Zhongguo Jilong Limited - GMT Research

PROSPECTUS DATED 20 September 2004(Registered by the Monetary Authority of Singapore on 20 September 2004)

This document is important. If you are in any doubt as to the action you should take, you should consult yourstockbroker, bank manager, solicitor, accountant, or other professional adviser.

This Prospectus is issued in connection with our application to the Singapore Exchange Securities Trading Limited (the“SGX-ST”) for permission to deal in and for quotation of all the ordinary shares of $0.025 each (our “Shares”) in thecapital of Zhongguo Jilong Limited (our “Company”) already issued and the new Shares (“New Shares”) which are thesubject of the Invitation (as defined herein). Such permission will be granted when our Company has been admitted to theOfficial List of the SGX-ST. The dealing in and quotation of our Shares will be in Singapore dollars. Acceptance ofapplications will be conditional upon, inter alia, permission being granted to deal in, and for quotation of all our existingissued Shares and the New Shares. Monies paid in respect of any application accepted will, subject to applicable laws,be returned to you, without interest or any share of revenue or other benefit arising therefrom and at your own risk, if thesaid permission is not granted and you will not have any claim against us or the Manager.

The SGX-ST assumes no responsibility for the correctness of any of the statements or opinions made or reportscontained in this Prospectus. Admission to the Official List of the SGX-ST is not to be taken as an indication of the meritsof the Invitation, our Company, our subsidiaries, our Shares or the New Shares.

A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the “Authority”).The Authority assumes no responsibility for the contents of this Prospectus. Registration of the Prospectus by theAuthority does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatoryrequirements, have been complied with. The Authority has not, in any way, considered the merits of the Shares or theNew Shares, as the case may be, being offered or in respect of which an invitation is made, for investment.

No Shares shall be allotted or allocated on the basis of this Prospectus later than six months after the date of registrationof this Prospectus by the Authority.

INVESTING IN OUR SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE SECTION ENTITLED “RISKFACTORS” IN THIS PROSPECTUS.

Zhongguo Jilong Limited(Incorporated in the Republic of Singapore on 11 October 2002)

Invitation in respect of 134,700,000 New Shares of $0.025 each comprising:-

(a) 5,000,000 Offer Shares at $0.225 for each Offer Share by way of public offer; and

(b) 129,700,000 Placement Shares by way of placement, comprising:-

(i) 128,700,000 Placement Shares at $0.225 for each Placement Share; and

(ii) 1,000,000 Reserved Shares at $0.225 for each Reserved Share reserved for ourIndependent and non-Executive Directors, employees, business associates andothers who have contributed to the success of our Group,

payable in full on application.

Manager, Underwriter and Placement Agent

Applications should be received by 12.00 noon on 28 September 2004 or such other time and date as our Company may,in consultation with the Manager, decide, subject to any limitations under all applicable laws.

TABLE OF CONTENTS

CORPORATE INFORMATION............................................................................................................ 4

DEFINITIONS ...................................................................................................................................... 5

GLOSSARY OF TECHNICAL TERMS................................................................................................ 10

EXCHANGE RATES .......................................................................................................................... 11

DETAILS OF THE INVITATION

– Listing on the SGX-ST .............................................................................................................. 12

– Indicative Timetable for Listing .................................................................................................. 14

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS .................................... 16

PROSPECTUS SUMMARY

– Overview of the Group’s Activities ............................................................................................ 17

– Our Financial Performance ...................................................................................................... 18

– Our Future Plans ...................................................................................................................... 18

– Our Contact Details .................................................................................................................. 19

THE INVITATION ................................................................................................................................ 20

PLAN OF DISTRIBUTION .................................................................................................................. 22

RISK FACTORS .................................................................................................................................. 24

INVITATION STATISTICS .................................................................................................................. 32

CAPITALISATION AND INDEBTEDNESS .............................................................................................................. 34

DILUTION............................................................................................................................................ 37

GENERAL INFORMATION ON OUR GROUP

– Share Capital ............................................................................................................................ 38

– Shareholders ............................................................................................................................ 40

– Moratorium ................................................................................................................................ 41

RESTRUCTURING EXERCISE, LOAN CAPITALISATION AND BOND CONVERSION.................. 42

GROUP STRUCTURE ........................................................................................................................ 44

HISTORY AND BUSINESS

– History ...................................................................................................................................... 45

– Our Business ............................................................................................................................ 47

– Quality Assurance .................................................................................................................... 59

– Product Development ................................................................................................................ 61

– Sales and Marketing ................................................................................................................ 62

– Intellectual Property Rights ...................................................................................................... 62

– Insurance .................................................................................................................................. 64

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TABLE OF CONTENTS

– Major Suppliers ........................................................................................................................ 64

– Major Customers ...................................................................................................................... 65

– Competition .............................................................................................................................. 66

– Competitive Strengths .............................................................................................................. 68

– Properties and Fixed Assets .................................................................................................... 70

– Production Facilities and Utilisation .......................................................................................... 72

– Material Capital Expenditure and Divestment .......................................................................... 73

– Government Regulations .......................................................................................................... 73

– Licences, Permits and Approvals .............................................................................................. 74

SELECTED CONSOLIDATED FINANCIAL INFORMATION

– Proforma Operating Results of Our Group .............................................................................. 79

– Proforma Financial Position of Our Group ................................................................................ 80

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

– Overview .................................................................................................................................. 83

– Review of Operating Results .................................................................................................... 89

– Liquidity and Capital Resources................................................................................................ 92

– Credit Management .................................................................................................................. 94

– Inventory Management.............................................................................................................. 94

– Foreign Exchange Management .............................................................................................. 95

– Dividend Policy .......................................................................................................................... 96

PROSPECTS AND FUTURE PLANS

– Prospects .................................................................................................................................. 97

– Trends........................................................................................................................................ 98

– Future Plans.............................................................................................................................. 98

DIRECTORS, MANAGEMENT AND STAFF

– Management Reporting Structure ............................................................................................ 100

– Directors .................................................................................................................................... 100

– Management ............................................................................................................................ 104

– Staff .......................................................................................................................................... 105

– Staff Training.............................................................................................................................. 106

– Directors’ and Executive Officers’ Remuneration ...................................................................... 106

– Corporate Governance.............................................................................................................. 107

– Service Agreements.................................................................................................................. 109

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TABLE OF CONTENTS

INTERESTED PERSON TRANSACTIONS

– Past Interested Person Transactions ........................................................................................ 111

– Present and On-Going Transactions ........................................................................................ 116

– Review Procedures for Future Interested Person Transactions ................................................ 118

– Potential Conflicts of Interests .................................................................................................. 120

CLEARANCE AND SETTLEMENT .................................................................................................... 121

INDEPENDENT AUDITORS’ REPORT ON THE UNAUDITED PROFORMA FINANCIAL INFORMATION OF ZHONGGUO JILONG LIMITED ........................................................................ 122

GENERAL AND STATUTORY INFORMATION .................................................................................. 151

APPENDIX 1 : TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE ................................................................................................ 175

APPENDIX 2 : DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES .................................................................................................................. 190

APPENDIX 3 : SINGAPORE TAXATION .......................................................................................... 194

APPENDIX 4 : SUMMARY OF RELEVANT PRC LAWS AND REGULATIONS ............................ 197

APPENDIX 5 : REPORT OF THE AUDITORS AND AUDITED FINANCIAL STATEMENTS OF ZHONGGUO JILONG PTE. LTD. AND SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2003 .............................................................................................. 204

APPENDIX 6 : REPORT OF THE AUDITORS AND THE FINANCIAL STATEMENTS RE-STATED IN ACCORDANCE WITH THE SINGAPORE FINANCIAL REPORTING STANDARDS ON LAIYANG HONGSHUN FOODSTUFFS CO., LTD FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002 .................................................. 227

APPENDIX 7 : REPORT OF THE AUDITORS AND THE FINANCIAL STATEMENTS RE-STATED IN ACCORDANCE WITH THE SINGAPORE FINANCIAL REPORTING STANDARDS ON LAIYANG XINGHUA FOODSTUFFS CO., LTD FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002 .................................................. 248

APPENDIX 8 : REPORT OF THE AUDITORS AND THE FINANCIAL STATEMENTS RE-STATED IN ACCORDANCE WITH THE SINGAPORE FINANCIAL REPORTING STANDARDS ON LAIYANG JILONG EDIBLE OIL CO., LTD FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002................................................................ 270

APPENDIX 9 : REPORT OF THE AUDITORS AND THE FINANCIAL STATEMENTS RE-STATED IN ACCORDANCE WITH THE SINGAPORE FINANCIAL REPORTING STANDARDS ON LAIYANG JILONG HEALTH DRINKS CO., LTD FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002 .................................................. 288

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CORPORATE INFORMATION

BOARD OF DIRECTORS : Dr Lim Seck Yeow Non-executive ChairmanSong Zhixing Managing DirectorTang Xiaoyan Executive Director

(Administration)Damien Seah Yang Hwee Non-Executive DirectorFang Swee Peng Independent DirectorChua Beng Huat Independent DirectorDr Chow Yuen Ho Independent Director

JOINT COMPANY SECRETARIES : Tan Min-Li, LLB (Hons), LLMKoh Chee Wei, CPA

REGISTERED OFFICE : No. 19 Fishery Port RoadSingapore 619736

COMPANY REGISTRATION : 200208872DNUMBER

REGISTRAR AND SHARE : Lim Associates (Pte) LtdTRANSFER OFFICE 10 Collyer Quay #19-08

Ocean BuildingSingapore 049315

MANAGER, UNDERWRITER, : HL BankPLACEMENT AGENT AND 20 Collyer Quay #01-02RECEIVING BANK Tung Centre

Singapore 049319

INDEPENDENT AUDITORS : Chio Lim & AssociatesCertified Public Accountants, Singapore(Member of Horwath International)18 Cross Street #08-01Marsh & McLennan CentreSingapore 048423

Partner-in-charge: Ng Thiam Soon, CPA

SOLICITORS TO THE INVITATION : Colin Ng & Partners50 Raffles Place #29-00Singapore Land TowerSingapore 048623

LEGAL ADVISORS TO THE : Jingtian & GongchengCOMPANY ON PRC LAWS 15 Floor, The Union Plaza

20 Chaoyangmenwai DajieBeijing 100020, PRC

PRINCIPAL BANKERS : Bank of China (Laiyang City branch)No. 189 North Wu Long RoadLaiyang CityShandong ProvincePRC

Agricultural Bank of China (Laiyang City branch)No. 90 South Wu Long RoadLaiyang CityShandong ProvincePRC

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DEFINITIONS

For the purpose of this Prospectus, the accompanying Application Forms and, in relation to theElectronic Applications, the instructions appearing on the screens of the ATMs or the Internet Bankingwebsites of the relevant Participating Banks, unless the context otherwise requires, the followingdefinitions apply where the context so admits:-

Companies

“Company” or “Zhongguo Jilong” : Zhongguo Jilong Limited

“Edible Oil” : (Laiyang Jilong Edible Oil Co.,Ltd)

“Green Food” : (Laiyang Green Food Co., Ltd)

“Group” or “Proforma Group” : Our Company and its subsidiaries, following the completionof the Restructuring Exercise, treated for the purposes ofthis Prospectus as if it had been in place since 1 January2001

“Health Drinks” : (Laiyang Jilong Health DrinksCo., Ltd)

“Hong Shun” : (Laiyang Hongshun Foodstuffs Co.,Ltd)

“Xing Hua” : (Laiyang Xinghua Foodstuffs Co., Ltd)

Other companies

“Innovative Foods” : Innovative Foods, Inc., an American company that isengaged in the business of production and trading of freeze-dried products

“Shandong Jilong” : Shandong Jilong Group Co., Ltd

“Shi Ye” : Shandong Jilong Shiye Co., Ltd

General

“Act” : The Companies Act (Chapter 50) of Singapore

“Application Forms” : The official printed application forms to be used for thepurpose of the Invitation and which form part of thisProspectus

“Application List” : The list of applications for subscription for the New Shares

“Associates” : (a) in relation to any director, chief executive officer,substantial shareholder or controlling shareholder(being an individual) means:-

(i) his immediate family;

(ii) the trustees of any trust of which he or hisimmediate family is a beneficiary or, in the caseof a discretionary trust, is a discretionaryobject; and

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DEFINITIONS

(iii) any company in which he and his immediatefamily together (directly or indirectly) have aninterest of 30% or more.

(b) in relation to a substantial shareholder or a controllingshareholder (being a company) means any othercompany which is its subsidiary or holding companyor is a subsidiary of any such holding company or onein the equity of which it and/or such other company orcompanies taken together (directly or indirectly) havean interest of 30% or more

“ATM” : Automated teller machine of a Participating Bank

“ATM Application” : An application for Offer Shares made through an ATM inaccordance with the terms and conditions of this Prospectus

“Audit Committee” : The audit committee of our Company

“Authority” : The Monetary Authority of Singapore

“Board” : The board of Directors of our Company

“Bond Conversion” : The conversion of the Convertible Bonds into Shares of ourCompany as described in the section entitled “RestructuringExercise, Loan Capitalisation and Bond Conversion” in thisProspectus

“CDP” : The Central Depository (Pte) Limited

“CPF” : The Central Provident Fund

“Controlling Shareholder” : A person who:-

(a) holds directly or indirectly 15% or more of the nominalamount of all voting shares in a company. The SGX-ST may determine that a person who satisfies thisdefinition is not a controlling shareholder; or

(b) in fact exercises control over a company

“Conversion Amount” : The actual aggregate value of shares paid by the Investorspursuant to an investment agreement dated 10 May 2004,determined as follows:-

Conversion Amount = 90% of Issue Price x 12,500,000

“Convertible Bonds” : Convertible bonds with a principal value of $2.5 millionwhich our Company issued to the Investors pursuant to aninvestment agreement dated 10 May 2004

“Difference” : The difference between the Conversion Amount and theprincipal value of $2.5 million of the Convertible Bondsissued by our Company to the Investors. Please refer to thesection entitled “Restructuring Exercise, Loan Capitalisationand Bond Conversion” in this Prospectus for further details

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DEFINITIONS

“Directors” : The directors of our Company as at the date of thisProspectus, unless otherwise stated

“Electronic Applications” : Applications for the Offer Shares made through an ATM orthe Internet Banking web-sites of the relevant ParticipatingBanks in accordance with the terms and conditions of thisProspectus

“EPS” : Earnings per Share

“Executive Directors” : The executive Directors of our Group as at the date of thisProspectus

“Executive Officers” : The executive officers of our Group as at the date of thisProspectus

“FY” : Financial year ended or, as the case may be, ending 31December

“HL Bank”, “Manager”, “Placement : HL Bank (a limited liability company incorporated in Agent”, “Receiving Bank” and Malaysia)“Underwriter”

