Symphony Holdings Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

If you have sold or transferred all your shares in Symphony Holdings Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

MAJOR TRANSACTIONS IN RELATION TO (1) ACQUISITION OF 50% EQUITY INTEREST IN CHINA OCEAN RESOURCES LIMITED; AND

(2) DISPOSAL OF 18.32% EQUITY INTEREST IN GRAND WEALTH GROUP LIMITED

Financial Adviser to the Company

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Capitalised terms used on this cover shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 5 to 14 of this circular. A notice convening the SGM to be held at 10:00 a.m. on Tuesday, 28 May 2013 at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong is set out on pages SGM-1 to SGM-2 of this circular. A form of proxy for use at the SGM is enclosed.

Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor of 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 appointed time for holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) if you so wish.

For identification only

9 May 2013

CONTENTS

	Pages
Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . .	15
Appendix II – Financial information on China Ocean. . . . . . . . . . . . . . .	19
Appendix III – Unaudited pro forma financial information . . . . . . . . . . .	56
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITION

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

“Acquisition”
the proposed acquisition of the China Ocean Sale Shares and the China Ocean Sale Loan by Power Plus from Canstrong pursuant to the Acquisition Agreement
“Acquisition Agreement” the conditional sale and purchase agreement dated 27 March 2013 entered into between Power Plus and Canstrong in relation to the Acquisition
“Always Gain”
Always Gain Holdings Limited, a company incorporated in the BVI with limited liability, which is an indirect wholly-owned subsidiary of China Ocean
“Always Gain Disposal Agreement”
the conditional sale and purchase agreement dated 22 April 2013 entered into between China Ocean, Sharp Gain, Dream Smart and Always Gain in relation to the proposed disposal of the entire equity interest in and shareholders’ loan owed by Always Gain and the termination of the Trademark Agreement
“associates” the meaning ascribed thereto under the Listing Rules
“Board” the board of Directors

“Business Day(s)” any day(s) except Saturday, Sunday or other day on which commercial banking institutions in the BVI or Hong Kong are authorised or required by law or executive order to close

“BVI” British Virgin Islands
“Canstrong” Canstrong International Limited, a company incorporated in the BVI with limited liability
“China Ocean” China Ocean Resources Limited, a company incorporated in the BVI with limited liability
“China Ocean Closing” closing of the Acquisition under the Acquisition Agreement
“China Ocean Group” China Ocean and its subsidiaries
“China Ocean Sale Loan” the shareholders’ loan owed by China Ocean to Canstrong as at the China Ocean Closing

– 1 –

DEFINITION

“China Ocean Sale Shares”	5 shares of	US$1.00 each in	US$1.00 each in	the capital of China Ocean,	the capital of China Ocean,	the capital of China Ocean,
	representing 50% of the issued share capital of China
	Ocean
“Company”	Symphony Holdings Limited,				a company incorporated in
	Bermuda with limited liability, the					issued Shares of
	which are listed on the main board of the Stock Exchange
	(Stock code: 01223)
“connected persons”	the meaning ascribed thereto under					Rule 1.01 and as
	extended under Rule 14A.11			of the Listing Rules
“Director(s)”	director(s) of the Company
“Disposal”	the proposed disposal of the				Grand Wealth Sale Shares
	and the Grand Wealth Sale				Loan by Power Plus to
	Canstrong pursuant to the		Disposal Agreement
“Disposal Agreement”	the conditional sale and purchase agreement dated 27
	March 2013 entered into			between		Power Plus and
	Canstrong in relation to the Disposal
“Domain Names”	collectively,	http://www.ponychina.com,
	http://www.ponytaiwan.com.tw,
	http://www.ponychina.com.cn and
	http://www.ponytaiwan.com, being domain names used by
	Always Gain in relation to PONY in the PRC and Taiwan
“Dream Smart”	Dream Smart Limited, a company incorporated in the BVI
	with limited	liability
“Enlarged Group”	the Group immediately after		the China Ocean Closing
“Frensham”	Frensham Investments Limited
“Grand Wealth”	Grand Wealth Group Limited, a				company incorporated in the
	BVI with limited liability
“Grand Wealth Closing”	closing of the Disposal under the Disposal Agreement
“Grand Wealth Group”	Grand Wealth and its subsidiaries and associated companies
“Grand Wealth Sale Loan”	the shareholders’ loan owed		by		Grand Wealth to Power Plus
	as at the Grand Wealth Closing

– 2 –

DEFINITION

“Grand Wealth Sale Shares” 5,000 ordinary shares of US$10.00 each and 2,160 preferred shares of US$5,000.00 each in the capital of Grand Wealth
“Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Shareholders” Shareholders other than Frensham, Well Success and their respective associates
“Latest Practicable Date” 6 May 2013, 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
“Power Plus” Power Plus Limited, a company incorporated in the BVI with limited liability, which is an indirect wholly-owned subsidiary of the Company
“PRC” The People’s Republic of China, excluding Hong Kong, Macau Special Administrative Region and Taiwan
“Prodigy Fund” Prodigy Strategic Investment Fund Series XXII Segregated Portfolio, an investment fund set up and run by Prodigy Asset Management (Cayman Islands) Co.
“Registration Date” the day on which Dream Smart or its nominee first becomes the registered owner of all of the Transferred Trademarks and the Domain Names
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Sharp Gain” Sharp Gain Profits Limited, a company incorporated in the BVI with limited liability, which is a direct wholly-owned subsidiary of China Ocean
“SGM” the special general meeting of the Company to be convened and held for the Independent Shareholders to consider and, if thought fit, approve the Acquisition Agreement and the Disposal Agreement

– 3 –

DEFINITION

“Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Trademark Agreement” the agreement dated 27 March 2013 entered into between Always Gain and Dream Smart in relation to the transfer of the Transferred Trademarks from Always Gain to Dream Smart
“Transferred Trademarks” the PONY trademarks that are registered in the PRC and Taiwan to be transferred pursuant to the Trademark Agreement
“US” United States of America
“Welcome Wealth” Welcome Wealth Properties Limited, a company incorporated in the BVI and a jointly controlled entity of the Group
“Well Success” Well Success Investment Limited, a company incorporated in the BVI with limited liability
“Yue Yuen” Yue Yuen Industrial (Holdings) Limited, a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the main board of the Stock Exchange (Stock code: 551)
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC
“sq.m.” square meters “US$” United States dollars, the lawful currency of the US “%” per cent.

For ease of reference, sums in US$ in this circular are translated into HK$ at the rate of US$1 = HK$7.76. This does not mean that HK$ could be converted into US$, or vice versa, based on such exchange rates.

– 4 –

LETTER FROM THE BOARD

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

Executive Directors: Mr. Chan Ting Chuen (Chairman) Mr. Sze Sun Sun Tony (Deputy Chairman & Managing Director)

Mr. Chang Tsung Yuan (Deputy Chairman) Mr. Chan Lu Min Ms. Chen Fang Mei Dr. Ho Ting Seng

Non-executive Director: Mr. Li I Nan

Independent non-executive Directors: Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: 10th Floor, Island Place Tower 510 King’s Road, North Point Hong Kong

9 May 2013

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTIONS IN RELATION TO (1) ACQUISITION OF 50% EQUITY INTEREST IN CHINA OCEAN RESOURCES LIMITED; AND

(2) DISPOSAL OF 18.32% EQUITY INTEREST IN GRAND WEALTH GROUP LIMITED

INTRODUCTION

On 27 March 2013, the Company announced that after trading hours of the Stock Exchange on 27 March 2013, among other things, (i) Power Plus (an indirect wholly-owned subsidiary of the Company) and Canstrong entered into the Acquisition Agreement, pursuant to which Power Plus conditionally agreed to purchase and Canstrong conditionally agreed to

* For identification only

– 5 –

LETTER FROM THE BOARD

sell the China Ocean Sale Shares and the China Ocean Sale Loan for an aggregate consideration of US$15.5 million (equivalent to approximately HK$120.3 million); and (ii) Power Plus and Canstrong also entered into the Disposal Agreement, pursuant to which Power Plus conditionally agreed to sell and Canstrong conditionally agreed to purchase the Grand Wealth Sale Shares and the Grand Wealth Sale Loan for an aggregate consideration of US$15.53 million (equivalent to approximately HK$120.5 million).

Each of the Acquisition and the Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to the approval of Shareholders by way of poll.

The purpose of this circular is to provide you with, among other things, (i) details of the Acquisition Agreement and the Disposal Agreement; (ii) financial information of the Group and the Enlarged Group; (iii) the accountants’ report of China Ocean; and (iv) the notice of the SGM together with the form of proxy.

THE ACQUISITION AGREEMENT

Date:

27 March 2013

Parties:

(i) Canstrong, as seller; and
(ii) Power Plus, as purchaser.

Assets to be acquired:

Pursuant to the Acquisition Agreement, Power Plus has conditionally agreed to purchase and Canstrong has conditionally agreed to sell the China Ocean Sale Shares and the China Ocean Sale Loan. The China Ocean Sale Shares, being 5 shares of US$1.00 each in the issued share capital of China Ocean, represent 50% of the existing issued share capital of China Ocean as at the date of the Acquisition Agreement. For further details of China Ocean, please refer to the paragraph headed “Information on China Ocean” below.

Consideration:

The aggregate consideration for the China Ocean Sale Shares and the China Ocean Sale Loan of US$15.5 million (equivalent to approximately HK$120.3 million) shall be payable in cash by Power Plus to Canstrong at China Ocean Closing.

The consideration was determined after arm’s length negotiations between Power Plus and Canstrong with reference to the consolidated net asset value of the China Ocean Group of approximately HK$14.6 million and the aggregate amount of shareholders’ loan of approximately HK$220.6 million outstanding as at 31 December 2012.

– 6 –

LETTER FROM THE BOARD

Conditions of the Acquisition:

The Acquisition shall be conditional upon:

(i) approval by the Independent Shareholders of the Acquisition Agreement and the transactions contemplated thereby for the purposes of Chapter 14 of the Listing Rules; and
(ii) completion of the Disposal Agreement.

As at the Latest Practicable Date, none of the conditions were fulfilled.

China Ocean Closing:

China Ocean Closing shall take place on the 5th Business Day after satisfaction of the above conditions or at such other time as Power Plus and Canstrong shall mutually agree in writing.

Termination:

The Acquisition Agreement may be terminated at any time prior to China Ocean Closing (i) by either party to the Acquisition Agreement if the China Ocean Closing shall not have occurred before or on the 120th day after the Acquisition Agreement; or (ii) by the written consent of the parties to the Acquisition Agreement. In the event that the Acquisition Agreement is terminated, the Acquisition Agreement shall forthwith become void and there shall be no further liability on the part of either party, but nothing therein shall relieve either party from liability for any breach of the Acquisition Agreement occurring prior to such termination.

THE DISPOSAL AGREEMENT

Date:

27 March 2013

Parties:

(i) Power Plus, as seller; and
(ii) Canstrong, as purchaser.

– 7 –

LETTER FROM THE BOARD

Assets to be disposed of:

Pursuant to the Disposal Agreement, Power Plus has conditionally agreed to sell and Canstrong has conditionally agreed to purchase the Grand Wealth Sale Shares and the Grand Wealth Sale Loan. The Grand Wealth Sale Shares, being 5,000 ordinary shares of US$10.00 each and 2,160 preferred shares of US$5,000.00 each in the issued share capital of Grand Wealth, represent 50% and 18% of the ordinary and preferred shares in the issued share capital of Grand Wealth respectively as at the date of the Disposal Agreement. As the preferred shares of Grand Wealth have the same rights and privileges to income as the ordinary shares of Grand Wealth in the proportion of 99:1 and the rights with regards to dividends and distributions upon liquidation of Grand Wealth in the proportion of 99:1, the Grand Wealth Sale Shares, including 50% of the ordinary shares and 18% of the preferred shares of Grand Wealth, represent an aggregate of approximately 18.32% in the total equity interest in Grand Wealth. For further details of Grand Wealth, please refer to the paragraph headed “Information on Grand Wealth” below.

Consideration:

The aggregate consideration for the Grand Wealth Sale Shares and the Grand Wealth Sale Loan of US$15.53 million (equivalent to approximately HK$120.5 million) shall be payable in cash by Canstrong to Power Plus at Grand Wealth Closing.

The consideration was determined after arm’s length negotiations between Power Plus and Canstrong with reference to the carrying value of the Group’s investment in Grand Wealth of approximately HK$29.1 million and the aggregate amount of shareholders’ loan owed to Power Plus of approximately HK$91.3 million outstanding as at 31 December 2012.

Conditions of the Disposal:

The Disposal shall be conditional upon:

(i) approval by the Independent Shareholders of the Disposal Agreement and the transactions contemplated thereby for the purposes of Chapter 14 of the Listing Rules; and
(ii) completion of the Acquisition Agreement.

As at the Latest Practicable Date, none of the conditions were fulfilled.

Grand Wealth Closing:

Grand Wealth Closing shall take place on the 5th Business Day after satisfaction of the above conditions or at such other time as Power Plus and Canstrong shall mutually agree in writing.

– 8 –

LETTER FROM THE BOARD

Termination:

The Disposal Agreement may be terminated at any time prior to Grand Wealth Closing (i) by the party to the Disposal Agreement if the Grand Wealth Closing shall not have occurred before or on the 120th day after the Disposal Agreement; or (ii) by the written consent of the parties to the Disposal Agreement. In the event that the Disposal Agreement is terminated, the Disposal Agreement shall forthwith become void and there shall be no further liability on the part of either party, but nothing therein shall relieve either party from liability for any breach of the Disposal Agreement occurring prior to such termination.

