Sisram Medical Ltd - Proxy Solicitation & Information Statement 2009

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 Bright Prosperous Holdings 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.

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

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

**Bright Prosperous Holdings Limited 晉盈控股有限公司[*]**

(incorporated in Bermuda with limited liability)

(stock code: 723)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN AMPLEWELL HOLDINGS LIMITED AND INCREASE IN AUTHORISED SHARE CAPITAL

Financial adviser to Bright Prosperous Holdings Limited

Optima Capital Limited

A notice convening a special general meeting of the Company to be held at Boardroom 5, G/F, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Monday, 13 July 2009 at 10:30 a.m. is set out on pages SGM-1 to SGM-16 of this circular. A form of proxy for use at the special general meeting is also enclosed.

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 branch 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

25 June 2009

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Financial information of the Samoa Subsidiary Group . . . . . . . . . . . . . . .	II-1
Appendix III – Financial information of the Russia Subsidiary. . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV – Financial information of the Russia Subsidiary II. . . . . . . . . . . . . . . . . . .	IV-1
Appendix V – Financial information of the Brazil Subsidiary. . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI – Unaudited pro forma financial information
of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Appendix VII – Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VII-1
Appendix VIII – Valuation report on Brazilian Forest and Russian Forest. . . . . . . . . . . . .	VIII-1
Appendix IX – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IX-1
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

DEFINITIONS

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

“Acquisition”
the proposed acquisition of the Sale Shares by the Purchaser pursuant to the Agreement
“Agreement”
the conditional agreement dated 28 February 2009 entered into between the Purchaser, the Vendor and the Guarantor in relation to the Acquisition (as supplemented and amended by the supplemental agreement dated 10 March 2009 entered into by the parties to the Agreement to amend certain terms of the Agreement)
“Announcement” the announcement of the Company dated 10 March 2009 in relation to, among other things, the Acquisition
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Audited Accounts”
together (i) the audited financial statements for the year ended 31 December 2008 in respect of each of the Russia Subsidiary, the Russia Subsidiary II and the Brazil Subsidiary prepared on an individual basis, and (ii) the consolidated audited financial statements for the year ended 31 December 2008 in respect of the Samoa Subsidiary and the Manzhouli WFOE
“Board” the board of Directors
“Brazil Acquisition Agreement”

an acquisition agreement executed on 16 October 2008 (supplemented by the first amendment agreement thereto dated 11 December 2008 and the second amendment agreement thereto dated 9 February 2009) entered into between the Brazil Subsidiary as purchaser and an Independent Third Party, as vendor in relation to the acquisition by the Brazil Subsidiary of the interest in approximately 45,000 hectares of land constituting the Brazilian Forest

“Brazilian Forest’s Total Liabilities” the total amount required to be paid by the Brazil Subsidiary to settle certain identified encumbrances, liabilities or obligations over or in such part of the Brazilian Forest to be acquired by the Brazil Subsidiary in accordance with the Brazil Acquisition Agreement or ancillary agreements thereto
“Brazil Subsidiary”
Universal Timber Resources Do Brazil Participacao Ltda, a company incorporated in Brazil with limited liability, whose issued share capital is owned as to 99.99% by Universal Timber Resources Limited (a wholly-owned subsidiary of the Vendor), and as to 0.01% by the sole director of the Brazil Subsidiary as at the Latest Practicable Date

DEFINITIONS

“Brazilian Forest”	the forest with an aggregate area of approximately 45,000 hectares
	which is situated in the Northwest of Brazil, in the state of Acre,
	City of Feijo, Amazon region
“Business Day”	a day (other than a Saturday) on which licensed banks are
	generally open for business in Hong Kong throughout their
	normal business hours
“BVI”	the British Virgin Islands
“Call Options”	the call options to be granted by Mr. Yu to the Target Company to
	acquire from Mr. Yu the entire equity interest in Everbroad and
	Million Success held by Mr. Yu
“Companies Act”	the Companies Act 1981 (as amended) of Bermuda
“Company”	Bright Prosperous Holdings Limited, a company incorporated in
	Bermuda with limited liability, the issued Shares of which are
	listed on the Stock Exchange
“Completion”	completion of the sale and purchase of the Sale Shares in
	accordance with the Agreement
“Completion Date”	the date falling on the fifth Business Day after the fulfillment of
	the conditions precedent to the Agreement (or such other date as
	the Vendor and the Purchaser may agree in writing)
“connected person”	the meaning ascribed to it in the Listing Rules
“Consideration Shares”	785,000,000 new Shares to be allotted and issued by the Company
	at the Issue Price to the Vendor or its nominees pursuant to the
	Agreement
“Conversion Shares”	new Shares to be allotted and issued by the Company upon
	exercise of the conversion rights attaching to the Convertible
	Preference Shares
“Convertible Preference Shares”	First Tranche Preference Shares and Second Tranche Preference
	Shares
“Director(s)”	the director(s) of the Company
“Enlarged Group”	the Group as enlarged by the Acquisition after Completion
“Everbroad”	Everbroad Holdings Limited (永廣控股有限公司), a company
	incorporated in Samoa with limited liability

DEFINITIONS

“Everbroad Option Deed” the option deed to be executed by Mr. Yu and the Target Company pursuant to which Mr. Yu will grant an option to the Target Company to acquire the entire equity interest in Everbroad held by Mr. Yu
“First Tranche Preference Shares” a maximum of 26,132,000,000 convertible Preference Shares in the aggregate principal amount of HK$1,437,260,000 (subject to adjustment) to be issued by the Company to the Vendor or its nominee(s) upon Completion at the Issue Price
“Group” the Company and its subsidiaries “Guarantor” Ms. Loh, Jiah Yee Katherine, the guarantor of the Agreement in relation to the repayment by the Vendor of the Deposit in accordance with the terms of the Agreement
“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Third Party(ies)” the independent third party(ies) who is/are, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, independent of the Company and connected persons (as defined under the Listing Rules) of the Company
“Issue Price” HK$0.055 for each Consideration Share or for each Convertible Preference Share (as the case may be)
“Last Trading Day” 27 February 2009, being the last trading day on which the Shares were traded on the Stock Exchange prior to suspension of trading in the Shares pending the release of the Announcement
“Latest Practicable Date” 23 June 2009, 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
“Manzhouli WFOE” 滿州里怡美木業有限公司 (Manzhouli Eastmark Wooden Products Co., Ltd#), a wholly foreign-owned enterprise established in Manzhouli, the PRC
“Million Success” Million Success Limited, a company incorporated in BVI with limited liability
“Million Success Option Deed” the option deed to be executed by Mr. Yu and the Target Company pursuant to which Mr. Yu will grant an option to the Target Company to acquire the entire equity interest in Million Success held by Mr. Yu
“Mr. Yu” Mr. Yu Chih Yuan, an Independent Third Party

DEFINITIONS

“Nantong WFOE”	南通復盛木業有限公司(Nantong Fusheng Woods Industry Co.,
	Ltd. #), a wholly foreign-owned enterprise established in the PRC
	and a 55% owned subsidiary of Million Success
“Placing”	the placing of a maximum of 5,636,360,000 Placing Shares
	pursuant to the terms of the Placing Agreement
“Placing Agreement”	the agreement entered into between the Company and President
	Securities (Hong Kong) Limited dated 1 June 2009 in relation to
	the Placing, details of which are set out in the announcement of
	the Company dated 1 June 2009 and the circular dated 15 June
	2009
“Placing Shares”	a maximum of 5,636,360,000 new Shares to be placed pursuant to
	the terms of the Placing Agreement
“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
“Preference Shares”	a new class of Shares of HK$0.01 each in the share capital of the
	Company, carrying the rights for conversion into Shares
“Promissory Note”	the HK$232,000,000, 2% promissory note due on the date
	following the expiry of the eighteenth (18th) month after the
	Completion Date to be issued by the Company to the Vendor or
	its nominees at Completion (for the purpose of the settlement of
	part of the consideration for the Sale Shares)
“Purchaser”	Great Path Limited, a company incorporated in BVI with limited
	liability, being a wholly-owned subsidiary of the Company
“Quarter Date”	in respect of any calendar year, 31 March, 30 June, 30 September
	or 31 December of each calendar year
“Reorganization”	together (i) the reorganization of the Target Group such that
	immediately prior to Completion, the Target Company shall be
	beneficially interested in the entire issued share capital of the
	Samoa Subsidiary (which is beneficially interested in the entire
	equity interest of Manzhouli WFOE) and the Russia Subsidiary
	(which will be, at that time, in turn beneficially interested in
	99.9% equity interest in the Russia Subsidiary II), and 99.99%
	equity interest in the Brazil Subsidiary; and (ii) the grant of the
	Call Options by Mr. Yu in favour of the Target Company pursuant
	to the terms of the Everbroad Option Deed and the Million
	Success Option Deed prior to Completion

DEFINITIONS

“Russia Subsidiary”

“Russia Subsidiary II”
“Russia Subsidiary II Acquisition Agreement”
“Russian Forest”
“Sale Shares”
“Samoa Subsidiary”
“Samoa Subsidiary Group”
“Second Tranche Preference Shares”
“SFO”
Zabaikalskaya Lesnaya Kompania, a company incorporated under the laws of the Russian Federation with limited liability, which is indirectly owned by the Vendor and is holding a concession right to exploit approximately 174,904 hectares of the Russian Forest for a period of 25 years commencing from 18 February 2003, including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations, and is named as the purchaser in the Russia Subsidiary II Acquisition Agreement
OOO Novoles, a company incorporated under the laws of the Russian Federation with limited liability, which is holding six concession rights to exploit, in aggregate, approximately 67,841 hectares of the Russian Forest for various periods as specifically set out in each of the concession rights, including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations
an acquisition agreement dated 5 February 2009 entered into between the Russia Subsidiary as purchaser and Independent Third Parties as vendors, after the completion of which the Russia Subsidiary will hold 99.9% equity interest in the Russia Subsidiary II
the forest with an area of approximately 242,745 hectares which is situated in the Siberia region of Russia, the right to forest exploitation of which, including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations, is granted to the Russia Subsidiary and the Russia Subsidiary II (subject to such conditions of the relevant approvals, permits or certificates)
shares of US$1.00 each which represent 100% of the issued share capital of the Target Company as at Completion
Eastmark Holding Limited, a company incorporated in Samoa with limited liability, whose entire issued share capital is indirectly owned by the Vendor and is holding the entire registered capital of Manzhouli WFOE

the Samoa Subsidiary and its subsidiary

a maximum of 1,402,000,000 convertible Preference Shares in the aggregate principal amount of HK$77,110,000 (subject to adjustment) to be issued by the Company to the Vendor or its nominee(s) on the Vendor Warranty Expiry Date at the Issue Price
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

DEFINITIONS

“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 convened for the purpose of considering, and if thought fit, approving, inter alia, the Agreement and the transactions contemplated thereunder, the increase in the authorised share capital of the Company, the creation of the Preference Shares and the allotment and issue of the Consideration Shares, the Convertible Preference Shares and the Conversion Shares “Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company “Shareholder(s)” holder(s) of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Takeovers Code” The Code on Takeovers and Mergers “Target Company” Amplewell Holdings Limited, a company incorporated in BVI with limited liability and wholly and beneficially owned by the Vendor “Target Group” the Target Company and the Target Subsidiaries “Target Subsidiaries” being Manzhouli WFOE, the Samoa Subsidiary, the Russia Subsidiary, the Russia Subsidiary II and the Brazil Subsidiary “Vendor” Winner Global Holdings Limited, a company incorporated in BVI with limited liability “Vendor Warranty Expiry Date” the expiry date of the Vendor’s warranties, being a date falling on the expiry of the eighteenth (18th) month from the Completion Date “Xinjiang WFOE” 喀什怡美木業有限責任公司 (Kashi Eastmark Wooden Products Co., Ltd.#), a wholly foreign-owned enterprise established in the PRC and a wholly-owned subsidiary of Everbroad “HK$” Hong Kong dollars, the lawful currency of Hong Kong “R$” Brazilian Reais, the lawful currency of Brazil “RMB” Renminbi, the lawful currency of the PRC “Rubles” Russian Rubles, the lawful currency of the Russian Federation

DEFINITIONS

“US$”

United States dollars, the lawful currency of the United States of America

“%”

per cent

Notes:

(i) For the purpose of illustration only, unless otherwise specified in this circular, (i) amounts denominated in US$ have been translated into HK$ at the rate of US$1 = HK$7.7552; (ii) amounts denominated in Rubles have been translated into HK$ at the rate of Rubles1 = HK$0.2160; (iii) amounts denominated in R$ have been translated into HK$ at the rate of R$1 = HK$3.2430; and (iv) amounts denominated in RMB have been translated into HK$ at the rate of RMB1 = HK$1.1340. 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

**Bright Prosperous Holdings Limited 晉盈控股有限公司[*]**

(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

25 June 2009

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN AMPLEWELL HOLDINGS LIMITED AND INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

The Acquisition

On 28 February 2009, the Purchaser, the Vendor and the Guarantor entered into the Agreement pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell the Sale Shares at the total consideration of HK$1,860,045,000 (subject to adjustment as described below), which has been/shall be satisfied as to (i) HK$15,500,000 by way of the Deposit in cash upon signing of the Agreement; (ii) HK$25,000,000 by payment in cash to the Vendor or its nominees at Completion; (iii) HK$232,000,000 by procuring the issue of the Promissory Note by the Company to the Vendor or its nominees at Completion; (iv) HK$43,175,000 by procuring the allotment and issue of the Consideration Shares by the Company to the Vendor or its nominees at Completion; (v) HK$1,437,260,000 (subject to adjustment) by procuring the allotment and issue of the First Tranche Preference Shares by the Company to the Vendor or its nominees at Completion; (vi) HK$30,000,000 by

* For identification purpose only

LETTER FROM THE BOARD

payment in cash to the Vendor or its nominees within 2 months from the Completion Date; and (vii) HK$77,110,000 (subject to adjustment) by procuring the allotment and issue of the Second Tranche Preference Shares by the Company to the Vendor or its nominees on the Vendor Warranty Expiry Date.

The parties to the Agreement entered into a supplemental agreement on 10 March 2009 to amend certain terms of the Agreement.

The Sale Shares represent the entire issued share capital of the Target Company as at Completion. The Target Group (which will be formed upon completion of the Reorganization) is principally engaged in the business of forest exploitation, timber and wood processing, timber trading and timber sales and marketing in Russia, Brazil and Manzhouli in the PRC.

Call Options

Pursuant to the Agreement, as part of the Reorganization, the Target Company is required to enter into the Everbroad Option Deed and the Million Success Option Deed with Mr. Yu before Completion, pursuant to which Mr. Yu will grant the Call Options to the Target Company, for the consideration of US$1 each, to acquire the entire equity interest in Everbroad and Million Success held by Mr. Yu.

Increase in authorised share capital

As at the Latest Practicable Date, the authorised share capital of the Company is HK$100,000,000 divided into 10,000,000,000 Shares, of which 2,151,076,930 Shares have been issued. In order to accommodate the future expansion and growth of the Group as well as to accommodate the issue of the Consideration Shares and the Conversion Shares, the Board proposes to increase the authorised share capital of the Company from HK$100,000,000 divided into 10,000,000,000 Shares to HK$725,340,000 by creation of an additional 35,000,000,000 new Shares and 27,534,000,000 Preference Shares.

This circular

The purpose of this circular is to provide you with, among other things, further details of the Agreement and the transactions contemplated thereunder, information relating to the Group and the Target Group, information regarding the increase in authorised share capital of the Company, the notice of the SGM and other information as required under the Listing Rules.

THE AGREEMENT

Date: 28 February 2009 (as supplemented and amended by the supplemental agreement dated 10 March 2009 entered into by the parties to the Agreement to amend certain terms of the Agreement)

LETTER FROM THE BOARD

Parties:

Purchaser: Great Path Limited, a wholly-owned subsidiary of the Company
Vendor: Winner Global Holdings Limited, an investment holding company incorporated in BVI with limited liability. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and its ultimate beneficial owners are Independent Third Parties, and there are no prior transactions entered into between the Group and the Vendor and its ultimate beneficial owners.
Guarantor: Loh, Jiah Yee Katherine, being one of the directors and one of the ultimate beneficial owners of the Vendor, has unconditionally and irrevocably, guaranteed to the Purchaser under the Agreement the due, full, punctual and complete repayment by the Vendor of the Deposit (as defined below) in accordance with the terms of the Agreement. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Guarantor is an Independent Third Party, and there are no prior transactions entered into between the Group and the Guarantor.

Assets to be acquired:

The Sale Shares, being the entire issued share capital of the Target Company as at Completion. As one of the conditions precedent of Completion, the Target Company will become the holding company of the Target Subsidiaries prior to Completion. Please refer to the paragraph headed “Information on the Target Group” for further details on the Target Company and the Target Subsidiaries.

Consideration

The total consideration for the Acquisition is HK$1,860,045,000 (subject to adjustment as described below), which has been/shall be satisfied by the Purchaser in the following manner:

(i) HK$15,500,000 by way of a refundable deposit (the “Deposit”) in cash has been paid to the Vendor or its nominees upon signing of the Agreement;
(ii) HK$25,000,000 by payment in cash to the Vendor or its nominees at Completion;
(iii) HK$232,000,000 by procuring the issue of the Promissory Note by the Company to the Vendor or its nominees at Completion;
(iv) HK$43,175,000 by procuring the allotment and issue of the Consideration Shares by the Company to the Vendor or its nominees credited as fully paid at the Issue Price at Completion;
(v) HK$1,437,260,000 by procuring the allotment and issue of the First Tranche Preference Shares by the Company to the Vendor or its nominees credited as fully paid at the Issue Price at Completion (subject to the adjustment as described in the paragraph headed “Adjustments to consideration” below);

LETTER FROM THE BOARD

(vi) HK$30,000,000 by payment in cash to the Vendor or its nominees within two months from the Completion Date; and
(vii) HK$77,110,000 by procuring the allotment and issue of the Second Tranche Preference Shares by the Company to the Vendor or its nominees credited as fully paid at the Issue Price on the Vendor Warranty Expiry Date (subject to the adjustment as described in the paragraph headed “Adjustments to consideration” below).

The consideration for the Acquisition was determined after arm’s length negotiations between the Purchaser and the Vendor after taking into account the net asset value of the Target Subsidiaries as at 31 December 2008 as shown in the statutory accounts or management accounts of the Target Subsidiaries (details of the financial information of the Target Subsidiaries are set out under the sub-paragraph headed “Financial information” under the paragraph headed “Information on the Target Group” below”), the size and the types of standing trees in the Brazilian Forest and the Russian Forest, the concession rights held by the Russia Subsidiary and the Russia Subsidiary II, the growth potential of the timber products market and the future prospects of the ecological forestry business.

The cash portion of the consideration for the Acquisition will be satisfied from the internal resources of the Group.

Adjustments to consideration

Under the Agreement, the total consideration in respect of the Acquisition will be subject to the following adjustments:

(i) the portion of the consideration which shall be satisfied by the allotment and issue of the First Tranche Preference Shares upon Completion will be reduced by an amount equivalent to the outstanding installment payments for the purchase price of the Brazilian Forest under the Brazil Acquisition Agreement as at Completion as particularly described under the subparagraph headed “Brazil Subsidiary” under the paragraph headed “Information on the Target Group” below; and
(ii) the portion of the consideration which shall be satisfied by the allotment and issue of the Second Tranche Preference Shares on the Vendor Warranty Expiry Date shall be reduced by
(a) an amount determined by an independent third party or otherwise agreed between the Vendor and the Purchaser (the “Settlement Amount”) as the compensation to be paid by the Vendor for any breach of the warranties given by the Vendor under the Agreement, or any other term of the Agreement, and which remains unpaid by the Vendor on the Vendor Warranty Expiry Date. If the Settlement Amount exceeds the maximum value of the Second Tranche Preference Shares, no Second Tranche Preference Shares will be issued. Where the liability for a breach of the Vendor’s warranties has not been determined by an independent third party or agreed between the Vendor and the Purchaser by the Vendor Warranty Expiry Date, the portion of the consideration to be settled by the issue of the Second Tranche Preference Shares shall be reduced by a sum to be agreed in good faith between the Vendor and the Purchaser

LETTER FROM THE BOARD

with regards to the nature, extent and adverse impact caused on the Target Group by such breach (the “Retained Amount”). The Retained Amount shall be used to settle the liability of the Vendor, if any, for the breach of the Vendor’s warranties, as determined by an independent third party, or as agreed between the Purchaser or Vendor. Any amount of the Retained Amount which is in excess of the liability as determined or agreed shall be paid to the Vendor or its nominees by issue of the Second Tranche Preference Shares as adjusted;

(b) an amount in HK$ equivalent to the sum of (i) the Brazilian Forest’s Total Liabilities as finally determined by a competent court or governmental authority in accordance with the laws of Brazil, or full and final settlement in respect thereof has been reached with relevant parties having an interest in relation to the subject matter of the Brazilian Forest’s Total Liabilities (the “Determined Liabilities”); and (ii) the aggregate amount of costs, fees, and expenses (the “Brazil Forest Fees”) properly incurred by the Brazil Subsidiary (with the prior approval of the Vendor) in relation to ascertaining the amount of the Brazilian Forest’s Total Liabilities; less (iii) an amount attributable to the Determined Liabilities as estimated by Brazilian legal advisers; and less (iv) the aggregate of the sums in respect of the Determined Liabilities which have been settled or agreed to be settled by third parties without recourse to the Brazil Subsidiary. Where the Determined Liabilities is less than the aggregate of the sums in (iii) and (iv), or if on the Vendor Warranty Expiry Date there are no Determined Liabilities, the portion of the consideration to be settled by allotment and issue of the Second Tranche Preference Shares shall be reduced by an amount in HK$ equivalent to the Brazil Forest Fees.

The Consideration Shares

The 785,000,000 Consideration Shares to be issued by the Company at the Issue Price upon Completion represents approximately 36.49% of the issued share capital of the Company as at the Latest Practicable Date, approximately 26.74% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares, and approximately 2.58% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Conversion Shares (assuming no adjustment is made to the part of the consideration which shall be settled by the issue of the First Tranche Preference Shares and the Second Tranche Preference Shares as described above).

The Consideration Shares will be issued subject to a specific mandate to be sought from the Shareholders at the SGM. The Consideration Shares shall rank equally among themselves and pari passu in all respects with the Shares in issue on the date of allotment and issue of the Consideration Shares.

LETTER FROM THE BOARD

Convertible Preference Shares

The principal terms of the Convertible Preference Shares to be issued by the Company are as follows:

Number of Convertible Preference Shares to be issued:

a maximum of 26,132,000,000 First Tranche Preference S h a r e s i n t h e a g g r eg a t e p r i n c i p a l a m o u n t o f HK$1,437,260,000 at an issue price of HK$0.055 per Convertible Preference Share; and

a maximum of 1,402,000,000 Second Tranche Preference S h a r e s i n t h e a g g r eg a t e p r i n c i p a l a m o u n t o f HK$77,110,000 at an issue price of HK$0.055 per Convertible Preference Share.

Number of Conversion Shares to be issued upon the exercise of the conversion rights attaching to the Convertible Preference Shares in full:

26,132,000,000 Conversion Shares (by conversion of the First Tranche Preference Shares); and 1,402,000,000 Conversion Shares (by conversion of the Second Tranche Preference Shares) (assuming no adjustment to the part of the consideration which shall be settled by the issue of the First Tranche Preference Shares and the Second Tranche Preference Shares).

Conversion ratio:

Each Convertible Preference Share carries the right to convert to one Share (subject to adjustment on alteration to the nominal value of the Shares as a result of consolidation or subdivision).

Conversion:

Each Convertible Preference Share shall be convertible at the option of the holders at any time after issue, provided that (i) any conversion of the Convertible Preference Shares shall not result in the aggregate voting rights in the Company held by the relevant holder of the Convertible Preference Shares who exercises the conversion rights and parties acting in concert with it exceeding 29.9%, or such other percentage as may then be the maximum percentage (to one decimal place) of the issued Shares it could then acquire without being required to make a mandatory general offer for the Shares under the Takeovers Code or (ii) any conversion of the Convertible Preference Shares shall not result in the public float of the Shares falling below the minimum requirements of the Listing Rules.

Redemption:

The Convertible Preference Shares are not redeemable.

LETTER FROM THE BOARD

Listing:

No application will be made for the listing of the Convertible Preference Shares on the Stock Exchange or any other stock exchange.

Voting:

Save where the Company proposes to pass a resolution to vary the rights attached to the Preference Shares or for the winding up or dissolution of the Company (other than for the purposes of reconstruction, merger or consideration the terms of which have previously been approved by the holder(s) of the Preference Shares), holder(s) of the Convertible Preference Shares shall not be entitled to vote at any general meetings of the Company by reason only of it being a holder of the Convertible Preference Shares, but holder(s) of the Convertible Preference Shares shall be entitled to receive notices of general meetings of the Company and to attend the same.

Ranking:

The Convertible Preference Shares shall rank in priority to the Shares as to a distribution of assets of the Company on a return of capital on dissolution, liquidation or winding up or otherwise. The Conversion Shares shall upon issue rank equally among themselves and pari passu in all respects with all other Shares in issue as at the date of conversion.

Rights to income and participation rights in issue of Shares:

The Convertible Preference Shares shall at all times be entitled to be paid dividends or other distributions of the same amount and at the same time as are paid with respect to the Shares.

LETTER FROM THE BOARD

If and whenever the Company makes any offers by way of rights and/or issue by way of bonus of Shares, securities carrying rights to subscribe for, convert or exchange into Shares or voting rights or other shares or rights carrying the right to acquire same voting rights, or debt securities without rights converting into Shares and voting rights (“Offered Securities”) to all the Shareholders, the same rights and/or bonus issues shall be offered and/or issued to holders of Convertible Preference Shares at the same time and on the same terms as the Offered Securities are offered and/or issued to the Shareholders save that such offer and/ or issue shall be in respect of Preference Shares and/or securities carrying the rights to subscribe for, convert or exchange into Preference Shares or other shares or rights carrying the right to acquire same voting rights or debt securities without rights converting into shares and voting rights.

Transferability:

The Convertible Preference Shares are freely transferrable provided that the transferee is not a connected person of the Company unless that person is an associate of the transferor and the transferor is then a connected person of the Company.

The maximum of 27,534,000,000 Conversion Shares (subject to adjustment of the nominal value of the Shares as described above) to be issued upon full conversion of the Convertible Preference Shares represent approximately 12.80 times of the issued share capital of the Company as at the Latest Practicable Date, and approximately 90.36% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Conversion Shares. The Conversion Shares will be issued subject to a specific mandate to be sought from the Shareholders at the SGM.

Issue Price

The Issue Price of HK$0.055 for each Consideration Share or for each Convertible Preference Share (as the case may be) was determined after arm’s length negotiations between the Purchaser and the Vendor. The Issue Price of HK$0.055 represents:

(i) a discount of approximately 57.03% to the closing price of the Shares of HK$0.128 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 46.29% to the average of the closing prices of the Shares of HK$0.1024 per Share as quoted on the Stock Exchange for the 5 consecutive trading days up to and including Last Trading Day;

LETTER FROM THE BOARD

(iii) a discount of approximately 29.40% to the average of the closing prices of the Shares of HK$0.0779 per Share as quoted on the Stock Exchange for the 10 consecutive trading days up to and including the Last Trading Day;
(iv) a discount of approximately 19.47% to the average of the closing prices of the Shares of HK$0.0683 per Share as quoted on the Stock Exchange for the 15 consecutive trading days up to and including the Last Trading Day;
(v) a discount of approximately 52.99% to the closing price of the Shares of HK$0.117 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(vi) a discount of approximately 68.57% to the unaudited net assets value per Share attributable to equity shareholders of the Company as at 30 September 2008 of approximately HK$0.175 per Share; and
(vii) a discount of approximately 21.43% to the unaudited pro forma net assets value per Share attributable to equity shareholders of the Company as at 30 September 2008 after taking into account of the disposal of the Company’s entire interest in Ling Kit Holding Limited as set out in the circular of the Company dated 26 November 2008 of approximately HK$0.07 per Share.

Application for listing

The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares to be allotted and issued pursuant to the Agreement. There is no restriction on the subsequent sale of the Consideration Shares and the Conversion Shares by the Vendor.

Promissory Note

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

Principal amount: HK$232 million Maturity Date: the day following the expiry of the eighteenth (18th) month after the Completion Date Interest rate: 2% per annum on the principal amount Security: Unsecured

The Company may, by giving 5 Business Day’s notice, redeem any or part of the Promissory Note (in amounts of not less than HK$1 million), at any time and from time to time after the date of issue of the Promissory Note. The principal amount of the Promissory Note outstanding on the Maturity Date, together with the interest accrued thereon, shall be repayable in one lump sum on the Maturity Date.

LETTER FROM THE BOARD

Conditions precedent

Completion shall be conditional upon the satisfaction or waiver (as the case may be) of the following conditions:

(i) the Purchaser, acting reasonably, confirming that it is satisfied with the results of the due diligence review on the assets, liabilities, operations and affairs of the Target Group on or before the earlier of 31 May 2009 or the date of despatch of this circular;
(ii) all necessary governmental and other consents and approvals required to be obtained on the part of each of the Vendor, the Target Company and the Purchaser in respect of the Agreement and the transactions contemplated thereunder having been obtained;
(iii) the passing by the Shareholders at the SGM of all resolutions to approve the Agreement and the transactions contemplated thereunder, including but not limited to (i) the creation, the allotment and issue of Preference Shares; (ii) the allotment and issue of the Consideration Shares and Convertible Preference Shares to the Vendor or its nominees at the Issue Price credited as fully paid; and (iii) the increase in the authorised share capital of the Company to HK$725,340,000 by the creation of an additional 35,000,000,000 Shares and 27,534,000,000 Preference Shares;
(iv) the obtaining of a PRC legal opinion (in form and substance satisfactory to the Purchaser, acting reasonably) from a firm of PRC legal advisers appointed by the Purchaser in relation to the Agreement and the transactions contemplated thereunder, including but not limited to the due incorporation of Manzhouli WFOE, the business scope of Manzhouli WFOE, compliance with local laws and regulations by Manzhouli WFOE, and such other matters as may be reasonably required by the Purchaser in relation to Manzhouli WFOE;
(v) the obtaining of a Russian legal opinion (in form and substance satisfactory to the Purchaser, acting reasonably) from a firm of Russian legal advisers appointed by the Purchaser in relation to the Agreement and the transactions contemplated thereunder, including but not limited to the due incorporation of the Russia Subsidiary and the Russia Subsidiary II, the business scope of the Russia Subsidiary and the Russia Subsidiary II, the compliance with local laws and regulations by the Russia Subsidiary and the Russia Subsidiary II, the validity of the concession right to exploit the Russian Forest owned by the Russia Subsidiary and the Russia Subsidiary II, the legality and validity of the Russia Subsidiary II Acquisition Agreement, and such other matters as may be reasonably required by the Purchaser in relation to the Russia Subsidiary and the Russia Subsidiary II;
(vi) the obtaining of a Brazilian legal opinion (in form and substance satisfactory to the Purchaser, acting reasonably) from a firm of Brazilian legal advisers appointed by the Purchaser in relation to the Agreement and the transactions contemplated thereunder, including but not limited to the due incorporation of the Brazil Subsidiary, the business scope of the Brazil Subsidiary, compliance with local laws and regulations by the Brazil

LETTER FROM THE BOARD

Subsidiary, the legality and validity of the Brazil Acquisition Agreement and all other material agreements entered into by the Brazil Subsidiary, and such other matters as may be reasonably required in relation to the Brazil Subsidiary;

(vii) all the representations and warranties made by the Vendor and the Purchaser contained in the Agreement remaining true and accurate in all material respects, subject to matters disclosed by the Vendor or Purchaser as the case may be;
(viii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares;
(ix) the aggregate of (i) the combined net assets value of the Target Group as at 31 December 2008 as shown in the Audited Accounts (adjusted by the fair value of the assets, to the extent that any such assets are the subject of valuation reports prepared by an independent valuer appointed by the Purchaser which are included in this circular, by using the valuation ascribed to that asset in the relevant report); and (ii) the fair value of the part of Brazilian Forest acquired under the Brazil Acquisition Agreement as stated in the valuation report included in appendix VIII to this circular; and (iii) the fair value of the concession rights held by the Russian Subsidiary II acquired under the Russia Subsidiary II Acquisition Agreement as stated in the valuation report included in appendix VIII to this circular, to be not less than US$258 million;
(x) (if applicable) the approval of the Bermuda Monetary Authority in respect of the issue and allotment of the Consideration Shares and the Convertible Preference Shares by the Company and, if applicable, the increase of the authorised share capital of the Company;
(xi) completion of acquisition by the Brazil Subsidiary of the interest in the Brazilian Forest in accordance with the terms and conditions of the Brazil Acquisition Agreement in a manner satisfactory to the Purchaser acting reasonably, and delivery to the Purchaser of copies of relevant title documents showing the same;
(xii) the obtaining of a Samoa legal opinion (in form and substance satisfactory to the Purchaser, acting reasonably) from a firm of Samoa legal advisers appointed by the Purchaser in relation to the Agreement and the transactions contemplated thereunder, including but not limited to the due incorporation of the Samoa Subsidiary, the business scope of the Samoa Subsidiary, compliance with local laws and regulations by the Samoa Subsidiary, and such other matters as may be reasonably required by the Purchaser in relation to the Samoa Subsidiary; and
(xiii) completion of the Reorganization in a manner satisfactory to the Purchaser (acting reasonably).

The Purchaser may waive in whole or in part all or any of the conditions (i), (iv), (v), (vi), (vii) and (xii) as stated above. Conditions (ii), (iii), (viii), (ix), (x), (xi) and (xiii) cannot be waived by any parties to the Agreement. In the event that the conditions above are not satisfied or, where applicable waived, on or before 31 July 2009 (the “Long Stop Date”) (or such later date as may be agreed by the

LETTER FROM THE BOARD

parties to the Agreement), the Agreement shall cease and determine and thereafter neither party shall have any obligations and liabilities towards each other thereunder.

As at the Latest Practicable Date, conditions (i) and (ix) have been satisfied.

Completion

Completion shall take place on the date falling on the fifth Business Day after the fulfillment or waiver (as applicable) of the conditions precedent to the Agreement or such other date as the Vendor and Purchaser may agree in writing.

Refund of Deposit

If the conditions precedent are not satisfied or, where applicable, waived, on or before the Long Stop Date, or such later date as the parties to the Agreement may agree, the Agreement shall cease and determine, and the Vendor shall refund the Deposit in full without interest to the Purchaser within 5 Business Days next following the Long Stop Date.

In the event that the Vendor shall fail to comply with any of its obligations under the Agreement and the Purchaser, in its absolute discretion, rescinds the Agreement pursuant to the relevant clause of the Agreement, the Vendor shall refund the Deposit in full without interest to the Purchaser within 5 Business Days next following the effective date of such rescission as stated in a written notice from the Purchaser to the Vendor.

Refund of the Deposit shall be made by payment in cash to the Purchaser or its nominees. The Guarantor has unconditionally and irrevocably guaranteed to the Purchaser the due, full, punctual and complete repayment by the Vendor of the Deposit in accordance with the terms of the Agreement as if she was the primary obligor.

CALL OPTIONS

Everbroad, a company incorporated in Samoa with limited liability, is an investment holding company and is the beneficial owner of 100% equity interest of Xinjiang WFOE as at the Latest Practicable Date. Xinjiang WFOE is principally engaged in plantation and sale of poplar and manufacture of wood products. Million Success, a company incorporated in BVI with limited liability, is an investment holding company and is the beneficial owner of 55% equity interest of Nantong WFOE as at the Latest Practicable Date. Nantong WFOE is principally engaged in the manufacturing and sale of plywood, blockboard and lumber.

LETTER FROM THE BOARD

Pursuant to the Everbroad Option Deed and the Million Success Option Deed, the Target Company will have the right to serve a due diligence notice at any time which is not less than 90 days before the expiry of the 2-year period commencing on the date of the Everbroad Option Deed and the Million Success Option Deed, respectively requesting to conduct due diligence review on Everbroad and Xinjiang WFOE, or Million Success and Nantong WFOE (as the case may be) and which review shall be completed on or before the ninetieth day after the date of the serving of the due diligence notice. Upon expiry of the sixtieth day after the date of the due diligence notice but before the expiry of the ninetieth day after the date of the due diligence notice, the Target Company is entitled to serve the Call Option notice for exercise of the Call Options under the Everbroad Option Deed or the Million Success Option Deed (as the case may be). The exercise price of the Call Option in respect of the Everbroad Option Deed will be based on the consolidated net asset value of Everbroad as shown in the latest audited balance sheet of Everbroad (or where the date by reference to which the latest audited balance sheet is made up falls more than six months before the date of exercise of the Call Option, the consolidated net asset value of Everbroad as shown in the unaudited balance sheet as at the last Quarter Date prior to the exercise of the Call Option), which shall be adjusted by the fair value of the assets of the Xinjiang WFOE (to the extent that the relevant assets are booked at cost in the relevant balance sheet). The exercise price of the Call Option in respect of the Million Success Option Deed will be based on the attributable 55% of the consolidated net asset value of Million Success as shown in the latest audited balance sheet of Million Success (or where the date by reference to which the latest audited balance sheet is made up falls more than six months before the exercise of the Call Option, 55% of the consolidated net asset value of Million Success as shown in the unaudited consolidated balance sheet as at the last Quarter Date prior to the exercise of the Call Option), which shall be adjusted by the fair value of the assets of the Nantong WFOE (to the extent that the relevant assets are booked at cost in the relevant balance sheet).

The Company will comply with the relevant requirements under the Listing Rules and make further announcement if and when the Call Options are exercised.

INFORMATION ON THE TARGET GROUP

The Target Company, incorporated in BVI with limited liability, is an investment holding company and wholly beneficially owned by the Vendor as at the Latest Practicable Date. As at the Latest Practicable Date, the Vendor is the beneficial owner of the entire issued share capital of the Samoa Subsidiary (which in turn holds the entire equity interest of the Manzhouli WFOE), the Russia Subsidiary (which has a contractual right to acquire 99.9% equity interest of the Russia Subsidiary II), and 99.99% equity interest in the Brazil Subsidiary. After completion of the Reorganization which is one of the conditions precedent of Completion, the Target Company shall be beneficially interested in the entire issued share capital of the Samoa Subsidiary (which in turn holds the entire equity interest of the Manzhouli WFOE), the Russia Subsidiary (which will be, at that time in turn, beneficially interested in 99.9% equity interest in the Russia Subsidiary II), and 99.99% equity interest in the Brazil Subsidiary. As at the Latest Practicable Date, the Target Company is legally and beneficially interested in the entire issued share capital of the Samoa Subsidiary (which is beneficially interested in the entire equity interest of Manzhouli WFOE). The Target Group (which will be formed upon completion of the Reorganization) is principally engaged in the business of forest exploitation, timber and wood processing, timber trading and timber sales and marketing. Further details of each of the Target Subsidiaries are set out below.

LETTER FROM THE BOARD

Target Subsidiaries

Samoa Subsidiary and Manzhouli WFOE

Samoa Subsidiary, a company incorporated in Samoa with limited liability, is an investment holding company and holds the entire equity interest of the Manzhouli WFOE.

Manzhouli WFOE was established in the PRC with limited liability in September 2008 and has leased and run a production plant in Manzhouli. Manzhouli WFOE is principally engaged in processing of rough saw lumber including drying, further sawing of wooden boards to specific specification and selling of wood products.

Russia Subsidiary and Russia Subsidiary II

Russia Subsidiary, a company incorporated under the laws of the Russian Federation with limited liability, is principally engaged in logging, timber production and wholesale wood products selling. The major assets of the Russia Subsidiary include a concession right to exploit approximately 174,904 hectares of the Russian Forest and four factories located in the Siberia region for processing logs into sawed lumber. Pursuant to the lease agreement of the concession right, the term of lease is for a period of 25 years commencing from 18 February 2003 (including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations).

On 5 February 2009, Russia Subsidiary entered into the Russia Subsidiary II Acquisition Agreement to acquire 99.9% of the equity interest in Russia Subsidiary II. Russia Subsidiary II, a company incorporated under the laws of the Russian Federation with limited liability, is principally engaged in rent of forest concessions and hiring of contractor teams for timber harvesting. Russia Subsidiary II holds six concession rights to exploit an aggregate of approximately 67,841 hectares of the Russian Forest. Pursuant to the lease agreements of the six concession rights, the terms of lease for the six concession rights range from 5 years to 25 years commencing from 2006.

As advised by a Russian legal adviser, according to the Forestry Code of the Russian Federation, forest sites under state or municipal ownership are allowed for leasing to legal entities, including the purposes of processing of timber and other forest resources. The term of lease can last for a maximum period of 49 years. The use of the forest sites by the Russia Subsidiary and Russia Subsidiary II for logging is performed on the basis of the forest land leasing contract and according to the Forestry Code of the Russian Federation.

The Russian Forest has an area of approximately 242,745 hectares and is situated within the Chita region in Russia, which is close to the sawmill facilities of the Russia Subsidiary. The standing trees in the Russian Forest mainly include larch, pine, birch and aspen. According to the information provided by the Vendor, the total stocks of both mature and growing standing trees in the Russian Forest can produce up to 22 million m3 of logs. As set out in the Announcement, the Russian Forest’s annual available cutting rights go over 2.6 million m3. The Board wishes to clarify that such reference made in the Announcement in relation to the annual available cutting rights was mistakenly stated due to an inadvertent typographical error and the actual annual available cutting rights for the Russian Forest based on the lease agreements of the concession rights amount to approximately 206,000m3. The forest wood products are transported by roads and railways to the processing plants of Manzhouli WFOE in Manzhouli, the border between Russia and China, for local, regional and international markets.

LETTER FROM THE BOARD

Brazil Subsidiary

Brazil Subsidiary, a company incorporated in Brazil with limited liability, is an investment holding company and will engage in wood harvesting, sawmilling and wood processing business. Brazil Subsidiary entered into the Brazil Acquisition Agreement in relation to the acquisition of the Brazilian Forest. The completion of the Brazil Acquisition Agreement is one of the conditions precedent for Completion. The Brazilian Forest is situated in the Northwest of Brazil, in the state of Acre, City of Feijo, Amazon region. The Amazon forests area mostly dominated by dense and open types, with trees of medium and big sizes, with occurrence of lianas, bromeliaceous and orchids. The Brazilian Forest contains mostly hardwoods but also has softwoods with various tree species of different diameters, heights and ages. In general, the forestry products mainly include standing trees, logs and sawed lumber, the byproducts of forests such as fruits, fibres and resins and the carbon credits generated by forest areas. The Forest Code is the main legal instrument regulating timberland use in Brazil.

Pursuant to the Brazil Acquisition Agreement, the total purchase price for the acquisition of the Brazilian Forest is R$26,255,000 (equivalent to approximately HK$85,144,965), of which R$6,832,975 (equivalent to approximately HK$22,159,337.93) has been settled by the Vendor as at the date of the Announcement, with the remaining balance of R$19,422,025 (equivalent to approximately HK$62,985,627.08) payable in 19 installments of R$1,022,211.80 (equivalent to approximately HK$3,315,032.87) each on the 27th day of each month, and the first of those 19 installments was due on the 27 March 2009. As stated in the paragraph headed “Adjustment to consideration” above, the portion of the consideration which will be satisfied by way of issue of the First Tranche Preference Shares will be adjusted by deducting the outstanding purchase price under the Brazil Acquisition Agreement at the Completion Date. In addition, pursuant to the Brazil Acquisition Agreement, the Brazil Subsidiary may retain part of the purchase price for the Brazilian Forest to offset against the Brazilian Forest’s Total Liabilities. As at the Latest Practicable Date, R$16,355,388.80 (equivalent to approximately HK$53,040,525.88) of the purchase price under the Brazil Acquisition Agreement remains outstanding.

Vendor’s undertakings

Pursuant to the Agreement, the Vendor has warranted that the Brazil Subsidiary is currently in negotiations with Independent Third Parties in respect of the acquisition of an additional forest area in Brazil with a total area of approximately 118,000 hectares located in Northwest of Brazil, in the state of Acre and Amazon, Amazon region at a price of not more than R$92 million (equivalent to approximately HK$298 million) with a target completion date falling on or before 31 December 2009.

The Vendor has undertaken under the Agreement that the Brazil Subsidiary shall not enter into any agreement for such acquisition prior to the earlier of Completion or the termination of the Agreement without the prior written consent of the Purchaser. If prior to Completion, no agreement has been entered into by the Brazil Subsidiary for such acquisition, the Vendor shall use all reasonable endeavours to assist the Purchaser and/or Brazil Subsidiary in continuing such negotiations, so that the agreement for the acquisition may be entered into as soon as practicable after Completion. If an agreement for the acquisition is entered into between the owner(s) of the additional forest and the Brazil Subsidiary, whether it be before or after Completion, the Vendor shall use all reasonable endeavours to procure completion of the acquisition on or before 31 December 2009. The Company will comply with the relevant requirements under the Listing Rules and make further announcement as and when appropriate.

LETTER FROM THE BOARD

Financial information

The Target Company is an investment holding company incorporated in BVI with limited liability on 3 February 2009 for the sole purpose as the holding company of the Target Subsidiaries. As at the Latest Practicable Date, the Target Company has not commenced any business operation since its incorporation, has no subsidiaries or principle assets save for its holding of the entire issued share capital of the Samoa Subsidiary Group since April 2009. As such, no financial information of the Target Company has been prepared as at the Latest Practicable Date and is available for disclosure in this circular.

Set out below is the audited financial information of the Target Subsidiaries, prepared in accordance with the Hong Kong Financial Reporting Standards.

1. Samoa Subsidiary Group

Samoa Subsidiary Group
	For the period from 13 May 2008
	(being the date of incorporation)
	to 31 December 2008
	(audited)
		Equivalent
	Approximate	to approximate
	RMB’000	HK$’000
Income	427	484
Loss before taxation	(1,346)	(1,526)
Loss after taxation	(1,346)	(1,526)

Based on the consolidated audited accounts of the Samoa Subsidiary Group set out in Appendix II to this circular which was prepared in accordance with the Hong Kong Financial Reporting Standards, the audited net liabilities as at 31 December 2008 was approximately RMB1,346,000 (equivalent to approximately HK$1,526,000).

2. Russia Subsidiary

Russia Subsidiary
	For the year ended		For the year ended
	31 December	2007	31 December	2008
	(audited)		(audited)
		Equivalent to		Equivalent to
	Approximate	approximate	Approximate	approximate
	Rubles’000	HK$’000	Rubles’000	HK$’000
Income	88	19	23,599	5,097
Profit/(loss) before taxation	22,013	4,755	(8,519)	(1,840)
Profit/(loss) after taxation	22,013	4,755	(8,519)	(1,840)

LETTER FROM THE BOARD

Based on the audited accounts of the Russia Subsidiary set out in Appendix III to this circular which was prepared in accordance with Hong Kong Financial Reporting Standards, the audited net liabilities as at 31 December 2008 was approximately Rubles 3.98 million (equivalent to approximately HK$0.86 million) which include an amount of trade and other payables due to a related company of approximately Rubles 50.12 million (equivalent to approximately HK$10.83 million) which will be capitalized before Completion.

3. Russia Subsidiary II

Russia Subsidiary II
	For the year ended		For the year ended
	31 December	2007	31 December	2008
	(audited)		(audited)
		Equivalent to		Equivalent to
	Approximate	approximate	Approximate	approximate
	Rubles’000	HK$’000	Rubles’000	HK$’000
Income	–	–	1,347	291
Lossbefore taxation	(6,711)	(1,450)	(7,067)	(1,526)
Loss after taxation	(6,711)	(1,450)	(7,067)	(1,526)

Based on the audited accounts of the Russia Subsidiary II set out in Appendix IV to this circular which was prepared in accordance with Hong Kong Financial Reporting Standards, the audited net assets value as at 31 December 2008 was approximately Rubles 15.83 million (equivalent to approximately HK$3.42 million).

4. Brazil Subsidiary

	For the period from
	2 June 2008
	(the date of incorporation)
	to 31 December 2008
	(audited)
		Equivalent to
	Approximate	approximate
	R$’000	HK$’000
Income	–	–
Loss before taxation	(186)	(603)
Loss after taxation	(186)	(603)

Based on the audited accounts of the Brazil Subsidiary set out in Appendix V to this circular which was prepared in accordance with Hong Kong Financial Reporting Standards, the audited net assets as at 31 December 2008 was approximately R$167,000 (equivalent to approximately HK$542,000).

LETTER FROM THE BOARD

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and the financial results of the Target Group will be consolidated into the Group’s consolidated accounts.

DISCLAIMER OF OPINION IN THE ACCOUNTANTS’ REPORT

The Directors would like to draw Shareholders’ and investors’ attention to Appendix III and Appendix IV to this circular which sets out the financial information of the Russia Subsidiary and Russia Subsidiary II. As set out in the accountants’ reports on the Russia Subsidiary and Russia Subsidiary II contained in Appendices III and IV to this circular, the reporting accountants have issued a disclaimer of opinion on the financial information of each of the Russia Subsidiary and Russia Subsidiary II since the books and records (including any bank records) as made available to the reporting accountants by the management of the Russia Subsidiary and Russia Subsidiary II were incomplete for their audit purposes and they were unable to carry out audit procedures necessary on the books and records of the Russia Subsidiary and Russia Subsidiary II to satisfy themselves as the existence, completeness, accuracy and valuations of the assets and liabilities as at 31 December 2006, 2007 and 2008 respectively, and the results for the years ended 31 December 2006, 2007 and 2008 respectively. The reporting accountants did not express an opinion on the financial information of the Russia Subsidiary and Russia Subsidiary II as to whether they give a true and fair view of the state of affairs of the Russia Subsidiary and Russia Subsidiary II as at 31 December 2006, 2007 and 2008 and their results and cash flows for the three years ended 31 December 2008 in accordance with Hong Kong Financial Reporting Standards.

The Board noted the disclaimer of opinion made by the reporting accountants and is aware that the Target Group did not have a proven track records as it did not have significant operation in the past to achieve sufficient production efficiency. Notwithstanding the limitation of financial information provided by the Vendor, the Board considers that the disclaimer of opinions in the accountants’ reports will not affect the future profitability of the Target Group, nor will it affect the Group’s decision to acquire the Target Group, as its decision to acquire the Target Group is not only because of its historical financial position but also of its established manufacturing bases, the future prospects of the forestry business as well as other strategic reasons more particularly mentioned in the paragraph headed “Reasons for the Acquisition” below. Although there are certain risks associated with the lack of financial information of the Russia Subsidiary and Russia Subsidiary II, having considered (i) the consideration for the Acquisition was determined not only based on the net asset value of the Target Group as at 31 December 2008 but also the size and the types of standing trees in the Brazilian Forest and the Russian Forest, the concession rights held by the Russia Subsidiary and the Russia Subsidiary II, the growth potential of the timber products market and the future prospects of the ecological forestry business; (ii) the Company has searched and inspected the titles and ownership of the land and buildings/properties held by the Target Group (including the Russia Subsidiary and Russia Subsidiary II) and obtained a legal opinion on the good titles of all these properties and also the validity of the relevant license in respect of the concession rights held by the Russia Subsidiary and Russia Subsidiary II; (iii) the Directors conducted due diligence visits to the Russian Forest, have made enquiries on the business and operations of the Target Group and obtained a thorough understanding of the business and operations of the Target Group through discussions with the Vendor; (iv) the Company had obtained a legal opinion from the Russian legal advisers to confirm the corporate status (i.e. legality and limited liability), registered share capital, the names of the shareholders, number of shares and if there was any registered encumbrance on the shares; (v) the Purchaser will have the benefit of certain warranties and indemnities (subject to limitations pursuant to the Agreement) that are customary in a transaction of this nature, including a warranty that the accounts

LETTER FROM THE BOARD

of the Target Group provided to the Company reflect truly and fairly the state of affairs and financial position of the Target Group; and (vi) the Purchaser will be indemnified by the Vendor in respect of any damages, deficiencies, breaches or other set of circumstances which gives rise to claims under the Agreement and/or the tax indemnity, the Directors are of the view that the prospects of the businesses of the Target Group and the associated benefits to be derived from the Acquisition outweigh the risks of any potential hidden liabilities of the Russia Subsidiary and Russia Subsidiary II, and the downside risk to be taken by the Group (such as the emergence of any unforeseen liabilities of the Target Group) relating to the accounts of the Russia Subsidiary and Russia Subsidiary II to be acceptable.

In light of the incomplete books and records of the Russia Subsidiary and Russia Subsidiary II, the Company plans to implement certain appropriate measures in order to improve the internal control system of the Russia Subsidiary and Russia Subsidiary II. Details of those measures are as follows: (i) at present, there is a newly employed accounting staff who travels to Russia monthly to monitor the process of setting up of the accounting system, the keeping of proper books and records for Russia Subsidiary and Russia Subsidiary II; (ii) the Group may also appoint a new senior management who has extensive accounting and auditing experiences to oversee the overall accounts and finance matters of the Target Group; (iii) the Group intends to engage an affiliate of an United States audit firm located in Russia to review the current accounting system of the Russia Subsidiary and Russia Subsidiary II and to devise and implement necessary steps to set up the accounting, internal control and record keeping systems for the Russia Subsidiary and Russia Subsidiary II such that they would be able to meet the compliance standards of being the subsidiaries of the Company and to record and prepare systematic daily accounting record and monthly management accounts on a timely basis; (iv) the Group will recruit a number of Russian accounting staffs, including qualified accountants in Russia, who are proficient in English and familiar with International Financial Reporting Standards; (v) the Group plans to hire translators with accounting and finance background so as to facilitate the communication with the subsidiaries in Russia; and (vi) the Company will provide training to directors of the members of the Target Group in order to maintain a high quality of corporate governance among the members of the Target Group.

