by the management in connection with the strategy of and the plan of action to be taken to implement the business plans. We have assumed that such information, opinions and representation provided to us are true and accurate. Before arrived at our opinion of value of the Mining Rights, we have considered the following major factors:

i. the nature and the prospect of the concerned business operations and Dongxin;
ii. the financial conditions of Dongxin;
iii. the specific economic and competitive element affecting Dongxin, the industry and the market in which the Dongxin operates;
iv. the market-derived investment returns of enterprises engaged in a similar line of business;
v. the business risk of the operations of the Magnesite Mine;

III – 7

VALUATION REPORT

APPENDIX III

vi. the magnesite resources of the Magnesite Mine as estimated by independent mining expert of the Company; and
vii. the financial statements and the past operating results of Dongxin.

In view of the general environment and the particular situation in which the Magnesite Mine is operating, the following assumptions have been adopted in our valuation in order to sufficiently support our concluded value:

i. there will be no major change in the existing political, legal and economic conditions in the PRC;
ii. save for those proposed changes on taxation policies announced by the Tax Bureau of the PRC, there will be no major change in the current taxation law and tax rates as prevailing and that all applicable laws and regulations on taxation will be complied with by Dongxin;
iii. the interest rates and exchange rates will not differ materially from those presently prevailing;
iv. the availability of finance will not be a constraint on the forecast growth of Dongxin in operating the Magnesite Mine;
v. as part of our analysis, we have reviewed financial and business information from public sources together with such financial information, management representation, project documentation and other pertinent data that are specific to the project and made available to us by the management of the Company during the course of our valuation. We have assumed the accuracy of, and have relied on the information and management representations provided in arriving at our opinion of value. The operating results of Dongxin revealed to us by the Company have been compiled based on fair and reasonable accounting policies that truly reflect the performance of Dongxin;
vi. the facilities, systems and the technology utilized by the Magnesite Mine are all sound and capable in performing their designed functions for supporting the mining operations and do not infringe any relevant regulations and law;
vii. the Mining Rights are free from any encumbrance and liability including but not limited to mortgage, charge, land premium, relocation compensation and development costs;
viii. Dongxin shall have uninterrupted rights to operate the Magnesite Mine throughout a period of not less than 16 years and subject to no further land / resource premium or any other payments of substantial amount to the Government;
ix. the interruption on the operations of the Magnesite Mine can be cleared out in the last quarter of 2009 such that the mining operations can be resumed and the construction of processing plant can be implemented afterward;

III – 8

APPENDIX III

VALUATION REPORT

x. Dongxin have obtained or will have no impediment to obtain all necessary permits and licenses to carry out mining activities and businesses in the Magnesite Mine and shall have no legal impediment and extra costs of substantial amount to renew such permits and license upon their expiries;
xi. Dongxin will secure and retain competent management, key personnel, marketing and technical staff to carry out and support its mining and processing operations;
xii. as confirmed by the Coffey Mining, the magnesite resources of the Magnesite Mine are estimated at 27.6 million tonnes and 120.2 million tonnes classified as category 333 and 334 respectively; and
xiii. the estimated fair value does not include consideration of any extraordinary financing or income guarantees, special tax considerations or any other atypical benefits which may influence the market value.

VALUATION METHODOLOGY

We have conducted our valuation in accordance with international valuation standards issued by the International Valuation Standards Committee. In arriving at our value, we have considered three accepted approaches. There are market approach, cost approach and income approach.

The operation of the Magnesite Mine is currently confined to raw magnesite ore exploitation only. According to the business plans of Dongxin, the project shall attain its optimal profitability status by 2010 when magnesite ore processing plants are completed. Therefore, the existing economic variables such as revenue, EBITDA or net profit after tax currently reported by Dongxin are not appropriate as optimal economic variables for comparison with that of other companies engaging in metal ore mining and processing businesses when valuing the Mining Rights by the market approach.

The cost approach is not appropriate for valuing the operating rights either as it disregards the economic benefits of the asset.

We have therefore, relied solely on the income approach in determining our opinion of value of the Mining Rights as the approach can take into account the specific magnesite products to be produced by Dongxin as well as the specific timeframe for implementing the project.

The Income Approach focuses on the income-producing capability of the Mining Rights. Its underlying theory is that the value of an asset can be measured by the present worth of the net economic benefit to be received over the useful life of the assets.

More specifically, we have employed the Discounted Cash Flow (“DCF”) Method to arrive at our opinion of value. This method would necessitate the subtraction, from revenue from the operations and general and administrative expenses in the computation of cash flow.