“Independent Directors” : The independent Directors of our Company as at the date ofthis Prospectus

“Investors” : Investors who have subscribed for the Convertible Bonds,namely Quantum Asset Management Private Limited,Maxcellon Capital Assets Ltd and individual investors,namely Chang Yeh Hong, Christina Khoo Saw Yong, GanKong Hiok, Leong Wye Keong, Poh Po Lian and Wong ChewMing

“Invitation” : The invitation by our Company to the public to subscribe forthe New Shares at the Issue Price, in accordance with theterms and conditions of this Prospectus

“ISO” : International Organisation for Standardisation, a world-widefederation of national standards bodies

“Issue Price” : $0.225 for each New Share

“Latest Practicable Date” : 30 June 2004, being the latest practicable date prior to thelodgment of this Prospectus

“Listing Manual” : Listing Manual of the SGX-ST

“Loan Capitalisation” : Capitalisation of loans from our non-executive Chairman, DrLim Seck Yeow, and our Controlling Shareholder, Tan GeokBee, as disclosed in the section entitled “RestructuringExercise, Loan Capitalisation and Bond Conversion” in thisProspectus

“Market Day” : A day on which the SGX-ST is open for trading in securities

“MOFTEC” : Ministry of Foreign Trade and Economic Cooperation of thePRC (now known as Ministry of Commerce)

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DEFINITIONS

“New Shares” : The 134,700,000 new ordinary Shares for which we inviteapplicants to subscribe for pursuant to the Invitation, subjectto and on the terms and conditions of this Prospectus

“Nominating Committee” : The nominating committee of our Company

“NTA” : Net tangible assets

“Offer” : The invitation by our Company to the public for subscriptionof the Offer Shares at the Issue Price, subject to and on theterms and conditions of this Prospectus

“Offer Shares” : The 5,000,000 New Shares which are the subject of theOffer

“Participating Banks” : DBS Bank Ltd (including POSB) (“DBS Bank”), Oversea-Chinese Banking Corporation Limited (“OCBC”) and UnitedOverseas Bank Limited (including its subsidiary, Far EasternBank Limited) (the “UOB Group”)

“PER” : Price earnings ratio

“Placement” : The placement of the Placement Shares by the PlacementAgent on behalf of our Company at the Issue Price, subjectto and on the terms and conditions of this Prospectus

“Placement Shares” : The 129,700,000 New Shares which are the subject of thePlacement

“PRC” : The People’s Republic of China

“Prospectus” : This Prospectus dated 20 September 2004 issued by ourCompany in respect of the Invitation

“Remuneration Committee” : The remuneration committee of our Company

“Reserved Shares” : The 1,000,000 Placement Shares reserved for ourIndependent and non-Executive Directors, employees,business associates and others who have contributed to thesuccess of our Group

“Restructuring Exercise” : The restructuring exercise undertaken by our Group asdescribed in the section entitled “Restructuring Exercise,Loan Capitalisation and Bond Conversion” in this Prospectus

“SCCS” : Securities Clearing & Computer Services (Pte) Ltd

“Securities Account” : Securities account maintained by a depositor with CDP

“Securities and Futures Act” : Securities and Futures Act (Chapter 289) of Singapore

“SGX-SESDAQ” : SGX-ST Dealing and Automated Quotation System

“SGX-ST” : Singapore Exchange Securities Trading Limited

“Share(s)” : Ordinary share(s) of $0.025 each in the capital of ourCompany

“Shareholder(s)” : Registered holder(s) of our Shares, except where theregistered holder is CDP, the term ”Shareholders” shall, inrelation to such shares mean the Depositors whoseSecurities Accounts are credited with Shares

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DEFINITIONS

“Substantial Shareholder” : A person who directly or indirectly owns 5% or more of theissued share capital of our Company

“Subsidiaries” : Collectively refers to Edible Oil, Green Food, Health Drinks,Hong Shun and Xing Hua

“United States” or “US” : The United States of America

“WOFE” : Wholly owned foreign enterprise

Currencies, Units and Others

“$” or “SGD” or “S$” and “cents” : Singapore dollars and cents, respectively

“RMB” and “RMB cents” : PRC Renminbi dollars and cents, respectively

“USD” or “US$” : United States dollar

“sq ft” : Square feet

“sq m” : Square metres

“%” or “per cent.” : Per centum or percentage

“oc” : Degree celsius

The terms “Depositor”, “Depository Agent” and “Depository Register” shall have the same meaningsascribed to them, respectively, in Section 130A of the Act.

References in this Prospectus to the “Group”, “we”, “our” and “us” refer to our Company, our Group or anymember of our Group as the context requires.

Any discrepancies in the tables included herein between the listed amounts and the totals thereof aredue to rounding; accordingly, figures shown as totals in certain tables may not be an arithmeticaggregation of the figures that precede them.

Words importing the singular shall, where applicable, include the plural and vice versa. Words importingthe masculine gender shall, where applicable, include the feminine and neuter genders and vice versa.References to persons shall, where applicable, include corporations.

Names with Chinese characters have been translated into English. Such translations are provided solelyfor convenience of Singapore-based investors and should not be construed as representations that theEnglish names actually represent the Chinese characters.

Any reference in this Prospectus and the Application Forms to any statute or enactment is a reference tothat statute or enactment as for the time being amended or re-enacted. Any word defined under theSecurities and Futures Act, the Act or the Listing Manual or any statutory modification thereof and usedin this Prospectus and the Application Forms shall, where applicable, have the meaning assigned to itunder the Securities and Futures Act, the Act or the Listing Manual or any modification thereof, as thecase may be, unless otherwise provided.

Any reference in this Prospectus and the Application Forms to Shares being allotted to an applicantincludes allotment to CDP for the account of that applicant.

A reference to a time of day in this Prospectus, the Application Forms and the Electronic Applicationsshall be a reference to Singapore time, unless otherwise stated.

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GLOSSARY OF TECHNICAL TERMS

The glossary contains explanation of certain terms used in this Prospectus in connection with our Groupand our business. The terms and their assigned meanings may not correspond to industry standard orcommon meanings, as the case may be, or usage of these terms.

Active Carbon : This refers to powdered or granular carbon that is used to removeoffensive tastes and odour, colour, chlorine and soluble organicchemicals from solutions

Deionization : This refers to the process of removing ions from a solution

Expeller : In the context of this Prospectus, it refers to a machine used to extract oilfrom peanuts

HACCP : Hazard Analysis Critical Control Point, a management system in whichfood safety is addressed through the analysis and control of biological,chemical and physical hazards from raw materials production,procurement and handling, to manufacturing, distribution andconsumption of the finished product

Pasteurised : When a beverage or other food products is pasteurized, it is subject tothe act or process of heating to a specific temperature for a specificperiod of time in order to kill microorganisms that could cause disease,spoilage, or undesired fermentation

Purified water : Our beverage product that is produced by the process of deionizationand reverse osmosis

Quick Freeze : In the context of this Prospectus, this refers to the process of loweringthe temperature of food products and beverages sharply and quickly toreach the stage of freezing in order to retain their original flavour andnutrients

Refrigerant : A substance used to provide cooling

Reverse Osmosis : This refers to the process to remove dissolved substances in liquid(including ions) by applying external pressure to force water to flow froma more concentrated solution through a semipermeable membrane to aless concentrated solution. The dissolved substances will be retained bythe semipermeable membrane in the process

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EXCHANGE RATES

The table below sets forth the high and low exchange rates between RMB and SGD for each month forthe past six months prior to the Latest Practicable Date. The table indicates how many SGD it would taketo buy one RMB.

S$/RMBHigh Low

January 2004 0.2083 0.2041February 2004 0.2059 0.2015March 2004 0.2077 0.2022April 2004 0.2066 0.2007May 2004 0.2090 0.2036June 2004 0.2083 0.2050

The following table sets forth, for the financial periods indicated, the average and closing exchange ratesbetween RMB and SGD. The average exchange rates are calculated using the average of the closingexchange rates on the last day of each month during each financial period.

S$/RMBAverage Closing

FY2001 0.2153 0.2250FY2002 0.2172 0.2115FY2003 0.2101 0.2050

The monthly and yearly exchange rates have been calculated with reference to exchange rates quotedfrom Bloomberg L.P. and The Business Times respectively and should not be construed asrepresentations that RMB amounts actually represent such SGD amounts or could have been or couldbe converted into Singapore dollar at the rate indicated or at any other rate or at all.

Where applicable, the exchange rates in these tables are used for our Company’s financial accountsdisclosed elsewhere in this Prospectus. In certain parts of this Prospectus, we have converted RMBamounts into SGD amounts for the convenience of the potential investors of our Company, asappropriate.

As at the Latest Practicable Date, the exchange rate between SGD and RMB is S$0.2076 to RMB1.

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LISTING ON THE SGX-ST

We have applied to the SGX-ST for permission to deal in, and for quotation of, all our Shares alreadyissued and the New Shares on the SGX-ST. Such permission will be granted when our Company hasbeen admitted to the Official List of the SGX-ST. Our acceptance of your applications for our Shares willbe conditional upon permission being granted to deal in, and for quotation of, all our existing issuedShares and the New Shares on the SGX-ST. Monies paid in respect of any application accepted will,subject to applicable laws, be returned to you at your own risk, without interest or any share of revenueor other benefit arising therefrom, if the said permission is not granted and you will not have any claimagainst us or the Manager.

The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinionsexpressed or reports contained in this Prospectus. Admission to the Official List of the SGX-ST is not tobe taken as an indication of the merits of the Invitation, our Company, our subsidiaries, our Shares or theNew Shares.

A copy of this Prospectus has been lodged with and registered by the Authority. The Authority assumesno responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authoritydoes not imply that the Securities and Futures Act, or any other legal or regulatory requirements, havebeen complied with. The Authority has not, in any way, considered the merits of our Shares or the NewShares, as the case may be, being offered or in respect of which an invitation is made, for investment.

No Shares shall be allocated or allotted on the basis of this Prospectus later than six months after thedate of registration of this Prospectus.

Where prior to the lodgment of the supplementary or replacement prospectus, applications have beenmade under this Prospectus to subscribe for the New Shares and:-

(a) where the New Shares have not been issued to the applicants, our Company shall either:-

(i) within seven days from the date of lodgment of the supplementary or replacementprospectus, give the applicants the supplementary or replacement prospectus, as the casemay be, and provide the applicants with an option to withdraw their applications; or

(ii) treat the applications as withdrawn and cancelled, in which case the applications shall bedeemed to have been withdrawn and cancelled, and our Company shall, within seven daysfrom the date of lodgment of the supplementary or replacement prospectus, pay to theapplicants all monies the applicants have paid on account of their applications for ourShares, without interest or any share of revenue or other benefit arising therefrom; or

(b) where the New Shares have been issued to the applicants, our Company shall either:-

(i) within seven days from the date of lodgment of the supplementary or replacementprospectus, give the applicants the supplementary or replacement prospectus, as the casemay be, and provide the applicants with an option to return to our Company the NewShares, which they do not wish to retain title in; or

(ii) treat the issue of our Shares as void, in which case the issue shall be deemed void and ourCompany shall, within seven days from the date of lodgment of the supplementary orreplacement prospectus, pay to the applicants all monies paid by them for our Shares,without interest or any share of revenue or other benefit arising therefrom.

An applicant who wishes to exercise his option under paragraph (a)(i) to withdraw his application shall,within 14 days from the date of lodgment of the supplementary or replacement prospectus, notify ourCompany of this, whereupon our Company shall, within seven days from the receipt of such notification,pay to him all monies paid by him on account of his application for those Shares, without interest or anyshare of revenue or other benefit arising therefrom.

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An applicant who wishes to exercise his option under paragraph (b)(i) to return our Shares issued to himshall, within 14 days from the date of lodgment of the supplementary or replacement prospectus, notifyour Company of this and return all documents, if any, purporting to be evidence of title to those Shares,to our Company, whereupon our Company shall, within seven days from the receipt of such notificationand documents, if any, pay to him all monies paid by him for those Shares and the issue of those Sharesshall be deemed to be void without interest, any share of revenue or other benefit arising therefrom.

Under the Securities and Futures Act, the Authority may, in certain circumstances issue a stop orderpursuant to Section 242 of the Securities and Futures Act (“Stop Order”) to our Company, directing thatno or no further Shares to which this Prospectus relates, be allotted, issued or sold. Such circumstanceswill include a situation where this Prospectus (i) contains a statement or matter, which in the opinion ofthe Authority is false or misleading, (ii) omits any information that should be included in accordance withthe Securities and Futures Act or (iii) does not, in the opinion of the Authority, comply with therequirement of the Securities and Futures Act.

In the event that the Authority issues a Stop Order and applications to subscribe for the New Shareshave been made prior to the Stop Order, then:-

(a) in the case where the New Shares have not been issued to the applicants, the applications of theNew Shares pursuant to the Invitation shall be deemed to have been withdrawn and cancelled andour Company shall, within 14 days from the date of the Stop Order, pay to the applicants allmonies the applicants have paid on account of their applications for the New Shares withoutinterest or any share of revenue or other benefits arising therefrom and at the applicants’ risk; or

(b) in the case where the New Shares have been issued to the applicants, the issue of the NewShares pursuant to the Invitation shall be deemed void and our Company shall, within 14 daysfrom the date of the Stop Order, pay to the applicants all monies the applicants have paid for theNew Shares, without interest or any share of revenue or other benefits arising therefrom and at theapplicants’ risk.

This Prospectus has been seen and approved by our Directors and they individually and collectivelyaccept full responsibility for the accuracy of the information given in this Prospectus and confirm, havingmade all reasonable enquiries that to the best of their knowledge and belief, the facts stated andopinions expressed in this Prospectus are fair and accurate in all material respects as at the date of thisProspectus and there are no other material facts the omission of which would make any statement in thisProspectus misleading and that this Prospectus constitutes full and true disclosure of all material factsabout the Invitation, our Company, our subsidiaries, our Shares or the New Shares.

Neither our Company, the Manager, Underwriter, the Placement Agent nor any other parties involved inthe Invitation is making any representation to any person regarding the legality of an investment in ourShares by such person under any investment or other laws or regulations. No information in thisProspectus should be considered as being business, legal or tax advice. Each prospective investorshould consult his own professional or other advisers for business, legal or tax advice regarding aninvestment in our Shares.

No person is authorised to give any information or to make any representation not contained in thisProspectus in connection with the Invitation and, if given or made, such information or representationmust not be relied upon as having been authorised by our Company or the Manager. Neither thedelivery of this Prospectus and the Application Forms nor the Invitation shall, under any circumstances,constitute a continuing representation or create any suggestion or implication that there has been nochange in the affairs of our Company or our Group or in any statements of fact or information containedin this Prospectus since the date of this Prospectus.