FINANCIAL EFFECT OF THE ACQUISITION

As illustrated in the unaudited pro forma financial information of the Enlarged Group set out in Appendix VI to this circular, subsequent to Completion, the total consolidated net assets attributable to equity shareholders of the Company would increase from approximately HK$516.8 million as at 30 September 2008 to approximately HK$3,141.9 million on the assumption that the Acquisition has taken place on 30 September 2008. The total assets would increase from HK$2,193.1 million to HK$5,425.7 million and the total liabilities would increase from HK$1,275.3 million to HK$1,882.6 million. Based on the unaudited pro forma consolidated income statement of the Enlarged Group, the loss for the year would increase from approximately HK$114.7 million to approximately HK$150.8 million. The loss per Share for loss attributable to the equity holders of the Company would decrease from HK$5.74 cents to HK$5.41 cents. The Board is optimistic towards the future prospects of the ecological forestry business and expects that the Acquisition will have a positive impact on the earnings of the Group in the future.

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

As stated in the announcement and circular of the Company dated 2 September 2008 and 26 November 2008 respectively, the Company entered into an agreement on 15 August 2008 for the disposal of its entire interest in Ling Kit Holding Limited, which was mainly engaged in the magnesite mining business in the PRC, to Pure Hope Development Limited. The disposal was subsequently completed in December 2008. As set out in the circular of the Company dated 26 November 2008, other than the mining business which has been disposed of, the Group is principally engaged in the building materials business with a focus on marble and light-weight building materials supply and installation and development of property projects in Dongguan in the PRC. It was the Group business strategy to continue to look for other business opportunities which are beneficial to the long term development of the Group and explore more investment to offer steady growth to its business in order to enhance shareholders’ value.

The financial market turmoil that occurred in the last quarter of 2008 has adversely impacted the global economy. The Company is cautious about the business outlook of the Group and aims at bringing new income streams to add to the building materials sector and development of property projects in the PRC. The Board is of the opinion that timber is one of the natural resources which has a continuous global demand and believes that the global economic recession will not curb the development of the timber sector. The Group plans to consolidate forest assets globally and develop timber trading business on a worldwide basis. Through the Acquisition, the Group would be allowed to exploit the Russian Forest and the Brazilian Forest. The Group also plans to carry out a production chain involving taking the wood from the forests in Russia and turning them into finished wood products by processing in the production plant in Manzhouli, the PRC. In addition, with the tropical forest assets owned by the Brazil Subsidiary upon completion of the Brazil Acquisition Agreement, the Group will engage in trading and selling of timber products and may continue to acquire additional timberlands in Brazil if suitable opportunities arise. Under this business model, the Group will turn the timber resources in the Brazilian Forest and the Russian Forest into a valuable and renewable source of raw material, utilizing the production plant in Manzhouli leased and run by Manzhouli WFOE. Furthermore, it is expected that the demand for timber and related wood products will continue to increase. According to the press release of 19 November 2008 issued by 國家林業局 (the “State Forestry Administration, the PRC”), the PRC government has implemented supportive measures to the ecological forestry industry. For example, the land concession right reform, granting of subsidies for the plantation of environmental-friendly species and the tax reduction and rebate to forestry corporations would further hasten the development of the ecological forestry industry. It is anticipated that there will be a growing demand for wood panel and related products in the PRC in the long run. The Company believes that the timber products market will continue to grow in the foreseeable future.

The Directors are optimistic towards the prospects of the ecological forestry sector and consider that the Acquisition is an optimal investment opportunity to allow the Group to participate in this prosperous business and expect that the Acquisition will present the Group with favorable long term prospects. The Board considers the Acquisition presents the Group with valuable business opportunities and will broaden the Group’s revenue base by expanding and diversifying the existing principal business activities of the Group into the ecological forestry business. The Board is of the opinion that the terms of the Agreement are fair and reasonable, on normal commercial terms and in the interests of the Company and its Shareholders as a whole.

LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

The following chart sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after the issue of the Consideration Shares; (iii) immediately after the issue of the Consideration Shares and assuming full conversion of the First Tranche Preference Shares (on the basis of conversion of one Preference Share to one Share); and (iv) immediately after the issue of the Consideration Shares and assuming full conversion of the First Tranche Preference Shares and Second Tranche Preference Shares (on the basis of conversion of one Preference Share to one Share) without taking into account any possible adjustment to the consideration (if any) and the effect of the Placing:

As at the Latest Practicable Date Shares % Ms. Chung Oi Ling, Stella_(Note 1) 75,000,000 3.49% Ms. Lau Wa Chun, (Note 1)_ 2,100,000 0.10% Vendor – – Public 2,073,976,930 96.41% Total 2,151,076,930 100.00%	Immediately after the issue of the Consideration Shares Shares % 75,000,000 2.55% 2,100,000 0.07% 785,000,000 26.74% 2,073,976,930 70.64% 2,936,076,930 100.00%	Immediately after the issue of the Consideration Shares and assuming full conversion of the First Tranche Preference Shares(Note 2) Shares % 75,000,000 0.26% 2,100,000 0.01% 26,917,000,000 92.60% 2,073,976,930 7.13% 29,068,076,930 100.00%	Immediately after the issue of the Consideration Shares and assuming full conversion of the First Tranche Preference Shares and Second Tranche Preference Shares (Note 2) Shares % 75,000,000 0.25% 2,100,000 0.01% 28,319,000,000 92.94% 2,073,976,930 6.80% 30,470,076,930 100.00%	Immediately after the issue of the Consideration Shares and assuming full conversion of the First Tranche Preference Shares and Second Tranche Preference Shares (Note 2) Shares % 75,000,000 0.25% 2,100,000 0.01% 28,319,000,000 92.94% 2,073,976,930 6.80% 30,470,076,930 100.00%
				100.00%

Notes

Ms. Chung Oi Ling, Stella is an executive Director and Ms. Lau Wa Chun is an independent non-executive director.
The figures are provided for illustrative purposes only. The terms of the Convertible Preference Shares will not permit conversion if immediately after such conversion (i) the holder of the Convertible Preference Shares will hold more than 29.90% of the issued share capital of the Company; or (ii) the public float of the Shares will fall below the minimum requirements of the Listing Rules.

There will not be a change in control of the Company as a result of the Acquisition.

LETTER FROM THE BOARD

INCREASE IN AUTHORISED SHARE CAPITAL

The increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the SGM and is not conditional upon Completion or Shareholders’ approval of the Agreement being obtained. Save for the issue of the Consideration Shares, the Placing Shares, the Convertible Preference Shares and the possible issue of new Shares upon exercise of the conversion rights attaching to the Convertible Preference Shares, the Directors have no present intention to issue any part of the increased authorised share capital as at the Latest Practicable Date.

LISTING RULES IMPLICATION

The transactions contemplated under the Agreement constitute a very substantial acquisition of the Company under the Listing Rules. The Agreement, including the allotment and issue of the Consideration Shares, Convertible Preference Shares and Conversion Shares are subject to the approval of the Shareholders at the SGM which voting shall be taken by poll.

VOTING

As disclosed in the Announcement, Ample Pearl International Limited, who was one of the ultimate beneficial owners of the Vendor, was interested in 91,858,400 Shares (representing approximately 4.27% of the total issued share capital of the Company) as at the date of the Announcement. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, Ample Pearl International Limited had disposed of all its shareholding interests in the Company subsequent to the date of the Announcement. As no Shareholders has material interest in the Acquisition, no Shareholder is required to abstain from voting in relation to the resolutions to approve the Agreement and the transactions contemplated thereunder, the increase in the authorised share capital of the Company, the creation of the Preference Shares and the allotment and issue of the Consideration Shares, the Convertible Preference Shares and the Conversion Share at the SGM.

THE SGM

The SGM will be held at Boardroom 5, G/F, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Monday, 13 July 2009 at 10:30 a.m. to consider and, if thought fit, approve, the necessary ordinary resolutions regarding the Agreement, and the transactions contemplated thereunder, the increase in authorized share capital of the Company, the creation of the Preference Shares and the allotment and issue of the Consideration Shares, the Convertible Preference Shares and the Conversion Shares.

LETTER FROM THE BOARD

A notice convening the SGM is set out on pages SGM-1 to SGM-16 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.

RECOMMENDATIONS

The Acquisition

Based on the reasons set out in the paragraph headed “Reasons for the Acquisition” above, the Board considers that the terms of the Acquisition are fair and reasonable so far as the Shareholders are concerned and the Acquisition 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 ordinary resolutions to be put forward to the Shareholders at the SGM to consider and, if thought fit, approve the Agreement and the transactions contemplated thereunder, including the creation of the Preference Shares and the allotment and issue of the Consideration Shares, the Convertible Preference Shares and the Conversion Shares.

The proposed increase in authorised share capital

Based on the reasons for the increase in authorised share capital set out in the paragraph headed “Increase in authorised share capital” above, the Board considers that the proposed increase in authorised share capital 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 ordinary resolution to be put forward to the Shareholders at the SGM to consider and, if thought fit, approve the increase in authorised share capital of the Company.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board Bright Prosperous Holdings Limited Teoh Tean Chai, Anthony Executive Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

A summary of the audited results and the assets and liabilities of the Group for the last three financial years ended 31 March 2006, 2007 and 2008 and the six months ended 30 September 2007 and the six months ended 30 September 2008, as extracted from the Company’s circular dated 26 November 2008 are as follows, where certain figures have been restated when compared to the audited financial statements of the Group for the year ended 31 March 2008 set out in the Company’s published annual report:

CONSOLIDATED INCOME STATEMENTS

CONTINUING OPERATIONS TURNOVER COST OF SALES GROSS PROFIT OTHER REVENUE Selling and distribution expenses Administrative expenses Other operating expenses LOSS FROM OPERATIONS Finance costs Share of loss of an associate LOSS BEFORE TAXATION Income tax LOSS FOR THE YEAR/PERIOD FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Loss for the year/period from discontinued operations LOSS FOR THE YEAR/PERIOD ATTRIBUTABLE TO: Equity shareholders of the Company Minority interests Dividends Dividends per share LOSS PER SHARE Basic – Continuing operations – Discontinued operations Diluted	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

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEETS

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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008

Set out below are the consolidated income statement of the Group for the year ended 31 March 2008, the consolidated balance sheets of the Group as at 31 March 2008, the consolidated statement of changes in equity of the Group for the year ended 31 March 2008 and the consolidated cash flow statement of the Group for the year ended 31 March 2008, together with the accompanying notes as extracted from the annual report of the Company for the year ended 31 March 2008:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2008

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 FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Loss for the year from discontinued operations 14 LOSS FOR THE YEAR ATTRIBUTABLE TO: Equity shareholders of the Company Minority interests LOSS PER SHARE Basic 16(a) – Continuing operations – Discontinued operations Diluted 16(b)	2008 HK$’000 123,037 (108,351) 14,686 15,551 (4,182) (44,590) (19,279) (37,814) (2,050) – (39,864) (1,881) (41,475) (72,985) (114,730) (112,892) (1,838) (114,730) (2.03 cents) (3.71 cents) (5.74 cents) N/A	2007 HK$’000 6,691 (5,764) 927 1,149 (140) (20,345) (2,404) (20,813) (244) (5,544) (26,601) 131 (26,470) (28,913) (55,383) (55,027) (356) (55,383) (1.93 cents) (2.13 cents) (4.06 cents) N/A

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 31 March 2008

Note NON-CURRENT ASSETS Property, plant and equipment 17 Interest in leasehold land held for own use under operating leases 18 Goodwill 19 Intangible assets 21 CURRENT ASSETS Inventories 22 Interest in leasehold land held for own use under operating leases 18 Trade and other receivables 23 Pledged deposits 26 Cash and cash equivalents 25 CURRENT LIABILITIES Bank loans and overdrafts 26 Trade and other payables 27 Finance leases payables 28 Provision for taxation 29 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2008 HK$’000 46,519 2,244 – 2,022,541 2,071,304 58,341 66 82,272 30,211 119,338 290,228 39,552 46,681 58 2,845 89,136 201,092 2,272,396	2007 HK$’000 89,332 4,984 4,957 –
		99,273
		94,304 158 48,793 12,019 45,245
		200,519
		26,877 90,036 1,657 4,015
		122,585
		77,934
		177,207

I – 4

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note NON-CURRENT LIABILITIES Finance leases payables 28 Deferred tax liabilities 29 Convertible notes 30 Promissory notes 31 NET ASSETS CAPITAL AND RESERVES Share capital 32 Reserves 34(a) Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	2008 HK$’000 – 19,579 855,213 320,000 1,194,792 1,077,604 289,885 368,302 658,187 419,417 1,077,604	2007 HK$’000 833 18,235 – – 19,068 158,139 154,492 (10,253) 144,239 13,900 158,139

I – 5

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

COMPANY BALANCE SHEET

As at 31 March 2008

Note NON-CURRENT ASSETS Property, plant and equipment 17 Interest in subsidiaries 20 CURRENT ASSETS Trade and other receivables 23 Pledged deposits Cash and cash equivalents 25 CURRENT LIABILITIES Trade and other payables 27 Finance leases payables 28 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance leases payables 28 Convertible notes 30 Promissory notes 31 NET ASSETS CAPITAL AND RESERVES Share capital 32 Reserves 34(b) TOTAL EQUITY	2008 HK$’000 1,083 1,690,783 1,691,866 2,199 27,550 113,942 143,691 5,169 58 5,227 138,464 1,830,330 – 855,213 320,000 1,175,213 655,117 289,885 365,232 655,117	2007 HK$’000 629 110,280 110,909 544 3,600 10,369 14,513 255 70 325 14,188 125,097 64 – – 64 125,033 154,492 (29,459) 125,033

I – 6

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2008

Attributable to equity shareholders of the Company

Note At 1 April 2006 Surplus on revaluation Rights issue expenses Fair value adjustment Deferred tax charged in the revaluation reserve 29 Property revaluation reserve Acquisition of a subsidiary Disposal of a subsidiary Exchange realignment Revaluation reserve released on disposal Shares issued under rights issue 32 Shares issued under bonus warrants 32 Loss for the year At 31 March 2007 At 1 April 2007 Shares issued under placement and subscription 32 Shares issue expenses Shares issued under bonus warrants 32 Consideration shares issued for the acquisition of subsidiaries 32 Revaluation reserve released on disposal Acquisition of subsidiaries Surplus on revaluation Issuance of convertible notes 30 Deferred tax charged in the revaluation reserve 29 Loss for the year Exchange realignment At 31 March 2008	Share capital HK$’000 76,864 – – – – – – – – – 76,864 764 – 154,492 154,492 30,700 – 24,693 80,000 – – – – – – – 289,885	Share premium HK$’000 – – – – – – – – – – – – – – – 122,800 (5,972) – 132,000 – – – – – – – 248,828	Contributed surplus HK$’000 2,789 – – – – – – – – – – – – 2,789 2,789 – – – – – – – – – – – 2,789	Distributable reserve HK$’000 4,995 – (2,779) – – – – – – – – – – 2,216 2,216 – – – – – – – – – – – 2,216	Property revaluation reserve HK$’000 16,090 9,105 – – (1,892) (27) – – – (709) – – – 22,567 22,567 – – – – (2,437) – 4,976 – (1,344) – – 23,762	Fair value reserve HK$’000 – – – 8,783 – – – – – – – – – 8,783 8,783 – – – – – – – – – – – 8,783	Equity component reserve HK$’000 – – – – – – – – – – – – – – – – – – – – – – 236,787 – – – 236,787	Exchange fluctuation reserve HK$’000 (50) – – – – – – – 615 – – – – 565 565 – – – – – – – – – – 2,200 2,765	Retained profits/ (accumulated losses) HK$’000 7,145 – – – – – – – – 709 – – (55,027) (47,173) (47,173) – – – – 2,437 – – – – (112,892) – (157,628)	Sub-total HK$’000 107,833 9,105 (2,779) 8,783 (1,892) (27) – – 615 – 76,864 764 (55,027) 144,239 144,239 153,500 (5,972) 24,693 212,000 – – 4,976 236,787 (1,344) (112,892) 2,200 658,187	Minority interests HK$’000 78 – – – – 27 13,831 (10) 330 – – – (356) 13,900 13,900 – – – – – 406,503 – – – (1,838) 852 419,417	Total equity HK$’000 107,911 9,105 (2,779) 8,783 (1,892) – 13,831 (10) 945 – 76,864 764 (55,383)
												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

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 March 2008

Note CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation – Continuing operations – Discontinued operations Adjustments for: Amortisation of land lease premium Negative goodwill 36 Amortisation of intangible assets 21 Finance costs Share of loss of an associate Interest income Loss on disposal of a subsidiary 37 Gain on disposal of property, plant and equipment Depreciation Write-down of inventories 22(d) Impairment losses on trade and other receivables Impairment loss of goodwill 19 Impairment losses on property, plant and equipment Exchange difference, net Operating loss before changes in working capital Decrease/(increase) in inventories Increase in trade and other receivables (Decrease)/increase in trade and other payables Increase/(decrease) in bank loans (trading nature) Cash used in operations Overseas tax paid NET CASH OUTFLOW FROM 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/(outflow) from disposal of a subsidiary 37 Net cash inflow from acquisition of subsidiaries 36 Increase in mould deposits Increase in pledged deposits Interest received NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES	2008 HK$’000 (39,864) (72,971) 158 (2,011) 10,589 3,340 – (3,800) 24,450 (4,401) 7,486 3,733 10,878 4,957 10,466 2,485 (44,505) 13,934 (70,423) (18,236) 7,115 (112,115) (3,065) (115,180) (2,348) 22,104 4,308 3,147 – (18,192) 3,800 12,819	2007 HK$’000 (26,601) (28,913) 149 – – 2,671 5,544 (1,326) 67 (861) 10,122 4,344 1,362 2,327 – – (31,115) (12,335) (1,824) 7,953 (559) (37,880) – (37,880) (4,543) 2,693 (38) 7,191 (5,167) (4,699) 1,326 (3,237)

I – 8

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note CASH FLOWS FROM FINANCING ACTIVITIES Placement and subscription of shares (net of expense) 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 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 25	2008 HK$’000 147,528 – 24,693 – (3,247) (93) (2,431) 166,450 64,089 41,160 308 105,557	2007 HK$’000 – 74,085 764 (325) (2,413) (258) (2,036) 69,817 28,700 11,690 770 41,160

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NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2008

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.

During the year, the Group disposed of certain operations 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 period in 2007 have been reclassified to conform with the current year’s presentation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Preparation of the Financial Statements

The consolidated financial statements for the year ended 31 March 2008 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 the following asset is stated at their fair value as explained in the accounting policies set out below:

buildings held for own use (see note 3(e))

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.

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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 year are discussed in note 6.

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 intragroup 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 note 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 year, 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.

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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.

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 year, 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

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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.

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 its 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.

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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
goodwill

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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 cashgenerating 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 year 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.

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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 realisable 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 realisable value represents the estimated selling price less estimated costs of completion and costs to be incurred in selling the property.

Completed properties held for sale

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 realisable 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 interestfree 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.

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.

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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 year, 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 utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

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

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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 customers 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.

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.

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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.

s) Translation of Foreign Currencies

Foreign currency transactions during the year 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.

I – 19

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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 non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

ii) 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.

I – 20

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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).

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.

I – 21

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 34(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 current accounting period (see note 43).

5. FINANCIAL RISK MANAGEMENT OBJECTIVE AND POLICIES

The Group’s major financial instruments include trade and other receivables, bank balances and cash, pledged deposits, bank loans, finance leases payables, trade 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 30-180 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 39, 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 39.

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 23.

(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.

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:

I – 22

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group

		2008
Weighted average effective interest rate – 7.5% 4.75% – 5.25% 1.5% 3%	Carrying amount HK$’000 46,681 58 39,552 855,213 320,000 1,261,504	Total contractual undiscounted cash flow HK$’000 46,681 71 40,038 1,173,900 358,400 1,619,090 2007	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


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

The Company

		2008
Weighted average effective interest rate – 7.5% 1.5% 3%	Carrying amount HK$’000 5,169 58 855,213 320,000 1,180,440	Total contractual undiscounted cash flow HK$’000 5,169 71 1,173,900 358,400 1,537,540 2007	Within 1 year or on demand HK$’000 5,169 71 16,380 9,600 31,220	More than 1 year but less than 2 years HK$’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


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

I – 23

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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 year 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 are related.

Cash and bank balances Pledged deposits Trade and other receivables Trade and other payables Overall net exposure arising from recognised assets and liabilities Sensitivity analysis	2008 RMB’000 4,004 2,661 3,437 (5,955) 4,147	2007 RMB’000 23,945 2,953 2,019 (16,249) 12,668

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	2008 Increase/ Effect on loss (decrease) after tax and in foreign accumulated exchange rate losses HK$’000 5% 207 (5%) (207)	2007 Increase/ Effect on loss (decrease) after tax and in foreign accumulated exchange rate losses HK$’000 5% 633 (5%) (633)

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 2007.

(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 – 24

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(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 Company	The Company	The Company
2008 Effective interest rates % HK$’000 7.5% 58 1.5% 855,213 5% 320,000 1,175,271 – 1,175,271 100%	2007
Effective interest rates % 7.5% 1.5% 5%	Effective interest rates % 3.9%-7.5%	HK$’000 134 – –
		134 –
		134

		100%

(ii) Sensitivity analysis

The sensitivity analysis has been determined based on the exposure to interest rates in its variablerate 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 year. 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 2007.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended 31 March 2008 would decrease/increase by approximately HK$550,000 (2007: HK$152,000).

(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.

I – 25

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 year are discussed below.

a) Property, plant and equipment and depreciation

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 writeoff or write-down technically obsolete or non-strategic 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 cashgenerating 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 24 will not include profit which the Group may eventually realise 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.

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 year and the estimate will be changed in the future period.

I – 26

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 year, the Group discontinued by way of disposal of subsidiaries (see note 37) 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: the mining and processing of magnesite ore.

	Continuing	operations	Consolidated 2008 2007 HK$’000 HK$’000 222,854 209,701 (62,848) (30,807) 3,800 1,326 (25,997) (17,818) (85,045) (47,299) (3,340) (2,671) – (5,544) (24,450) – (1,895) 131 (114,730) (55,383) 2,170,528 284,517 191,004 15,275 2,361,532 299,792 94,584 123,023 1,189,344 18,630 1,283,928 141,653
Real estate 2008 2007 HK$’000 HK$’000 – – (13,707) (1,015) 66,170 87,871 21,682 24,946	Building materials 2008 2007 HK$’000 HK$’000 121,592 6,691 6,794 (2,854) 76,809 12,089 67,823 9,140	Mining 2008 2007 HK$’000 HK$’000 1,445 – (8,503) – 2,027,549 – 5,079 –

			(30,807) 1,326 (17,818)
			(47,299) (2,671) (5,544) – 131
			(55,383)

			284,517 15,275
			299,792

			123,023 18,630
			141,653

I – 27

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

OTHER INFORMATION Depreciation and amortisation for the year Unallocated corporate expenses Impairment losses of – trade and other receivables – goodwill – property, plant and equipment – moulds deposits Signif cant non-cash expenses – write-down of inventories Capital expenditure incurred during the year Unallocated corporate capital expenditure	Continuing operations Real estate Building materials Mining Sub-total 2008 2007 2008 2007 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 65 8 35 12 10,597 – 10,697 20 100 – 2,766 20 – – 2,866 20 4,957 – – 2,327 – – 4,957 2,327 – – – – – – – – – – – – – – – – 3,733 – – – – – 3,733 – 199 503 96 207 4 – 299 710	Discontinued operations Home appliances 2008 2007 HK$’000 HK$’000 5,963 10,122 2,499 1,342 – – 10,466 – 5,513 1,342 – 4,344 1,488 7,908	Consolidated 2008 2007 HK$’000 HK$’000 16,660 10,142 1,573 129 18,233 10,271 5,365 1,362 4,957 2,327 10,466 – 5,513 1,342 3,733 4,344 1,787 8,618 561 532 2,348 9,150	Consolidated 2008 2007 HK$’000 HK$’000 16,660 10,142 1,573 129 18,233 10,271 5,365 1,362 4,957 2,327 10,466 – 5,513 1,342 3,733 4,344 1,787 8,618 561 532 2,348 9,150
				10,271

				1,362 2,327 – 1,342

				4,344

				8,618 532
				9,150

Geographical segments

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

Europe North America South America Asia Pacific Middle East Oceania		2008	Total HK$’000 35,153 28,272 14,328 131,192 10,039 3,870 222,854		2007
	Continuing operations HK$’000 – – – 123,037 – – 123,037	Discontinued operations HK$’000 35,153 28,272 14,328 8,155 10,039 3,870 99,817		Continuing operations HK$’000 – – – 6,691 – – 6,691	Discontinued operations HK$’000 92,769 69,713 17,095 7,141 11,423 4,869 203,010	Total HK$’000 92,769 69,713 17,095 13,832 11,423 4,869
						209,701

I – 28

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

	2008		2007
Continuing operations HK$’000 – – – 2,361,532 – – 2,361,532	Discontinued operations HK$’000 – – – – – – – 2008	Continuing operations HK$’000 – – – 99,960 – – 99,960	Discontinued operations HK$’000 8,941 3,652 4,406 180,842 1,401 590 199,832 2007	Total HK$’000 8,941 3,652 4,406 280,802 1,401 590
				299,792


Continuing operations HK$’000 – – – 860 – – 860	Discontinued operations HK$’000 – – – 1,488 – – 1,488	Continuing operations HK$’000 – – – 1,242 – – 1,242	Discontinued operations HK$’000 14 16 – 7,878 – – 7,908	Total HK$’000 14 16 – 9,120 – –
				9,150

I – 29

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:

Continuing operations 2008 2007 HK$’000 HK$’000 1,445 – 121,592 6,691 123,037 6,691	Continuing operations 2008 2007 HK$’000 HK$’000 1,445 – 121,592 6,691 123,037 6,691	Discontinued operations 2008 2007 HK$’000 HK$’000 99,817 203,010 – – 99,817 203,010	Discontinued operations 2008 2007 HK$’000 HK$’000 99,817 203,010 – – 99,817 203,010	Consolidated 2008 2007 HK$’000 HK$’000 101,262 203,010 121,592 6,691 222,854 209,701	Consolidated 2008 2007 HK$’000 HK$’000 101,262 203,010 121,592 6,691 222,854 209,701
3,599 – 1,049		201 – 5,257		3,800 – 6,306	1,326 966 1,929
					4,221
8,791 2,011 101	– – –	(4,390) – –	861 – –	4,401 2,011 101	861 – –
10,903 15,551 138,588	– 1,149 7,840	(4,390) 1,068 100,885	861 3,933 206,943	6,513 16,619 239,473	861 5,082 214,783

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

I – 30

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. LOSS FROM OPERATIONS

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

Continuing operations 2008 2007 HK$’000 HK$’000	Continuing operations 2008 2007 HK$’000 HK$’000	Discontinued operations 2008 2007 HK$’000 HK$’000	Discontinued operations 2008 2007 HK$’000 HK$’000	Consolidated 2008 2007 HK$’000 HK$’000	Consolidated 2008 2007 HK$’000 HK$’000
866 1,167 17		1,214 – 76		2,080 1,167 93	2,413 – 258
					2,671
					46,647 371 609
					47,627 189,137 10,122 149 1,737
1,243 672	285 110	28 –	315 –	1,271 672	600 110
1,915 1,928 938	395 20 –	28 2,499 –	315 – –	1,943 4,427 938	710 20 –

Cost of inventories sold includes depreciation of HK$4,766,000 (2007: HK$7,789,000) and staff costs of HK$13,038,000 (2007: HK$21,251,000), the amount of which is also included in the respective total amounts disclosed separately above.

I – 31

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

10. OTHER OPERATING EXPENSES

Loss/(gain) on disposal of a subsidiary Write down of inventories Amortisation of intangible assets Impairment loss on goodwill Impairment losses on mould deposits Impairment losses on property, plant and equipment	Continuing operations 2008 2007 HK$’000 HK$’000 – 77 3,733 – 10,589 – 4,957 2,327 – – – – 19,279 2,404	Discontinued operations 2008 2007 HK$’000 HK$’000 139 (10) – – – – – – 5,513 1,342 10,466 – 16,118 1,332	Consolidated 2008 2007 HK$’000 HK$’000 139 67 3,733 – 10,589 – 4,957 2,327 5,513 1,342 10,466 – 35,397 3,736	Consolidated 2008 2007 HK$’000 HK$’000 139 67 3,733 – 10,589 – 4,957 2,327 5,513 1,342 10,466 – 35,397 3,736
				3,736

11. DIRECTORS’ REMUNERATION

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

	2008	2008
Fees HK$’000 – – – – – – – – 58 42 100 17 58 58 50 50 150 – 383 483	Salaries and other benefits HK$’000 1,300 233 517 1,140 720 228 2,200 6,338 – – – – – – – – – – – 6,338	Retirement scheme contributions HK$’000 12 6 7 12 – – 10 47 – – – – – – – – – – – 47	Total HK$’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 – 32

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1 Chung Oi Ling, Stella and Teoh Tean Chai, Anthony were appointed as executive director on 31 August 2007.
2 Cheng Tze Kit, Larry retired and, Kwok Hon Lam and Kwok Chi Hang, Peter resigned as executive director on 31 August 2007.
3
4

Siu Miu Man resigned as executive director on 31 January 2008.

Li Wa Hei was appointed as non-executive director on 31 August 2007.

5 Yeung Chee Tat retired as non-executive director on 31 August 2007.
6 Chu Kin Wang, Peleus was appointed as INED on 31 January 2008.
7

Lo Chi Ho, William and Wu Chi Chiu were appointed as INED on 31 August 2007.

8 Lam Kwok Cheong was appointed as INED on 2 April 2007 and retired on 31 August 2007. Chow Nim Sun, Nelson resigned as INED on 31 August 2007.
9 Chan Sun Kwong resigned as INED on 31 January 2008.
10 Fung Kwan Yin, James resigned as INED on 2 April 2007.

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

1 Cheng Tze Kit, Larry and Yeung Chee Tat were appointed as executive director and non-executive director on 22 August 2006 respectively.

2 Loo Pak Hong and To Wing Yee, Janice resigned as executive director and non-executive director on 22 August 2006 respectively.

I – 33

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five highest paid individuals during the year included four (2007: four) directors, details of whose remuneration are set out in note 11 above. Details of the emoluments of the remaining one (2007: one) non-director, highest paid individual for the year are as follows:

Salaries and other benefits Retirement scheme contributions	The Group 2008 2007 HK$’000 HK$’000 1,330 1,289 12 12 1,342 1,301	The Group 2008 2007 HK$’000 HK$’000 1,330 1,289 12 12 1,342 1,301
		1,301

13. INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

a) Income tax in the consolidated income statement represents:

Hong Kong Profits Tax has been provided at the rate of 17.5% (2007: 17.5%) on the estimated assessable profits arising in Hong Kong during the year.

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

Continuing operations 2008 2007 HK$’000 HK$’000 Current tax – Hong Kong 1,604 (131) – Overseas 277 – Tax expense/ (credit) 1,881 (131)	Discontinued operations 2008 2007 HK$’000 HK$’000 – – 14 – 14 –	Consolidated 2008 2007 HK$’000 HK$’000 1,604 (131) 291 – 1,895 (131)	Consolidated 2008 2007 HK$’000 HK$’000 1,604 (131) 291 – 1,895 (131)
			(131)

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)	2008 HK$’000 (39,864) (72,971) (112,835) (38,364) (3,023) 10,706 – 32,309 267 1,895	2007 HK$’000 (26,601) (28,913)
		(55,514)

		(11,549) (1,311) 1,652 (9) 11,086 –
		(131)

I – 34

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Loss on discontinued operations for the year Loss on disposal of discontinued operations_(note 37)_	2008 HK$’000 (48,535) (24,450) (72,985)	2007 HK$’000 (28,913) – (28,913)

The results of the discontinued operations for the period from 1 April 2007 to 31 January 2008 (date of disposal) which have been included in the consolidated income statement for the year ended 31 March 2008 are as follows:

Turnover Cost of sales Gross profit Other revenue and gains Operating expenses Loss from operations Finance costs Loss before tax Income tax Attributable to: Equity shareholders of the Company Minority interest	2008 HK$’000 99,817 (109,274) (9,457) 1,068 (38,842) (47,231) (1,290) (48,521) (14) (48,535) (48,535) – (48,535)	2007 HK$’000 203,010 (189,137) 13,873 3,933 (44,292) (26,486) (2,427) (28,913) – (28,913) (28,845) (68) (28,913)

During the year, Antec Group and AECL Group contributed HK$12,786,000 (2007: HK$12,452,000) to the Group’s net operating cash flows, contributed HK$4,180,000 (2007: paid HK$13,478,000) in respect of investing activities and paid HK$2,355,000 (2007: HK$4,463,000) 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 37.

15. LOSS ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated loss attributable to equity shareholders of the Company includes a loss of HK$90,924,000 (2007: HK$57,460,000) which has been dealt with in the financial statements of the Company.

I – 35

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. LOSS PER SHARE

a) Basic loss per share – for continuing and discontinued operations

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 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	2008 HK$’000 (39,907) (72,985) (112,892) 2008 No. of shares ’000 1,544,925 – 229,619 135,150 56,986 1,966,680	2007 HK$’000 (26,182) (28,845) (55,027) 2007 No. of shares ’000 768,642 585,274 – 222 – 1,354,138

b) Diluted loss per share

No diluted loss per share has been disclosed as the outstanding bonus warrants and convertible notes had an anti-dilutive effect on the basic loss per share for the year ended 31 March 2008 and 2007.

I – 36

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

17. PROPERTY, PLANT AND EQUIPMENT

The Group

Cost or valuation At 1 April 2006 Disposal of a subsidiary Additions Disposals Revaluation surplus Exchange realignment At 31 March 2007 Analysis of cost or revaluation At cost At valuation At 1 April 2007 Acquisition of subsidiaries Disposal of subsidiaries_(note e) Additions Disposals Revaluation surplus Exchange realignment At 31 March 2008 Analysis of cost or revaluation At cost At valuation Accumulated depreciation At 1 April 2006 Charge for the year Written back on disposals Elimination on revaluation Exchange realignment At 31 March 2007 At 1 April 2007 Acquisition of subsidiaries Charge for the year Written back on disposals of subsidiaries(note e) Written back on disposals Elimination on revaluation Impairment(note f)_ Exchange realignment At 31 March 2008 Net book value At 31 March 2008 At 31 March 2007	Buildings held for own use carried at fair value HK$’000 40,400 – 117 (1,530) 8,030 3 47,020 – 47,020 47,020 47,020 – – – (6,810) 3,796 24 44,030 – 44,030 44,030 – 1,102 (28) (1,075) 1 – – – 1,248 – (68) (1,180) – – – 44,030 47,020	Furniture and fixtures HK$’000 10,920 (27) 2,872 (188) – 64 13,641 13,641 – 13,641 13,641 70 (5,322) 871 (8,010) – 12 1,262 1,262 – 1,262 5,563 2,036 (183) – 54 7,470 7,470 1 1,659 (3,471) (5,477) – – 2 184 1,078 6,171	Machinery, engineering and other equipment HK$’000 16,090 – 2,514 – – – 18,604 18,604 – 18,604 18,604 – (13,455) 91 (5,240) – – – – – – 7,001 1,699 – – – 8,700 8,700 – 1,409 (4,869) (5,240) – – – – – 9,904	Motor vehicles HK$’000 175 – 585 – – 7 767 767 – 767 767 651 (175) 256 – – 28 1,527 1,527 – 1,527 32 54 – – – 86 86 6 86 (64) – – – 2 116 1,411 681	Moulds HK$’000 52,172 – 3,062 – – – 55,234 55,234 – 55,234 55,234 – (48,482) 1,130 (7,882) – – – – – – 24,447 5,231 – – – 29,678 29,678 – 3,084 (41,073) (2,155) – 10,466 – – – 25,556	Total HK$’000 119,757 (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
						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
						46,519

						89,332

I – 37

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 2008 amounted to HK$Nil (2007: HK$5,312,000) and HK$273,000 (2007: HK$307,000) 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 2008 by an independent valuer, RHL Appraisal Ltd., 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 31 March 2008 is as follows:

Held under medium term leases in – Hong Kong – mainland China Representing: Properties carried at fair value	The Group 2008 2007 HK$’000 HK$’000 – 6,810 44,030 40,210 44,030 47,020 44,030 47,020	The Group 2008 2007 HK$’000 HK$’000 – 6,810 44,030 40,210 44,030 47,020 44,030 47,020
		47,020

		47,020

Had the Group’s properties been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been approximately HK$18,153,000 (2007: HK$26,095,000).

d) At 31 March 2008, certain of the Group’s buildings in Hong Kong with a net book value of HK$Nil (2007: HK$6,810,000) were pledged to secure general banking facilities granted to the Group (see note 26).
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 (see note 37).
f) During the year ended 31 March 2008, a number of moulds in the home appliances segment were obsolesced. 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 the recoverable amount was 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.

I – 38

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Company

Cost At 1 April 2006 Additions At 31 March 2007 At 1 April 2007 Additions At 31 March 2008 Accumulated depreciation At 1 April 2006 Charge for the year At 31 March 2007 At 1 April 2007 Charge for the year At 31 March 2008 Net book value At 31 March 2008 At 31 March 2007	Leasehold improvement HK$’000 – – – – 236 236 – – – – – – 236 –	Furniture and other equipment HK$’000 189 190 379 379 69 448 – 58 58 58 68 126 322 321	Motor vehicles HK$’000 – 342 342 342 256 598 – 34 34 34 39 73 525 308	Total HK$’000 189 532
				721
				721 561
				1,282
				– 92
				92
				92 107
				199
				1,083

				629

I – 39

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The Group Cost At 1 April 2006 Additions Disposals Exchange realignment At 31 March 2007 At 1 April 2007 Additions Disposals Exchange realignment At 31 March 2008 Accumulated amortisation 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 At 31 March 2008 Net book value At 31 March 2008 At 31 March 2007	HK$’000 7,180 240 (433) 7
	6,994
	6,994 – (3,696) 27
	3,325
	1,812 149 (109)
	1,852
	1,852 158 (995)
	1,015
	2,310

	5,142

a) At 31 March 2008, certain of the Group’s leasehold land in Hong Kong with net book value of HK$Nil (2007: HK$2,793,000) was pledged to a bank to secure the banking facility granted to the Group (see note 26).

b) Analysed as reporting purpose:

Current portion Non-current portion	2008 HK$’000 66 2,244 2,310	2007 HK$’000 158 4,984
		5,142

I – 40

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. GOODWILL

The Group

Cost At 1 April 2006 Acquisition of subsidiaries_(note 36(b))_ At 31 March 2007 At 1 April 2007 Acquisition of subsidiaries At 31 March 2008 Accumulated impairment losses At 1 April 2006 Impairment loss At 31 March 2007 At 1 April 2007 Impairment loss At 31 March 2008 Carrying amount At 31 March 2008 At 31 March 2007	HK$’000 – 7,284
	7,284
	7,284 –
	7,284
	– 2,327
	2,327
	2,327 4,957
	7,284
	–

	4,957

Impairment test for goodwill

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

	2008	2007
	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 7.75% and 7.75% at 31 March 2008 and 31 March 2007 respectively. The discount rates used are pre-tax and reflect specific risks relating to the relevant CGU.

I – 41

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

a) Ancen Properties Limited was engaged in real estate development during the year. 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.
b) 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.

20. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Less: provision for impairment losses	The Company 2008 2007 HK$’000 HK$’000 1,565,854 79,920 172,634 240,521 1,738,488 320,441 (371) – 1,738,117 320,441 (47,334) (210,161) 1,690,783 110,280

a) The amounts due from/(to) subsidiaries are unsecured, interest-free and not expected to be received or repaid within one year.
b) At 31 March 2008, several subsidiaries engaged in real estate business and corporate activity have recurring operating losses with low liquidity ratios. Due to the poor performance of these 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 real estate business and corporate activity of HK$2,670,000 and of HK$44,664,000 respectively is required. The amount has been charged to the income statement of the Company for the year ended 31 March 2008.
c) At 31 March 2007, the impairment losses represented the write-down of amounts due from subsidiaries of HK$210,161,000.

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 provision on impairment of the amount 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 year 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.

I – 42

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

d) 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
Anco Industrial	British Virgin	US$100	–	100	Dormant and
Company	Islands/				land use right
Limited	mainland China				holding
Anco Industrial	Hong Kong	HK$10,000	–	100	Dormant
Company Limited
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	US$1	100	–	Dormant
and Engineering	Virgin Islands
Holdings Limited
Anex Properties	British	US$1	100	–	Dormant
Holdings Limited	Virgin Islands
Ancen Properties	Hong Kong	HK$100	70	–	Investment
Limited					holding
(“Ancen Properties”)
東莞嘉湖山莊	mainland	RMB128,276,445	–	70	Real estate
建造有限公司	China				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) Company	Hong Kong	HK$10,000	–	100	Dormant
Limited (“BIP (HK)”)
Idealboom Group	British	US$1	–	100	Investment
Limited	Virgin Islands				holding
Anex Far East	Macau	MOP$25,000	–	100	Dormant
(Macau) Limited
Total Growth	Hong Kong	HK$1	100	–	Properties
Limited					investment
Anex Far East	Hong Kong	HK$1	–	100	Building
Limited					material
					business
Ling Kit Holding	British	US$50,000	100	–	Investment
Ltd. # (“Ling Kit”)	Virgin Islands				holding

I – 43

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
Anex Overseas Ltd.		Samoa	US$1	100	–	Dormant
Joyful Rise Investments		British	US$100	–	100	Investment
Ltd. #		Virgin Islands				holding
海城市東鑫實業		mainland	RMB5,200,000	–	80	Mining and
有限公司		China				processing of
(Haicheng Dongxin						magnesite ore
Industry Ltd.)						at magnesite mine
(“Haicheng Dongxin”)	#*
Magnesium Corporation		Hong Kong	HK$1	–	100	Dormant
of China Ltd. (Formerly
known as Eagle Island
Group Limited)
北京晉嘉宏采投資		mainland	RMB100,000	–	100	Properties
咨詢有限公司		China				investment
(Beijing Joyful Rise						and consulting
Investment Consulting
Company Ltd.) #^

Subsidiaries set up/acquired during the year.
^ Wholly-foreign owned enterprise registered in mainland China.
Sino-foreign owned enterprise registered in mainland China.

21. INTANGIBLE ASSETS

The Group Cost At 31 March 2006 and 1 April 2007 Acquisition from subsidiaries_(note 36a)_ At 31 March 2008 Accumulated amortisation At 31 March 2006 and 1 April 2007 Charge for the year At 31 March 2008 Net book value At 31 March 2008 At 31 March 2007	HK$’000 – 2,033,130
	2,033,130
	– 10,589
	10,589
	2,022,541

	–

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 on 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.
c) The fair value of the mining rights has been assessed, based on income approach, by an independent professional valuer, Asset Appraisal Limited.

I – 44

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

d) As described in note 36, 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 (e) below, the relevant government authority has approved the temporary extension of the mining right to October 2008.
ii) The completion of the acquisition is subject to the payment of consideration (i.e. RMB4,000,000) and approval by the relevant government authority.
e) 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 authority certified the three mining licences as mentioned in (d) above to be consolidated into one. However as at 31 March 2008 and up to the date of this report, the formal approval and certificate has not been completed and issued by the relevant authority in mainland China.

To the best of the knowledge of the Company’s directors, the relevant PRC government authority 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 adviser, 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.

I – 45

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

22. INVENTORIES

a) Inventories in the consolidated balance sheet comprise:

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

		s follows: 2007 HK$’000 40,000

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 inventories carried at fair value less costs to sell at 31 March 2008 is HK$Nil (2007: HK$1,096,000).

The amount of write-down of inventories to net realizable value recognised as an expense during the year is HK$3,733,000 (2007: HK$4,344,000).

e) The amount of properties under development for sale expected to be recovered after one year is HK$43,300,000 (2007: HK$40,115,000). 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 – 46

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

23. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Retentions receivable Due from a minority shareholder Other receivables Loans and receivables Prepayments and deposits Mould deposits_(note c) Gross amount due from customers for contract work(note 24)_	The Group 2008 2007 HK$’000 HK$’000 64,653 26,048 (2,933) (1,209) 61,720 24,839 8,317 1,672 256 – 556 7,061 70,849 33,572 5,434 3,077 – 10,316 5,989 1,828 82,272 48,793	The Company 2008 2007 HK$’000 HK$’000 – – – – – – – – 420 94 420 94 1,779 450 – – – – 2,199 544	The Company 2008 2007 HK$’000 HK$’000 – – – – – – – – 420 94 420 94 1,779 450 – – – – 2,199 544
			– – 94
			94 450 – –
			544

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

b) Ageing analysis

Trade receivables less provision for impairment losses of HK$2,933,000 (2007: HK$1,209,000) with the following aging analysis as of the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	The Group 2008 2007 HK$’000 HK$’000 44,267 10,451 15,175 9,099 – 2,163 2,278 3,126 61,720 24,839	The Group 2008 2007 HK$’000 HK$’000 44,267 10,451 15,175 9,099 – 2,163 2,278 3,126 61,720 24,839
		24,839

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.

c) In prior years, the Group incurred labour cost, raw materials and other expenses for mould construction and recorded these amounts as mould deposits. When the mould construction is completed, the amount will be recognised as moulds and classified under property, plant and equipment. During the year ended 31 March 2008, the mould deposits of HK$4,803,000 (2007: HK$2,372,000) were transferred to moulds under property, plant and equipment.

Due to the decision of discontinue certain product lines, the directors determine the construction cost of the moulds could not be recovered and therefore the impairment on the carrying amount of these mould deposits of HK$5,513,000 (2007: HK$1,342,000) is required. 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 year ended 31 March 2008.

d) The Group had impaired HK$938,000 (2007: HK$Nil) for retentions receivable, which related to projects abandoned during the year ended 31 March 2008 and the directors expected the amount cannot be recovered.

I – 47

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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:

At 1 April Exchange realignment Impairment losses recognised Disposal of subsidiaries Uncollectible amounts written off At 31 March	The Group 2008 2007 HK$’000 HK$’000 1,209 1,189 106 – 4,427 20 (2,499) – (310) – 2,933 1,209	The Company 2008 2007 HK$’000 HK$’000 – – – – – – – – – – – –	The Company 2008 2007 HK$’000 HK$’000 – – – – – – – – – – – –
			–

During the year ended 31 March 2008, the Group had impaired HK$1,928,000 and HK$2,499,000 for the continuing operations and discontinued operations 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.

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:

Neither past due nor impaired Less than 1 month past due 1 to 3 months past due -	The Group 2008 2007 HK$’000 HK$’000 59,442 14,294 – 5,256 2,278 5,289 2,278 10,545 61,720 24,839	The Company 2008 2007 HK$’000 HK$’000 – – – – – – – – – –	The Company 2008 2007 HK$’000 HK$’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.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

24. CONTRACT WORK IN PROGRESS

Contract costs incurred plus attributable profits less foreseeable losses to date Progress billings to date Represented by: Gross amount due from customers for contract work (Note 23) Gross amount due to customers for contract work (Note 27)	The Group 2008 2007 HK$’000 HK$’000 140,221 18,147 (140,640) (20,807) (419) (2,660) 5,989 1,828 (6,408) (4,488) (419) (2,660)	The Group 2008 2007 HK$’000 HK$’000 140,221 18,147 (140,640) (20,807) (419) (2,660) 5,989 1,828 (6,408) (4,488) (419) (2,660)
		(2,660)

		1,828 (4,488)
		(2,660)

At 31 March 2008, the amount of retentions receivable from customers recorded within “trade and other receivables” is HK$8,317,000 (2007: HK$1,672,000).

25. CASH AND CASH EQUIVALENTS

Cash at bank and on hand Cash and cash equivalents in the balance sheet Bank overdrafts, secured_(note 26)_ Cash and cash equivalents in the consolidated cash flow statement	The Group 2008 2007 HK$’000 HK$’000 119,338 45,245 119,338 45,245 (13,781) (4,085) 105,557 41,160	The Company 2008 2007 HK$’000 HK$’000 113,942 10,369 113,942 10,369	The Company 2008 2007 HK$’000 HK$’000 113,942 10,369 113,942 10,369
			10,369

26. BANK LOANS AND OVERDRAFTS

	The Group	The Group
	2008	2007
	HK$’000	HK$’000
Bank overdrafts, secured_(note 25)_	13,781	4,085
Bank loans, secured	25,771	22,792
	39,552	26,877

At 31 March 2008, the bank loans and overdrafts were repayable as follows:
	2008	2007
	HK$’000	HK$’000
Within 1 year or on demand	39,552	26,877

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

27. TRADE AND OTHER PAYABLES

Trade payables_(note a) Other payables and accruals Gross amount due to customers for contract work(note 24) Due to minority shareholders(note b) Compensation payable(note c) Accrual for long service payment(note d) Mould deposits received Other loan(note e)_ Financial liabilities measured at amortised costs	The Group 2008 2007 HK$’000 HK$’000 18,699 35,553 13,034 35,001 6,408 4,488 8,540 7,207 – 3,680 – 1,695 – 1,312 – 1,100 46,681 90,036	The Company 2008 2007 HK$’000 HK$’000 – – 5,119 255 – – 50 – – – – – – – – – 5,169 255	The Company 2008 2007 HK$’000 HK$’000 – – 5,119 255 – – 50 – – – – – – – – – 5,169 255
			255

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 2008 2007 HK$’000 HK$’000 18,159 6,311 5 3,095 3 5,457 532 20,690 18,699 35,553	The Group 2008 2007 HK$’000 HK$’000 18,159 6,311 5 3,095 3 5,457 532 20,690 18,699 35,553
		35,553

b) The amounts are unsecured, interest free and have no fixed terms of repayment.
c) 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 was released upon the settlement of compensation during the year. No outstanding balance at 31 March 2008.
d) The amount represented the accrual for long service payment for Antec Group and AECL Group as at 31 March 2007. The amount were paid during the year ended 31 March 2008.
e) The loan was advanced from Tenham Investment Limited, an independent third party, is unsecured, bearing interest at rate of 9.00% per annum and has no fixed terms of repayment. The loan has been settled on 12 October 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. 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 within one year.

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
	2008	Total minimum lease payments HK$’000 71 – 71		2007
Present value of the minimum lease payments HK$’000 58 – 58	Interest expense relating to future periods HK$’000 13 – 13		Present value of the minimum lease payments HK$’000 1,657 833 2,490	Interest expense relating to future periods HK$’000 103 28 131	Total minimum lease payments HK$’000 1,760 861
					2,621

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

29. 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 Tax paid At 31 March	The Group 2008 2007 HK$’000 HK$’000 4,015 – – 4,146 1,604 (131 291 – (3,065) – 2,845 4,015	The Group 2008 2007 HK$’000 HK$’000 4,015 – – 4,146 1,604 (131 291 – (3,065) – 2,845 4,015
		4,015

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 2006 Deferred tax charged to reserves Acquisition of subsidiaries_(note 36(b))_ At 31 March 2007 At 1 April 2007 Deferred tax charged to reserves At 31 March 2008	Fair value gains on properties under development for sale HK$’000 – – 10,814 10,814 10,814 – 10,814	Revaluation on buildings HK$’000 5,529 1,892 – 7,421 7,421 1,344 8,765	Total HK$’000 5,529 1,892 10,814
			18,235
			18,235 1,344
			19,579

The Group has tax losses arising in Hong Kong of HK$43,534,000 (2007: HK$154,791,000) 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 both financial years.

30. 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%.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 34)_ Liability component at date of issue Interest charged Interest payable Carrying amount at 31 March 2008	HK$’000 1,092,000 (236,787)
	855,213 1,167 (1,167)
	855,213

31. 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.

32. SHARE CAPITAL

The Group and the Company

2008	HK$’000 300,000 700,000	2007
No. of shares ’000 3,000,000 7,000,000 10,000,000 – 246,934 307,000 800,000 2,898,859		No. of shares ’000 3,000,000 – 3,000,000 768,642 7,641 – – 1,544,925	HK$’000 300,000 –
	1,000,000		300,000

	– 24,693 30,700 80,000		76,864 764 – –
	289,885		154,492

Note:

a) 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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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

b) 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$0.10 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) above (“Bonus Warrant”). The Bonus Warrant will expire on 4 July 2008. During the year ended 31 March 2008, warrant-holders exercised the Bonus Warrant to subscribe for approximately 246,934,000 ordinary shares (2007: approximately 7,641,000 ordinary shares) in the Company at exercise price of HK$0.10 each. The last day of subscription of the Bonus Warrant was 4 July 2008.
d) On 22 June 2007, the Company, Mr. Cheng, a director and a substantial shareholder 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.

e) 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 36(a)).