III – 9

VALUATION REPORT

APPENDIX III

In this method, value depends on the present worth of future economic benefits to be derived from ownership of the Mining Rights. Thus, an indication of value is developed by discounting future debt free cash flows (DFCFs) available for distribution to the owners to their present worth at market-derived rates of return appropriate for the risks and hazards of investing in similar business.

DFCF = EBIT + DEPR – Tax – CAPEX –ΔWC

Where:

DFCF = projected debt free cash flows EBIT = earnings before interest and tax DEPR = depreciation and amortization expenses Tax = profit tax on EBIT CAPEX = capital expenditures ΔWC = change in working capital

The appropriate discount rate for the DCF model is the weighted average cost of capital (WACC) which is the weighted average of the return on equity capital and the return on debt capital. The weights are determined by the average leverage position of the peer group and the weights of 71% and 29% for equity capital and debt capital are considered to be optimal for the Mining Rights.

The cost of equity can be developed using the Capital Asset Pricing Model (CAPM) which states that an investor requires excess returns to compensate for any risk that is correlated to the risk in the return from the well diversified market portfolio (the composite portfolio of the board base equity market index would normally be taken) but requires no excess return for other risks. Risks that are correlated with the return from the market portfolio are referred to as systematic risks. Other risks, which are normally asset specific, are referred to as nonsystematic risks. By the CAPM, the appropriate cost of equity for compensating the systematic risk is computed by the following formula:

Ke = RF + ß (MRP) + Θ where

Ke	:	Cost of Equity
RF	:	Risk Free Rate (long-term government bond rate is adopted)
ß	:	price sensitivity which measures how much the asset’s return and market return move
		together. The beta can be estimated by regression, industry comparables and
		smoothing techniques
MRP	:	market risk premium i.e market return minus risk free rate
Θ	:	company specific risk premium

III – 10

VALUATION REPORT

APPENDIX III

In our valuation, several listed companies engaging in mining business in the PRC have been selected as comparable companies and their price sensitivity coefficients (ß) as at the Valuation Date have been extracted from the database of Bloomberg L.P..

Stock Code	358	1205	1818	2626	2899	3330	3833	3993
	Jiangxi	Citic	Zhaojin	Hunan	Zijin	Lingbao	Xinjiang	China
Company Name	Copper	Resources	Mining	Non-Ferrous	Mining	Gold	Xinxin	Molybdenum
Market Cap (Mil)	38408.93	7255.881	7287.15	3545.084	69677.04	1524.335	4331.6	16481.46
P/E Ratio	4.1254	9.5468	14.3502	35.5634	14.8735	4.2363	5.6437	6.1445
P/B Ratio	1.0163	0.9134	1.7301	0.5587	2.9327	0.7775	0.7382	1.3408
P/S Ratio	0.3978	0.4436	3.7058	0.1626	2.8781	0.3647	2.2592	2.2927
P/EBITDA	3.0355	2.0457	7.983	2.9189	7.7911	1.9242	n.a.	4.1434
Gross Margin	14.48%	22.70%	53.96%	12.16%	40.45%	15.56%	42.88%	59.42%
Sales Growth	54.65%	83.38%	41.79%	–27.74%	23.07%	81.32%	–11.23%	15.41%
Operating Margin	12.92%	18.26%	36.64%	4.95%	33.40%	12.13%	32.25%	55.65%
Profit Margin	10.36%	5.48%	28.53%	0.84%	21.22%	6.97%	29.88%	37.35%
Eff tax rate	24.38%	45.01%	25.11%	31.84%	20.45%	26.41%	n.a.	23.55%
Weight of Equity (%)	89.97%	40.83%	100.00%	47.31%	100.00%	63.66%	100.00%	100.00%
Cost of Equity (%)	16.97%	15.26%	14.79%	17.15%	16.57%	15.03%	12.57%	12.57%
Weight of Liabilities	10.03%	59.17%	0.00%	52.69%	0.00%	36.34%	0.00%	0.00%
(%)
D/E	11.14%	144.93%	0.00%	111.35%	0.00%	57.08%	0.00%	0.00%
Net of Tax Cost of	0.78%	1.93%	1.36%	1.04%	1.67%	0.85%	0.86%	0.84%
Liabilities (%)
WACC (%)	15.35%	12.46%	14.94%	14.69%	18.38%	15.07%	15.16%	15.13%
Beta	1.603	1.174	1.224	1.39	1.34	1.261	1.247	1.454
unleverage beta	1.4784	0.6533	1.2240	0.7902	1.3400	0.8880	1.2470	1.4540
adjusted re-leveraged	1.9282	0.8521	1.5964	1.0306	1.7477	1.1581	1.6264	1.8963
beta

Source: Bloomberg

III – 11

VALUATION REPORT

APPENDIX III

The parameters used in determining the discount rate are shown as below:

Indicated Risk Free Rate	≈	3.13%
Risk Premium	≈	9.13%
Estimated unlevered Beta	≈	1.1344
Estimated levered Beta	≈	1.4795 (based on debt-to-equity ratio of 71% and
		a tax rate of 29%)
Cost of Equity	≈	21.64%
Cost of Debt	≈	7.74%
Tax Rate	≈	25%
Add company specific risk premium	≈	5%
WACC	≈	17.11%

Based on the aforesaid analysis, the fair value of the Mining Rights is RMB1,135,000,000.