Where such changes occur, our Company may make an announcement of the same to the SGX-ST and,if required under the Securities and Futures Act, a supplementary document or replacement documentwill be issued and made available to the public after a copy thereof has been lodged with the MonetaryAuthority of Singapore. All applicants should take note of any such announcement and, upon release of

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such an announcement, shall be deemed to have notice of such changes. Save as expressly stated inthis Prospectus, nothing herein is, or may be relied upon as, a promise or representation as to the futureperformance or policies of our Company or our Subsidiaries.

This Prospectus has been prepared solely for the purpose of the Invitation and may not be relied uponby any persons other than the applicants in connection with their application for the New Shares or forany other purpose. This Prospectus does not constitute an offer, solicitation or invitation to subscribe forour Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorisedand/or does it constitute an offer, solicitation or invitation to any person to whom it is unlawful to makesuch offer, solicitation or invitation.

Copies of this Prospectus and the Application Forms may be obtained on request, subject to availability,during office hours from:-

HL Bank20 Collyer Quay #01-02

Tung CentreSingapore 049319

and from members of the Association of Banks in Singapore, members of the SGX-ST and merchantbanks in Singapore. A copy of this Prospectus is also available on the SGX-ST websitehttp://www.sgx.com.

The Application List will open at 10 a.m. on 28 September 2004 and will remain open until 12noon on the same day or for such further period or periods as our Directors may, in consultationwith the Manager, decide, subject to any limitation under all applicable laws. Where asupplementary document or replacement document has been lodged with the Authority, theApplication List shall be kept open for at least 14 days after the lodgment of the supplementarydocument or replacement document. Where an applicant has notified our Company within 14days from the date of lodgment of the supplementary document or replacement document of hiswish to exercise his option under the Securities and Futures Act to withdraw his application, ourCompany shall pay to him all monies paid by him on account of his application for the NewShares without interest or any share of revenue or other benefit arising therefrom and at theapplicant’s risk within 7 days from the receipt of such notification.

Details for the procedure for application for the New Shares are set out in Appendix 1 in thisProspectus.

INDICATIVE TIMETABLE FOR LISTING

In accordance with the SGX-ST’s News Release of 28 May 1993 on the trading of initial public offeringshares on a “when issued” basis, an indicative timetable is set out below for the reference of applicants:-

Indicative Time and Date Event

28 September 2004, 12.00 noon Close of Application List

29 September 2004 Balloting of applications, if necessary (in the event of over-subscription for the Offer Shares)

30 September 2004, 9.00 a.m. Commence trading on a “when issued” basis

7 October 2004 Last day of trading on a “when issued” basis

8 October 2004, 9.00 a.m. Commence trading on a “ready” basis

13 October 2004 Settlement date for all trades done on a “when issued” basisand for all trades done on a “ready” basis on 8 October 2004

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The above timetable is only indicative as it assumes that the closing of the Application List takes placeon 28 September 2004, the date of admission of the Company to the Official List of SGX-ST will be 30September 2004, the SGX-ST’s shareholding spread requirement will be complied with and the NewShares will be issued and fully paid prior to 30 September 2004. The actual date on which the Shareswill commence trading on a “when issued” basis will be announced when it is confirmed by the SGX-ST.

The above timetable and procedure may be subject to such modifications as the SGX-ST may inits discretion decide, including the decision to permit trading on a “when issued” basis and thecommencement date of such trading. All persons trading in the Shares on a “when issued” basis,do so at their own risk. In particular, persons trading in the Shares before their SecuritiesAccounts with CDP are credited with the relevant number of Shares do so at the risk of sellingShares which neither they nor their nominees, if applicable, have been allotted or are otherwisebeneficially entitled to. Such persons are exposed to the risk of having to cover their net sellpositions earlier if “when issued” trading ends sooner than the indicative date mentioned above.Persons who have net sell positions traded on a “when issued” basis should close their positionson or before the first day of “ready” basis trading.

In the event of any changes in the closure of the Application List or the time period during which theInvitation is open, we will publicly announce the same:-

(i) through a MASNET announcement to be posted on the Internet at the SGX-ST websitehttp://www.sgx.com; and

(ii) in a major Singapore English newspaper such as The Straits Times or The Business Times.

We will provide details of the results of the Invitation through the channels described in (i) and (ii) above.

Investors should consult the SGX-ST announcement on the “ready” trading date on the Internet (at SGX-ST website http://www.sgx.com), INTV or newspapers or check with their brokers on the date on whichtrading on a “ready” basis will commence.

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

All statements contained in this Prospectus, statements made in the press releases and oral statementsthat may be made by our Company or our officers, Directors or employees acting on our behalf, that arenot statements of historical fact, constitute “forward-looking statements”. Some of these statements canbe identified by words that have a bias towards, or are, forward-looking such as “anticipate”, “believe”,“could”, “estimate”, “expect”, “forecast”, “if”, “intend”, “may”, “plan”, “possible”, “probable”, “project”,“should”, “will” and “would” or similar words. However, these words are not the exclusive means ofidentifying forward looking statements. All statements regarding our Group’s expected financial position,business strategy, plans and prospects and future prospects of our Group’s industry are forward-lookingstatements. These forward-looking statements, including statements as to our Group’s revenue andprofitability, prospects, future plans and other matters discussed in this Prospectus regarding matters thatare not historical fact, are only predictions. These forward-looking statements involve known andunknown risks, uncertainties and other factors that may cause our Group’s actual future results,performance or achievements to be materially different from any future results, performance orachievements expected, expressed or implied by such forward-looking statements. These risk factorsand uncertainties are discussed in more detail in this Prospectus, in particular, but not limited to,discussions under the section entitled “Risk Factors”.

Given the risks and uncertainties that may cause our Group’s future results, performance orachievements to be materially different from that expected, expressed or implied by the forward-lookingstatements in this Prospectus, undue reliance must not be placed on these statements. Neither ourCompany, the Manager, the Placement Agent, the Underwriter nor any other person represents orwarrants that our Group’s actual future results, performance or achievements will be as discussed inthose statements.

Our actual future results may differ materially from those anticipated in these forward-looking statementsas a result of the risks faced by us. We and the Manager disclaim any responsibility to update any ofthose forward-looking statements or publicly announce any revisions to those forward-looking statementsto reflect future developments, events or circumstances. We are subject to the provisions of theSecurities and Futures Act and the Listing Manual of the SGX-ST regarding corporate disclosure. Inparticular, pursuant to Section 241 of the Securities and Futures Act, if after the Prospectus is registeredbut before the close of the Offer, the Company becomes aware of: (a) a false or misleading statement ormatter in the Prospectus; (b) an omission from the Prospectus of any information that should have beenincluded in it under Section 243 of the Securities and Futures Act; or (c) a new circumstance that hasarisen since the Prospectus was lodged with the Authority and would have been required by Section 243of the Securities and Futures Act to be included in the Prospectus, if it has arisen before the Prospectuswas lodged and that is materially adverse from the point of view of an investor, the Company may lodgea supplementary or replacement prospectus with the Authority.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this Prospectus. Since thissummary does not contain all the information that you should consider before investing in our Shares, weurge you to read the entire Prospectus carefully before making an investment decision. This Prospectuscontains forward-looking statements, which involve risks and uncertainties. Our results could differmaterially from those anticipated in these forward-looking statements as a result of various factors,including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Prospectus.

OVERVIEW OF THE GROUP’S ACTIVITIES

Our Group is principally engaged in the following business activities:-

(a) production of preserved and processed food products;(b) production of peanut oil;(c) production of beverages; and(d) production of freeze-dried food products

(a) Production of preserved and processed food products

One of our Group’s principal business is the production of preserved and processed food productswhich is undertaken by our subsidiaries, Hong Shun and Xing Hua. We process and preservemainly vegetables and fruits which we procure from our contract farms or leased farms. Thepreserved and processed food products are then sold and distributed to our customers in the PRCand in Japan.

(b) Production of peanut oil

We produce and distribute peanut oil which is used in various ways such as cooking and foodprocessing. We are also engaged in the sale of the residue from our peanut oil production. Theproduction of peanut oil is undertaken by our subsidiary, Edible Oil.

Our peanut oil products are sold in different packaging and sizes and are supplied to customers,who are mainly distributors and retailers, in more than 20 provinces in the PRC.

(c) Production of beverages

We produce and supply beverages such as juice concentrate, fruit juices and purified water. Ourbeverage production activities are undertaken by our subsidiary, Health Drinks and our beveragesare produced under our own brand name . We supply our beverages to customerslocated in the PRC who are mainly distributors, wholesalers and retailers. We also supply pureconcentrated pear and apple juices to local beverage factories for their further processing.

(d) Production of freeze-dried food products

We commenced the commercial production of freeze-dried food products in May 2004.

We produce many types of freeze-dried food products such as freeze-dried vegetables, freeze-dried fruits and freeze-dried meat. We obtain our supply of raw materials for our freeze-dried foodproducts from our leased farms, contract farms and through open market purchases. Our freeze-drying activities are undertaken by our subsidiary, Green Food.

“ ”

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PROSPECTUS SUMMARY

OUR FINANCIAL PERFORMANCE

Our revenue has grown at a compounded annual growth rate of 40.7% from RMB182.3 million in FY2001to RMB361.2 million in FY2003. Our net profit attributable to shareholders has increased at acompounded annual growth rate of 70.7% from RMB19.9 million in FY2001 to RMB58.0 million inFY2003.

The following tables present a summary of the proforma consolidated financial information of our Groupand should be read in conjunction with the sections entitled “Management’s Discussion and Analysis ofResults of Operations” and the “Independent Auditors’ Report on the Unaudited Proforma FinancialInformation of Zhongguo Jilong Limited” in this Prospectus.

Selected items from the Proforma Operating Results of our Group

Proforma(RMB’000) FY2001 FY2002 FY2003

Revenue 182,304 248,270 361,154

Gross profit 36,961 50,134 79,162

Profit before income tax 23,221 29,068 62,772

Net profit attributable to shareholders 19,889 23,691 57,991

EPS (RMB cents) (1) 4.96 5.90 14.45

Note:-

(1) For comparative purposes, EPS for the period under review have been computed based on the net profit attributable toShareholders of the Company and the pre-Invitation share capital of 401,300,000 Shares.

Selected items from the Proforma Financial Position of our Group

(RMB’000) FY2003

Plant and equipment 48,338

Other long term assets –

Net current assets 45,120

Non-current liabilities –

Shareholders’ equity 93,458

OUR FUTURE PLANS

Our future plans are summarised as follows:-

(i) We intend to increase our peanut oil production capacity

We plan to increase our peanut oil production capacity by setting up a new production facility andacquiring machinery within the next two years. The estimated expenses for the setting up of theproduction facility and the acquisition of machinery is RMB20 million and RMB40 millionrespectively, which will be funded from the proceeds of the Invitation. The abovementioned planwill commence by the end of FY2004 and is expected to be completed by the end of FY2005.With the completion of the production facility, our annual peanut oil production capacity willincrease from the current 13,000 tonnes to 100,000 tonnes which our Directors believe will makeus one of the largest peanut oil producing enterprises in the PRC.

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PROSPECTUS SUMMARY

(ii) We intend to focus on freeze-dried food products

We intend to focus on the production of freeze-dried food products as they yield high margins. Inthis respect, we intend to focus on supplying freeze-dried food products to markets in PRC andoutside PRC, such as the Middle East, the US, Japan, France and Denmark. We have enteredinto a service and market development agreement with Young Regent Inc. (“Young Regent”) tosupply Young Regent with our freeze-dried products for distribution in the United States. We intendto leverage on Young Regent’s extensive knowledge of the freeze-dry food industry in the UnitedStates and its sales network, to develop our client base in the United States. In addition, we haveentered into an agreement with Innovative Foods, whereby Innovative Foods will provide oursubsidiary, Green Food, with technical and business advisory assistance. Through InnovativeFoods, we are currently working with a few distributors in the United States to develop newproducts for the American market.

In addition, we intend to expand our freeze-dry production capacity, increase our sales andmarketing activities and increase staff for our freeze-dry food production business in the future.We also intend to participate in international food fairs to secure new overseas customers.

(iii) We intend to strengthen our sales and marketing capabilities and increase our productdevelopment activities to improve our operations

We intend to increase our sales to customers located in Japan and the United States. In thisrespect, we intend to increase our sales and marketing activities in these countries by entering intocollaboration arrangements with Japanese and American companies to appoint more wholesalersin these countries. For the PRC market, we intend to hire more sales representatives to marketour products to more cities in the PRC. In addition, we intend to participate in international foodfairs for opportunities to enter into other international markets.

In order to strengthen our position in the food and beverages products industry, we plan toincrease our product development activities. In this aspect, we intend to obtain greater involvementfrom our Japanese and US customers in developing new products that meet the tastes andpreferences of the end-consumers in their markets.

(iv) We intend to expand our business through acquisitions, joint ventures or strategic alliances

We plan to expand our business through acquisitions, joint ventures or strategic alliances withparties who can strengthen our market position, add value to our existing business, as well asenable us to expand into new businesses which are food related. To date, we have not identifiedany potential party to acquire its business or to form joint ventures or strategic alliances with.Should the opportunity arise, we will seek approval, where necessary, from our Shareholders andthe relevant authorities as required by the relevant laws and regulations.

OUR CONTACT DETAILS

Our principal place of business is located at No. 26 Heshan Road, Laiyang, Shandong Province, PRC.Our telephone and fascimile numbers are (65)6266 3501 and (65)6268 2447 respectively.

Our website is www.zhongguojilong.com. Information contained on our website does not constitutepart of this Prospectus.

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THE INVITATION

Issue Size : 134,700,000 New Shares. The New Shares will, upon allotmentand issue, rank pari passu in all respects with the existing issuedShares.

Issue Price : $0.225 for each New Share.

The Offer : The Offer comprises an invitation by our Company to the public inSingapore to subscribe for 5,000,000 Offer Shares at the IssuePrice, subject to and on the terms and conditions of thisProspectus.

The Placement : The Placement comprises 129,700,000 Placement Shares by wayof placement comprising:-

(i) 128,700,000 Placement Shares at Issue Price forapplications by way of Application Forms; and

(ii) 1,000,000 Reserved Shares at Issue Price reserved for ourIndependent and non-Executive Directors, employees,business associates and others who have contributed to thesuccess of our Group.

Reserved Shares : Of the Placement Shares, 1,000,000 Reserved Shares will bereserved for our Independent and non-Executive Directors,employees, business associates and others who have contributedto the success of our Group. In the event that any of the ReservedShares are not taken up, they will be made available to satisfyapplications made for the Placement Shares at the Issue Price or,in the event of an under-subscription for the Placement Shares, tosatisfy applications made by members of the public for the OfferShares at the Issue Price.