33. 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 12-month 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 22 August 2006. As at the date of this Annual Report, the total number of shares available for issue under the Scheme is 191,477,268, representing 6.61% of the issued share capital.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

I – 55

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. RESERVES

a) The Group

Share Contributed premium surplus Note HK$’000 HK$’000 At 1 April 2006 – 2,789 Surplus on revaluation – – Rights issue expenses – – Fair value adjustment – – Deferred tax charged in the revaluation reserve 29 – – Property revaluation reserve – – Acquisition of a subsidiary – – Disposal of a subsidiary – – Exchange realignment – – Revaluation reserve released on disposal – – Loss for the year – – At 31 March 2007 – 2,789 At 1 April 2007 – 2,789 Shares issued under placement and subscription 122,800 – Shares issue expenses (5,972) – Revaluation reserve released on disposal – – Acquisition of subsidiaries – – Consideration shares issued for the acquisition of subsidiaries 132,000 – Surplus on revaluation – – Issuance of convertible notes 30 – – Deferred tax charged in the revaluation reserve 29 – – Loss for the year – – Exchange realignment – – At 31 March 2008 248,828 2,789	Contributed surplus HK$’000 2,789 – – – – – – – – – –	Property Distributable revaluation Fair value reserve reserve reserve HK$’000 HK$’000 HK$’000 4,995 16,090 – – 9,105 – (2,779) – – – – 8,783 – (1,892) – – (27) – – – – – – – – – – – (709) – – – –	Property Distributable revaluation Fair value reserve reserve reserve HK$’000 HK$’000 HK$’000 4,995 16,090 – – 9,105 – (2,779) – – – – 8,783 – (1,892) – – (27) – – – – – – – – – – – (709) – – – –	Property Distributable revaluation Fair value reserve reserve reserve HK$’000 HK$’000 HK$’000 4,995 16,090 – – 9,105 – (2,779) – – – – 8,783 – (1,892) – – (27) – – – – – – – – – – – (709) – – – –	Equity component reserve HK$’000 – – – – – – – – – – –	Retained Exchange profits/ fluctuation (accumulated Minority Total reserve losses) Sub-total interests reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (50) 7,145 30,969 78 31,047 – – 9,105 – 9,105 – – (2,779) – (2,779) – – 8,783 – 8,783 – – (1,892) – (1,892) – – (27) 27 – – – – 13,831 13,831 – – – (10) (10) 615 – 615 330 945 – 709 – – – – (55,027) (55,027) (356) (55,383)	Retained Exchange profits/ fluctuation (accumulated Minority Total reserve losses) Sub-total interests reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (50) 7,145 30,969 78 31,047 – – 9,105 – 9,105 – – (2,779) – (2,779) – – 8,783 – 8,783 – – (1,892) – (1,892) – – (27) 27 – – – – 13,831 13,831 – – – (10) (10) 615 – 615 330 945 – 709 – – – – (55,027) (55,027) (356) (55,383)	Retained Exchange profits/ fluctuation (accumulated Minority Total reserve losses) Sub-total interests reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (50) 7,145 30,969 78 31,047 – – 9,105 – 9,105 – – (2,779) – (2,779) – – 8,783 – 8,783 – – (1,892) – (1,892) – – (27) 27 – – – – 13,831 13,831 – – – (10) (10) 615 – 615 330 945 – 709 – – – – (55,027) (55,027) (356) (55,383)	Retained Exchange profits/ fluctuation (accumulated Minority Total reserve losses) Sub-total interests reserve HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (50) 7,145 30,969 78 31,047 – – 9,105 – 9,105 – – (2,779) – (2,779) – – 8,783 – 8,783 – – (1,892) – (1,892) – – (27) 27 – – – – 13,831 13,831 – – – (10) (10) 615 – 615 330 945 – 709 – – – – (55,027) (55,027) (356) (55,383)
–	2,789	2,216	22,567	8,783	–	565	(47,173) (10,253) 13,900		3,647

		2,216 – – – – – – – – – –	22,567 8,783 – – – – (2,437) – – – – – 4,976 – – – (1,344) – – – – –		– – – – – – – 236,787 – – –	565 – – – – – – – – – 2,200	(47,173) (10,253) 13,900 3,647 – 122,800 – 122,800 – (5,972) – (5,972) 2,437 – – – – – 406,503 406,503 – 132,000 – 132,000 – 4,976 – 4,976 – 236,787 – 236,787 – (1,344) – (1,344) (112,892) (112,892) (1,838) (114,730) – 2,200 852 3,052
248,828	2,789	2,216	23,762	8,783	236,787	2,765	(157,628) 368,302	419,417	787,719

I – 56

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

b) The Company

Note At 1 April 2006 Loss for the year Rights issue expenses At 31 March 2007 At 1 April 2007 Shares issued under placement and subscription 32 Shares issue expenses Consideration shares issued for the acquisition of subsidiaries 32 Issuance of convertible notes 30 Loss for the year At 31 March 2008	Share premium HK$’000 – – – – – 122,800 (5,972) 132,000 – – 248,828	Contributed surplus HK$’000 60,733 – – 60,733 60,733 – – – – – 60,733	Distributable reserve HK$’000 4,995 – (2,779) 2,216 2,216 – – – – – 2,216	Equity component reserve HK$’000 – – – – – – – – 236,787 – 236,787	Accumulated losses HK$’000 (34,948) (57,460) – (92,408) (92,408) – – – – (90,924) (183,332)	Total HK$’000 30,780 (57,460) (2,779)
						(29,459)
						(29,459) 122,800 (5,972) 132,000 236,787 (90,924)
						365,232

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).

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).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

d) Distributability of reserves

At 31 March 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$65,496,000 (2007: HK$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 concern, 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.

During the year ended 31 March 2008, the Group’s strategy, which unchanged from 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 2008 and 2007 were as follows:

Trade and other payables Bank loans and overdrafts Finance leases payables Convertible notes Promissory notes Total debt Less: cash and bank balances pledged deposits Net debt Total equity Total capital Debt-to-adjusted capital ratio	2008 HK$’000 46,681 39,552 58 855,213 320,000 1,261,504 (119,338) (30,211) 1,111,955 658,187 1,770,142 63%	2007 HK$’000 90,036 26,877 2,490 – – 119,403 (45,245) (12,029) 62,129 144,239 206,368 30%

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

35. MAJOR NON-CASH TRANSACTIONS

a) Moulds

During the year, the mould construction amounting to HK$4,803,000 (2007: HK$2,372,000) which were completed and transferred from mould deposits to moulds under property, plant and equipment.

b) Property, plant and equipment

During the year, addition to property, plant and equipment of the Group financed by new finance leases were HK$Nil (2007: HK$2,475,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. 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 was 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 32(e));
ii) as to HK$320,000,000 by the issue of promissory notes (note 31); and
iii) as to HK$1,092,000,000 by the issue of convertible notes (note 30).

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:

	Acquiree’s
	carrying
	amount
	before	Fair value		Fair
	combination	adjustment		value
	HK$’000	HK$’000		HK$’000
Intangible assets	–	2,033,130		2,033,130
Plant and equipment	714	–		714
Trade and other receivables	294	–		294
Cash and bank balances	3,147	–		3,147
Trade and other payables	(4,771)	–		(4,771)
				2,032,514
Minority interests				(406,503)
Negative goodwill				(2,011)
Total consideration				1,624,000

Total consideration satisfied by:
Fair value of the consideration shares
at the issue price of HK$0.265
per share as at the completion date				212,000
Convertible notes				1,092,000
Promissory notes				320,000
				1,624,000

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 year 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:

Cash and bank balances Inventories Trade and other receivables Amount due from customers for contract work Trade and other payables Provision for taxation Due to shareholders Deferred tax liabilities Amount due to customers for contract work Loan from a director Minority interests Net assets Goodwill		BIP (HK)	BIP (HK)	Fair value HK$’000 1,571 – 1,192 2,280 (2,570) (166) – – (66) (1,500) – 741 2,327 3,068		Ancen Group	Ancen Group	Fair value HK$’000 27,655 52,294 2,418 – (12,902) (3,930) (8,022) (10,814) – – (14,010) 32,689 4,957 37,646	Total fair value HK$’000 29,226 52,294 3,610 2,280 (15,472) (4,096) (8,022) (10,814) (66) (1,500) (14,010) 33,430 7,284 40,714
		Acquiree’s carrying amount before combination HK$’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

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 proforma 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.

37. DISPOSAL OF SUBSIDIARIES

a) The net liabilities of Antec Group and AECL Group at 31 January 2008 being the date of disposal were as follows:

	Antec	AECL
	Group	Group	Total
	HK$’000	HK$’000	HK$’000
Property, plant and equipment	16,290	1,667	17,957
Cash and bank balances	2,938	1,369	4,307
Inventories	17,535	–	17,535
Trade and other receivables	6,072	20,288	26,360
Bank loans and overdrafts	–	(12,751)	(12,751)
Trade and other payables	(12,550)	(16,580)	(29,130)
Amounts due to the Group	(4,529)	(167,155)	(171,684)
	25,756	(173,162)	(147,406)
Minority interests	–	–	–
Exchange reserve	–	172	172
	25,756	(172,990)	(147,234)

Assignment of amounts due to the Group			171,684
			24,450
Loss on disposal of subsidiaries_(note 14)_			(24,450)
Total consideration			–*
Satisfied by:
Cash consideration			–*
Analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries:
			HK$’000
Cash received			–*
Cash and bank balances disposed of			(4,307)
Bank overdrafts disposed of			8,615
Net inflow of cash and cash equivalents in
respect of the disposal of subsidiaries			4,308

Total consideration of the disposal was HK$4.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

b) 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)

38. MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the year.

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b) Other related party transactions

		The Group
		2008	2007
	Notes	HK$’000	HK$’000
Rental of directors’ quarter paid
to a related company	(i)	450	540
Rental of office premises paid
to a related company	(ii)	880	880
Management fee paid to a minority shareholder	(iii)	864	–
Rental of car park paid to a related company	(iv)	15	–
Motor vehicle purchased from a director	(v)	–	342
Acquisition of a subsidiary from a director	(vi)	–	3,068
Interest expense paid to a director	(vii)	–	163

i) A subsidiary of the Group has entered into a lease agreement with a related company, MountainDew Limited, a company controlled by Mr. Kwok Hon Lam, a director of the Company, to lease directors’ quarter for a period of 33 months commencing on 1 March 2006 at a monthly rental of HK$45,000 (2007: HK$45,000). The lease has been terminated on 31 January 2008. No outstanding balance at 31 March 2008 and 2007.
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, to lease an office premises for a period of two years commencing on 1 March 2006 at a monthly rental of HK$73,000 (2007: HK$73,000). No outstanding balance at 31 March 2008 and 2007.
iii) 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 the two subsidiaries at aggregated monthly management fee of HK$64,000 (2007: Nil) commencing on 1 April 2007. HK$480,000 was outstanding as at 31 March 2008 (2007: HK$Nil).
iv) 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$3,850 (2007: HK$Nil). No outstanding balance at 31 March 2008.
v) 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 2008 is HK$58,000 (2007: HK$134,000).
vi) 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 36(b)).
vii) 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.

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APPENDIX I

39. CONTINGENT LIABILITIES

Financial guarantee issued

The Group

The subsidiary of the Company undertook the obligation under a buy-back undertaking entered into with a bank of approximately RMB17,750,000 (equivalent to approximately HK$19,703,000) (2007: HK$20,927,000) 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 RMB2,395,000 (equivalent to HK$2,661,000) was pledged to a bank as security for the subsidiary of the Company’s obligation under the above undertaking.

The subsidiary of the Company provided a corporate guarantee of HK$4,500,000 (2007: HK$Nil) and a deposit pledged of HK$6,150,000 (2007: HK$3,000,000) to a bank for the issuance of performance bond, in favour of an independent third party relating to the construction contracts, amounting to HK$6,150,000 (2007: HK$3,000,000).

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 guarantee. The maximum liability of the Group at the balance sheet date under the undertaking is HK$22,381,000 (2007: HK$20,927,000).

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	2008 HK$’000 57,500 – 57,500	2007 HK$’000 42,000 2,355
		44,355

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 as 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 down by the subsidiaries that are covered by the cross guarantee, being HK$39,552,000 (2007: HK$26,877,000).

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.

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APPENDIX I

40. OPERATING LEASE COMMITMENTS

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

As at 31 March 2008, 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 2008 2007 HK$’000 HK$’000 2,322 1,970 1,920 714 4,242 2,684	The Company 2008 2007 HK$’000 HK$’000 2,055 807 1,920 – 3,975 807	The Company 2008 2007 HK$’000 HK$’000 2,055 807 1,920 – 3,975 807
			807

41. CAPITAL COMMITMENTS

Capital commitments outstanding as at 31 March 2008 not provided for in the financial statements were as follows:

	The Group
	2008	2007
	HK$’000	HK$’000
Contracted, but not provided for	6,271	1,479

42. COMPARATIVE FIGURES

Due to the disposal of certain operations during the year, which constituted a discontinued operation under HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operation”, certain comparative figures have been reclassified to conform with current year’s presentation.

As a result of adopting HKFRS 7, Financial instruments: Disclosures, and the amendments to HKAS 1, Presentation of financial statements: Capital disclosures, certain comparative figures have been adjusted to conform with changes in disclosures in the current year and to show separately comparative amounts in respect of items disclosed for the first time in 2007. Further details of these developments are disclosed in note 3.

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APPENDIX I

43. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 MARCH 2008

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 year ended 31 March 2008 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	Amendments to HKAS 32 Financial Instruments:	1 January 2009
Amendment,	Presentation and HKAS 1 Presentation of
	Financial Statements – Puttable Financial
	Instruments and Obligations Arising on Liquidation
HKFRS 2 Amendment,	Share-based Payment: Vesting Conditions and	1 January 2009
	Cancellations
HKFRS 3 (Revised),	Business Combinations	1 July 2009
HKFRS 8,	Operating Segments	1 January 2009
HK(IFRIC) – Int 12,	Service Concession Arrangement	1 January 2008
HK(IFRIC) – Int 13,	Customer Loyalty Programmes	1 July 2008
HK(IFRIC) – Int 14,	HKAS 19 – The Limit on a Defined Benefit Asset,	1 January 2008
	Minimum Funding Requirements and their Interaction

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE THREE FINANCIAL YEARS ENDED 31 MARCH 2008 AND THE SIX MONTHS ENDED 30 SEPTEMBER 2008

FOR THE YEAR ENDED 31 MARCH 2006

Financial Review

During the year under review, the Group had two business segments, namely, the design and manufacturing of electrical appliances and the trading of merchandise. As over 90% of the Group’s consolidated turnover, results and assets were related to the design and manufacture of electrical appliances, no further information is presented for the business segments.

Turnover of the Group for the year ended 31 March 2006 was approximately HK$182 million as compared to approximately HK$280 million for the year ended 31 March 2005, representing a significant drop of sales by 35.1%. Gross profit also decreased from approximately HK$56 million for the year ended 31 March 2005 to approximately HK$16 million for the year ended 31 March 2006, representing a significant drop of 71.1%. The effect of rising raw material costs, appreciation of RMB and rising of workers’ wages had increased the product prices. Keen competition in this industry was also a major factor to drive down the Group’s performance for the whole year.

Loss attributable to the equity shareholders of the Company for the year ended 31 March 2006 amounted to HK$59.7 million, while the Group recorded a profit attributable to the equity shareholders of the Company of HK$293,000 for the year ended 31 March 2005. The loss was mainly attributable to the significant drop in sales and gross profit margin.

Financial resources

The Group’s gearing ratio expressed as a percentage of total interest-bearing borrowings over equity attributable to the Company’s equity holders, rose from 20.0% at the beginning of the year to 24.9% as at 31 March 2006. The increase was mainly due to the net worth of the Group dropped as a result of the effect of the loss for the year. Working capital fell from last year’s level to HK$10.2 million as the reduction in inventories was made during the year.

The Group had HK$26.8 million (2005: HK$27.3 million) interest-bearing borrowings consisted of HK$23.3 million secured trust receipt loans, factoring loans, bills discounted and packing loans; HK$2.1 million finance lease payable and other loans of HK$1.4 million. The aforesaid loans comprised approximately 96.5% (2005: 72.2%) thereof repayable within one year and 2.8% (2005: 27.3%) thereof repayable within the second year and the balance of 0.7% (2005: 0.5%) thereof repayable in the third year. All the loans are denominated in Hong Kong dollars. As at 31 March 2006, the Group had total cash and bank balances and pledged deposits amounting to HK$19.6 million (2005: HK$9.8 million).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Human resources and remuneration policy

During the year, the Group employed an average total of 1,603 (2005: 2,164) employees mostly in Hong Kong and the PRC. The total amount of remuneration paid by the Group to its employees (including Directors) for the year was HK$36.0 million (2005: HK$39.2 million).

The Group believed that employees’ commitments and the provision of a harmonious working atmosphere to employees are important to the Group’s success. It rewarded its employees according to prevailing market practices, employees’ individual experience and performance. Staff benefits included medical insurance coverage and provident fund scheme. To attract and retain high caliber employees, the Group also awarded discretionary bonuses to its employees based on their performance evaluation and has also maintained a staff share option scheme.

Material acquisitions and disposals of subsidiaries and associated companies

During the year, the Group did not have any material acquisitions and disposals of subsidiaries and associated companies.

Future plans for material investment or capital assets

As at 31 March 2006, the Group had future plans to invest HK$3.0 million and HK$1.5 million in purchasing new machineries and upgrading existing production facilities and in procuring enterprise resource planning system and expansion of electronic networking system respectively.

Charge on assets and pledged deposits

General banking facilities granted to the Group were secured by certain properties of the Group situated in Hong Kong, which comprised leasehold land and buildings at a net book value amounting to HK$13.5 million (2005: HK$15.0 million) at end of year and time deposits of HK$7.3 million (2005: HK$1.0 million) at end of year.

Contingent liabilities

As at 31 March 2006, the Group did not have any significant contingent liabilities.

Exposure to exchange risk

The Group mainly operates in the PRC, the United States, Germany and Hong Kong. Most of the Group’s transactions, assets and liabilities were dominated in RMB, US$, Euro and HK$.

Foreign exchange risk arose from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group managed its foreign risks by performing regular review and monitoring of its foreign exchange exposures.

Financial instruments for hedging purposes

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FOR THE YEAR ENDED 31 MARCH 2007

Financial review

For the year ended 31 March 2007, the turnover of the Group was HK$209.7 million, representing a 15.0% increase over the corresponding figure of HK$182.3 million in 2006. The increase in turnover was a result of the market promotion in the Group’s home appliances business and the launch of the new building materials business.

Nevertheless, the accelerated cost of sales increased from HK$166.1 million for the year ended 31 March 2006 to HK$194.9 million for the year ended 31 March 2007 and accordingly, the gross profit margin decreased from 8.9% for the year ended 31 March 2006 to 7.1% for the year ended 31 March 2007. The deterioration in gross profit margin was mainly attributed to the intense competition in the home appliances business which placed strong pressure on the Group’s selling prices and the increase in the price of raw materials.

Loss attributable to the equity shareholders of the Company for the year ended 31 March 2007 amounted to HK$55.0 million, while the Group recorded a loss attributable to the equity shareholders of the Company of HK$59.7 million for the year ended 31 March 2006.

During the year under review, the Group comprised three main business segments: home appliances, real estate, and building materials.

Home appliances

Turnover from home appliances segment for the year ended 31 March 2007 was approximately HK$203 million as compared to approximately HK$182 million for the year ended 31 March 2006, an increase of 11%. Despite of increase in sales, the segment loss recorded for the financial year was HK$27.6 million, due to significant production costs, overhead costs and administrative expenses.

Real estate

During the year under review, the Group acquired an additional 30% equity interest of Ancen Properties Limited (“Ancen”), which was principally engaged in real estate development. The Group originally held 40% equity interest of Ancen Group which was previously accounted for as an associate Company.

As the properties were still in development stage, no income was recorded in this financial year. As a result, this segment recorded a net loss of HK$1 million mainly due to administrative expenses incurred during the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Building materials

During the year under review, the Group acquired the entire equity interest of BIP (HK) Company Limited (“BIP”), which was principally engaged in construction projects. As a result, this business segment contributed $6.7 million turnover to the Group. Despite of the income contribution, this business segment still recorded a segment loss of HK$2.8 million mainly due to administrative expenses incurred during the year.

Financial resources

On 30 June 2006, the Company had successfully made a rights issue of one rights share for every existing Share together with an issue of two bonus warrants for every five rights shares, at an issue price of HK$0.10 per rights share, resulting in the issue of 768,642,000 Shares of HK$0.10 each for cash. As a result, a total of 307,457,000 Warrants were issued which entitled the holders thereof to subscribe for new Shares at an initial subscription price of HK$0.10 per Share upon exercise of one Warrant. The gross proceeds amounted to HK$76,864,000 and the net proceeds from the rights issue amounted to HK$74,085,000. The rights issue enlarged the Group’s capital base and strengthen its financial position.

The Group’s gearing ratio expressed as a percentage of total interest-bearing borrowings over equity attributable to the Company’s equity holders, dropped from 24.9% at the beginning of the year to 21.1% as at 31 March 2007. The decrease was mainly due to the enlarged Group’s capital base as a result of the aforesaid rights issue. Working capital soared from last year’s level to HK$77.9 million due to the increase of cash and bank balance from the aforesaid rights issue and the inclusion of working capital arose from acquisition of Ancen during the year.

The Group had HK$30.4 million (2006: HK$26.8 million) interest-bearing borrowings consisted of HK$26.9 million (2006: HK$23.3 million) overdraft, secured trust receipt loans, factoring loans, bills discounted and packing loans; HK$2.4 million (2006: HK$2.1 million) finance lease payable and other loans of HK$1.1 million (2006: HK$1.4 million). The aforesaid loans comprised approximately 99.7% (2006: 96.5%) thereof repayable within one year and 0.3% (2006: 2.8%) thereof repayable within the second year and the nil balance (2006: 0.7%) thereof repayable in the third year. All the loans were denominated in HK$. As at 31 March 2007, the Group had total cash and bank balances and pledged deposits amounting to HK$57.2 million (2006: HK$19.6 million).

Human resources and remuneration policy

During the year, the Group employed an average total of 1,693 (2006: 1,603) employees mostly in Hong Kong and the PRC. The total amount of remuneration paid by the Group to its employees (including Directors) for the year was HK$47.6 million (2006: HK$36.0 million).

The Group believed that the key to success lies in its staffs and recruits individuals based on their competencies, merit and development potential. It rewarded its employees according to prevailing market practices, employees’ individual experience and performance and would review regularly. Apart from provident fund scheme and medical insurance coverage, the Group also awarded discretionary bonuses to its employees based on their performance evaluation and it has also maintained a staff share option scheme.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material acquisitions and disposals of subsidiaries and associated companies

As announced by the Company on 11 September 2006, the Company entered into a share purchase agreement with an independent third party to acquire 30% further interest in Ancen at a total consideration of HK$18,290,000 (the “Acquisition of Ancen”) on 8 September 2006. The principal business of Ancen is real estate development. On 20 October 2006, the Acquisition of Ancen was completed. The consideration was settled by cash and was financed by the net proceeds from the rights issue in June 2006.

As announced by the Company on 16 October 2006, the Company entered into a share purchase agreement with Mr. Cheng Tun Nei and Mr. Cheng Tze Kit, Larry, both are the executive Directors of the Company, to acquire the entire interest in BIP at a consideration of HK$3,068,000 (the “Acquisition of BIP”) on 13 October 2006. The principal business of BIP is construction related work and provision of project management service. The Acquisition of BIP was completed on 1 November 2006. The consideration was settled by cash and was funded by internal resources.

Future plans for material investment or capital assets

On 14 June 2007, the Company announced that Anex Properties Holdings Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Mr. Li Jianchuan, a brother-in-law of Mr. Cheng Tun Nei, on 12 June 2007 to acquire 95% interest in Dongguan Anex Property Management Limited, a company incorporated in PRC, at a consideration of US$1.9 million (equivalent to approximately HK$14.82 million) concerning possible involvement in class 1 development of 3,300 mu of land in Beijing. Such acquisition is subject to the approval by the Company’s independent shareholders at a special general meeting to be organised and announced by the Company.

Charges on assets and pledged deposits

General banking facilities granted to the Group were secured by certain properties of the Group situated in Hong Kong, which comprised leasehold land and buildings at a net book value amounting to HK$12.1 million (2006: HK$13.5 million) at end of year and time deposits of HK$10.8 million (2006: HK$7.3 million) at end of year.

Contingent liabilities

The Group undertook the obligation under a buy-back undertaking entered with a bank of approximately RMB20,927,000 (equivalent to approximately HK$20,927,000) (2006: HK$Nil) 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 Group is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the Group is entitled to take over the legal title and possession of the related properties. The Group’s guarantee period commenced from the dates of the drawdown of the relevant mortgage loans and ends when the Group obtains the “property title certificate” for the mortgagees.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A deposit of RMB2,953,000 (equivalent to HK$2,953,000) was pledged to the bank as security for the Group’s obligation under the above undertaking.

The Group provided a corporate guarantee and a deposit pledged to a bank for the issuance of a performance bond, in favour of an independent third party relating to a constructing contract, amounting to HK$3,000,000.

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

Exposure to exchange risk

The Group mainly operated in the PRC, the USA, Germany, Hong Kong and Macau. Most of the Group’s transactions, assets and liabilities are dominated in RMB, US$, Euro and HK$.

Financial instruments for hedging purposes

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

FOR THE YEAR ENDED 31 MARCH 2008

Financial review

For the year ended 31 March 2008, the turnover of the Group was HK$222.9 million, representing a 6.3% increase over the corresponding financial year of HK$209.7 million. During the year under review, the building materials business has recorded a significant growth with a turnover of approximately HK$121.6 million (2007: HK$6.7 million), while HK$99.8 million (2007: HK$203.0 million) turnover was contributed by the home appliances division.

Loss attributable to the equity shareholders of the Company for the year ended 31 March 2008 amounted to HK$112.9 million, as compared to HK$55.0 million recorded in last year, significant increase in loss during the year was mainly due to the disposal of the home appliances business.

During the year under review, the Group comprised four business segments: home appliances, real estate, building materials and magnesite mine. Home appliance operation was a discontinued business segment while mining segment was newly acquired business segment during the year. Hence, real estate, building materials and mining are three continuing operations for the year ended 31 March 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Home appliances business

Turnover and segment loss from home appliances operations for the year ended 31 March 2008 was approximately HK$99.8 million and HK$47.4 million respectively as compared to approximately HK$203.0 million and HK$26.9 million respectively for the year ended 31 March 2007. Due to keen competition of home appliances manufacturing business, the substantial increases in the essential raw materials costs, the gradual raise of labour cost in the PRC and the appreciation of Renminbi, the operating environments became increasingly difficult and the home appliances business recorded consecutive losses in recent years. Given the continued unfavourable market conditions, the prospects of the home appliances manufacturing business remained difficult in the future. On 8 December 2007, the Company entered into a conditional agreement to dispose of its home appliances business and the disposal was completed on 31 January 2008. A loss of approximately HK$24.5 million from the disposal was realized.

Property development business

Due to the slowdown of the property market in the PRC, the Jia Lake Shopping Mall in Dongguan was vacant and generated no income during the year under review. Also, the final phase of Jia Lake Mountain Villa was still under development stage, the Group needs to continually finance the real estate segment. As a result, this segment recorded a net loss of HK$13.7 million (2007: HK$1.0 million) mainly due to administrative expenses incurred during the year.

Building materials business

During the year under review, the building materials segment contributed significant growth to the Group. Turnover for the year ended 31 March 2008 was approximately HK$121.6 million as compared to HK$6.7 million recorded in last financial year, representing an increase of 1,714.9%. This operation generated a segment profit of HK$6.8 million to the Group while a loss of HK$2.9 million was recorded in the last financial year. As the Group has secured more than ten projects up to the date of this annual report and in view of the rapid development in property markets in Hong Kong and Macau, the Group expects the contribution from the building materials business to be considerable in the coming financial year.

Magnesite mining business

The Group acquired 80% indirect interest of Haicheng Dongxin Industry Limited, which is principally engaged in the mining and processing of magnesite ore at the Lishugou magnesite mine. The acquisition was completed on 6 March 2008. Since less than one month contribution was made by this segment, only HK$1.4 million of turnover and HK$8.5 million segment loss was recorded for the year ended 31 March 2008.

I – 73

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

For the year ended 31 March 2008, the Group has implemented a prudent financial management policy. On 6 July 2007, the Company has successfully completed the placing of 307,000,000 new shares at the placing price of HK$0.50 per new share. The net proceeds from the top-up subscription of HK$147.5 million have been used to finance general working capital of the Group. As at 31 March 2008, the Group has cash and bank balances (including pledged bank deposits) amounting to approximately HK$149.5 million (2007: HK$57.2 million).

On 6 March 2008, the Company issued 800,000,000 new shares at HK$0.52 as part of the consideration to the Vendor for the acquisition of 80% indirect interest in magnesite mine. 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.

The Group’s gearing ratio expressed as a percentage of total interest-bearing borrowings over equity attributable to the Company’s equity holders, increased from 21.1% at the beginning of the year to 184.6% as at 31 March 2008. The increase was mainly due to the issuance of convertible notes and promissory notes to finance the acquisition of subsidiaries for the magnesite business.

The Group has HK$1,214.8 million (2007: HK$30.5 million) interest-bearing borrowings consisted of HK$13.8 million bank overdrafts, HK$25.8 million secured trust receipt loans, HK$855.2 million convertible notes and HK$320.0 million promissory notes. Except for convertible notes and promissory notes, the aforesaid loans are repayable within one year which comprise 3.3% (2007: 99.7%). As at 31 March 2008, the Group’s working capital was approximately HK$201.1 million (2007: HK$77.9 million).

As at 31 March 2008, the Group has issued corporate guarantee and pledged bank balances in the amount of HK$27.5 million (2007: HK$10.8 million) as securities for the issuance of a performance bond and general banking facilities to certain subsidiaries.

The Group undertook the obligation under a buy-back undertaking entered with a bank of approximately RMB17,750,000 (equivalent to approximately HK$19,703,000) (2007: HK$20,927,000) 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 Group is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the Group is entitled to take over the legal title and possession of the related properties. The Group’s guarantee period commences from the dates of the drawdown of the relevant mortgage loans and ends when the Group obtains the “property title certificate” for the mortgagees.

A deposit of RMB2,395,000 (equivalent to HK$2,661,000) was pledged to the bank as security for the Group’s obligation under the above undertaking.

No recognition was made for the undertaking as the fair value was insignificant and that the directors did not consider that a claim would probable be made against the Group under the undertaking.

I – 74

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Human resources and remuneration policy

As at 31 March 2008, the Group has approximately 70 (2007: 1,693) employees in Hong Kong and mainland China. The total amount of remuneration paid by the Group to its employees (including directors) for the year was HK$36.3 million (2007: HK$47.6 million).

In order to retain and attract high caliber executives and employees, the 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

On 8 December 2007, the Company entered into a conditional agreement to dispose of its entire interests in Antec Appliances Limited (“Antec Appliances”) and Anex Electrical Company Limited (“Anex Electrical”) and the entire amounts owing by Antec Appliances and Anex Electrical and their subsidiaries to the Group on the completion date, representing the Group’s entire interest in its home appliances manufacturing business, at a consideration of HK$4. The disposal was completed on 31 January 2008.

On 28 November 2007, the Company entered into the conditional acquisition agreement to acquire the Sale Shares and the Sale Loan of Ling Kit Holding Limited from the Vendor at a total consideration of HK$1,828.0 million. Ling Kit is an investment holding company solely engaged in the holding of an 80% equity interest in Haicheng Dongxin Industry Limited, which is principally engaged in the mining and processing of magnesite ore at the Lishugou magnesite mine. The acquisition of Ling Kit was completed on 6 March 2008. The consideration was satisfied by (i) the issue of 800,000,000 Consideration Shares at the price of HK$0.52 per Consideration Share by the Company to the Vendor; (ii) the issue of Promissory Note in the amount of HK$320.0 million by the Company to the Vendor; and (iii) the issue of the Convertible Note in the amount of HK$1,092.0 million by the Company to the Vendor.

Future plans for material investments or capital assets

As at 31 March 2008, the Group had future plans to invest up to RMB165 million for the construction of a refractory plant to better utilise of the magnesite ore. The Group will look at different funding resources for the such investment.

Exposure to exchange risk

The Group mainly operates in Asia Pacific, including mainland China, Macau and Hong Kong. Most of the 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 Group manages its foreign exchange risks by performing regular review and monitoring its foreign exchange exposures.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial instruments for hedging purposes

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

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

Review of results

The principal businesses of the Group are building materials supply and installation and property development business. At present, the 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 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 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 Group from continuing operation amounted to approximately HK$57.3 million which were derived from the contract revenue generated by the Group’s building materials supply and installation business. The Group recorded loss attributable to the Shareholders from continuing operations of approximately HK$73.2 million for the six months ended 30 September 2008.

Property Development Business

Due to the slowdown of the property market in the PRC, the Jia Lake Shopping Mall in Dongguan was vacant and generated no income during the period under review. The Group has to continue to finance the property development business as the final phase of Jia Lake Mountain Villa was still under the development stage. As a result, this segment recorded a net loss of HK$21.0 million (2007: HK$1.9 million) mainly due to administrative expenses incurred during the period and impairment losses of HK$19.8 million provided for the devaluation of the properties.

Building Materials Business

During the period under review, the building materials business recorded a mild improvement. Turnover for the six months ended 30 September 2008 was approximately HK$57.3 million as compared to HK$45.3 million recorded in last corresponding period, representing an increase of 26.5%. However, a slightly HK$228,000 segment loss was recorded as compared to HK$6.4 million segment profit recorded in last corresponding period as more contract costs were recognised during the period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Magnesite Mining Business

The Group acquired 80% indirect interest of Haicheng Dongxin Industry Limited, which is principally engaged in the mining and processing of magnesite ore at the Lishugou Magnesite Mine. The acquisition was completed on 6 March 2008. Hence, no result was recorded in last corresponding period. During the period under review, the magnesite mining segment contributed HK$10.1 million turnover to the Group. However, a HK$62.0 million segment loss was recorded due to amortization of HK$63.5 million being charged to the income statements for the six months ended 30 September 2008.

Liquidity and financial resources

For the period ended 30 September 2008, the Group has implemented a prudent financial management policy. Based on the unaudited pro forma consolidated balance sheet as set out in Appendix II to the circular of the Company dated 26 November 2008, as at 30 September 2008, the Group has cash and bank balances (including pledged bank deposits) amounting to approximately HK$116.7 million.

The 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 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 Group’s building materials supply and installation business in Hong Kong and Macau.

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

As at 30 September 2008, the 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 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 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 Group is responsible to repay the outstanding mortgage principal balances together with accrued interest and penalties owed by the defaulted purchasers and the Group is entitled to take over the legal title and possession of the related properties. The Group’s guarantee period commences from the dates of the drawdown of the relevant mortgage loans and ends when the 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 Group’s obligation under the above undertaking.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Material acquisitions and disposals of subsidiaries and associated companies

The 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 general meeting.

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

I – 78

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial instruments for hedging purposes

The 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 Group will continue to allocate resources in this business. The 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.

4. INDEBTEDNESS

As at the close of business of 30 April 2009, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the Enlarged Group had indebtedness as follows:

THE GROUP

As at 30 April 2009, the Group had aggregate bank facilities of approximately HK$50,126,000, comprising bank overdrafts, trust receipts loans and import trade loans, among which HK$15,209,000 had been utilised by the Group at that date. All of the bank borrowings of the Group are secured and guaranteed.

As at the close of business on 30 April 2009, the Group’s bank borrowings comprised bank overdrafts of approximately HK$1,440,000, trust receipt loans of approximately HK$1,061,000 and import trade loans of approximately HK$12,708,000.

Security and guarantees

As at the close of business on 30 April 2009, the Group’s banking facilities were supported by the following:

(i) pledged deposits of approximately HK$50,500,000;
(ii) corporate guarantees provided by the Group;
(iii) corporate guarantees provided by a minority shareholder;
(iv) floating charges over receivables of HK$24,034,000 held by two subsidiaries of the Group.

Commitment

As at the close of business on 30 April 2009, the Group had capital commitment contracted but not provided for in respect of the property development expenditure of approximately RMB1,228,000 (equivalent to approximately HK$1,395,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at the close of business on 30 April 2009, the Group had total future minimum lease payments under non-cancelable operating leases in respect of rented premises amounting to approximately HK$2,680,000.

Contingent liabilities

As at 30 April 2009, 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 RMB14,304,000 (equivalent to HK$16,242,000) 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 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 RMB2,262,000 (equivalent to HK$2,569,000) was pledged to a bank as security for the Group’s obligation under the above undertaking.

The Group provided the corporate guarantees of HK$12,413,000 and the deposit pledged of HK$12,500,000, 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$12,254,000.

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$28,496,000.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

THE TARGET GROUP

Statement of Indebtedness

As at 30 April 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Target Group had outstanding indebtedness as follows:

Borrowings

As at 30 April 2009, the Target Group had outstanding borrowings of approximately HK$110,273,000, comprising secured bank borrowings of HK$5,314,000, other borrowings of HK$3,184,000, amount due to the Vendor of HK$10,831,000, amount due to a subsidiary of the Vendor of HK$6,751,000, amounts due to a related company of the Samoa Subsidiary Group of HK$3,763,000, amount due to a director of the Samoa Subsidiary of HK$4,494,000, other payable due to a third party for acquisition of the Brazilian Forest of the Brazil Subsidiary of HK$67,322,000 and amount due to a minority shareholder of the Russia Subsidiary II of HK$8,614,000.

All secured interest-bearing bank borrowings of HK$5,314,000 were secured by certain property, plant and equipment with net book amount of approximately HK$351,000. In addition to the above, part of the secured bank borrowing of HK$491,000 was further secured by a personal guarantee of a minority shareholder of the Russia Subsidiary II and a corporate guarantee from the Russia Subsidiary.

All other borrowings, amount due to the Vendor, amount due to a subsidiary of the Vendor, amount due to a related company of the Samoa Subsidiary Group, amount due to a director of the Samoa Subsidiary, other payable due to a third party for acquisition of the Brazilian Forest of the Brazil Subsidiary and amount due to a minority shareholder of the Russia Subsidiary II were un-guaranteed, unsecured, repayable on demand and interest free, except for the other borrowings of HK$2,014,000 were interest bearing.

Capital Commitment

Pursuant to the People’s Republic of China statutory approvals, the registered capital of a subsidiary of Samoa Subsidiary was amounted to US$500,000. As at 30 April 2009, US$75,000 (equivalent to approximately HK$581,000) has been paid by Samoa Subsidiary and the remaining balance amounted to US$425,000 (equivalent to approximately HK$3,294,000 will be paid within two years from 12 December 2008 to 11 December 2010.

Contingent Liabilities

As at 30 April 2009, the Target Group had no material contingent liabilities.

Saved as disclosed above and apart from intra-group liabilities, the Target Group did not have any other outstanding bank or other borrowings, mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness, guarantee, liabilities under acceptance (other than normal trade bills), acceptance credits, hire purchase or other finance lease commitments or other contingent liabilities.

I – 81

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of the above statement of indebtedness, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of the business on 30 April 2009.

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 Enlarged 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 April 2009. There is no indebtedness between the Group and the Target Group as at 30 April 2009.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 30 April 2009 and up to the Latest Practicable Date.

5. 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 Enlarged Group, the Enlarged Group has sufficient working capital for its present requirement that is for at least 12 months from the date of this circular.

6. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

As at the Latest Practicable Date, the principal businesses of the Group are building materials supply and installation and property development business. The Group also has a residential property development project and shopping mall in Liaobu, Dongguan, the PRC. The Group expects that the contribution from the building material business to be considerable in the coming financial year. Following Completion, apart from the Group’s existing building materials supply and installation and property development business, the Group will also engage in the forestry business. It is expected that after Completion, capital expenditure will be made to expand the operation of the Target Group and such capital investment may have a negative impact on the cashflow position of the Enlarged Group in the short run. The Group will allocate its resources and invest in the Target Group to an extent that the overall financial position of the Enlarged Group would not be materially affected. Having considered the future prospects of the forestry business, the Board considers the Acquisition will bring new income to the Group and will improve the financial position of the Group in the long run. The Board believes that the Acquisition will enhance Shareholder’s value and present the Group with favorable long term prospects. In addition, the Board considers that should the Placing be completed, the net proceeds from the Placing will provide additional general working capital to support the operation of the Enlarged Group.

7. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 September 2008, being the date to which the latest audited consolidated financial statements of the Group were made up.

I – 82

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

A. ACCOUNTANTS’ REPORT ON THE SAMOA SUBSIDIARY GROUP

The following is the text of a report from Grant Thornton, the independent reporting accountants, in respect of the accountants’ report on the Samoa Subsidiary Group as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

==> picture [31 x 28] intentionally omitted <==

==> picture [146 x 45] intentionally omitted <==

25 June 2009

The Directors

Bright Prosperous Holdings Limited

Room 3001-2 Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Eastmark Holding Limited (the “Samoa Subsidiary”) and its subsidiary (collectively referred to as the “Samoa Subsidiary Group”) in sections I and II below including the company balance sheet of the Samoa Subsidiary as at 31 December 2008, the consolidated balance sheet of the Samoa Subsidiary Group as at 31 December 2008, the consolidated income statement, the consolidated cash flow statement and the consolidated statement of changes in equity for the period from 13 May 2008 (being date of incorporation of the Samoa Subsidiary) to 31 December 2008 (the “Relevant Period”) and the notes thereto prepared for inclusion in the circular of Bright Prosperous Holdings Limited (the “Company”) dated 25 June 2009 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of Amplewell Holdings Limited (the “Target Company”), the immediate holding company of the Samoa Subsidiary as at the date of this report.

The Samoa Subsidiary was incorporated in Samoa as a limited liability company on 13 May 2008 with an issued and nil paid share capital of United States Dollar (“US$”) 5,000,000 divided into 5,000,000 ordinary shares of US$1.00 each. The address of the Samoa Subsidiary’s registered office is at Level 1, Central Bank of Samoa Building, Beach Road, Apia, Samoa and the principal place of business of the Samoa Subsidiary is Block E, Nice Year Villa, No. 3333, Hongmei Road, Shanghai, China. As at the date of this report, the Samoa Subsidiary is wholly owned by the Target Company, and Winner Global Holdings Limited (“Winner Global”) holds the entire equity interest in the Samoa Subsidiary through the Target Company. Winner Global is the ultimate holding company of the Target Company and the Samoa

II – 1

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

Subsidiary. The Target Company was incorporated in British Virgin Islands (“BVI”) as a limited liability company on 3 February 2009 and acquired the Samoa Subsidiary on 15 April 2009. The principal activity of the Samoa Subsidiary is investment holding. As at the date of this report, the Samoa Subsidiary has the following subsidiary.

					Percentage
					of equity
					interest held
				Principal	by Samoa
Name of	Registered	Paid-up	Place of	place of	Subsidiary	Principal
subsidiary	capital	capital	incorporation	operation	directly	activities
滿洲里怡美木業有限公司	US$500,000	Nil	The People’s	The PRC	100%	Processing of
(Manzhouli Eastmark			Republic			rough raw
Wooden Products Co., Ltd)			of China			lumber and
(“Manzhouli WFOE”)			(the “PRC”)			selling of
						wood products

The Samoa Subsidiary and Manzhouli WFOE have adopted 31 December as their financial year end. No audited statutory financial statements of the Samoa Subsidiary and Manzhouli WFOE have been prepared since its date of incorporation as there are no statutory requirements.

For the purpose of this report, the director of the Samoa Subsidiary has prepared the consolidated financial statements (the “Underlying Financial Statements”) of the Samoa Subsidiary for the Relevant Period in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have, for the purpose of this report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Period as set out in this report have been prepared by the director of the Samoa Subsidiary based on the Underlying Financial Statements and in accordance with HKFRSs. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The director of the Samoa Subsidiary is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

II – 2

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

Opinion

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the Samoa Subsidiary and the Samoa Subsidiary Group as at 31 December 2008 and of the consolidated results and consolidated cash flows of the Samoa Subsidiary Group for the Relevant Period.

Emphasis of Matter – Material Uncertainty regarding the Going Concern Assumption

Without qualifying our opinion, we draw attention to note 3.1 to the Financial Information which discloses that as at 31 December 2008, the Samoa Subsidiary Group and the Samoa Subsidiary had net current liabilities of RMB1,456,000 and RMB19,000 respectively and capital deficiency of RMB1,346,000 and RMB19,000 respectively. These conditions, along with other matters as disclosed in note 3.1 to the Financial Information, indicate the existence of a fundamental uncertainty which may cast significant doubt about the Samoa Subsidiary Group and the Samoa Subsidiary’s ability to continue as a going concern.

II – 3

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

I. FINANCIAL INFORMATION

A. Consolidated Income Statement

For the period from 13 May 2008 (date of incorporation) to 31 December 2008 Notes Revenue 5 Cost of sales Gross loss Administrative expenses Loss before income tax 7 Income tax expense 8 Loss for the period attributable to the equity holder of the Samoa Subsidiary 9	RMB’000 427 (1,317) (890) (456) (1,346) – (1,346)

II – 4

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

I. FINANCIAL INFORMATION (Continued)

B.
Consolidated Balance Sheet
As at 31 December 2008
Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
12
Current assets
Inventories
14
Trade receivables
15
Prepayments, deposits and other receivables
Cash and cash equivalents
16
Current liabilities
Trade payables
17
Accrued liabilities
Amount due to immediate holding company
18
Amount due to a director
18
Net current liabilities
Net liabilities
EQUITY
Equity attributable to equity holder of the Samoa Subsidiary
Share capital
19
Accumulated loss
Capital deficiency

RMB’000
110
810
282
348
48
1,488
321
189
988
1,446
2,944
(1,456)
(1,346)
–
(1,346)
(1,346)

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

I. FINANCIAL INFORMATION (Continued) C. Balance Sheet As at 31 December 2008 Notes ASSETS AND LIABILITIES Non-current asset Investment in a subsidiary 13 Current liabilities Amount due to a director 18 Net current liabilities and net liabilities EQUITY Share capital 19 Accumulated loss Capital deficiency	RMB’000 – 19 (19) – (19) (19)

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

I. FINANCIAL INFORMATION (Continued)

D. Consolidated Cash Flow Statement

For the period from 13 May 2008 (date of incorporation) to 31 December 2008

Notes
Cash flows from operating activities
Loss before income tax
Adjustment for:
Write-down of inventories to net realisable value
7
Operating loss before working capital changes
Increase in inventories
Increase in trade receivables
Increase in prepayments, deposits and other receivables
Increase in trade payables
Increase in accrued liabilities
Net cash used in operating activities
Cash flow from investing activities
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Advance from immediate holding company
Advance from a director
Net cash generated from financing activities
Net increase in cash and cash equivalents
and at the end of period
Analysis of balances of cash and cash equivalents
Cash balances
16

RMB’000
(1,346)
392
(954)
(1,202)
(282)
(348)
321
189
(2,276)
(110)
(110)
988
1,446
2,434
48
48

II – 7

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

I. FINANCIAL INFORMATION (Continued)

E. Consolidated Statement of Changes in Equity

For the period from 13 May 2008 (date of incorporation) to 31 December 2008

Issue of shares upon incorporation on 13 May 2008 Loss for the period (Total recognised income and expense for the period) Balance as at 31 December 2008	Equity attributable to equity holder of the Samoa Subsidiary Share capital Accumulated loss RMB’000 RMB’000 – – – (1,346) – (1,346)	Total RMB’000 – (1,346) (1,346)

II – 8

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

The Financial Information set out in this report has been prepared in accordance with HKFRSs which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the HKICPA and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and have been consistently applied throughout the Relevant Period.

2. ADOPTION OF NEW OR AMENDED HKFRSs

The Samoa Subsidiary Group has adopted all the new and amended HKFRSs which are effective for the accounting period beginning on 13 May 2008, issued by the HKICPA and relevant to the Samoa Subsidiary Group in the preparation of the Financial Information throughout the Relevant Period.

As at the date of this report, the following new and amended HKFRSs have been published but are not yet effective, and have not been adopted early by the Samoa Subsidiary Group.

HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 23 (Revised)	Borrowing Costs 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements				3
HKAS 32, HKAS 39 & HKFRS 7	Puttable Financial Instruments and Obligations Arising
(Amendments)	on Liquidation 1
HKAS 39 (Amendment)	Financial Instruments: Recognition and	Measurement
	– Embedded Derivatives 2
HKAS 39 (Amendment)	Eligible Hedged Items 3
HKFRS 1 (Revised)	First-time Adoption of HKFRSs 3
HKFRS 1 and HKAS 27 (Amendments)	Cost of an Investment in a Subsidiary, Jointly Controlled
	Entity or an Associate 1
HKFRS 2 (Amendment)	Share-based Payment – Vesting Conditions
	and Cancellations 1
HKFRS 3 (Revised)	Business Combinations 3
HKFRS 7 (Amendments)	Improving Disclosures about Financial Instruments					1
HKFRS 8	Operating Segments 1
HK(IFRIC)–Int 9	Reassessment of Embedded Derivatives	2
HK(IFRIC)–Int 13	Customer Loyalty Programmes 4
HK(IFRIC)–Int 15	Agreement for the Construction of Real Estate			1
HK(IFRIC)–Int 16	Hedges of a Net Investment in a Foreign Operation					5
HK(IFRIC)–Int 17	Distributions of Non-cash Assets to Owners		3
HK(IFRIC)–Int 18	Transfers of Assets from Customers 6
Various	Annual Improvements to HKFRS 2008 7
Various	Annual Improvements to HKFRS 2009 8

1 Effective for annual periods beginning on or after 1 January 2009 2
Effective for annual periods ending on or after 30 June 2009
3
Effective for annual periods beginning on or after 1 July 2009
4

Effective for annual periods beginning on or after 1 July 2008 5 Effective for annual periods beginning on or after 1 October 2008

6 Effective for transfers received on or after 1 July 2009
7 Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS
8 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRS

II – 9

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

2. ADOPTION OF NEW OR AMENDED HKFRSs (Continued)

The director of the Samoa Subsidiary anticipates that all of the pronouncements will be adopted in the Samoa Subsidiary Group’s accounting policy for the first period beginning after the effective date of the pronouncement.

Among these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the Samoa Subsidiary Group’s financial statements. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Samoa Subsidiary Group will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or results of the Samoa Subsidiary Group but will give rise to additional disclosures.

The director of the Samoa Subsidiary is currently assessing the impact of other new and amended HKFRSs upon initial application. So far, the director has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Samoa Subsidiary Group’s results and financial position.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below.

The Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below.

It should be noted that accounting estimates and assumptions are used in the preparation of the Financial Information. Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information, are disclosed in note 4.

The Financial Information has been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business notwithstanding that the Samoa Subsidiary Group and the Samoa Subsidiary had net current liabilities of RMB1,456,000 and RMB19,000 respectively and capital deficiency of RMB1,346,000 and RMB19,000 respectively as at 31 December 2008. The going concern basis has been adopted on the basis that the immediate holding company and the director of the Samoa Subsidiary have undertaken not to demand repayment of their respective debts due from the the Samoa Subsidiary Group and the Samoa Subsidiary until such time when repayment will not affect the Samoa Subsidiary Group’s and the Samoa Subsidiary’s ability to repay other creditors in the normal course of business.

The Financial Information does not include any adjustments that would result from a failure of the Samoa Subsidiary Group and the Samoa Subsidiary to operate as a going concern. Should the Samoa Subsidiary Group and the Samoa Subsidiary be unable to continue in business as a going concern, adjustments would have to be made in the Financial Information to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets as current assets. The effect of these potential adjustments has not been reflected in the Financial Information.

II – 10

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Basis of consolidation

The Financial Information incorporate the financial statements of the Samoa Subsidiary and its subsidiary (see 3.3 below) made up to 31 December each year.

3.3 Subsidiary

Subsidiary is entity over which the Samoa Subsidiary Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Samoa Subsidiary Group controls another entity. Subsidiary is consolidated from the date on which control is transferred to the Samoa Subsidiary Group. It is excluded from consolidation from the date that control ceases.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the Financial Information. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

In the Samoa Subsidiary’s balance sheet, subsidiary is carried at cost less any impairment loss. The result of the subsidiary is accounted for by the Samoa Subsidiary on the basis of dividends received and receivable at the balance sheet date.

3.4 Foreign currency translation

The financial statements are presented in Renminbi (“RMB”), which is also the functional currency of the Samoa Subsidiary.

In the individual financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities are recognised in the income statement.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

3.5 Revenue recognition

Revenue comprises the fair value for the sale of goods, rendering of services and net of rebates and discounts. Provided it is probable that the economic benefits will flow to the Samoa Subsidiary Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows: –

Sales of goods are recognised upon the transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when the goods are delivered and the customer has accepted the goods.

Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a portion of the total services to be provided.

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.6 Property, plant and equipment

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses. The cost of asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition and location for its intended use. The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Depreciation on property, plant and equipment is provided to write off the cost over their estimated useful lives, using the straight-line method at the rate of 10% per annum.

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the balance sheet date.

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

3.7 Impairment of non-financial assets

Property, plant and equipment, interest in a subsidiary and other assets are subject to impairment testing. They are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

For the purpose of assessing impairment, where an asset does not generate cash inflow largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflow independently (i.e. a cash generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, 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 assessment of time value of money and the risk specific to the asset.

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

II – 12

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.8 Operating leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Samoa Subsidiary 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.

Leases which do not transfer substantially all the risks and rewards of ownership to the Samoa Subsidiary Group are classified as operating leases.

Where the Samoa Subsidiary Group has the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

3.9 Financial assets

The financial assets comprise receivables including trade and other receivables and cash and cash equivalents.

All financial assets are recognised when, and only when, the Samoa Subsidiary Group becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, directly attributable transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

At the balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

Impairment of financial assets

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in income statement of the period in which the impairment occurs.

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Financial assets (Continued)

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in income statement of the period in which the reversal occurs.

3.10 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average basis and in the case of finished goods, comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.

3.11 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement.

Deferred tax is calculated using the liability method on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in a subsidiary, except where the Samoa Subsidiary Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised in the income statement, or in equity if they relate to items that are charged or credited directly to equity.

II – 14

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.12 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

3.13 Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

3.14 Retirement benefits cost and short term employee benefits

The employees of the Samoa Subsidiary Group’s subsidiary which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. The subsidiary is required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

3.15 Financial liabilities

The Samoa Subsidiary Group’s financial liabilities include trade payables, accrued liabilities, amount due to immediate holding company and amount due to a director.

Financial liabilities are recognised when the Samoa Subsidiary Group becomes a party to the contractual provisions of the instrument.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in the income statement.

Financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

3.16 Provisions and contingent liabilities

Provisions are recognised when the Samoa Subsidiary Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amounts of the obligation 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.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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 uncertain events not wholly within the control of the Samoa Subsidiary Group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

II – 15

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.17 Segment reporting

In accordance with the Samoa Subsidiary Group’s internal financial reporting, the Samoa Subsidiary Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

In respect of business segment reporting, unallocated costs include corporate expenses and other expenses that cannot be allocated on a reasonable basis to the reportable segments. Segments assets consist primarily of property, plant and equipment, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities.