A sensitivity analysis was prepared based on discount rates from 14.11% to 20.11% with results shown below:

Discount Rate	Fair Value of the Mining Rights
	(RMB)
14.11%	1,435,000,000
15.11%	1,325,000,000
16.11%	1,226,000,000
17.11%	1,135,000,000
18.11%	1,053,000,000
19.11%	978,000,000
20.11%	910,000,000

LIMITING CONDITIONS

We have accepted such information as nature of the Mining Rights and in the identification of the Magnesite Mine from the Company. We have had no reason to doubt the truth and accuracy of the information provided to us by the instructing party. We were also advised by the Company that no material factors have been omitted from the information to reach an informed view, and have no reason to suspect that any material information has been withheld.

We have not carried out detailed site measurement to verify the correctness of the mining areas of the Magnesite Mine but have assumed that the areas shown on the legal documents provided to us are correct. Based on our experience of valuation of similar assets in the PRC, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions and areas are approximations.

III – 12

VALUATION REPORT

APPENDIX III

For this valuation, no structural survey has been conducted for the Magnesite Mine. Our valuation has been made on the basis that the underground conditions and services of the Magnesite Mine are satisfactory and that no extraordinary expenses or delays will be incurred during the mining operations.

No allowance has been made in our valuation for any charges, mortgages, outstanding land and development payment or amounts owing on the Mining Rights nor for any expenses or taxation which may be incurred in effecting a sale. It is assumed that the Mining Rights are free from any encumbrance and liability including but not limited to mortgage, charge, land premium, relocation compensation and development costs, encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

As confirmed by the Company, it does not have any potential liability which would arise if the Magnesite Mine is to be sold at the amount of the valuation.

OPINION OF VALUE

In view of all relevant circumstances, we are of the opinion that the fair value of the Mining Rights as at the Valuation Date free of all encumbrances is in the amount of RMB1,135,000,000 (RENMINBI YUAN ONE BILLION ONE HUNDRED AND THIRTY FIVE MILLION ONLY) .

Unless otherwise stated, all monetary sums stated in this report are in Renminbi (RMB).

Yours faithfully, for and on behalf of Asset Appraisal Limited

Tse Wai Leung MFin MRICS MHKIS RPS(GP) Directors

Tse Wai Leung is a member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC. He is on the list of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers of the Hong Kong Institute of Surveyors, Registered Business Valuer under the Hong Kong Business Valuation Forum. He has over 14 years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC. He has over 2 years’ experience in valuing mining rights and has experiences in valuing mining rights in Guizhou Province, Hubei Province, Henan Province, Shanxi Province, Qinghai Province and Inner Mongolia Autonomous Region, the PRC.

III – 13

REPORTS ON FORECAST UNDERLYING THE VALUATION

APPENDIX IV

Set out below are the texts of the reports from CCIF CPA Limited and Optima Capital Limited in connection with the cash flow forecasts underlying the valuation report on the mining rights held by the Group dated 26 November 2008 prepared by Asset Appraisal Limited for the purpose of inclusion in this circular.

(A) REPORT FROM CCIF

==> picture [87 x 61] intentionally omitted <==

26 November 2008

The Board of Directors Magnesium Resources Corporation of China Limited Room 3001-02, Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

Re: Magnesium Resources Corporation of China Limited (the “Company”)

We have examined the arithmetical accuracy of the calculations of the valuation report for the mining right in Lishugon Magnesite Mine (“Lishugon Magnesite Mine”) dated 26 November 2008 (the “Valuation Report”) prepared by Asset Appraisal Limited (the “Valuer”). The Valuation Report is regarded as a profit forecast under paragraph 29(2) of Appendix 1B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Valuation Report is set out in Appendix III of the circular of the Company dated 26 November 2008 (the “Circular”) in connection with the very substantial disposal of the magnesite mining subsidiary.

Respective responsibilities of the directors of the Company, the Valuer and the auditors of the Company

The Valuer is solely responsible for the preparation of the Valuation Report while the Valuer and the directors of the Company are responsible for the reasonableness and validity of the assumptions based on which the Valuation Report is prepared (the “Assumptions”).