Purpose of our Invitation : We consider that the listing and quotation of our Shares on theOfficial List of the SGX-ST will enhance our public image andenable us to tap the capital markets to fund our business growth. Itwill also provide members of the public, our Directors, ouremployees and business associates of our Group an opportunity toparticipate in the equity of our Company. The Invitation will alsoenlarge our capital base for continued expansion of our business.

Use of Proceeds : The net proceeds from the issue of the New Shares (afterdeducting the estimated issue expenses of $2.8 million) isestimated to be $27.5 million. We intend to utilise the net proceedsfrom the issue of the New Shares as follows:-

(i) Approximately RMB60 million (approximately S$12.5 million)for the expansion of our peanut oil production facility;

(ii) Approximately RMB11.5 million (approximately S$2.4million) for the repayment of bank loans; and

(iii) the balance to be used as general working capital.

For further details on the above, please refer to the sectionsentitled “Prospects and Future Plans” and “Capitalisation andIndebtedness” in this Prospectus.

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THE INVITATION

Pending the deployment of the net proceeds for the purposesmentioned above, the net proceeds may be deposited with banksor financial institutions or invested in short term money marketinstruments, or used as working capital, as our Directors may intheir absolute discretion deem fit.

There is no minimum amount which, in the reasonable opinion ofour Directors, must be raised from the Invitation.

Listing Status : Our Shares will be quoted in Singapore Dollars on the Official Listof the SGX-ST, subject to admission of our Company to the OfficialList of the SGX-ST and permission for dealing in and quotation ofour Shares being granted by the SGX-ST and that no stop ordersare issued by the Authority.

Risk Factors : Investing in our Shares involves risks which are described in thesection entitled “Risk Factors” in this Prospectus.

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PLAN OF DISTRIBUTION

The Issue Price was determined by us, in consultation with the Manager, taking into account theprevailing market conditions and estimated market demand for the New Shares determined through abook-building process. The Issue Price is the same for each New Share and is payable in full onapplication.

Offer Shares

The Offer Shares are made available to the members of the public in Singapore for subscription at theIssue Price. The terms and conditions and procedures for application and acceptance are described inAppendix 1 in this Prospectus.

In the event of an under-subscription for the Offer Shares as at the close of the Application List, thenumber of Offer Shares under-subscribed shall be made available to satisfy applications for thePlacement Shares to the extent there is an over-subscription for Placement Shares as at the close of theApplication List.

In the event of an over-subscription for the Offer Shares as at the close of the Application List and thePlacement Shares are fully subscribed or over-subscribed as at the close of the Application List, thesuccessful applications for the Offer Shares will be determined by ballot or otherwise as determined byour Directors in consultation with the Manager and approved by the SGX-ST.

Pursuant to the terms and conditions contained in the Management and Underwriting Agreement asdisclosed in the section entitled “General and Statutory Information - Management And Underwriting AndPlacement Arrangements” in this Prospectus, our Company appointed the Manager and the Underwriter,the Manager and the Underwriter have agreed to manage the Invitation and underwrite the Offer Sharesrespectively. In the event of under subscription, HL Bank will be committed to subscribe for and pay forall unsubscribed Offer Shares. However, HL Bank may, at its absolute discretion, appoint one or moresub-underwriters.

Placement Shares (excluding Reserved Shares)

Application for the Placement Shares may only be made by way of an Application Form. The terms andconditions and procedures for application and acceptance are described in Appendix 1 in thisProspectus.

Pursuant to the terms and conditions in the Placement Agreement as disclosed in the section entitled“General and Statutory Information - Management And Underwriting And Placement Arrangements” inthis Prospectus, the Placement Agent has agreed to subscribe for and/or procure subscribers for thePlacement Shares at the Issue Price.

In the event of an under-subscription for Placement Shares (excluding Reserved Shares) as at the closeof the Application List, that number of Placement Shares (excluding Reserved Shares) under-subscribedshall be made available to satisfy applications for the Offer Shares to the extent that there is an over-subscription for Offer Shares as at the close of the Application List.

Subscribers of the Placement Shares (excluding the Reserved Shares) may be required to pay aplacement commission of up to 1.0% of the Issue Price to the Placement Agent.

Reserved Shares

We have reserved 1,000,000 Reserved Shares for subscription by our Independent and non-ExecutiveDirectors, employees, business associates and those who have contributed to the success of the Groupat the Issue Price. They may accept, dispose of or transfer all or part of their respective Reserved Sharesafter the admission of our Company to the Official List of the SGX-ST.

Any Reserved Shares not taken up will be made available first to satisfy other applications for thePlacement Shares (other than Reserved Shares) to the extent there is an over-subscription for thePlacement Shares (other than Reserved Shares) and then to satisfy applications for Offer Shares to theextent that there is an over-subscription for the Offer Shares.

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PLAN OF DISTRIBUTION

As at the date of this Prospectus, we are not aware of any person who intends to subscribe for morethan five per cent. of the New Shares. However, in the process of assessing market demand for ourShares, there may be person(s) who may indicate his interest to subscribe for more than five per cent. ofthe New Shares. If such person(s) was to make an application for more than five per cent. of the NewShares pursuant to the Invitation and subsequently allotted such number of Shares, we will make thenecessary announcements at an appropriate time. The final allocation of Shares will be in accordance tothe shareholding spread and distribution guidelines as set out in Rule 210 of the Listing Manual.

None of our shareholders or Directors intends to subscribe for Shares in the Invitation Shares save forour Independent Directors and non-Executive Directors who are eligible to subscribe for the ReservedShares.

Further, no Shares shall be allocated or allotted on the basis of this Prospectus later than six monthsafter the date of this Prospectus.

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RISK FACTORS

We are vulnerable to a number of risks applicable to the industry and the areas in which we operate.Our business, financial condition or results of operations could be materially and adversely affectedshould any of these risks materialise. To the best of our knowledge and belief as at the date of thisProspectus, all risks that upon developing into actual events would have a material adverse impact onour business, results of operations or financial condition are set out below.

This Prospectus also contains forward-looking statements that involve risks and uncertainties. The actualresults of our Group could differ materially from those anticipated in these forward-looking statements asa result of certain factors, including, but not limited to, the risks faced by our Group as described belowand elsewhere in this Prospectus.

You should consider carefully, together with all other information contained elsewhere in this Prospectus,the factors described below before deciding to invest in our Shares. Before deciding to invest in ourShares, you should seek professional advice from the relevant advisers about your particularcircumstances.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

Failure to comply with or maintain the requisite health and hygiene standards may have anadverse impact on our business and profitability

As we are engaged in the production of processed food products and beverages, our operations have tocomply with the relevant health and hygiene standards of, and are subject to periodic inspection, by therelevant local authorities. In the event that we are unable to comply with or maintain the requisite healthand hygiene standards set by the relevant regulatory authorities, we may be subject to penalties andfines, suspension of production activities, or revocation of our production licenses. The occurrence ofsuch events may tarnish our brand image and businesses, and/or may result in substantial monetarylosses, which would materially and adversely impact our profitability. In addition, in the event of any foodpoisoning cases or food scares related to our Group, our Group may face a loss in customer confidencewhich could lead to cancellation of major contracts.

We will be subject to product liability claims if our products are found to be unfit for consumptionand consumers suffer injury or death as a result of consuming our products

We are engaged in the production of consumable food products, and we handle such food products inprocessed and unprocessed form. These food products are ultimately ingested by the end consumers.In the event that our food products are found to be unfit for consumption as a result of negligence oromission or wilful action or sabotage, we may be subject to lawsuits and product liability claims for anyinjury or death to any person as a result of consuming our products. In such event, our Group’sprofitability, brand image, reputation and financial condition will be adversely affected.

At present, we have product liability insurance to cover us against such claims. Please refer to thesection entitled “Insurance” in this Prospectus. However, in the event that the product liability claimsexceed the amount that we are insured, our Group’s profitability and financial condition will be adverselyaffected.

We rely on our trademarks which are essential to the development of our business

We have in the past relied on numerous trademarks for the marketing and distribution of our products,some of which continue to be our present key trademarks for our products. Please refer to the sectionentitled “Intellectual Property Rights” in this Prospectus for details of our trademarks. We consider therecognition of this trademark to be vital in promoting consumer confidence and retaining customer loyalty.We have to date registered certain of our marks, the details of which are set out in the section entitled“Intellectual Property Rights” in this Prospectus.

Effective enforcement of intellectual property rights is important for the protection of our interest in thePRC. We rely on the local trademark laws in the countries in which we operate to protect our trademarkrights. There is no assurance that these means of protecting our trademarks will be effective or that ourcompetitors will not adopt product names or trademarks similar to ours. At this relatively early stage of

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RISK FACTORS

development of the system for the protection of intellectual property rights in the PRC, the regulation ofunauthorised use of our trademark and the enforcement of such rights in the PRC is not as certain oreffective as in jurisdictions with more established systems. In the event the courts and administrativeagencies in the PRC do not effectively enforce our Company’s intellectual property rights, it could have amaterial adverse effect on us.

There is also no assurance that our products do not and will not infringe other registered trademarksheld by third parties. As such, we may be subject to legal proceedings and claims relating to suchinfringement. Any successful claim against us arising out of such proceedings could result in substantialmonetary liability and will materially affect the continued sales of the affected products and our turnoverand profitability. At present, we do not have any insurance to cover us against such liability.

Our operations may be affected should we fail to comply with the conditions stipulated in ourlicences, permits or approvals, or in the event that any of our licences or approvals are notrenewed or extended

We are required to obtain the relevant licences, permits and approvals from the PRC authorities to carryon our business. The details of such licences, permits and approvals are set out in the sections entitled“Government Regulations” and “Licences, Permits and Approvals” in this Prospectus. These licences,permits or approvals may stipulate conditions which we are required to comply with and the respectiveauthorities will conduct random inspections on our premises to ensure that we are in compliance with therequired regulations. In the event of a breach of any restriction or condition subject to which the licence,permit or approval was granted, the licence, permit or approval may be suspended or revoked.

As such, we will have to continuously monitor and ensure compliance with all these conditions. The non-renewal or revocation of the relevant licences, permits or approvals or the changes to the conditionsthereto resulting in us not being able to comply with the conditions, would have a material adverseimpact on our operations.

The requirements set by the authorities are also subject to change and new requirements may beimposed from time to time. There is no assurance that the requirements set by the authorities will be metat all times. As such, should our licences, permits or approvals be suspended or revoked, we will not beable to continue our production, which will result in a drop in production levels and prevent us frommeeting the demand of our customers. This will have a material and adverse impact on our turnover andprofitability.

We are subject to fluctuations in the price of raw materials

The raw materials used in our production activities are mainly agricultural products such as fruits,vegetables and peanuts which we obtain within the Shandong province. The prices of these rawmaterials may fluctuate due to changes in supply and demand conditions. Any shortage in supply due toadverse weather conditions such as heavy rain, extended period of winter season and drought andnatural disasters such as typhoon, earthquake and flood or upsurge in demand as a result of change inconsumers’ preference may lead to an increase in prices of raw materials. In the event we are unable topass the increase in production costs to our customers, our Group’s profitability and profit margin may bematerially and adversely affected.

Inability to source and purchase sufficient quantity of good quality agricultural raw materials forour production will adversely affect our financial performance

With over years of experience in this business, we have established good working relations with thefarmers within the Shandong province and a network which facilitates procurement of good quality rawmaterials. Please refer to the section entitled “Major Suppliers” and “Properties and Fixed Assets” in thisProspectus for details of our contract farms, leased farms and open market purchases. Our sales and/orprofitability may be adversely affected if we are unable to source and purchase sufficient quantity of goodquality agricultural raw materials for our production. Please refer to the section entitled "Management'sDiscussion and Analysis of Results of Operations - Review of Operating Results - FY2003 vs FY2002 -Gross profit and gross profit margin" for further details.

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RISK FACTORS

We are exposed to risks of stock obsolescence and inventory write-down

Our products have a shelf life of between one to five years and are required to meet stringent qualitystandards set by our customers. As such, we are exposed to risks of stock obsolescence and inventorywrite-down, when shelf life of our products expire or our products do not meet the quality requirementsset by our customers. In such events, we are required to adjust the inventory value of our products toreflect their net realisable value or make specific provision for slow moving items and spoilage, therebyadversely affecting our financial performance.

Details of our inventory management policy and analysis of our inventory obsolescence and inventorywrite-down/off for the past three financial years are disclosed in the section entitled “Management’sDiscussion and Analysis of Results of Operations – Inventory Management” in this Prospectus.

Expiry of tax incentives granted by the PRC government to our Group will result in higher taxexpenses

We currently enjoy certain tax incentives granted by the PRC government. For FY2003, the savings inincome tax, based on a concessionary corporate tax rate of 24% for the PRC subsidiaries, enjoyed byour Group as a result of such tax incentives amounted to approximately RMB10.7 million. We currentlyalso enjoy partial or full value-added tax refund for our exported products. As a result of any change inthe political and economic policy of the PRC government, the PRC government may cease suchincentives or no preferential tax treatment may be granted after the expiry of the incentives.

In addition, several of our tax incentives are applicable only for a fixed period of time. The cessation orexpiry of tax incentives will result in a higher tax rate that is applicable to us.

Please refer to the sections entitled “Management’s Discussion and Analysis of Results of Operations –Overview - Taxation” and “Independent Auditors’ Report on the Unaudited Proforma Financial Informationof Zhongguo Jilong Limited - Note 19 Income Tax” in this Prospectus for further details.

The outbreak of the severe acute respiratory syndrome (SARS) virus, avian flu and/or otherepidemics in the PRC, if uncontrolled, could affect our business, operations and financialperformance

Our production facilities are located in Shandong Province, PRC. The outbreak of SARS in the regioncaused delays in our production activities in FY2003. These delays resulted from the inability of some ofour customers to travel to our production facilities to conduct their quality control inspections of ourproducts. Furthermore, our business was adversely affected by the outbreak of avian flu virus in certainprovinces of the PRC in FY2002, when we experienced significant decline in the sales of our majorproducts, frozen curry mixed vegetables, which contained chicken meat. In the event of another outbreakof the SARS virus, avian flu and/or other epidemics in the PRC, this may have an adverse impact on ourbusiness operations and/or demand of our food products, which may in turn adversely affect financialperformance. In addition, if any of our employees at our premises are affected by SARS, avian flu and/orother communicable disease or if our employees are required to be kept under quarantine, ourproduction may be adversely affected and this could in turn affect our business and financialperformance.