Capital expenditure comprises additions to property, plant and equipment.

In respect of geographical segment reporting, revenue is based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

3.18 Related parties

For the purposes of the Financial Information, a party is considered to be related to the Samoa Subsidiary Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Samoa Subsidiary Group or exercise significant influence over the Samoa Subsidiary Group in making financial and operating policy decisions, or has joint control over the Samoa Subsidiary Group;
(ii) the Samoa Subsidiary Group and the party are subject to common control;
(iii) the party is an associate of the Samoa Subsidiary Group or a joint venture in which the Samoa Subsidiary Group is a venturer;
(iv) the party is a member of key management personnel of the Samoa Subsidiary Group or the Samoa Subsidiary 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;
(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 Samoa Subsidiary Group or of any entity that is a related party of the Samoa Subsidiary 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.

II – 16

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Samoa Subsidiary Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to 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 year are discussed below:

Impairment of trade receivables

The Samoa Subsidiary Group’s management determines the impairment of trade receivables on a regular basis. This estimate is based on the credit history of its customers and prevailing market conditions. Management reassesses the impairment of trade receivables at the balance sheet date.

Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to changes in market condition. Management reassesses the estimations at the balance sheet date.

5. REVENUE AND TURNOVER

Revenue, which is also the Samoa Subsidiary Group’s turnover, represents total invoiced value of goods supplied and income from provision of services. Revenue recognised during the period is as follows:

Period from 13 May 2008 (date of incorporation) to 31 December 2008 RMB’000

Revenue: Sale of goods Rendering of services	229 198
	427

II – 17

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION

Primary reporting format – business segments

The Samoa Subsidiary Group is comprised of the following main business segments:

Sales of goods – The manufacture and sale of veneer and laminated timber Rendering of services – The provision of kiln dryer

Segment revenue: Sales to external customers Segment results Unallocated expenses Administrative expenses Loss before income tax Income tax expense Loss for the period Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Secondary reporting format – geographic segments	Sale of goods RMB’000 229 (766) 1,120 321 110	Rendering of services RMB’000 198 (124) 82 – –	Total RMB’000 427 (890) (456) (1,346) – (1,346) 1,202 396 1,598 321 2,623 2,944 110

Over 90% of the Samoa Subsidiary Group’s operations are located in the PRC and accordingly a geographical analysis has not been presented.

II – 18

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

7. LOSS BEFORE INCOME TAX

Loss before income tax is arrived at after charging:

	Period from
	13 May 2008
	(date of
	incorporation) to
	31 December 2008
	RMB’000
Auditors’ remuneration	–
Cost of inventories recognised as expense	725
Write-down of inventories to net realisable value	392
Minimum lease payments under operating leases for plant and equipments	214

8. INCOME TAX EXPENSE

No Hong Kong and PRC income tax has been provided as the Samoa Subsidiary Group did not generate any assessable profit in Hong Kong and the PRC for the period from 13 May 2008 (date of incorporation) to 31 December 2008.

Reconciliation between accounting loss and income tax expense at applicable rate is as follows:

	Period from
	13 May 2008
	(date of
	incorporation) to
	31 December 2008
	RMB’000
Loss before income tax	(1,346)
Tax at applicable rate of 25%	(337)
Tax effect of non-deductible expenses	9
Tax effect of tax losses not recognised	328
Income tax expense	–

As at 31 December 2008, the Samoa Subsidiary Group has unused tax losses of approximately RMB1,312,000 available to offset future profit. No deferred tax asset has been recognised due to uncertainty of future taxable profit. This tax loss will be expired in 2013.

As at 31 December 2008, no deferred tax liability has been provided as the Samoa Subsidiary Group did not have any significant temporary differences which give rise to a deferred tax liability.

9. LOSS ATTRIBUTABLE TO THE EQUITY HOLDER OF THE SAMOA SUBSIDIARY

Of the consolidated loss attributable to the equity holder of the Samoa Subsidiary of RMB1,346,000, a loss of RMB19,000 which has been dealt with in the financial statements of the Samoa Subsidiary.

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

10. EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTOR’S EMOLUMENTS)

	Period from
	13 May 2008
	(date of
	incorporation) to
	31 December 2008
	RMB’000
Salaries and allowances	295
Retirement scheme contribution – defined contribution plans	61
	356

11. DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) There were no director’s emoluments incurred during the Relevant Period. There were no arrangements under which a director waived or agreed to waive any remuneration during the Relevant Period.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Samoa Subsidiary Group did not include any directors during the Relevant Period. The emoluments payable to the five highest paid individuals for the Relevant Period, which fell within the salary band of Nil to RMB1 million, are as follows:

Salaries, allowances and other benefits Retirement scheme contribution – defined contribution plans	RMB’000 79 5
	84

During the Relevant Period, no emolument was paid by the Samoa Subsidiary Group to the director or any of the five highest paid individuals as an inducement to join or upon joining the Samoa Subsidiary Group or as compensation for loss of office.

12. PROPERTY, PLANT AND EQUIPMENT – THE SAMOA SUBSIDIARY GROUP

Period ended 31 December 2008 Addition Closing net book amount At 31 December 2008 Cost Accumulated depreciation Net book amount	Machinery RMB’000 110
	110
	110 –
	110

II – 20

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

13. INVESTMENT IN A SUBSIDIARY – THE SAMOA SUBSIDIARY

	RMB’000
Unlisted shares, at cost	–

Pursuant to the PRC statutory approvals, the registered capital of Manzhouli WFOE was amounted to US$500,000. Subsequent to 31 December 2008, US$75,000 (equivalent to approximately RMB514,000) has been paid by the Samoa Subsidiary and the remaining balance amounted to US$425,000 (equivalent to approximately RMB2,911,000) will be paid within two years from 12 December 2008 to 11 December 2010.

14. INVENTORIES – THE SAMOA SUBSIDIARY GROUP

Raw materials Finished goods	RMB’000 427 383
	810

15. TRADE RECEIVABLES – THE SAMOA SUBSIDIARY GROUP

Normally, no credit period is granted to customers and only few customers are granted credit period from 60 days to 180 days. Based on the invoice dates, the ageing analysis of the trade receivables was as follows:

0 to 30 days 31 to 60 days	RMB’000 246 36
	282

As at 31 December 2008, trade receivables of RMB82,000 were past due within 30 days but not impaired. The management believes that no impairment allowance is necessary in respect of these balances as there was no recent history of default. The balances are still considered fully recoverable as those trade receivables have been fully settled as at the date of this report.

As at 31 December 2008, trade receivable of RMB200,000 were neither past due nor impaired. The management believes that no impairment allowance is necessary in respect of these balances as there was no recent history of default.

The Samoa Subsidiary Group does not hold any collateral over these balances.

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FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

16. CASH AND CASH EQUIVALENTS – THE SAMOA SUBSIDIARY GROUP

Cash and cash equivalents include the following component:

	RMB’000
Cash balances	48

All cash balances are denominated in RMB, which were held in hand. The RMB is not freely convertible into foreign currencies.

17. TRADE PAYABLES – THE SAMOA SUBSIDIARY GROUP

Based on the ageing analysis of the Samoa Subsidiary Group’s trade payables as at the balance sheet date is as follows:

0 to 30 days 31 to 60 days 61 to 90 days	RMB’000 255 – 66
	321

18. AMOUNTS DUE TO IMMEDIATE HOLDING COMPANY/A DIRECTOR

The amounts due are unsecured, interest-free and repayable on demand.

19. SHARE CAPITAL – THE SAMOA SUBSIDIARY

Authorised: 5,000,000 ordinary shares of US$1 each At date of incorporation and 31 December 2008 Issued and nil paid: 5,000,000 ordinary shares of US$1 each At date of incorporation and 31 December 2008	Equivalent to RMB’000 34,945

	–

(i) The Samoa Subsidiary was incorporated in Samoa as a limited liability company on 13 May 2008. At the date of incorporation, the authorised share capital of the Samoa Subsidiary is 5,000,000 of US$1 each, all of which were allotted and issued nil-paid on 13 May 2008.
(ii) Pursuant to the written resolution dated 31 March 2009, the then sole shareholder approved the Samoa Subsidiary’s number of issued share reduced from 5,000,000 shares to 3,350 shares.

II – 22

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

20. OPERATING LEASE COMMITMENTS

The Samoa Subsidiary Group

The Samoa Subsidiary Group leases its factory, office premises and motor vehicles under operating lease arrangements with leases negotiated for terms of one to five years with an option to renew the lease terms at the expiry date. The term of the lease required the tenants to pay security deposits.

As at 31 December 2008, the total future minimum lease payments under non-cancellable operating leases payable by the Samoa Subsidiary Group are as follows:

Within one year In the second to fifth years	RMB’000 829 3,033
	3,862

During the Relevant Period, none of the leases include contingent rentals.

The Samoa Subsidiary

As at 31 December 2008, the Samoa Subsidiary did not have any significant operating lease commitments.

21. CAPITAL COMMITMENTS

The Samoa Subsidiary Group and the Samoa Subsidiary

22. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Financial Information, the Samoa Subsidiary Group had the following material related party transactions:

Key management personnel compensation:

Included in employee benefit expenses are key management personnel compensation and comprises the following categories:

Short term employee benefits Retirement scheme contribution – defined contribution plans	RMB’000 56 4
	60

II – 23

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

23. FINANCIAL RISK MANAGEMENT

The Samoa Subsidiary Group is exposed to financial risks through its use of financial instruments in its ordinary course of operations and in its investment activities. The financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Samoa Subsidiary Group does not have written risk management policies and guidelines. However, the management of the Samoa Subsidiary Group meets periodically to analyse and formulate measures to manage the Samoa Subsidiary Group’s exposure to market risk. Generally, the Samoa Subsidiary Group employs a conservative strategy regarding its risk management. The overall objectives in managing financial risks focus on securing the Samoa Subsidiary Group’s short to medium term cash flows by minimising its exposure to financial markets. The Samoa Subsidiary Group does not hold or issue derivative financial instruments for trading purpose.

23.1 Categories of financial assets and liabilities

The carrying amounts presented in the balance sheet as at 31 December 2008 related to the following categories of financial assets and financial liabilities.

The Samoa Subsidiary Group RMB’000 Financial assets Loan and receivables – Trade receivables 282 – Other receivables 111 393 Cash and cash equivalents 48 441 The Samoa Subsidiary Group RMB’000 Financial liabilities Financial liabilities measured at amortised cost – Trade payables 321 – Accrued liabilities 189 – Amount due to immediate holding company 988 – Amount due to a director 1,446 2,944	The Samoa Subsidiary RMB’000 – –
	– –
	–

	The Samoa Subsidiary RMB’000 – – – 19
	19

23.2 Foreign currency risk

The Samoa Subsidiary Group’s exposure to currency exchange rates is minimal, as transactions are predominately in RMB.

II – 24

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

23. FINANCIAL RISK MANAGEMENT (Continued)

23.3 Interest rate risk

The Samoa Subsidiary Group’s operating cash flows are substantially independent of changes in market interest rates as the Samoa Subsidiary Group has no significant interest bearing financial assets and liabilities.

23.4 Credit risk

No financial assets carry a significant exposure to credit risk. The Samoa Subsidiary Group continuously monitors defaults of other counterparts and incorporates this information into its credit risk controls.

Further quantitative disclosures in respect of the Samoa Subsidiary Group’s exposure to credit risk arising from trade receivables are set out in note 15.

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

23.5 Liquidity risk

The Samoa Subsidiary Group’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. Although the Samoa Subsidiary Group had net current liabilities and capital deficiency of RMB1,456,000 and RMB1,346,000 respectively as at 31 December 2008. The Samoa Subsidiary Group is able to monitor its liquidity requirements by obtaining the undertaking from the immediate holding company and the director of the Samoa Subsidiary for not demanding repayment of their respective debts due from the Samoa Subsidiary Group and the Samoa Subsidiary until such time when repayment will not affect the Samoa Subsidiary Group’s and the Samoa Subsidiary’s ability to repay other creditors in the normal course of business. In the opinion of the director, the Samoa Subsidiary Group’s exposure to liquidity risk is limited.

The Samoa Subsidiary Group

Trade payables Accrued liabilities Amount due to immediate holding company Amount due to a director	Total contractual Carrying undiscounted amount cash flow RMB’000 RMB’000 321 321 189 189 988 988 1,446 1,446 2,944 2,944	Within 3 months or on demand RMB’000 321 189 988 1,446
		2,944

The Samoa Subsidiary

		Total contractual	Within
	Carrying	undiscounted	3 months or
	amount	cash flow	on demand
	RMB’000	RMB’000	RMB’000
Amount due to a director	19	19	19

II – 25

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

23. FINANCIAL RISK MANAGEMENT (Continued)

23.6 Fair value

The fair values of the Samoa Subsidiary Group’s current financial assets and liabilities are not materially different from their carrying amounts because of their immediate or short term maturity.

24. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

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

Management actively and regularly reviews and manages the Samoa Subsidiary Group’s capital structure to ensure optimal capital structure and shareholder returns. Management regards issued share capital and reserves as capital for capital management purpose. The Samoa Subsidiary Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Samoa Subsidiary Group may adjust the amount of dividends paid to equity holder, issue new shares, return capital to equity holder, raise new debt financing or sell assets to reduce debts.

As at 31 December 2008, the Samoa Subsidiary Group and the Samoa Subsidiary had net current liabilities of RMB1,456,000 and RMB19,000 respectively and capital deficiency of RMB1,346,000 and RMB19,000 respectively. These conditions, along with other matters as disclosed in note 3.1 to the Financial Information, indicate the existence of a fundamental uncertainty which may cast significant doubt about the Samoa Subsidiary Group and the Samoa Subsidiary’s ability to continue as a going concern.

25. POST BALANCE SHEET EVENTS

In addition to those disclosed elsewhere, the Samoa Subsidiary Group had the following material post balance sheet events:

(i) Pursuant to the written resolution dated 31 March 2009, the sole shareholder approved the Samoa Subsidiary’s number of issued share reduced from 5,000,000 shares to 3,350 shares.
(ii) On 15 April 2009, the Target Company acquired the entire issued capital of the Samoa Subsidiary at a consideration of US$1.

26. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Samoa Subsidiary or the subsidiary of the Samoa Subsidiary Group was prepared in respect of any period subsequent to 31 December 2008.

Yours faithfully,

Grant Thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark

15 Queen’s Road Central Hong Kong

II – 26

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE SAMOA SUBSIDIARY GROUP

For the period from 13 May 2008 (date of incorporation) to 31 December 2008

Result

The Samoa Subsidiary Group consists of the Samoa Subsidiary and Manzhouli WFOE. The Samoa Subsidiary, a company incorporated in Samoa with limited liability, is an investment holding company and holds the entire equity interest of Manzhouli WFOE. Manzhouli WFOE was established in the PRC with limited liability and has leased and run a production plant in Manzhouli. Manzhouli WFOE is principally engaged in the processing of rough sawn lumber including drying, further sawing of wooden boards to specific specification and selling of wood products.

Turnover of the Samoa Subsidiary Group for the period ended 31 December 2008 was approximately RMB427,000.

Turnover of the Samoa Subsidiary Group was comprised of sales of good and rendering of services for the period ended 31 December 2008. Sales of goods represents the manufacture and sale of veneer and laminated timber. Rendering of services represents the provision of kiln dryer. Turnover recognised during the period ended 31 December 2008 was as follow:

Revenue: Sale of goods Rendering of services	2008 RMB’000 229 198
	427

Loss attributable to the equity shareholder of the Samoa Subsidiary Group for the period ended 31 December 2008 was approximately RMB1,346,000. The loss was mainly attributable to the Samoa Subsidiary Group being a newly established entity with minimal production and sales in 2008.

Exchange risk

The Samoa Subsidiary Group mainly operates in the PRC. Most of the Samoa Subsidiary Group’s transactions, assets and liabilities were predominately in RMB.

Foreign exchange risk arose from future commercial transactions and recognised assets and liabilities. The Samoa Subsidiary Group managed its foreign risks by performing regular review and monitoring of its foreign exchange exposures.

II – 27

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

Capital structure, liquidity, financial resources

As at 31 December 2008, the Samoa Subsidiary Group’s cash and bank balances, amounted to a total of approximately RMB48,000.

The Samoa Subsidiary Group has no bank borrowing and a total of RMB2,434,000 of unsecured, interest-free and repayable on demand due to an immediate holding company and a director as at 31 December 2008.

The gearing ratio was Nil as at 31 December 2008. The gearing ratio is expressed as a percentage of total bank borrowings over total assets.

Treasury policies

The Samoa Subsidiary Group has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Samoa Subsidiary Group’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Samoa Subsidiary Group;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

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

Charges on assets

As at 31 December 2008, the Samoa Subsidiary Group had no pledged assets.

Contingent liabilities

As at 31 December 2008, the Samoa Subsidiary Group did not have any significant contingent liabilities.

II – 28

FINANCIAL INFORMATION OF THE SAMOA SUBSIDIARY GROUP

APPENDIX II

Capital commitments

Significant investments, material acquisitions and disposals

The Samoa Subsidiary Group did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the period ended 31 December 2008.

Employees and remuneration policy

As at 31 December 2008, the Samoa Subsidiary Group has approximately 39 employees in the PRC. The total amount of remuneration paid by the Samoa Subsidiary Group to its employees for the period was approximately RMB356,000.

In order to retain and attract high caliber executives and employees, the Samoa Subsidiary 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, retirement benefit and medical insurance coverage and discretionary bonuses are also available to employees based on their performance.

Future plans and prospects

Looking forward, the Samoa Subsidiary Group will continue to expand its processing of rough sawn lumber including drying, further sawing of wooden boards to specific specification and selling of wood products in order to offer growth to its business and in order to enhance shareholders’ value.

II – 29

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

A. ACCOUNTANTS’ REPORT ON THE RUSSIA SUBSIDIARY

The following is the text of a report from Grant Thornton, the independent reporting accountants, in respect of the accountants’ report on the Russia Subsidiary as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

==> picture [31 x 28] intentionally omitted <==

==> picture [146 x 45] intentionally omitted <==

25 June 2009

The Directors

Bright Prosperous Holdings Limited

Room 3001-2 Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We set out below our report on the financial information of Zabaikalskaya Lesnaya Kompania (the “Russia Subsidiary”) in sections I and II below including the balance sheets of the Russia Subsidiary as at 31 December 2006, 2007 and 2008, the income statements, the cash flow statements and the statements of changes in equity for the years ended 31 December 2006, 2007 and 2008 (the “Relevant Periods”) and the notes thereto (the “Financial Information”) prepared for inclusion in the circular of Bright Prosperous Holdings Limited (the “Company”) dated 25 June 2009 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of Amplewell Holdings Limited (the “Target Company”).

The Russia Subsidiary was incorporated in Russia as a limited liability company on 15 July 2002 with a registered capital of Rubles (“RUB”) 7,150,000. The address of registered office and principal place of business of the Russia Subsidiary is Ultisa Dugovoy Proezd, 5, Town Chita, Russia. As at the date of this report, the Russia Subsidiary is wholly owned by Sergey Seleznev. Upon completion of the acquisition, the Russia Subsidiary will be wholly owned by the Target Company. The Target Company was incorporated in British Virgin Islands (“BVI”) as a limited liability company on 3 February 2009. The principal activity of the Russia Subsidiary is logging, timber production and wholesale wood products selling.

The Russia Subsidiary has adopted 31 December as their financial year end. No audited statutory financial statements of the Russia Subsidiary have been prepared since its date of incorporation as there are no statutory requirements.

III – 1

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

For the purpose of this report, the director of the Russia Subsidiary has prepared the financial statements (the “Underlying Financial Statements”) of the Russia Subsidiary for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We were engaged, for the purposes of this report, to perform appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Periods as set out in this report have been prepared by the director of the Russia Subsidiary based on the Underlying Financial Statements and in accordance with HKFRSs. For the purpose of this report, we were engaged to examine the Financial Information and carry out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The director of the Russia Subsidiary is responsible for the preparation of the Underlying Financial Statements and the Financial Information which gives a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you. Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, however, we were unable to obtain sufficient appropriate evidence to provide a basis for an opinion.

Basis for Disclaimer of Opinion

In our audit of the Underlying Financial Statements for the years ended 31 December 2006, 2007 and 2008, the books and records (including any bank records) as made available to us by the Russia Subsidiary’s management were incomplete for our audit purposes. Under circumstances as explained above, we were unable to carry out audit procedures necessary on the books and records of the Russia Subsidiary, to satisfy ourselves as the existence, completeness, accuracy and valuations of its assets (including any cash and bank balances) of RUB39,843,000, RUB41,027,000 and RUB129,820,000, and liabilities (including any borrowings) of RUB57,319,000, RUB36,490,000 and RUB133,802,000 as at 31 December 2006, 2007 and 2008 respectively, and its results of RUB7,103,000, RUB22,013,000 and RUB8,519,000 for the years ended 31 December 2006, 2007 and 2008 respectively. There were no alternative audit procedures which we could adopt to satisfy ourselves as to whether these assets and liabilities have been fairly stated.

Disclaimer of Opinion on View Given by Financial Information

Because of the significant of the matters described in the basis for disclaimer of opinion paragraph, we have not been able to obtain sufficient appropriate evidence to provide a basis for an opinion. Accordingly, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of the Russia Subsidiary’s affairs as at 31 December 2006, 2007 and 2008 and of the Russia Subsidiary’s results and cash flows for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards.

III – 2

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

Going Concern – Existence of Material Uncertainty

We draw attention to note 3.1 to the Financial Information concerning the net current liabilities of RUB26,902,000, RUB3,859,000 and RUB53,666,000 as at 31 December 2006, 2007 and 2008 respectively, and capital deficiency of RUB17,476,000 and RUB3,982,000 as at 31 December 2006 and 2008 respectively. These conditions along with other matters set out in note 3.1 indicate the existence of a material uncertainty that may cast significant doubt about the Russia Subsidiary’s ability to continue as a going concern.

III – 3

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

I. FINANCIAL INFORMATION

A. Income Statements

For the years ended 31 December 2006, 2007 and 2008

Notes Revenue 5 Cost of sales Gross (loss)/profit Other income 7 Write-off of borrowings Selling and distribution expenses Administrative expenses Finance costs 8 (Loss)/profit before income tax 9 Income tax expense 10 (Loss)/profit for the year	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 10,982 88 23,599 (18,566) (68) (28,989) (7,584) 20 (5,390) 17,921 74 10,354 – 25,386 – (5,596) – (2,804) (11,814) (1,892) (9,057) (30) (1,575) (1,622) (7,103) 22,013 (8,519) – – – (7,103) 22,013 (8,519)

III – 4

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

I. FINANCIAL INFORMATION (Continued)

B. Balance Sheets

As at 31 December 2006, 2007 and 2008

Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
13
Timber concession right
14
Current assets
Inventories
15
Trade receivables
16
Prepayment, deposit and other receivables
Amount due from a related company
17
Amount due from a shareholder
17
Cash and cash equivalents
18
Current liabilities
Trade payables
19
Receipts in advance
Accrued liabilities and other payables
Amounts due to related companies
20
Amount due to a shareholder
20
Borrowings
21
Net current liabilities
Net (liabilities)/assets
EQUITY
Paid-up capital
22
Accumulated losses
(Capital deficiency)/total equity

As at 31 December
2006
2007
2008
RUB’000
RUB’000
RUB’000
9,426
8,396
49,684
–
–
–
9,426
8,396
49,684
779
–
19,377
–
–
8,731
16,636
16,794
24,400
–
–
27,026
–
3,712
–
13,002
12,125
602
30,417
32,631
80,136
994
817
2,389
13,069
–
15,321
2,099
1,006
20,038
–
–
50,123
648
–
30,990
40,509
34,667
14,941
57,319
36,490
133,802
(26,902)
(3,859)
(53,666)
(17,476)
4,537
(3,982)
7,150
7,150
7,150
(24,626)
(2,613)
(11,132)
(17,476)
4,537
(3,982)

III – 5

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

I. FINANCIAL INFORMATION (Continued)

C. Cash Flow Statements

For the years ended 31 December 2006, 2007 and 2008

Notes Cash flows from operating activities (Loss)/profit before income tax Adjustments for: Depreciation 9 Exchange gain, net 7 Interest expense 8 Interest income 7 Loss on disposal of property, plant and equipment 9 Write-off of other receivables 9 Write-off of other payables 7 Write-off of borrowings Operating loss before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade receivables Increase in prepayment, deposit and other receivables Increase/(decrease) in trade payables Increase/(decrease) in receipts in advance (Decrease)/increase in accrued liabilities and other payables Net cash used in operating activities Cash flow from investing activities Interest received Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash (used in)/generated from investing activities	2006 RUB’000 (7,103) 1,163 (47) 30 (2) 37 9,012 (11,627) – (8,537) 2,341 186 (15,134) 29 12,069 (3,414) (12,460) 2 (57) 43 (12)	2007 RUB’000 22,013 1,030 (9) 1,575 (1) – 364 (63) (25,386) (477) 779 – (513) (177) (13,069) (1,030) (14,487) 1 – – 1	2008 RUB’000 (8,519) 2,564 (305) 1,622 (47) – 2 (382) – (5,065) (19,377) (8,426) (7,608) 1,572 15,321 19,414 (4,169) 47 (43,911) 59 (43,805)

III – 6

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

I. FINANCIAL INFORMATION (Continued)

C. Cash Flow Statements (Continued)

For the years ended 31 December 2006, 2007 and 2008

Notes Cash flows from financing activities Net proceeds/(repayment) of borrowings Advance from related companies Advance from/(repayment to) shareholders Interest paid Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents Cash and bank balances 18	2006 RUB’000 24,833 – 648 (30) 25,451 12,979 23 13,002 13,002	2007 RUB’000 19,544 – (4,360) (1,575) 13,609 (877) 13,002 12,125 12,125	2008 RUB’000 (19,726) 23,097 34,702 (1,622) 36,451 (11,523) 12,125 602 602

III – 7

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

I. FINANCIAL INFORMATION (Continued)

D. Statements of Changes in Equity

For the years ended 31 December 2006, 2007 and 2008

At 1 January 2006 Loss for the year (Total recognised income and expense for the year) At 31 December 2006 and 1 January 2007 Profit for the year (Total recognised income and expense for the year) At 31 December 2007 and 1 January 2008 Loss for the year (Total recognised income and expense for the year) At 31 December 2008	Paid-up Accumulated capital losses RUB’000 RUB’000 7,150 (17,523) – (7,103) 7,150 (24,626) – 22,013 7,150 (2,613) – (8,519) 7,150 (11,132)	Total RUB’000 (10,373) (7,103) (17,476) 22,013 4,537 (8,519) (3,982)

III – 8

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

2. ADOPTION OF NEW OR AMENDED HKFRSs

The Russia Subsidiary has adopted all the new and amended HKFRSs which are effective for the accounting periods beginning on 1 January 2008, issued by the HKICPA and relevant to the Russia Subsidiary in the preparation of the Financial Information throughout the Relevant Periods. HKFRS 1 “First-time Adoption of HKFRS” has been applied in preparing Financial Information. The Financial Information is the first set of financial statements prepared in accordance with HKFRSs by the Russia Subsidiary. The transition to HKFRSs from previous GAAP did not have material financial impact on the Financial Information of the Russia Subsidiary.

The accounting policies set out below have been applied consistently by the Russia Subsidiary to the Relevant Periods in the Financial Information and in preparing the opening HKFRSs balance sheet at 1 January 2006 for the purpose of the first set of HKFRSs financial statements.

The Russia Subsidiary has not early adopted the following standards or interpretations that have been issued but are not yet effective.

HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 23 (Revised)	Borrowing Costs 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements		3
HKAS 32, HKAS 39 & HKFRS 7	Puttable Financial Instruments and Obligations Arising on Liquidation					1
(Amendments)
HKAS 39 (Amendment)	Financial Instruments: Recognition and Measurement – Embedded Derivatives						2
HKAS 39 (Amendment)	Eligible Hedged Items 3
HKFRS 1 (Revised)	First-time Adoption of HKFRSs 3
HKFRS 1 and HKAS 27	Cost of an Investment in a Subsidiary, Jointly Controlled Entity or an
(Amendments)	Associate 1
HKFRS 2 (Amendment)	Share-based Payment – Vesting Conditions and Cancellations				1
HKFRS 3 (Revised)	Business Combinations 3
HKFRS 7 (Amendments)	Improving Disclosures about Financial Instruments			1
HKFRS 8	Operating Segments 1
HK(IFRIC)–Int 9	Reassessment of Embedded Derivatives 2
HK(IFRIC)–Int 13	Customer Loyalty Programmes 4
HK(IFRIC)–Int 15	Agreement for the Construction of Real Estate	1
HK(IFRIC)–Int 16	Hedges of a Net Investment in a Foreign Operation			5
HK(IFRIC)–Int 17	Distributions of Non-cash Assets to Owners 3
HK(IFRIC)–Int 18	Transfers of Assets from Customers 6
Various	Annual Improvements to HKFRS 2008 7
Various	Annual Improvements to HKFRS 2009 8

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods ending on or after 30 June 2009

3 Effective for annual periods beginning on or after 1 July 2009

4 Effective for annual periods beginning on or after 1 July 2008

5 Effective for annual periods beginning on or after 1 October 2008

6 Effective for transfers received on or after 1 July 2009

7 Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

8 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRS

III – 9

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

2. ADOPTION OF NEW OR AMENDED HKFRSs (Continued)

The director of the Russia Subsidiary anticipates that all of the pronouncements will be adopted in the Russia Subsidiary’s accounting policy for the first period beginning after the effective date of the pronouncement.

Among these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the Russia Subsidiary’s Financial Information. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Russia Subsidiary will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial positions or results of the Russia Subsidiary but will give rise to additional disclosures.

The director of the Russia Subsidiary is currently assessing the impact of other new and amended HKFRSs upon initial application. So far, the director has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Russia Subsidiary’s results and financial positions.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below.

The Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below.

The Financial Information has been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business notwithstanding that the Russia Subsidiary had net current liabilities of RUB26,902,000, RUB3,859,000 and RUB53,666,000 as at 31 December 2006, 2007 and 2008 respectively, and capital deficiency of RUB17,476,000 and RUB3,982,000 as at 31 December 2006 and 2008 respectively. The Financial Information has been prepared on a going concern basis, the validity of which depends upon future funding being available and continual financial support from Winner Global Holdings Limited (“Winner Global”), the ultimate holding company of the Target Company’s shareholder.

The Financial Information does not include any adjustments that would result from a failure of the Russia Subsidiary to operate as a going concern. Should the Russia Subsidiary be unable to continue in business as a going concern, adjustments would have to be made in the Financial Information to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets as current assets. The effect of these potential adjustments has not been reflected in the Financial Information.

III – 10

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Foreign currency translation

The Financial Information is presented in Russian Ruble (“RUB”), which is also the functional currency of the Russia Subsidiary.

Foreign currency transactions are translated into its functional currency using the exchange rates prevailing at the dates of the transactions. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities are recognised in the income statement.

3.3 Revenue recognition

Revenue comprises the fair value for the sale of goods, rendering of services and net of rebates and discounts. Provided it is probable that the economic benefits will flow to the Russia Subsidiary and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:–

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

Revenue from construction service is recognised when services are rendered and income can be measured reliably.

Income from machine implementation services is recognised when services are rendered and income can be measured reliably.

Rental income is recognised on a time-proportion basis over the lease terms.

3.4 Borrowing costs

All borrowing costs are expenses as incurred.

3.5 Intangible asset (other than goodwill)

Timber concession right acquired separately are recognised initially at cost. The Russia Subsidiary has acquired the timber concession right at nil cost through auctions.

The Russia Subsidiary is required to pay royalties to the respective forestry enterprise based on the volume by species harvested each year, subject to an annual minimum royalty payment.

III – 11

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.6 Property, plant and equipment

Buildings and all other property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses.

Buildings held under leasing agreements are depreciated over their expected useful lives of 8 to 20 years or over the term of lease, if shorter.

Depreciation on the following property, plant and equipment is provided to write off the cost over their estimated useful lives, using the straight-line method at the following rates per annum:

Bridges and roads 4% – 33% Machinery and equipment 7% – 33% Motor vehicles 10%

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the balance sheet date.

Construction in progress which represents property, plant and equipment under construction is stated at cost less any impairment losses and is not depreciated. The cost of self-constructed property, plant and equipment includes the costs of materials, direct labour, borrowing costs and an appropriate of fixed and variable overheads. Construction in progress is reclassified to the appropriate category of property, plant and equipment when the construction is completed and the item is ready for use.

The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

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

3.7 Impairment of non-financial assets

Property, plant and equipment and other assets are subject to impairment testing. They are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

III – 12

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Impairment of non-financial assets (Continued)

3.8 Operating leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Russia Subsidiary 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.

Leases which do not transfer substantially all the risks and rewards of ownership to the Russia Subsidiary are classified as operating leases.

Where the Russia Subsidiary has the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

3.9 Financial assets

The financial assets comprise receivables including trade and other receivables, amount due from a related company, amount due from a shareholder and cash and cash equivalents.

All financial assets are recognised when, and only when, the Russia Subsidiary becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, directly attributable transaction costs.

At the balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised.

Loans and receivables

III – 13

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Financial assets (Continued)

Impairment of financial assets

3.10 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average basis, and in case of work in progress and finished goods, comprise direct materials, direct labour and an appropriate portion of overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.

3.11 Accounting for income taxes

Income tax comprises current tax and deferred tax.

III – 14

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.11 Accounting for income taxes (Continued)

Changes in deferred tax assets or liabilities are recognised in the income statement, or in equity if they relate to items that are charged or credited directly to equity.

3.12 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

3.13 Paid-up capital

Paid-up capital is classified as equity. This is determined using the proceeds from capital contribution made by the investors.

3.14 Retirement benefits cost and short term employee benefits

The employees of the Russia Subsidiary are required to participate in a central pension scheme operated by the local municipal government. The Russia Subsidiary is required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

3.15 Financial liabilities

The Russia Subsidiary’s financial liabilities include accrued liabilities and other payables, amounts due to related companies, amount due to a shareholder and borrowings.

Financial liabilities are recognised when the Russia Subsidiary becomes a party to the contractual provisions of the instrument.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Russia Subsidiary has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

III – 15

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.15 Financial liabilities (Continued)

Other financial liabilities

Other financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using effective interest method.

3.16 Provisions and contingent liabilities

Provisions are recognised when the Russia Subsidiary has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amounts of the obligation 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.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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 uncertain events not wholly within the control of the Russia Subsidiary are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

3.17 Segment reporting

In accordance with the Russia Subsidiary’s internal financial reporting, the Russia Subsidiary has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

In respect of business segment reporting, unallocated costs include corporate expenses and other expenses that cannot be allocated on a reasonable basis to the reportable segments. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities.

Capital expenditure comprises additions to property, plant and equipment.

In respect of geographical segment reporting, revenue is based on the country in which the customer is located and total assets and capital expenditure are where the assets are located.

III – 16

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.18 Related parties

For the purposes of this Financial Information, a party is considered to be related to the Russia Subsidiary if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Russia Subsidiary or exercise significant influence over the Russia Subsidiary in making financial and operating policy decisions, or has joint control over the Russia Subsidiary;
(ii) the Russia Subsidiary and the party are subject to common control;
(iii) the party is an associate of the Russia Subsidiary or a joint venture in which the Russia Subsidiary is a venturer;
(iv) the party is a member of key management personnel of the Russia Subsidiary or the Russia Subsidiary’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;
(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 Russia Subsidiary or of any entity that is a related party of the Russia Subsidiary.

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.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Russia Subsidiary makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to 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 year are discussed below:

Depreciation

The Russia Subsidiary depreciates property, plant and equipment on the straight-line method over the estimated useful lives, starting from the date on which the assets are placed into productive use. The estimated useful lives reflect the director’s estimate of the periods that the Russia Subsidiary intends to derive future economic benefits from the use of the Russia Subsidiary’s property, plant and equipment.

Impairment of trade receivables

The Russia Subsidiary’s management determines the impairment of trade receivables on a regular basis. This estimate is based on the credit history of its customers and prevailing market conditions. Management reassesses the impairment of trade receivables at the balance sheet date.

Net realisable value of inventories

Net realisable value of inventories, is the estimated selling price in the ordinary course of business, less estimated costs to completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. It could change significantly as a result of changes in customer preferences and competitor actions in response to severe industry cycle. Management reassesses these estimates at each balance sheet date.

5. REVENUE AND TURNOVER

Revenue, which is also the Russia Subsidiary’s turnover, represents total invoiced value of goods supplied and income from provision of services. Revenue recognised during the Relevant Periods is as follows:

Revenue: Sale of goods Rendering of services	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 9,307 – 23,475 1,675 88 124 10,982 88 23,599	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 9,307 – 23,475 1,675 88 124 10,982 88 23,599
		23,599

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION

Primary reporting format – business segments

The Russia Subsidiary has the following main business segments:

Sales of goods – The manufacture and sale of round wood, sawn wood and wood products Rendering of services – The provision of kiln dryer

Segment revenue: Sales to external customers Segment results Unallocated other income Unallocated expenses Administrative expenses Finance costs Loss before income tax Income tax expense Loss for the year Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation	Year ended 31 December 2006 Rendering Sale of goods of services Total RUB’000 RUB’000 RUB’000 9,307 1,675 10,982 (14,831) 1,651 (13,180) 17,921 (11,814) (30) (7,103) – (7,103) 10,301 25 10,326 29,517 39,843 994 – 994 56,325 57,319 57 – 57 1,149 14 1,163

III – 19

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION (Continued)

Primary reporting format – business segments (Continued)

Segment revenue: Sales to external customers Segment results Unallocated other income Unallocated expenses Administrative expenses Finance costs Profit before income tax Income tax expense Profit for the year Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Depreciation	Year ended 31 December 2007 Rendering Sale of goods of services Total RUB’000 RUB’000 RUB’000 – 88 88 – 20 20 25,460 (1,892) (1,575) 22,013 – 22,013 8,442 11 8,453 32,574 41,027 817 – 817 35,673 36,490 1,028 2 1,030

III – 20

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION (Continued)

Primary reporting format – business segments (Continued)

Segment revenue: Sales to external customers Segment results Unallocated other income Unallocated expenses Administrative expenses Finance costs Loss before income tax Income tax expense Loss for the year Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation	Year ended 31 December 2008 Rendering Sale of goods of services Total RUB’000 RUB’000 RUB’000 23,475 124 23,599 (8,313) 119 (8,194) 10,354 (9,057) (1,622) (8,519) – (8,519) 84,434 691 85,125 44,695 129,820 2,389 – 2,389 131,413 133,802 43,219 692 43,911 2,555 9 2,564

III – 21

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

6. SEGMENT INFORMATION (Continued)

Secondary reporting format – geographical segments

The Russia Subsidiary’s operations are located in two main geographical areas. The following table provides an analysis of the Russia Subsidiary’s sales by location of customers, irrespective of the origin of the goods and services.

Revenue by geographical markets: Russia Mainland China	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 3,282 88 17,333 7,700 – 6,266 10,982 88 23,599	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 3,282 88 17,333 7,700 – 6,266 10,982 88 23,599
		23,599

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment, analysed by the geographical area in which the assets are located.

Russia Mainland China	Segment assets As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 39,843 37,315 100,632 – – 2,162 39,843 37,315 102,794	Capital expenditures Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 57 – 43,911 – – – 57 – 43,911	Capital expenditures Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 57 – 43,911 – – – 57 – 43,911
			43,911

7. OTHER INCOME

Other income: Bank interest income Construction income Exchange gain, net Income from machine implementation services Rental income Sales of consumable goods and miscellaneous Write-off of other payables	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2 1 47 – – 8,051 47 9 305 5,913 – – – – 1,037 332 1 532 11,627 63 382 17,921 74 10,354	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2 1 47 – – 8,051 47 9 305 5,913 – – – – 1,037 332 1 532 11,627 63 382 17,921 74 10,354
		10,354

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

8. FINANCE COSTS

		Year ended 31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Interest charges on bank and other borrowings repayable
within five years	30	1,575	1,622

9. (LOSS)/PROFIT BEFORE INCOME TAX

(Loss)/profit before income tax is arrived at after charging:

		Year ended 31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Auditors’ remuneration	–	–	–
Cost of inventories sold	18,542	–	28,985
Depreciation of owned assets	1,163	1,030	2,564
Minimum lease payments under operating leases for
land and buildings	231	–	371
Loss on disposal of property, plant and equipment	37	–	–
Write-off of other receivables	9,012	364	2

10. INCOME TAX EXPENSE

No Hong Kong and Russia profits tax has been provided as the Russia Subsidiary did not generate any assessable profit in Hong Kong and Russia during the Relevant Periods.

Reconciliation between accounting (loss)/profit and income tax expense at applicable rate is as follows:

(Loss)/profit before income tax Tax at applicable rate of 24% Tax effect of non-deductible expenses Tax effect of non-taxable income Income tax expense	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 (7,103) 22,013 (8,519 (1,705) 5,283 (2,045 8,642 848 10,194 (6,937) (6,131) (8,149 – – –	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 (7,103) 22,013 (8,519 (1,705) 5,283 (2,045 8,642 848 10,194 (6,937) (6,131) (8,149 – – –

		(2,045 10,194 (8,149
		–

As at 31 December 2006, 2007 and 2008, no deferred tax liability has been provided as the Russia Subsidiary did not have any significant temporary differences which give rise to a deferred tax liability.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

11. EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTOR’S EMOLUMENTS)

Salaries and allowances Retirement scheme contribution – defined contribution plans	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2,380 42 16,225 646 10 4,493 3,026 52 20,718	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2,380 42 16,225 646 10 4,493 3,026 52 20,718
		20,718

12. DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) There were no director’s emoluments incurred during the Relevant Periods. There were no arrangements under which a director waived or agreed to waive any remuneration during the Relevant Periods.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Russia Subsidiary did not include any director during the Relevant Periods. The emoluments payable to the five highest paid individuals for the Relevant Periods, which fell within the salary band of Nil to RUB1 million, are as follows:

Salaries and allowances Retirement scheme contribution – defined contribution plans	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 1,255 42 1,036 166 10 135 1,421 52 1,171	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 1,255 42 1,036 166 10 135 1,421 52 1,171
		1,171

During the Relevant Periods, no emolument was paid by the Russia Subsidiary to the director or any of the five highest paid individuals as an inducement to join or upon joining the Russia Subsidiary or as compensation for loss of office.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

13. PROPERTY, PLANT AND EQUIPMENT

Buildings RUB’000 At 1 January 2006 Cost 1,111 Accumulated depreciation (113) Net book amount 998 Year ended 31 December 2006 Opening net book amount 998 Additions 26 Disposals (17) Depreciation (81) Closing net book amount 926 At 31 December 2006 Cost 1,121 Accumulated depreciation (195) Net book amount 926 Year ended 31 December 2007 Opening net book amount 926 Depreciation (91) Closing net book amount 835 At 31 December 2007 Cost 1,121 Accumulated depreciation (286) Net book amount 835 Year ended 31 December 2008 Opening net book amount 835 Additions 891 Disposals – Depreciation (104) Closing net book amount 1,622 At 31 December 2008 Cost 2,011 Accumulated depreciation (389) Net book amount 1,622	Bridges and roads RUB’000 2,954 (102) 2,852 2,852 31 – (124) 2,759 2,985 (226) 2,759 2,759 (123) 2,636 2,985 (349) 2,636 2,636 1,139 (59) (167) 3,549 4,066 (517) 3,549	Machinery and equipment RUB’000 3,099 (820) 2,279 2,279 – (53) (706) 1,520 3,035 (1,515) 1,520 1,520 (528) 992 3,035 (2,043) 992 992 15,566 – (1,376) 15,182 18,601 (3,419) 15,182	Motor Construction vehicles in progress RUB’000 RUB’000 1,505 3,638 (660) – 845 3,638 845 3,638 – – (10) – (252) – 583 3,638 1,495 3,638 (912) – 583 3,638 583 3,638 (288) – 295 3,638 1,495 3,638 (1,200) – 295 3,638 295 3,638 20,256 6,059 – – (917) – 19,634 9,697 21,751 9,697 (2,117) – 19,634 9,697	Total RUB’000 12,307 (1,695)
				10,612
				10,612 57 (80) (1,163)
				9,426
				12,274 (2,848)
				9,426
				9,426 (1,030)
				8,396
				12,274 (3,878)
				8,396
				8,396 43,911 (59) (2,564)
				49,684
				56,126 (6,442)
				49,684

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

In the opinion of the Russia Subsidiary’s director, bank borrowings are secured by certain of property, plant and equipment (Note 21).

In the opinion of the Russia Subsidiary’s director, the buildings are stated at cost and the cost is approximate to their fair values.

14. TIMBER CONCESSION RIGHT

						31 December
					2006	2007	2008
					RUB’000	RUB’000	RUB’000
Cost and carrying amount as at	1	January and	31	December	–	–	–

The Russia Subsidiary owned one timber concession license through auction on 18 February 2003 at nil cost. The timber concession right can exploit approximately 174,904 hectares of the forest located in Russia. The term of the lease is for a period of 25 years commencing from 18 February 2003. The Russia Subsidiary is required to pay royalties to the respective forestry enterprise based on the volume by species harvested each year, subject to an annual minimum royalty payment.

The royalties of RUB6,717,000 and RUB5,290,000 are recognised for the year ended 31 December 2006 and 2008 and are included in “cost of sales” in the income statement.

15. INVENTORIES

Raw materials Finished goods	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 1,677 779 – 17,700 779 – 19,377	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 1,677 779 – 17,700 779 – 19,377
		19,377

16. TRADE RECEIVABLES

Based on the invoice dates, the ageing analysis of the trade receivables was as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 1,130 – – 1,493 – – 3,655 – – 2,453 – – 8,731	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 1,130 – – 1,493 – – 3,655 – – 2,453 – – 8,731
		8,731

Normally, no credit period is granted to customers. As at 31 December 2008, all trade receivables were past due but not impaired. The management believes that no impairment allowance is necessary in respect of these balances as there was no recent history of default. The balances are still considered fully recoverable. The Russia Subsidiary does not hold any collateral over these balances.

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APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

17. AMOUNTS DUE FROM A RELATED COMPANY/SHAREHOLDER

The amounts due are unsecured, interest-free and repayable on demand.

18. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components:

		31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Cash at bank and in hand	13,002	12,125	602

All bank and cash balances are denominated in RUB. The RUB is not freely convertible into foreign currencies.

19. TRADE PAYABLES

Based on the ageing analysis of the Russia Subsidiary’s trade payables as at the balance sheet date is as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days 181 to 365 days Over 365 days	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 897 268 3 97 – 510 – – 356 – – 1,520 – 240 – – 309 – 994 817 2,389	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 897 268 3 97 – 510 – – 356 – – 1,520 – 240 – – 309 – 994 817 2,389
		2,389

20. AMOUNTS DUE TO RELATED COMPANIES/SHAREHOLER

The amounts due are unsecured, interest-free and repayable on demand

21. BORROWINGS

Current Bank borrowings (Secured) Other borrowings (Unsecured) Total borrowings	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 15,000 24,177 8,992 25,509 10,490 5,949 40,509 34,667 14,941	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 15,000 24,177 8,992 25,509 10,490 5,949 40,509 34,667 14,941
		14,941

Total borrowings include secured liabilities (bank borrowings) of RUB15,000,000, RUB24,177,000 and RUB8,992,000 as at 31 December 2006, 2007 and 2008 respectively. In the opinion of the Russia Subsidiary’s director, bank borrowings are secured by certain of property, plant and equipment of the Russia Subsidiary (Note 13).

In the opinion of the Russia Subsidiary’s director, the bank and other borrowings are repayable on demand.

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APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

22. PAID-UP CAPITAL

		As at 31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Registered and paid-up capital:
At beginning and the end of year	7,150	7,150	7,150

23. OPERATING LEASE COMMITMENTS

The Russia Subsidiary leases a number of properties under operating lease arrangements with leases negotiated for terms of one to five years.

As at 31 December 2006, 2007 and 2008, the total future minimum lease payments under non-cancellable operating leases are payable by the Russia Subsidiary as follows:

Within one year In the second to fifth year	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 413 409 660 396 1 – 809 410 660	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 413 409 660 396 1 – 809 410 660
		660

During the Relevant Periods, the lease did not include contingent rentals.

24. ROYALTY COMMITMENTS

As at 31 December 2006, 2007 and 2008, the total future minimum royalty payments payable under the terms of the timber concession licenses of the Russia Subsidiary are as follows (see note 14):

Within one year After one year but within five years After five years	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 8,014 8,014 8,014 32,054 32,054 32,054 129,315 121,301 113,287 169,383 161,369 153,355	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 8,014 8,014 8,014 32,054 32,054 32,054 129,315 121,301 113,287 169,383 161,369 153,355
		153,355

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

25. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Financial Information, the Russia Subsidiary had the following material related party transactions:

Key management personnel compensation:

Included in staff costs are key management personnel compensation and comprises the following categories:

Short term employee benefits Retirement scheme contribution – defined contribution plans	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 896 – 1,367 269 – 576 1,165 – 1,943	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 896 – 1,367 269 – 576 1,165 – 1,943
		1,943

26. FINANCIAL RISK MANAGEMENT

The Russia Subsidiary is exposed to financial risks through its use of financial instruments in its ordinary course of operations and in its investment activities. The financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Russia Subsidiary does not have written risk management policies and guidelines. However, the management of the Russia Subsidiary meets periodically to analyse and formulate measures to manage the Russia Subsidiary’s exposure to market risk. Generally, the Russia Subsidiary employs a conservative strategy regarding its risk management. The overall objectives in managing financial risks focus on securing the Russia Subsidiary’s short to medium term cash flows by minimising its exposure to financial markets. The Russia Subsidiary does not hold or issue derivative financial instruments for trading purpose.

26.1 Categories of financial assets and liabilities

The carrying amounts presented in the balance sheets relate to the following categories of financial assets and financial liabilities.

Financial assets Loans and receivables – Trade receivables – Other receivables – Amount due from a related company – Amount due from a shareholder Cash and cash equivalents	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 8,731 16,629 16,794 23,645 – – 27,026 – 3,712 – 16,629 20,506 59,402 13,002 12,125 602 29,631 32,631 60,004	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 – – 8,731 16,629 16,794 23,645 – – 27,026 – 3,712 – 16,629 20,506 59,402 13,002 12,125 602 29,631 32,631 60,004
		59,402 602
		60,004

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

26. FINANCIAL RISK MANAGEMENT (Continued)

26.1 Categories of financial assets and liabilities (Continued)

Financial liabilities Financial liabilities measured at amortised cost – Trade payables – Accrued liabilities and other payables – Amounts due to related companies – Amount due to a shareholder – Borrowings	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 994 817 2,389 2,099 1,006 20,038 – – 50,123 648 – 30,990 40,509 34,667 14,941 44,250 36,490 118,481	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 994 817 2,389 2,099 1,006 20,038 – – 50,123 648 – 30,990 40,509 34,667 14,941 44,250 36,490 118,481
		118,481

26.2 Foreign currency risk

The Russia Subsidiary’s exposure to currency exchange rates is minimal, as transactions are predominately in RUB.

26.3 Interest rate risk

The Russia Subsidiary’s interest risk mainly arises from bank and other borrowings. Bank and other borrowings arranged at variable rates and at fixed rates expose to the Russia Subsidiary’s cash flow interest rate risk and fair value interest rate risk respectively.

The Russia Subsidiary currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

26.4 Credit risk

No financial assets carry a significant exposure to credit risk. The Russia Subsidiary continuously monitors defaults of other counterparts and incorporates this information into its credit risk controls.

Further quantitative disclosures in respect of the Russia Subsidiary’s exposure to credit risk arising from trade receivables are set out in note 16.

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APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

26. FINANCIAL RISK MANAGEMENT (Continued)

26.5 Liquidity risk

The Russia Subsidiary’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. Although the Russia Subsidiary had net current liability of RUB26,902,000, RUB3,859,000 and RUB53,666,000 as at 31 December 2006, 2007 and 2008, and capital deficiency of RUB17,476,000 and RUB3,982,000 as at 31 December 2006 and 2008 respectively. As explained in note 3.1 to the Financial Information, the Financial Information has been prepared on a going concern basis, the validity of which depends upon future funding being available and continual financial support from Winner Global’s shareholder. In the opinion of director, the Russia Subsidiary’s exposure to liquidity risk is limited.

Trade payables Accrued liabilities and other payables Amount due to a shareholder Borrowings Trade payables Accrued liabilities and other payables Borrowings Trade payables Accrued liabilities and other payables Amounts due to related companies Amount due to a shareholder Borrowings	As at 31 December 2006 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 994 994 994 2,099 2,099 2,099 648 648 648 40,509 40,509 40,509 44,250 44,250 44,250 As at 31 December 2007 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 817 817 817 1,006 1,006 1,006 34,667 34,667 34,667 36,490 36,490 36,490 As at 31 December 2008 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 2,389 2,389 2,389 20,038 20,038 20,038 50,123 50,123 50,123 30,990 30,990 30,990 14,941 14,941 14,941 118,481 118,481 118,481	As at 31 December 2006 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 994 994 994 2,099 2,099 2,099 648 648 648 40,509 40,509 40,509 44,250 44,250 44,250 As at 31 December 2007 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 817 817 817 1,006 1,006 1,006 34,667 34,667 34,667 36,490 36,490 36,490 As at 31 December 2008 Total Within Carrying contractual 1 year or amount undiscounted on demand RUB’000 RUB’000 RUB’000 2,389 2,389 2,389 20,038 20,038 20,038 50,123 50,123 50,123 30,990 30,990 30,990 14,941 14,941 14,941 118,481 118,481 118,481
		118,481

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APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

26. FINANCIAL RISK MANAGEMENT (Continued)

26.6 Fair value

The fair values of the Russia Subsidiary’s current financial assets and liabilities are not materially different from their carrying amounts because of their immediate or short term maturity.

27. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

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

Management actively and regularly reviews and manages the Russia Subsidiary’s capital structure to ensure optimal capital structure and shareholder returns. Management regards paid-up capital and reserves as capital for capital management purpose. The Russia Subsidiary manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Russia Subsidiary may adjust the amount of dividends paid to equity holder, return capital to equity holder, raise new debt financing or sell assets to reduce debts.

The Russia Subsidiary has net current liabilities of RUB26,902,000, RUB3,859,000 and RUB53,666,000 as at 31 December 2006, 2007 and 2008 respectively, and capital deficiency of RUB17,476,000 and RUB3,982,000 as at 31 December 2006 and 2008 respectively. These conditions along with other matters set out in note 3.1 indicate the existence of a material uncertainty that may cast significant doubt about the Russia Subsidiary’s ability to continue as a going concern.

28. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Russia Subsidiary or any member of the Russia Subsidiary were prepared in respect of any period subsequent to 31 December 2008.

Yours faithfully,

Grant Thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark 15 Queen’s Road Central Hong Kong

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APPENDIX III

B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RUSSIA SUBSIDIARY

For the year ended to 31 December 2008

Result

The Russia Subsidiary, a company incorporated under the laws of the Russian Federation with limited liability, is principally engaged in logging, timber production and wholesale wood products selling. The major assets of the Russia Subsidiary include a concession right to exploit approximately 174,904 hectares of forest in Russia. Pursuant to the lease agreement of the concession right, the term of lease is for a period of 25 years commencing from 18 February 2003 (including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations).

Turnover of the Russia Subsidiary for the year ended 31 December 2008 was approximately RUB23,599,000.

Turnover of the Russia Subsidiary was comprised of sales of good and rendering of services in the year 2008. Sales of goods represents the manufacture and sale of round wood, sawn wood and wood products. Rendering of services represents the provision of kiln dryer. Turnover recognised during the year 2008 was as follow:

Revenue: Sale of goods Rendering of services	2008 RUB’000 23,475 124
	23,599

The Russia Subsidiary’s operations were located in two main geographical areas in the year 2008. The following table provides an analysis of the Russia Subsidiary’s sales by location of customers, irrespective of the origin of the goods and services:

Revenue by geographical markets: Russia Mainland China	2008 RUB’000 17,333 6,266
	23,599

Loss attributable to the equity shareholder of the Russia Subsidiary for the year ended 31 December 2008 was RUB8,519,000. The loss was mainly attributable to the Russia Subsidiary not achieving sufficient production efficiency.

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APPENDIX III

Exchange risk

The Russia Subsidiary mainly operates in the Russia. Most of the Russia Subsidiary’s transactions, assets and liabilities were predominately in Russian Rubles.

Foreign exchange risk arose from future commercial transactions and recognised assets and liabilities. The Russia Subsidiary managed its foreign risks by performing regular review and monitoring of its foreign exchange exposures.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2008, the Russia Subsidiary’s cash and bank balances, amounted to a total of approximately RUB602,000.

As at 31 December 2008, the Russia Subsidiary has RUB14,941,000 of bank and other borrowings, has RUB50,123,000 due to related companies which was unsecured, interest-free and repayable on demand and has RUB30,990,000 due to a shareholder which was unsecured, interestfree and repayable on demand.

The gearing ratio was approximately 11.5% as at 31 December 2008. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary’s total assets.

Treasury policies

The Russia Subsidiary has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

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APPENDIX III

Charges on assets

As at 31 December 2008, the Russia Subsidiary pledged certain of property, plant and equipment to secure bank loans facilities of the Russia Subsidiary.

Contingent liabilities

As at 31 December 2008, the Russia Subsidiary did not have any significant contingent liabilities.

Royalty commitments

As at 31 December 2008, the total future minimum royalty payments payable under the terms of the timber concession licenses of Russian Subsidiary are as follows:

Within one year After one year but within five years After five years	2008 RUB’000 8,014 32,054 113,287
	153,355

Significant investments, material acquisitions and disposals

The Russia Subsidiary acquired approximately RUB43,911,000 of property, plant and equipment for the year ended 31 December 2008.

Save as the aforesaid, the Russia Subsidiary did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2008.

Employees and remuneration policy

As at 31 December 2008, the Russia Subsidiary has approximately 180 employees in Russia. The total amount of remuneration paid by the Russia Subsidiary to its employees for the year was RUB20,718,000.

In order to retain and attract high caliber executives and employees, the Russia Subsidiary rewards its employees according to prevailing market practices, employees’ individual experience and performance are reviewed regularly. In addition to the provision of annual bonus, retirement benefit and medical insurance coverage and discretionary bonuses are also available to employees based on their performance.

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APPENDIX III

Future plans and prospects

The Russia Subsidiary had future plans to acquire 99.9% equity interest of the Russia Subsidiary II which principally holds six concession rights to exploit an aggregate of approximately 67,841 hectares of forest in Russia.

Looking forward, the Russia Subsidiary will continue to serve primarily as the holder of a concession right to exploit approximately 174,904 hectares of forest in Russia. The Russia Subsidiary is also expected to increase its logging, timber production and wholesaling of wood products in order to offer growth to its business and in order to enhance shareholders’ value.

For the year ended 31 December 2007

Result

Turnover of the Russia Subsidiary for the year ended 31 December 2007 was approximately RUB88,000. Turnover of the Russia Subsidiary was comprised of rendering of services in the year 2007. Rendering of services represents the provision of kiln dryer. Turnover recognised during the year 2007 was as follow:

Revenue: Rendering of services	2007 RUB’000 88
	88

The Russia Subsidiary’s operations was located Russia in the year 2007. The following table provides an analysis of the Russia Subsidiary’s sales by location of customers, irrespective of the origin of the goods and services.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

Revenue by geographical markets: Russia	2007 RUB’000 88
	88

Profit attributable to the equity shareholder of the Russia Subsidiary for the year ended 31 December 2007 was approximately RUB22,013,000. The profit was mainly attributable to write-off of borrowings of RUB25,386,000.

Exchange risk

The Russia Subsidiary mainly operates in the Russia. Most of the Russia Subsidiary’s transactions, assets and liabilities were predominately in Russian Rubles.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2007, the Russia Subsidiary’s cash and bank balances, amounted to a total of approximately RUB12,125,000.

As at 31 December 2007, the Russia Subsidiary has RUB34,667,000 of bank and other borrowings.

The gearing ratio was approximately 84.5% as at 31 December 2007. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary’s total assets.

Treasury policies

The Russia Subsidiary has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and

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APPENDIX III

– Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

Charges on assets

As at 31 December 2007, the Russia Subsidiary pledged certain of property, plant and equipment to secure bank loans facilities of the Russia Subsidiary.

Contingent liabilities

As at 31 December 2007, the Russia Subsidiary did not have any significant contingent liabilities.

Royalty commitments

As at 31 December 2007, the total future minimum royalty payments payable under the terms of the timber concession licenses of Russian Subsidiary are as follows:

Within one year After one year but within five years After five years	2007 RUB’000 8,014 32,054 121,301
	161,369

Significant investments, material acquisitions and disposals

The Russia Subsidiary did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2007.

Employees and remuneration policy

As at 31 December 2007, the Russia Subsidiary has approximately two employees in Russia. The total amount of remuneration paid by the Russia Subsidiary to its employees for the year was RUB52,000.

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APPENDIX III

Future plans and prospects

The Russia Subsidiary plans to acquire approximately RUB44 million of property, plant and equipment in the year 2007.

Looking forward, the Russia Subsidiary will continue to primarily serve as the holder of a concession right to exploit approximately 174,904 hectares of forest in Russia. The Russia Subsidiary is expected to reinitiate more logging, timber production and wholesaling of wood products.

For the year ended 31 December 2006

Result

Turnover of the Russia Subsidiary for the year ended 31 December 2006 was approximately RUB10,982,000. Turnover of the Russia Subsidiary was comprised of sales of good and rendering of services in the year 2006. Sales of goods represents the manufacture and sale of round wood, sawn wood and wood products. Rendering of services represents the provision of kiln dryer. Turnover recognised during the year 2006 was as follow:

Revenue: Sale of goods Rendering of services	2006 RUB’000 9,307 1,675
	10,982

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APPENDIX III

The Russia Subsidiary’s operations were located in two main geographical areas in the year 2006. The following table provides an analysis of the Russia Subsidiary’s sales by location of customers, irrespective of the origin of the goods and services:

Revenue by geographical markets: Russia Mainland China	2006 RUB’000 3,282 7,700
	10,982

Loss attributable to the equity shareholder of the Russia Subsidiary for the year ended 31 December 2006 was approximately RUB7,103,000. The loss was mainly attributable to the Russia Subsidiary not achieving sufficient production efficiency.

Exchange risk

The Russia Subsidiary mainly operates in the Russia. Most of the Russia Subsidiary’s transactions, assets and liabilities were predominately in Russian Rubles.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2006, the Russia Subsidiary’s cash and bank balances, amounted to a total of approximately RUB13,002,000.

As at 31 December 2006, the Russia Subsidiary has RUB40,509,000 of bank and other borrowings and has RUB648,000 due to a shareholder which was unsecured, interest-free and repayable on demand.

The gearing ratio was approximately 101.7% as at 31 December 2006. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary’s total assets.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY

APPENDIX III

Treasury policies

The Russia Subsidiary has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

Charges on assets

As at 31 December 2006, the Russia Subsidiary pledged certain property, plant and equipment to secure bank loans facilities of the Russia Subsidiary.

Contingent liabilities

As at 31 December 2006, the Russia Subsidiary did not have any significant contingent liabilities.

Royalty commitments

As at 31 December 2006, the total future minimum royalty payments payable under the terms of the timber concession licenses of Russian Subsidiary are as follows:

Within one year After one year but within five years After five years	2006 RUB’000 8,014 32,054 129,315
	169,383

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APPENDIX III

Significant investments, material acquisitions and disposals

The Russia Subsidiary did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2006.

Employees and remuneration policy

As at 31 December 2006, the Russia Subsidiary has approximately 43 employees in Russia. The total amount of remuneration paid by the Russia Subsidiary to its employees for the year was approximately RUB3,026,000.

Future plans and prospects

Looking forward, the Russia Subsidiary is not expected to engage in significant logging, timber production and wholesaling of wood products. However, the Russia Subsidiary will continue to primarily serve as the holder of a concession right to exploit approximately 174,904 hectares of forest in Russia.

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APPENDIX IV

A. ACCOUNTANTS’ REPORT ON THE RUSSIA SUBSIDIARY II

The following is the text of a report from Grant Thornton, the independent reporting accountants, in respect of the accountants’ report on the Russia Subsidiary II as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

==> picture [31 x 28] intentionally omitted <==

==> picture [146 x 45] intentionally omitted <==

25 June 2009

The Directors

Bright Prosperous Holdings Limited

Room 3001-2 Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of OOO Novoles (the “Russia Subsidiary II”) in sections I and II below including the balance sheets of the Russia Subsidiary II as at 31 December 2006, 2007 and 2008, the income statements, the cash flow statements and the statements of changes in equity for the years ended 31 December 2006, 2007 and 2008 (the “Relevant Periods”) and the notes thereto prepared for inclusion in the circular of Bright Prosperous Holdings Limited (the “Company”) dated 25 June 2009 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of Amplewell Holdings Limited (the “Target Company”).

The Russia Subsidiary II was incorporated in the Russia as a limited liability company on 3 November 2004 with a registered capital of Rubles (“RUB”) 40,120,482. The address of register office and the principal place of business of the Russia Subsidiary II is Ulitsa Dugovoy Proezd, Town Chita, the Russia. As at the date of this report, the Russia Subsidiary II is beneficially owned as to 99.9% by Zabaikalskaya Lesnaya Kompania (the “Russia Subsidiary”) and 0.1% by Sergey Seleznev. The Russia Subsidiary acquired 99.9% of the equity interest in the Russia Subsidiary II on 5 February 2009. Upon completion of the acquisition, the Target Company will indirectly hold 99.9% of equity interest in the Russia Subsidiary II through the Russia Subsidiary. The Target Company was incorporated in British Virgin Islands (“BVI”) as a limited liability company on 3 February 2009. During the Relevant Periods, the Russia Subsidiary II is principally trading of wood products.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

The Russia Subsidiary II has adopted 31 December as its financial year end. No audited statutory financial statements of the Russia Subsidiary II have been prepared since its date of incorporation as there are no statutory requirements.

For the purpose of this report, the director of the Russia Subsidiary II have prepared the financial statements (the “Underlying Financial Statements”) of the Russia Subsidiary II for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We were engaged, for the purposes of this report, to perform appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Periods as set out in this report have been prepared by the director of the Russia Subsidiary II based on the Underlying Financial Statements and in accordance with HKFRSs. For the purpose of this report, we were engaged to examine the Financial Information and carry out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The director of the Russia Subsidiary II is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. The directors of the Company are responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you. Because of the significance of matters described in the basis for disclaimer of opinion paragraph, however, we were unable to obtain sufficient appropriate evidence to provide a basis for an opinion.

Basis for Disclaimer of Opinion

In our audit of the Underlying Financial Statements for the years ended 31 December 2006, 2007 and 2008, the books and records (including any bank records) of the Russia Subsidiary II as made available to us by the Russia Subsidiary II’s management were incomplete for our audit purposes. Under circumstances as explained above, we were unable to carry out audit procedures necessary on the books and records of the Russia Subsidiary II, to satisfy ourselves as the existence, completeness, accuracy and valuations of its assets (including any cash and bank balances) of RUB64,972,000, RUB82,261,000 and RUB48,599,000, and liabilities (including any borrowings) of RUB35,368,000, RUB59,368,000 and RUB32,773,000 as at 31 December 2006, 2007 and 2008 respectively, and its losses of RUB8,921,000, RUB6,711,000 and RUB7,067,000 for the years ended 31 December 2006, 2007 and 2008 respectively. There were no alternative audit procedures which we could adopt to satisfy ourselves as to whether these assets and liabilities have been fairly stated.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

Disclaimer of Opinion on View Given by Financial Information

Because of the significant of the matters described in the basis for disclaimer of opinion paragraph, we have not been able to obtain sufficient appropriate evidence to provide a basis for an opinion. Accordingly, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of affairs of the Russia Subsidiary II as at 31 December 2006, 2007 and 2008 and of the Russia Subsidiary II’s losses and cash flows for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards.

Going Concern – Existence of Material Uncertainty

We draw attention to note 3.1 to the Financial Information concerning the net current liabilities of RUB6,540,000, RUB8,679,000 and RUB11,395,000 as at 31 December 2006, 2007 and 2008 respectively. These conditions along with other matters set out in note 3.1 indicate the existence of a material uncertainty that may cast significant doubt about the Russia Subsidiary II’s ability to continue as a going concern.

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

I. FINANCIAL INFORMATION

A. Income Statements

For the years ended 31 December 2006, 2007 and 2008

Notes Revenue 5 Cost of sales Gross loss Administrative expenses Finance costs 6 Loss before income tax 7 Income tax expense 8 Loss for the year	2006 RUB’000 66 (85) (19) (7,429) (1,473) (8,921) – (8,921)	2007 RUB’000 – – – (4,814) (1,897) (6,711) – (6,711)	2008 RUB’000 1,347 (1,862) (515) (4,907) (1,645) (7,067) – (7,067)

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

I. FINANCIAL INFORMATION (Continued)

B. Balance Sheets

As at 31 December 2006, 2007 and 2008

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 11 Timber concession rights 12 Current assets Trade receivables 13 Other receivables Amounts due from related companies 14 Cash and cash equivalents 15 Current liabilities Receipts in advance Accrued liabilities and other payables Amount due to a related company 16 Amount due to a shareholder 16 Borrowings 17 Net current liabilities Total assets less current liabilities/net assets EQUITY Paid-up capital 18 Accumulated losses Total equity	2006 RUB’000 36,144 – 36,144 48 23,826 4,941 13 28,828 10,060 8,418 – 7,299 9,591 35,368 (6,540) 29,604 40,120 (10,516) 29,604	2007 RUB’000 31,572 – 31,572 48 50,596 13 32 50,689 10,060 1,502 1,850 – 45,956 59,368 (8,679) 22,893 40,120 (17,227) 22,893	2008 RUB’000 27,221 – 27,221 48 12,708 8,616 6 21,378 6,215 387 – 7,471 18,700 32,773 (11,395) 15,826 40,120 (24,294) 15,826

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

I. FINANCIAL INFORMATION (Continued)

C. Cash Flow Statements

For the years ended 31 December 2006, 2007 and 2008

Notes Cash flows from operating activities Loss before income tax Adjustments for: Depreciation 7 Interest expense 6 Loss on disposal of property, plant and equipment 7 Operating loss before working capital changes Increase in trade receivables (Increase)/decrease in other receivables Decrease in receipts in advance Increase/(decrease) in accrued liabilities and other payables Net cash (used in)/generated from operating activities Cash flow from investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash generated from/(used in) investing activities	2006 RUB’000 (8,921) 4,326 1,473 98 (3,024) (48) (6,072) – 4,520 (4,624) (353) 481 128	2007 RUB’000 (6,711) 4,572 1,897 – (242) – (26,770) – (6,916) (33,928) – – –	2008 RUB’000 (7,067) 4,621 1,645 – (801) – 37,888 (3,845) (1,115) 32,127 (270) – (270)

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APPENDIX IV

I. FINANCIAL INFORMATION (Continued)

C. Cash Flow Statements (Continued)

For the years ended 31 December 2006, 2007 and 2008

Notes Cash flows from financing activities (Repayment to)/advance from related companies Advance from/(repayment to) a shareholder Net proceeds/(repayment) of borrowings Interest expense paid Net cash generated from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents Cash and bank balances 15	2006 RUB’000 (2,347) 6,300 1,969 (1,473) 4,449 (47) 60 13 13	2007 RUB’000 6,778 (7,299) 36,365 (1,897) 33,947 19 13 32 32	2008 RUB’000 (10,453) 7,471 (27,256) (1,645) (31,883) (26) 32 6 6

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FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

I. FINANCIAL INFORMATION (Continued)

D. Statements of Changes in Equity

For the years ended 31 December 2006, 2007 and 2008

At 1 January 2006 Loss for the year (Total recognised income and expense for the year) At 31 December 2006 and 1 January 2007 Loss for the year (Total recognised income and expense for the year) At 31 December 2007 and 1 January 2008 Loss for the year (Total recognised income and expense for the year) At 31 December 2008	Paid-up Accumulated capital losses RUB’000 RUB’000 40,120 (1,595) – (8,921) 40,120 (10,516) – (6,711) 40,120 (17,227) – (7,067) 40,120 (24,294)	Total RUB’000 38,525 (8,921) 29,604 (6,711) 22,893 (7,067) (15,826)

IV – 8

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

2. ADOPTION OF NEW OR AMENDED HKFRSs

The Russia Subsidiary II has adopted all the new and amended HKFRSs which are effective for the accounting periods beginning on 1 January 2008, issued by the HKICPA in the preparation of the Financial Information throughout the Relevant Periods. HKFRS 1 “First-time Adoption of HKFRS” has been applied in preparing Financial Information. The Financial Information is the first set of financial statements prepared in accordance with HKFRSs by the Russia Subsidiary II. The transition to HKFRSs from previous GAAP did not have material financial impact on the Financial Information of the Russia Subsidiary II.

The accounting policies set out below have been applied consistently by the Russia Subsidiary II to the Relevant Periods in the Financial Information and in preparing the opening HKFRSs balance sheet at 1 January 2006 for the purpose of the first set of HKFRSs financial statements.

The Russia Subsidiary II has not early adopted the following standards or interpretations that have been issued but are not yet effective.

HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 23 (Revised)	Borrowing Costs 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements		3
HKAS 32, HKAS 39 & HKFRS 7	Puttable Financial Instruments and Obligations Arising on Liquidation					1
(Amendments)
HKAS 39 (Amendment)	Financial Instruments: Recognition and Measurement – Embedded Derivatives						2
HKAS 39 (Amendment)	Eligible Hedged Items 3
HKFRS 1 (Revised)	First-time Adoption of HKFRSs 3
HKFRS 1 and HKAS 27	Cost of an Investment in a Subsidiary, Jointly Controlled Entity or an
(Amendments)	Associate 1
HKFRS 2 (Amendment)	Share-based Payment – Vesting Conditions and Cancellations				1
HKFRS 3 (Revised)	Business Combinations 3
HKFRS 7 (Amendments)	Improving Disclosures about Financial Instruments			1
HKFRS 8	Operating Segments 1
HK(IFRIC)–Int 9	Reassessment of Embedded Derivatives 2
HK(IFRIC)–Int 13	Customer Loyalty Programmes 4
HK(IFRIC)–Int 15	Agreement for the Construction of Real Estate	1
HK(IFRIC)–Int 16	Hedges of a Net Investment in a Foreign Operation			5
HK(IFRIC)–Int 17	Distributions of Non-cash Assets to Owners 3
HK(IFRIC)–Int 18	Transfers of Assets from Customers 6
Various	Annual Improvements to HKFRS 2008 7
Various	Annual Improvements to HKFRS 2009 8

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods ending on or after 30 June 2009

3 Effective for annual periods beginning on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 July 2008
5 Effective for annual periods beginning on or after 1 October 2008
6 Effective for transfers received on or after 1 July 2009

7 Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

8 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRS

IV – 9

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

2. ADOPTION OF NEW OR AMENDED HKFRSs (Continued)

The director of the Russia Subsidiary II anticipates that all of the pronouncements will be adopted in the Russia Subsidiary II’s accounting policy for the first period beginning after the effective date of the pronouncement.

Among these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the Russia Subsidiary II’s Financial Information. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Russia Subsidiary II will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial positions or results of the Russia Subsidiary II but will give rise to additional disclosures.

The director of the Russia Subsidiary II is currently assessing the impact of other new and amended HKFRSs upon initial application. So far, the director has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Russia Subsidiary II’s results and financial positions.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below.

The Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below.

The Financial Information has been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business notwithstanding that the Russia Subsidiary II had net current liabilities of RUB6,540,000, RUB8,679,000 and RUB11,395,000 as at 31 December 2006, 2007 and 2008 respectively. The Financial Information has been prepared on a going concern basis, the validity of which depends upon future funding being available and continual financial support from Winner Global Holdings Limited (“Winner Global”), the ultimate holding company of the Target Company’s shareholder.

The Financial Information does not include any adjustments that would result from a failure of the Russia Subsidiary II to operate as a going concern. Should the Russia Subsidiary II be unable to continue in business as a going concern, adjustments would have to be made in the Financial Information to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets as current assets. The effect of these potential adjustments has not been reflected in the Financial Information.

IV – 10

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Foreign currency translation

The Financial Information is presented in the Russian Ruble (“RUB”), which is also the functional currency of the Russia Subsidiary II.

3.3 Revenue recognition

Revenue comprises the fair value for the sale of goods, rendering of services and net of rebates and discounts. Provided it is probable that the economic benefits will flow to the Russia Subsidiary II and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:–

3.4 Borrowing costs

All borrowing costs are expenses as incurred.

3.5 Intangible assets (other than goodwill)

Timber concession rights acquired separately are recognised initially at cost. The Russia Subsidiary II has acquired the timber concession rights at nil cost through auctions.

The Russia Subsidiary II is required to pay royalties to the respective forestry enterprises based on the volume by species harvested each year, subject to an annual minimum royalty payment.

IV – 11

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.6 Property, plant and equipment

Buildings and all other property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses.

Buildings held under leasing agreements are depreciated over their expected useful lives of 15 years or over the term of lease, if shorter.

Depreciation on the following property, plant and equipment is provided to write off the cost over their estimated useful lives, using the straight-line method at the following rate per annum:

Machinery and equipment 20% – 33% Motor vehicles 20%

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the balance sheet date.

The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

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

3.7 Impairment of non-financial assets

All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

IV – 12

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Impairment of non-financial assets (Continued)

3.8 Operating leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Russia Subsidiary II 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.

Leases which do not transfer substantially all the risks and rewards of ownership to the Russia Subsidiary II are classified as operating leases.

Where the Russia Subsidiary II has the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

3.9 Financial assets

The financial assets comprise receivables including trade and other receivables, amounts due from related companies and cash and cash equivalents.

All financial assets are recognised when, and only when, the Russia Subsidiary II becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, directly attributable transaction costs.

At the balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised.

Loans and receivables

IV – 13

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Financial assets (Continued)

Impairment of financial assets

3.10 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Changes in deferred tax assets or liabilities are recognised in the income statement, or in equity if they relate to items that are charged or credited directly to equity.

3.11 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

IV – 14

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.12 Paid-up capital

Paid-up capital is classified as equity. This is determined using the proceeds from capital contribution made by the investors.

3.13 Retirement benefits cost and short term employee benefits

The employees of the Russia Subsidiary II are required to participate in a central pension scheme operated by the local municipal government. The Russia Subsidiary II is required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

3.14 Financial liabilities

The Russia Subsidiary II’s financial liabilities include accrued liabilities and other payables, amount due to a related company, amount due to a shareholder and borrowings.

Financial liabilities are recognised when the Russia Subsidiary II becomes a party to the contractual provisions of the instrument.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Borrowings

Borrowings are classified as current liabilities unless the Russia Subsidiary II has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Other financial liabilities

Other financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

IV – 15

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.15 Provisions and contingent liabilities

Provisions are recognised when the Russia Subsidiary II has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amounts of the obligation 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.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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 uncertain events not wholly within the control of the Russia Subsidiary II are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

3.16 Segment reporting

No separate analysis of segment information by business or geographical segments is presented. The Russia Subsidiary II is principally engaged in trading of wood products which comprised a single business unit. The Russia Subsidiary II’s revenue is derived from customers based in the Russia, and over 90% of the Russia Subsidiary II’s assets are located in Russia.

3.17 Related parties

For the purposes of this Financial Information, a party is considered to be related to the Russia Subsidiary II if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Russia Subsidiary II or exercise significant influence over the Russia Subsidiary II in making financial and operating policy decisions, or has joint control over the Russia Subsidiary II;
(ii) the Russia Subsidiary II and the party are subject to common control;
(iii) the party is an associate of the Russia Subsidiary II or a joint venture in which the Russia Subsidiary II is a venturer;
(iv) the party is a member of key management personnel of the Russia Subsidiary II or the Russia Subsidiary II’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;
(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 Russia Subsidiary II or of any entity that is a related party of the Russia Subsidiary II.

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.

IV – 16

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Russia Subsidiary II makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to 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 year are discussed below:

Depreciation

The Russia Subsidiary II depreciates property, plant and equipment on the straight-line method over the estimated useful lives, starting from the date on which the assets are placed into productive use. The estimated useful lives reflect the director’s estimate of the periods that the Russia Subsidiary II intends to derive future economic benefits from the use of the Russia Subsidiary II’s property, plant and equipment.

Impairment of trade receivables

The Russia Subsidiary II’s management determines the impairment of trade receivables on a regular basis. This estimate is based on the credit history of its customers and prevailing market conditions. Management reassesses the impairment of trade receivables at the balance sheet date.

5. REVENUE AND TURNOVER

Revenue, which is also the Russia Subsidiary II’ turnover, represents total invoiced value of goods supplied and income from provision of services. Revenue recognised during the Relevant Periods is as follows:

Revenue: Sale of goods Rendering of services	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 63 – 1,347 3 – – 66 – 1,347	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 63 – 1,347 3 – – 66 – 1,347
		1,347

6. FINANCE COSTS

		Year ended 31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Interest charges on bank and other loans repayable
within five years	1,473	1,897	1,645

IV – 17

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

7. LOSS BEFORE INCOME TAX

Loss before income tax is arrived at after charging:

		Year ended 31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Auditors’ remuneration	–	–	–
Cost of inventories sold	85	–	1,862
Depreciation of owned assets	4,326	4,572	4,621
Loss on disposal of property, plant and equipment	98	–	–

8. INCOME TAX EXPENSE

No Hong Kong and Russia income tax has been provided as the Russia Subsidiary II did not generate any assessable profit in Hong Kong and Russia during the Relevant Periods.

Reconciliation between accounting loss and income tax expense at applicable rate is as follows:

Loss before income tax Tax at applicable rate of 6% Tax effect of non-deductible expenses Tax effect of non-taxable income Income tax expense	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 (8,921) (6,711) (7,067 (535) (403) (424 539 403 505 (4) – (81 – – –	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 (8,921) (6,711) (7,067 (535) (403) (424 539 403 505 (4) – (81 – – –

		(424 505 (81
		–

As at 31 December 2006, 2007 and 2008, no deferred tax liability has been provided as the Russia Subsidiary II did not have any significant temporary differences which give rise to a deferred tax liability.

9. EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTOR’S EMOLUMENTS)

Salaries and allowances Retirement scheme contribution – defined contribution plans	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2,184 – – 305 – – 2,489 – –	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 2,184 – – 305 – – 2,489 – –
		–

IV – 18

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

10. DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) There were no director’s emoluments incurred during the Relevant Periods. There were no arrangements under which a director waived or agreed to waive any remuneration during the Relevant Periods.
(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Russia Subsidiary II did not include any director during the Relevant Periods. The emoluments payable to the five highest paid individuals for the Relevant Periods, which fell within the salary band of Nil to RUB1 million, are as follows:

Salaries and allowances Retirement scheme contribution – defined contribution plans	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 276 – – 75 – – 351 – –	Year ended 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 276 – – 75 – – 351 – –
		–

During the Relevant Periods, no emolument was paid by the Russia Subsidiary II to the director or any of the five highest paid individuals as an inducement to join or upon joining the Russia Subsidiary II or as compensation for loss of office.

IV – 19

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

11. PROPERTY, PLANT AND EQUIPMENT

At 1 January 2006 Cost Accumulated depreciation Net book amount Year ended 31 December 2006 Opening net book amount Additions Disposals Depreciation Closing net book amount At 31 December 2006 Cost Accumulated depreciation Net book amount Year ended 31 December 2007 Opening net book amount Depreciation Closing net book amount At 31 December 2007 Cost Accumulated depreciation Net book amount Year ended 31 December 2008 Opening net book amount Additions Depreciation Closing net book amount At 31 December 2008 Cost Accumulated depreciation Net book amount	Buildings RUB’000 30,072 – 30,072 30,072 – – (1,838) 28,234 30,072 (1,838) 28,234 28,234 (2,005) 26,229 30,072 (3,843) 26,229 26,229 – (2,005) 24,224 30,072 (5,848) 24,224	Machinery and equipment RUB’000 10,563 (103) 10,460 10,460 297 (579) (2,440) 7,738 10,038 (2,300) 7,738 7,738 (2,510) 5,228 10,038 (4,810) 5,228 5,228 – (2,510) 2,718 10,038 (7,320) 2,718	Motor vehicles RUB’000 193 (29) 164 164 56 – (48) 172 249 (77) 172 172 (57) 115 249 (134) 115 115 270 (106) 279 519 (240) 279	Total RUB’000 40,828 (132) 40,696 40,696 353 (579) (4,326) 36,144 40,359 (4,215) 36,144 36,144 (4,572) 31,572 40,359 (8,787) 31,572 31,572 270 (4,621) 27,221 40,629 (13,408) 27,221

IV – 20

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

11. PROPERTY, PLANT AND EQUIPMENT (Continued)

In the opinion of the Russia Subsidiary II’s director, bank borrowings are secured by certain of property, plant and equipment (Note 17).

In the opinion of the Russia Subsidiary II’s director, the buildings are stated at cost and the cost is approximate to their fair values.

12. TIMBER CONCESSION RIGHTS

						31 December
					2006	2007	2008
					RUB’000	RUB’000	RUB’000
Cost and carrying amount as at	1	January and	31	December	–	–	–

The Russia Subsidiary II owned six timber concession licenses through auction in 2006 at nil cost. The timber concession rights can exploit approximately 67,841 hectares of the forest located in Russia. The terms of the lease for the six concession rights ranging from 5 to 25 years commencing from 2006.

The Russia Subsidiary II is required to pay royalties to the respective forestry enterprises based on the volume by species harvested each year, subject to an annual minimum royalty payment.

13. TRADE RECEIVABLES

Normally, no credit period is granted to customers. Based on the invoice dates, the ageing analysis of the trade receivables was as follows:

181 to 365 days Over 365 days	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 48 – – – 48 48 48 48 48	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 48 – – – 48 48 48 48 48
		48

As at 31 December 2006, 2007 and 2008, trade receivables of RUB48,000 were past due but not impaired. The management believes that no impairment allowance is necessary in respect of these balances as there was no recent history of default. The Russia Subsidiary II does not hold any collateral over these balances.

14. AMOUNTS DUE FROM RELATED COMPANIES

The amounts due are unsecured, interest-free and repayable on demand.

IV – 21

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components:

		31 December
	2006	2007	2008
	RUB’000	RUB’000	RUB’000
Cash at bank and in hand	13	32	6

All bank and cash balances are denominated in RUB. The RUB is not freely convertible into foreign currencies.

16. AMOUNT DUE TO A RELATED COMPANY/SHAREHOLDER

The amount due is unsecured, interest-free and repayable on demand.

17. BORROWINGS

Bank borrowings (Secured) Other borrowings (Unsecured) Total borrowings	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 7,000 27,500 14,500 2,591 18,456 4,200 9,591 45,956 18,700	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 7,000 27,500 14,500 2,591 18,456 4,200 9,591 45,956 18,700
		18,700

Total borrowings include secured liabilities (bank borrowings) of RUB7,000,000, RUB27,500,000 and RUB14,500,000 as at 31 December 2006, 2007 and 2008 respectively. In the opinion of the Russia Subsidiary II’s director, bank borrowings are secured by certain of property, plant and equipment of the Russia Subsidiary II (Note 11).

In the opinion of the Russia Subsidiary II’s director, the bank and other borrowings are repayable on demand.

18. PAID-UP CAPITAL

			As at 31 December
		2006	2007	2008
	Note	RUB’000	RUB’000	RUB’000
Registered and paid-up capital:
At beginning and end of year	(a)	40,120	40,120	40,120

(a) The paid-up capital had been paid up by cash of RUB9,910,000 and the remaining balance in form of property, plant and equipment transferred by a shareholder.

IV – 22

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

19. COMMITMENTS

Future minimum royalty payments

As at 31 December 2006, 2007 and 2008, the total future minimum royalty payments payable under the terms of the timber concession licenses of the Russia Subsidiary II are as follows (see note 12):

Within one year After one year but within five years After five years	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 1,602 2,525 3,430 11,555 11,950 13,537 35,293 32,373 36,848 48,450 46,848 53,815	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 1,602 2,525 3,430 11,555 11,950 13,537 35,293 32,373 36,848 48,450 46,848 53,815
		53,815

20. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Financial Information, the Russia Subsidiary II had the following material related party transactions:

Key management personnel compensation:

Included in staff costs are key management personnel compensation and comprises the following categories:

Short term employee benefits Retirement scheme contribution	2006 RUB’000 276 75 351	2007 RUB’000 – – –	2008 RUB’000 – –
			–

21. FINANCIAL RISK MANAGEMENT

The Russia Subsidiary II is exposed to financial risks through its use of financial instruments in its ordinary course of operations and in its investment activities. The financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Russia Subsidiary II does not have written risk management policies and guidelines. However, the management of the Russia Subsidiary II meets periodically to analyse and formulate measures to manage the Russia Subsidiary II’s exposure to market risk. Generally, the Russia Subsidiary II employs a conservative strategy regarding its risk management. The overall objectives in managing financial risks focus on securing the Russia Subsidiary II’s short to medium term cash flows by mininising its exposure to financial markets. The Russia Subsidiary II does not hold or issue derivative financial instruments for trading purpose.

IV – 23

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

21. FINANCIAL RISK MANAGEMENT (Continued)

21.1 Categories of financial assets and liabilities

The carrying amounts presented in the balance sheets as at 31 December 2006, 2007 and 2008 related to the following categories of financial assets and financial liabilities.

Financial assets Loans and receivables – Trade receivables – Other receivables – Amounts due from related companies Cash and cash equivalents Financial liabilities Financial liabilities measured at amortised cost – Accrued liabilities and other payables – Amount due to a related company – Amount due to a shareholder – Borrowings	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 48 48 48 23,826 50,596 12,708 4,941 13 8,616 28,815 50,657 21,372 13 32 6 28,828 50,689 21,378 As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 8,418 1,502 387 – 1,850 – 7,299 – 7,471 9,591 45,956 18,700 25,308 49,308 26,558	As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 48 48 48 23,826 50,596 12,708 4,941 13 8,616 28,815 50,657 21,372 13 32 6 28,828 50,689 21,378 As at 31 December 2006 2007 2008 RUB’000 RUB’000 RUB’000 8,418 1,502 387 – 1,850 – 7,299 – 7,471 9,591 45,956 18,700 25,308 49,308 26,558
		26,558

21.2 Foreign currency risk

The Russia Subsidiary II’s exposure to currency exchange rates is minimal, as transactions are predominately in RUB.

21.3 Interest rate risk

The Russia Subsidiary II’s interest risk mainly arises from bank and other borrowings. Bank and other borrowings arranged at variable rates and at fixed rates expose to the Russia Subsidiary II’s cash flow interest rate risk and fair value interest rate risk respectively.

The Russia Subsidiary II currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

IV – 24

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

21. FINANCIAL RISK MANAGEMENT (Continued)

21.4 Credit risk

No financial assets carry a significant exposure to credit risk. The Russia Subsidiary II continuously monitors defaults of other counterparts and incorporates this information into its credit risk controls.

Further quantitative disclosures in respect of the Russia Subsidiary II’s exposure to credit risk arising from trade receivables are set out in note 13.

None of the Russia Subsidiary II’s financial assets is secured by collateral or other credit enhancements.

21.5 Liquidity risk

The Russia Subsidiary II’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. Although the Russia Subsidiary II had net current liabilities of RMB6,540,000, RMB8,679,000 and RMB11,395,000 as at 31 December 2006, 2007 and 2008. The Russia Subsidiary II is able to monitor its liquidity requirements by obtaining continual financial support from Winner Global’s shareholder.

Accrued liabilities and other payables Amount due to a shareholder Borrowings Accrued liabilities and other payables Amount due to a related company Borrowings Accrued liabilities and other payables Amount due to a shareholder Borrowings	As at 31 December 2006 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 8,418 8,418 8,418 7,299 7,299 7,299 9,591 9,591 9,591 25,308 25,308 25,308 As at 31 December 2007 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 1,502 1,502 1,502 1,850 1,850 1,850 45,956 45,956 45,956 49,308 49,308 49,308 As at 31 December 2008 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 387 387 387 7,471 7,471 7,471 18,700 18,700 18,700 26,558 26,558 26,558	As at 31 December 2006 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 8,418 8,418 8,418 7,299 7,299 7,299 9,591 9,591 9,591 25,308 25,308 25,308 As at 31 December 2007 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 1,502 1,502 1,502 1,850 1,850 1,850 45,956 45,956 45,956 49,308 49,308 49,308 As at 31 December 2008 Total Carrying contractual Within 1 year amount undiscounted or on demand RUB’000 RUB’000 RUB’000 387 387 387 7,471 7,471 7,471 18,700 18,700 18,700 26,558 26,558 26,558
		26,558

IV – 25

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

21. FINANCIAL RISK MANAGEMENT (Continued)

21.6 Fair value

The fair values of the Russia Subsidiary II’s current financial assets and liabilities are not materially different from their carrying amounts because of their immediate or short term maturity.

22. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

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

Management actively and regularly reviews and manages the Russia Subsidiary II’s capital structure to ensure optimal capital structure and shareholder returns. Management regards paid-up capital and reserves as capital for capital management purpose. The Russia Subsidiary II manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Russia Subsidiary II may adjust the amount of dividends paid to equity holder, return capital to equity holder, raise new debt financing or sell assets to reduce debts.

The Russia Subsidiary II has net current liabilities of RUB6,540,000, RUB8,679,000 and RUB11,395,000 as at 31 December 2006, 2007 and 2008 respectively. These conditions along with other matters set out in note 3.1 indicate the existence of a material uncertainty that may cast significant doubt about the Russia Subsidiary II’s ability to continue as a going concern.

23. POST BALANCE SHEET EVENT

In addition to those disclosed elsewhere, the Russia Subsidiary II had the following material post balance sheet event:

(i) On 5 February 2009, the Russia Subsidiary acquired 99.9% of the equity interest of the Russia Subsidiary II.

24. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Russia Subsidiary II were prepared in respect of any period subsequent to 31 December 2008.

Yours faithfully,

Grant Thornton

Certified Public Accountants 13th Floor, Gloucester Tower The Landmark

15 Queen’s Road Central Hong Kong

IV – 26

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RUSSIA SUBSIDIARY II

For the year ended 31 December 2008

Result

The Russia Subsidiary II, a company incorporated under the laws of the Russian Federation with limited liability, principally holds six concession rights to exploit an aggregate of approximately 67,841 hectares of forest in Russia. Pursuant to the lease agreements of the six concession rights, the terms of lease for the six concession rights range from 5 years to 25 years commencing from 2006.

Turnover of the Russia Subsidiary II for the year ended 31 December 2008 was approximately RUB1,347,000.

Turnover recognised during the year 2008 was as follows:

Revenue: Sale of goods	2008 RUB’000 1,347
	1,347

Loss attributable to the equity shareholder of the Russia Subsidiary II for the year ended 31 December 2008 was approximately RUB7,067,000. As the Russia Subsidiary II mainly holds the six concession rights, it did not generate significant revenue and recorded a loss.

Exchange risk

The Russia Subsidiary II mainly operates in the Russia. Most of the Russia Subsidiary II’s transactions, assets and liabilities were predominately in Russian Rubles.

Foreign exchange risk arose from future commercial transactions and recognised assets and liabilities. The Russia Subsidiary II managed its foreign risks by performing regular review and monitoring of its foreign exchange exposures.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2008, the Russia Subsidiary II’s cash and bank balances, amounted to a total of approximately RUB6,000.

As at 31 December 2008, the Russia Subsidiary II has RUB18,700,000 of bank and other borrowings and has RUB7,471,000 due to a shareholder which was unsecured, interest-free and repayable on demand.

IV – 27

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

The gearing ratio was approximately 38.5% as at 31 December 2008. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary II’s total assets.

Treasury policies

The Russia Subsidiary II has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary II’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary II;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary II had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

Charges on assets

As at 31 December 2008, the Russia Subsidiary II pledged certain of property, plant and equipment to secure bank loans facilities of the Russia Subsidiary II.

Contingent liabilities

As at 31 December 2008, the Russia Subsidiary II did not have any significant contingent liabilities.

Commitments

As at 31 December 2008, the total future minimum royalty payments payable under the terms of the timber concession licenses of the Russia Subsidiary II are as follows:

Within one year After one year but within five years After five years	2008 RUB’000 3,430 13,537 36,848
	53,815

IV – 28

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

Significant investments, material acquisitions and disposals

The Russia Subsidiary II did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2008.

Employees and remuneration policy

As at 31 December 2008, the Russia Subsidiary II has no employee.

In order to retain and attract high caliber executives and employees in the future, the Russian Subsidiary II will reward its employees according to prevailing market practices, employees’ individual experience and performance will be reviewed regularly. In addition to the provision of annual bonus, retirement benefit and medical insurance coverage and discretionary bonuses will also be available to employees based on their performance.

Future plans and prospects

Looking forward, the Russia Subsidiary II will continue to be a holder of six concession rights to exploit an aggregate of approximately 67,841 hectares of forest in Russia.

For the year ended 31 December 2007

Result

The Russia Subsidiary II recorded no turnover for the year ended 31 December 2007. Loss attributable to the equity shareholder of the Russia Subsidiary II for the year ended 31 December 2007 was approximately RUB6,711,000. As the Russia Subsidiary II mainly holds the six concession rights, it did not generate any revenue and recorded a loss.

Exchange risk

The Russia Subsidiary II mainly operates in the Russia. Most of the Russia Subsidiary II’s transactions, assets and liabilities were predominately in Russian Rubles.

IV – 29

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2007, the Russia Subsidiary II’s cash and bank balances, amounted to a total of approximately RUB32,000.

As at 31 December 2007, the Russia Subsidiary II has RUB45,956,000 of bank and other borrowings and has RUB1,850,000 of amount due to a related company which was unsecured, interest-free and repayable on demand.

The gearing ratio was approximately 55.9% as at 31 December 2007. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary II’s total assets.

Treasury policies

The Russia Subsidiary II has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary II’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary II;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary II had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

Charges on assets

As at 31 December 2007, the Russia Subsidiary II pledged certain of property, plant and equipment to secure bank loans facilities of the Russia Subsidiary II.

Contingent liabilities

As at 31 December 2007, the Russia Subsidiary II did not have any significant contingent liabilities.

IV – 30

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

Commitments

As at 31 December 2007, the total future minimum royalty payments payable under the terms of the timber concession licenses of the Russia Subsidiary II are as follows:

Within one year After one year but within five years After five years	2007 RUB’000 2,525 11,950 32,373
	46,848

Significant investments, material acquisitions and disposals

The Russia Subsidiary II did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2007.

Employees and remuneration policy

As at 31 December 2007, the Russia Subsidiary II has no employee.

Future plans and prospects

Looking forward, the Russia Subsidiary II will continue to be a holder of six concession rights to exploit an aggregate of approximately 67,841 hectares of forest in Russia.

For the year ended 31 December 2006

Result

IV – 31

FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

APPENDIX IV

Turnover of the Russia Subsidiary II for the year ended 31 December 2006 was approximately RUB66,000.

Turnover recognised during the year 2006 was as follows:

Revenue: Sale of goods Rendering of services	2006 RUB’000 63 3
	66

Loss attributable to the equity shareholder of the Russia Subsidiary II for the year ended 31 December 2006 was approximately RUB8,921,000. As the Russia Subsidiary II mainly holds the six concession rights, it did not generate any significant revenue and recorded a loss.

Exchange risk

The Russia Subsidiary II mainly operates in the Russia. Most of the Russia Subsidiary II’s transactions, assets and liabilities were predominately in Russian Rubles.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2006, the Russia Subsidiary II’s cash and bank balances, amounted to a total of approximately RUB13,000.

As at 31 December 2006, the Russia Subsidiary II has RUB9,591,000 of bank and other borrowings and has RUB7,299,000 due to a shareholder which was unsecured, interest-free and repayable on demand.

The gearing ratio was approximately 14.8% as at 31 December 2006. The gearing ratio is expressed as a percentage of bank and other borrowings over the Russia Subsidiary II’s total assets.

Treasury policies

The Russia Subsidiary II has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Russia Subsidiary II’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Russia Subsidiary II;

IV – 32

APPENDIX IV FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and

– Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

The Russia Subsidiary II had neither foreign currency hedging activities nor any financial instruments for hedging purposes during the year.

Charges on assets

As at 31 December 2006, the Russia Subsidiary II pledged certain property, plant and equipment to secure bank loans facilities of the Russia Subsidiary II.

Contingent liabilities

As at 31 December 2006, the Russia Subsidiary II did not have any significant contingent liabilities.

Commitments

As at 31 December 2006, the total future minimum royalty payments payable under the terms of the timber concession licenses of the Russia Subsidiary II are as follows:

Within one year After one year but within five years After five years	2006 RUB’000 1,602 11,555 35,293
	48,450

Significant investments, material acquisitions and disposals

The Russia Subsidiary II did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the year ended 31 December 2006.

Employees and remuneration policy

As at 31 December 2006, the Russia Subsidiary II has approximately 35 employees in Russia. The total amount of remuneration paid by the Russia Subsidiary II to its employees for the year was approximately RUB2,489,000.

IV – 33

APPENDIX IV FINANCIAL INFORMATION OF THE RUSSIA SUBSIDIARY II

In order to retain and attract high caliber executives and employees, the Russia Subsidiary II rewards its employees according to prevailing market practices, employees’ individual experience and performance are reviewed regularly. In addition to the provision of annual bonus, retirement benefit and medical insurance coverage and discretionary bonuses are also available to employees based on their performance.

Future plans and prospects

Looking forward, the Russia Subsidiary II will continue to be a holder of six concession rights to exploit an aggregate of approximately 67,841 hectares of forest in Russia.

Property interests and valuation

Greater China Appraisal Limited, an independent property valuer, has valued the property interests of the Target Group, including the Russia Subsidiary II, as at 31 March 2009. The text of its letter, summary of valuation and valuation certificates are set out in Appendix VII to this circular.

A statement below shows the reconciliation of the net book value of the relevant property interests of the Russia Subsidiary II as at 31 December 2008 to the valuation as at 31 March 2009 as stated in Appendix VII to this circular.

Net book value of the property interests of the Russia Subsidiary II as at 31 December 2008 Less: Depreciation Net book value as at 31 March 2009 Valuation Surplus Valuation of properties as at 31 March 2009 subject to valuation as set out in Appendix VII to this circular	RUB’000 24,224 350 23,874 173,926 197,800	Equivalent to approximately US$’000 675 10 665 4,845
		5,510

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FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

A. ACCOUNTANTS’ REPORT ON THE BRAZIL SUBSIDIARY

The following is the text of a report from Grant Thornton, the independent reporting accountants, in respect of the accountants’ report on the Brazil Subsidiary as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

==> picture [31 x 29] intentionally omitted <==

==> picture [146 x 45] intentionally omitted <==

25 June 2009

The Directors

Bright Prosperous Holdings Limited

Room 3001-2 Top Glory Tower 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Universal Timber Resources Do Brasil Participação Ltda (the “Brazil Subsidiary”), in sections I and II below including the balance sheet as at 31 December 2008, the income statement, the cash flow statement and the statement of changes in equity for the period from 2 June 2008 (being date of incorporation) to 31 December 2008 (the “Relevant Period”) and the notes thereto prepared for inclusion in the circular of Bright Prosperous Holdings Limited (the “Company”) dated 25 June 2009 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of Amplewell Holdings Limited (the “Target Company”).

The Brazil Subsidiary was incorporated in Brazil as a limited liability company on 2 June 2008 with an authorised share capital of R$100,000,000 divided into 100,000,000 ordinary shares of R$1.00 each. The address of registered office and principal place of business of the Brazil Subsidiary is Rua Mundurucus, 3.100, Ed. Metropolitan Tower, rooms 1902 and 1903, District – Guama, County of Belem, State of Para, CEP 66.073-000. As at the date of this report, the Brazil Subsidiary is 99.99% owned by Universal Timber Resources Limited and 0.01% by Leandro Dos Mártires Guerra, and Winner Global Holdings Limited (“Winner Global”) is the ultimate holding company of the Brazil Subsidiary. Upon Completion, the Brazil Subsidiary will be beneficially owned as to 99.99% by the Target Company and 0.01% by Leandro Dos Mártires Guerra, and Winner Global holds 99.99% of equity interest in the Brazil Subsidiary through the Target Company. Winner Global will be the ultimate holding company of the Target Company and the Brazil Subsidiary. The Target Company was incorporated in British Virgin Islands (“BVI”) as a limited liability company on 3 February 2009. The principal activity of the Brazil Subsidiary is investment holding.

V – 1

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

The Brazil Subsidiary has adopted 31 December as it financial year end. No audited statutory financial statements of the Brazil Subsidiary has been prepared since its date of incorporation as there are no statutory requirements.

For the purpose of this report, the director of the Brazil Subsidiary has prepared the financial statements (the “Underlying Financial Statements”) of the Brazil Subsidiary for the Relevant Period in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have, for the purpose of this report, performed appropriate audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Period as set out in this report has been prepared by the director of the Brazil Subsidiary based on the Underlying Financial Statements and in accordance with HKFRSs. For the purpose of this report, we have examined the Financial Information and carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The director of the Brazil Subsidiary is responsible for the preparation of the Underlying Financial Statements and the Financial Information which give a true and fair view. The director of the Company is responsible for the contents of the Circular in which this report is included. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

Opinion

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the Brazil Subsidiary as at 31 December 2008 and of the result and cash flow of the Brazil Subsidiary for the Relevant Period.

Emphasis of Matter – Material Uncertainty regarding the Going Concern Assumption

Without qualifying our opinion, we draw attention to note 3.1 to the Financial Information which discloses that as at 31 December 2008, the Brazil Subsidiary had net current liabilities of R$221,000. These conditions, along with other matters as disclosed in note 3.1 to the Financial Information, indicate the existence of a fundamental uncertainty which may cast significant doubt about the Brazil Subsidiary’s ability to continue as a going concern.

V – 2

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

I. FINANCIAL INFORMATION

A. Income Statement

For the period from 2 June 2008 (date of incorporation) to 31 December 2008 Notes Revenue 5 Administrative expenses Loss before income tax 6 Income tax expense 7 Loss for the period	R$’000 – (186) (186) – (186)

V – 3

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

I.
FINANCIAL INFORMATION (Continued)
B.
Balance Sheet
As at 31 December 2008
Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
9
Current assets
Other receivables
Cash and cash equivalents
10
Current liabilities
Accrued liabilities
Amount due to immediate holding company
11
Net current liabilities
Total assets less current liabilities
EQUITY
Share capital
12
Accumulated loss
Total equity

R$’000
388
23
81
104
1
324
325
(221)
167
353
(186)
167

V – 4

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

I. FINANCIAL INFORMATION (Continued)

C. Cash Flow Statement

For the period from 2 June 2008 (date of incorporation) to 31 December 2008

Note
Cash flows from operating activities
Loss before income tax
Operating loss before working capital changes
Increase in other receivables
Increase in accrued liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Advance from immediate holding company
Net cash generated from financing activities
Net increase in cash and cash equivalents
and at the end of period
Analysis of balances of cash and cash equivalents
Bank balances
10

R$’000
(186)
(186)
(23)
1
(208)
(388)
(388)
353
324
677
81
81

V – 5

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

I. FINANCIAL INFORMATION (Continued)

D. Statement of Changes in Equity

For the period from 2 June 2008 (date of incorporation) to 31 December 2008

Share capital Accumulated loss R$’000 R$’000 Issue of shares 353 – Loss for the period (Total recognised income and expense for the period) – (186) Balance as at 31 December 2008 353 (186)	Total R$’000 353 (186) (167)

V – 6

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION

2. ADOPTION OF NEW OR AMENDED HKFRSs

The Brazil Subsidiary has adopted all the new and amended HKFRSs which are effective for the accounting period beginning on 2 June 2008, issued by the HKICPA and relevant to the Brazil Subsidiary in the preparation of the Financial Information throughout the Relevant Period.