IV – 1

REPORTS ON FORECAST UNDERLYING THE VALUATION

APPENDIX IV

It is our responsibility to form an opinion, based on our work on the arithmetical accuracy of the calculation of the Valuation Report and to report our opinion solely to you, as a body, solely for the purpose of reporting under paragraph 29(2) of Appendix 1B of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of, arising our of, or in connection with our work.

We were informed by the directors of the Company that as the valuation is discounted cash flow model, the Company’s accounting policies are not applicable to the preparation of the Valuation Report. The Assumptions include hypothetical assumptions about future events as details in Appendix III to the Circular and management actions that cannot be confirmed and verified in the same way as past results, and these assumptions may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation Report and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express opinion whatsoever thereon.

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to the procedures under the Auditing guideline 3.341 “Accountants’ Report on Profit Forecasts” issued by the Hong Kong Institute of Certified Public Accountants. We examined the arithmetical accuracy of the Valuation. Our work has been undertaken solely to assist the directors of the Company in evaluating whether the Valuation, so far as the calculations are concerned, has been properly compiled and for no other purpose. Our work does not constitute any valuation of the Lishugon Magnesite Mine.

Opinion

Based on the foregoing, in our opinion, the Valuation, so far as the calculations are concerned, has been properly compiled in accordance with the bases and assumptions made by the Valuer and the directors of the Company as set out in the Appendix III to the Circular dated 26 November 2008.

Yours faithfully For and on behalf of CCIF CPA Limited

Kwok Cheuk Yuen Director

IV – 2

REPORTS ON FORECAST UNDERLYING THE VALUATION

APPENDIX IV

(B) REPORT FROM OPTIMA CAPITAL

Unit 3618, 36th Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong

26 November 2008

The Board of Directors Magnesium Resources Corporation of China Limited Room 3001-02, Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We refer to the valuation prepared by Asset Appraisal Limited (“Asset Appraisal”) in relation to the fair value of the mining right held by the PRC Company in respect of the Magnesite Mine (the “Fair Value”). The report of Asset Appraisal is included in Appendix III to a circular dated 26 November 2008 (the “Circular”) issued by the Company. Capitalised terms used herein shall the same meanings as those defined in the Circular unless the context herein requires otherwise.

We note that the Fair Value, which has been developed based on discounted cash flow analysis, is regarded as profit forecast under Chapter 14 of the Listing Rules and Rule 11.1 of the Takeovers Code.

We note that the Fair Value is developed based on, among other things, the cash flow forecast in relation to the mining right and the estimated discount rate which is based on the estimated weighted average cost of capital after taking consideration of relevant risk free rate and certain risk premium.

We have discussed with the management of the Company and Asset Appraisal regarding the basis and assumptions of the valuation, and have reviewed the letter issued by CCIF CPA Limited dated 26 November 2008 as set out in Appendix IV (A) to the Circular regarding whether the cash flow forecast, so far as the arithmetical accuracy of the calculations are concerned, has been properly complied in accordance with the assumptions made by the Directors.

On the basis of the foregoing comprising the Fair Value, and the arithmetical accuracy of the calculations reviewed by CCIF CPA Limited, we are of the opinion that the cash flow forecast underlying the Fair Value, for which the management of the Company is solely responsible, has been made after due care and consideration.

Yours faithfully, For and on behalf of

Optima Capital Limited Mei H. Leung Chairman

IV – 3

STATUTORY AND GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules and the Repurchase Code for the purpose of giving information with regard to the Company. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained herein the omission of which would make any statement contained in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date, immediately after Completion but before Capital Reorganisation becoming effective and immediately after Completion and Capital Reorganisation becoming effective are and will be as follows:

As at the Latest	As at the Latest	Practicable Date
Authorised share capital:			HK$
	10,000,000,000	Existing Shares	1,000,000,000

Issued and fully		paid share capital:
	2,151,076,930	Existing Shares	215,107,693
	800,000,000	Repurchase Shares	80,000,000
	2,951,076,930		295,107,693

Immediately after Completion but before Capital Reorganisation becoming effective
Authorised share capital:			HK$
	10,000,000,000	Existing Shares	1,000,000,000

Issued and fully		paid share capital:
	2,151,076,930	Existing Shares	215,107,693

* For identification purpose only

V – 1

STATUTORY AND GENERAL INFORMATION

APPENDIX V

Immediately after Completion and Capital Reorganisation becoming effective

Authorised share capital: 10,000,000,000 New Shares Issued and fully paid share capital: 2,151,076,930 New Shares	HK$ 100,000,000

	21,510,769.3

All the issued Shares rank pari passu with each other in all respects including the rights to voting, dividends and return of capital.