A natural calamity at our production facilities, leased or contract farms would harm us

A fire or a natural calamity, such as flooding, resulting in significant damage to any of our productionfacilities, leased or contract farms and major disruptions to our production processes would have asignificant adverse effect on our business, financial conditions and results of operations. Although wemaintain certain insurance policies covering risks such as fire, explosion, lightning strike and heavy rain,there is no assurance that such insurance coverage adequately covers us against all risks arising fromnatural calamity. In the event of a natural calamity to our production facilities, leased farms or contractfarms, it will cause disruptions to our business operations or it may affect the supplies of the agriculturalcrops which we purchase for our operations. Hence, our business and financial conditions will beadversely affected.

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RISK FACTORS

The food and beverage production industry is highly competitive with low barriers of entry. In theevent that we are unable to compete effectively against our competitors, our business andfinancial results will be adversely and materially affected

The food and beverage production industry is highly competitive with low barriers of entry and littleproduct differentiation. In order to meet the consumers’ demands and to stay ahead of our competitors,we have to continually work on maintaining customer loyalty by cultivating long-term customerrelationships and building up image and brand name. In addition, we face intense competition from localand international suppliers, some of which may have better brand recognition, longer operating history,larger customer base and significantly greater financial, technical, marketing, public relations, sales,distribution and other resources than us. The entry of new competitors due to low barriers of entry mayerode our market share in the food and beverage production industry. Our competitors may also lowerthe prices of their products in order to secure a greater market share in the food and beverageproduction industry. In the event we are unable to compete effectively against our competitors, ourbusiness and financial results will be adversely and materially affected.

Failure to cater to changes to consumer taste and preferences will adversely affect our financialperformance

In order to meet the consumers’ demands and to stay ahead of our competitors, we have to continuallydevelop new and innovative products to supply to our customers. In addition, we may need to acquirenew processing technology or machinery to enhance our product quality to meet the specifications of ourcustomers. In the event we are unable to develop new and innovative products to cater to changes inconsumer taste or meet the specifications of our customers, the demand for our products and hence ourbusiness and financial results will be adversely affected.

We are dependent on the PRC and Japanese market and any significant decline in demand forour products in the PRC market and Japanese market will adversely affect our turnover andprofitability

We are dependent on the PRC and Japanese market, which accounted for 78.0% and 22.0% of ourprofit before taxation and before unallocated expenses for FY2003 respectively. Any adverse changes inthe economic conditions, for whatever reason, in the PRC and/or Japan will affect consumers’ spendingpatterns and purchasing power and will therefore have a negative impact on the demand for our productsor will result in a need for us to review our marketing strategies and our future expansion plans. In suchevent, our turnover and profitability will be materially and adversely affected.

We are subject to environmental laws and regulations

As a result of our food and beverage production activities, our Group is subject to environmental lawsand regulations in the PRC. Please refer to Appendix 4 entitled “Summary of Relevant PRC Laws andRegulations” in this Prospectus for further details of the environmental laws. Changes in environmentalregulations could adversely affect us. The PRC government environmental authorities have the power totake action against us for failure to comply with the environmental regulations, including the imposition offines and revocation of licenses and land rights. In such event, our business and profitability will beadversely affected.

In addition, compliance with the environmental laws and regulations brings with it on-going costs. Pleaserefer to the section entitled “Licences, Permits and Approvals” in this Prospectus for details ofenvironmental licences and permits obtained by our Group. It is also possible that the PRC governmentalauthorities will adopt additional regulations that would require us to incur additional costs onenvironmental compliance matters. In the event that these additional costs are incurred in the future, ourbusiness and financial performance may be adversely affected.

The environmental regulations in the PRC could become more stringent in the future and consequentlymay have an adverse effect on us.

27

RISK FACTORS

We are subject to shipping disruptions

Shipping disruptions for various reasons including weather conditions, political turmoil, social unrest andport strikes may lead to delayed or lost shipments and have an adverse impact on our export sales tocountries overseas. Our export sales are mostly under free-on-board shipment terms, where cost or riskof loss of or damages to the goods are borne by our customers at the designated shipping ports.However, in certain export sales where we bear the risks of shipping, any disruption will result incompensation to customers and adversely affect our reputation, revenue and profits.

We are dependent on key executives and the loss of any key personnel without adequatereplacements could have a material adverse impact on our business, operations and futureviability

Our continued success is dependent on our ability to retain the services of our core management team,in particular, our Managing Director Song Zhixing who has played an important role in our growth sincethe establishment of our Group. Further details of our management can be found under the sectionsentitled “Directors, Management and Staff” in this Prospectus. Our core management team consists ofpersonnel who have a number of years of experience in the food and beverage production industry, aswell as in sales and marketing, financial and operating functions. The loss of the services of certainexisting key personnel without suitable and timely replacement or the inability to attract and retainqualified personnel will have an adverse impact on our operations and/or delay our expansion plans. Inparticular, the loss of the services of Song Zhixing, our Managing Director, will have an adverse impacton the turnover and profits of our Group.

We do not have a hedging policy on our foreign currency exposure and therefore we are exposedto any adverse fluctuations in the exchange rates

Our sales revenue is denominated in RMB and USD (representing 85.0% and 15.0% of our total turnoverfor FY2003 respectively). Our purchases and expenses are denominated mainly in RMB.

To the extent that our sales, purchases and expenses are not matched in the same currency, we will beexposed to any adverse fluctuation of USD against RMB. As we intend to increase our overseas sales infuture, which will result in an increase in revenue in USD, our future earnings may be materially andadversely affected by any adverse fluctuation of USD against RMB. Further details of our foreignexchange exposure are disclosed in the section entitled “Foreign Exchange Management” in thisProspectus.

Our net foreign exchange losses for the past three financial years were as follows:-

FY2001 FY2002 FY2003

Foreign exchange losses (RMB’000) 202 102 39

As a percentage of profit before income tax (%) 0.9 0.4 0.1

At present, we do not have any formal policy to hedge against our foreign currency exposure andtherefore are exposed to any adverse fluctuations in exchange rates. We may, when necessary, enter intoforeign currency forward contracts to hedge against exposure from foreign currency fluctuations.However, there is no assurance that our efforts will successfully hedge against all foreign currencyfluctuations.

We are subject to credit risk of customers and the non-collectibility of debts would have anadverse impact on our financial performance

We are vulnerable to the credit risk of our customers. From time to time, in the ordinary course of ourbusiness, certain customers may default on their payment to us. Economic and/or political pressures inthe PRC where we operate, including those arising from local market disruptions or currency crises, mayadversely affect the ability of our customers located in that country to obtain foreign exchange or creditfacilities to pay us. Although we review our credit exposure to our customers regularly, default risk maynevertheless arise from events or circumstances that are difficult to anticipate or detect.

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RISK FACTORS

Our normal sales term with local PRC customers is cash on delivery. For overseas customers, we acceptletters of credit. For new local PRC customers, we may require advance payments upon confirmation oforders. We may grant credit terms of 30 to 60 days to certain of our customers depending on their creditworthiness and payment track records. Please refer to the section entitled “Credit Management” in thisProspectus for further details of the credit terms granted to our customers. If any of our major customersface financial difficulties, we would be subject to the risk of non-collectibility of our trade receivables.Customers facing cashflow problems may also be slow in settling their accounts with the Group and inextreme situations, the Group may have to write off debts which cannot be collected. The non-collectibility of debts would have an adverse impact on our financial performance. Any changes in thecredit terms or delay in the settlement of the outstanding accounts may lead to higher financing costs forus, and this will adversely affect our profitability and cash flow.

Provision for doubtful trade debts and bad trade debt expenses for the past three financial years are asfollows:-

FY2001 FY2002 FY2003

Amount (RMB’000) 421 – 357

As a percentage of profit before income tax (%) 1.7 – 0.6

We may require additional financing and the availability of funding facilities may affect our abilityto expand in the future

In the longer term, we may require additional financing to fund our future growth plan. Our Group cannotassure you that any additional financing we may need will be available or, if available, will be on termssatisfactory to us. For example, the capital and banking markets in the PRC are at various stages ofdevelopment and generally, medium-term and long-term financing in local currencies are not readilyavailable to foreign controlled enterprises. This may have an adverse impact on our ability to expand infuture in the PRC. Any additional equity financing will dilute shareholders’ interests and any additionaldebt financing may contain restrictive conditions with respect to dividends, future capital raising and otherfinancial and operational matters. If we are unable to obtain additional financing in the event that suchfinancing is needed, our business, results of operations and financial condition may be adverselyaffected. Please refer to the sections entitled “Management’s Discussion and Analysis of Results ofOperations” in this Prospectus for information on our Group’s financial position.

RISK RELATING TO THE PRC

We may be adversely affected by changes to the laws and regulations of the PRC and theinterpretation and implementation thereof

The PRC government is still in the process of developing a comprehensive set of laws and regulations inthe course of the PRC’s transformation from a centrally planned economy to a more free market orientedeconomy. As the legal system in the PRC is still in a state of flux, laws and regulations or theinterpretation of the same may be subjected to change. Furthermore, any change in the political andeconomic policy of the PRC government may also lead to similar changes in the laws and regulations orthe interpretation thereof. Such changes may affect the business and prospects of foreign companieswith operations and business in the PRC such as ourselves.

The PRC legal system is a codified legal system comprising written laws, regulations, circulars,administrative directives and internal guidelines. Unlike common law jurisdictions like Singapore, decidedcases do not form part of the legal structure of the PRC and thus have no binding effect. Experience inthe implementation, interpretation and enforcement of the laws and regulations and of commercialcontracts, undertakings and commitments entered into are also limited. As such, the administration ofPRC laws and regulations may be subjected to a certain degree of discretion by the authorities. Theoutcome of dispute resolutions may not have the level of consistency or predictability as in othercountries with more developed legal systems. Due to such inconsistency and unpredictability, if weshould be involved in any legal dispute in the PRC, we may experience difficulties in obtaining legalredress or in enforcing our legal rights.

29

RISK FACTORS

From time to time, changes in laws and regulations or the implementation thereof may also require us toobtain additional approvals and licences from the PRC authorities for the conduct of our operations in thePRC. In such event, we may need to incur additional expenses in order to comply with suchrequirements. This will in turn affect our financial performance as our business cost will increase.Furthermore, there can be no assurance that such approvals or licences will be granted to us promptly orat all. If we experience delay in obtaining or are unable to obtain such required approvals or licences, ouroperations and business in the PRC, and hence our overall financial performance and condition, will beadversely affected.

The expected increase in competition following the PRC’s entry into the World Trade Organisationcould have an adverse impact on our financial performance

At present, food products imported into the PRC are generally subject to import tariffs at various rates toprotect domestic producers from foreign competition. This adds to the cost of such imported foodproducts. We are able to provide competitive pricing for our products which are processed and sold in thePRC since we are not subject to such import duties. With the entry of the PRC into the World TradeOrganisation, such import tariffs may be reduced or eliminated. This may lead to increased competitionfrom overseas suppliers and adversely affect our financial performance.

Foreign exchange control in the PRC may affect the repatriation of funds from our PRCsubsidiaries

Our PRC subsidiaries are subject to the rules and regulations imposed by the PRC government oncurrency conversion. Currently, the conversion of the RMB into foreign currencies is regulated by theState Administration of Foreign Exchange of the PRC (“SAFE”) which operates under the supervision ofthe People’s Bank of China. On 1 July 1996, pursuant to the Regulations on the Administration ofForeign Exchange Settlement, Payment and Sale, foreign investment enterprises (“FIEs”) are required toapply to SAFE for “Foreign Exchange Registration Certificates for Foreign Investment Enterprise”. Suchregistration certificates are renewable annually and allow FIE to open foreign currency accounts for thepayment of:-

(a) recurring items, including the distribution of dividends and profits to foreign investors of FIEs uponpresentation of board resolutions which authorise the distribution of profits or dividends (“CurrentAccount”); and

(b) capital items, such as repatriation of capital, repayment of loans and for securities investment(“Capital Account”).

Currency transactions within the scope of the “Current Account” can be effected without requiring theapproval of SAFE, while the conversion of currency in the “Capital Account” still requires the approval ofSAFE.

We have obtained the Foreign Exchange Registration Certificate which is renewable annually uponapplication to SAFE for all our PRC subsidiaries. There can be no assurance that the current foreignexchange rulings with respect to currency transactions within the scope of the Current Account will notbe changed to our detriment. As such, there can be no assurance that our PRC subsidiaries will be ableto continue to obtain sufficient foreign exchange to pay dividends.

RISK FACTORS RELATING TO AN INVESTMENT IN OUR SHARES

Future sales of Shares could adversely affect our Company’s Share price

Any future sale or availability of our Shares in the public market can have a downward pressure on ourShare price. The sale of a significant amount of Shares in the public market after the Invitation, or theperception that such sales may occur, could materially and adversely affect the market price of ourShares. These factors also affect our ability to sell additional equity securities. Except as otherwisedescribed under the section entitled “Moratorium” in this Prospectus, there will be no restriction on theability of our substantial Shareholders to sell their Shares either on the SGX-ST or otherwise.

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RISK FACTORS

There has been no prior market for our Shares and the Invitation may not result in an active orliquid market for our Shares

Prior to the Invitation, there has been no public market for our Shares. Therefore, we cannot predict theextent to which a trading market will develop or how liquid that market might become. No assurance canbe given that an active trading market for our Shares will develop or, if developed, will be sustained. If anactive trading market is not developed or sustained, the liquidity and trading price of our Shares could bematerially and adversely affected. You should not take the listing as an indication of the merits of theInvitation, our Company, our Subsidiaries, our Shares or the New Shares.

Control of existing shareholders may limit your ability to influence the outcome of decisionsrequiring the approval of shareholders

After the Invitation, we anticipate that our Substantial Shareholders, namely, Delight Success Limited andCapital Joint Limited, will collectively own approximately 68.9% of our issued share capital. TheseShareholders, acting together, will be able to significantly influence our corporate actions such asmergers or takeover attempts in a manner that could conflict with the interests of our publicShareholders.

Investors in our Shares will face immediate and substantial dilution in the NTA per Share and mayexperience future dilution

Our Issue Price is substantially higher than our Group’s NTA per Share of 44.43RMB cents (adjusted forthe net proceeds from the Invitation). Thus, there is an immediate and substantial dilution in the NTA perShare to new investors (please refer to the section entitled “Dilution” in this Prospectus for furtherdetails). If we were liquidated immediately following this Invitation, each Shareholder subscribing for theNew Shares would receive less than the price they paid for their Shares.

Our Share price may be volatile, which could result in substantial losses for investors acquiringour Shares in the Invitation

The market price of our Shares could be subject to significant fluctuations in response to various factorsand events, including the liquidity of the market for our Shares, differences between our actual financialoperating results and those expected by investors and analysts, changes in analysts’ recommendationsor projections, changes in general market conditions and broad market fluctuations.