As at the date of this report, the following new and amended HKFRSs have been published but are not yet effective, and have not been adopted early by the Brazil Subsidiary.

HKAS 1 (Revised)	Presentation of Financial Statements 1
HKAS 23 (Revised)	Borrowing Costs 1
HKAS 27 (Revised)	Consolidated and Separate Financial Statements					3
HKAS 32, HKAS 39 &	Puttable Financial Instruments and Obligations
HKFRS 7 (Amendments)	Arising on Liquidation 1
HKAS 39 (Amendment)	Financial Instruments: Recognition and
	Measurement – Embedded Derivatives	2
HKAS 39 (Amendment)	Eligible Hedged Items 3
HKFRS 1 (Revised)	First-time Adoption of HKFRSs 3
HKFRS 1 and HKAS 27 (Amendments)	Cost of an Investment in a Subsidiary,
	Jointly Controlled Entity or an Associate		1
HKFRS 2 (Amendment)	Share-based Payment – Vesting Conditions		and
	Cancellations 1
HKFRS 3 (Revised)	Business Combinations 3
HKFRS 7 (Amendments)	Improving Disclosures about Financial Instruments						1
HKFRS 8	Operating Segments 1
HK(IFRIC)–Int 9	Reassessment of Embedded Derivatives 2
HK(IFRIC)–Int 13	Customer Loyalty Programmes 4
HK(IFRIC)–Int 15	Agreement for the Construction of Real Estate				1
HK(IFRIC)–Int 16	Hedges of a Net Investment in a Foreign	Operation					5
HK(IFRIC)–Int 17	Distributions of Non-cash Assets to Owners			3
HK(IFRIC)–Int 18	Transfers of Assets from Customers 6
Various	Annual Improvements to HKFRS 2008 7
Various	Annual Improvements to HKFRS 2009 8

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods ending on or after 30 June 2009

3 Effective for annual periods beginning on or after 1 July 2009

4 Effective for annual periods beginning on or after 1 July 2008

5 Effective for annual periods beginning on or after 1 October 2008

6 Effective for transfers received on or after 1 July 2009

7 Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

8 Generally effective for annual periods beginning on or after 1 January 2010 unless otherwise stated in the specific HKFRS

The director of the Brazil Subsidiary anticipates that all of the pronouncements will be adopted in the Brazil Subsidiary’s accounting policy for the first period beginning after the effective date of the pronouncement.

V – 7

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

2. ADOPTION OF NEW OR AMENDED HKFRSs (Continued)

Among these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the Brazil Subsidiary’s financial statements. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The Brazil Subsidiary will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or results of the Brazil Subsidiary but will give rise to additional disclosures.

The director of the Brazil Subsidiary is currently assessing the impact of other new and amended HKFRSs upon initial application. So far, the director has preliminarily concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the Brazil Subsidiary’s result and financial position.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of the Financial Information are summarised below.

The Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below.

The Financial Information has been prepared on a going concern basis which assumes the realisation of assets and satisfaction of liabilities in the ordinary course of business notwithstanding that the Brazil Subsidiary had net current liabilities of R$221,000 as at 31 December 2008. The going concern basis has been adopted on the basis that the immediate holding company has undertaken not to demand repayment of its debt from the Brazil Subsidiary until such time when repayment will not affect the Brazil Subsidiary’s ability to repay other creditors in the normal course of business.

The Financial Information does not include any adjustments that would result from a failure of the Brazil Subsidiary to operate as a going concern. Should the Brazil Subsidiary be unable to continue in business as a going concern, adjustments would have to be made in the Financial Information to restate the values of the assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets as current assets. The effect of these potential adjustments has not been reflected in the Financial Information.

3.2 Foreign currencies translation

The financial statements are presented in Brazilian Reais (R$), which is also the functional currency of the Brazil Subsidiary.

V – 8

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.3 Property, plant and equipment

Freehold land is stated at cost and related carrying amount is not depreciated as no definite useful life for freehold land.

3.4 Impairment of non-financial assets

All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

3.5 Operating leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Brazil Subsidiary 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.

Leases which do not transfer substantially all the risks and rewards of ownership to the Brazil Subsidiary are classified as operating leases.

Where the Brazil Subsidiary has the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a straight line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in the income statement as an integral part of the aggregate net lease payments made. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

3.6 Financial assets

The financial assets comprise receivables including other receivables and cash and cash equivalents.

All financial assets are recognised when, and only when, the Brazil Subsidiary becomes a party to the contractual provisions of the instrument. When financial assets are recognised initially, they are measured at fair value, plus, directly attributable transaction costs.

At the balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised.

V – 9

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.6 Financial assets (Continued)

Loans and receivables

Impairment of financial assets

3.7 Accounting for income taxes

Income taxes comprise current tax and deferred tax.

Changes in deferred tax assets or liabilities are recognised in the income statements, or in equity if they relate to items that are charged or credited directly to equity.

3.8 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

V – 10

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.9 Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

3.10 Financial liabilities

The Brazil Subsidiary’s financial liabilities include accrued liabilities and amount due to immediate holding company.

Financial liabilities are recognised when the Brazil Subsidiary becomes a party to the contractual provisions of the instrument.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

3.11 Provisions and contingent liabilities

Provisions are recognised when the Brazil Subsidiary has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amounts of the obligation 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.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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 uncertain events not wholly within the control of the Brazil Subsidiary are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

3.12 Segment reporting

No separate analysis of segment information by business or geographical segments is presented as the Brazil Subsidiary has not carried on any business during the Relevant Period. The Brazil Subsidiary operates within one geographical segment and all of its assets and liabilities are located in Brazil.

3.13 Related parties

For the purposes of these financial statements, a party is considered to be related to the Brazil Subsidiary if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Brazil Subsidiary or exercise significant influence over the Brazil Subsidiary in making financial and operating policy decisions, or has joint control over the Brazil Subsidiary;
(ii) The Brazil Subsidiary and the party are subject to common control;
(iii) the party is an associate of the Brazil Subsidiary or a joint venture in which the Brazil Subsidiary is a venturer;

V – 11

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.13 Related parties (Continued)

(iv) the party is a member of key management personnel of the Brazil Subsidiary or the Brazil Subsidiary’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;
(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 Brazil Subsidiary or of any entity that is a related party of the Brazil Subsidiary.

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.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements 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 Brazil Subsidiary does not have any material estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within next financial year.

5. REVENUE

Since the Brazil Subsidiary has not carried on any business during the Relevant Period, there was no revenue recognised.

6. LOSS BEFORE INCOME TAX

Loss before income tax is arrived at after charging:

Period from 2 June 2008 (date of incorporation) to 31 December 2008 R$’000

Auditors’ remuneration	–
Minimum lease payments under operating leases for office premises	1

V – 12

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

7. INCOME TAX EXPENSE

No Hong Kong profits tax and Brazil income tax have been provided as the Brazil Subsidiary did not generate any assessable profit in Hong Kong and Brazil for the period from 2 June 2008 (date of incorporation) to 31 December 2008.

Reconciliation between accounting loss and income tax expense at applicable rate is as follows:

	Period from
	2 June 2008
	(date of
	incorporation) to
	31 December 2008
	R$’000
Loss before income tax	186
Tax at applicable rate of 6.73%	(13)
Tax effect of non-deductible expenses	13
Income tax expense	–

As at 31 December 2008, no deferred tax liability has been provided as the Brazil Subsidiary did not have any significant temporary differences which give rise to a deferred tax liability.

8. DIRECTOR’S REMUNERATION AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) There were no director’s emoluments and senior management’s emoluments incurred during the Relevant Period. There were no arrangements under which a director waived or agreed to waive any remuneration during the Relevant Period.
(b) During the Relevant Period, no emolument or retirement scheme benefits were paid by the Brazil Subsidiary to the director or any of the employees, and no emolument was paid by the Brazil Subsidiary to the director or any of the employees as an inducement to join or upon joining the Brazil Subsidiary or as compensation for loss of office.

9. PROPERTY, PLANT AND EQUIPMENT

Period ended 31 December 2008 Addition Closing net book amount At 31 December 2008 Net book amount, at Cost	Freehold land R$’000 388
	388
	388

The freehold land is located in Brazil. The costs of the freehold land represented the professional costs directly attributable to the acquisition of 45,000 hectares freehold land constituting the Brazilian Forest (“Brazilian Forest”). The legal title of the freehold land was obtained by the Brazil Subsidiary subsequent to 31 December 2008, details are set out in note 14 to the Financial Information.

V – 13

APPENDIX V

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

10. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following component:

==> picture [399 x 208] intentionally omitted <==

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

R$’000
Cash at bank 81
All cash balances are denominated in R$ and the R$ is not freely convertible into foreign currencies.
AMOUNT DUE TO IMMEDIATE HOLDING COMPANY
The amount due is unsecured, interest-free and repayable on demand.
SHARE CAPITAL
R$’000
Authorised:
100,000,000 ordinary shares of R$1 each 100,000
Issued and fully paid:
352,850 ordinary shares of R$1 each 353
----- End of picture text -----

11. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

12. SHARE CAPITAL

(i) The Brazil Subsidiary was incorporated in Brazil as a limited liability company on 2 June 2008. At the date of incorporation, the authorised share capital of the Brazil Subsidiary was 100,000,000 of R$1 each.

(ii) On 9 September 2008, 11 September 2008 and 4 December 2008, the Brazil Subsidiary issued 224,425, 103,615 and 24,810 ordinary shares of R$1.00 each for considerations of R$224,425, R$103,615 and R$24,810 respectively.
(iii) Subsequent to 31 December 2008 and on 3 March 2009, the Brazil Subsidiary issued 4,736,092 shares of R$1 each for consideration of R$4,736,092.

13. OPERATING LEASE COMMITMENTS

The Brazil Subsidiary leases its office premises under operating lease arrangements with leases negotiated for term of one year.

As at 31 December 2008, the total future minimum lease payments under non-cancellable operating leases payable by the Brazil Subsidiary are as follows:

R$’000 Within one year 15

During the Relevant Period, the lease did not include contingent rentals.

V – 14

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

14. CAPITAL COMMITMENTS

On 16 October 2008, the Brazil Subsidiary entered an acquisition agreement (supplemented by the first amendment agreement thereto dated 11 December 2008 and the second amendment agreement thereto dated 9 February 2009), with an independent third party in relation to the acquisition of the interest in approximately 45,000 hectares of land constituting the Brazilian Forest. The purchase price of the Brazilian Forest is R$26,255,000, in which approximately R$3,807,000 will be settled by cash and R$3,026,000 will be settled in the form of issuing 5,584 shares of Winner Global. The remaining balance of approximately R$19,422,000 will be settled in 19 monthly instalments of R$1,022,000 each from 27 March 2009.

As at 31 December 2008, the capital commitment is as follows:

	R$’000
Contracted, but not provided for	26,255

15. FINANCIAL RISK MANAGEMENT

The Brazil Subsidiary is exposed to financial risks through its use of financial instruments in its ordinary course of operations and in its investment activities. The financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Brazil Subsidiary does not have written risk management policies and guidelines. However, the management of the Brazil Subsidiary meets periodically to analyse and formulate measures to manage the Brazil Subsidiary’s exposure to market risk. Generally, the Brazil Subsidiary employs a conservative strategy regarding its risk management. The overall objective in managing financial risks focus on securing the Brazil Subsidiary’s short to medium term cash flows by mininising its exposure to financial markets. The Brazil Subsidiary does not hold or issue derivative financial instruments for trading purpose.

15.1 Categories of financial assets and liabilities

The carrying amounts presented in the balance sheet as at 31 December 2008 related to the following categories of financial assets and financial liabilities.

Financial assets Loans and receivables: – Other receivables – Cash and cash equivalents Financial liabilities Financial liabilities measured at amortised cost: – Accrued liabilities – Amount due to immediate holding company	R$’000 23 81
	104

	R$’000 1 324
	325

V – 15

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

15. FINANCIAL RISK MANAGEMENT (Continued)

15.2 Foreign currency risk

The Brazil Subsidiary’s exposure to currency exchange rates is minimal, as all transactions are predominately in R$.

15.3 Interest rate risk

The Brazil Subsidiary’s operating cash flows are substantially independent of changes in market interest rates as the Brazil Subsidiary has no significant interest bearing financial assets and liabilities.

15.4 Credit risk

No financial assets carry a significant exposure to credit risk. The Brazil Subsidiary continuously monitors defaults of other counterparts and incorporates this information into its credit risk controls.

None of the Brazil Subsidiary’s financial assets is secured by collateral or other credit enhancements.

15.5 Liquidity risk

The Brazil Subsidiary’s policy is to regularly monitor its liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. Although the Brazil Subsidiary had net current liabilities of R$221,000 as at 31 December 2008, the Brazil Subsidiary is able to monitor its liquidity requirements by obtaining the undertaking from the immediate holding company for not demanding repayment if its debt from the Brazil Subsidiary until such time when repayment will not affect the Brazil Subsidiary’s ability to repay other creditors in the normal course of business. In the opinion of the director, the Brazil Subsidiary’s exposure to liquidity risk is limited.

Carrying amounts R$’000 Accrued liabilities 1 Amount due to immediate holding company 324 325	Total contractual undiscounted cash flow R$’000 1 324 325	Within 3 months or on demand R$’000 1 324
		325

15.6 Fair value

The fair values of the Brazil Subsidiary’s current financial assets and liabilities are not materially different from their carrying amounts because of their immediate or short term maturity.

16. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

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

Management actively and regularly reviews and manages the Brazil Subsidiary’s capital structure to ensure optimal capital structure and shareholder returns. Management regards issued share capital and reserves as capital for capital management purpose. The Brazil Subsidiary manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Brazil Subsidiary may adjust the amount of dividends paid to equity holder, issue new shares, return capital to equity holder, raise new debt financing or sell assets to reduce debts.

V – 16

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

II. NOTES TO THE FINANCIAL INFORMATION (Continued)

16. CAPITAL MANAGEMENT POLICIES AND PROCEDURES (Continued)

As at 31 December 2008, the Brazil Subsidiary had net current liabilities of R$221,000. These conditions, along with other matters as disclosed in note 3.1 to the Financial Information, indicate the existence of a fundamental uncertainty which may cast significant doubt about the Brazil Subsidiary’s ability to continue as a going concern.

17. POST BALANCE SHEET EVENT

In addition to those disclosed elsewhere, the Brazil Subsidiary had the following material post balance sheet event:

(i) On 3 March 2009, the Brazil Subsidiary issued 4,736,092 shares of R$1 each for consideration of R$4,736,092.

18. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Brazil Subsidiary were prepared in respect of any period subsequent to 31 December 2008.

Yours faithfully,

Grant Thornton

Certified Public Accountants

13th Floor, Gloucester Tower The Landmark

15 Queen’s Road Central Hong Kong

V – 17

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

B. MANAGEMENT DISCUSSION AND ANALYSIS ON THE BRAZIL SUBSIDIARY

For the period from 2 June 2008 (date of incorporation) to 31 December 2008

Result

The Brazil Subsidiary, a company incorporated in Brazil with limited liability, is an investment holding company and will engage in wood harvesting, sawmilling and wood processing business. The Brazil Subsidiary plans to acquire forest assets situated in the Northwest of Brazil, in the state of Acre, City of Feijo, Amazon region. The Amazon forests area is mostly dominated by dense and open types, with trees of medium and big sizes, with occurrence of lianas, bromeliaceous and orchids.

The Brazil Subsidiary recorded no turnover for the period ended 31 December 2008. Loss attributable to the equity shareholder of the Brazil Subsidiary for the period ended 31 December 2008 was R$186,000. As the Brazil Subsidiary has not commenced operation in 2008, the Brazil Subsidiary did not record turnover and recorded a loss.

Exchange risk

The Brazil Subsidiary mainly operates in Brazil. Most of the Brazil Subsidiary’s transactions, assets and liabilities were predominately in Brazilian Reais.

Foreign exchange risk arose from future commercial transactions and recognised assets and liabilities. The Brazil Subsidiary managed its foreign risks by performing regular review and monitoring of its foreign exchange exposures.

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2008, the Brazil Subsidiary’s cash and bank balances, amounted to a total of approximately R$81,000.

The Brazil Subsidiary has no bank borrowing and a total of R$324,000 of unsecured, interest-free and repayable on demand due to an immediate holding company for the period ended 31 December 2008.

The gearing ratio was Nil as at 31 December 2008. The gearing ratio is expressed as a percentage of total bank borrowings over total assets.

V – 18

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

Treasury policies

The Brazil Subsidiary has adopted certain policies on financial risk management with the objective of:

Ensuring that appropriate funding strategies are adopted to meet the Brazil Subsidiary’s short term and long term funding requirement taking into consideration the cost of funding, gearing levels and cash flow projections of each project and that of the Brazil Subsidiary;
Ensuring that appropriate strategies are also adopted to manage related interest and currency risk funding; and
Ensuring that credit risks on sales to customers on deferred terms are properly managed.

Hedging

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

Charges on assets

As at 31 December 2008, the Brazil Subsidiary had no pledged assets.

Contingent liabilities

As at 31 December 2008, the Brazil Subsidiary did not have any significant contingent liabilities.

Capital commitments

The Brazil Subsidiary’s contracted capital commitments outstanding as at 31 December 2008 not provide for in the financial statements was R$26,255,000. On 16 October 2008, the Brazil subsidiary entered an acquisition agreement (supplemented by the first amendment agreement thereto dated 11 December 2008 and the second amended agreement thereto dated 9 February 2009) with an independent third party in relation to the acquisition of the interest in approximately 45,000 hectares of forest land in Northwest of Brazil.

Significant investments, material acquisitions and disposals

The Brazil Subsidiary did not undertake any significant investments, material acquisition or disposal of subsidiaries or assets during the period ended 31 December 2008.

V – 19

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

Employees and remuneration policy

As at 31 December 2008, the Brazil Subsidiary has no employee.

In order to retain and attract high caliber executives and employees in the future, the Brazil Subsidiary will reward its employees according to prevailing market practices, employees’ individual experience and performance will be reviewed regularly. In addition to the provision of annual bonus, retirement benefit and medical insurance coverage and discretionary bonuses will also be available to employees based on their performance.

Future plans and prospects

The Brazil Subsidiary has plan to acquire approximately 45,000 hectares of forest land in Northwest of Brazil for a total of purchase price of approximately R$26,255,000. The Brazil Subsidiary is also currently in negotiations with Independent Third Parties in respect of the acquisition of an additional forest area in Brazil with a total area of approximately 118,000 hectares located in Northwest of Brazil, in the state of Acre and Amazon, Amazon region at a price of not more than R$92 million with a target completion date falling on or before 31 December 2009.

Looking forward, the Brazil Subsidiary will complete its acquisition of approximately 45,000 hectares of forest land in Northwest of Brazil. The Brazil Subsidiary will also begin to attract high caliber executives and employees in order to begin its wood harvesting, sawmilling and wood processing business.

Property interests and valuation

Greater China Appraisal Limited, an independent property valuer, has valued the property interests of the Target Group, including the property interests to be acquired by the Brazil Subsidiary, as at 31 March 2009. The text of its letter, summary of valuation and valuation certificates are set out in Appendix VII to this circular.

V – 20

FINANCIAL INFORMATION OF THE BRAZIL SUBSIDIARY

APPENDIX V

A statement below shows the reconciliation of the net book value of the relevant property interests of the Brazil Subsidiary as at 31 December 2008 to the valuation as at 31 March 2009 as stated in Appendix VII to this circular.

Net book value of the property interests of the Brazil Subsidiary as at 31 December 2008 Less: Depreciation Add: Additions during the period from 1 January 2009 to 31 March 2009 Net book value as at 31 March 2009 Valuation Surplus Valuation of properties to be acquired by the Brazil Subsidiary as at 31 March 2009 subject to valuation as set out in Appendix VII to this circular	R$’000 0 0 0 0 60,260 60,260	Equivalent to approximately US$’000 0 0 0 0 25,200
		25,200

V – 21

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. INTRODUCTION

The following is the unaudited pro forma financial information of the Enlarged Group prepared in accordance with paragraph 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition on the financial position of the Group as at 30 September 2008 and the results and cash flows of the Group for the year ended 31 March 2008.

The accompanying unaudited pro forma financial information of the Enlarged Group is based on certain assumptions, estimates, uncertainties and other currently available financial information, and is provided for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the actual financial position, results and cashflows of the Enlarged Group following the Completion. Further, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position or results of operations.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 30 September 2008 extracted from the Company’s circular dated 26 November 2008 and set out under section headed “I. Summary of financial information of the Group” in Appendix I to this Circular, the audited consolidated balance sheet of the Samoa Subsidiary Group and the audited balance sheets of the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II as at 31 December 2008 as extracted from the accountants’ reports as set out in Appendix II to Appendix V to this Circular (translated into HK$ at exchange rates of RMB1 = HK$1.1343, R$1 = HK$4.0397 and RUB1 = HK$0.3027) as if the Acquisition had been completed on 30 September 2008.

The unaudited pro forma consolidated income statement and cash flow statement of the Enlarged Group are prepared based on the audited consolidated income statement and cash flow statement of the Group for the year ended 31 March 2008 as extracted from the published annual report of the Group as of 31 March 2008 as set out under section headed “2. Audited consolidated financial statements for the year ended 31 March 2008” in Appendix I to this Circular, the audited consolidated income statement and consolidated cash flow statement of the Samoa Subsidiary Group for the period from 13 May 2008 (being the date of incorporation of the Samoa Subsidiary) to 31 December 2008, the audited income statement and cash flow statement of the Brazil Subsidiary for the period from 2 June 2008 (being the date of incorporation of the Brazil Subsidiary) to 31 December 2008, the audited income statements and cash flow statements of the Russia Subsidiary and the Russia Subsidiary II for the year ended 31 December 2008 as extracted from the accountants’ reports as set out in Appendix II to Appendix V to this Circular (translated into HK$ at average exchange rates of RMB1 = HK$1.0466, R$1 = HK$4.2171 and RUB1 = HK$0.3115) as if the Acquisition had been completed on 1 April 2007. The financial information of the Samoa Subsidiary Group and the Brazil Subsidiary presented in the unaudited pro forma consolidated income statement and consolidated cash flow statement of the Enlarged Group only covers the period beginning from the respective dates of incorporation of the Samoa Subsidiary and the Brazil Subsidiary to 31 December 2008, as the Samoa Subsidiary and the Brazil Subsidiary were incorporated during the year ended 31 December 2008 and no financial information of the Samoa Subsidiary Group and the Brazil Subsidiary for a completed financial year was therefore available.

The financial results of the Target Company have not been included in the unaudited pro forma financial information of the Enlarged Group as the Target Company was incorporated on 3 February 2009.

VI – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

NON-CURRENT ASSETS Property, plant and equipment Biological assets Interest in leasehold land held for own use under operating leases Goodwill Intangible assets CURRENT ASSETS Inventories Interest in leasehold land held for own use under operating leases Trade and other receivables Pledged deposits Amount due from a related company Cash and cash equivalents CURRENT LIABILITIES Trade and other payables Amount due to immediate holding company Amount due to related companies Amount due to a shareholder Amount due to a minority shareholder of subsidiaries Amount due to a director Borrowings Provision for taxation NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Other payables Deferred tax liabilities Convertible notes Promissory notes NET ASSETS/(LIABILITIES) CAPITAL AND RESERVES Share capital Convertible preference shares Reserves Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY/ (CAPITAL DEFICIENCY)	The Group as at 30 September 2008 HK$’000 (Audited) 3,426 – 268 – 1,959,006 1,962,700 39,565 5 73,769 36,091 – 80,940 230,370 49,534 – – – – – 13,664 2,440 65,638 164,732 2,127,432 – 10,814 878,849 320,000 1,209,663 917,769 295,107 – 221,703 516,810 400,959 917,769	The Samoa Subsidiary Group as at 31 December 2008 HK$’000 (Audited) 125 – – – – 125 919 – 714 – – 54 1,687 578 1,121 – – – 1,640 – – 3,339 (1,652) (1,527) – – – – – (1,527) – – (1,527) (1,527) – (1,527)	The Brazil Subsidiary as at 31 December 2008 HK$’000 (Audited) 1,567 – – – – 1,567 – – 94 – – 327 421 4 1,309 – – – – – – 1,313 (892) 675 – – – – – 675 1,426 – (751) 675 – 675	The Russia The Russia Subsidiary Subsidiary II as at 31 as at 31 December December Pro forma 2008 2008 adjustments HK$’000 HK$’000 Notes HK$’000 (Audited) (Audited) 15,039 8,240 (2) 195,713 – – (2) 106,062 (2) 2,183,473 – – – – (2) 595,627 – – (2) 168,413 15,039 8,240 5,865 – – – 10,029 3,861 – – 8,181 2,608 182 2 (1) (70,500) (6) (4,000) 24,257 6,471 11,426 1,999 (2) 77,162 – – (7) (2,430) 15,172 – (7) 4,070 9,381 2,261 (7) (11,642) – – (7) 11,642 – – (7) (1,640) 4,523 5,660 – – 40,502 9,920 (16,245) (3,449) (1,206) 4,791 – – (2) 28,900 – – (2) 250,519 – – – – (1) 195,655 – – (1,206) 4,791 2,164 12,144 (3) 7,850 (5) (15,734) – – (1) 2,733,008 (1) (191,173) (3,370) (7,353) (4) 88,361 (1,206) 4,791 – – (2) 240 (1,206) 4,791	Pro forma Enlarged Group as at 30 September 2008 HK$’000 224,110 2,289,535 268 595,627 2,127,419
					5,236,959 46,349 5 88,467 36,091 10,789 7,005
					188,706 140,703 – 19,242 – 11,642 – 23,847 2,440
					197,874
					(9,168
					5,227,791
					28,900 261,333 878,849 515,655
					1,684,737
					3,543,054

					302,957 2,541,835 297,063
					3,141,855 401,199
					3,543,054

VI – 2

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

3. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

The Group for the year ended 31 March 2008 HK$’000 (Audited) CONTINUING OPERATIONS Turnover 123,037 Cost of sales (108,351) Gross profit 14,686 Other revenue 15,551 Selling and distribution expenses (4,182) Administrative expenses (44,590) Other operating expenses (19,279) Loss from operations (37,814) Finance costs (2,050) Loss before taxation (39,864) Income tax (1,881) Loss for the year from continuing operations (41,745) DISCONTINUED OPERATIONS Loss for the year from discontinued operations (72,985) Loss for the year (114,730) ATTRIBUTABLE TO: Equity shareholders of the Company (112,892) Minority interests (1,838) (114,730) LOSS PER SHARE FOR LOSS ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY(note 12) Basic – Continuing operations (2.03 cents) – Discontinued operations (3.71 cents) (5.74 cents) Diluted N/A	The Samoa Subsidiary Group for the period ended 31 December 2008 HK$’000 (Audited) 447 (1,378) (931) – – (477) – (1,408) – (1,408) – (1,408) – (1,408) (1,408) – (1,408)	The Brazil Subsidiary for the period ended 31 December 2008 HK$’000 (Audited) – – – – – (784) – (784) – – – (784) – (784) (784) – (784)	The Russia The Russia Subsidiary Subsidiary II for the for the year year ended 31 ended 31 December December Pro forma 2008 2008 adjustments HK$’000 HK$’000 Notes HK$’000 (Audited) (Audited) 7,351 420 (9,031) (580) (1,680) (160) 3,225 – (873) – (2,821) (1,529) – – (9) (7,323) (2,149) (1,689) (505) (512) (8) (23,254) (2,654) (2,201) – – (9) 1,516 (2,654) (2,201) – – (2,654) (2,201) (2,654) (2,201) (29,059) – – (10) (2) (2,654) (2,201)	Pro forma Enlarged Group for the year ended 31 March 2008 HK$’000 131,255 (119,340)
				11,915 18,776 (5,055) (50,201) (26,602)
				(51,167) (26,321)
				(77,488) (365)
				(77,853) (72,985)
				(150,838)

				(148,998) (1,840)
				(150,838)

				(2.76 cents) (2.65 cents)
				(5.41 cents)

				N/A

VI – 3

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

4. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP

The Samoa Subsidiary The Group Group for for the year the period ended 31 ended 31 March December 2008 2008 HK$’000 HK$’000 (Audited) (Audited) CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation – Continuing operations (39,864) (1,408) – Discontinued operations (72,971) – Adjustments for: Amortisation of land lease premium 158 – Negative goodwill (2,011) – Amortisation of intangible assets 10,589 – Finance costs 3,340 – Interest income (3,800) – Loss on disposal of a subsidiary 24,450 – Gain on disposal of property, plant and equipment (4,401) – Depreciation 7,486 – Write-down of inventories 3,733 410 Impairment losses on trade and other receivables 10,878 – Impairment loss of goodwill 4,957 – Impairment losses on property, plant and equipment 10,466 – Write-off of other receivables – – Write-off of other payables – – Exchange difference, net 2,485 – Operating loss before changes in working capital (44,505) (998) Decrease/(increase) in inventories 13,934 (1,259) (Increase)/decrease in trade and other receivables (70,423) (659) (Decrease)/increase in trade and other payables (18,236) 534 Increase in bank loans (trading nature) 7,115 – Cash (used in)/generated from operations (112,115) (2,382) Overseas tax paid (3,065) – NET CASH (OUTFLOW)/ INFLOW FROM OPERATING ACTIVITIES (115,180) (2,382) CASH FLOWS FROM INVESTING ACTIVITIES Payment to acquire property, plant and equipment and land lease premium (2,348) (115) Proceeds from disposal of property, plant and equipment 22,104 – Net cash inflow from disposal of a subsidiary 4,308 – Net cash inflow/(outflow) from acquisition of subsidiaries 3,147 – Increase in pledged deposits (18,192) – Interest received 3,800 – NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES12,819 (115)	The Brazil Subsidiary for the period ended 31 December 2008 HK$’000 (Audited) (784) – – – – – – – – – – – – – – – – (784) – (97) 4 – (877) – (877) (1,636) – – – – – (1,636)	The Russia The Russia Subsidiary Subsidiary II for the for the year year ended 31 ended 31 December December Pro forma 2008 2008 adjustments HK$’000 HK$’000 Notes HK$’000 (Audited) (Audited) (2,654) (2,201) (8) (23,254) (9) (7,323) – – – – – – – – (9) 7,323 505 512 (8) 23,254 (15) – – – – – 799 1,440 – – – – – – – – 1 – (119) – (95) – (1,578) (249) (6,036) – (4,995) 11,802 11,311 (1,545) – – (1,298) 10,008 – – (1,298) 10,008 (13,679) (84) 18 – – – – – (6) (4,000) (11) (66,713) – – 15 – (13,646) (84)	Pro forma Enlarged Group for the year ended 31 March 2008 HK$’000 (77,488) (72,971) 158 (2,011) 17,912 27,611 (3,815) 24,450 (4,401) 9,725 4,143 10,878 4,957 10,466 1 (119) 2,390
			(48,114) 6,639 (64,372) (7,932) 7,115
			(106,664) (3,065)
			(109,729) (17,862) 22,122 4,308 (67,566) (18,192) 3,815
			(73,375)

VI – 4

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

4. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP (CONTINUED)

The Group for the year ended 31 March 2008 HK$’000 (Audited) CASH FLOWS FROM FINANCING ACTIVITIES Placement and subscription of shares (net of expense) 147,528 Bonus warrants 24,693 Proceeds from issue of shares – Net proceeds/(repayment) of borrowings – Advance from/(repayment to) related companies – Advance from a shareholder – Advance from a minority share holder – Advance from immediate holding company – Amount due from a director – Interest paid (3,247) Interest element of finance lease payments (93) Capital element of finance lease payments (2,431) NET CASH INFLOW/ (OUTFLOW) FROM FINANCING ACTIVITIES 166,450 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 64,089 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 41,160 EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET 308 CASH AND CASH EQUIVALENTS AT END OF YEAR 105,557	The Samoa Subsidiary Group for the period ended 31 December 2008 HK$’000 (Audited) – – – – – – – 1,034 1,513 – – – 2,547 50 – – 50	The Brazil Subsidiary for the period ended 31 December 2008 HK$’000 (Audited) – – 1,489 – – – – 1,366 – – – – 2,855 342 – – 342	The Russia The Russia Subsidiary Subsidiary II for the for the year year ended 31 ended 31 December December Pro forma 2008 2008 adjustments HK$’000 HK$’000 Notes HK$’000 (Audited) (Audited) – – – – – – (6,145) (8,491) 7,195 (3,256) (7) 3,913 10,810 2,327 (7) (13,137) – – (7) 13,137 – – (7) (2,400) – – (7) (1,513) (505) (512) (8) (4,640) – – – – 11,355 (9,932) (3,589) (8) 3,777 10 (11) (3,787) – – 188 2	Pro forma Enlarged Group for the year ended 31 March 2008 HK$’000 147,528 24,693 1,489 (14,636) 7,852 – 13,137 – – (8,904) (93) (2,431)
				168,635 (14,469) 41,160 308
				26,999

VI – 5

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes to the unaudited pro forma financial information of the Enlarged Group

(1) On 28 February 2009, the Purchaser, the Vendor and the Guarantor entered into the Agreement pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell the Sale Shares at the total consideration of HK$1,860,045,000 for the acquisition of the entire share capital of the Target Company. As at the date of this Circular, the Target Company wholly owns the Samoa Subsidiary Group and upon the completion of the Acquisition, will hold 99.99% of equity interest in the Brazil Subsidiary and the Russia Subsidiary will be wholly owned by the Target Company and the Target Company will indirectly hold 99.9% of the equity interest in the Russia Subsidiary II through the Russia Subsidiary.

Upon completion of the Acquisition, the Target Company, the Samoa Subsidiary Group, the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II are considered by the directors of the Company as subsidiaries of the Company as they will be controlled by the Group after the Completion.

The total consideration for the Acquisition is HK$1,860,045,000 which is to be satisfied in the following manners:

	HK$’000
Cash_(note (i))_	70,500
Issue of the Promissory Note_(note (ii))_	232,000
Allotment and issue of the Consideration Shares_(note (iii))_	43,175
Allotment and issue of the First Tranche Preference Shares_(note (iv))_	1,437,260
Allotment and issue of the Second Tranche Preference Shares_(note (iv))_	77,110
Cost of investments at Completion	1,860,045

The fair value of cost of investment at Completion as if the Acquisition was completed on 30 September 2008	which is to
be satisfied in the following manners:
	HK$’000
Cash_(note (i))_	70,500
Issue of the Promissory Note_(note (ii))_	195,655
Allotment and issue of the Consideration Shares_(note (iii))_	83,210
Allotment and issue of the First Tranche Preference Shares_(note (iv))_	2,590,603
Allotment and issue of the Second Tranche Preference Shares_(note (iv))_	142,405
	3,082,373
Less: Adjustment for the acquisition of the Brazilian Forest_(note (v))_	191,173
The fair value of cost of investments at Completion	2,891,200

Pursuant to the Agreement, the consideration is subject to adjustments. The portion of the consideration which shall be satisfied by the allotment and issue of the First Tranche Preference Shares upon Completion will be reduced by an amount equivalent to the outstanding instalment payments for the purchase price of the Brazilian Forest under the Brazil Acquisition Agreement as at Completion. The portion of the consideration which shall be satisfied by the allotment and issue of the Second Tranche Preference Shares on the Vendor Warranty Expiry Date shall be reduced by the compensation to be paid by the Vendor on the Vendor Warranty Expiry Date and Brazilian Forest’s total liabilities and the costs, fees, and expenses probably incurred related to the Brazilian Forest. Since this pro forma financial information is prepared solely for the illustrative purpose of the effect of the Acquisition on the aggregated financial position as if the Acquisition was completed on 30 September 2008 and the results and cash flows of the Enlarged Group as if the Acquisition was completed on 1 April 2007 respectively, it was assumed that no adjustment is made to the consideration in the unaudited pro forma consolidated income statement and unaudited pro forma consolidated balance sheet of the Enlarged Group.

Pursuant to the Agreement, the Target Company is required to enter into the Everboard Option Deed and the Million Success Deed with Mr. Yu Chih Yuan (“Mr. Yu”) before Completion, pursuant to which Mr. Yu will grant the Call Options to the Target Company, for the consideration of US$1, to acquire the entire equity interest in Everboard and Million Success respectively held by Mr. Yu. The valuation of the Call Options was carried out by Greater China Appraisal Limited, an independent professional qualified valuer. The estimated fair value is nil.

VI – 6

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

(i) According to the Agreement, in addition of a deposit of HK$15.5 million which will be settled by way of cash upon signing of the Agreement, the amounts of HK$25 million and HK$30 million will be settled by way of cash at Completion and within 2 months from the Completion Date respectively.
(ii) According to the Agreement, the Promissory Note with a principal sum of HK$232 million will be issued to the Vendor at an interest rate of 2% per annum on the principal amount and will mature 18 months after the Completion Date. The Promissory Note is classified as non-current liabilities. The issue of the Promissory Note is a non-cash transaction.

The valuation of the Promissory Note was carried out by Greater China Appraisal Limited, an independent professional qualified valuer. The estimated fair value is approximately HK$195,655,000 as at 30 September 2008. On Completion, the fair value of Promissory Note will have to be reassessed as at the date of Completion.

(iii) According to the Agreement, the 785,000,000 Consideration Shares will be issued at an issue price of HK$0.055 per Consideration Share, credited as fully paid. The estimated fair value per share is approximately HK$0.106 as at 30 September 2008. The issue of the Consideration Shares is a non-cash transaction.
(iv) According to the Agreement, a maximum number of 26,132,000,000 First Tranche Preference Shares in the aggregate principal amount of HK$1,437,260,000 at an issue price of HK$0.055 per Convertible Preference Share and a maximum number of 1,402,000,000 Second Tranche Preference Shares in the aggregate principal amount of HK$77,110,000 at an issue price of HK$0.055 per Convertible Preference Share will be issued to the Vendor by the Company.

First Tranche Preference Shares and Second Tranche Preference Shares both provided that any conversion of the Convertible Preference Shares shall not result in exceeding 29.9% of the issued shares. The valuation of the Preference Shares was carried out by Greater China Appraisal Limited, an independent professional qualified valuer. The Convertible Preference Shares with the embedded call option are equity instruments and the estimated fair values are approximately HK$2,590,603,000 for the First Tranche Preference Shares and HK$142,405,000 for the Second Tranche Preference Shares.

(v) Pursuant to the Agreement, the completion of acquisition by the Brazil Subsidiary of the interest in the Brazilian Forest in accordance with the terms and conditions of the Brazil Acquisition Agreement is one of the conditions precedent. To illustrate the effect of the acquisition of the Brazilian Forest as if the Acquisition had been taken place on 30 September 2008, the portion of the consideration which shall be satisfied by the allotment and issue of the First Tranche Preference Shares upon Completion will be reduced by an amount equivalent to the outstanding instalment payments for the purchase price of the Brazilian Forest under the Brazil Acquisition Agreement as at Completion. Assuming no instalment payments have been paid for the Brazilian Forest, the consideration would be reduced by the purchase price of the Brazilian Forest of approximately R$26,255,000 (equivalent to HK$106,062,000), which is equivalent to 1,928,406,000 First Tranche Preference Shares at an issued price of HK$0.055 per Convertible Preference Share. Accordingly, the estimated fair value of the First Tranche Preference Shares would be reduced in proportion by approximately HK$191,173,000.
(2) The pro forma adjustment is to reflect the effect of the Acquisition on the consolidated balance sheet of the Group as if the Acquisition had taken place on 30 September 2008.

Details of net identifiable assets to be acquired and the goodwill arising on the Acquisition are as follows:

Fair value of cost of investment at Completion_(note (1)) Add: Transaction costs(note (6))_ Less: Fair value of net identifiable assets to be acquired – as shown below Goodwill	HK$’000 2,891,200 4,000
	2,895,200 2,299,573
	595,627

VI – 7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

The identifiable asset and liabilities arising from the Acquisition are as follows:

Notes The Samoa Subsidiary Group Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalent Trade and other payables Amount due to immediate holding company Amount due to a director Fair value of net liabilities of the Samoa Subsidiary Group acquired The Brazil Subsidiary Property, plant and equipment (ii) Biological assets – Brazilian Forest (i), (ii) Trade and other receivables Cash and cash equivalent Trade and other payables (i) Amount due to immediate holding company Deferred tax liabilities (iii) Fair value of net assets of the Brazil Subsidiary Fair value of net assets of 99.99% of the Brazil Subsidiary acquired The Russia Subsidiary Property, plant and equipment Timber concession right (ii) Inventories Trade and other receivables Amount due from a related company Cash and cash equivalent Trade and other payables Amount due to related companies Amount due to a shareholder Borrowings Deferred tax liabilities (iii) Fair value of net assets of the Russia Subsidiary acquired	Carrying amount HK$’000 125 919 714 54 (578) (1,121) (1,640) 1,567 – 94 327 (4) (1,309) – 15,039 – 5,865 10,029 8,181 182 (11,426) (15,172) (9,381) (4,523) –	Other Fair value adjustment adjustments HK$’000 HK$’000 – – – – – – – – – – – – – – – 195,713 106,062 2,183,473 – – – – (106,062) – – – – (213,490) – – – 149,579 – – – – – – – – – – – – – – – – – (35,899)	Fair value HK$’000 125 919 714 54 (578) (1,121) (1,640)
			(1,527)

			197,280 2,289,535 94 327 (106,066) (1,309) (213,490)
			2,166,371

			2,166,154

			15,039 149,579 5,865 10,029 8,181 182 (11,426) (15,172) (9,381) (4,523) (35,899)
			112,474

VI – 8

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes The Russia Subsidiary II Property, plant and equipment Timber concession rights (ii) Trade and other receivables Amount due from a related company Cash and cash equivalent Trade and other payables Amount due to a shareholder Borrowings Deferred tax liabilities (iii) Total Fair value of net assets of the Russia Subsidiary II Fair value of 99.9% of net assets of the Russia Subsidiary II acquired Total net assets as at 31 December 2008 Less: Minority interest (0.01% of the Brazil Subsidiary and 0.1% of the Russia Subsidiary II)(note (iv)) Net identifiable assets to be acquired	Carrying amount HK$’000 8,240 – 3,861 2,608 2 (1,999) (2,261) (5,660) –	Other Fair value adjustment adjustments HK$’000 HK$’000 – – – 18,834 – – – – – – – – – – – – – (1,130)	Fair value HK$’000 8,240 18,834 3,861 2,608 2 (1,999) (2,261) (5,660) (1,130)
			22,495
			22,472
			2,299,813 240
			2,299,573

The goodwill was determined assuming the fair value of the consideration of HK$2,891,200,000 plus estimated transaction cost of HK$4,000,000 less the fair values of identifiable assets and liabilities of the Samoa Subsidiary Group, the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II owned by the Target Company and acquired by the Group. Goodwill is stated at cost less accumulated impairment loss. On Completion, the fair value of the net consideration and the net identifiable assets and liabilities of the Samoa Subsidiary Group, the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II will have to be reassessed. As a result of the reassessment, the amount of goodwill may be different from that estimation based on the basis stated above for the purpose of preparation of the unaudited pro forma financial information. Accordingly, the actual goodwill at the date of Completion may be different from that presented above.

Notes:

(i) The completion of the Brazil Acquisition Agreement is one of the conditions precedent for the Completion. The adjustment is to reflect the acquisition of the Brazilian Forest as if the Acquisition had taken place on 30 September 2008 and the purchase price of the Brazilian Forest is approximately R$26,255,000 (equivalent to HK$106,062,000).
(ii) The fair values of the Brazilian Forest and the freehold land of approximately HK$2,289,535,000 and HK$195,713,000 respectively for the Brazil Subsidiary and the timber concession rights of approximately HK$149,579,000 and HK$18,834,000 for the Russia Subsidiary and the Russia Subsidiary II respectively, were based on the valuation reports issued by Greater China Appraisal Limited, an independent professional qualified valuer. The fair values of the Brazilian Forest, the freehold land and the timber concession rights as at 1 April 2007 are approximately the same as the fair values as at 30 September 2008. For illustrative purpose, pro forma adjustments have been shown to reflect the fair value of the Brazilian Forest, the freehold land and the timber concession rights.
(iii) Deferred tax was determined at the Brazil income tax rate of 6.73% and capital tax rate of 34% for the Brazil Subsidiary and the Russia income tax rates of 24% and 6% for the Russia Subsidiary and the Russia Subsidiary II respectively on the fair value adjustments on assets and liabilities arising from the Acquisition.
(iv) Minority interests of HK$240,000 include share of 0.01% of the Brazil Subsidiary (HK$2,166,371,000 x 0.01%) and 0.1% of the Russia Subsidiary II (HK$22,495,000 x 0.1%).

VI – 9

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(3) The adjustment is to reflect the effect of the issue of Consideration Shares by the Company.

Share capital Issue of Consideration Shares (being 785,000,000 shares of HK$ 0.01 each) Premium on shares issue Issue of Consideration Shares (being 785,000,000 shares x (HK$0.106 – HK$0.01))(note (i))	HK$’000 7,850

	75,360

(i) The estimated fair value per share is approximately HK$0.106 as at 30 September 2008. On Completion, the fair value of Consideration Shares will have to be reassessed as at the date of Completion.
(4) The adjustments are to reflect the following transactions arising upon Completion of the Acquisition.

Premium on the shares issue_(note (3)) Pre-acquisition reserves of the Samoa Subsidiary Group, the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II as at 31 December 2008(note (5))_	HK$’000 75,360 13,001
	88,361

(5) The adjustment represents the eliminations of the share capital of the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II of HK$1,426,000, HK$2,164,000 and HK12,144,000 respectively, together with the pre-acquisition reserves of the Samoa Subsidiary Group, the Brazil Subsidiary, the Russia Subsidiary and the Russia Subsidiary II of HK$1,527,000, HK$751,000, HK$3,370, 000 and HK$7,353,000 respectively.
(6) The adjustment represents the estimated transaction costs of approximately HK$4 million incurred in relation to the Acquisition. This adjustment has no continuing effect on the Enlarged Group’s financial statements in subsequent years.
(7) Reclassification of the accounts under the Enlarged Group.
(8) As detailed in note (1), the issue of Promissory Note is subject to an interest rate of 2% per annum. The adjustment of finance costs in the unaudited pro forma consolidated income statement represents the imputed interest expense of approximately HK$23,254,000 for the Promissory Note assuming the effective interest rate of 11.38% per annum. The adjustment of cash outflow of approximately HK$4,640,000 in the unaudited pro forma consolidated cash flow statement represents the actual interest expense paid to the note holder. This adjustment has continuing effect on the Enlarged Group’s financial statements in subsequent years.
(9) The adjustments of approximately HK$7,323,000 and HK$1,516,000 represented the amortisation of timber concession rights and deferred tax credit respectively that were due to the fair value adjustments arising from the Acquisition. This adjustment has continuing effect on the Enlarged Group’s financial statements in subsequent years.
(10) The net loss attributable to the minority interests of approximately HK$2,000 is arrived at the net losses of the Brazil Subsidiary (HK$784,000 x 0.01%) and the Russia Subsidiary II (HK$2,201,000 x 0.1%) for the year ended 31 December 2008. This adjustment has continuing effect on the Enlarged Group’s financial statements in subsequent years.
(11) For the purpose of unaudited pro forma consolidated cash flow statement presentation, the beginning balance of cash and cash equivalent of the Russia Subsidiary and the Russia Subsidiary II for the year ended 31 December 2008 amounted to HK$3,777,000 and HK$10,000 respectively, have been adjusted to reflect the net cash flow effect on the Acquisition as if the Acquisition had been completed on 1 April 2007. The pro forma adjustment of HK$66,713,000 represented the net cash consideration settlement of the Acquisition. This adjustment has no continuing effect on the Enlarged Group’s financial statements in subsequent years.

VI – 10

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

(12) Loss per share

The calculation of the basic loss per share attributable to the equity holders of the Company are based on the following data:

Loss			Pro forma
	The Group	Enlarged Group
	for the year	for the year
	ended 31 March	ended 31 March
	2008		2008
	HK$’000		HK$’000
Loss for the year attributable to the
equity holders of the Company
for the purpose of basic loss per share
– continuing operations	(39,907)		(76,013)
– discontinued operations	(72,985)		(72,985)
	(112,892)		(148,998)

Number of shares
	’000		’000
Weighted average number of ordinary shares	1,966,680		1,966,680
Adjustment for Consideration Shares to be issued_(note (i))_	–		785,000
Weight average number of ordinary shares
for the purpose of basic loss per share	1,966,680		2,751,680
Effect of dilutive potential ordinary shares:
Convertible preference shares_(note (ii))_	–		25,605,594
Weighted average number of ordinary shares
for the purpose of diluted loss per share	1,966,680		28,357,274

(i) The calculation of weighted average number of ordinary shares for the purpose of basic loss per share for the Enlarged Group is based on the assumption that 785,000,000 Consideration Shares of HK$0.055 each issued on 1 April 2007, as a result of settlement of part of the consideration of the Acquisition as mentioned in note (1)(iii) above.

(ii) The calculation of weighted average number of ordinary shares for the purpose of diluted loss per share for the Enlarged Group is based on the assumption that 25,605,594 Convertible Preference Shares of HK$0.055 each issued on 1 April 2007, as a result of settlement of part of the consideration of the Acquisition as mentioned in note (1) (iv) and (v) above, provided that any conversion of the Convertible Preference Shares shall not result in exceeding 29.9% of the issued shares. There was an anti-dilutive effect from the conversion of the Convertible Preference Shares, accordingly, no diluted loss per share has been presented.

VI – 11

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

The following is the text of a report from Grant Thornton, the independent reporting accountants, in respect of the unaudited pro forma financial information of the Enlarged Group as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

==> picture [31 x 28] intentionally omitted <==

==> picture [146 x 45] intentionally omitted <==

25 June 2009

The Directors Bright Prosperous Holdings 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 of Bright Prosperous Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), Eastmark Holding Limited (the “Samoa Subsidiary”) and its subsidiary (collectively referred to as the “Samoa Subsidiary Group”), Universal Timber Resources Do Brasil Participação Ltda (the “Brazil Subsidiary”), Zabaikalskaya Lesnaya Kompania (the “Russia Subsidiary”) and OOO Novoles (the “Russia Subsidiary II”) (together with the Group hereinafter referred to as the “Enlarged Group”), which has been prepared by the directors of the Company, solely for illustrative purpose only, to provide information about how the proposed acquisition of the entire issued capital in Amplewell Holdings Limited (the “Target Company”) by the Company (the “Acquisition”), might have affected the financial information presented, as set out on pages VI-1 to VI-11 of the Company’s circular dated 25 June 2009 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out in the section under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” (the “Pro Forma Financial Information”) in Appendix VI to the Circular. As at the date of this report, the Target Company wholly owns the Samoa Subsidiary Group and the Target Company will hold 99.99% of equity interest in the Brazil Subsidiary, and will wholly own the Russia Subsidiary and the Target Company will indirectly hold 99.9% of the equity interest in the Russia Subsidiary II through the Russia Subsidiary.

VI – 12

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited Pro Forma Financial Information in accordance with paragraph 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 (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 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.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the 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 purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we did not express any such assurance on the unaudited Pro Forma Financial Information.

The unaudited Pro Forma Financial Information is for illustrative purposes 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 the future and may not be indicative of:

(a) the financial position of the Enlarged Group as at 30 September 2008 or any future date, or
(b) the results and cash flows of the Enlarged Group for the year ended 31 March 2008 or any future periods.

VI – 13

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

Opinion

In our opinion:

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

Yours faithfully

Grant Thornton

Certified Public Accountants Hong Kong

VI – 14

PROPERTY VALUATION

APPENDIX VII

The following is the text of a report from Greater China Appraisal Limited, an independent valuer, in respect of the property valuation report of the Enlarged Group as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

A. PROPERTY VALUATION REPORT OF THE GROUP

Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

25 June 2009

The Directors Bright Prosperous Holdings Limited Room 3001-02, Top Glory Tower 262 Gloucester Road, Causeway Bay Hong Kong

Dear Sirs,

In accordance with the instructions from Bright Prosperous Holdings Limited (“the Company”) for us to value certain property interests of the Company and its subsidiaries (together referred to as “the Group”) in the People’s Republic of China (referred to as the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the market values of such property interests as at 31 March 2009 (referred to as the “valuation date”).

It is our understanding that this valuation is used for the purpose of very substantial acquisition.

This letter which forms part of our valuation report explains the basis and methodology of valuation, and clarifies our assumptions made, titleship of properties and the limiting conditions.

Basis of Valuation

The valuation of such property interests is our opinion of the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

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PROPERTY VALUATION

APPENDIX VII

Valuation Methodology

All properties are valued by the comparison method where comparison based on prices realized or market prices of comparable properties is made. Comparable properties of similar size, character and location are analyzed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital values.

Assumptions

Our valuation has been made on the assumption that the owner sells the property on the open market in its existing state without the benefit of any deferred terms contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to increase the value of the property.

As the property is held under long term land use rights, we have assumed that the owners of the property has free and uninterrupted rights to use or transfer the property for the whole of the unexpired term of the respective land use rights. In our valuation, we have assumed that the property can be freely disposed of and transferred to third parties on the open market without any additional payment to the relevant government authorities.

It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defined, and considered in the appraisal report. Moreover, it is assumed that the utilization of the land and improvements is within the boundaries of the site held by the owner or permitted to be occupied by the owner. In addition, we assumed that no encroachment or trespass exists, unless noted in the report.

Other special assumptions of the property, if any, have been stated out in the footnote of the valuation certificate for the property.

Titleship Investigation

We have been provided with copies of legal documents regarding the property under valuation. However, due to the current registration system of the PRC, no investigation has been made for the legal title or any liabilities attached to the property.