The Company has not issued or repurchased any Shares since 31 March 2008, being the date of the end of the last financial year of the Company.

Save for the Convertible Note, the Company does not have any outstanding options, warrants, derivatives or securities convertible into Shares as at the Latest Practicable Date.

3. MARKET PRICES

The table below shows the closing price of the Shares on the Stock Exchange on (i) the end of each of the calendar months commencing 6 months preceding the date of the Announcement and ending on the Latest Practicable Date; (ii) 14 August 2008, being the last full day of trading in Shares on the Stock Exchange before release of the Announcement; and (iii) the Latest Practicable Date:

Date	Closing price per Share
	HK$
31 March 2008	0.18
30 April 2008	0.197
30 May 2008	0.172
30 June 2008	0.117
31 July 2008	0.14
Last Full Trading Day
(also the last trading day of Shares in August 2008)	0.133
30 September 2008	0.106
31 October 2008	0.063
Latest Practicable Date	0.06

The highest and lowest closing prices of the Shares during the period commencing 6 months preceding the date of the Announcement and up to the Latest Practicable Date were HK0.27 per Share on 3 March 2008 and HK$0.039 on 27 October 2008.

V – 2

STATUTORY AND GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporation

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

Long positions in the Company

			Approximate
			percentage of issued
			shares as at the
		Number of issued	Latest Practicable
Name of Director	Capacity	shares held	Date
Ms. Chung Oi Ling, Stella	Personal interest	75,000,000	2.54%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company or their respective concert parties or their associates had any interests and short positions in the Shares, underlying Shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein; (iii) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.

None of the Directors and their respective concert parties has dealt for value in the Repurchase Shares during the Relevant Period.

(b) Directors’ interests in assets/contracts and other interests

As at the Latest Practicable Date, none of the Directors was materially interested 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.

V – 3

STATUTORY AND GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 30 September 2008, being the date to which the latest published audited consolidated accounts of the Group were made up.

(c) Service contracts of the Directors

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

5. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

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

Long position in the Company

			Approximate
			percentage of
			issued Shares
		Number of issued	as at the Latest
Name of Substantial Shareholders	Capacity	Shares held	Practical Date
Mr. Yam Tak Cheung_(Note)_	Personal interest	828,500,000	28.07%
	and interest of
	controlled
	corporation
PHL_(Note)_	Corporate interest	800,000,000	27.11%

Note: Mr. Yam Tak Cheung has 100% beneficial interests in PHL. Accordingly, Mr. Yam is deemed to be interested in the ordinary shares owned by PHL.

V – 4

STATUTORY AND GENERAL INFORMATION

APPENDIX V

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had an interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange, under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was, directly or indirectly, interest in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any members of the Group.

As at the Latest Practicable Date, none of the Directors held any directorship or employment in a company which has an interests or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

6. LITIGATION

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

7. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Group during the period commencing two years preceding the Latest Practicable Date and are or may be material:

(i) a provisional agreement dated 28 December 2006 entered into between Anex Electrical Company Limited, a former wholly-owned subsidiary of Company and an independent third party to dispose of Unit D on 14th Floor of Mai Shun Industrial Building at Kwai Chung at a consideration of HK$2,700,000. The disposal was completed on 30 January 2007;
(ii) a provisional agreement dated 2 April 2007 entered into between Total Growth Limited, a wholly-owned subsidiary of the Company and an independent third party to dispose of Unit B on 6th Floor of Mai Shun Industrial Building at Kwai Chung at a consideration of HK$3,150,000. The disposal was completed on 18 May 2007;
(iii) a provisional agreement dated 20 April 2007 entered into between Anex Electrical Company Limited, a former wholly-owned subsidiary of the Company and an independent third party to dispose of Unit A & B on 9th Floor and Carpark Space Nos. 27 and 28 on the Ground Floor of Mai Shun Industrial building at Kwai Chung at a consideration of HK$9,038,000. The disposal was completed on 30 May 2007;
(iv) the placing and subscription agreement dated 22 June 2007 entered into amongst the Company, Mr. Cheng and Taiwan Securities (Hong Kong) Company Limited in relation to the placing and subscription of up to 307,000,000 Shares at HK$0.50 each;
(v) two provisional agreements both dated 14 August 2007 entered into between Anex Electrical Company Limited, a former wholly-owned subsidiary of the Company and two independent third parties to dispose of Unit C and Unit D on 9th Floor of Mai Shun Industrial Building at Kwai Chung at the considerations of HK$4,482,000 and HK$4,398,000 respectively. The disposals were completed on 4 February 2008;