THE TRADEMARK AGREEMENT AND THE ALWAYS GAIN DISPOSAL AGREEMENT

After trading hours of the Stock Exchange on 27 March 2013, Always Gain and Dream Smart entered into the Trademark Agreement, pursuant to which, amongst other things:–

(i) Always Gain will sell and transfer to Dream Smart all of its right, title and interest in and to the Transferred Trademarks and the Domain Names for a consideration of US$5 million (equivalent to approximately HK$38.8 million);
(ii) Dream Smart agrees that its use of the Transferred Trademarks shall be limited to sales, offers for sale and uses solely within the PRC and Taiwan;
(iii) Dream Smart grants an exclusive, royalty-free, fully-paid, perpetual, sublicenseable right and license to Always Gain to use the Transferred Trademarks in and throughout the PRC and Taiwan solely for the purposes of manufacturing products to be sold exclusively outside of the PRC and Taiwan; and
(iv) Dream Smart shall be responsible, as of the Registration Date, for the protection, acquisition, maintenance and prosecution of the Transferred Trademarks and any costs associated therewith.

In order to avoid delay in completion of the Trademark Agreement, after the Stock Exchange trading hours on 22 April 2013, China Ocean, Sharp Gain, Dream Smart and Always Gain entered into the Always Gain Disposal Agreement. Pursuant to the Always Gain Disposal Agreement, Always Gain and Dream Smart agreed to terminate the Trademark Agreement while China Ocean and Sharp Gain have conditionally agreed to sell and Dream Smart has conditionally agreed to purchase the entire equity interest in Always Gain and the shareholders’ loan owed by Always Gain to China Ocean and Sharp Gain for an aggregate consideration of US$5 million (equivalent to approximately HK$38.8 million). For further information on the Always Gain Disposal Agreement, please refer to the announcement of the Company dated 22 April 2013.

– 9 –

LETTER FROM THE BOARD

Dream Smart is an investee company of Prodigy Fund acquired by Prodigy Fund for the purpose of engaging in trademark and brand management. The principal business of Prodigy Fund is investment management. Each of Prodigy Fund and Treasure Bloom Properties Limited (an indirect wholly-owned subsidiary of the Company) is a 50% shareholder of Welcome Wealth which is a jointly controlled entity of the Group. Prodigy Fund is not a legal entity but it is a segregated portfolio and investment fund set up and run by Prodigy Asset Management (Cayman Islands) Co..

INFORMATION ON CANSTRONG

Canstrong is a company incorporated in the BVI with limited liability and is principally engaged in investment holding. Canstrong is an indirect wholly-owned subsidiary of Yue Yuen.

As at the Latest Practicable Date, Canstrong held 5 shares of US$1.00 each in the issued share capital of China Ocean, representing 50% of the existing issued share capital of China Ocean. Canstrong also held 1,800 ordinary shares of US$10.00 each and 5,880 preferred shares of US$5,000.00 each in the capital of Grand Wealth, representing 18% and 49% of the ordinary and preferred shares in the capital of the Grand Wealth respectively. Frensham, an indirect wholly-owned subsidiary of Yue Yuen and a fellow subsidiary of Canstrong, held 62,999,572 Shares, representing approximately 4.82% of the issued share capital of the Company. Frensham held a 40% interest in Well Success. Frensham also held a 6.67% interest in First Dynamic International Limited which in turn held a 40% interest in Well Success. Well Success was the controlling Shareholder holding 664,677,468 Shares, representing approximately 50.81% of the issued share capital of the Company as at the Latest Practicable Date. Save for the aforesaid, to the best of the Directors’ knowledge, information and belief after making reasonable enquiries, Canstrong and its ultimate beneficial owner(s) are third parties independent of the Company and its connected persons.

INFORMATION ON CHINA OCEAN

China Ocean is a company incorporated in the BVI with limited liability, the principal assets of which are various trademarks relating to the brand name “PONY” worldwide. The China Ocean Group is principally engaged in the marketing of footwear, apparel and accessories under the PONY brand name. It also provides trademark rights and licensing services of the PONY trademarks (including the Transferred Trademarks). After completion of the Always Gain Disposal Agreement, the China Ocean Group will hold the PONY trademarks worldwide excluding the PRC and Taiwan.

PONY is a US based brand founded by a Uruguay-born entrepreneur in 1972. It offers diverse lifestyle and casual products including men’s and women’s apparel, footwear and accessories such as gloves, scarfs, socks and knitted headwear. PONY products are sold by retailers and distributors in South Korea, Argentina, Brazil, Russia, Japan, Mexico, Europe, Hong Kong, Macau, Taiwan, the PRC, the Philippines, the US and Canada under licensing and distribution arrangements under the China Ocean Group. The China Ocean Group also operates a PONY retail store in Hong Kong.

– 10 –

LETTER FROM THE BOARD

Set out below are the audited consolidated financial information of the China Ocean Group prepared under the Hong Kong Financial Reporting Standards for the two years ended 31 December 2011 and 2012 as extracted from the accountants’ report on China Ocean set out in Appendix II to this circular:

		For the	For the
		year ended	year ended
		31 December	31 December
		2011	2012
		HK$’000	HK$’000
Turnover		28,416	27,839
(Loss)/Profit	before taxation	(4,064)	2,011
(Loss)/Profit	after taxation	(4,150)	1,829

As at 31 December 2012, China Ocean Group had audited consolidated net assets of approximately HK$14.6 million.

INFORMATION ON GRAND WEALTH

Grand Wealth is a company incorporated in the BVI with limited liability, the principal asset of which is an investment in an associated company which is principally engaged in the marketing and trading of men’s apparel under the brand name “HAGGAR” in the US. The Grand Wealth Group also holds the HAGGAR trademark for the PRC, Hong Kong, Taiwan and Macau via its 62%-owned subsidiary. HAGGAR is a well known men’s apparel brand founded in the US over 95 years ago. Main products include men’s shirts, polo shirts, dressy pants and chino pants.

As at the Latest Practicable Date, Power Plus held 50% of the issued ordinary shares and 18% of the issued preferred shares in Grand Wealth. Canstrong and its related company, Lucksuccess Limited, in aggregate held the remaining equity interest in Grand Wealth, being 5,000 ordinary shares and 9,840 preferred shares in the issued share capital of Grand Wealth, representing 50% and 82% of the ordinary and preferred shares in the issued share capital of Grand Wealth respectively.

Set out below are the unaudited consolidated financial information of the Grand Wealth Group prepared under the Hong Kong Financial Reporting Standards for the two years ended 31 December 2011 and 2012:

	For the	For the
	year ended	year ended
	31 December	31 December
	2011	2012
	HK$’000	HK$’000
Turnover	–	–
Profit before taxation	205,818	57,424
Profit after taxation	205,818	57,424

As at 31 December 2012, Grand Wealth Group had unaudited consolidated net assets of approximately HK$274.7 million.

– 11 –

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION AND THE DISPOSAL

The principal activities of the Group are footwear manufacturing, retailing and sourcing, property investment and investment holding in Hong Kong and the PRC.

The Acquisition

As disclosed in the 2012 interim report of the Company, 2012 marks the 40th anniversary of PONY. During the year, marketing efforts were intensified and a PONY specialty store in Hong Kong was launched to promote the brand’s image. The global licence and distribution network continues to expand as a result of increased customer support and interests in the brand. The Directors believe PONY is now positioned for sustained growth and consider it in the interest of the Company to consolidate the equity interest in China Ocean. With the consolidation and after completion of the Always Gain Disposal Agreement, the Company will assume complete control over the brand strategy, product development and marketing of the PONY brand in the global marketplace, excluding the PRC and Taiwan. The Directors believe that growth prospects for this authentic vintage brand are bright.

The Disposal

Despite the weak retail market in the US due to the sluggish economic growth and broad based cut back in consumer spending affected by high unemployment, poor job prospect and high debts, HAGGAR maintained an increased market share in its category in the market. To maintain its competitiveness in a challenging retail market in the US, HAGGAR will further enhance its brand image by partnering with department stores and expand its product range. Notwithstanding the satisfactory performance of the Grand Wealth Group, the Directors consider it is in the interests of the Company to dispose of its minority holding in Grand Wealth to yield the financial resources needed to develop the PONY brand. The Directors believe that PONY has a better fit for the Group’s long-term development strategy than HAGGAR because PONY is a footwear company while HAGGAR is focusing mainly on manufacturing and distribution of men’s pants.

FINANCIAL EFFECTS OF THE ACQUISITION AND THE DISPOSAL

The Acquisition

The Group currently holds a 50% equity interest in China Ocean and China Ocean is accounted for as a jointly controlled entity of the Group. After the China Ocean Closing, China Ocean will become a wholly-owned subsidiary of the Company and its accounts will be consolidated into the accounts of the Group.

As noted from the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular, if the China Ocean Closing had taken place on 31 December 2012, the total assets of the Group would have increased by approximately HK$34.6 million from approximately HK$2,974.3 million to approximately HK$3,008.9 million, and the total liabilities of the Group would have increased by approximately HK$30.1 million from approximately HK$1,162.9 million to approximately HK$1,193.0 million. The Directors consider that there will be no significant impact on the earnings of the Group immediately upon the China Ocean Closing.

– 12 –

LETTER FROM THE BOARD

The Disposal

Based on the consideration for disposing the Grand Wealth Sale Shares and the Grand Wealth Sale Loan of approximately HK$120.5 million, the net asset value of the Grand Wealth Group attributable to the Company of approximately HK$29.2 million as at 31 December 2012 (after taking into account of the impairment loss of HK$20,512,000 on the interests in Grand Wealth made on the Group’s account for the year ended 31 December 2012) and the amount of the Grand Wealth Sale Loan of approximately HK$91.3 million as at 31 December 2012, the Company is not expected to record any material gain or loss on the Disposal. It is expected that there will be no material excess or deficit of the consideration over the net book value of the Grand Wealth Sale Shares and the Grand Wealth Sale Loan as at 31 December 2012. Shareholders should note that the actual gain or loss on the Disposal to be recorded by the Company will depend on the carrying value of the Group’s investment in Grand Wealth as at the Grand Wealth Closing. The Company currently intends to apply the proceeds from the Disposal to settle the consideration of the Acquisition. Grand Wealth is at present accounted for as a jointly controlled entity of the Group. After the Grand Wealth Closing, the Company will cease to hold any equity interest in Grand Wealth. Immediately upon Grand Wealth Closing, the total assets and the liabilities of the Group would remain unchanged.

LISTING RULES IMPLICATIONS

Each of the Acquisition and the Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to the approval of the Shareholders by way of poll.

As at the Latest Practicable Date, Canstrong did not hold any Shares and Frensham, an indirect wholly-owned subsidiary of Yue Yuen and a fellow subsidiary of Canstrong, held and was entitled to exercise control over the voting rights in respect of 62,999,572 Shares, representing approximately 4.82% of the issued share capital of the Company. Frensham held a 40% interest in Well Success. Frensham also held a 6.67% interest in First Dynamic International Limited which in turn held a 40% interest in Well Success. Well Success was the controlling Shareholder holding and was entitled to exercise control over the voting rights in respect of 664,677,468 Shares, representing approximately 50.81% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, Canstrong and its associates (including Frensham and Well Success) shall abstain from voting at the SGM.

SGM

The SGM, the notice of which is set out on pages SGM-1 to SGM-2 of this circular, will be convened and held at 10:00 a.m. on Tuesday, 28 May 2013 at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong for the Independent Shareholders to consider and, if thought fit, approve the Acquisition Agreement and the Disposal Agreement. The voting at the SGM will be taken by way of poll.

– 13 –

LETTER FROM THE BOARD

RECOMMENDATION

The Directors (including the independent non-executive Directors) are of the opinion that the terms of the Acquisition Agreement and the Disposal Agreement are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the SGM to approve the Acquisition Agreement and the Disposal Agreement.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of SGM.

By order of the Board Symphony Holdings Limited Chan Ting Chuen Chairman

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three years ended 31 December 2010, 2011 and 2012, and the six months ended 30 June 2012 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.symphonyholdings.com):

annual report of the Company for the year ended 31 December 2012 published on 26 April 2013 (pages 32-151);
annual report of the Company for the year ended 31 December 2011 published on 25 April 2012 (pages 34-159); and
interim report of the Company for the six months ended 30 June 2012 published on 12 September 2012 (pages 10-46).

2. INDEBTEDNESS STATEMENT

At the close of business on 31 March 2013, being the latest practicable date for the purpose of preparing this statement of indebtedness prior to the printing of this circular, the indebtedness of the Enlarged Group was as follows:

Borrowings

At the close of business on 31 March 2013, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had total borrowings of HK$659 million. Details of the total borrowings are summarised below:

		HK$’million
Secured
Bank loans		225
Unsecured
Bank loans		401

		626
Amount due to a related company, unsecured and unguaranteed		2
Amounts	due to jointly controlled entities, unsecured and unguaranteed	31
Total borrowings		659

The secured bank loans include loans of HK$150 million which are secured by certain land and buildings and investment properties of the Group with a total carrying amount of HK$359 million as at 31 March 2013. The remaining secured bank loans were secured by a bank deposit of HK$79 million as at 31 March 2013.

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The secured and unsecured bank loans include loans of HK$240 million which are covered by cross guarantees arrangement issued by the Company and certain of its subsidiaries in respect of banking facilities granted to them.

Contingent liabilities

As at 31 March 2013, the Group issued a financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was to be called upon in its entirety amounted to HK$80 million, of which HK$80 million has been utilised by the jointly controlled entity as at 31 March 2013.

Potential tax liabilities in connection with the dispute with Inland Revenue Department (“IRD”) as at 31 March 2013, if any, are detailed below:

From 2008 to 2011, the IRD issued protective profits tax assessments for additional profits tax to certain wholly-owned subsidiaries of the Company relating to the years of assessment of 2001/2002 to 2004/2005, i.e. for the four financial periods ended 31 December 2004.

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of tax reserve certificates (“TRCs”) amounted to approximately HK$23 million. These TRCs were purchased and included in tax recoverable as at 31 December 2012 and 2011. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/05 at the request of IRD.

In December 2011, the Deputy Commissioner of the IRD issued his written determinations. Among others, he is of the view that the wholly-owned subsidiaries referred to above are subject to Hong Kong profits tax and confirmed/revised the protective profits tax assessments for 2001/2002 to 2004/2005 in the amount of approximately HK$306 million in aggregate. In January 2012, the Group filed notices of appeal to the Board of Review objecting to the written determinations the IRD issued in December 2011.