In the course of our valuation, we have relied upon the legal opinion given by Guangdong York Law Firm (“the PRC Lawyer”) in relation to the legal title to the property under valuation.

All legal documents disclosed in this report are for reference only and no responsibility is assumed for any legal matters concerning the legal title to the property set out in this report.

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APPENDIX VII

Limiting Conditions

We have not carried out detailed site measurements to verify the correctness of the land or building areas in respect of the relevant property but have assumed that the areas shown on the legal documents provided to us are correct. Based on our experience of valuation of similar properties 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, measurements and areas are approximations.

We have inspected the exterior and, where possible, the interior of the property included in this valuation report. However, no structural survey has been made and we are therefore unable to report as to whether the property is free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

Having examined all relevant documentation, we have relied to a very considerable extent on the information provided by the Company and have accepted advice given to us by it on such matters as planning approvals, statutory notices, easements, tenure, occupation, lettings, construction costs, rentals, site and floor areas and in the identification of the property. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. 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.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any of the property valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the interest is free of encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

Since the property is located in a relatively under-developed market, the PRC, those assumptions are often based on imperfect market evidence. A range of values may be attributable to the property depending upon the assumptions made. While the valuer has exercised his professional judgement in arriving at the value, investors are urged to consider carefully the nature of such assumptions which are disclosed in the valuation report and should exercise caution in interpreting the valuation report.

Opinion of Value

The valuation certificate has already shown the capital value of the property.

Remarks

Our valuation has been prepared in accordance with generally accepted valuation procedures and in compliance with the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited including but not limited to the provisions of Chapter 5 and Practice Note 12.

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APPENDIX VII

In valuing the property interests, we have complied with the requirements contained in the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors and effective from 1 January 2005.

Valuation of the property interests are denominated in Chinese Renminbi (RMB).

The valuation certificate is enclosed herewith.

This valuation report is issued subject to our General Service Conditions.

Yours faithfully, For and on behalf of GREATER CHINA APPRAISAL LIMITED K. K. Ip BLE, LLD Chartered Valuation Surveyor Registered Professional Surveyor Managing Director

Note: Mr. K. K. Ip, who is a chartered valuation surveyor and a registered professional surveyor, has substantial experience in valuation of properties since 1992. Mr. Ip’s experiences cover areas of Great Britain, South America, Asia Pacific including the PRC and Hong Kong.

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APPENDIX VII

SUMMARY OF VALUATION

Group I – Property Interest held by the Group for self-occupation in the PRC

No.
Property
1.
2 residential units and 2 street-front
shops of Jiayi Garden, Dongguan Jia
Lake Mountain Villa Jinyinling Section,
Guanzhang Highway
Hengkeng Administration District
Liaobu Town, Dongguan
Guangdong Province
The PRC
2.
11 street-front shops of Jiayi Garden,
Jia Fu Garden and Phase 1 of Jiahui
Garden, 201 shops on Levels 1 & 2,
Restaurant, Karaoke & Supermarket
on Level 2 of Jia Lake Shopping Mall,
Dongguan Jia Lake Mountain Villa
Jinyinling Section, Guanzhang Highway,
Hengkeng Administration District,
Liaobu Town, Dongguan
Guangdong Province
The PRC
Group II – Property Interest held by the Group for future development in the
3.
A parcel of land located at the
northwest junction of
Wuhuan Road and Guanzhang Road
Hengkeng Village
Liaobu Town, Dongguan
Guangdong Province
The PRC
Total:

Market Value
as at 31 March 2009
(RMB)
630,000
12,680,000
PRC
29,800,000

43,110,000

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APPENDIX VII

VALUATION CERTIFICATE

Group I – Property Interest held by the Group for self-occupation in the PRC

No. Property

2 residential units and 2 street-front shops of Jiayi Garden, Dongguan Jia Lake Mountain Villa Jinyinling Section, Guanzhang Highway Hengkeng Administration District Liaobu Town, Dongguan Guangdong Province The PRC

Description and tenure

The subject development namely Dongguan Jia Lake Mountain Villa (東莞嘉湖山莊) is a composite development comprising various phases of development, currently three phases of residential development known as Jiayi Garden (嘉怡苑), Jiafu Garden (嘉富苑) and Jiahui Garden (嘉輝苑) were completed. In between Jiayi Garden and Jiafu Garden there is a Shopping Mall known as Jia Lake Shopping Mall (嘉湖商場). The above phases and shopping mall were completed in various stages between 1994 and 1997.

Particulars of Market value as at occupancy 31 March 2009 (RMB) The property 630,000 is occupied by Dongguan Jia Lake Mountain Villa Construction Co., Ltd for residential and commercial uses.

The property comprises 2 residential units (No. 15, Unit D of Ground Floor and No. 15, Unit C of Level 1) and 2 street-front shops (Units S002 and S003) in Jiayi Garden.

The total gross floor area of the property is approximately 269.51 square meters with breakdown as follows:

Use Residential: Commercial: Total:	Gross floor area (sq.m.) 153.07 116.44
	269.51

The property is held under two sets of State-owned Land Use Rights Certificate for a term expiring on January 2063 for commercial and residential use.

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APPENDIX VII

PROPERTY VALUATION

Notes:

(i) According to a State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364) dated 15 December 1992, the land use rights of the subject land with a site area of 66,000 square meters were granted to Dongguan Liaobu Town Real Property Development Company (the correct name should be Dongguan Liaobu Real Property Development Company which was subsequently named as Dongguan Liaobu Town Real Property Development Corporation as confirmed by the Company) for a term of 70 years commencing on the date of issue of the relevant State-owned Land Use Rights Certificate at a consideration of RMB660,000.
(ii) According to two sets of State-owned Land Use Rights Certificate (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12) dated 12 January 1993 and 25 September 1997 issued by the People’s Government of Dongguan City, the land use rights of the property is granted to Dongguan Liaobu Town Real Property Development Company for a term expiring on January 2063 for commercial and residential use.
(iii) According to a Construction Land Use Planning Permit (Liao Gui Zi 93-001) issued by the Town Development and Planning Office of Liaobu Town, Dongguan City dated 27 April 1993, the proposal of the subject development on the subject land with a site area of 82,945 square meters was approved.
(iv) The property is subject to a joint venture arrangement set up in 1992 between 安生置業有限公司 (Ancen Properties Limited) (“Party A”, a 70%-owned subsidiary of the Company) and Dongguan Liaobu Real Property Development Company (subsequently renamed as Dongguan Liaobu Town Real Property Development Corporation) (“Party B”). Party A and Party B entered into a legally binding agreement (the “Agreement”) whereby Party A paid for all costs relating to the obtaining of the land use right of the property and that Party B, a PRC party, holds the title to the property. In the same year, the parties established a joint venture, Dongguan Jia Lake Mountain Villa Construction Co., Ltd, in which the equity contribution ratio is 70% and 30% for Party A and Party B respectively. The Agreement also stated that Party B can only transfer the title of the property to Dongguan Jia Lake Mountain Villa Construction Co., Ltd and that Dongguan Jia Lake Mountain Villa Construction Co., Ltd is the sole investor and user of the property.
(v) Opinion of the PRC Lawyer are summarized as follows,
(a) The State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364), the State-owned Land Use Rights Certificates (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12), the Construction Land Use Planning Permit (Liao Gui Zi 93-001) and the joint venture agreement are valid and legally binding according to the relevant PRC laws and regulations.
(b) The joint venture company, Dongguan Jia Lake Mountain Villa Construction Co., Ltd, has paid all the relevant taxes and obtained the ownership confirmation for the commercial/residential blocks of the property.
(c) As ownership confirmation of the two residential units has been obtained, the joint venture company has the free and uninterrupted right to sell, lease, transfer or dispose of the property in accordance with the relevant PRC laws.
(d) The property is not subject to any mortgage.

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APPENDIX VII

No. Property

11 street-front shops of Jiayi Garden, Jia Fu Garden and Phase 1 of Jiahui Garden, 201 shops on Levels 1 & 2, Restaurant, Karaoke & Supermarket on Level 2 of Jia Lake Shopping Mall, Dongguan Jia Lake Mountain Villa Jinyinling Section, Guanzhang Highway Hengkeng Administration District Liaobu Town, Dongguan Guangdong Province The PRC

Description and tenure

The property comprises 11 street-front shops in Jiayi Garden, 201 shops on Levels 1 & 2, Restaurant, Karaoke & Supermarket on Level 2 of Jia Lake Shopping Mall.

Particulars of Market value as at occupancy 31 March 2009 (RMB) The property is 12,680,000 currently vacant.

The total gross floor area of the property is approximately 11,792.80 square meters with breakdown as follows:

Use 11 street-front shops: 201 shops on Levels 1&2: Restaurant: Karaoke: Supermarket: Total:	Gross floor area (sq.m.) 644.10 7,622.96 1,725.38 850.71 949.65
	11,792.80

The property is held under two sets of State-owned Land Use Rights Certificate for a term expiring on January 2063 for commercial and residential use.

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APPENDIX VII

Notes:

(i) According to a State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364) dated 15 December 1992, the land use rights of the subject land with a site area of 66,000 square meters were granted to Dongguan Liaobu Town Real Property Development Company (the correct name should be Dongguan Liaobu Real Property Development Company which was subsequently named as Dongguan Liaobu Town Real Property Development Corporation as confirmed by the Company) for a term of 70 years commencing on the date of issue of the relevant Stateowned Land Use Rights Certificate at a consideration of RMB660,000.
(ii) According to two sets of State-owned Land Use Rights Certificate (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12) dated 12 January 1993 and 25 September 1997 issued by the People’s Government of Dongguan City, the land use rights of the property is granted to Dongguan Liaobu Town Real Property Development Company for a term expiring on January 2063 for commercial and residential use.
(iii) According to a Construction Land Use Planning Permit (Liao Gui Zi 93-001) issued by the Town Development and Planning Office of Liaobu Town, Dongguan City dated 27 April 1993, the proposal of the subject development on the subject land with a site area of 82,945 square meters was approved.
(iv) The property is subject to a joint venture arrangement set up in 1992 between 安生置業有限公司 (Ancen Properties Limited) (“Party A”) and Dongguan Liaobu Real Property Development Company (subsequently renamed as Dongguan Liaobu Town Real Property Development Corporation) (“Party B”). Party A and Party B entered into a legally binding agreement (the “Agreement”) whereby Party A paid for all costs relating to the obtaining of the land use right of the property and that Party B, a PRC party, holds the title to the property. In the same year, the parties established a joint venture, Dongguan Jia Lake Mountain Villa Construction Co., Ltd, in which the equity contribution ratio is 70% and 30% for Party A and Party B respectively. The Agreement also stated that Party B can only transfer the title of the property to Dongguan Jia Lake Mountain Villa Construction Co., Ltd and that Dongguan Jia Lake Mountain Villa Construction Co., Ltd is the sole investor and user of the property.
(v) According to a sale and purchase agreement dated 4 June 2007, the property was sold to Beijing Joyful Rise Investment Consulting Company Limited (a wholly-owned subsidiary of the Company) with a consideration of RMB10,936,641.
(vi) Opinion of the PRC Lawyer are summarized as follows,
(a) The State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364), the Stateowned Land Use Rights Certificates (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12), the Construction Land Use Planning Permit (Liao Gui Zi 93-001) and the joint venture agreement are valid and legally binding according to the relevant PRC laws and regulations.
(b) The property was sold to Beijing Joyful Rise Investment Consulting Company Limited on 4 June 2007. Ownership registration has been completed on 2 March 2009.

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APPENDIX VII

Group II – Property Interest held by the Group for future development in the PRC

			Particulars of	Market value as at
No.	Property	Description and tenure	occupancy	31 March 2009
				(RMB)
3.	A parcel of land located	The property comprises an	The property is	29,800,000
	at the northwest junction	undeveloped portion of land with a	currently vacant.
	of Wuhuan Road and	site area of 13,031 square meters of
	Guanzhang Road	a composite development known as
	Hengkeng Village	Dongguan Jia Lake Mountain Villa
	Liaobu Town, Dongguan	(東莞嘉湖山莊).
	Guangdong Province
	The PRC	The property is held under two sets
		of State-owned Land Use Rights
		Certificate for a term expiring on
		January 2063 for commercial and
		residential use.

Notes:

(i) According to a State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364) dated 15 December 1992, the land use rights of the subject land with a site area of 66,000 square meters were granted to Dongguan Liaobu Town Real Property Development Company (the correct name should be Dongguan Liaobu Real Property Development Company which was subsequently named as Dongguan Liaobu Town Real Property Development Corporation as confirmed by the Company) for a term of 70 years commencing on the date of issue of the relevant State-owned Land Use Rights Certificate at a consideration of RMB660,000. As stipulated in the Land Use Conditions, the subject development shall comprise commercial and residential composite buildings with ancillary facilities with major development parameter as follows:
(a) Plot ratio: No more than 1.8 (b) Site coverage: No more than 29.2% (c) Gross Floor Area: No more than 316,678 square meters (d) Greenery Ratio: No less than 30%
(ii) According to two sets of State-owned Land Use Rights Certificate (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12) dated 12 January 1993 and 25 September 1997 issued by the People’s Government of Dongguan City, the land use rights of the property is granted to Dongguan Liaobu Town Real Property Development Company for a term expiring on January 2063 for commercial and residential use.
(iii) The property is subject to a joint venture arrangement set up in 1992 between 安生置業有限公司 (Ancen Properties Limited) (“Party A”) and Dongguan Liaobu Real Property Development Company (subsequently named as Dongguan Liaobu Town Real Property Development Corporation) (“Party B”). Party A and Party B entered into a legally binding agreement (the “Agreement”) whereby Party A paid for all costs relating to the obtaining of the land use right of the property and that Party B, a PRC party, holds the title to the property. In the same year, the parties established a joint venture, Dongguan Jia Lake Mountain Villa Construction Co., Ltd, in which the equity contribution ratio is 70% and 30% for Party A and Party B respectively. The Agreement also stated that Party B can only transfer the title of the property to Dongguan Jia Lake Mountain Villa Construction Co., Ltd and that Dongguan Jia Lake Mountain Villa Construction Co., Ltd is the sole investor and user of the property.
(iv) As advised by the Company, the development plan of the property is in an initial stage and not yet finalized. Our valuation is based on the development conditions of plot ratio of 1.8 and site coverage of 29.2% as stated in the State-owned Land Use Rights Grant Contract.
(v) Opinion of the PRC Lawyer are summarized as follows,
(a) The State-owned Land Use Rights Grant Contract (Dong Guo Chu Rang He (1992) Di No.364), the State-owned Land Use Rights Certificates (Dong Fu Guo Yong (1993) Zi Di Te No.10 and No.12) and the joint venture agreement are valid and legally binding according to the relevant PRC laws and regulations.
(b) In accordance with the relevant PRC laws, the joint venture company, Dongguan Jia Lake Mountain Villa Construction Co., Ltd, has the right to carry out property development on the subject land and also has the right to sell, transfer or mortgage the property after completion.
(c) The property is not subject to any mortgage.

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PROPERTY VALUATION

APPENDIX VII

B. PROPERTY VALUATION REPORT OF THE TARGET GROUP

Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

25 June 2009

The Directors Bright Prosperous Holdings Limited Room 3001-02, Top Glory Tower 262 Gloucester Road, Causeway Bay Hong Kong

Dear Sirs,

In accordance with the instructions from Bright Prosperous Holdings Limited (“the Company”) for us to value the properties of Amplewell Holdings Limited (referred to as the “Target Company”) and the target companies (together referred to as the “Target Group”) in Russia, Brazil and the People’s Republic of China (the “PRC”) which will become the Target Company’s subsidiaries prior to completion (“Completion”) of the very substantial acquisition as detailed in the circular of the Company dated 25 June 2009, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the market value of the property interest as at 31 March 2009 (referred to as the “valuation date”).

It is our understanding that this valuation is used for the purpose of very substantial acquisition.

This letter which forms part of our valuation report explains the basis and methodology of valuation, and clarifies our assumptions made, titleship of property and the limiting conditions.

Basis of Valuation

The valuation is our opinion of the market value which we would define as intended to mean:

“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

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PROPERTY VALUATION

APPENDIX VII

Valuation Methodology

Unless stated as otherwise, all properties are valued by the comparison method where comparison based on prices realized or market prices of comparable properties is made. Comparable properties of similar size, character and location are analyzed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital values.

For properties numbered 1 to 4, due to the nature of buildings and structures constructed, there is no readily identifiable market comparable to the properties, we have applied the cost method of valuation in assessing their values. It is a method of using current replacement costs to arrive at the value to the business in occupation of the property as existing at the date of valuation.

This method of valuation, cost method, is based on an estimate of the market value for the existing use of the land, plus the current gross replacement costs of the improvements, less allowances for physical deterioration and all relevant forms of obsolescence and optimization.

The cost method generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable.

Assumptions

Our valuation has been made on the assumption that the owner sells the property interests in their continued uses and in their existing states without the benefit of any deferred term contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to increase the value of the properties.

Continued use assumes the properties will be used for the purposes for which the properties are designed and built, or to which they are currently adapted. The valuation on the property in continued use does not represent the amount that might be realized from piecemeal disposition of the property on the open market.

We have assumed that all consents, approvals and licenses from relevant government authorities for the buildings and structures erected thereon have been granted. Also, we have assumed that all buildings and structures fall within the site are held by the owner or permitted to be occupied by the owner.

In the course of valuation, we have assumed that all the properties are currently held by the Target Group, which have the rights to occupy, use, sell, lease, charge, mortgage or otherwise dispose of the interests within their respective terms of land use rights granted by the government without the need to seek further approval from and paying additional premium to the government.

It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defined and considered in the valuation report. Moreover, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists, unless noted in the report.

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PROPERTY VALUATION

APPENDIX VII

No environmental impact study has been ordered or made. Full compliance with applicable national, provincial and local environmental regulations and laws is assumed. In addition, it is assumed that all required licences, consents or other legislative or administrative authority from any local, provincial or national government or private entity or organization either have been or can be obtained or renewed for any use which the report covers.

Other special assumptions of each property, if any, have been stated out in the footnotes of the valuation certificates.

Titleship Investigation

We have been provided with copy of title document. However, no investigations have been made for the legal title or any material liabilities attached to the property.

In this respect, we have relied upon the legal opinions given by,

OOO Consulting Center in relation to the legal title to the properties located in Russia under valuation;
Szymonowicz Oliveira & Associados in relation to the legal title to the properties located in Brazil under valuation; and
Zhong Yin Lawyer Office Shanghai Branch in relation to the legal title to the properties located in the PRC under valuation.

Moreover, we have been provided with copies of tenancy agreements of the properties rented to the Target Group. However, we have not inspected the original documents to verify ownership or to ascertain the existence of any amendments which do not appear on the copies handed to us.

All legal documents disclosed in this report are for reference only and no responsibility is assumed for any legal matters concerning the legal title to the property interests set out in this report.

Limiting Conditions

We have inspected the exterior and, where possible, the interior of the Property included in the attached valuation certificate. However, no structural survey has been made and we are therefore unable to report as to whether the properties are free from rot, infestation or any other structural defects. Also, no tests were carried out on any of the services.

We have not carried out detailed site measurements to verify the correctness of the land or building areas in respect of the property interests but have assumed that the areas shown on the legal documents provided to us are correct. Based on our experience of valuation of similar properties, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

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PROPERTY VALUATION

APPENDIX VII

No soil investigation has been carried out to determine the suitability of the ground conditions or the services for any property development.

We do not investigate any industrial safety, environmental and health related regulations in association with any particular manufacturing process of the Target Group. It is assumed that all necessary licences, procedures and measures were implemented in accordance with government legislation and guidance.

Having examined all relevant documentation, we have relied to a very considerable extent on the information provided by the Target Group and have accepted advice given to us by it on such matters as planning approvals, statutory notices, easements, tenure, occupation, rentals, site and floor areas and in the identification of the property in which the Target Group has valid interests. Floor areas of the property stated herein are ascertained by us by scaling off the registered floor plans of the subject development.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Target Group. We were also advised by the Target Group 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.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any of the property valued nor for any expenses or taxation which may be incurred in effecting a sale.

Unless otherwise stated, it is assumed that the interests are free of encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Opinion of Value

Valuations of the property interests held by the Target Group are shown in the attached summary of valuation and their respective valuation certificates.

For the properties which are held under tenancy agreements or licences, classified under Group II in the PRC and Group III in Brazil, they have no commercial value due to inclusion of non-alienation clauses or otherwise due to the lack of substantial profit rents or short-term nature of the leases.

Remarks

Our valuation has been prepared in accordance with generally accepted valuation procedures and in compliance with the requirements of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited (the “Rules”), including but are not limited to the provisions of Practice Note 12 of the Rules.

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PROPERTY VALUATION

APPENDIX VII

For the properties in Russia and Brazil, our valuation conclusion is reached having regard to the valuation work performed by the overseas valuers listed below, in accordance with the Standards.

The overseas valuers are:

Mr. Kurkubet Mihail Vasilyevich, director of OOO “Pravoved”, a valuer of 1st category, has over 9 years experience in evaluation of property in Russia. He is a member of Valuers’ Association of Russia and is included to the registry of Selfgoverned Valuers’ Organization. Mr. Kurkubet Mihail Vasilyevich’s address is Vlitsa Kastrinskaya 6, Chita 672000, Russia.
Mr. João Paulo Penante de Lima, a forest engineer, is the Partner-Owner and Technical Consultant of Dendrolog Eng. Florestal e Geoprocessamento Ltda. He is a member of Regional Council of Engineering, Architecture and Agronomy, Brazil (CREA-PA) and has over 6 years experience in auditing, valuation and management of forest projects in Brazil. Mr. João Paulo Penante de Lima’s address is Rua Santo Antonio, n˚432Belém/PAPÁ – CEP: 66.010-090, Brazil.

All property values are stated in US Dollars (US$). Where applicable, exchange rates of US$1 to RUB34.1459 Russian Ruble, US$1 to BRL2.3148 Brazilian Real, and US$1 to RMB6.8456 Chinese Renminbi were adopted which are the prevailing exchange rates as at the date of valuation.

The valuation certificate is enclosed herewith.

This valuation report is issued subject to our General Service Conditions.

Yours faithfully, For and on behalf of

GREATER CHINA APPRAISAL LIMITED K. K. Ip BLE, LLD Chartered Valuation Surveyor Registered Professional Surveyor Managing Director

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PROPERTY VALUATION

APPENDIX VII

SUMMARY OF VALUATION

No.
Property
Group I – Property held by the Target Group in Russia
1.
Land and Buildings of Kadala facility
Dugovoy Proezd 5
Poselok Kadala
Chita
2.
Land and Buildings of Drovyanaya facility
Poselok Drovyana
Ulyotovskiy District
Zabaikalskiy Kray
3.
Land and Buildings of Moygotuy facility
Prirelsovaya baza Novoorlovskogo GOKa
Poselok Mogoytuy
Zabaikalskiy Kray
4.
Land and Buildings of Tarbagatay facility
Ulitsa Zavodskaya 5
Poselok Tarbagatay
Petrovsk-Zabaikalskiy District
Zabaikalskiy Kray
Sub-total:

Market Value as at
31 March 2009
(US$)
2,050,000
2,140,000
370,000
950,000

5,510,000

Group II – Property rented by the Target Group in the PRC

5. Factory located at South Lubin Road, No. 7 east, Manchury, China Sub-total:	No commercial value
	No commercial value

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PROPERTY VALUATION

APPENDIX VII

No.
Property
Group III – Property rented by the Target Group in Brazil
6.
Rua Mundurucus, 3100,
Edificio Metropolitan
Tower, Rooms 1902 and 1903, Guama, Belem, Para, CEP 66073-000
Brazil
Sub-total:
Group IV – Property to be acquired by the Target Group in Brazil
7.
Fazenda Cachimbo Forest,
Rio Branco,
Feijó- AC,
Brazil
8.
Fazenda Porto Brazil Forest,
Feijó,
Feijó- AC,
Brazil
9.
Fazenda Escanteio Forest,
Feijó,
Feijó- AC,
Brazil
Sub-total:
Total:

Market Value as at
31 March 2009
(US$)
No commercial value

No commercial value
8,600,000
11,100,000
5,500,000

25,200,000
30,710,000

VII – 17

PROPERTY VALUATION

APPENDIX VII

VALUATION CERTIFICATE

Group I – Property Interest held by the Target Group in Russia

			Particulars of	Market value as at
No.	Property	Description and tenure	occupancy	31 March 2009
				(US$)
1.	Land and Buildings of	The property comprises a parcel	The property is	2,050,000
	Kadala facility	of land (the “Land”) with a total	occupied by the
	Dugovoy Proezd 5	land area of approximately 16,000	Target Group as
	Poselok Kadala	square meters, 19 buildings (the	workshop, stock
	Chita	“Buildings”) erected on the Lands.	house, office and
		The construction of the Buildings	ancillary purposes.
		were completed during the period
		between 1960 and 1995.
		The total gross floor area of the
		Buildings is approximately 6,550
		square meters.
		The property is held under a Contract
		of Lease dated on 20 December 2004
		and a Contract of Purchase dated on
		21 April 2004.

Notes:

(i) According to Contract of Lease #754/04 dated on 20 December 2004 from Property Control Committee of Chita Administration (Mr Krohmalniy Igor Vasilyevich) to Tenant Mr Seleznev Sergey Alexandrovich, and Contract of Purchase of Seleznev Sergey Alexandrovich dated on 21 April 2004 from Gerasimov Vladimir Uryevich, the property was purchased by Zabaykalskaya lesnaya Kompania which will become a wholly-owned subsidiary of the Target Company upon Completion.

VII – 18

APPENDIX VII

PROPERTY VALUATION

Description and tenure

No. Property

Land and Buildings of The property comprises a parcel Drovyanaya facility of land (the “Land”) with a total Poselok Drovyana land area of approximately 27,000 Ulyotovskiy District square meters, 14 buildings (the Zabaikalskiy Kray “Buildings”) erected on the Lands. The construction of the Buildings were completed during the period between 1972 and 1976.

Particulars of Market value as at occupancy 31 March 2009 (US$) The property is 2,140,000 occupied by the Target Group as workshop, stock house, office and ancillary purposes.

The total gross floor area of the Buildings is approximately 8,500 square meters.

The property is held under four Contracts of Lease dated on 20 February 2008 and four Contracts of Purchase dated on 28 March 2003.

Notes:

(i) According to Contract of Lease #18, #19, #20, #115, for the landlot dated on 20 February 2008 from the Administration of Ulyotovskiy District, under the property administration committee (Mr Negodyaeva Svetlana Nikolaevna, and having Zabaikalskaya lesnaya Kompania as Tenant, and four Contracts of Purchase of buildings and one of railway line dated on 28 March 2003 from EPOS Les Agro (Mr Myakotin Sergey Anatolyevich) to buyer Zabaikalskaya lesnaya Kompania (Mr Kasyanov Evgeniy Uryevich), the property was purchased by Zabaikalskaya lesnaya Kompania which will become a whollyowned subsidiary of the Target Company upon Completion.

VII – 19

PROPERTY VALUATION

APPENDIX VII

No. Property Description and tenure

Land and Buildings of The property comprises a parcel Moygotuy facility of land (the “Land”) with a total Prirelsovaya baza land area of approximately 21,930 Novoorlovskogo GOKa square meters, 10 buildings (the Poselok Mogoytuy “Buildings”) erected on the Lands. Zabaikalskiy Kray The construction of the Buildings were completed during the period between 1975 and 1980.

Particulars of Market value as at occupancy 31 March 2009 (US$) The property is 370,000 occupied by the Target Group as workshop, warehouse, office and ancillary purposes.

The total gross floor area of the Buildings is approximately 14,234 square meters. The property is held under two Contracts of Purchase dated on 6 August 2007.

Notes:

(i) According to two Contracts of Purchase dated on 06 August 2007 between seller Derevoobrabativayuschiy kombinat – 75 (Mr Skrinnik Sergey Nikolaevich) and buyer Zabaikalskaya lesnaya Kompania (Mr Chuprov Nikolay Evgenyevich), the property was purchased by Zabaikalskaya lesnaya Kompania which will become a wholly-owned subsidiary of the Target Company upon Completion.

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PROPERTY VALUATION

APPENDIX VII

Description and tenure

No. Property

Land and Buildings of The property comprises a parcel Tarbagatay facility of land (the “Land”) with a total Ulitsa Zavodskaya 5 land area of approximately 28,400 Poselok Tarbagatay square meters, 34 buildings (the Petrovsk-Zabaikalskiy “Buildings”) erected on the Lands. District The construction of the Buildings Zabaikalskiy Kray were completed during the period between 1963 and 1990.

Particulars of Market value as at occupancy 31 March 2009 (US$) The property is 950,000 occupied by the Target Group as workshop, warehouse, office and ancillary purposes.

The total gross floor area of the Buildings is approximately 23,883 square meters. The property is held under 10 sets of Certificate of State Registration of Property Rights dated on 3 March 2009 and 13 October 2008.

Notes:

(i) According to 10 sets of Certificate of State Registration of Property Rights dated on 3 March 2009 and 13 October 2008 issued by State Agency of Justice of Russian Federation, 10 buildings of the Buildings is held by Zabaikalskaya lesnaya Kompania which will become a wholly-owned subsidiary of the Target Company upon Completion.

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PROPERTY VALUATION

APPENDIX VII

Group II – Property rented by the Target Group in the PRC

			Market value as at
No.	Property	Description and occupancy	31 March 2009
			(US$)
5.	Factory located at	The property comprises 15 buildings (the “Buildings”)	No commercial value
	South Lubin Road,	with a total gross floor area of approximately 11,516.25
	No. 7 east, Manchury,	square meters. The construction of the Buildings were
	China	completed in 1990s.
		The property is held under a tenancy agreement dated 8
		September 2008 between Manzhouli Dongsen Wooden
		Products Co., Ltd as lessor and Manzhouli Eastmark
		Wooden Products Co., Ltd (Manzhouli WFOE) (a
		wholly-owned subsidiary of the Target Company) as
		lessee for a term of 5 years from 15 October 2008 to
		14 October 2013 at a rent of RMB800,000 per year
		including 25 items of equipment but exclusive of
		insurance fee and other service charges.
		The property is currently occupied by the Target Group
		as factory, office, dormitory and other ancillary use.

Notes:

Opinion of the PRC Lawyer are summarized as follows:

(a) The lessor has obtained legal title to the property. The lessee has the right to occupy and use the property during the term of the tenancy agreement.

(b) The tenancy agreement is legal, valid and binding.

(d) The tenancy agreement conforms to the requirements of the relevant laws, rules and regulations in the PRC.

VII – 22

PROPERTY VALUATION

APPENDIX VII

Group III – Property rented by the Target Group in Brazil

No. Property

Description and occupancy

Market value as at 31 March 2009

(US$)

Rua Mundurucus, 3100, Edificio Metropolitan Tower, Rooms 1902 and 1903, Guama, Belem, Para, CEP 66073-000 Brazil

The property comprises 2 office units within a 28-storey building and was completed in 2007.

The gross floor area of the property is approximately 140 square meters.

No commercial value

The property is held under a tenancy agreement dated 1 March 2009 between Carlos Roberto Reis Da Silva as lessor and Universal Timber Resources Do Brasil Participação Ltda (which will be a 99.99%-owned subsidiary of the Target Company) as lessee for a term of 12 months from 1 March 2009 to 28 February 2010 at a rent of Brazilian Real 5,500,000 per month exclusive of taxes and fees that eventually reflect over the property rented.

The property is currently occupied by the Target Group as office.

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PROPERTY VALUATION

APPENDIX VII

Group IV – Property to be acquired by the Target Group in Brazil

Particulars of Market value as at
No. Property Description and tenure occupancy 31 March 2009 (US$)
1. Fazenda Cachimbo The property comprises a parcel of The property will 8,600,000 Forest, land with an area of approximately be occupied by the Rio Branco, 156,590,000 square meters Target Group for Feijó- AC, (approximately 15,659 ha). forestry purpose. Brazil The potentially plantable area is approximately 133,180,000 square meters (approximately 13,318 ha). The annual available area is approximately 4,439,000 square meters (approximately 443.9 ha). The property is held under registry documents Matr 1-266 (Liv. 028, fls 28/30v2) dated on 27 October 1995.

Notes:

(i) According to an Agreement of Purchase and Sale of Business and Individual Assets and Rights dated on 23 July 2008 signed between Marcelo Balerini de Carvalho and Universal Timber Resources Do Brasil Participação Limitada, the property was purchased by Universal Timber Resources Do Brasil Participação Limitada which will become a 99.99%-owned subsidiary of the Target Company upon Completion.

VII – 24

PROPERTY VALUATION

APPENDIX VII

Description and tenure

No. Property

Fazenda Porto Brazil The property comprises a parcel of Forest, land with an area of approximately Feijó, 202,050,000 square meters Feijó- AC, (approximately 20,205 ha). Brazil The potentially plantable area is approximately 171,740,000 square meters (approximately 17,174 ha). The annual available area is approximately 5,724,000 square meters (approximately 572.4 ha).

Particulars of Market value as at occupancy 31 March 2009 (US$) The property will 11,100,000 be occupied by the Target Group for forestry purpose.

The property is held under registry documents Matr 713 (livro 02 D, fls 151 de) dated on 17 February 2006.

Notes:

(i) According to an Agreement of Purchase and Sale of Business and Individual Assets and Rights dated on 23 July 2008 signed between Marcelo Balerini de Carvalho and Universal Timber Resources Do Brasil Participação Limitada, the property was purchased by Universal Timber Resources Do Brasil Participação Limitada which will become a 99.99%-owned subsidiary of the Target Company upon Completion.

VII – 25

APPENDIX VII

PROPERTY VALUATION

No. Property

Description and tenure

Particulars of Market value as at occupancy 31 March 2009 (US$)

Fazenda Escanteio The property comprises a parcel of Forest, land with an area of approximately Feijó, 99,840,000 square meters Feijó- AC, (approximately 9,984 ha). Brazil

The property will 5,500,000 be occupied by the Target Group for forestry purpose.

The potentially plantable area is approximately 84,860,000 square meters (approximately 8,486 ha). The annual available area is approximately 2,828,000 square meters (approximately 282.8 ha).

The property is held under registry documents Mat n 712 Lv. 02 d – fls 150 dated on 10 May 2006.

Notes:

(i) According to an Agreement of Purchase and Sale of Business and Individual Assets and Rights dated on 23 July 2008 signed between Marcelo Balerini de Carvalho and Universal Timber Resources Do Brasil Participação Limitada, the property was purchased by Universal Timber Resources Do Brasil Participação Limitada which will become a 99.99%-owned subsidiary of the Target Company upon Completion.

VII – 26

VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

The following is the text of a report from Greater China Appraisal Limited, an independent valuer, in respect of the valuation report on the Brazilian Forest and the Russian Forest as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

VALUATION REPORT ON THE BRAZILIAN FOREST AND THE RUSSIAN FOREST

Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong 25 June 2009

The Directors Bright Prosperous Holdings Limited Room 3001-2 Top Glory Tower 262 Gloucester Road Causeway Bay, Hong Kong

Dear Sirs,

In accordance with the instructions from Bright Prosperous Holdings Limited (the “Company”), we have completed a valuation of the fair values of the:

(i) Brazilian Forest, with an area of approximately 44,503 hectares, to be acquired by the Brazil Subsidiary under the Brazil Acquisition Agreement; and
(ii) Concession rights to exploit the Russian Forest (the “Concession Rights”) with an area of approximately 242,745 hectares.

We confirm that we have made relevant enquiries and obtained such information as we consider necessary for the purpose of providing our opinion of the fair values of the Brazilian Forest and the Concession Rights as at 31 March 2009 (the “Valuation Date”).

We understand that this valuation will be used as a reference for your investment purpose, details of which are set out in the circular dated 25 June 2009 issued by the Company to the Shareholders (the “Circular”), of which this valuation report forms part. Unless otherwise stated, terms used in this valuation report have the same meanings as those defined in the circular to the shareholder dated 25 June 2009. Our analysis was conducted for the above mentioned purpose only and this report should be used for no other purposes.

Introduction

On 28 February 2009, Great Path Limited (the “Purchaser”) and Winner Global Limited (the “Vendor”) entered into the Agreement pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell the entire issued share capital of the Amplewell Holdings Limited (the “Target Company”).

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

The Target Company, incorporated in BVI with limited liability, is an investment holding company wholly and beneficially owned by the Vendor. The Target Company will hold the entire issued share capital of the Target Subsidiaries which include the Brazil Subsidiary, Russia Subsidiary, Russia Subsidiary II, Samoa Subsidiary and Manzhouli WFOE upon Completion. The Target Company and Target Subsidiaries together are known as the Target Group, and it is principally engaged in the business of forest exploitation; timber and wood processing; timber trading and timber sales and marketing in Russia, Brazil and Manzhouli, China.

Business Overview

Group Structure after Completion:

==> picture [417 x 247] intentionally omitted <==

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

Great Path Limited
“Purchaser”
100%
Target Company
100% 100% 99.99%
Russia Samoa Brazil
Subsidiary Subsidiary Subsidiary
99.9% 100%
Russia Manzhouli
Subsidiary II WFOE
----- End of picture text -----

Target Subsidiaries

1. Universal Timber Resources Do Brazil Participacao Ltda (“Brazil Subsidiary”)

Brazil Subsidiary, a company incorporated in Brazil with limited liability, is principally engaged in investment holding and in the timber, commercial, industrial and real estate business. On 16 October 2008 (supplemented by subsequent amendments dated 11 December 2008 and 9 February 2009), Brazil Subsidiary entered into the Brazil Acquisition Agreement as purchaser and Marcelo Balerini de Carvalho as vendor to acquire 100% of the freehold land interest of the Brazilian Forest with an area of 44,503 hectares which is situated in Feijo municipality of Acre state, Brazil. Pursuant to the Brazil Acquisition Agreement, the total purchase price for the acquisition of the Brazilian Forest is BRL 26,255,000.

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

2. Zabaikalskaya Lesnaya Kompania (“Russia Subsidiary”)

Russia Subsidiary, a company incorporated under the laws of the Russian Federation with limited liability, which is indirectly owned by the Vendor and is holding a concession right to exploit approximately 174,904 hectares of the Russian Forest. Pursuant to the lease agreement of the concession right, the term of lease is for a period of 25 years commencing from 18 February 2003, including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations, and is named as the purchaser in the Russia Subsidiary II Acquisition Agreement.

3. OOO Novoles (“Russia Subsidiary II”)

Russia Subsidiary II, a company incorporated under the law of the Russia Federation with limited liability, which is holding six concession rights to exploit, in aggregate, approximately 67,841 hectares of the Russian Forest. The company is engaged in rent of forest concessions and hiring of contractor teams for timber harvesting. Pursuant to the lease agreements of the six concession rights, the terms of lease for the six concession rights range from 5 years to 25 years commencing from 2006, including without limitation the clearing up and immediate sale of timber, and the subsequent cultivation and plantations.

4. Eastmark Holdings Limited (“Samoa Subsidiary”)

Samoa Subsidiary, a company incorporated in Samoa with limited liability, whose entire equity interest is indirectly owned by the Vendor and is holding the entire registered capital of Manzhouli WFOE.

5. Manzhouli Eastmark Wooden Products Co Ltd (“Manzhouli WFOE”)

Manzhouli WFOE, a wholly foreign-owned enterprise established in Manzhouli, China in September 2008, is principally engaged in timber and wood processing including drying, further sawing of wooden boards to specific specification and selling of wood products.

Law and Regulations

The 100% ownership of the Target Group is under the jurisdictions of the administrative center of Zabaykalsky Krai, Russia and the Acre State of Brazil; hence subject to the law and regulations of both the Russian and the Brazilian Governments.

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

Geology and Resources

Zabaykalsky Krai, Russia – a newly created territory in March 2007 following the merger of Chita Province and Agin-Buryat Autonomous District. It is located in the south-east region of Russia, and shares much of its borders with China and Mongolia. The region is rich in ferrous and non-ferrous metals, coal, and with forests covering about 60% of the entire area, and as a result, its main industries are timber and metallurgy.[1]

==> picture [331 x 193] intentionally omitted <==

Source: Map of Russian subjects, 2008-03-01, M. Stadthaus, Wikipedia

1 Zabaykalsky Krai, Wikipedia. Retrieved on 23 Feb 2009 from http://en.wikipedia.org/wiki/Zabaykalsky_Krai

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

Acre State, Brazil – a state of Brazil which is located in the north-western part of the country, and shares its southern border with Peru with a population of approximately 700,000. The area is covered mostly by the jungle of the Amazon Rainforest, which represents over half of the world’s remaining rainforests. The tropical forests in the Americas contain more species than forests in Africa and Asia.[2] More than a third of all species in the world can be found in the Amazon Rainforest.[3]

The Brazilian Forest is situated in the Northwest of Brazil, in the state of Acre, Amazon region. The Amazon forests area mostly dominated by dense and open types, with trees of medium and big sizes, with occurrence of lianas, bromeliaceous and orchids. The Brazilian Forest contains mostly hardwoods but also has softwoods with various tree species of different diameter, height and age.

==> picture [230 x 225] intentionally omitted <==

Source: Brazil State Acre, April, 21 2006, Raphael Lorenzeto de Abreu, Wikipedia

2 Ecology of trees in the tropical rain forest. Turner, 2001. Cambridge University. ISBN 0-521-80183-4

3 Acre (State), Wikipedia. Retrieved on 23 Feb 2009, from http://en.wikipedia.org/wiki/Acre,_Brazil

VIII – 5

VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

Manzhouli, Inner Mongolia, China – located in the north-eastern part of China, it shares its border with Russia to the north, which is 54km long. Manzhouli is divided into ten sub-districts and one town; it has an area of 696.3 square kilometers with a population of approximately 230,000. Moreover, it is China’s busiest land port of entry, and is responsible for 60% of all imports from and exports to Russia and Eastern Europe.[4]

==> picture [297 x 190] intentionally omitted <==

Source: Inner Mongolia, Western Region, China Knowledge

4 Manzhouli, Wikipedia. Retrieved on 23 February 2009, from http://en.wikipedia.org/wiki/Manzhouli

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

BASIS OF VALUATION

We have valued the Brazilian Forest and the Concession Rights of the Russian Forest on the basis of fair value.

Fair Value

According to Hong Kong Financial Reporting Standard, fair value is the amount for which an asset could be exchanged, or a fair value liability settled, between knowledgeable, willing parties in an arm’s length transaction.

For the purpose of this valuation, the term fair value is similar and/or interchangeable with the valuation standards or definitions below and will be used throughout this valuation report.

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 defined fair market value as the amount at which property 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.

Our valuation has been prepared in accordance with the HKIS Valuation Standards on Traderelated 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 the detailed guidelines on the basis and valuation approaches in valuing assets used in the operation of a trade or business and business enterprises.

Principal Sources of Information

In completing this valuation, we have relied heavily on information (sourced by technical experts and/or other accredited specialist(s) specific to the forest industry) provided by the Company and its management, the official data published by the Federal Forestry Agency (“FFA”) of the Ministry of Agriculture of the Russian Federation and the Forestry Development Institute of the Brazilian Government.

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

ECONOMIC OUTLOOK AND INDUSTRY ANALYSIS

In conjunction with the preparation of this appraisal opinion, we have reviewed and analyzed the current economic conditions in Russia, Brazil and China; and how the forestry industry may be impacted.

Russia’s Economic Outlook

The Russian economy ended 2007 with its ninth straight year of growth, averaging 7% annually since the financial crisis of 1998. In 2007, Russia’s GDP grew 8.1%, led by non-tradable services and growth in the domestic market, as opposed to oil or mineral extraction and exports. Inflation returned in the second half of 2007 and averaged 11.9% for the year, driven largely by capital inflows and rising food costs[5] .

	2008	2009	2010	2011
	Actual	Forecast	Forecast	Forecast
Real GDP growth (%)	5.6	(3.0)	2.0	4.0
Consumer price inflation (%)	14.1	13.5	10.4	8.5
Current-account bal. (% of GDP)	5.9	(2.2)	(0.6)	(0.5)
Exchange rate Rb: US$ (average)	24.9	36.0	36.7	36.8
Exchange rate Rb: € (average)	36.5	48.1	50.8	52.1

Figures extracted from the Economist[6]

In the face of the global financial market turmoil and the deterioration of its relationship with the West as a result of its conflict with Georgia, the International Monetary Fund has cut Russia’s 2009 growth forecast from 3.0% to 1.0%, and its 2010 forecast to 4.0% from 4.5%. GDP for the period between January and August 2008 grew 7.7% from the same period in 2007[6] . The military intervention in Georgia and its recognition of South Ossetia and Abkhazia, as well as crucial issues in the likes of NATO enlargement, had resulted in a liquidity crisis, where investors and commercial banks have piled up cash and curb corporate and retail lending. In response, the Russian Central Bank has injected RUB130 billion into the market in an attempt to stabilize its economy, but risks further inflationary pressure at the same time.

Real GDP growth is expected to slow in 2008-09, as a result of stagnating oil output, high inflation, monetary tightening and real currency appreciation. Inflation will likely fall to back to its 2007 level as oil and other commodity prices have dropped tremendously, together with the falling demand growth and the tightening of fiscal policy. In addition, strong import expansion and the decline in growth of export will severely reduce the current-account surplus to -2.2% of GDP in 2009 and -0.6% in 2010[4] .

5 Central Intelligence Unit: “The World Factbook – Russia” .

www.cia.gov/library/publications/the-world-factbook/geos/rs.html. Retrieved on 22 Oct 2008

6 “Economist.com: Country Briefings – Russia”. http://www.economist.com/countries/russia/profile.cfm?folder=profile%2DEconomic%20Data. Retrieved on 7 Apr 2009

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APPENDIX VIII

Looking forward, the impact of global capital market turmoil, declining commodity prices and weakening demand, devaluation of the ruble, and the deteriorating relationship with the West; Russia’s GDP will experience a major slowdown in economic growth, to negative 3.0% in 2009. Growth is expected to rebound in the following years though, to average around 4.3% per year in 2011 – 13[7] .

Brazil’s Economic Outlook

Brazil has well-developed agricultural, mining, manufacturing and service sectors. It has recorded trade surpluses from 2003 to 2007 with its first current account surpluses since 1992[8] . However, due to decrease in world demand and commodities prices in the second half of 2008, Brazil incurred another current account deficit at 1.8%.

	2008	2009	2010	2011
	Actual	Forecast	Forecast	Forecast
Real GDP growth (%)	5.3	(0.4)	3.2	3.9
Consumer price inflation (%)	5.7	4.4	3.7	3.5
Current-account bal. (% of GDP)	(1.8)	(2.2)	(2.3)	(2.0)
Exchange rate R:US$ (average)	1.83	2.52	2.52	2.40

Figures extracted from the Economist[9]

The global financial crisis is expected to have a severe impact on Brazil’s economic growth and raising unemployment rate. Industrial production had worse than expected downturn. It was slump by 6.2% year on year caused by excessive stocks accumulation. 655,000 formal jobs were cut in December 2008. The banking sector has credit tightening policy since November 2008 which is evident by raising landing rates and curbed consumer credit[10] .

Real GDP growth is forecast to drop to a deficit of 0.4% in 2009, with a marginal recovery to 3.2% in 2010. Downgrades in projected domestic demand will cause a rapid disinflationary effect. Inflation rate is now expected to plunge to 4.4% in 2009, previously 5.7%, and 3.7% in 2010. Brazil’s continuous terms of trade deterioration is likely to widen current-account deficit to 2.2% in 2009 and 2.3% next despite a sharp compression of import spending this year.

7 Country Briefing – China. Retrieved on 2009-01-20, from

www.economist.com/countries/China/profile.cfm?folder=Profile%2DEconomic%20Data

8 Central Intelligence Unit: “The World Factbook – Brazil”.

https://www.cia.gov/library/publications/the-world-factbook/geos/br.html. Retrieved on 26 Feb 2009

9 “Economist.com: Country Briefings – Brazil”. Retrieved on 26 Feb 2009, from:

http://www.economist.com/countries/brazil/profile.cfm?folder=Profile%2DEconomic%20Data.

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APPENDIX VIII

China’s Economic Outlook

The Chinese economy attained double digit growth rates of 10.7% and 11.9% in 2006 and 2007 respectively. Entering 2008, real GDP growth has been hampered by the global financial crisis but remained impressive at 9.1%. However, growth is expected to slow down further in 2009 and beyond mainly due to weakening export. Growth is expected to average at a healthy 7.7% heading into year 2013, contributed rapid growth in domestic demand, private consumption and increases in government spending.

	2008	2009	2010	2011
	Actual	Forecast	Forecast	Forecast
Real GDP growth (%)	9.1	6.0	7.0	8.4
Consumer price inflation (%)	5.9	(0.2)	2.5	3.5
Current-account balance (% GDP)	10.2	6.1	4.5	3.6
Commercial bank prime rate (%)	5.6	5.4	6.6	7.0
Exchange rate RMB:US$ (average)	6.95	6.84	6.66	6.51

Figure extracted from the Economist[10]

It is expected that in 2009, the government will continue to boost the contribution of private consumption to overall growth. Service industries have been boosted during the year by the Olympic Games in Beijing and will be further enhanced in the future by the 2010 Shanghai World Expo. Private investments should be expected to bounce back after the recent decrease in interest rate, as the government has just made cuts of 27 basis points in October 2008. As part of the global effort to counter the effects of the financial crisis, the Chinese government has just announced an enormous stimulus plan worth more than RMB4,000 billion through 2010, with a focus on infrastructures and social welfare. Inflation, which was one of the Chinese government’s main concerns before the financial crisis, is no longer an issue as worldwide commodities prices had dropped significantly over the past year, and inflation is expected to be nonexistent in 2009[11] .

The year 2008 has been rough for China both economically and socially. A series of setbacks have taken place such as the Chinese Government’s decrease of money supply to prevent the economy from over-expanding; the appreciation of the Renminbi which is slowing down the export industries; the volatility in prices of major commodities; the weakening stock markets as a result of the global financial crisis and weakening investor confidence; and the catastrophic earthquake that took place in Sichuan province. Amidst all the negative events, China’s economy still managed to boost a 9.1% growth of GDP for 2008, and despite the global economic slowdown; average GDP growth of above 7% is still expected in the next couple of years.

10 “Economist.com: Country Briefings – China”. Retrieved on 30 Mar 2009, from:

http://www.economist.com/countries/china/profile.cfm?folder=Profile%2DEconomic%20Data.

11 Country Briefing – China. Retrieved on 2009-01-20, from

www.economist.com/countries/China/profile.cfm?folder=Profile-ForecastH

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

WORLDWIDE FOREST INDUSTRY

Overview

Forests are invaluable to the earth and all living organism on the planet, as they constitute an energy system that is an important source of oxygen. To grow a pound of wood, a tree consumes about 1.47 pounds of carbon dioxide and releases approximately 1.07 pounds of oxygen. On average, an acre of trees could be expected to grow 4,000 pounds of wood per year. In the process, 5,800 pounds of carbon dioxide would be consumed, and 4,280 pounds of oxygen would be produced.[12] In addition, they help control flooding; purify water; cycle nutrients and act as a soil conserver and habitats for organisms; making it one of the most important aspect of the Earth’s biosphere.[13]

Geographically, forest areas cover approximately 9.4% of the Earth’s surface (30% of total land area), and corresponds to 3.9 billion ha (52% Tropical; 26% Boreal; 22% Temperate), producing up to 3.54 billion m[3] of industrial and energy wood, which trades at international markets for an aggregate value of approximately USD297 billion in 2006. Of the harvested wood, 54% was burned for fuel and 46% was manufactured into wood products such as lumber and paper.

==> picture [314 x 171] intentionally omitted <==

Timber can be classified as wood in any of its stages from felling to being ready for human usages, such as construction and wood pulp for paper production, and it is also one of the most important industries in the world, both ecologically and economically. The majority of the international trading of timber concentrates over Boreal (northern hemisphere, subarctic region) and Temperate forests, accounting for 84% of the entire global production.

12 Benefits of Wood Use, Timberland as an Investment, The Campbell Group. Retrieved on 20 Feb 2009, from

https://www.campbellgroup.com/timberland/primer/benefits-wood.aspx

13 Lund, H. Gyde (coord.) 2006. ‘Definitions of Forest, Deforestation, Afforestation, and Reforestation’. Gainesville, VA: Forest Information Services. Retrieved on 20 Feb 2009, from http://home.comcast.net/~gyde/DEFpaper.htm

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APPENDIX VIII

Driving Forces

Population growth and movement of interest rates are the two most influential factors of the demand for wood products. As a country’s literacy and standards of living increase, individuals will consume more paper-related products such as newspaper, writing paper, and other goods packaged with paper wrappings. Interest rates, on the other hand, affects the cost involved in borrowing money for home mortgages and constructions. When interest rate is high, it discourages people from buying new homes or starting new construction projects.

The development of a country’s forest industry depends on a number of different factors, and they include the types of tree species available, size and accessibility of the forests, availability of suitable transportation routes, and proximity to markets worldwide. It is true that forest industries have developed in countries such as Brazil, Indonesia, Malaysia, and the Philippines, the most established forest industries are still located in the northern temperate regions namely Europe, North America and Siberia.

Impact of Financial Crisis

Due to the recent global financial crisis, layoffs in the forestry market are expected to increase in areas of Africa, Malaysia, China and Brazil. The market expansion of Asian countries, with China in particular, has been pivotal in determining the worldwide demand of timber. Accordingly, the Association of Southeast Asian Nations (ASEAN) has established an emergency fund for member countries to assist with economic recovery.[15] Despite the new US economic stimulus package being introduced, worldwide trade continues to be low in all producer and consumer regions.