V – 5

APPENDIX V

STATUTORY AND GENERAL INFORMATION

(vi) a provisional agreement dated 17 September 2007 entered into between Total Growth Limited, a wholly-owned subsidiary of the Company and an independent third party to dispose of Carpark Space Nos. 5, 6, 7, 8, 23, 24 & 25 on Ground Floor of Mai Shun Industrial Building at Kwai Chung at the consideration of HK$1,850,000. The disposal was completed on 4 February 2008;
(vii) the agreement dated 28 November 2007 entered into between the Company and PHL in relation to the acquisition of an 80% interest in Magnesite Mine. The acquisition was completed on 6 March 2008;
(viii) the agreement dated 8 December 2007 entered into between the Company and Ocean Alliance (HK) Limited in relation to a disposal of its home appliances manufacturing business. The disposal was completed on 31 January 2008;
(ix) the Agreement; and
(x) the agreement dated 24 September 2008 entered into between the Company and Rich Kind Investment Development Limited in relation to a disposal of the entire equity interest in a subsidiary engaged in the property holding for home appliances business. The disposal was completed on 30 September 2008.

8. COMPETING INTERESTS

As at the Latest Practicable Date, to the best knowledge of the Directors, none of the Directors and their respective associates were considered to have any interests in businesses which compete or were likely to compete, either directly or indirectly, with the business of the Group, other than those businesses which the Directors were appointed as directors to represent the interests of the Group.

9. EXPERTS AND CONSENTS

(i) The following are the qualifications of the experts who have been named in this circular and have given opinions and advice which are contained in this circular:

Name Qualifications CCIF CPA Limited (“CCIF”) Certified Public Accountants VC Capital A corporation licensed to carry out types 1 (dealing in securities) and 6 (advising on corporate finance) regulated activities as defined under the SFO Asset Appraisal Limited Independent qualified valuer (“Asset Appraisal”) Optima Capital Limited a licensed corporation to carry on business in type 1 (“Optima Capital”) (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

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APPENDIX V

STATUTORY AND GENERAL INFORMATION

(ii) Optima Capital, CCIF, VC Capital and Asset Appraisal did not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(iii) Optima Capital, CCIF, VC Capital and Asset Appraisal have given and have not withdrawn their respective written consents to the issue of this circular, with the inclusion therein of its letter or the references to its name in the form and context in which they respectively appear.
(iv) Optima Capital, CCIF, VC Capital and Asset Appraisal did not have any direct or indirect interest in any asset which has 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 the date to which the latest published audited financial statements of the Group were made up.

10. PROCEDURES FOR DEMANDING A POLL

The following paragraphs set out the procedure by which the Shareholders may demand a poll at a general meeting of the Company pursuant to the Bye-laws.

According to Bye-law 66 of the Bye-laws of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

(a) the chairman of such meeting; or
(b) at least three members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or
(d) a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

11. MISCELLANEOUS

(i) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
(ii) The head office and principal place of business of the Company in Hong Kong is Room 3001-02, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong.

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STATUTORY AND GENERAL INFORMATION

APPENDIX V

(iii) The company secretary and the qualified accountant of the Company is Miss Wong Fei Tat. Miss Wong is an associate member of the Hong Kong Institute of Certified Public Accountants, the Institute of Chartered Secretaries and Administrators, the Hong Kong Institute of Chartered Secretaries and is a Certified Practising Accountant of CPA Australia.
(iv) The branch share registrar and transfer office of the Company is Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(v) The registered address of Optima Capital Limited is Unit 3618, 36th Floor, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong.
(vi) The registered address of VC Capital Limited is 28/F, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(vii) There has been no qualification contained in the auditors’ report in respect of each of the last 3 financial years.
(viii) There has been no re-organisation of capital of the Company during the 2 financial years preceding the Announcement.
(ix) The Company has not repurchased any Shares; convertible securities and derivatives during the 12 month period immediately preceding the date of this circular.
(x) No dividends have been paid out by the Company to holders of the Repurchased Shares during the 2 year period immediately preceding the date of the Announcement. The Company does not have any specific dividend policy.
(xi) None of the Directors or any persons acting in concert with them has borrowed or lent the Shares as at the Latest Practicable Date.
(xii) In the event of inconsistence, the English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. on any weekday except Saturdays, Sundays and public holidays at the head office and principal place of business of the Company at Room 3001-02, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong from the date of this circular up to and including the date of the SGM, and will be displayed on the website of the Company www.mrccltd.com and the SFC’s website www.sfc. hk:

(i) the memorandum of association and bye-laws of the Company;
(ii) the annual reports of the Company for the two years ended 31 March 2008;

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STATUTORY AND GENERAL INFORMATION