In addition, our Share price will be under downward pressure if certain of our Directors, managementstaff or employees sell their Shares immediately after the Invitation or the expiry of the Moratorium.

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INVITATION STATISTICS

Issue Price

NTA

NTA per Share based on the proforma balance sheet of the Groupas at 31 December 2003 adjusted for the Loan Capitalisation andBond Conversion as disclosed in the section entitled“Restructuring Exercise, Loan Capitalisation and Bond Conversion”in this Prospectus, and the Sub-division:-

(a) Before adjusting for the estimated net proceeds from theInvitation and based on the pre-Invitation share capital of401,300,000 Shares

(b) After adjusting for the estimated net proceeds from theInvitation and based on the post-invitation share capital of536,000,000 Shares

Premium of Issue Price over NTA per Share as at 31 Dec 2003:-

(a) Before adjusting for the estimated net proceeds and basedon the pre-Invitation share capital of 401,300,000 Shares

(b) After adjusting for the estimated net proceeds and based onthe post Invitation share capital of 536,000,000 Shares

EARNINGS

Historical proforma net EPS of our Group for FY2003 based onpre-Invitation share capital of 401,300,000 Shares

Historical proforma net EPS of our Group for FY2003 had theService Agreements described in the section entitled “ServiceAgreements” in the Prospectus been effected and based on pre-Invitation share capital of 401,300,000 Shares

PRICE EARNINGS RATIO

Historical price earnings ratio based on the historical net EPS ofour Group for FY2003

Historical price earnings ratio based on the historical net EPS ofour Group for FY2003 had the Service Agreements set out in thesection entitled “Service Agreements” in this Prospectus beeneffected for FY2003

CASHFLOW FROM OPERATING ACTIVITIES

Historical proforma cashflow per Share from operating activities ofour Group for FY2003 based on pre-Invitation share capital of401,300,000 Shares

Historical proforma cashflow per Share from operating activities forFY2003 had the Service Agreements described in the sectionentitled “Service Agreements” in the Prospectus been effected andbased on the pre-Invitation share capital of 401,300,000 Shares

32

22.50 cents 108.38(1) RMB cents

5.47(1)(2) cents 26.33(2) RMB cents

9.22(1)(2) cents 44.43(2) RMB cents

311.33%

144.03%

3.04(3) cents 14.45 RMB cents


7.40 times

7.65 times



INVITATION STATISTICS

PRICE TO CASH FLOW FROM OPERATING ACTIVITIES

Historical price to cash flow from operating activities ratio based onthe historical proforma cash flow per Share from operatingactivities of our Group for FY2003

Historical price to cash flow from operating activities ratio based onthe historical proforma cash flow per Share from operatingactivities of our Group for 2003 had the Service Agreements setout in the section entitled “Service Agreements” in this Prospectusbeen effected for FY2003

MARKET CAPITALISATION

Market capitalisation based on Issue Price of 22.5 cents per Shareand post-Invitation share capital of 536,000,000 Shares

Notes:-

(1) Based on the exchange rate of RMB1: S$0.2076 as at the Latest Practicable Date.

(2) Includes S$31,250, being the Difference.

(3) Based on the average rate of RMB1 : S$0.2101 for FY2003.

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6.27 times

6.45 times

$120.6 million

CAPITALISATION AND INDEBTEDNESS

The following table shows the cash and cash equivalents, debt and capitalisation of our Group as at 31December 2003:-

1) based on the unaudited proforma consolidated balance sheet as at 31 December 2003 which havebeen adjusted to give effect to the Loan Capitalisation but before adjusting for the BondConversion and the proceeds from the issue of the New Shares;

2) as adjusted for the Bond Conversion but before adjusting for the net proceeds from the issue ofthe New Shares; and

3) as adjusted for net proceeds from the issue of the New Shares.

(RMB’000) As adjusted forBond Conversion

but before adjusting As adjusted forAs at 31 December for the net net proceeds

2003 (as adjusted for proceeds from the from the issue ofLoan Capitalisation) Invitation the New Shares

Cash and cash equivalents 16,420 28,612 161,114

IndebtednessShort term loans, unsecured 6,500 6,500 6,500

Notes Payables, secured 5,000 5,000 5,000

Total indebtedness 11,500 11,500 11,500

Proforma shareholders’ equity 93,458 105,650 238,152

Total capitalisation and indebtedness 104,958 117,150 249,652

As at 31 May 2004, there were no material changes in our capitalisation and indebtedness as disclosedabove, save for:-

(a) our short term loans increased to RMB14.9 million,

(b) our notes payables were fully settled,

(c) issue of convertible bonds of S$2.5 million (equivalent to RMB12.0 million based on foreignexchange rate as at the Latest Practicable Date), and

(d) changes in our retained earnings arising from our day-to-day operations in the ordinary course ofbusiness.

Details on the Convertible Bonds are set out in the section entitled “Restructuring Exercise, LoanCapitalisation and Bond Conversion” in this Prospectus.

As at 31 May 2004, we have cash and cash equivalents of RMB52.2 million.

34


Our short term loans of RMB14.9 million were obtained from Bank of China (Laiyang City Branch). Out ofthe term loans of RMB14.9 million, a term loan of RMB6.5 million was obtained in October 2003 for ourworking capital purpose. The loan was secured against a fixed charge over land and buildings owned bya related party, Shandong Jilong, and borne interest of 6.37% per annum. We intend to repay the loanwhich is due in October 2004 from the proceeds from this Invitation. Details on the property mortgagedby Shandong Jilong for the above bank facility are set out in the section entitled “Interested PersonTransactions” in this Prospectus.

The remaining term loans of RMB8.4 million were secured by letters of credit issued by overseascustomers. These loans borne interest at the bank’s prevailing interest rate, which is currently at 6.55%per annum. The term loans are due in the period between September 2004 and November 2004. Weintend to repay RMB5.0 million of these loans from the proceeds of the Invitation and the balance fromour cash flows from operations.

Contingent Liabilities

As at 31 May 2004, we do not have any contingent liabilities.

Capital and Operating Lease Commitments

As at the Latest Practicable Date, we have the following operating lease commitments:-

RMB’000

Within 1 year 2,754Within 2 to 5 years 11,006After 5 years 12,031

Total 25,791

The operating leases mainly relate to the rental agreements for our production facililites and leased farmsin the PRC. Please refer to the section entitled “Properties and Fixed Assets” in this Prospectus for moredetails. We intend to fund these operating leases from our cash flows from operations.

Capital Commitments

As at the Latest Practicable Date, we have the following future capital commitments:-

RMB’000

Authorised but not yet contracted for 1,098

Estimated amounts committed for future capital expenditure but not provided for in the financial statements 1,102

Total 2,200

The estimated amounts authorised but not yet contracted for and amounts committed for future capitalexpenditure but not provided for in the financial statements relate mainly to the purchase of equipmentfor our freeze-dry facilities. The above commitments are not dependent on the proceeds from theInvitation, and will be funded by internal resources.

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Save as disclosed above, we have no other borrowing or indebtedness in the nature of borrowingsincluding bank overdrafts and liabilities under acceptances (other than normal trading credits) oracceptances credits, mortgages, charges, hire purchase commitments, guarantees or other materialcontingent liabilities, and capital expenditure commitments.

Based on the above and after taking into consideration of our present cash position and bankingfacilities, in the opinion of our Directors, the working capital available to us is sufficient for our presentrequirements.

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DILUTION

Dilution is the amount by which the Issue Price to be paid by the applicants for our New Shares in theInvitation exceeds our NTA per Share after the Invitation. The NTA of our Proforma Group as at 31December 2003 which have been adjusted to give effect to Loan Capitalisation and after adjusting forBond Conversion but before adjusting for the net proceeds from the Invitation was RMB105.7 million.Based on the pre-Invitation issued and paid-up share capital of 401,300,000 Shares, our NTA per Sharewas RMB0.26.

Based on the issue of 134,700,000 New Shares at an Issue Price of $0.225 for each New Sharepursuant to the Invitation and after deducting the estimated issue expenses, the adjusted NTA of ourGroup as at 31 December 2003 would have been RMB0.44 per Share based on the post-Invitationissued and paid-up share capital of 536,000,000 Shares. This represents an immediate increase in NTAof RMB0.18 per Share to our existing Shareholders and an immediate dilution in NTA of RMB0.64 perShare to our new investors. The following table illustrates such dilution on a per Share basis:-

RMB’000 RMB cents

Issue Price per Share (1) 108.38

NTA as at 31 December 2003 (as adjusted for Loan Capitalisation) 93,458

Increase in NTA upon Bond Conversion (2) 12,192

NTA as at 31 December 2003 after adjusting for Loan Capitalisation and Bond Conversion, but before adjusting for the net proceeds from the Invitation 105,650

NTA per Share as at 31 December 2003 after adjusting for Bond Conversion, but before adjusting for the net proceeds from the Invitation and based on the pre-Invitation Share Capital of 401,300,000 Shares 26.33

Increase in NTA per Share attributable to new investors 18.10

NTA per Share after the Invitation 44.43

Dilution in NTA per Share to new investors 63.95

Notes:-

(1) Translated based on the exchange rate of RMB1.00 : S$0.2076 as at the Latest Practicable Date.

(2) Includes S$31,250, being the Difference.

The following table summarises the total number of Shares issued by us, the total consideration paid tous and the average price per Share paid by our existing Shareholders, the Investors and the new publicShareholders pursuant to the Invitation:-

Number of Consideration Average priceShares % ($) % per Share ($)

Existing Shareholders 388,800,000 72.5 9,720,000 22.8 0.0250

Investors 12,500,000 2.3 2,531,250(1) 5.9 0.2025

New public Shareholders 134,700,000 25.1 30,307,500 71.2 0.2250

Total 536,000,000 100.0 (2) 42,558,750 100.0(2)

Notes:-

(1) Includes the Difference.

(2) Does not add up to 100% due to rounding.

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SHARE CAPITAL

Our Company was incorporated in Singapore under the Companies Act on 11 October 2002 as a privatelimited company under the name of “Happy Valley Retirement Resort Pte Ltd” which was subsequentlychanged to “Zhongguo Jilong Pte. Ltd.” on 24 July 2003. On 14 July 2004, the name of our Companywas changed to “Zhongguo Jilong Limited” in connection with our Company's conversion to a publiccompany limited by shares. The Articles of Association of our Company relating to the voting rights andprivileges of shareholders are set out in the section entitled “General and Statutory Information -Memorandum and Articles of Association” in this Prospectus. There are no founder, management ordeferred shares reserved for issuance for any purpose. Our Company has only one class of shares,being ordinary shares of $0.025 each.

As at 31 December 2003, the authorised share capital of our Company was $20,000,000, comprising20,000,000 ordinary shares of $1.00 each and the issued and paid-up capital of our Company was $2.00comprising 2 ordinary shares of $1.00 each.

On 19 March 2004, our Company issued 9,719,998 ordinary shares of $1.00 each pursuant to the LoanCapitalisation as described under the section entitled “Restructuring Exercise, Loan Capitalisation andBond Conversion” in this Prospectus.

At the Extraordinary General Meeting held on 13 July 2004, our Shareholders approved, inter alia, thefollowing:-

(a) an increase in the authorised share capital of the Company from $20,000,000 divided into20,000,000 ordinary shares of $1.00 each to $50,000,000 divided into 50,000,000 ordinary sharesof $1.00 each;

(b) the sub-division of each ordinary share of $1.00 each in the authorised and issued and paid-upshare capital of the Company into 40 ordinary shares of $0.025 each respectively (“Sub-division”);

(c) the issue of 12,500,000 new ordinary shares of $0.025 each pursuant to the Bond Conversion asdescribed under the section entitled “Restructuring Exercise” in this Prospectus;

(d) the conversion of the Company into a public limited company and the change of its name toZhongguo Jilong Limited;

(e) the adoption of the new Articles of Association of the Company;

(f) the issue of 134,700,000 New Shares pursuant to the Invitation. The New Shares, when issuedand fully paid, will rank pari passu in all respects with the existing issued and fully paid up Shares;and

(g) the authorisation to the Directors, pursuant to section 161 of the Companies Act and the Articles ofAssociation, to allot and issue shares and/or convertible securities in the Company (whether byway of rights, bonus or otherwise) at any time and from time to time thereafter to such personsand on such terms and conditions for and such purposes as the Directors may in their absolutediscretion deem fit provided always that the aggregate number of shares and/or convertiblesecurities to be issued shall not exceed 50 per cent. of the issued share capital of the Company,or which the aggregate number of shares and/or convertible securities to be issued other than apro-rata basis to existing shareholders of the Company shall not exceed 20 per cent. of the issuedshare capital of the Company (the percentage of the post-Invitation issued share capital of theCompany after adjusting for new shares arising from the conversion or exercise of any convertiblesecurities, new shares arising from exercising share options or vesting of share awardsoutstanding or subsisting at the time of the passing of the resolution approving the mandate,provided the options or awards were granted in compliance with the Listing Manual and anysubsequent consolidation or subdivision of shares), and unless revoked or varied by the Companyin general meeting and that such authority shall continue in force until the conclusion of the nextAnnual General Meeting or the expiration of the period within which the next Annual GeneralMeeting of the Company is required by law to be held, whichever is the earlier.

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Upon the allotment and issue of the New Shares which are the subject of the Invitation, the resultantissued and paid-up capital of our Company will be increased to $13,400,000 comprising 536,000,000Shares.

Details of the changes to the issued and paid-up share capital of the Company since our incorporationand immediately after the Invitation are as follows:-

Number of $Shares

Issued and fully paid-up ordinary shares of $1.00 each at incorporation 2 2

Issue of new ordinary shares of $1.00 each pursuant to the Loan Capitalisation 9,719,998 9,719,998

9,720,000 9,720,000

Sub-division of one ordinary share of $1.00 each into 40 ordinary shares of 388,800,000 9,720,000$0.025 each

Issue of new Shares pursuant to the Bond Conversion 12,500,000 312,500

Pre-Invitation share capital 401,300,000 10,032,500

New Shares to be issued pursuant to the Invitation 134,700,000 3,367,500

Post-Invitation share capital 536,000,000 13,400,000

The authorised share capital and the shareholders’ funds of our Company as at 31 December 2003,before and after adjustments to reflect the increase in authorised and paid-up share capital, the LoanCapitalisation, Sub-division, Bond Conversion and the Invitation are set forth below.

As at After Loan Capitalisation,31 December Bond Conversion and After the

2003 Sub-division Invitation$’000 $’000 $’000

Authorised Share Capital

Ordinary shares of $1.00 each 20,000 – –

Ordinary shares of $0.025 each – 50,000 50,000

Shareholders’ Funds ($’000)

Issued and paid-up share capital – (1) 10,033 13,400

Share premium – 2,219 26,359

Accumulated losses (32) (2) (32)(2) (32) (2)

Total Shareholders’ Funds (32) 12,220 39,727

Notes:-

(1) $2.00.