The lone bright spot amidst the worldwide economic downturn would have to China. Despite the closure of 7,000 furniture businesses in China and drops in production values in 2008, China still managed to report an overall growth of 27% in the amount of furniture exports through Guangdong Province. On the contrary, one of the hardest hit areas would be Brazil, as its Alta Floresta region reported declining exports of wood products by 34%, with the nation-wide exports of wood products fell by a whopping 51% in the same period.[17]

Forestation and Globalization

As a concerted effort to fight global warming and deforestation; plantation forests are assuming an increased role in industrial timber production. In 2000, timber harvest from both softwood and hardwood plantations accounted for about 35% of total industrial harvest, with a mere 5% of global forest cover. (ref) By 2005, the share of global timber production sourced from plantations was estimated as nearing 50%. Much of this harvest expansion has occurred in New Zealand, Australia, Chile, Brazil and South Africa, reflecting the maturing resources in these countries. However, by far the greatest plantation areas are located in Asia (China, India, and Japan), Europe (Russia, Scandinavia, and Eastern Europe), and the USA.[16]

15 Tropical Timber Market Report, Vol. 14 No. 4, 16-18 Feb 09. Retrieved on 1 Mar 2009

16 Lund, H. Gyde (coord.) 2006. ‘Definitions of Forest, Deforestation, Afforestation, and Reforestation’. Gainesville, VA: Forest Information Services. Retrieved on 20 Feb 2009, from http://home.comcast.net/~gyde/DEFpaper.htm

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APPENDIX VIII

Forest products companies continue to expand internationally, responding to opportunities arising from reductions in barriers to international trade and capital movements. Much of this expansion is taking place in less developed countries, where there are significant existing forest reserves of both natural and plantation forests. South America and China are current cases in point.

While this globalization trend is expected to continue, it does face challenges. Major capital investments are necessary to mobilize, maintain, and expand the existing forest resource, and to develop needed processing facilities. While these capital investments face significant business, economic, and political risks, we can all benefit greatly from the much needed capital to carry out sustainable forest management, which helps striking a balance between society’s increasing demands for forest products and benefits, and the preservation of forest health and diversity.[17]

Timber Market – Russia

Russia, the largest country in the world, covers an area of over 17 million km², and about half of it is made up of forest and woodland. This 800 to 1000 million hectares of forest is equivalent in size to the whole of the United States and contains about 22% of the world’s total forests, with Brazil (16%), Canada (7%) and the United States (6%) following.[18]

The Soviet forestry industry was once state-owned, and its wood products were primarily for domestic use only. Total production was about 400 million m[3] per year in the late 1980s. Since then, the shift from a centrally planned economy to a market economy has resulted in the end of state subsidies and monopolies and thus a decline in production. Most forested areas in Russia are distant from the other markets around the world for forest products, making it too costly to manufacture and transport such products competitively.

==> picture [340 x 209] intentionally omitted <==

17 Sustainable Forest Management, the Wikipedia. Retrieved on 21 Feb 2009, from

http://en.wikipedia.org/wiki/Sustainable_forestry

18 Forest – Russia, Information for Action, The Green Pages. Retrieved on 20 Feb 2009, from

www.informaction.org/cgi-bin/Page.pl?menu=menua.txt&main=forrus_intro.txt&s=Forests/Russia

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APPENDIX VIII

Thanks to the surging markets in Asia in the past decade or two, the international demand for Russian timber has increased substantially, and logging is spreading into previously unlogged forest areas. For much of Asia Pacific region, Russia has emerged as the primary source of timber, which is a major shift from what it was before. Russian logs are 61% of China total log imports, up from 21% in 1997. While, in 2002, Russian logs represent of about 40% of total Japanese log imports.[19] This shift clearly indicates that both countries see Russia as a long-term supplier of raw materials, while Russian lumber exports to both countries remain negligible in comparison.

Despite concerted efforts by some regional governments to encourage processed wood exports, unprocessed logs continue to be by far the largest component of the export mix. In fact, the market share (by percentage) of unprocessed logs has remained essentially the same for both Japan and South Korea. In 1997, unprocessed logs was 95% of all timber export to South Korea and in 2002, the figure was 94%. For Japan, the figures are 88% and 86% respectively. While in China, the percentage has actually increased, from 74% in 1997 to 90% in export has actually increased rather than declined.[19]

Timber Market – Brazil

Brazil contains one of the largest tropical rainforests in the world as it corresponds to 28% of the world forest biomass. More than 60% of the Brazilian territory is covered by forests, representing around 400 million ha. It is also home to more than 40,000 kinds of plants and accounts for over 7,700 different tree species. In an area of 2.5 km[2] of tropical forest there are about 250 tree species compared with about seven tree species in an equal area of temperate forest.[20] Two thirds of the Amazon forest is within Brazil and the remainder is in Bolivia, Columbia, Ecuador, Guyana, Peru, Surinam and Venezuela.

On the other hand, Brazil owns the highest rate of tree loss in the world. At present deforestation in Brazil particularly the Amazon region, which is home to 30% of the world’s animal and plant life, is on the rise. Large scale resettlement of Brazil’s urban population, agriculture and resource developments, especially for timber, is the major contributors of loss and degradation of the Brazilian forests.[20]

Brazil’s Timber Exports	January 2008	January 2009	% Change
	_(m3) _	(m3)
Tropical Plywood	26.7	8.1	(69.66)
Pine Sawnwood	64.9	57.6	(11.25)
Tropical Sawnwood	122.0	25.9	(78.77)
Pine Plywood	165.9	104.8	(36.83)

Source: Tropical Timber Market Report, Vol. 14, Num 4, 16-28 Feb 2009

19 Timber Export To North East Asia, Final Report: Analysis of the Russian-Asian Timber Market, Forest Monitor. Retrieved on 22 Feb 2009, from www.forestsmonitor.org/en/reports/548670/549168

20 Forests of Brazil, The Green Pages. Retrieved on 20 Feb 2009, from

www.informaction.org/cgi-bin/gPage.pl?menu=menua.txt&main=forbra_intro.txt&s=Forest/Brazil

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APPENDIX VIII

Despite the general perception by many people that the Amazon rain forest is the main supplier of Brazil’s wood, the majority of Brazil’s timber is however, harvested from extensive plantations of eucalyptus and pine in the country’s southern temperate regions.

In spite of the fact that the participation of Brazil in the international trade of forest is relatively small, the country is the largest producer and exporter of wood products in Latin America. Having a population of almost 150 million inhabitants, Brazil is also the largest market for wood products of the region.

Timber Market – China

China’s flourishing economy, coupled with policy constraints limiting domestic forest production, has resulted in a massive increase in forest product imports over the last several years. In a decade, China has moved from a ranking of seventh to second among all nations in total value of forest product imports and is also now the leading importing country worldwide of industrial round wood.[21]

In 2008, the total foreign trade value of China’s major forest products accounted for 32% of the national total value of the forest sector’s output. Of the total, the export value of China’s forest products accounted for 18.5% of total output value. The total value of China’s major forest product foreign trade represented 2.5% of the national total in 2008, dropping 0.18% from 2007.[22]

21 Meeting China’s demand for forest product. Sun, Katsigris, and White (2004). International Forestry Review Vol.6. Retrieved on 20 Feb 09, from: http://www.forest-trends.org/documents/publications/ifr%20meeting%20China’s%20demand%20for%20forest%20products.pdf

22 China Wood Products Prices, Industry News and Markets, Global Wood. Retrieved on 23 Feb 09, from:

http://www.globalwood.org/market1/aaw20090201d.htm

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

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Source: Tropical Timber Market Report, Vol. 14, Num 4, 16-28 Feb 2009

Russia remained the most important supplier of logs in 2008 as China imported 18.67 million m[3] of logs from Russia, representing 63.1% of China’s total logs imports. Other significant suppliers in 2008 were Papua New Guinea (2.23 million m[3] and 7.5% of total imports), New Zealand (1.91 million m[3] and 6.5%), Solomon Islands (1.16 million m[3] and 3.9%) and Gabon (1.08 million m[3] and 3.6%).

According to the latest statistical data issued recently by the General Administration of China’s Customs, the foreign trade of China’s forest products rose moderately in 2008, although trade was significantly impacted by the global economic crisis. Statistics showed the total import and export value of the forest sector’s products (including non-wood forest products) reached just over USD63 billion, a year-on-year increase of 9.6%.

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

METHODOLOGIES CONSIDERED AND REJECTED

The valuation of any asset can be broadly classified into one of three approaches, namely the asset approach, market approach and income approach. In any valuation analysis, all three approaches must be considered, and the approach or approaches deemed the most relevant will then be selected for use in the fair value analysis of that asset.

The Asset Approach

The asset approach is based on the so-called economic principle of substitution; it essentially measures what is the net value of the assets today or how much it would cost to replace those assets. One of the replacement value, liquidation value or book value is used to estimate the fair value of the business enterprise or its assets.

We have considered but decided against the asset approach due to the following reason:

Our analysis and investigation indicated that it is very unlikely that the Brazilian Forest and the Concession Rights can be replaced by one alike, containing comparable geographical locations and tree species.

The Income Approach – Discounted Cash Flow Method (“DCF”)

The income approach is the most generally accepted way of determining a value indication of a business/project, business ownership interest, security, intangible asset, or mineral asset using one or more methods that convert anticipated economic benefits into a present single amount.

DCF requires an explicit forecast of the future benefit streams over a reasonably foreseeable short term and an estimate of a long term benefit stream that is stable and sustainable, i.e. not varying from period to period and the benefit stream is determined to continue into the future without compromise. An appropriate discount rate and an estimate of long term growth beyond the forecast period allow discrete present values to be calculated and summed for all the benefit streams to determine the entity values.

The income approach measures the present value of an asset or a company’s future income stream, commonly through using DCF. The essential elements of DCF are: (1) the expected earnings stream to be discounted, and (2) the discount rate.

We have considered but decided against the income approach due to the following reasons:

DCF involves more assumptions and estimates while not all of them can be easily quantified or obtained;
Volatility in the current market and the adverse economic condition means that even a slight change in either discount rate or tree price would greatly distort the predictive value of our valuation, as future economic benefits and cash flows in relation to the logging and processing of timber cannot be ascertained with a reasonable level of confidence.

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APPENDIX VIII

METHODOLOGY APPLIED

While asset approach and income approach as mentioned above are not the most appropriate methodologies in this valuation, we have considered the market approach to arrive at a fair value of the Brazilian Forest and Concession Rights. In the course of performing this valuation, we exercised due care in arriving at a fair opinion of values for the Brazilian Forest and Concession Rights such that the values would be in line with what the Brazilian Forest and Concession Rights will be judged to be worth when assessed by the market.

The Market Approach

The market approach develops a value using the principle of substitution. This simply means that if one thing is similar to another and could be used for the other, then they must be equal. Furthermore, the price of two alike and similar items should approximate one another. For the market approach to be used, a sufficient number of arm’s length transactions in an open market are required for establishing a realistic and unbiased value for relevant asset.

In light of the above, references were made to the market value of timber per m[3] for transactions of similar type. We have relied on publicly available market research and pricing data published by the FFA of the Russian Federation and the Forestry Development Institute of the Brazilian Government.

The fair values of the Brazil Forest and the Concession Rights of the Russian Forest are determined based on the value per m[3] of standing trees only. For the purpose of the valuation, we have ignored the additional economic values added to the trees after they are harvested and further processed other wood products.

Summary of Valuation Results

Fair values of the Brazilian Forest and the Concession Rights are computed separately as the prices, number and volume of species vary greatly. Details of fair values computation are set forth below:

Brazilian Forest

Land Parcels	Total Area	Total Volume	Value/m3	Total Value
	(ha)	_(m3) _	(USD)	(USD)
Fazenda Cachimbo	14,503	3,915,810	24.53	96,059,820
Fazenda Porto Brazil	20,000	5,400,000	24.53	132,468,896
Fazenda Escantelo	10,000	2,700,000	24.53	66,234,448
Total	44,503	12,015,810	*(rounded)*	294,800,000

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APPENDIX VIII

Concession Rights – Russian Forest

Concession	Total Area	Total Volume	Value/m3	Total Value
	(ha)	_(m3) _	(USD)	(USD)
Ingodinskiy	174,904	10,907,512	1.77	19,259,798
Novopavlovskiy3	17,958	213,618	1.77	377,229
Karimskiy	13,214	591,664	1.77	1,044,723
Novopavlovskiy1	10,812	51,733	1.77	91,347
Beklemishevskiy	10,679	153,663	1.77	271,328
Petrovsk-Zabaikalskiy	9,165	207,417	1.77	366,244
Petrovsk-Zabaikalskiy2	6,013	155,301	1.77	274,221
Total	242,745	12,280,908	*(rounded)*	21,700,000

Discount for Lack of Marketability

The Discount for Lack of Marketability (“DLOM”) can be the valuation adjustment with the largest monetary impact on the final determination of value. Marketability is defined as the ability to convert an investment into cash quickly at a known price and with minimal transaction costs. The DLOM is a downward adjustment to the value of an investment to reflect its reduced level of marketability.

In selecting the appropriate DLOM, we considered the length of time and effort required by management in order to sell a controlling interest. This typically would take at least three to nine months if a transaction could be consummated at all. A controlling interest does enjoy the benefit of controlling the cash flow stream of the Mineral Property during this time period. Finally, we considered the expenses that are typically incurred to sell a business which are substantial such as legal fees, accounting fees, and intermediary fees.

Since the market transaction value per m[3] of standing tree adopted was based on actual transactions of the forestry markets in Russia and Brazil, DLOM is not applicable.

VALUATION ASSUMPTIONS

Owning to the changing environments in which the Brazilian Forest and Concession Rights are situated, it is subject to uncertainty and there is no assurance that all the documentation and agreements provided to us by the Company will materialize. A number of assumptions have to be established in order to sufficiently support our concluded value of the Brazilian Forest and Concession Rights. The major assumptions adopted in this valuation are:

there will be no material changes in the existing political, legal, fiscal, foreign trade and economic conditions in Brazil, Russia and China;

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VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

APPENDIX VIII

there will be no material changes in interest rates or foreign currency exchange rates from those currently prevailing;
estimated standing tree value per m[3] and volume will conform to the level as stated in the data published by the FFA of the Ministry of Agriculture of the Russian Federation and the Forestry Development Institute of Brazilian Government;
all relevant legal approvals, land use rights and business certificates or licenses for forest exploitation are formally obtained and that no additional costs or fees are needed to procure such during the application;
the Target Group after completion of the transaction will retain competent management, key personnel, and technical staff to support the ongoing operation and development of the forest exploitation and timber processing business.

LIMITING CONDITIONS

We have made no investigation of and assumed no responsibility for the title to or any liabilities against the Target Group valued.

The opinions expressed in this report have been based on the information supplied to us by the Company and its staff, as well as from various institutes and government bureaus without verification. All information and advice related to this valuation are provided by the Company management reader of this report may perform due diligence themselves. We have exercised all due care in reviewing the supplied information. Although we have compared key supplied data with expected values, the accuracy of the results and conclusions from the review are reliant on the accuracy of the supplied data. We have relied on this information and have no reason to believe that any material facts have been withheld, or that a more detailed analysis may reveal additional information. We do not accept responsibility for any errors or omissions in the supplied information and do not accept any consequential liability arising from commercial decision or actions resulting from them.

The reserves we stated are wholly based on the reserve consultant that we substantially relied on for the business valuation. Fair value is subject to recovery rate of reserve and exploration/production technology which may vary significantly in accordance to any professional technical/exploration consultation.

This appraisal reflects facts and conditions existing at the Valuation Date. Subsequent events have not been considered, and we have no obligation to update our report for such events and conditions.

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APPENDIX VIII

VALUATION REPORT ON BRAZILIAN FOREST AND RUSSIAN FOREST

CONCLUSION OF VALUES

Based on the investigation and analysis stated above and on the valuation method employed, in our opinion, the fair values of the Brazilian Forest and Concession Rights as of the Valuation Date are:

Brazilian Forest

UNITED STATES DOLLAR TWO HUNDRED NINETY FOUR MILLION AND EIGHT HUNDRED THOUSAND ONLY (USD 294,800,000)

Concession Rights Russian Forest

UNITED STATES DOLLAR TWENTY ONE MILLION AND SEVEN HUNDRED THOUSAND ONLY (USD 21,700,000)

Total Value

UNITED STATES DOLLAR THREE HUNDRED SIXTEEN MILLION AND FIVE HUNDRED THOUSAND ONLY (USD 316,500,000)

The opinion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in the Company and have neither personal interest nor bias with respect to the parties involved.

This valuation report is issued subject to our general service conditions.

Yours faithfully, For and on behalf of

GREATER CHINA APPRAISAL LIMITED

K. K. Ip Samuel Y.C. Chan Registered Business Valuer of HKBVF MBA, CVA, CM&AA MRICS, MHKIS and RPS (GP) Director Managing Director Head of Business Valuation

Note: Mr. K.K. Ip, a Chartered Valuation Surveyor of The Royal Institution of Chartered Surveyors (RICS), Member of Surveyors Registration Board of Hong Kong, Member (General Practice Division) of The Hong Kong Institute of Surveyors (HKIS) and Registered Business Valuer of The Hong Kong Business Valuation Forum (HKBVF), has substantial experience in property, plant and machinery, business enterprise and intellectual property valuations for various purposes in Greater China Region since 1992.

Mr. Samuel Y.C. Chan, MBA, Certified Valuation Analyst of the International Association of Consultants, Valuators and Analysts (IACVA) and Certified Merger & Acquisition Advisor, has been conducting business enterprise and intellectual property valuations for various purposes since 2004. He also spends a significant portion of his time in valuation of financial instruments including convertible bonds, preference shares, swaps, corporate guarantees and employee share options for private and public companies in China, Hong Kong, Taiwan, Japan, Singapore and the United States.

VIII – 21

GENERAL INFORMATION

APPENDIX IX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually 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 and belief, there are no other matters the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; (ii) after Completion and the increase in authorised share capital becoming effective and issue in full of the Convertible Preference Shares but before conversion of the Convertible Preference Shares; and (iii) after Completion and the increase in authorised share capital becoming effective and issue in full of the Convertible Preference Shares and after full conversion of the Convertible Preference Shares, without taking into account the effect of the Placing, are set out as follows:

(i) As at the Latest Practicable Date

Authorised share capital: HK$ 10,000,000,000 Shares 100,000,000

Issued and fully paid share capital: 2,151,076,930 Shares 21,510,769.3

IX – 1

GENERAL INFORMATION

APPENDIX IX

(ii) After Completion and the increase in authorised share capital becoming effective and issue in full of the Convertible Preference Shares but before conversion of the Convertible Preference Shares

Authorised share capital: 45,000,000,000 Shares 27,534,000,000 Preference Shares Issued and fully paid share capital: 2,151,076,930 Shares 785,000,000 Consideration Shares 27,534,000,000 Preference Shares (assuming no adjustment on the Convertible Preference Shares)	HK$ 450,000,000 275,340,000
	725,340,000

	21,510,769.3 7,850,000 275,340,000
	304,700,769.3

(iii) After Completion and the increase in authorised share capital becoming effective and issue in full of the Convertible Preference Shares and after full conversion of the Convertible Preference Shares

Authorised share capital: 45,000,000,000 Shares 27,534,000,000 Preference Shares Issued and fully paid share capital: 2,151,076,930 Shares 785,000,000 Consideration Shares 26,132,000,000 Conversion Shares (assuming no adjustment on and full conversion of the First Tranche Preference Shares) 1,402,000,000 Conversion Shares (assuming no adjustment on and full conversion of the Second Tranche Preference Shares)	HK$ 450,000,000 275,340,000
	725,340,000

	21,510,769.3 7,850,000 261,320,000 14,020,000
	304,700,769.3

IX – 2

GENERAL INFORMATION

APPENDIX IX

The Company does not have any outstanding options, warrants, derivatives or securities convertible into Shares as at the Latest Practicable Date.

3. 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	3.49%
Ms. Lau Wa Chun	Personal interest	2,100,000	0.10%

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.

(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 Enlarged Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group.

IX – 3

GENERAL INFORMATION

APPENDIX IX

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 Enlarged Group or were proposed to be acquired or disposed of by or leased to any member of the Enlarged 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 Enlarged Group other than contracts expiring or determinable by the Company or the relevant member of the Enlarged Group within one year without payment of compensation (other than statutory compensation).

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, no 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 Enlarged 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.

5. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged 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 Enlarged Group.

6. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Enlarged Group during the period commencing two years preceding the Latest Practicable Date and are or may be material:

(i) 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;

IX – 4

APPENDIX IX

GENERAL INFORMATION

(ii) 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;
(iii) the agreement dated 28 November 2007 entered into between the Company and Pure Hope Development Limited in relation to the acquisition of an 80% interest in Liaoning Magnesite Mine. The acquisition was completed on 6 March 2008;
(iv) 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;
(v) the agreement dated 15 August 2008 entered into between the Company, Pure Hope Development Limited and Mr. Yam Tak Cheung in relation to the disposal of the entire equity interest in a subsidiary engaged in magnesite mining business. The disposal was completed on 29 December 2008;
(vi) 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;
(vii) the agreement dated 1 December 2008 entered into between the Company and Win Field (China) Limited in relation to a disposal of the entire interest in a subsidiary engaged in construction related business. The disposal was completed on 1 December 2008;
(viii) the Agreement;
(ix) the supplemental agreement dated 10 March 2009 entered into by the parties to the Agreement; and
(x) the Placing Agreement.

7. 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.

IX – 5

GENERAL INFORMATION

APPENDIX IX

8. 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

Grant Thornton

Certified Public Accountants

Greater China Appraisal Limited (“Greater China”)

Independent qualified valuer

(ii) Grant Thornton and Greater China did not have any shareholding, directly or indirectly, in any member of the Enlarged 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 Enlarged Group.
(iii) Grant Thornton and Greater China 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) Grant Thornton and Greater China 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 Enlarged Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Enlarged Group since the date to which the latest published audited financial statements of the Group were made up.

9. 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.
(iii) The company secretary 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) In the event of inconsistence, the English text of this circular shall prevail over the Chinese text.

IX – 6

GENERAL INFORMATION

APPENDIX IX

10. 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:

(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;
(iii) The accountants’ reports from Grant Thornton on the Samoa Subsidiary Group, Russia Subsidiary, Russia Subsidiary II and Brazil Subsidiary, the text of which is set out in Appendice II to V to this circular respectively;
(iv) the report from Grant Thornton in respect of the unaudited pro forma financial information of the Group, the text of which is set out in Appendix VI to this circular;
(v) the valuation reports from Greater China, the text of which is set out in Appendice VII and VIII of this circular;
(vi) the written consents referred to under the paragraph headed “Experts and consents” in this appendix;
(vii) the material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(viii) the circular of the Company dated 26 November 2008 in relation to (1) very substantial disposal and connected transaction involving the proposed disposal of a magnesite mining subsidiary; (2) off-market repurchases of shares; (3) proposed change of name of the Company and (4) proposed capital reorganisation; and
(ix) this circular.

IX – 7

NOTICE OF SGM

**Bright Prosperous Holdings Limited 晉盈控股有限公司[*]** (incorporated in Bermuda with limited liability)

(stock code: 723)

NOTICE IS HEREBY GIVEN that a special general meeting (“ SGM ”) of Bright Prosperous Holdings Limited (the “ Company ”, together with its subsidiaries, the “ Group ”) will be held at Boardroom 5, G/F, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong at 10:30 a.m. on Monday, 13 July 2009 for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

THAT :
(a) all the shares of HK$0.01 each in the existing authorised share capital of HK$100,000,000 of the Company be and are hereby re-classified as ordinary shares of HK$0.01 each (“ Ordinary Shares ”), and the authorised share capital of the Company be and is hereby increased from HK$100,000,000 divided into 10,000,000,000 Ordinary Shares to HK$725,340,000 by the creation of (i) an additional 27,534,000,000 convertible preferred shares of HK$0.01 each (“ Preferred Shares ”) and (ii) 35,000,000,000 Ordinary Shares.;
(b) the directors of the Company be and are hereby authorised to do all other acts and things and execute all documents which they consider necessary, desirable or expedient for the implementation of and giving effect to the transactions contemplated under resolution 1(a) above.

THAT :

(a) the Preferred Shares shall carry equal rights and rank pari passu with one another and each Preferred Share shall have the rights and benefits and subject to the restrictions set out in Paragraphs 1 to 10 below (collectively, the “ Schedule ”).

1. Definitions

1.1 In this Schedule, unless the context otherwise requires:
“ Approved Investment Bank ” means an investment or merchant bank of repute selected by the Directors;
“ associate ” has the meaning ascribed to it under the Listing Rules;

* For identification purpose only

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NOTICE OF SGM

“ Business Day ” means any day (other than a Saturday, Sunday, public holiday or a day on which a tropical cyclone warning no. 8 or above or a “black rainstorm warning signal” is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.), on which banks are open for general banking business in Hong Kong;

“Bye-laws” the bye-laws of the Company as may be amended from time to time;

“ Companies Act ” means the Companies Act 1981 of Bermuda;

“ connected person ” has the meaning ascribed to it under the Listing Rules;

“ Conversion Date ” in respect of a Conversion Notice means the Business Day next following the date on which that an effective Conversion Notice together with certificate(s) for the Preferred Shares to be converted shall have been delivered to the Company;

“ Conversion Notice ” means a written notice delivered to the Company at its Specified Office stating that a Preferred Shareholder elects to convert the number of Preferred Shares specified therein pursuant to Paragraph 3.2;

“ Conversion Number ” means, in relation to any Preferred Share, such number of Ordinary Shares as may, upon exercise of the Conversion Right, be issued at the Conversion Price in force on the relevant Conversion Date;

“ Conversion Price ” means at any time an amount per Ordinary Share equal to the Notional Value, subject to adjustment for any consolidation or sub-division of Ordinary Shares in accordance with Paragraph 4.1;

“ Conversion Right ” in respect of a Preferred Share means the right of its holder under the Bye-laws to convert all or any of its Preferred Shares into the Conversion Number of Ordinary Shares;

“ Director(s) ” means at any time the director(s) of the Company at that time;

“ Group ” at any time means the Company and its Subsidiaries at that time;

“ HK$ ” means Hong Kong dollars;

“ Listing Rules ” means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

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NOTICE OF SGM

“ Member ” or “ Shareholder ” means each person entered in the Register of Members of the Company as the registered holder of shares in the capital of the Company and includes a registered holder of Ordinary Shares and/or Preferred Shares as the context may indicate;

“ Notional Value ” means at any time HK$0.055 being the value attributed to each Preferred Share, subject to adjustment for any consolidation or sub-division of Preferred Shares in accordance with Paragraph 4.1 mutatis mutandis ;

“ Ordinary Shares ” means ordinary shares of HK$0.01 each in the capital of the Company;

“ Paragraph ” means a paragraph of this Schedule

“ Preferred Shares ” means the convertible preferred shares of par value HK$0.01 each in the capital of the Company, the rights and obligations of which are set out in Paragraphs 2 to 10 below;

“ Preferred Shareholder ” means a shareholder holding a Preferred Share;

“ Record Date ” means, in respect of an offer, distribution or right, the date and time by which a subscriber or transferee of securities of the class in question would have to be registered in order to participate in the relevant offer, distribution or rights;

“ Register of Members ” means the register of the holders of Ordinary Shares and the Preferred Shareholders kept by the Company and includes any branch register;

“ Specified Office ” means Room 3001-02, Top Glory Tower, 262 Gloucester Road, Causeway Bay Hong Kong or such other office in Hong Kong as the Company may notify the holders of the Preferred Shares in writing;

“ Subsidiary ” means at any time a company which is for the time being a subsidiary (within the meaning of Chapter 1 of the Listing Rules) of the Company;

“ Takeovers Code ” means the Hong Kong Codes on Takeovers and Mergers and Share Repurchases, as may be amended from time to time.

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NOTICE OF SGM

2. As regards income and participation rights in issue of Ordinary Shares

2.1 A Preferred Shareholder shall at all times be entitled to, and shall be paid dividends or other distributions (whether in cash or otherwise) of the same amount and at the same time as are paid with respect to Ordinary Shares, and each Preferred Share shall, for such purpose, be deemed to be equal to the number of Ordinary Shares into which it is convertible on the Record Date for such dividend or other distribution.
2.2 If and whenever the Company makes any offers by way of rights and/or issue by way of bonus of Ordinary Shares, securities carrying rights to subscribe for, convert or exchange into Ordinary Shares or voting rights or other shares or rights carrying the right to acquire same voting rights, or debt securities without rights converting into shares and voting rights (“ Offered Securities ”) to all the holders of Ordinary Shares (excluding, if applicable, overseas shareholders of the Company to the extent their exclusion is permitted under the Listing Rules), Preferred Shares, securities carrying substantially identical rights to subscribe for, convert or exchange into the Preferred Shares or other shares or rights carrying the right to acquire same voting rights (instead of Ordinary Shares or voting rights) or debt securities without rights converting into shares and voting rights shall be offered and/or issued to Preferred Shareholders at the same time and on the same terms as the Offered Securities are offered and/or issued to holders of Ordinary Shares, save that
(i) where the Offered Securities are Ordinary Shares, the Company shall instead offer or issue Preferred Shares to the holders of Preferred Shares;
(ii) where the Offered Securities carry the right to subscribe for, convert or exchange into Ordinary Shares or voting rights or other shares or rights carrying the right to acquire same voting rights, the Company shall instead offer or issue securities carrying substantially identical rights to subscribe for, convert or exchange into Preferred Shares or other shares or rights carrying the right to acquire same voting rights to holders of Preferred Shares; and
(iii) where the Offered Securities are debt securities without rights converting into shares and voting rights, the Company shall offer or issue the same debt securities to the holders of the Preferred Shares.

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NOTICE OF SGM

3. As regards conversion

3.1 Subject to the provisions of this Schedule and to compliance with all fiscal and other laws and regulations applicable thereto, a Preferred Shareholder shall have the Conversion Right in respect of each Preferred Share held by him, subject to the provisions of the Bye-laws and to any applicable fiscal or other laws or regulations.
3.2 Each Preferred Share shall be convertible at the option of the holders thereof, at any time after issue and without the payment of any additional sum, into the number of fully paid Ordinary Shares, calculated by dividing the Notional Value by the Conversion Price. Such conversion shall take effect on the Business Day next following the date on which the effective Conversion Notice together with certificate(s) for the Preferred Shares to be converted is delivered to the Company and if any such notice is delivered on a day that is not a Business Day it shall be deemed given on the next Business Day thereafter.
3.3 Subject to Paragraph 3.12, a Conversion Notice shall not be effective if:
(i) for so long as the Ordinary Shares remain listed on The Stock Exchange of Hong Kong Limited, it does not contain a confirmation in writing from the converting Preferred Shareholder that the issue of Ordinary Shares pursuant to such conversion will not result in the aggregate voting rights in the Company held by it and parties acting in concert with it exceeding 29.9%, or such other percentage as may then be the maximum percentage (to one decimal place) of the issued Ordinary Shares of the Company it could then acquire without being required to make a mandatory general offer for the Ordinary Shares of the Company under the Takeovers Code;
(ii) it is not accompanied by the share certificates in respect of the relevant Preferred Shares and such other evidence (if any) as the Directors may reasonably require to prove the title of the person exercising such right (or, if such certificates have been lost or destroyed, such evidence of title and such indemnity as the Directors may reasonably require); or
(iii) it does not include a declaration and confirmation that the beneficial owner of the relevant Preferred Shares, and of the relevant Ordinary Shares to be issued on conversion, is not a resident or national of any jurisdiction where the exercise of the Conversion Rights attached to the relevant Preferred Shares is prohibited by any law or regulation of that jurisdiction or where

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NOTICE OF SGM

compliance with such laws or regulations would require filing or other action by the Company; and that delivery of the relevant Preferred Shares or relevant Ordinary Shares will not result in a breach of any exchange control, fiscal or other laws or regulations for the time being applicable in that jurisdiction.

3.4 Conversion of the Preferred Shares shall be effected in such manner as the Directors shall, subject to the Bye-laws and as may be authorized by law, from time to time determine.

Without prejudice to the generality of the foregoing, to the extent permitted by law any Preferred Share may be converted by redemption on the relevant Conversion Date and the par value or any premium payable on such redemption may be paid out of (i) the capital paid up on the Preferred Share or (ii) any share premium account of the Company or (iii) the profits of the Company which would otherwise be available for dividend or (iv) the proceeds of a fresh issue of shares made for the purpose, or (v) in any other manner as may from time to time be permitted under the Companies Act or any combination of any two or more of the foregoing, and each Conversion Notice shall be deemed to authorise and instruct the Directors to retain any redemption monies otherwise payable to the converting Preferred Shareholder giving such notice and, in respect of each Preferred Share the subject of the Conversion Notice, to apply the same in the subscription on such converting Shareholder’s behalf of the Conversion Number of Ordinary Shares (subject to the treatment of fractions described in Paragraph 4.8) and, each Conversion Notice shall be deemed to take or to appoint some person to take such steps on behalf of the Preferred Shareholder exercising the Conversion Rights in question as may be necessary or desirable to effect the conversion, provided that if the converting Preferred Shareholder has a registered address in any jurisdiction where in the absence of a registration statement or any other special formalities the allotment or delivery of any relevant Ordinary Shares would or might in the opinion of the Directors be unlawful or impracticable under the laws of such jurisdiction, then the Company shall as soon as reasonably practicable either (i) allot the relevant Ordinary Shares to one or more third parties selected by the Company or (ii) allot the relevant Ordinary Shares to the relevant Preferred Shareholder and then, on his behalf, sell them to one or more third parties selected by the Company, in each case for the best consideration then reasonably obtainable by the Company. As soon as reasonably practicable following any such allotment or allotment and sale, the Company shall pay the converting Preferred Shareholder an amount equal to the consideration received by it (net of expenses of sale if applicable).

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NOTICE OF SGM

3.5 By submitting a Conversion Notice, the relevant Preferred Shareholder irrevocably authorises the Company to effect the transactions required by Paragraph 3.4 above and for this purpose the Company may appoint any person to execute transfers, renunciations or other document on behalf of the relevant Preferred Shareholder and generally may make all arrangements which appear to it to be necessary or appropriate in connection therewith.
3.6 The Company shall allot and issue the relevant Ordinary Shares or, as the case may be, send the amount to which he is entitled pursuant to Paragraph 3.4 above to the converting Preferred Shareholder and shall procure that certificates in respect of the relevant Ordinary Shares, together with a new certificate for any unconverted Preferred Shares comprised in the certificate(s) surrendered by him, are issued free of charge and as soon as practicable and in any event not later than 10 Business Days after the relevant Conversion Date.
3.7 Intentionally deleted
3.8 The Company shall, on the Conversion Date of a Preferred Share, enter the name of the relevant Preferred Shareholder as the holder of the relevant number of Ordinary Shares resulting from the conversion of the Preferred Shares in, and make any other necessary and consequential changes to, the Register of Members.
3.9 If, so long as the Conversion Right in respect of any of the Preferred Shares remains exercisable, a resolution is passed or an order of a court of competent jurisdiction is made that the Company be wound up or dissolved (otherwise than for the purposes of a reconstruction, merger or consolidation the terms whereof have previously been approved by the Preferred Shareholders as a class in the manner provided in Paragraph 9), notice thereof shall forthwith be given by the Company to the Preferred Shareholders and each Preferred Shareholder shall (whether or not the Conversion Right(s) attaching to his Preferred Share(s) are then otherwise exercisable) be entitled, at any time after the passing of such resolution or (as the case may be) the making of such order, until the expiration of 6 weeks after the date of such notice (but not thereafter), to elect (by giving written notice to the Company together with the certificates, statements and other items listed in Paragraphs 3.3(i) to (iii) so far as applicable and otherwise complying with Paragraph 3.3) to be treated as if all or any of his Preferred Share(s) had been converted immediately prior to the passing of such resolution or, as the case may be, the making of such order.

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NOTICE OF SGM

In that event, such Preferred Shareholder shall be entitled (i) to be paid, in satisfaction of the amount due in respect of such Preferred Shares as are to be treated as if converted, a sum equal to the amount to which he should have become entitled in such liquidation, and (ii) to attend such meetings and exercise such voting rights, as if he had been the holder of the Ordinary Shares to which he would have become entitled by virtue of such conversion, fractions being disregarded for this purpose.

On the expiry of the said period of 6 weeks, any outstanding Preferred Shares shall cease to be capable of being treated as converted. Subject as provided in this Paragraph 3.9, the Conversion Right shall lapse in the event of a resolution being passed or an order of a court of competent jurisdiction being made that the Company be wound up or dissolved (otherwise than as aforesaid).

3.10 The Ordinary Shares resulting from the conversion of the relevant Preferred Shares shall carry the right to receive all dividends and other distributions declared, made or paid upon the Ordinary Share capital of the Company by reference to any Record Date on or after the Conversion Date and shall rank pari passu in all other respects and form one class with the Ordinary Shares then in issue and fully paid.
3.11 Until such time as the Preferred Shares have been converted into Ordinary Shares, the Company shall (unless with the consent of Preferred Shareholders otherwise):
(i) at all times keep available for issue and free of all liens, charges, options, mortgages, pledges, claims, equities, encumbrances and other third-party rights of any nature, and not subject to any preemptive rights out of its authorised but unissued share capital, such number of authorised but unissued Ordinary Shares as would enable all Preferred Shares to be converted into Ordinary Shares and any other rights of conversion into, subscription for or exchange into Ordinary Shares to be satisfied in full;
(ii) not make any issue, grant or distribution or take any other action if the effect would be that on the conversion of the Preferred Shares to Ordinary Shares it would be required to issue Ordinary Shares at a price lower than the par value thereof;
(iii) not authorize, create, allot, issue or permit to exist any class of share capital that is senior to, or pari passu with or has preference in any respect over the Preferred Shares as to distributions, liquidation or return of capital (which for the avoidance of doubt excludes any issue of Ordinary Shares);

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NOTICE OF SGM

(iv) not reclassify, re-designate, or convert any equity or equity linked securities into, securities of the Company which rank senior to, or pari passu with or have preference in any respect over the Preferred Shares as to distribution, liquidation or return of capital (which for the avoidance of doubt excludes issue of Ordinary Shares);
(v) not amend, alter or repeal any provision of the Bye-laws of the Company which amendment, alteration or repeal operates to abrogate or affect adversely any rights of the holders of the Preferred Shares; and
(vi) not amend, alter or repeal this Paragraph 3.11.
3.12 Notwithstanding any other provisions in this Schedule, the exercise of the Conversion Right attached to the Preferred Shares above is subject to the following restrictions:
(i) where the conversion of any holder’s Preferred Shares into Ordinary Shares would otherwise result in such holder holding 29.9% or more of the issued Ordinary Shares of the Company, or such other percentage as may then be the maximum percentage (to one decimal place) of the issued Ordinary Shares of the Company it could then acquire without being required to make a mandatory general offer for the Ordinary Shares of the Company under the Takeovers Code, the Company shall as soon as practicable after being served with the Conversion Notice notify the relevant holder thereof and the holder shall thereupon be entitled to elect to convert such number of Preferred Shares as will cause it to hold, together with those persons acting in concert as defined in the Takeovers Code with such Preferred Shareholder, not more than 29.9% of the issued Ordinary Shares of the Company or such other percentage as may then be the maximum percentage (to one decimal place) of the issued Ordinary Shares of the Company it could hold without being required to make a mandatory general offer for the Ordinary Shares of the Company under the Takeovers Code;
(ii) where the conversion of any holder’s Preferred Shares into Ordinary Shares would immediately after the conversion (and as a result of the conversion) result in an insufficient public float of the Ordinary Shares of the Company as required under the Listing Rules, the Company shall as soon as practicable after being served with the Conversion Notice notify the relevant holder thereof and the holder shall thereupon be entitled to elect to

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NOTICE OF SGM

convert such number of Preferred Shares as it is entitled to convert, without such conversion resulting in the public float of the Ordinary Shares of the Company falling below the requirements of the Listing Rules; and

(iii) for the avoidance of doubt, nothing in this Paragraph 3.12 shall delay the Conversion Date of any Preferred Share in respect of which the holder makes an election pursuant to this Paragraph 3.12.

4. Adjustments of Conversion Rights and/or Conversion Price

4.1 If and whenever the Ordinary Shares by reason of any consolidation or sub-division become of a different nominal amount, the Conversion Price in force immediately prior thereto shall be adjusted by multiplying it by the revised nominal amount and dividing the result by the former nominal amount. Within 28 days of any such adjustment the Company will send to the Preferred Shareholder a notice giving particulars of the adjustment. Each such adjustment shall be effective from the close of business in Hong Kong on the day preceding the date on which the consolidation or sub-division becomes effective.
4.2 The provisions of Paragraph 4.1 shall not apply if the Preferred Shares are consolidated or sub-divided in the same manner and at the same time as the consolidation or sub-division of Ordinary Shares referred to in Paragraph 4.1.
4.3 Any adjustment to the Conversion Price shall be made to the nearest cent so that any amount under half a cent shall be rounded down and any amount of half a cent or more shall be rounded up and in no event shall any adjustment (otherwise than upon the consolidation of Ordinary Shares into Ordinary Shares of a larger nominal amount) involve an increase in the Conversion Price. In addition to any determination which may be made by the Directors, every adjustment to the Conversion Price shall be certified to be fair and appropriate either (at the option of the Company) by the auditors for the time being or by an Approved Investment Bank. In giving any certificate or making any adjustment hereunder, the auditors for the time being or the Approved Investment Bank shall be deemed to be acting as experts and not as arbitrators and, in the absence of manifest error, their decision shall be conclusive and binding on the Company and the Preferred Shareholder and all persons claiming through or under them respectively.

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NOTICE OF SGM

4.4 Notwithstanding anything contained in these Paragraphs, no adjustment shall be made to the Conversion Price in any case in which the amount by which the same would be reduced in accordance with the foregoing provisions of this clause would be less than one cent and any adjustment that would otherwise be required then to be made shall not be carried forward.
4.5 If the Company or any Subsidiary shall in any way modify the rights attached to any share or loan capital so as wholly or partly to convert or make convertible such share or loan capital into, or attach thereto any rights to acquire, Ordinary Shares, the Company shall appoint the auditors for the time being or an Approved Investment Bank to consider whether any adjustment to the Conversion Price is appropriate and if the auditors for the time being or such Approved Investment Bank certifies that any such adjustment is appropriate, the Conversion Price shall be adjusted accordingly and the provisions of Paragraphs 4.3 and 4.4 shall apply.
4.6 Notwithstanding the provisions of Paragraph 4.1, in any circumstances where the Directors shall consider that an adjustment to the Conversion Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Conversion Price should be made notwithstanding that no such adjustment is required under the said provisions or that an adjustment shall take effect on a different date or at a different time from that provided for under the said provisions, the Company may appoint the auditors for the time being or an Approved Investment Bank to consider whether for any reason whatsoever the adjustment to be made (or the absence of adjustment) would not or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if the auditors for the time being or such Approved Investment Bank shall consider this to be the case, the adjustment shall be modified or nullified or an adjustment made instead of no adjustment in such manner (including without limitation, making an adjustment calculated on a different basis) and/or the adjustment shall take effect from such other date and/or time (including, retrospectively) as shall be certified by the auditors for the time being or such Approved Investment Bank to be, in its opinion, appropriate. In giving any certificate or making any adjustment hereunder, the auditors for the time being or the Approved Investment Bank shall be deemed to be acting as experts and not as arbitrators and, in the absence of manifest error, their decision shall be conclusive and binding on the Company and the Preferred Shareholders and all persons claiming through or under them respectively.

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4.7 Whenever the Conversion Price is adjusted as herein provided, the Company shall as soon as practicable give notice to the Preferred Shareholders that the Conversion Price has been adjusted (setting forth the event giving rise to the adjustment, the Conversion Price in effect prior to such adjustment, the adjusted Conversion Price and the effective date thereof) and shall at all times thereafter so long as any of the Conversion Rights remains exercisable, make available for inspection by the Preferred Shareholders at its principal office in Hong Kong a signed copy of the said certificate of the auditors or (as the case may be) of the relevant Approved Investment Bank and a certificate signed by a director of the Company setting forth brief particulars of the event giving rise to the adjustment, the Conversion Price in effect prior to such adjustment, the adjusted Conversion Price on the effective date thereof and shall, on request, send a copy thereof to the Preferred Shareholders.
4.8 Fractions of Ordinary Shares will not be issued on conversion of the Preferred Shares and accordingly, for the purpose of determining the number of Ordinary Shares to be issued on Conversion (i) all Preferred Shares in respect of each exercise of Conversion Right by a holder thereof shall be aggregated and (ii) the number of Ordinary Shares to be issued upon conversion of the Preferred Shares shall be rounded down if otherwise fractions of Ordinary Shares would be issued pursuant to any conversion of Preferred Shares under the preceding provisions of Paragraphs 3 and 4. Any benefits arisen from any fractional entitlement of Ordinary Shares upon conversion shall be retained by the Company for its own benefit.

5. As regards capital

5.1 On a distribution of assets of the Company among its members on a return of capital on liquidation, dissolution or winding-up (whether voluntary or involuntary) of the Company or otherwise (other than any “on-market share” repurchase (as such term is defined in the Takeovers Code) of Ordinary Shares by the Company made in accordance with the Rule 10.06 or equivalent provision of the Listing Rules and out of distributable profits or reserves of the Company), the Preferred Shares shall entitle their holders, in priority to any holder of any other class of shares in the capital of the Company, to receive in respect of each Preferred Share then held, an amount equal to the Notional Value of that Preferred Share. If the assets of the Company available for distribution shall be insufficient to provide for full payment to the holders of the Preferred Shares in accordance herewith, the Company shall make payment on the Preferred Shares on a pro rata basis.

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5.2 If a surplus remains after distribution of assets of the Company in accordance with Paragraph 5.1 of this Schedule, the Ordinary Shares and shares of other classes of the Company entitled to participate in such distribution (other than the Preferred Shares) shall entitle their holders to receive in respect of each of such share then held, an amount equal to the Notional Value received in respect of each Preferred Share pursuant to Paragraph 5.1 above. If the assets of the Company available for distribution pursuant to this Paragraph 5.2 shall be insufficient to provide for full payment to the holders of such shares in such distribution (other than the Preferred Shares) in accordance herewith, the Company shall make payment on all such shares on a pro rata basis.
5.3 If a surplus remains after distribution of assets of the Company in accordance with Paragraphs 5.1 and 5.2, the balance of the assets of the Company (if any) shall be distributed rateably among the Preferred Shareholders, holders of the Ordinary Shares and other classes of shares of the Company then in issue which are then entitled to participate in such distribution, and each Preferred Share shall, for such purpose, be deemed to be equal to the number of Ordinary Shares into which it is convertible on the date of the event which has given rise to the return of capital to which Paragraph 5.1 applies.

6. As regards Voting Rights

Without prejudice to paragraphs 3.9 and 3.11, the holders of Preferred Shares shall be entitled to receive notice of and attend general meetings of the holders of Ordinary Shares of the Company, but the Preferred Shares shall not carry any voting rights in such general meetings.

7. As regards Transfers

7.1 Subject to Paragraph 7.2 of this Schedule and notwithstanding any other provisions in this Schedule or elsewhere in the Bye-laws, no transfer (in whole or in part) of Preferred Shares shall be registered by the Company unless any duly completed and executed form of transfer delivered in respect of such transfer is accompanied by a written confirmation from the proposed transferee (or its duly authorized representative) that the proposed transferee is not a connected person of the Company unless that person is an associate of the transferor and the transferor is then a connected person of the Company.

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7.2 Subject to prior approval of the Board, the Preferred Shares are freely transferable in integral multiples of 1,000,000 Preferred Shares, unless the aggregate outstanding balance of the number of the Preferred Shares registered under such Preferred Shares holder, at any time, is less than 1,000,000 Preferred Shares, in which case the holder(s) of the Preferred Shares shall have the right to transfer the whole (but not any part) of the outstanding balance of the Preferred Shares.

8. Payments

8.1 Payment of all amounts in respect of the Preferred Shares under the terms and conditions thereof shall be made on the due dates into such bank account as the holder of the relevant Preferred Shares may notify the Company by at least 10 Business Days’ prior notice in writing delivered to the Company at the Specified Office from time to time. All payments made by the Company in respect of the Preferred Shares pursuant to the terms and conditions of this Paragraph 8.1 shall be made in Hong Kong dollars in immediately available funds.
8.2 If the due date for payment of any amount in respect of the Preferred Shares is not a Business Day, the Preferred Shareholder will be entitled to payment on the next following Business Day in the same manner but without any compensation or adjustment for late payment.
8.3 Any Preferred Shareholder who has failed to claim distributions or other property or rights within 6 years of their having been made available to him will not thereafter be able to claim such distributions or other property or rights which shall be forfeited and reverted to the Company. The Company shall retain such distributions or other property or rights for its own benefit but shall not at any time be a trustee in respect of any such distributions or other property or rights nor be accountable for any income or other benefits derived therefrom.

9. Approval

Where any consent or approval of Preferred Shareholders generally is required (including any consent or approval of any waiver of rights) that consent or approval may be given by resolution passed at a duly convened meeting of Preferred Shareholders or in writing signed by the holders of more than 50% in nominal value of the then outstanding Preferred Shares, and for this purpose any such consent or approval may be in the form of one or more instruments each signed by one or more Preferred Shareholders. Any consent or approval so obtained shall be binding on all Preferred Shareholders whether or not they are in favour.

SGM – 14

NOTICE OF SGM

10. As regards redemption

Subject to Paragraph 3.4 of this Schedule, and without prejudice to the general power of the Company to purchase its shares under the Bye-laws of the Company, the Preferred Shares are not redeemable.

(b) the directors of the Company be and are hereby authorised to do all other acts and things and execute all documents which they consider necessary, desirable or expedient for the implementation of and giving effect to the transactions contemplated under resolution 2(a) above.
THAT
(a) the acquisition agreement dated 28 February 2009 (the “ Acquisition Agreement ”) and the supplemental acquisition agreement (the “ Supplemental Agreement ”, together with the Acquisition Agreement, the “ Agreements ”) dated 10 March 2009, both of which were entered into among (i) Winner Global Holdings Limited (the “ Vendor ”) as vendor, (ii) Great Path Limited (the “ Purchaser ”), a wholly-owned subsidiary of the Company, as purchaser, (iii) Ms. Loh Jiah Yee, Katherine, as guarantor for the Vendor’s obligations for repayment of the deposit under the Agreements, in relation to the acquisition by the Group of the entire issued share capital of Amplewell Holdings Limited (the “ Acquisition ”), a copy of the Acquisition Agreement and a copy of the Supplemental Agreement have been produced to this meeting marked “A” and “B” respectively (both were signed by the Chairman of the meeting for the purpose of identification), and the transactions contemplated by the Agreements (including but not limited to: (i) the Acquisition; (ii) the allotment and issue of 785,000,000 new Ordinary Shares to the Vendor or its nominees at the issue price of HK$0.055 per Ordinary Share, credited as fully paid; (iii) the allotment and issue of an aggregate of 27,534,000,000 new Preferred Shares to the Vendor or its nominees at the issue price of HK$0.055 per Preferred Share, credited as fully paid; (iv) the allotment and issue of new Ordinary Shares to the Vendor or its nominees upon conversion of such Preferred Shares, credited as fully paid; and (v) the issue of an unsecured promissory note in the principal sum of HK$232,000,000 bearing an interest of 2% per annum), on and subject to the terms of the Agreements be and are hereby approved, confirmed and ratified; and
(b) the directors of the Company be and are hereby authorised to do all other acts and things and execute all documents which they consider necessary, desirable or expedient for the implementation of and giving effect to the Agreements and the transactions contemplated thereunder.

By Order of the Board Bright Prosperous Holdings Limited Teoh Tean Chai, Anthony Executive Director

Hong Kong, 25 June 2009

SGM – 15

NOTICE OF SGM

Notes:

Any member of the Company entitled to attend and vote at the SGM 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 SGM, 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 SGM 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 SGM or any adjournment thereof.
Completion and return of the proxy form will not preclude you from attending the SGM and voting in person if you so wish. In the event that you attend the SGM 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 – 16

AI assistant

Sisram Medical Ltd — Proxy Solicitation & Information Statement 2009

50098_rns_2009-06-24_a2fb1958-39d8-483d-be53-e6a86f8fcc56.pdf

Bright Prosperous Holdings Limited 晉盈控股有限公司[*]

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN AMPLEWELL HOLDINGS LIMITED AND INCREASE IN AUTHORISED SHARE CAPITAL

Financial adviser to Bright Prosperous Holdings Limited

Optima Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Notes:

Bright Prosperous Holdings Limited 晉盈控股有限公司[*]

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN AMPLEWELL HOLDINGS LIMITED AND INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

The Acquisition

LETTER FROM THE BOARD

Call Options

Increase in authorised share capital

This circular

THE AGREEMENT

LETTER FROM THE BOARD

Parties:

Assets to be acquired:

Consideration

LETTER FROM THE BOARD

Adjustments to consideration

LETTER FROM THE BOARD

The Consideration Shares

LETTER FROM THE BOARD

Convertible Preference Shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Issue Price

LETTER FROM THE BOARD

Application for listing

Promissory Note

LETTER FROM THE BOARD

Conditions precedent

Completion

Refund of Deposit

CALL OPTIONS

LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

Target Subsidiaries

Samoa Subsidiary and Manzhouli WFOE

Russia Subsidiary and Russia Subsidiary II

LETTER FROM THE BOARD

Brazil Subsidiary

Vendor’s undertakings

LETTER FROM THE BOARD

Financial information

1. Samoa Subsidiary Group

2. Russia Subsidiary

3. Russia Subsidiary II

4. Brazil Subsidiary

LETTER FROM THE BOARD

DISCLAIMER OF OPINION IN THE ACCOUNTANTS’ REPORT

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE ACQUISITION

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

INCREASE IN AUTHORISED SHARE CAPITAL

LISTING RULES IMPLICATION

VOTING

THE SGM

LETTER FROM THE BOARD

RECOMMENDATIONS

The Acquisition

The proposed increase in authorised share capital

ADDITIONAL INFORMATION

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Sisram Medical Ltd Proxy Solicitation & Information Statement 2009

**Bright Prosperous Holdings Limited 晉盈控股有限公司[*]**

**Bright Prosperous Holdings Limited 晉盈控股有限公司[*]**