In March 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$90.5 million in aggregate in accordance with the written determinations referred to above to the wholly-owned subsidiaries concerned for the year of assessment 2005/2006. The Group had lodged objections with the IRD against these protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the Group purchasing TRCs amounted to HK$12 million, which the Group did in July 2012.

The protective assessments issued by IRD according to his determination for additional profits tax in aggregate of HK$396.5 million mentioned above for the years of assessment from 2001/2002 to 2005/2006 were issued on three alternative bases on the same set of profits for each year of assessment.

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In March 2011, the Group filed an application to the Court for a judicial review contending, inter alia, whether the IRD has the power to issue multiple assessments against different group companies for the same set of profits for the years of assessment of 2001/2002 to 2004/2005.

The judicial review proceedings were heard on the 1st and 2nd February of 2012. The judgment in respect of the judicial review was handed down in May 2012. Among others, the Group’s application for relief to quash each of the assessments issued by the IRD and the conditional holdovers were not granted. The Court of First Instance held that the IRD can issue multiple assessments in respect of the same set of profits to different taxpayers on alternative bases, so long as there is no double recovery of tax.

In October 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$124.5 million in aggregate to the wholly-owned subsidiaries relating to the year of assessment from 2006/07 to 2009/10 on three alternative bases on same set of profits for each year of assessment. The Group had lodged objections against the IRD regarding these protective profits tax assessments. The IRD agreed to holdover the additional tax claimed subject to the Group’s purchasing tax reserve certificate amounted to HK$6.9 million, which were done by the Group in January 2013.

Based on the mode of operations and activities of the subsidiaries and the merit of the Group’s position as assessed by its tax counsel, the Directors are of the opinion that the group companies concerned are not subject to Hong Kong profits tax.

The Group’s appeal to the Board of Review is pending. The eventual outcome of this action which is being handled by the Group’s tax counsel and the financial impact thereof on the Group, if any, cannot be readily ascertained at this stage.

Disclaimer

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have any outstanding bank overdrafts, loans, debt securities, borrowings or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease, hire purchases commitments, which were either guaranteed, unguaranteed, secured or unsecured guarantees or other material contingent liabilities at the close of business on 31 March 2013.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present financial resources and the banking facilities presently available, the Enlarged Group will have sufficient working capital to meet its requirements for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

– 17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2012, being the date to which the latest published audited financial statements of the Group were made up.

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in footwear manufacturing and trading, property investment and investment holding in Hong Kong and the PRC. After the China Ocean Closing, China Ocean will become a wholly-owned subsidiary of the Company and its accounts will be consolidated into the accounts of the Group. As disclosed in the 2012 annual report of the Company, the Company intends to take a cautious approach by concentrating on a few core activities in which the Company has competitive advantage and core competencies. In this regard, the Company intends to dedicate future efforts to PONY brand development and outlet mall expansion. As mentioned in the paragraph headed “Reasons for the Acquisition and the Disposal” in the letter from the Board in this circular, after the China Ocean Closing and completion of the Always Gain Disposal Agreement, the Company will assume complete control over the brand strategy, product development and marketing of the PONY brand in the global marketplace, excluding the PRC and Taiwan. With the bright growth prospects for this authentic vintage brand, the Board believes that the Acquisition will enhance the future trading and financial prospects of the Enlarged Group.

– 18 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

1. FINANCIAL INFORMATION ON CHINA OCEAN

The following is the text of the report prepared for the purpose of inclusion in this circular, received from the independent reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong.

A. ACCOUNTANTS’ REPORT

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==> picture [96 x 54] intentionally omitted <==

9 May 2013

The Board of Directors Symphony Holdings Limited 10/F, Island Place Tower 510 King’s Road North Point Hong Kong

Dear Sirs,

We set out below our report on the financial information of China Ocean Resources Limited (“China Ocean”) and its subsidiaries (hereinafter collectively referred to as the “Target Group”), which comprises the consolidated statements of financial position as at 31 December 2010, 2011 and 2012, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the three years ended 31 December 2010, 2011 and 2012 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory notes (the “Financial Information”), prepared on the basis of presentation and preparation set out in notes 1 and 3 of Section C below, for inclusion in the circular of Symphony Holdings Limited (the “Company”) dated 9 May 2013 (the “Circular”) in connection with the proposed acquisition of a 50% equity interest of the Target Group by the Group (the “Acquisition”).

China Ocean was established in the British Virgin Islands (“BVI”) with limited liability on 7 June 2004 under the Business Companies Act of the British Virgin Islands (2004). The Target Group is principally engaged in trademark rights licensing, and trading and retailing of footwear, apparel and accessories under the PONY brand name.

The Target Group has adopted 31 December as its financial year end date. As at the date of this report, no audited financial statements have been prepared for China Ocean. The audited financial statements of the other companies comprising the Target Group as at the date of this report for which there are statutory audit requirements have been prepared in accordance with the relevant accounting principles generally accepted in their place of incorporation. Details of the statutory auditors of these companies are set out in Note 23 to the Financial Information. The particulars of China Ocean and its subsidiaries are set out in Note 1 and Note 23 to the Financial Information respectively.

– 19 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

For the purpose of this report, the directors of China Ocean have prepared the consolidated financial statements of the Target Group in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) for the Relevant Periods (the “Underlying Financial Statements”), including Hong Kong Accounting Standards (“HKASs”) and Interpretation, the applicable 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 of the Hong Kong Limited (“Listing Rules”). The Financial Information has been prepared based on the Underlying Financial Statements.

DIRECTORS’ RESPONSIBILITIES

The directors of China Ocean are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs issued by the HKICPA and the applicable disclosure requirements of the Listing Rules and the Hong Kong Companies Ordinance, and for such internal control as the directors of China Ocean determine is necessary to enable the presentation of the Financial Information that is free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the contents of the Circular in which this report is included.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to form an opinion on the Financial Information based on our procedures and to report our opinion to you.

For the purpose of this report, we have carried out audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have examined the Financial Information and carried out appropriate procedures as we consider necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

We have not audited any financial statements of the Target Group in respect of any period subsequent to 31 December 2012.

OPINION

In our opinion, the Financial Information, for the purpose of this report, prepared on the basis set out in notes 1 and 3 of Section C below and in accordance with the accounting policies set out in note 4 of Section C below, gives a true and fair view of the state of affairs of the Target Group as at 31 December 2010, 2011 and 2012 and of its results and cash flows for each of the Relevant Periods.

– 20 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

B. FINANCIAL INFORMATION

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year	ended 31 December	ended 31 December
	Notes	2010	2011	2012
		HK$’000	HK$’000	HK$’000
Revenue	6	38,053	28,416	27,839
Cost of sales		(20,746)	(3,214)	(3,687)
Gross profit		17,307	25,202	24,152
Other income		46	68	428
Selling and distribution costs		(7,976)	(7,275)	(9,427)
Administrative expenses		(12,790)	(15,068)	(11,002)
Other operating expenses		(1,632)	(6,991)	(2,140)
(Loss)/profit before income tax
expense	7	(5,045)	(4,064)	2,011
Income tax expense	9	–	(86)	(182)
(Loss)/profit for the year		(5,045)	(4,150)	1,829
Other comprehensive income
Exchange differences arising on
translation of foreign
operations		314	60	(279)
Other comprehensive income
for the year (net of tax)		314	60	(279)
Total comprehensive income
for the year		(4,731)	(4,090)	1,550

– 21 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		As at 31 December	As at 31 December	As at 31 December
	Notes	2010	2011	2012
		HK$’000	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	11	727	1,473	1,106
Intangible assets	12	214,407	214,407	214,098
Loan receivables		–	–	3,101

Total non-current assets		215,134	215,880	218,305

Current assets
Inventories	13	1,838	1,239	3,703
Trade and other receivables	14	25,428	23,507	35,863
Amounts due from related
companies	19(b)	2,407	6,413	3,374
Cash and bank balances		17,817	7,140	3,977

Total current assets		47,490	38,299	46,917

Current liabilities
Trade and other payables	15	7,608	10,480	12,948
Amounts due to related
companies	19(c)	11,924	4,606	11,776
Advances from shareholders	19(d)	216,911	216,923	216,695
Tax payable		–	79	184
Total current liabilities		236,443	232,088	241,603

Net current liabilities		(188,953)	(193,789)	(194,686)
Total assets less current
liabilities		26,181	22,091	23,619

Non-current liabilities
Deferred tax liabilities	16	9,071	9,071	9,049

Total non-current liabilities		9,071	9,071	9,049

NET ASSETS		17,110	13,020	14,570


CAPITAL AND RESERVES
Share capital	17	279,126	279,126	279,126
Reserves		(262,016)	(266,106)	(264,556)
TOTAL EQUITY		17,110	13,020	14,570

– 22 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

CHINA OCEAN RESOURCES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Share	Share	Share option	Share option	Translation	Translation	Accumulated	Accumulated
	Capital		reserve		reserve		losses		Total
	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
At 1 January 2010	279,126		115		1,408		(258,033)		22,616
Loss for the year		–		–		–	(5,045)		(5,045)
Exchange differences arising on
translation of foreign operations		–		–	314			–	314
Released on lapse of share option		–	(115)			–	115		–
Other comprehensive income
for the year		–	(115)		314		115		314
Total comprehensive income
for the year	−		(115)		314		(4,930)		(4,731)
Excess consideration transferred over
net assets and liabilities acquired on
additional acquisition of a
subsidiary from a non controlling
interest		–		–		–	(775)		(775)
At 31 December 2010	279,126			–	1,722		(263,738)		17,110


Loss for the year		–		–		–	(4,150)		(4,150)
Exchange differences arising on
translation of foreign operations		–		–	60			–	60
Other comprehensive income
for the year		–		–	60			–	60
Total comprehensive income
for the year		–		–	60		(4,150)		(4,090)
At 31 December 2011	279,126			–	1,782		(267,888)		13,020


Profit for the year		–		–		–	1,829		1,829
Exchange differences arising on
translation of foreign operations		–		–	(279)		−		(279)
Other comprehensive income
for the year		–		–	(279)			–	(279)
Total comprehensive income
for the year		–		–	(279)		1,829		1,550
At 31 December 2012	279,126			–	1,503		(266,059)		14,570

– 23 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year	ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Cash flows from operating activities
(Loss)/profit before income tax expense	(5,045)	(4,064)	2,011
Adjustments for:
Depreciation	506	547	396
Bad debts written off	780	4,364	953
Write off of property, plant and equipment	113	–	205
Interest income	(46)	(9)	(10)
Reversal of provision of allowance for bad and
doubtful debts	–	–	(4)
Operating (loss)/profit before working capital
changes	(3,692)	838	3,551
Decrease/(increase) in inventories	6,601	599	(2,464)
Increase in trade receivables	(4,854)	(2,247)	(11,548)
Decrease/(increase) in other receivables, deposits and
prepayments	3,835	(196)	(1,757)
Decrease/(increase) in amount due from
related company	4,112	(4,006)	3,039
(Decrease)/increase in trade payables	(1,335)	–	289
(Decrease)/increase in other payables, temporary
receipts and accruals	(12,599)	2,872	2,179
Cash used in operations	(7,932)	(2,140)	(6,711)
Overseas tax paid	–	−	(75)
Net cash used in operating activities	(7,932)	(2,140)	(6,786)
Cash flows from investing activities
Purchase of property, plant and equipment	(261)	(1,293)	(235)
Interest received	46	9	10
Increase in loan receivables	–	–	(3,101)
Net cash used in investing activities	(215)	(1,284)	(3,326)
Cash flows from financing activities
Additional acquisition of partial interest of
a subsidiary	(775)	–	–
Increase/(decrease) in amounts due to related
companies	247	(7,318)	7,170
Net cash (used in)/generated from financing
activities	(528)	(7,318)	7,170
Net decrease in cash and cash equivalents	(8,675)	(10,742)	(2,942)
Cash and cash equivalents at beginning of year	26,388	17,817	7,140
Effect of foreign exchange rate changes on cash and
cash equivalents	104	65	(221)
Cash and cash equivalents at end of year	17,817	7,140	3,977

– 24 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

C. NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION AND BASIS OF PRESENTATION

China Ocean Resources Limited (“China Ocean”) is a limited liability company established in the British Virgin Islands (“BVI”). The address of its registered office is located at Offshore Incorporations Limited, P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the BVI and principal place of business of the Company is located on 10th Floor of Island Place Tower, 510 King’s Road, North Point, Hong Kong. As at 31 December 2012, China Ocean was jointly controlled by Power Plus Limited and Canstrong International Limited, both incorporated in the BVI.

China Ocean and its subsidiaries (hereinafter collectively referred to as the “Target Group”) principally engage in trademark rights licensing, and trading and retailing of footwear, apparel and accessories under the PONY brand name. The principal activities of its principal subsidiaries are set out in Note 23.

On 20 December 2012, China Ocean acquired the entire equity interest of Pony International Limited (formerly known as “Dynamic Market Holdings Limited”) (“Pony International”) from China Ocean’s shareholders at a consideration of HK$2. The transfer of the entire interests in Pony International is a common control combination and China Ocean and Pony International are regarded as continuing entities. Accordingly, the Financial Information of the Target Group have been prepared using the principle of Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), as if the transfer of the controlling interest in Pony International was taken place on as at 25 June 2010, which was the incorporation date of Pony International. Pony International and its subsidiaries principally engage in sub-licensing of trademark rights owned by the Target Group.

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Target Group has consistently applied Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”), amendments and interpretations (“HK(IFRIC)-Int”) issued by the HKICPA which are effective for annual accounting periods beginning on 1 January 2012 throughout the Relevant Periods.