(2) Based on the closing exchange rate of S$0.2050 to RMB1.00 as at 31 December 2003.

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SHAREHOLDERS

Our Shareholders and their respective shareholdings in our Company immediately before and after theInvitation are set out below:-

Before the Invitation After the InvitationDirect Interest Deemed Interest Direct Interest Deemed Interest

Number of Number of Number of Number ofShares % Shares % Shares % Shares %

Directors

Dr Lim Seck Yeow(1) – – 194,400,000 48.4 – – 194,400,000 36.3Song Zhixing(2) – – 174,960,000 43.6 – – 174,960,000 32.6Tang Xiaoyan – – – – – – – –Damien Seah Yang Hwee – – – – – – (6) – –Fang Swee Peng – – – – – – (6) – –Chua Beng Huat – – – – – – (6) – –Dr Chow Yuen Ho – – – – – – (6) – –

Substantial shareholders of 5% or more other than Directors

Delight Success Limited (1) 194,400,000 48.4 – – 194,400,000 36.3 – –Capital Joint Limited (2), (4) 174,960,000 43.6 – – 174,960,000 32.6 – –Tan Geok Bee(1) 194,400,000 48.4 194,400,000 36.3

Other shareholders

Ventures Point Limited(3), (4) 19,440,000 4.8 – – 19,440,000 3.6 – –Zhang Chengbin(3) 19,440,000 4.8 19,440,000 3.6Pre-Invitation Investors(5) 12,500,000 3.1 12,500,000 2.3

Public (including Reserved shares) – – – – 134,700,000 25.1 – –

TOTAL 401,300,000 100.0 (7) 536,000,000 100.0 (7)

Notes:-

(1) Delight Success Limited (“Delight Success”) is a company incorporated in the British Virgin Islands and its principal activityis investment holding. Dr Lim Seck Yeow and Tan Geok Bee each own 50.0% of the issued and paid up share capital ofDelight Success. Tan Geok Bee is an investor who is not related to any of our Directors or Substantial Shareholders. DrLim Seck Yeow and Tan Geok Bee are each deemed to have a 48.4% interest in the pre-Invitation issued share capital ofour Company pursuant to section 4(5) of the Securities and Futures Act.

(2) Capital Joint Limited (“Capital Joint”) is a company incorporated in the British Virgin Islands and its principal activity isinvestment holding. Song Zhixing owns the entire issued and paid up share capital of Capital Joint. Song Zhixing isdeemed to have a 43.6% interest in the pre-Invitation issued share capital of our Company pursuant to section 4(5) of theSecurities and Futures Act.

(3) Ventures Point Limited (“Ventures Point”) is a company incorporated in the British Virgin Islands and its principal activity isinvestment holding. Zhang Chengbin owns the entire issued and paid up share capital of Ventures Point. Zhang Chengbinis an executive director of China Food Industries Limited, a company listed on the SGX-SESDAQ, and is not related to anyof our Directors or Substantial Shareholders. Zhang Chengbin is deemed to have a 4.8% interest in the pre-Invitationissued share capital of our Company pursuant to section 4(5) of the Securities and Futures Act.

(4) Between September 2003 and February 2004, our non-executive Chairman, Dr Lim Seck Yeow, and our ControllingShareholder, Tan Geok Bee, advanced loans amounting to an aggregate value of S$9,941,225 to our Company to financethe acquisition of the Subsidiaries by our Company. The loans were interest-free, unsecured and have no fixed term ofrepayment. On 19 March 2004, we capitalised S$9,719,998 of the loan amount owing to Dr Lim Seck Yeow and Tan GeokBee by issuing 9,719,998 fully-paid new ordinary shares of S$1.00 each at par. As agreed between the parties, anaggregate of 4,860,000 ordinary shares of $1.00 each, out of the 9,719,998 ordinary shares of $1.00 each, were allotted toCapital Joint and Ventures Point as investments in our Company. Capital Joint and Ventures Point completed theacquisition of these interests with loans extended to them by Delight Success. Please refer to the section entitled“Interested Person Transactions” for further details. Capital Joint and Ventures Point, have charged in favour of Delight

40


Success their entire respective shareholdings in our Company as security for the payment and the discharge of theabovementioned loans advanced by Delight Success to Capital Joint and Ventures Point. The parties have agreed that thecharge shall be released upon admission of the Company to the Official List of the SGX-ST and that the loans shall be fullyrepaid by March 2005.

(5) The pre-Invitation Investors are Quantum Asset Management Private Limited, Maxcellon Capital Assets Ltd and individualinvestors, namely Chang Yeh Hong, Christina Khoo Saw Yong, Gan Kong Hiok, Leong Wye Keong, Poh Po Lian and WongChew Ming. Quantum Asset Management Private Limited is an exempt boutique fund manager managing a portfolio for notmore than 30 accredited investors under the Securities and Futures Act. Maxcellon Capital Assets Ltd is an investmentholding company incorporated in the British Virgin Islands. The Investors are not related to our Directors, Executive Officersor Substantial Shareholders. These Investors have entered into an investment agreement with our Company on 10 May2004 (“Investment Agreement”). Pursuant to the Investment Agreement, our Company issued and the Investors subscribedfor Convertible Bonds with an aggregate value of S$2.5 million convertible into ordinary shares in the capital of ourCompany. On 13 July 2004, the Investors converted all their Convertible Bonds in our Company into 12,500,000 Shares,which represent approximately 3.1% of the issued capital of our Company prior to the Invitation and have since paid anaggregate amount of S$31,250 to our Company, being the Difference. After the Invitation, the Investors would have anaggregate equity interest of approximately 2.3% of our post-Invitation share capital.

(6) Our non-Executive Director, Damien Seah Yang Hwee, and Independent Directors, Fang Swee Peng, Chua Beng Huat andDr Chow Yuen Ho, will each be offered 200,000 Reserved Shares, at the Issue Price pursuant to the Invitation inrecognition of their future contributions to our Group. In the event that they accept any or all of the Reserved Sharesoffered to them, they may dispose of or transfer any or all of their Reserved Shares after the admission of our Company tothe Official List of the SGX-ST.

(7) Does not add up to 100% due to rounding.

Save as disclosed in the sections entitled “Share Capital” and “Restructuring Exercise, LoanCapitalisation and Bond Conversion” in this Prospectus, there has not been any significant change in thepercentage of ownership in our Company in the last three years prior to the Latest Practicable Date.

The Shares held by our Directors and Substantial Shareholders do not carry different voting rights fromthe New Shares which are the subject of the Invitation.

There is no known arrangement, the operation of which may at a subsequent date, result in a change inthe control of our Company.

MORATORIUM

To demonstrate their commitment to our Group, our Controlling Shareholders, Delight Success Limitedand Capital Joint Limited, who will in aggregate hold 369,360,000 ordinary shares in our Company,representing approximately 68.9% of our Company's enlarged issued share capital after the Invitation,have undertaken not to dispose of or transfer any part of their direct and indirect interests in ourCompany for a period of six months commencing from the date of listing of our Company on the OfficialList of the SGX-ST.

Our non-executive Chairman, Dr Lim Seck Yeow, who holds 50.0% of the issued and paid-up sharecapital of Delight Success Limited, has undertaken not to dispose of or transfer any part of his interestsin Delight Success Limited for a period of six months commencing on the date of listing of our Companyon the Official List of the SGX-ST.

Tan Geok Bee, who holds 50.0% of the issued and paid-up share capital of Delight Success Limited, hasundertaken not to dispose of or transfer any part of her interests in Delight Success Limited for a periodof six months commencing on the date of listing of our Company on the Official List of the SGX-ST.

Our Managing Director, Song Zhixing, who holds the entire issued and paid-up share capital of CapitalJoint Limited, has undertaken not to dispose of or transfer any part of his interests in Capital JointLimited for a period of six months commencing on the date of listing of our Company on the Official Listof the SGX-ST.

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RESTRUCTURING EXERCISE, LOAN CAPITALISATION AND BOND CONVERSION

To rationalise our Group’s corporate structure in connection with the Invitation, the following steps weretaken:-

(a) Restructuring Exercise

In preparation for our listing on the SGX-ST, our Company was incorporated under the name of“Happy Valley Retirement Resort Pte Ltd” on 11 October 2002 under the Act as a private limitedcompany with an authorised share capital of S$400,000 and initial paid up capital of two ordinaryshares of S$1.00 each. On 24 July 2003, we change our name to Zhongguo Jilong Pte. Ltd. Theprincipal activity of our Company is that of an investment holding company.

Pursuant to a sale and purchase agreement (“Sale and Purchase Agreement”) and a letteragreement dated 18 February 2003, our Company acquired all the equity interests in theSubsidiaries held by Shandong Jilong, Song Naihong and Tang Jierong for an aggregateconsideration of approximately S$9.73 million. The purchase consideration of the Subsidiaries wasbased on the aggregate NTA of the Subsidiaries as at 31 December 2002 (excluding land andbuildings). Song Naihong is the father of our Managing Director, Song Zhixing, and Tang Jierong isone of our Executive Officers. Please refer to the section entitled “Group Structure” in thisProspectus for further information on the Subsidiaries. The acquisition of the Subsidiaries by ourCompany pursuant to the Sale and Purchase Agreement was completed in September 2003. Uponthe MOFTEC’s approval in October 2003, the Subsidiaries were converted into WOFEs. Of thepurchase consideration of $9.73 million, $4.84 million was outstanding as at 31 December 2003.This amount has been fully settled in March 2004.

As a condition to the completion of the Sale and Purchase Agreement, Shi Ye transferred all itsequity interests in Hong Shun, Xing Hua, Health Drinks and Edible Oil, comprising 60%, 70%,9.6% and 77.6% of the equity interests in abovesaid companies respectively, to Shandong Jilong.Prior to the abovementioned transfers, Shandong Jilong held 90% and 22% of the equity interestin Health Drinks and Edible Oil respectively. Shandong Jilong also acquired the remaining 40%and 30% of the equity interests in Hong Shun and Xing Hua respectively from the minorityshareholders. Subsequent to the abovementioned transfers, Shandong Jilong held 100%, 100%,99.6% and 99.6% of the equity interests in Hong Shun, Xing Hua, Health Drinks and Edible Oilrespectively. Song Naihong held 0.4% of the equity interests in each of Health Drinks and EdibleOil. As another condition to the completion of the Sale and Purchase Agreement, ShandongJilong incorporated and held 99.6% of the equity interests in Green Food. Tang Jierong held theremaining 0.4% of the equity interests in Green Food.

(b) Capitalisation of Loans Payable to our non-executive Chairman and our ControllingShareholder

Between September 2003 and February 2004, our non-executive Chairman, Dr Lim Seck Yeow,and our Controlling Shareholder, Tan Geok Bee, advanced loans amounting to an aggregate valueof S$9,941,225 to our Company to finance the acquisition of the Subsidiaries by our Company. Theloans are interest-free, unsecured and have no fixed term of repayment.

On 19 March 2004, we capitalised S$9,719,998 of the loan amount owing to Dr Lim Seck Yeowand Tan Geok Bee by issuing 9,719,998 fully-paid new ordinary shares of S$1.00 each at par toDelight Success Limited, Capital Joint Limited and Ventures Point Limited. Please refer to thesection entitled “Shareholders” in this Prospectus for details of the above companies.

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RESTRUCTURING EXERCISE, LOAN CAPITALISATION AND BOND CONVERSION

(c) Issuance and Conversion of Convertible Bonds

On 10 May 2004, the Investors entered into an investment agreement with our Company tosubscribe for Convertible Bonds with an aggregate value of $2.5 million in our Company(“Investment Agreement”). Pursuant to the Investment Agreement, in the event that the IssuePrice is above an indicative price set out in the Investment Agreement, the Investors will pay to ourCompany the Difference within seven days of the listing of our Company on the SGX-ST. Theindicative price was arrived based on the lower end of the estimated issue price range at the timeof entering into the Investment Agreement. On 13 July 2004, the Investors converted all itsConvertible Bonds (without interest or any accretion) into an aggregate of 12,500,000 Shares andhave since paid to our Company $31,250, being the Difference. As such, the Conversion Amountrepresents 90% of the aggregate value of the 12,500,000 Shares at Issue Price. The number ofShares issued upon the conversion of the Convertible Bonds were arrived after negotiation on awilling buyer willing seller basis.

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GROUP STRUCTURE

Our Group structure following the Restructuring Exercise but before the Invitation is as follows:-

The details of our Subsidiaries as at the date of this Prospectus are as follows:-

Name of Date and Country Registered % owned byCompany of Incorporation Principal Activities capital the Company

Hong Shun 13 August 1993, PRC Processing and sale of foodstuffs US$445,000 100

Xing Hua 30 May 2000, PRC Processing and sale of frozen US$500,000 100foodstuffs

Health Drinks 17 May 1999, PRC Processing and distribution of US$604,100 100canned food, fruit juices and other health drinks and peanut products

Edible Oil 14 September 1998, Processing and sale of edible oil US$604,100 100PRC

Green Food 21 August 2003, PRC Processing and sale of freeze-dried US$604,100 100foodstuffs

None of our Subsidiaries is listed on any stock exchange.

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100% 100% 100% 100% 100%

Zhongguo Jilong

Hong Shun Xing Hua Edible Oil Green Food Health Drinks


HISTORY(1)

We were incorporated in Singapore under the Act on 11 October 2002 as a private limited companyunder the name of Happy Valley Retirement Resort Pte Ltd and on 24 July 2003, we changed our nameto Zhongguo Jilong Pte Ltd.

Our Company is a holding company for our wholly-owned subsidiaries, Hong Shun, Xing Hua, Edible Oil,Health Drinks and Green Food to undertake the four key business segments of our Group. Hong Shunand Xing Hua were incorporated to undertake the production of preserved and processed food segmentwhich is currently the largest revenue contributor of our Group, contributing approximately 58.6% of ourrevenue in FY2003. Edible Oil and Health Drinks which undertake the production of peanut oil andbeverages segments of our Group contributed approximately 25.4% and 16.0% respectively of ourrevenue in FY2003. Green Food commenced operations in FY2004 for our new business segment,which is the production of freeze-dried food products.

On 14 July 2004, we were converted to a public limited company and changed our name to ZhongguoJilong Limited.