APPENDIX V

(iii) the letter from VC Capital, the text of which is set out on pages 31 to 39 of this circular;
(iv) the report from CCIF in respect of the unaudited pro forma financial information of the Group, the text of which is set out in Appendix II to this circular;
(v) the valuation report from Asset Appraisal in respect of the mining rights of the Group, the text of which is set out in Appendix III of this circular;
(vi) the report from CCIF on cashflow forecast underlying the valuation of the mining rights of the Group, the text of which is set out in Appendix IV to this circular;
(vii) the report from Optima Capital on cashflow forecast underlying the valuation of the mining rights of the Group, the text of which is set out in Appendix IV to this circular;
(viii) the written consents referred to under the paragraph headed “Experts and consents” in this appendix;
(ix) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(x) the letter from the Independent Board Committee dated 26 November 2008, the text of which is set out on page 30 of this circular;
(xi) the circular of the Company dated 14 January 2008 in relation to very substantial disposal of its 100% interest in Antec Appliances Limited and Anex Electrical Company Limited and proposed re-election of retiring directors;
(xii) the circular of the Company dated 2 February 2008 in relations to (1) very substantial acquisition; (2) increase on authorised share capital and (3) proposed change of name of the Company; and
(xiii) this circular.

V – 9

NOTICE OF SGM

==> picture [86 x 49] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

(Stock Code: 723)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (“Meeting”) of Magnesium Resources Corporation of China Limited (“Company”) will be held at Boardroom 5, G/F., Renaissance Harbour View Hotel, No.1 Harbour Road, Wanchai, Hong Kong, on Friday, 19 December 2008 at 10:30 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions of the Company, which will be proposed as special resolutions:

SPECIAL RESOLUTIONS

“ THAT the name of the Company be changed from “Magnesium Resources Corporation of China Limited” to “Bright Prosperous Holdings Limited” with effect from the date on which the new name is entered into the register maintained by the Registrar of Companies in Bermuda and, subject to such name change becoming effective, the Chinese name of “晉盈控股有限公司” be adopted for identification purpose.”
“ THAT
(a) the Capital Reorganisation be and is hereby approved in the form as described in the circular of the Company dated 26 November 2008 (the “Circular”) (a copy of which has been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) involving:
- (i) Capital Reduction: the par value of each ordinary share of HK$0.1 each in the existing issued share capital of the Company (the “Existing Share”) will be reduced from HK$0.10 to HK$0.01 by the cancellation of HK$0.09 of the paid-up capital on each Existing Share;
- (ii) Sub-division: subject to and forthwith upon the Capital Reduction becoming effective, each of the authorized but unissued shares in the capital of the Company of par value HK$0.10 each shall be sub-divided into 10 shares of par value HK$0.01 each; and

* For identification purpose only

SGM – 1

NOTICE OF SGM

(iii) Diminution of authorized Share Capital: subject to and forthwith upon the Capital Reduction and the Share Sub-division becoming effective, the authorised share capital of the Company shall be diminished from HK$1,000,000,000 to HK$100,000,000 divided into 10,000,000,000 shares of par value of HK$0.01 each by the cancellation of 90,000,000,000 shares of par value of HK$0.01 each in the authorized but unissued share capital of the Company; and
(b) subject to and forthwith upon the Capital Reduction and Share Sub-division becoming effective, the credit arising from the Capital Reduction shall be applied to set-off the accumulated losses of the Company as of the effective date of the Capital Reduction with the balance (if any) shall be transferred to the contributed surplus account of the Company where it may be applied in accordance with the bye-laws of the Company and all applicable laws,

and that the board of directors of the Company be and are hereby authorized generally to do all acts, deeds and things as they shall, in their absolute discretion, deem appropriate to effect and implement the above.”

“ THAT the sale and purchase agreement dated 15 August 2008 (“Agreement”) between the Company as the vendor, Pure Hope Development Limited (“Purchaser”) as the purchaser and Mr. Yam Tak Cheung as the guarantor for due performance of obligations of the Purchaser under the Agreement, a copy of the same having been produced at the meeting marked “B” and signed by the chairman of the meeting for identification purposes, under which the Company shall sell and assign and the Purchaser shall purchase and accept the assignment of the entire issued share capital of and the shareholder’s loan owed by Ling Kit Holding Limited to the Company respectively at a total price of HK$1,624,464,456.50, which will be settled at completion of the Agreement in the following manner:–
(a) as to HK$212,000,000 by the Purchaser selling and transferring to the Company the 800,000,000 ordinary shares of the Company beneficially held by the Purchaser at a price of HK$0.265 per share, whereupon the shares purchased shall be treated as cancelled;
(b) as to HK$320,000,000 by cancellation of the Promissory Note (as defined in the circular of the Company dated the same date of the notice convening this special general meeting of which this resolution forms part (“Circular”)) issued by the Company and held by the Purchaser;
(c) as to HK$1,092,000,000 by cancellation of the Convertible Note (as defined in the Circular) issued by the Company and held by the Purchaser; and
(d) as to remaining balance of HK$464,456.50 by payment in cash,