(a) New/revised HKFRSs that have been issued but are not yet effective

The following new/revised HKFRSs, potentially relevant to the Target Group’s Financial Information, have been issued, but are not yet effective and have not been early adopted by the Target Group:

HKFRSs (Amendments)	Annual Improvements 2009-2011 Cycle1
Amendments to HKAS 32	Offsetting Financial Assets and Financial
	Liabilities3
Amendments to HKFRS 7	Offsetting Financial Assets and Financial
	Liabilities2
HKFRS 9	Financial Instruments4
HKFRS 10	Consolidated Financial Statements2
HKFRS 11	Joint Arrangements2
HKFRS 12	Disclosure of Interests in Other Entities2
HKFRS 13	Fair Value Measurements2
HKAS 27 (2011)	Separate Financial Statements2
HKAS 28 (2011)	Investments in Associates and Joint Ventures2
Amendments to HKFRS 10,	Investment entities3
HKFRS 12 and HKAS27 (2011)

1 Effective for annual periods beginning on or after 1 July 2012

2 Effective for annual periods beginning on or after 1 January 2013

3 Effective for annual periods beginning on or after 1 January 2014

4 Effective for annual periods beginning on or after 1 January 2015

– 25 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

The Target Group is in the process of making an assessment of the potential impact of these pronouncements. The directors of China Ocean so far concluded that the adoption of these new/revised HKFRSs will have no material impact on the Target Group’s Financial Information.

3. BASIS OF PREPARATION

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs, HKASs and HK(IFRIC)-Int issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The significant accounting policies that have been used in the preparation of the Financial Information are set out in note 4 to the Financial Information. These policies have been consistently applied throughout the Relevant Periods unless otherwise stated.

(b) Basis of measurement and going concern assumption

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

As at 31 December 2010, 2011 and 2012, the Target Group’s current liabilities exceeded its current assets by HK$188,953,000, HK$193,789,000 and HK$194,686,000 respectively. The ultimate holding company of Power Plus Limited has undertaken to provide continuing financial support, including not to demand repayment of the amount due to it until the Target Group is able to do so in the normal course of business, in order to maintain the Target Group as a going concern. Accordingly, the Financial Information has been prepared on a going concern basis.

(c) Functional and presentation currency

The functional currency of the China Ocean is United States dollars, while the Financial Information is presented in Hong Kong dollars (“HK$”) for the convenience of the users of the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

(a) Business combination and basis of consolidation

The Financial Information comprises the financial statements of China Ocean and its subsidiaries. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Target Group.

Changes in the Target Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Target Group’s interest and the non-controlling interest are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of China Ocean.

The carrying amount of non-controlling interests that represent present ownership interests in the subsidiary is the amount of those interests at initial recognition plus such non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is attributed to such non-controlling interests even if this results in those non-controlling interests having a deficit balance.

(b) Subsidiaries

A subsidiary is an entity over which China Ocean is able to exercise control. Control is achieved where China Ocean, directly or indirectly, 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 are presently exercisable are taken into account.

– 26 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

(c) Revenue recognition

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

Revenue from sales of goods is recognised when goods are delivered and title has passed.

Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Target Group and the amount of revenue can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

(d) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

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 Target Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their costs or valuation net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The principal annual rates are as follows:

Leasehold improvements Shorter of useful lives or the remaining lease term Furniture, fixtures and equipment 9%-33% Plant and machinery 10%-20% Motor Vehicles 10%

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

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(e) Intangible assets

(i) Acquired intangible assets

Intangible assets acquired separately are initially recognised at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. Subsequently, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Trademarks

The Target Group made upfront payments to purchase trademarks. The trademarks have been granted for periods ranging between 7 to 15 years by the relevant government agency with the option of renewal when expire. The trademarks can normally be renewed at little or no cost to the Target Group. As a result, trademarks are assessed as having an indefinite useful lives.

– 27 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

(ii) Impairments

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

An impairment loss is recognised as an expense immediately.

(f) Leasing

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

The Target Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(g) Foreign currencies

In preparing the Financial Information of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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

For the purposes of presenting the Financial Information, the assets and liabilities of the Target Group’s foreign operations are translated into the presentation currency of the Target Group (i.e. HK$) at the rate of exchange prevailing at the end of each reporting period, and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (translation reserve).

On disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Target Group are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Target Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss.

(h) Retirement benefits costs

Payments to the state-managed retirement benefit schemes and the Mandatory Provident Fund Scheme are charged as expenses when employees have rendered service entitling them to the contributions.

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(i) Income tax

Income taxes for the Relevant Period comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of the Relevant Period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of the Relevant Period.

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

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

(j) Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost is calculated using the first-in-first-out method. Net realisable value represents 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.

(k) Financial instruments

(i) Financial assets

The Target Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired. Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), and also incorporate other types of contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

(ii) Impairment loss on financial assets

The Target Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include but not limited to:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtor’s financial difficulty; or

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it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

For loans and receivables, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance for the relevant financial assets.

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(iii) Financial liabilities

The Target Group classifies its financial liabilities as financial liabilities at amortised costs, which are initially measured at fair value, net of directly attributable costs incurred.

Financial liabilities at amortised cost including bills payable, loan from immediate holding company, construction payables, land lease premium and related tax and other payables are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the Relevant Periods. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(v) Derecognition

The Target Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(l) Share-based Payment Transactions

(i) Share options granted to employees

The fair value of services received determined by reference to the fair value of share options granted at the grant date is recognised as an expense in full at the grant date when the share options granted vest immediately, with a corresponding increase in equity (share options reserve).

At the end of the reporting period, the Target Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to share options reserve.

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When share options are forfeited, i.e. share options lapse as a result of resignation of employees after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to retained profits.

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(m) Impairment losses of tangible assets

At the end of each reporting period, the Target Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(n) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

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, the existence of which 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.

(o) Related parties

(a) A person or a close member of that person’s family is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of key management personnel of the Target Group or China Ocean’s parent.
(b) An entity is related to the Target Group if any of the following conditions apply:
(i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of the employees of the Target Group or an entity related to the Target Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

(i) that person’s children and spouse or domestic partner;

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(ii) children of that person’s spouse or domestic partner; and

(iii) dependents of that person or that person’s spouse or domestic partner.

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Target Group’s accounting policies, the directors of China Ocean are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results 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.

(a) Key sources of estimation uncertainty

In addition to information disclosed elsewhere in the Financial Information, other key sources of estimation uncertainty that have significant risks of resulting a material adjustment to the carrying amounts of assets and liabilities within next financial year are as follows:

(i) Estimated impairment of intangible assets

In accordance with HKFRS, an impairment charge is required for intangible assets when the carrying amount exceeds the recoverable amount, defined as the higher of fair value less costs to sell and value in use. Target Group determining the recoverable amount utilises a discounted cash flow methodology, which necessarily involves making numerous estimates and assumptions regarding revenue growth, operating margins, tax rates, appropriate discount rates and working capital requirements.

(ii) Estimated impairment of property, plant and equipment

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 the time value of money and the risks specific to the asset, which requires significant judgement relating to level of revenue and amount of operating costs. The Target Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charge or reversal of impairment in future periods.

(iii) Impairment of receivables

The Target Group maintains impairment allowance for doubtful accounts based upon evaluation of the recoverability of the trade receivables and other receivables, where applicable, at each the end of reporting period. The estimates are based on the ageing of the trade receivable and other receivables balances and the historical write-off experience, net of recoveries. If the financial condition of the debtors were to deteriorate, additional impairment allowance may be required.

(iv) Income and other taxes

The Target Group is subject to income and other taxes in a number of jurisdictions. Significant judgement is required in determining the provision for income taxes. Transactions and calculations may exist for which the ultimate tax determination is uncertain during the ordinary course of business. The Target Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax and deferred tax provisions in the period in which such determination is made.

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6. SEGMENT INFORMATION

Information reported to the chief operating decision maker, being the chief executive of the Target Group, for the purpose of resources allocation and performance assessment focuses specifically on the assessment of operating performance in each operating unit, which is the basis upon which the Target Group is organised. Each operating unit is distinguished based on types of goods or services delivered or provided, i.e. Trademark rights licensing, footwear trading and retails. Financial information on segment results and segment assets are regularly provided to the chief operating decision maker while no information of segment liabilities is provided. The Target Group’s reportable and operating segments under “HKFRS 8 – Operating Segments” are as follows:

Trademark rights licensing;
Footwear trading; and
Retails.

(a) Segment Revenue and Results

The following is an analysis of the Target Group’s revenue and results by reportable and operating segment:

Year ended 31 December 2012

	Trademark
	rights	Footwear
	licensing	trading	Retails	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue
External from external customers	24,891	2,747	201	27,839

Segment profit/(loss)	4,377	(553)	(102)	3,722
Central administrative costs				(1,711)

Profit before income tax expense				2,011

Year ended 31 December 2011

	Trademark
	rights	Footwear
	licensing	trading	Retails	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue
External from external customers	24,998	3,418	−	28,416

Segment profit/(loss)	5,184	(7,646)	−	(2,462)
Central administrative costs				(1,602)

Loss before income tax expense				(4,064)

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Year ended 31 December 2010

	Trademark
	rights	Footwear
	licensing	trading	Retails	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue
External from external customers	21,715	16,338	–	38,053

Segment profit/(loss)	15,316	(18,685)	–	(3,369)
Central administrative costs				(1,676)

Loss before income tax expense				(5,045)

The accounting policies of the operating segments are the same as the Target Group’s accounting policies described in Note 4. Segment profit/(loss) represents the profit earned or the loss incurred by each segment without allocation of central administrative costs. This is the measure reported to the chief operating decision maker for the purpose of resources allocation and performance assessment.

(b) Segment Assets

The following is an analysis of the Target Group’s assets by reportable and operating segment:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Trademark rights licensing	234,216	235,492	245,552
Footwear trading	6,927	6,797	8,320
Retails	−	−	249

Segment assets	241,143	242,289	254,121
Unallocated	21,481	11,890	11,101

Consolidated assets	262,624	254,179	265,222

For the purposes of monitoring segment performances and allocating resources between segments, all assets are allocated to reportable and operating segments other than those corporation assets, including mainly bank balances and cash and other receivables for corporation operation.

(c) Revenue from Major Products and Services

The following is an analysis of the Target Group’s revenue from its major products and services:

	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Trademark rights licensing	21,715	24,998	24,891
Footwear trading	16,338	3,418	2,747
Retails	−	−	201

	38,053	28,416	27,839

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(d) Geographical Information

The Target Group’s revenue from external customers by geographical location of the delivery destinations and information about its non-current assets by geographical location of the assets are detailed below:

		Revenue from	Revenue from		Non-current	Non-current
	external customers				assets located
	Year	ended 31 December		As	at 31 December
	2010	2011	2012	2010	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
United States of
America	21,928	8,945	3,863	184,047	130,799	130,141
The People’s
Republic of
China	1,613	2,355	2,816	19,434	19,422	19,421
Hong Kong	−	−	2,168	3,887	4,839	4,822
Others (note (i))	14,512	17,116	18,992	7,766	60,820	63,921

	38,053	28,416	27,839	215,134	215,880	218,305

Note:

(i) The geographical information for the revenue and location of non-current assets attributed to each country is not available and the cost to capture such information would be excessive.

(e) Information about Major Customers

Revenue from customers of the corresponding years contributing over 10% of the total sales, all of which are included in trademark rights licensing segment of the Target Group, are as follows:

				Year ended	31 December	31 December
				2010	2011	2012
				HK$’000	HK$’000	HK$’000
Customer	A			9,795	9,580	6,028
Customer	B	_(note _	1)	–	–	2,816
Customer	C	_(note _	1)	−	−	4,295

				9,795	9,580	13,139

Note:

(1) Customer B and C – contributed less than 10% of total turnover for the year ended 31 December 2010 and 2011 respectively.

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7. (LOSS)/PROFIT BEFORE INCOME TAX

(Loss)/profit before income tax has been arrived at after charging/(crediting):

	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Directors’ emoluments (Note 8(a))	−	−	−
Other staff costs	7,942	2,788	607
Retirement benefits schemes contributions,
excluding directors	14	15	41
	7,956	2,803	648

Auditor’s remuneration	18	54	31
Cost of inventories recognised as expense	17,578	2,564	2,815
Depreciation of property, plant and equipment	506	547	396
Exchange losses/(gains), net	167	1,510	(89)
Interest income	(46)	(9)	(10)
Reversal of provision of allowance for bad and
doubtful debts	−	−	(4)
Write off of property, plant and equipment	113	−	205
Bad debts written off	780	4,364	953
Marketing expense	−	−	3,279

8. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

No directors’ remuneration was payable during the Relevant Periods.

No emoluments or discretionary bonus were payable to the directors as an inducement to join or upon joining China Ocean or as compensation for loss of office during the Relevant Periods. No Director waived any emoluments and no compensation was paid for loss of office for the Relevant Periods.

(b) Employees’ emoluments

During the Relevant Periods, the emoluments of the five highest paid individuals of the Target Group are as follows:

	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Salaries and other benefits	4,158	2,734	489
Retirement benefits schemes contributions	–	–	41

	4,158	2,734	530

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Their emoluments were within the following bands:

		2010		2011		2012
	No. of		No. of		No. of
	employees		employees		employees
Nil to HK$1,000,000		4		5		3
HK$1,000,001 to HK$1,500,000		1		−		−
HK$1,500,001 to HK$2,000,000		−		−		−

		5		5		3

Mr. Chan Ting Chuen is the Chief Executive of the Company. No emolument was payable for services rendered by him as the Chief Executive.

9. INCOME TAX EXPENSE

The amount of income tax expense in the consolidated statement of comprehensive income represents:

	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Current tax
Other jurisdictions
– Corporate income tax – current year	−	86	182
Deferred tax
– current year	−	−	−
Income tax expense	−	86	182

Hong Kong Tax

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Relevant Periods.

People’s Republic of China (“PRC”) Tax

In accordance with the PRC Enterprise Income Tax Law effective from 1 January 2008, the PRC Enterprise Income Tax (the “EIT”) is calculated at 25% on the estimated assessable profit for the Relevant Periods.

U.S. Tax

Two subsidiaries, Pony International LLC and Pony, Inc. were incorporated in U.S, in which Pony International LLC is a domestic tax-exempt enterprise and Pony, Inc. is a domestic taxable enterprise.

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Others

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

Income tax expense for the Relevant Periods can be reconciled to the (loss)/profit before income tax expense per the consolidated statement of comprehensive income as follows:

	Year ended 31 December	Year ended 31 December	Year ended 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
(Loss)/profit before income tax expense	(5,045)	(4,064))	2,011
Tax (credit)/charge calculated at Hong
Kong Profits Tax rate of 16.5%	(832)	(671)	332
Tax effect of expenses not deductible for
tax purposes	7,262	1,167	1,547
Tax effect of revenue not taxable for tax
purposes	(4,125)	(1,685)	(2,586)
Tax effect of tax losses not recognised	941	1,750	1,436
Effect of different tax rates of subsidiaries
operating in other jurisdictions	(3,246)	(452)	(483)
Others	−	(23)	(64)

Income tax expense	−	86	182

10. DIVIDENDS

The directors of China Ocean do not recommend the payment of any dividend for the Relevant Periods.

11. PROPERTY, PLANT AND EQUIPMENT

		Furniture,
	Leasehold	fixtures and	Plant and		Motor
	improvements	equipment	Machinery		vehicles	Total
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
Cost:
At 1 January 2010	130	5,010		232	–	5,372
Exchange realignment	–	15		–	–	15
Additions	–	261		–	–	261
Write off	(130)	(70)		–	–	(200)

At 31 December 2010	–	5,216		232	–	5,448
Exchange realignment	–	3		–	–	3
Additions	627	504		–	162	1,293

At 31 December 2011	627	5,723		232	162	6,744
Exchange realignment	–	(8)		–	–	(8)
Additions	178	57		–	–	235
Write off	–	(1,859)		(232)	–	(2,091)

At 31 December 2012	805	3,913		–	162	4,880

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APPENDIX II

FINANCIAL INFORMATION ON CHINA OCEAN

			Furniture,
	Leasehold	fixtures and		Plant and	Motor
	improvements		equipment	Machinery	vehicles	Total
	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Accumulated depreciation:
At 1 January 2010	6		4,097	186	–	4,289
Exchange realignment	–		13	–	–	13
Charge for the year	62		443	1	–	506
Write off	(68)		(19)	–	–	(87)

At 31 December 2010	–		4,534	187	–	4,721
Exchange realignment	–		3	–	–	3
Charge for the year	92		439	–	16	547
At 31 December 2011	92		4,976	187	16	5,271
Exchange realignment	–		(7)	–	–	(7)
Charge for the year	143		221	–	32	396
Written back	–		(1,699)	(187)	–	(1,886)

At 31 December 2012	235		3,491	–	48	3,774


Carrying values:
At 31 December 2012	570		422	–	114	1,106


At 31 December 2011	535		747	45	146	1,473


At 31 December 2010	–		682	45	–	727

12. INTANGIBLE ASSETS

	Trademarks
	HK$’000
At 1 January 2010	213,935
Exchange realignment	472
At 31 December 2010	214,407
Exchange realignment	–
At 31 December 2011	214,407
Exchange realignment	(309)
At 31 December 2012	214,098

The trademarks are measured on initial recognition at their cost of acquisition. The trademarks have finite legal lives but are renewable upon expiry at minimal costs. The directors of China Ocean are of the opinion that the Target Group would be able to renew the trademarks continuously with no difficulties. The Target Group has performed various studies including market, competitive and brand extension opportunities, which support that the trademarks have no foreseeable limit to the time period over which the trademark products are expected to generate net cash flows for the Target Group.

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As a result, the trademarks are considered by management of the Target Group as having indefinite useful lives because they are expected to contribute to net cash inflow indefinitely. The trademarks will not be amortised until their useful lives are determined to be finite. Instead they will be tested for impairment annually and whenever there is an indication that they may have been impaired.

The Target Group performed impairment review on trademarks with discounted cash flow projection based on financial forecasts prepared by management in coming 10 years and a discount rate of 15%, 15% and 16% for the years ended 31 December 2010, 2011 and 2012 respectively. 10 years period is used as the Target Group’s projection of turnover was based on licensing agreements signed which cover a period up to 10 years. The cash flows beyond the next 10 years are extrapolated using a growth rate of 3% per annum. Other key assumption for the value in use calculations relate to the estimation of cash inflows or outflows which include budgeted royalty income. Such estimation is based on the past performance and management’s expectations for the market development. Management believes that any reasonable possible change in any of these assumptions would not cause the recoverable amount of the trademarks to fall below its carrying amount.

For the years ended 31 December 2010, 2011 and 2012, management of the Target Group has determined that no impairments is required to be recognised for any trademarks with indefinite useful lives.

13. INVENTORIES

					As at 31 December
				2010	2011	2012
				HK$’000	HK$’000	HK$’000
	Finished	goods	and merchandise	1,838	1,239	3,703


14.	TRADE	AND	OTHER RECEIVABLES

			As at 31 December
		2010	2011	2012
		HK$’000	HK$’000	HK$’000
Trade	receivables	23,839	21,722	32,317
Less:	allowance for doubtful debts	(1,546)	(1,546)	(1,542)

		22,293	20,176	30,775
Other	receivables, deposits and prepayments	3,135	3,331	5,088
Total	trade and other receivables	25,428	23,507	35,863

The Target Group allows an average credit period of 90 days to its trade customers. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at end of the reporting period:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
0-30 days	2,241	2,719	2,753
31-60 days	899	2,846	2,661
61-90 days	1,718	469	497
Over 90 days	17,435	14,142	24,864
	22,293	20,176	30,775

Before accepting any new customer, the Target Group assesses the potential customer’s credit quality and grants a credit limit to the customer based on background search of the customers. Approximately 22%, 30% and 19% of the trade receivables as at 31 December 2010, 2011 and 2012 respectively that are neither past due nor impaired have no default payment history and there is no significant change in their credit quality. The Target Group does not hold any collateral over these balances.

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Ageing of trade receivables which are past due but not impaired

				December
			2010	2011	2012
			HK$’000	HK$’000	HK$’000
Over	90	days	17,435	14,142	24,864

Movement in the allowance for doubtful debts

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Balance at beginning of the year	1,546	1,546	1,546
Impairment losses reversed	–	–	(4)
	1,546	1,546	1,542

15. TRADE AND OTHER PAYABLES

			As at 31 December
		2010	2011	2012
		HK$’000	HK$’000	HK$’000
Trade	payables	–	–	289
Other	payables, temporary receipts and accruals	7,608	10,480	12,659
Total	trade and other payables	7,608	10,480	12,948

The following is an aged analysis of trade and bills payables presented based on the invoice date at the end of the reporting period:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
0-30 days	–	–	174
31-60 days	–	–	13
61-90 days	–	–	102
	–	–	289

The average credit period on purchase of goods is 90 days. The Target Group has financial risk management policies in place to ensure that all payables are settled within the credit timeframe.

– 41 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

16. DEFERRED TAXATION

Details of the deferred tax liabilities recognised and movements during the current and prior years:

	Intangible
	assets	Tax losses	Total
	HK$’000	HK$’000	HK$’000
At 1 January 2010	12,512	(3,465)	9,047
Charge/(credit) for the year	3,474	(3,474)	–
Exchange realignment	33	(9)	24
At 31 December 2010	16,019	(6,948)	9,071
Charge/(credit) for the year	3,474	(3,474)	–
Exchange realignment	–	–	–
At 31 December 2011	19,493	(10,422)	9,071
Charge/(credit) for the year	3,466	(3,466)	–
Exchange realignment	(47)	25	(22)
At 31 December 2012	22,912	(13,863)	9,049

At 31 December 2010, 2011 and 2012, the Target Group has unused tax losses of HK$265 million, HK$281 million and HK$293 million respectively, available for offsetting against future profits that can be carried forward until 2026 to 2032, except for tax losses of HK$5 million and HK$8 million as at 31 December 2011 and 2012 respectively arising in Hong Kong which may be carried forward indefinitely. Tax losses to the extent of HK$17 million, HK$26 million and HK$35 million have been recognised as deferred tax asset as at 31 December 2010, 2011 and 2012 respectively. No deferred tax asset has been recognised in respect of the remaining unused tax losses of HK$248 million, HK$255 million and HK$258 million as at 31 December 2010, 2011 and 2012 due to the unpredictability of future profit streams.

17. SHARE CAPITAL

		Number of shares	Number of shares
			‘000
Authorised:
Ordinary shares			50

	Number	of
	shares		HK$’000
Issued and fully paid:
Ordinary shares
At 1 January 2010, 31 December 2010, 2011 and 2012		10	279,126

18. OPERATING LEASE COMMITMENTS

As lessee

The Target Group leases certain premises under operating lease arrangements. Properties are negotiated for terms of one year.

At the end of each Relevant Periods, the Target Group had total future minimum lease payments under non-cancellable operating leases falling due at end of the reporting period as follows:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Not later than one year	450	146	17
In the second year to fifth year inclusive	–	17	–
	450	163	17

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FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

19. RELATED PARTY DISCLOSURES

(a) During the year, the Target Group entered into the following transactions with related parties:

Related party
relationship	Type of Transaction	2010	2011	2012
		HK$’000	HK$’000	HK$’000
Subsidiaries of a joint	Purchase of goods	–	−	969
controlled entity of	Royalty income	1,613	2,355	2,816
the parent company	Rental Income	–	–	180
of a shareholder	Sourcing fee	777	–	–
A related company of	Purchase of goods	–	–	621
a joint controlled
entity of the parent
company of a
shareholder
Related companies of	Purchase of goods	9,402	1,363	–
another shareholder

(b) Amounts due from related parties, which are disclosed pursuant to Section 161B of the Companies Ordinance is as follows:

	As at 31 December	As at 31 December	As at 31 December	Maximum outstanding	Maximum outstanding	Maximum outstanding
	2010	2011	2012	2010	2011	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Welcome Wealth
Properties Ltd.	14	19	5	14	19	19
Wisesport Ltd.	2,037	4,393	2,819	7,602	9,984	9,984
Silver Empire Ltd.	6	6	–	6	6	6
Smart Shine Industries
Ltd.	350	550	–	350	550	550
Grand Wealth Group Ltd.	–	389	–	–	389	389
Symphony Resources
Ltd.	–	1,056	550	–	1,056	1,056

	2,407	6,413	3,374

The above companies are jointly controlled entities or subsidiaries of the shareholders of the Target Group. The amounts due are unsecured, interest free and repayable on demand.

(c) Amounts due to related companies are unsecured, interest free and repayable on demand. The related companies are either subsidiaries of a jointly controlled entity, jointly controlled entities or subsidiaries of the parent company of a shareholder of the Target Group.
(d) Advances from shareholders are unsecured, interest-free and have no fixed term of repayment.
(e) Members of key management during the year comprised the three executive directors only whose remuneration is set out in note 8 to the Financial Information.

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FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

20. CAPITAL RISK MANAGEMENT

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

The Target Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholders’ returns that might be possible with higher levels 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 Target Group monitors its capital structure on the basis of a net debts-to-adjusted capital ratio. The Target Group defines net debts as total debts (which include trade and other payables, amounts due to related companies and advances from shareholders), less cash and cash equivalents. Adjusted capital comprises all components of equity, less unaccrued proposed dividends.

The gearing ratio at the end of reporting period was as follows:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Advances from shareholders	216,911	216,923	216,695
Other debts	19,532	15,086	24,724
Cash and cash equivalents	(17,817)	(7,140)	(3,977)
Net debts	218,626	224,869	237,442


Equity	17,110	13,020	14,570


Net debts to equity ratio	1,278%	1,727%	1,630%

21. FINANCIAL RISK MANAGEMENT

The main risks arising from the Target Group’s financial instruments in the normal course of the Target’s business are credit risk, liquidity risk, interest rate risk and currency risk.

These risks are limited by the Target Group’s financial management policies and practices described below.

(a) Credit risk

The Target Group’s credit risk is primarily attributable to trade and other receivables, amount due from related companies and cash and bank balance. In order to minimise the credit risk, management of the Target Group is responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Target Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, Directors of the Target Group consider that the Target Group’s credit risk is significantly reduced.

As at 31 December 2010, 2011 and 2012, the bank balances of the Target Group were mainly deposits with the major banks in the Hong Kong and United Stated.

In respect of trade receivable, individual credit evaluations are performed as part of client acceptance procedures. These evaluation 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 customers as well as pertaining to the economic environment in which the customers operate. Ongoing credit evaluation is performed on the financial condition of trade customers.

– 44 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

The Target Group had a concentration of credit risk in relation to trade receivables as 59%, 54% and 58% of the Target Group’s total trade receivables were due from its largest customer within trademark rights licensing segment as at 31 December 2010, 2011 and 2012. The credit risk in relation to this customer is limited because it maintains long term relationship with the Target Group and no record of default based on its past payment history.

(b) Liquidity risk

The Target 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.

The following table details the remaining contractual maturities at the end of each of the Relevant Periods of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flows and the earliest date the Target can be required to pay:

		Total
		contractual	Within
	Carrying	undiscounted	1 year or
	amount	cash flow	on demand
	HK$’000	HK$’000	HK$’000
Year ended 31 December 2012
Trade and other payables	12,948	12,948	12,948
Amounts due to related companies	11,776	11,776	11,776
Advances from shareholders (note 19(d))	216,695	216,695	216,695

	241,419	241,419	241,419


Year ended 31 December 2011
Trade and other payables	10,480	10,480	10,480
Amounts due to related companies	4,606	4,606	4,606
Advances from shareholders (note 19(d))	216,923	216,923	216,923

	232,009	232,009	232,009


Year ended 31 December 2010
Trade and other payables	7,608	7,608	7,608
Amounts due to related Companies	11,924	11,924	11,924
Advances from shareholders (note 19(d))	216,911	216,911	216,911

	236,443	236,443	236,443

(c) Interest rate risk

As the Target Group has no significant interest-bearing assets and liabilities, the Target Group’s income and operating cash flows are substantially independent of changes in market interest rate.

(d) Currency risk

Currency risk to the Target Group is minimal as most of the Target Group’s transactions are carried out in the functional currency.

(e) Fair values

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2010, 2011 and 2012.