SGM – 2

NOTICE OF SGM

on and subject to the terms and conditions contained therein and the transactions contemplated thereunder (including, for the avoidance of doubt, share repurchase (as defined in the Hong Kong Code on Share Repurchases) made and effected by the Company in or in connection with the purchase, redemption, acquisition and/or cancellation of the 800,000,000 ordinary shares of the Company and the Convertible Note carrying rights to subscribe for ordinary shares of the Company as mentioned above) be and are hereby approved, confirmed and ratified and that the directors of the Company (“Directors”) be and are hereby authorized to sign, execute and deliver any agreements, instruments and any other documents in connection with or to give effect to the transactions contemplated under the Agreement, and, where necessary, to affix the seal of the Company on any instruments and documents in connection with the Agreement in the presence of any one Director and the Company Secretary or of any two Directors or of such other person or persons as the board of Directors may appoint (who be and are hereby authorized to sign the same) in accordance with the bye-laws of the Company and to make and approve any non-material change, amendment or modification to the provisions of the Agreement and to do such acts and things as the Directors may consider necessary, desirable or expedient to carry out or give effect to the transactions contemplated under the Agreement.”

By Order of the Board

Magnesium Resources Corporation of China Limited Teoh Tean Chai, Anthony Executive Director

Hong Kong, 26 November 2008

Notes:

Any member of the Company entitled to attend and vote at the Meeting may appoint one or more than one proxy to attend and to vote instead of him. A proxy need not be a member of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share of the Company as if he were solely entitled thereto; but if more than one or such joint holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
In order to be valid, the proxy form duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
Completion and return of the proxy form will not preclude you from attending the Meeting and voting in person if you so wish. In the event that you attend the Meeting after having lodged the proxy form, it will be deemed to have been revoked.

As at the date of this notice, the executive directors are Mr. Teoh Tean Chai, Anthony and Ms. Chung Oi Ling, Stella and the independent non-executive directors are Mr. Lo Chi Ho, William, Mr. Chu Kin Wang, Peleus and Ms. Lau Wa Chun.

SGM – 3

AI assistant

Sisram Medical Ltd — Proxy Solicitation & Information Statement 2008

50098_rns_2008-11-25_cf0f938e-59e1-4cf4-a0cf-71bf4b9084e0.pdf

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES PROPOSED CHANGE OF COMPANY NAME AND PROPOSED CAPITAL REORGANISATION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

INTRODUCTION

Disposal of the Subsidiary

LETTER FROM THE BOARD

Proposed change of Company name

Proposed Capital Reorganisation

LETTER FROM THE BOARD

This circular

THE AGREEMENT

Parties:

LETTER FROM THE BOARD

Assets to be disposed of:

Consideration

LETTER FROM THE BOARD

The Repurchase Shares

Promissory Note

Convertible Note

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Completion

INFORMATION ON THE SALE GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Financial information

LETTER FROM THE BOARD

BACKGROUND OF AND REASONS FOR THE AGREEMENT

The 2007 Agreement

Recent development

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

VALUATION ON THE MINING RIGHT

FINANCIAL EFFECTS OF THE AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

USE OF PROCEEDS

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

PROPOSED CHANGE OF NAME OF THE COMPANY

LETTER FROM THE BOARD

PROPOSED CAPITAL REORGANISATION

LETTER FROM THE BOARD

Conditions of the Capital Reorganisation

LETTER FROM THE BOARD

Reasons for the Capital Reorganisation

APPLICATION FOR LISTING OF THE NEW SHARES

REGULATORY REQUIREMENTS

Repurchase Code

LETTER FROM THE BOARD

Listing Rules

Voting

THE SGM

RECOMMENDATIONS

The proposed change of Company’s name

The proposed Capital Reorganisation

The Agreement

ADDITIONAL INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION INVOLVING THE PROPOSED DISPOSAL OF A MAGNESITE MINING SUBSIDIARY AND OFF-MARKET REPURCHASE OF SHARES

Yours faithfully,

LETTER FROM VC CAPITAL

Very Substantial Disposal and Connected Transaction involving the Proposed Disposal of a Magnesite Mining Subsidiary and Off-market Repurchase of Shares

INTRODUCTION

LETTER FROM VC CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information

Information on the Sale Group

LETTER FROM VC CAPITAL

LETTER FROM VC CAPITAL

Sisram Medical Ltd Proxy Solicitation & Information Statement 2008