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FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

22. SUMMARY OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES BY CATEGORY

The carrying amounts of the Target Group’s financial assets and financial liabilities as recognised for the Relevant Periods may be categorised as follows:

		As at 31 December
	2010	2011	2012
	HK$’000	HK$’000	HK$’000
Financial assets
Loans and receivables (including cash and
bank balances)	45,652	37,060	46,315


Financial liabilities
Financial liabilities measured at amortised cost	236,443	232,009	241,419

23. PARTICULARS OF SUBSIDIARIES

Details of the Company’s subsidiaries at 31 December 2010, 2011 and 2012 are as follows:

		Place of
		incorporation/
		registration	Paid up issued/
		and	registered share		Effective interest in issued/					Principal
Subsidiary	Note	operation	capital		registered	capital held by the		Company		activities
				2010	2010	2011	2011	2012	2012
				Directly	Indirectly	Directly Indirectly		Directly	Indirectly
Sharp Gain Profits	(b)	British	Ordinary US$1	100%	–	100%	–	100%	–	Investment
Limited		Virgin								holding
		Islands
		(“BVI”)
Pony International	(b)	U.S.	Voting member	–	99.5%	–	99.5%	–	99.5%	Investment
LLC			units of							holding
			US$500,000
Murphy	(c)	Hong Kong	Ordinary HK$1	–	100%	–	100%	−	100%	Inactive
International
Limited
Pony International	(d)	Hong Kong	Ordinary HK$2	–	100%	–	100%	−	100%	Inactive
(Hong Kong)
Limited
Super Jumbo	(b)	BVI	Ordinary US$1	−	100%	−	100%	−	100%	Trademark
Holdings Limited										holding,
										trademark
										rights
										licensing
										and
										trading
Pony, Inc	(b)	U.S.	Voting member	−	100%	−	100%	−	100%	Trademark
			units of US$27							rights
			million							licensing
										and
										trading
Always Gain	(b)	BVI	Ordinary US$100	60%	40%	60%	40%	60%	40%	Trademark
Holding Limited										holding,
										trademark
										rights
										licensing
										and
										trading
Sinogiant	(b)	BVI	Ordinary	–	100%	–	100%	–	100%	Investment
Enterprises			US$10,000							holding
Limited

– 46 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

		Place of
		incorporation/
		registration	Paid up issued/
		and	registered share		Effective interest in issued/					Principal
Subsidiary	Note	operation	capital		registered	capital held by the		Company		activities
				2010	2010	2011	2011	2012	2012
				Directly	Indirectly	Directly Indirectly		Directly	Indirectly
南寧波尼服飾有限	(b)	PRC	Registered	–	100%	–	100%	–	100%	Inactive
公司(Pony			capital
China Limited)			RMB1,250,000
Real Power Group	(b)	BVI	Ordinary US$1	100%	−	100%	−	100%	−	Investment
Limited										Holding
Pony International	(d)	Hong Kong	Ordinary HK$2	–	–	–	–	100%	–	Trademark
Limited										right
										sub-
										licensing,
										trading
										and
										retails
Pony Worldwide	(c)	Hong Kong	Ordinary HK$1	–	100%	–	100%	–	100%	Investment
Limited										holding
Pony B.V.	(b)	Netherland	Paid up capital	–	100%	–	100%	–	100%	Trademark
			EUR18,000							right
										sub-
										licensing,
										trading
										and
										retails

(a) None of the subsidiary had issued any debt security at the end of the year or at any time during the Relevant Periods.
(b) No audited financial statements were issued for these companies as they are not required to issue audited accounts under statutory requirements of their place of incorporation.
(c) The statutory accounts of these subsidiaries for the years ended 31 December 2010 and 2011 were audited by BDO Limited, a certified public accounting firm registered in Hong Kong. Audited statutory accounts for the year ended 31 December 2012 have not been issued as at the date of this report.
(d) The statutory accounts of these subsidiaries for the year ended 31 December 2010 were audited by Deloitte Touche Tohmatsu, a certified public accounting firm registered in Hong Kong. The statutory accounts of these subsidiaries for the year ended 31 December 2011 were audited by BDO Limited, a certified public accounting firm registered in Hong Kong. Audited statutory accounts for the year ended 31 December 2012 have not been issued as at the date of this report.

24. SHARE OPTION SCHEME

In 2007, Pony LLC adopted a Stock Option Plan (the “Plan”) that provides for granting of options to acquire common stock of the Company (“Options”). Options under the plan may be issued to directors, executives, key employees and consultants providing valuable services to Pony LLC to encourage participants to work towards enhancing the value of the Pony LLC and its shares for the benefit of Pony LLC and its shareholders as a whole. A maximum of 1,500,000 share options underlying 1,500,000 membership units of the Pony LLC’s member capital may be issued under the Plan. The options expire on 4th or 5th anniversary from the date of grant. The management committee administers the Plan, selects recipients to whom options are granted and determines the number of options underlying the shares to be granted. The management committee also determines the vesting rate. Options granted under the Plan are exercisable at a price determined by the management committee at the time of grant, but in no event less than 100% of fair market value.

– 47 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

(a) The terms and conditions of the share options that existed throughout the Relevant Periods were as follows and all options are settled by physical delivery of shares:

	Vesting		Contractual	Number of	Contractual
Date of grant	condition	Exercise period	exercise price	options	life of options
-On 8 October 2007	Immediately	8 October 2007 to	US$0.052	1,123,750	5 Years
		7 October 2012
-On 5 December 2007	Immediately	5 December 2007 to	US$0.052	20,000	4 Years
		4 December 2011
-On 17 October 2008	Immediately	17 October 2008 to	US$0.052	8,000	4 Years
		16 October 2012
-On 28 September 2009	Immediately	28 September 2009 to	US$0.052	10,000	4 Years
		27 September 2013

(b) The number of and weighted exercise prices of share options are as follows:

		As at 31 December
	2010	2011	2012
	Number	Number	Number
Outstanding at beginning of the year	51,625	–	–
Granted during the year	–	–	–
Exercised during the year	(4,125)	–	–
Cancelled or forfeited during the year	(47,500)	−	–
Outstanding at end of year	–	–	–
Exercisable at the end of year	–	–	–

The weighted average exercise price was US$0.052 throughout the Relevant Periods.

The above options were valued by Grobstein, Horwath & Company LLP, an independent valuer, using the Black-Scholes option pricing model based on the following assumptions: stock price of US$0.052, expected terms of 5.86 years, estimated volatility of 37.44%, risk free rate of 4.16% and 0% dividend rate. In addition, management estimated a 15% forfeiture rate.

25. EVENTS AFTER REPORTING PERIOD

On 27 March 2013, the Target Group entered into a trademark agreement pursuant to which the Target Group would sell and transfer to Dream Smart Limited (“Dream Smart”), a related party of the Target Group, all the right, title and interest in and to the PONY trademarks that are registered in the PRC and Taiwan (the “Transferred Trademarks”). Under the trademark agreement, the Target Group would retain the right to use the Transferred Trademarks solely for the purposes of manufacturing products to be sold exclusively outside of the PRC and Taiwan.

On 22 April 2013, the Target Group and Dream Smart have agreed to terminate the trademark agreement and entered into another disposal agreement pursuant to which the Target Group has conditionally agreed to dispose of its entire equity interest in Always Gain to Dream Smart for an aggregate consideration of US$5,000,000 (approximately HK$38,800,000).

– 48 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by China Ocean and its subsidiaries in respect of any period subsequent to 31 December 2012.

Your Faithfully

BDO Limited

Certified Public Accountants Hong Kong Shiu Hong NG Practising Certificate Number: P03752

– 49 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

2. MANAGEMENT DISCUSSION AND ANALYSIS ON CHINA OCEAN

(a) Business review for the year ended 31 December 2012

Business and financial review

For the year ended 31 December 2012, the total revenue of the China Ocean Group was approximately HK$27.8 million, which was generated from the marketing of footwear, apparel and accessories under the PONY brand name and royalty income from PONY brand licensing activities. A net profit of approximately HK$1.8 million was recorded for the year ended 31 December 2012, which was the result of the completion of the restructuring plan from wholesale to licensing model.

Segment information

For the year ended 31 December 2012, the business segments of the China Ocean Group included trademark rights licensing, footwear trading and retails. The revenue generated from trademark rights licensing was HK$24,891,000. The revenue generated from footwear trading was HK$2,747,000, representing a decrease of approximately 19.6% as a result of the abovementioned business restructuring plan from wholesale to licensing model. With a new store launched in Tsim Sha Tsui Hong Kong in 2012, the revenue from retails recorded HK$201,000.

Significant investments, material acquisitions and disposals

The China Ocean Group did not have any significant investments, material acquisitions or disposals during the year ended 31 December 2012.

Liquidity and financial resources

As at 31 December 2012, cash and bank balances maintained by the China Ocean Group were approximately HK$4.0 million. The China Ocean Group’s current ratio (current assets over current liabilities) as at 31 December 2012 was 19.4% and the China Ocean Group has no bank borrowings as at 31 December 2012. The gearing of the China Ocean Group, measured as net debts to equity was 1,629.7% as at 31 December 2012. The China Ocean Group recorded net assets of approximately HK$14.6 million as at 31 December 2012.

Foreign exchange exposure

The China Ocean Group’s transactions were mainly denominated in Hong Kong dollars and United States dollars. As the Hong Kong dollar is pegged to United States currency, the China Ocean Group’s exposure to exchange rate fluctuations was minimal. Therefore, the China Ocean Group did not engage in any hedging contracts during the year ended 31 December 2012.

– 50 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

Capital structure

There has been no change to the capital structure of the China Ocean Group during the year ended 31 December 2012.

During the year ended 31 December 2012, the China Ocean Group financed its operation with internally generated cash flow and shareholders’ loan.

As at 31 December 2012, the China Ocean Group had shareholders’ loan of HK$216,695,000, which was unsecured, interest-free and had no fixed term of repayment.

The China Ocean Group adopts a prudent funding and treasury policy. As at 31 December 2012, the borrowings of the China Ocean Group were denominated in United States dollars while the cash and cash equivalents held by the China Ocean Group were denominated in Hong Kong dollars and United States dollars.

Contingent liabilities and capital commitment

As at 31 December 2012, the China Ocean Group did not have any material contingent liabilities and capital commitment.

Pledge of assets

As at 31 December 2012, the China Ocean Group did not pledge any of its assets.

Employee and remuneration policies

As at 31 December 2012, the China Ocean Group had one employee. Staff cost for the year ended 31 December 2012 was approximately HK$0.6 million. The China Ocean Group remunerated its employees based on individual performance and merits and the prevailing market rates. Salaries of employees are maintained at competitive levels while bonuses were granted by reference to the performance of the China Ocean Group and individual employees.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2012.

(b) Business review for the year ended 31 December 2011

Business and financial review

For the year ended 31 December 2011, the total revenue of the China Ocean Group was approximately HK$28.4 million, which was generated from the marketing of footwear, apparel and accessories under the PONY brand name and royalty income from

– 51 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

PONY brand licensing activities. A net loss of approximately HK$4.2 million was recorded for the year ended 31 December 2011, representing a 16.0% decrease as compared to the previous year. This was achieved through the gradual steps taken to restructure the business to contain the cost of sales while focusing on promotion and marketing of the brand globally.

Segment information

For the year ended 31 December 2011, the business segments of the China Ocean Group included trademark rights licensing and footwear trading. The revenue generated from trademark rights licensing was HK$24,998,000, representing a growth of approximately 15.1% as a result of expansion of the global licence and distribution network. The revenue generated from footwear trading was HK$3,418,000, representing a decrease of approximately 79.1% due to the abovementioned business restructuring plan from wholesale to licensing model.

Significant investments, material acquisitions and disposals

The China Ocean Group did not have any significant investments, material acquisitions or disposals during the year ended 31 December 2011.

Liquidity and financial resources

As at 31 December 2011, cash and bank balances maintained by the China Ocean Group were approximately HK$7.1 million. The China Ocean Group’s current ratio (current assets over current liabilities) as at 31 December 2011 was 16.5% and the China Ocean Group has no bank borrowings as at 31 December 2011. The gearing of the China Ocean Group, measured as net debts to equity was 1,727.1% as at 31 December 2011. The China Ocean Group recorded net assets of approximately HK$13.0 million as at 31 December 2011.

Foreign exchange exposure

Capital structure

There has been no change to the capital structure of the China Ocean Group during the year ended 31 December 2011.

During the year ended 31 December 2011, the China Ocean Group financed its operation with internally generated cashflow and shareholders’ loan.

– 52 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

As at 31 December 2011, the China Ocean Group had shareholders’ loan of HK$216,923,000, which was unsecured, interest-free and had no fixed term of repayment.

The China Ocean Group adopts a prudent funding and treasury policy. As at 31 December 2011, the borrowings of the China Ocean Group were denominated in United States dollars while the cash and cash equivalents held by the China Ocean Group were denominated in United States dollars and Hong Kong dollars.

Contingent liabilities and capital commitment

As at 31 December 2011, the China Ocean Group did not have any material contingent liabilities and capital commitment.

Pledge of assets

As at 31 December 2011, the China Ocean Group did not pledge any of its assets.

Employee and remuneration policies

As at 31 December 2011, the China Ocean Group had three employees. Staff cost for the year ended 31 December 2011 was approximately HK$2.8 million. The China Ocean Group remunerated its employees based on individual performance and merits and the prevailing market rates. Salaries of employees are maintained at competitive levels while bonuses were granted by reference to the performance of the China Ocean Group and individual employees.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2011.

(c) Business review for the year ended 31 December 2010

Business and financial review

For the year ended 31 December 2010, revenue of the China Ocean Group was approximately HK$38.1 million, which was generated from the distribution of footwear, apparel and accessories under the PONY brand name and royalty income from PONY brand licensing activities. A net loss of approximately HK$5.0 million was recorded for the year ended 31 December 2010, which was caused by efforts to scale down the unprofitable business activities while identifying prospective licensees to partner with.

Segment information

For the year ended 31 December 2010, the business segments of the China Ocean Group included trademark rights licensing and footwear trading. The revenue generated from trademark rights licensing and footwear trading were HK$21,715,000 and HK$16,338,000 respectively.

– 53 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

Significant investments, material acquisitions and disposals

The China Ocean Group did not have any significant investments, material acquisitions or disposals during the year ended 31 December 2010.

Liquidity and financial resources

As at 31 December 2010, cash and bank balances maintained by the China Ocean Group were approximately HK$17.8 million. The China Ocean Group’s current ratio (current assets over current liabilities) as at 31 December 2010 was 20.1% and the China Ocean Group has no bank borrowings as at 31 December 2010. The gearing of the China Ocean Group, measured as net debts to equity was 1,277.8% as at 31 December 2010. The China Ocean Group recorded net assets of approximately HK$17.1 million as at 31 December 2010.

Foreign exchange exposure

Capital structure

There has been no change to the capital structure of the China Ocean Group during the year ended 31 December 2010.

During the year ended 31 December 2010, the China Ocean Group financed its operation with internally generated cash flow and shareholders’ loan.

As at 31 December 2010, the China Ocean Group had shareholders’ loan of HK$216,911,000, which was unsecured, interest-free and had no fixed term of repayment.

The China Ocean Group adopts a prudent funding and treasury policy. As at 31 December 2010, the borrowings of the China Ocean Group were denominated in United States dollars while the cash and cash equivalents held by the China Ocean Group were denominated in United States dollars and Hong Kong dollars.

Contingent liabilities and capital commitment

As at 31 December 2010, the China Ocean Group did not have any material contingent liabilities and capital commitment.

Pledge of assets

As at 31 December 2010, the China Ocean Group did not pledge any of its assets.

– 54 –

FINANCIAL INFORMATION ON CHINA OCEAN

APPENDIX II

Employee and remuneration policies

As at 31 December 2010, the China Ocean Group had seven employees. Staff cost for the year ended 31 December 2010 was approximately HK$7.9 million. The China Ocean Group remunerated its employees based on individual performance and merits and the prevailing market rates. Salaries of employees are maintained at competitive levels while bonuses were granted by reference to the performance of the China Ocean Group and individual employees.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of material capital assets as at 31 December 2010.

– 55 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated statement of financial position (the “Unaudited Pro Forma Financial Information”) of Symphony Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), has been prepared by the directors of the Company (the “Directors”) to illustrate the effect of the following proposed transactions (the “Transactions”) in accordance with Rule 4.29 of the Listing Rule:

(i) proposed acquisition of a 50% equity interest of China Ocean Resources Limited (“China Ocean”) and its subsidiaries (hereinafter collectively referred as “Target Group”) by the Group (the “Acquisition”); and
(ii) proposed disposal of 50% of the issued ordinary shares and 18% of the issued preferred shares of Grand Wealth Group Limited (“Grand Wealth”) by the Group (the “Disposal”).

China Ocean and Grand Wealth are jointly control entities of the Group.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position of the Group as at 31 December 2012 or at any future date following the Acquisition and the Disposal. The Unaudited Pro Forma Financial Information is prepared based on the consolidated statement of financial position of the Group at 31 December 2012, as extracted from the published annual report of the Group, the Accountants’ Report of Target Group as set out in Appendix II to this circular, financial information of Grand Wealth and its subsidiaries (hereinafter collectively referred as “Disposal Group”) and the adjustments described below.

– 56 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Non-current assets Property, plant and equipment Investment properties Prepaid lease payments Intangible assets (including goodwill) Deposit paid for acquisition of an investment property Interests in jointly controlled entities (note) Advances to jointly controlled entities Available-for-sale investments Deferred tax assets Tax recoverable Club debentures Restricted bank deposit Loan receivables Current assets Inventories Amounts due from jointly controlled entities Trade and other receivables Prepaid lease payments Amounts due from related companies Pledged bank deposit Bank balances and cash Assets classified as held for sales	The Group as at 31 December 2012 (Note 1) HK$’000 571,383 506,880 291,363 – 150,288 1,242 108,348 2,334 18,457 45,414 2,003 3,729 – 1,701,441 254,211 4,212 328,225 7,394 – 78,319 480,102 1,152,463 120,383 1,272,846	The Target Group as at 31 December 2012 (Note 2) Pro forma adjustment (Note 3,4,5,6) Pro forma adjustment (Note 7) HK$’000 HK$’000 HK$’000 1,106 – – 214,098 9,034 – – (7,285) – (108,348) – – – – – 3,101 218,305 3,703 – (3,876) 35,863 – 3,374 – 3,977 (120,150) 120,383 46,917 – (120,383) 46,917	Enlarged Group as at 31 December 2012 HK$’000 572,489 506,880 291,363 223,132 150,288 (6,043) – 2,334 18,457 45,414 2,003 3,729 3,101 1,813,147 257,914 336 364,088 7,394 3,374 78,319 484,312 1,195,737 – 1,195,737

Note: Interest in jointly controlled entities of HK$1,242,000 includes an amount of HK$7,285,000 in respect of China Ocean. The balance after the Acquisition has a negative pro forma value of HK$6,043,000 mainly because the Group has to share the losses of another jointly controlled entity as the Group has committed to provide financial support to that jointly controlled entity. As at 31 December 2012, the Group’s share of losses exceeded the original amount of investment in this jointly controlled entity.

– 57 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

	The Group	The Target
	as at 31	Group as at	Pro forma		Enlarged
	December	31 December	adjustment	Pro forma	Group as at
	2012	2012	(Note	adjustment	31 December
	(Note 1)	(Note 2)	3,4,5,6)	(Note 7)	2012
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Current liabilities
Trade and other payables	551,668	12,948			564,616
Amounts due to jointly
controlled entities	24,259	–			24,259
Amounts due to related
companies	–	11,776	(3,876)		7,900
Advances from shareholders	–	216,695	(216,695)		–
Tax payable	75,293	184			75,477
Bank borrowings	437,426	–			437,426
	1,088,646	241,603			1,109,678

Net current assets/(liabilities)	184,200	(194,686)			86,059

Total assets less current
liabilities	1,885,641	23,619			1,899,206
Non-current liabilities
Deferred tax liabilities	74,257	9,049			83,306

	74,257	9,049			83,306

NET ASSETS	1,811,384	14,570			1,815,900


Capital and reserves
Share capital	130,804	–			130,804
Share premium and reserves	1,360,684	14,570	(10,054)		1,365,200
Equity attribution to owners
of the Company	1,491,488	14,570			1,496,004
Non-controlling interests	319,896	–			319,896
	1,811,384	14,570			1,815,900

Notes:

This represents the consolidated statement of financial position of the Group as at 31 December 2012 as extracted from the published annual report of the Company for the year 31 December 2012.
On 27 March 2013, the Group entered into an agreement with Canstrong International Limited (“Canstrong”) pursuant to which the Group has conditionally agreed to purchase and Canstrong has conditionally agreed to sell its 50% equity interest of China Ocean at a consideration of US$1,522,000 (equivalent to HK$11,801,000) and the shareholder’s loan owed by China Ocean to Canstrong at a consideration of US$13,978,000 (equivalent to HK$108,347,000) (the “Acquisition Agreement”). Upon completion of the Acquisition, the Target Group will become a wholly-owned subsidiary of the Group. The figures of the Target Group are extracted from the Accountants’ Report set out in Appendix II to this circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

The Group will obtain control of China Ocean by acquisition of the remaining 50% equity interest it does not hold. Prior to this acquisition, the Group already held a 50% equity interest of China Ocean, a non-controlling equity investment. In accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations”, this equity investment is re-measured at its acquisition-date fair value and the resulting gain or loss is recognised by the Group in profit or loss.

The adjustment below represents fair value gain on the 50% equity interest already held by the Group:

	HK$’000
Fair value of the 50% equity interest of China Ocean previously held
by the Group (Note)	11,801
Less:
Carrying amount of the 50% equity interest of China Ocean in the books of
the Group as at 31 December 2012 accounted for as a jointly controlled
entity under Hong Kong Accounting Standard 31
“Investments in Joint Ventures”	(7,285)

Fair value gain recognised in profit or loss (reserves)	4,516

Note : The fair value of the 50% equity interest of China Ocean already held by the Group is estimated at US$1,522,000 (equivalent to approximately HK$11,801,000) which is the same as the cash consideration to be paid by the Group to acquire the remaining 50% equity interest of China Ocean pursuant to the Acquisition Agreement.
In accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations”, the Group accounts for the acquisition of the remaining 50% equity interest in China Ocean using the acquisition method of accounting as if it was acquiring 100% of China Ocean by adding the consideration for the additional 50% equity interest with the fair value of the 50% equity interest already held as described in Note 3 above. This resulted in an adjustment to the intangible assets (including goodwill) of approximately HK$9,034,000 as if the Acquisition was taken place on 31 December 2012 as follows:

	HK$’000
Total consideration to be settled by cash	120,150
Less:
Shareholder’s loan owed by China Ocean to Canstrong (note)	(108,347)
Cash consideration for additional 50% equity interest	11,803
Add:
Fair value of the 50% equity interest of China Ocean already held
(Note 3 above)	11,801

Total consideration for acquisition of 100% equity interest of China Ocean	23,604
Less:
Carrying amount of net identifiable assets and liabilities of the Target Group
acquired, other than intangible assets	(199,528)
Carrying amount of intangible assets	214,098
Net assets of the Target Group	14,570
Excess consideration paid allocated to intangible assets (including goodwill)	9,034

Note : The total cash consideration includes purchase of the shareholder’s loan owed by China Ocean to Canstrong on a dollar to dollar basis in accordance with the Acquisition Agreement.

– 59 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

The fair value of the identifiable assets and liabilities of the Target Group, including goodwill and intangible assets, will be re-assessed at the completion date of the Acquisition by reference to a valuation to be carried out by professional valuers and is therefore subject to change.

The directors have performed an impairment assessment in accordance with HKAS36 “Impairment of Assets” and concluded that there is no impairment in respect of the intangible assets (including goodwill), representing various trademarks relating to the brand name “PONY” with an estimated fair value of approximately of HK$223,132,000 as shown in the pro forma consolidated statement of financial position of the Enlarged Group as at 31 December 2012. The directors are therefore of the view that the fair value adjustment on intangible assets (trademarks) including goodwill arising on the Acquisition will not differ materially from the amount of HK$9,034,000 on completion of the Acquisition.

The adjustment represents the elimination of advances to China Ocean of HK$108,348,000 and amount due from China Ocean of HK$3,876,000 as if the Acquisition was completed on 31 December 2012.
The decrease in share premium and reserves of HK$10,054,000 is made up of the eliminated of the pre-acquisition net assets of the Target Group of HK$14,570,000 and an fair value gain of HK$4,516,000 on the 50% equity interest in China Ocean already held by the Group as set out in Note 3 above.
On 27 March 2013, the Group entered into a disposal agreement with Canstrong, pursuant to which the Group has conditionally agreed to sell and Canstrong has conditionally agreed to purchase the 50% of the issued ordinary shares and 18% of the issued preferred shares of Grand Wealth and the shareholder’s loan owed by Grand Wealth to Canstrong at an aggregate consideration of US$15,530,000 (equivalent to HK$120,383,000). Upon closing of the Disposal, the Group will cease to have any interest in Grand Wealth. The adjustment reflects the position as if Grand Wealth was disposed on 31 December 2012, with the consideration being received.
In the opinion of the directors of the Company, the transaction costs for the Acquisition and the Disposal are minimal and ignored in the preparation of the unaudited pro forma financial information.
Amounts denominated in United States dollars are translated into Hong Kong dollars at US$1 = HK$7.7516 which represents the prevailing exchange rate ruling at 31 December 2012.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

2. ACCOUNTANTS’ REPORT

The following is the text of an accountants’ report received from BDO Limited, Certified Public Accountants, Hong Kong, for inclusion in this circular, in respect of the unaudited pro forma financial information of the Group as set out in this Appendix III.

==> picture [76 x 62] intentionally omitted <==

==> picture [96 x 55] intentionally omitted <==

9 May 2013

The Board of Directors Symphony Holdings Limited 10/F, Island Place Tower 510 King’s Road North Point Hong Kong

Dear Sirs,

We report on the Unaudited Pro Forma Financial Information of Symphony Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, for inclusion in Appendix III of the circular issued by the Company dated 9 May 2013 (the “Circular”) to provide information about how (i) proposed acquisition of a 50% equity interest of China Ocean Resources Limited (“China Ocean”) and its subsidiaries (hereinafter collectively referred as “Target Group” by the Group (the “Acquisition”); and (ii) proposed disposal of 50% of the issued ordinary shares and 18% of the issued preferred shares of Grand Wealth Group Limited (“Grand Wealth”) by the Group (the “Disposal”). China Ocean and Grand Wealth are jointly control entities of the Group. The basis of preparation of the unaudited pro forma financial information is set out in the Appendix III to the Circular.

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 29 of Chapter 4 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 29(7) of Chapter 4 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.

– 61 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Basis of opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 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 purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Enlarged Group as at 31 December 2012 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully

BDO Limited Certified Public Accountants Hong Kong Shiu Hong NG Practising Certificate Number: P03752

– 63 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(i) Interests of the Directors or chief executive of the Company

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

Long Positions in the Shares

					Approximate
					percentage
			Number of		of the issued
			Shares held		share capital
		Beneficial	Controlled		of the
Director	Notes	owner	corporation	Total	Company
Chan Ting Chuen	1, 2	3,750,000	664,677,468	668,427,468	51.10%
Chang Tsung Yuan	4	4,500,000	–	4,500,000	0.344%
Sze Sun Sun Tony	1, 3	–	664,677,468	664,677,468	50.81%

Notes:

Well Success was directly interested in 664,677,468 Shares. First Dynamic International Limited (“ First Dynamic ”) held more than one-third of the issued share capital of Well Success. Each of Royal Pacific Limited (“ Royal Pacific ”) and Alexon International Limited (“ Alexon ”) held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Mr. Chan Ting Chuen (“ Mr. Chan ”) had a direct interest in 3,750,000 Shares. Royal Pacific was wholly-owned by TC Chan Family Holdings Limited (“ TCCFHL ”), which in turn was wholly-owned by Mr. Chan. Accordingly, Mr. Chan was or deemed to be interested in 668,427,468 Shares.

– 64 –

GENERAL INFORMATION

APPENDIX IV

Mr. Sze Sun Sun Tony (“ Mr. Sze ”) was interested in the entire issued share capital of Alexon and was therefore deemed to be interested in 664,677,468 Shares.
Mr. Chang Tsung Yuan was directly interested in 4,500,000 Shares. He was also a substantial shareholder of Well Success, in which he held 20.0% of its issued share capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executives nor their associates had or were deemed to have any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which the Directors or the chief executives were taken or deemed to have under such provisions of SFO); or (b) which were required, pursuant to section 352 of SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

(ii) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders of the Company

So far as was known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, companies and persons who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Long Positions in the Shares

						Approximate
						percentage
				Number of		of the issued
			ordinary Shares held			share capital
						of the
			Direct	Deemed	Total
Shareholder	Notes	Capacity	interests	interests	interests	Company
Well Success	1	Beneficial	664,677,468	–	664,677,468	50.81%
		owner
First Dynamic	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Royal Pacific	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
TCCFHL	2	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation

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APPENDIX IV

GENERAL INFORMATION

						Approximate	Approximate
						percentage
				Number of		of the issued
			ordinary Shares held			share	capital
							of the
			Direct	Deemed	Total
Shareholder	Notes	Capacity	interests	interests	interests	Company
Mr. Chan	2	Beneficial	3,750,000	664,677,468	668,427,468	51.10%
		owner and
		Interest of
		controlled
		corporation
Ng Shuk Fong	2	Spouse	–	668,427,468	668,427,468	51.10%
(“Madam Ng”)
Alexon	1	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Mr. Sze	3	Interest of	–	664,677,468	664,677,468	50.81%
		controlled
		corporation
Lau Yuk Wah	3	Spouse	–	664,677,468	664,677,468	50.81%
(“Madam Lau”)
Frensham	4	Beneficial	62,999,572	664,677,468	727,677,040	55.63%
		owner and
		interest of
		controlled
		corporation
Pou Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
(Holdings)		corporation
Limited
(“Pou Yuen”)
Yue Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
Limited		corporation
(“Yue Yuen
Industrial”)
Pou Hing	4	Interest of	–	727,677,040	727,677,040	55.63%
Industrial		controlled
Company		corporation
Limited
(“Pou Hing“)
Yue Yuen	4	Interest of	–	727,677,040	727,677,040	55.63%
		controlled
		corporation

– 66 –

GENERAL INFORMATION

APPENDIX IV

						Approximate
						percentage
				Number of		of the issued
			ordinary Shares held			share capital
						of the
			Direct	Deemed	Total
Shareholder	Notes	Capacity	interests	interests	interests	Company
Wealthplus	4	Interest of	–	727,677,040	727,677,040	55.63%
Holdings		controlled
Limited		corporation
(“Wealthplus”)
Pou Chen	4	Interest of	–	727,677,040	727,677,040	55.63%
Corporation		controlled
(“Pou Chen”)		corporation
Shah Capital		Investment	206,318,375	–	206,318,375	15.77%
Management		Manager

Notes:

As at the Latest Practicable Date, Well Success was directly interested in 664,677,468 Shares. First Dynamic held more than one-third of the issued share capital of Well Success. Each of Royal Pacific and Alexon held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Madam Ng is the wife of Mr. Chan, a Director of the Company. Royal Pacific is wholly owned by TCCFHL, which in turn is wholly owned by Mr. Chan. As at the Latest Practicable Date, Royal Pacific was deemed to be interested in 664,677,468 Shares (see Note 1), therefore both Mr. Chan and Madam Ng were deemed to be interested in 664,677,468 Shares. Furthermore, Mr. Chan was directly interested in 3,750,000 Shares. Accordingly, Madam Ng was deemed to be interested in a total of 668,427,468 Shares.
Madam Lau is the wife of Mr. Sze, a Director of the Company. As at the Latest Practicable Date, Mr. Sze was interested in the entire issued share capital of Alexon, therefore he was deemed to be interested in 664,677,468 Shares (see Note 1). Accordingly, Madam Lau was deemed to be interested in a total of 664,677,468 Shares.
Frensham was a wholly-owned subsidiary of Pou Yuen which in turn was a wholly-owned subsidiary of Yue Yuen Industrial. Yue Yuen Industrial was a wholly-owned subsidiary of Pou Hing which in turn was a wholly-owned subsidiary of Yue Yuen. Wealthplus, a wholly-owned subsidiary of Pou Chen, held over one-third of the entire issued share capital of Yue Yuen. As at the Latest Practicable Date, Frensham held more than one-third of the issued share capital of Well Success and was therefore deemed to be interested in 664,677,468 Shares. In addition, Frensham had a direct interest in 62,999,572 Shares. Accordingly, all of Frensham, Pou Yuen, Yue Yuen Industrial, Pou Hing, Yue Yuen, Wealthplus and Pou Chen were deemed to be interested in 727,677,040 Shares.

Save as disclosed above, as at the Latest Practicable Date, so far as the Directors or chief executive of the Company were aware, no person was interested in or had a short position in the shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO and none of the Directors was a director or employee of a company which has an interest 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.

– 67 –

GENERAL INFORMATION

APPENDIX IV

3. DISCLOSURE OF OTHER INTERESTS

(i) Interests in contract or arrangement

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Directors was materially interested and which was significant in relation to the business of the Enlarged Group.

(ii) Interests in assets

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2012 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to or which were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

(iii) Interests in competing business

As at the Latest Practicable Date, none of the Directors and their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group.

5. MATERIAL CONTRACTS

Set out below are the contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Enlarged Group within the two years immediately preceding the Latest Practicable Date that are or may be material:

(i) the disposal agreement dated 27th September 2012 between Zhongshan Jingmei Footwear Company Limited and Fujian Weilan Company Limited regarding the disposal of the industrial complex with an aggregate gross floor area of approximately 82,949 sq.m. (the “Property”) erected on the four pieces of land located at Zhangjiabian Village, Zhongshan City, the PRC, with a total site area of approximately 108,171 sq.m. for an aggregate consideration of RMB143 million;
(ii) the lease agreement dated 27th September 2012 between Zhongshan Jingmei Footwear Company Limited and Fujian Weilan Company Limited regarding the lease of certain portions of the Property with an aggregate gross floor area of 33,211 sq.m. for an initial term of 12 months and extendable on the same terms by mutual agreement of the parties to the Lease Agreement for another 12 months at a monthly rent of RMB265,688;

– 68 –

GENERAL INFORMATION

APPENDIX IV

(iii) the Acquisition Agreement;
(iv) the Disposal Agreement;
(v) the Trademark Agreement; and
(vi) the Always Gain Disposal Agreement.

Save as disclosed above, there are no other contracts (not being contracts entered into the ordinary course of business) being entered into by the members of the Enlarged Group within the two years immediately preceding the date of this circular and ending on the Latest Practicable Date, which are or may be material.

6. LITIGATION

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of TRCs amounted to approximately HK$23 million. These TRCs were purchased and included in tax recoverable as at 31 December 2012 and 2011. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/2005 at the request of IRD.

– 69 –

GENERAL INFORMATION

APPENDIX IV

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any material litigation or claims and, so far as the Directors were aware, no material litigation or claims were pending or threatened by or against any member of the Enlarged Group.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name Qualification BDO Limited Certified Public Accountants

– 70 –

GENERAL INFORMATION

APPENDIX IV

As at the Latest Practicable Date, BDO Limited did not have any direct or indirect shareholdings in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any members of the Group, or any direct or indirect interest in any assets which have been, since 31 December 2012 (the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

BDO Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reports and reference to its name in the form and context in which they appear.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on Business Days at the office of the Company at 10th Floor, Island Place Tower, 510 King’s Road, North Point, 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 valid as at the Latest Practicable Date;
(ii) the annual reports of the Company for each of the two financial years ended 31 December 2011 and 2012;
(iii) the interim report of the Company for the six months ended 30 June 2012;
(iv) the material contracts referred to in the section headed “Material contracts” in this appendix;
(v) the accountants’ report on the audited financial information of China Ocean as set out in Appendix II to this circular;
(vi) the accountants’ report on the unaudited pro forma financial information on the Enlarged Group as set out in Appendix III to this circular;
(vii) the written consent of the expert referred to in the section headed “Expert and consent” in this appendix; and
(viii)this circular.

– 71 –

GENERAL INFORMATION

APPENDIX IV

9. MISCELLANEOUS

(i) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and its principal place of business in Hong Kong is 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong.
(ii) The Company’s Hong Kong share registrar and transfer office is Tricor Tengis Limited at 26th Floor of Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(iii) The company secretary of the Company is Ms. Chow So Ying Anna, who is a solicitor (as defined in the Legal Practitioners Ordinance).
(iv) The English text of this circular and the accompanying form of proxy shall prevail over the Chinese text.

– 72 –

NOTICE OF SGM

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223 )

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT a special general meeting of the shareholders of Symphony Holdings Limited (the “Company”) will be held at the Boardroom on the 10th Floor of Island Place Tower, 510 King’s Road, North Point, Hong Kong on Tuesday, 28 May 2013 at 10:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following, which will be proposed as ordinary resolution:

ORDINARY RESOLUTION

“ THAT :
(a) the conditional sale and purchase agreement dated 27th March 2013 entered into between Power Plus Limited, an indirect wholly-owned subsidiary of the Company (“Power Plus”), and Canstrong International Limited (“Canstrong”), in relation to the purchase of 5 shares of US$1.00 each in the issued share capital of China Ocean Resources Limited (“China Ocean Sale Shares”), representing 50% of the existing issued share capital of China Ocean Resources Limited, and the shareholders’ loan owed by China Ocean Resources Limited to Canstrong at the closing of the acquisition under the acquisition agreement (“China Ocean Sale Loan”), a copy of which has been produced to the meeting, marked “A” and initialed by the chairman of the meeting for the purpose of identification, pursuant to which, amongst other things, Power Plus agreed to purchase and Canstrong agreed to sell the China Ocean Sale Shares and the China Ocean Sale Loan for an aggregate consideration of US$15.5 million, be and is hereby approved; and
(b) the conditional sale and purchase agreement dated 27th March 2013 entered into between Power Plus and Canstrong in relation to the disposal of 5,000 ordinary shares of US$10.00 each and 2,160 preferred shares of US$5,000 each in the issued share capital of Grand Wealth Group Limited (“Grand Wealth”), representing 50% and 18% of the ordinary and preferred shares in the issued

* For identification only

SGM-1

NOTICE OF SGM

share capital of Grand Wealth (“Grand Wealth Sale Shares”), and the shareholders’ loan owed by Grand Wealth to Power Plus at the closing of the disposal under the disposal agreement (“Grand Wealth Sale Loan”), a copy of which has been produced to the meeting, marked “B” and initialed by the chairman of the meeting for the purpose of identification, pursuant to which, amongst other things, Power Plus agreed to sell and Canstrong agreed to purchase the Grand Wealth Sale Shares and the Grand Wealth Loan for an aggregate consideration of US$15.53 million, be and is hereby approved.”

By order of the Board Chan Ting Chuen Chairman

Hong Kong, 9 May 2013

As at the date of this notice, the directors of the Company are:

Executive Directors:

Mr. Chan Ting Chuen (Chairman) Mr. Sze Sun Sun Tony (Deputy Chairman & Managing Director) Mr. Chang Tsung Yuan (Deputy Chairman) Mr. Chan Lu Min Ms. Chen Fang Mei Dr. Ho Ting Seng

Non-executive Director:

Mr. Li I Nan

Independent Non-executive Directors:

Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

SGM-2

AI assistant

Symphony Holdings Limited — Proxy Solicitation & Information Statement 2013

49779_rns_2013-05-09_3ed0e160-80d4-4adc-ac50-cd0705751ec3.pdf

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

MAJOR TRANSACTIONS IN RELATION TO (1) ACQUISITION OF 50% EQUITY INTEREST IN CHINA OCEAN RESOURCES LIMITED; AND

(2) DISPOSAL OF 18.32% EQUITY INTEREST IN GRAND WEALTH GROUP LIMITED

Financial Adviser to the Company

DEFINITION

DEFINITION

DEFINITION

DEFINITION

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

MAJOR TRANSACTIONS IN RELATION TO (1) ACQUISITION OF 50% EQUITY INTEREST IN CHINA OCEAN RESOURCES LIMITED; AND

(2) DISPOSAL OF 18.32% EQUITY INTEREST IN GRAND WEALTH GROUP LIMITED

INTRODUCTION

LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date:

Parties:

Assets to be acquired:

Consideration:

Conditions of the Acquisition:

China Ocean Closing:

Termination:

THE DISPOSAL AGREEMENT

Date:

Parties:

Assets to be disposed of:

Consideration:

Conditions of the Disposal:

Grand Wealth Closing:

Termination:

THE TRADEMARK AGREEMENT AND THE ALWAYS GAIN DISPOSAL AGREEMENT

LETTER FROM THE BOARD

INFORMATION ON CANSTRONG

INFORMATION ON CHINA OCEAN

LETTER FROM THE BOARD

INFORMATION ON GRAND WEALTH

REASONS FOR THE ACQUISITION AND THE DISPOSAL

The Acquisition

The Disposal

FINANCIAL EFFECTS OF THE ACQUISITION AND THE DISPOSAL

The Acquisition

The Disposal

LISTING RULES IMPLICATIONS

SGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS STATEMENT

Borrowings

Contingent liabilities

Disclaimer

3. WORKING CAPITAL

4. MATERIAL ADVERSE CHANGE

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

1. FINANCIAL INFORMATION ON CHINA OCEAN

A. ACCOUNTANTS’ REPORT

APPENDIX II

DIRECTORS’ RESPONSIBILITIES

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION

B. FINANCIAL INFORMATION

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

CHINA OCEAN RESOURCES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CHINA OCEAN RESOURCES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS

C. NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION AND BASIS OF PRESENTATION

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

(a) New/revised HKFRSs that have been issued but are not yet effective

3. BASIS OF PREPARATION

(a) Statement of compliance

(b) Basis of measurement and going concern assumption

(c) Functional and presentation currency

4. SIGNIFICANT ACCOUNTING POLICIES

(a) Business combination and basis of consolidation

(b) Subsidiaries

Symphony Holdings Limited Proxy Solicitation & Information Statement 2013