In 1992, our Managing Director, Song Zhixing, took over the management of his father’s group ofcompanies which were engaged in the business of production of aluminum alloy, plastic and steel doorsand windows, and the assembly of machinery and automobiles. He analysed the prospects of the thenexisting business operations and saw the need to venture into more profitable business with goodprospects. He identified the food processing business as a business with growth potential and hadperceived Japan as a ready market for processed food products. This was due to the fact that most ofthe food products consumed in Japan are imported and Japan’s close proximity to the Shandongprovince which facilitates the transport of food products to Japan. As such, in March 1993, Song Zhixingconsolidated the production of doors and windows business and the assembly of machinery andautomotive under a company, Laiyang Jilong Group Shi Ye Co., Ltd (“Laiyang Shi Ye”). In addition to theaforesaid businesses, Laiyang Shi Ye commenced the business of food processing and packaging inMarch 1993.

In August 1993, Laiyang Shi Ye and a Taiwanese company jointly established Hong Shun to engage inthe production of preserved and processed food products such as meat, vegetables and fruits. With astringent quality control system, Laiyang Shi Ye was able to expand beyond the PRC and secureadditional clients overseas.

In September 1993, Laiyang Shi Ye was renamed “Shandong Jilong Group Company” (“JilongCompany”).

In 1998, Song Zhixing observed that there was a lack of a stable supply of peanut oil to meet theincreasing demand in the PRC domestic market. In addition, the abundance of natural resources in theShandong province could be tapped upon for the supply of peanuts which are required for the productionof peanut oil. As such, in September 1998, Song Zhixing, together with PRC minority shareholders,established Edible Oil to engage in the production of peanut oil.

In 1999, Song Zhixing observed that the annual consumption of beverages by PRC consumers was low.With the development of the PRC economy, he believed that there should be a potential growthopportunity in the business of beverage production in the PRC. As a result, Health Drinks wasestablished by Song Zhixing, together with PRC minority shareholders, in May 1999 to engage in theproduction of purified water and fruit juices such as apple juice, wild vegetable juice and peanut milk. In2000, two modern fruit juice production lines and four can drinks production lines were added to theproduction capacity of Health Drinks to meet the increasing demand for our beverage products.

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(1) As we only acquired the Subsidiaries in September 2003, references are made to the history of Shandong Jilong and Shi Ye,which were the previous holding companies of our Subsidiaries, to trace the development of our business.


In September 1999, Jilong Company was converted from a collective enterprise to a private-ownedenterprise and was renamed “Shandong Jilong Shi Ye Co., Ltd” (“Shi Ye”). This conversion allowed SongZhixing to better focus on the food production business which was the underlying growth driver of ourbusiness in recent years.

In September 1999, our peanut oil product received the “Popular Brand” award at China InternationalAgricultural Fair organised by Ministry of Agriculture of PRC. The award was given to products of highquality standards and are popular with the PRC consumers. This was a significant achievement as ourpeanut oil production business had commenced operations only in August 1998. The award reflected thepopularity of our peanut oil and that it was well received by the PRC consumers. The award furtherenhanced our reputation in the production and supply of peanut oil and resulted in increased sales of ourpeanut oil products in the PRC domestic market.

As a testimony to our efforts in quality control, our preserved and processed food products and peanut oilproducts were awarded the ISO9002 certification in December 1999 by the Quality Assurance Center ofChina Association for Quality, a third party quality certificate bureau authorised by the SupervisionCommittee in China National Accreditation of Registrars. The certification meant that our products meetthe international standards of quality assurance established by the International Organisation ofStandardisation.

In 2000, we turned our focus to supplying more food products to Japanese customers as Song Zhixinghad identified better business prospects in Japan. We began to cater more production lines for theproduction of food products to supply to the Japanese market. During the process, we increased ourmarketing activities and employed sales representatives in Japan. With greater emphasis on theJapanese customers, we were able to secure more and bigger orders from our major Japanesecustomers in both PRC and Japan markets to accelerate our growth.

In May 2000, Shi Ye entered into a joint venture with a Japanese company to establish Xing Hua toengage in the production of preserved and processed fruits and vegetables. The joint venture allowed usto further expand into the Japanese market by leveraging on the business network of our Japanesepartner and obtaining information on the preferences and demands of the consumers in Japan. Inaddition, through the joint venture, our Japanese partner shared their expertise and technology know-how with us and this allowed us to refine our production process and management methods.

In February 2001, through our product development activities, our subsidiary, Health Drinks, successfullydeveloped and commenced the production of pear juice using Laiyang pear. We saw success of thelaunch of our Laiyang pear juice which contributed to the growth of the revenue for our beveragesbusiness segment from RMB24.8 million in FY2001 to RMB57.8 million in FY2003.

In May 2002, Shandong Jilong Group Co., Ltd (“Shandong Jilong”) was established to hold equityinterests of 90% and 22% respectively in Health Drinks and Edible Oil.

On 19 August 2002, Edible Oil’s product, Jilong Peanut Fragrant Oil (Grade One), was awarded theCertificate of Product Exemption from Quality Surveillance Inspection, by the State GeneralAdministration of PRC for Quality Supervision and Inspection and Quarantine as a Free Quality-Inspection Product. The Free Quality-Inspection Product is an award given to a product that: (1) meetsthe quality inspections, which include hygiene inspection, conducted by the State Quality InspectionBureau, (2) is well regarded by consumers in the PRC and (3) has a stringent quality control system forits production process. During the validity of this award, which is valid until August 2005, Jilong PeanutFragrant Oil (Grade One) is not subject to periodic quality inspections by the relevant inspectionauthorities. In addition, as this award is given by the State General Administration of PRC for QualitySupervision and Inspection and Quarantine, which is the highest inspection authority in the PRC, it is atestimony to the quality of Jilong Peanut Fragrant Oil (Grade One) as well as our peanut oil productionprocess and had resulted in a rapid increase in the sales of our peanut products from RMB65.4 million inFY2002 to RMB91.6 million in FY2003.

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In December 2002, Shandong Jilong was awarded by China National Food Industry Association, a PRCnational food industry organisation, as one of the leading enterprise of national food industry in the PRC.

In January 2003, the ISO9002 certification which was obtained in December 1999 was upgraded toISO9001:2000 for the production and processing of our preserved and processed food products, peanutoil products and beverages by Quality Assurance Center of China Association for Quality. This upgradewas a further testimony that our products meet the international standards of quality assuranceestablished by the International Organisation of Standardisation.

In February 2003, our subsidiary, Hong Shun, was awarded the HACCP certification by the China QualityCertification Centre. HACCP is a safety control system in food production process that ensures that thefinished products are safe for consumption as well as the quality of the food production process. With thePRC’s entry into the World Trade Organisation, the domestic PRC enterprises engaging in the productionof food products will face intensive competition from international food supply companies for consumersin the PRC. The HACCP certification received by Hong Shun is an evidence of our quality food productsand hygienic food production process and it allows us to compete effectively with international foodsupply companies in the PRC.

In view of the potential demand for freeze-dried products, Green Food was set up in August 2003 toengage in the production of freeze-dried food products. Green Food has commenced commercialproduction of freeze-dried food products in May 2004.

Pursuant to the Restructuring Exercise, we owned all the equity interests of the Subsidiaries inSeptember 2003. Please refer to the section entitled “Restructuring Exercise, Loan Capitalisation andBond Conversion” in this Prospectus for further details.

OUR BUSINESS

Principal Business Activities

Our Group is principally engaged in the following business activities:-

(a) production of preserved and processed food products;(b) production of peanut oil;(c) production of beverages; and(d) production of freeze-dried food products

(a) Production of preserved and processed food products

One of our Group’s principal business is the production of preserved and processed food productswhich is undertaken by our subsidiaries, Hong Shun and Xing Hua. We process and preservemainly vegetables and fruits which we procure from our contract farms or leased farms. Pleaserefer to the sections entitled “Major Suppliers” and “Properties and Fixed Assets” in this Prospectusfor further details of our contract and leased farms. The preserved and processed food productsare then sold and distributed to our customers in the PRC and in Japan. Our customers forpreserved and processed food products in the PRC are mainly supermarkets, wholesalers andfood service outlets in major cities in the PRC. Our Japanese customers are mainly fooddistributors, wholesalers, food processing companies and restaurant operators located in majorJapanese cities such as Tokyo, Yokohama, Osaka and Kobe. We also sell to Japanese companieswith production facilities in the PRC. To-date, we have over 30 Japanese customers.

Most fruits, such as strawberries, apples, cherries and peaches which we use as raw materials forour food preservation and food processing business, have only one harvest season in a year. Weusually receive advanced orders from our customers before the harvest season for their annualrequirements of our products. We deliver these products over a period of six to 12 months.

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In order to preserve the freshness of our processed food products such as frozen curry mixedvegetables and frozen Japanese mixed vegetables, we will only commence the production of thesefood products after receiving orders from our customers. These food products are delivered to ourcustomers in the PRC or for export to our overseas customers immediately after production.

The following flow-chart shows our typical food preservation and processing process:-

(Our leased farms and contract farms)

(At our factory)

Note:-

* Only applies to our food preservation production process

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Vegetables and fruits areharvested

Removal of decayed,damaged or spoiled parts

Cut into shapes and sizes in accordance with

customers’ requirements

Sterilisation

Sizing/Flavouring *

Freezing

Packaging

Customers

Cooling

Cleaning of vegetablesand fruits


The main raw materials required for our production of preserved and processed food products aredifferent types of vegetables and fruits. We obtain the raw materials for our production of preservedand processed food products from our leased farms, contract farms and open market purchases.After harvesting, the vegetables and fruits are transported within 12 hours of harvest to our foodprocessing factories. Upon arrival at our factories, the spoiled vegetables and fruits are removed byour staff. The vegetables and fruits are then thoroughly washed with water. Thereafter, they arecut into shapes and sizes according to our customers’ requirements.

The cut vegetables and fruits are then loaded onto an automated line to undergo sterilisationwhere hot water of approximately 98°c is applied to kill germs and bacteria. The sterilisationprocess also helps to retain the original colour of the vegetables and fruits when they undergo theprocess of quick freezing in the freezing room at the next production stage. The frozen vegetablesand fruits are then packed and stored in our coldroom at a temperature of –20oc before beingtransported to our customers located in the PRC or to shipping ports for export.

(i) Preserved food products

We preserve food products comprising mainly different types of vegetables and fruits usinga process of dehydration and/or freezing. Please refer to the section below for furtherdetails of the process. The preserved food products, when dehydrated and/or frozen, arepackaged in air-sealed packets. The advantages of preserved food products are that theyhave a longer shelf life and can be transported over a longer distance to countries overseaswhile retaining their original freshness, tastes and nutrients. The preserved food productscan be readily consumed by adding flavour or after defreezing.

We preserve fruits and vegetables such as the following:-

Fruits

� frozen strawberry;� frozen white peach;� frozen apricot; and� frozen apple

Vegetables

� frozen taro;� frozen yam;� frozen leek;� frozen broccoli;� frozen spinach; and� frozen cabbage

(ii) Processed food products

We are also engaged in the production of processed food products. Our processed foodproducts include frozen fruits and vegetables and/or meat with flavouring and canned fruitsthat can be consumed readily by heating.

The following are the main processed food products that we produce and supply:-

� frozen Japanese mixed vegetables;� frozen mixed vegetables;� frozen curry mixed vegetables; and� canned fruits

The difference between frozen Japanese mixed vegetables and frozen mixed vegetables isthat flavouring and meat are added to Japanese mixed vegetables. Frozen curry mixedvegetables contains curry with meat and vegetables.

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Canned fruits

We are also engaged in the production of canned fruits which are packaged in cans witheasily removable lids and hence can be readily consumed. Our canned fruits productionprocess is similar to our preserved and processed food production process up to the stageof sterilisation except that it does not involve quick freezing. After the cut fruits aresterilised, cut fruits that meet our quality and size requirements are loaded onto theassembling line for canning. Before the cans are sealed, sugar syrup is added and air isextracted from the cans. We then apply heat to the cans to disinfect the cans in order toensure the cans are hygienic and the canned fruits can be kept for a long period of time.Once cooled, the cans are packed into cartons.

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The following flow-chart shows our typical canned fruits production process:-

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Raw materials

Selecting

Disinfecting

Cut into shapes in accordance with

customers' requirements

Sizing

Cleansing

Canning

Adding sugar

Air extraction

Sealing

Cooling

Sterilisation

Packaging


Our canned fruits include the following:-

� canned cherry;� canned apricot;� canned white peach;� canned yellow peach;� canned grapes;� canned apple; and� canned mixed fruits

In FY2003, we supplied approximately 75% of our preserved and processed food products tocustomers located in the PRC while the remaining 25% were supplied to customers located inJapan.

We derived approximately 58.6% of our revenue for FY2003 from the production of preserved andprocessed food products.

Storage and transport of our preserved and processed food products

With the increase in the standards and pace of living in the PRC, there is an increase in demandfor reasonably-price food that can be readily consumed. Preserved and processed food productsare able to fulfill such demand as they can be readily consumed after heating, defreezing or byadding flavouring and they are able to retain the original flavour and nutrients. The preserved andprocessed food are produced from various vegetables, meat and flavouring and are based on thedifferent consumption preferences in the different regions in the PRC.

We have cold room facilities at our factories to store our preserved and processed food productsbefore they are delivered to our customers. With the temperature of the food products maintainedat approximately –20°c, our frozen vegetables and fruits have a shelf life of between 12 to 24months. The packed frozen vegetables and fruits are then delivered to our customers located inthe major cities in the PRC or are transported to the ports of Qingdao or Yantai for export. Thevegetables and fruits are usually delivered to our production facilities for processing within 12hours of harvesting to arrest the natural degradation and retain the freshness of the vegetablesand fruits.

Our preserved and processed vegetables and/or meat food products are stored at temperature ofbelow -20°c during our delivery to our customers and this preserves their freshness and tastes.Cold storage transportation allows our food products to be delivered to Japan.

(b) Production of peanut oil

We produce and distribute peanut oil which is used in various ways such as cooking and foodprocessing. We are also engaged in the sale of the residue from our peanut oil production. Theproduction of peanut oil is undertaken by our subsidiary, Edible Oil.

We produce peanut oil from peanuts produced in the Shandong Province. The climate inShandong Province is favourable for the growth of peanuts and produces quality peanuts whichhave high oil content.

We produce peanut oil according to the demand and consumer preference from different regionsin the PRC. The types of peanut oil that we produce include aroma peanut oil, fragrant peanut oil,pure peanut oil and peanut salad oil. Aroma peanut oil is the highest grade of peanut oil. Weproduce our fragrant and pure peanut oil in accordance with the high national standards ofproduction. Aroma peanut oil and fragrant and pure peanut oil are produced by crushing thepeanuts and pressing them to extract the oil, which is then filtered. Peanut salad oil is used toenhance the flavour of food products to meet customers tastes and preferences.

Our peanut oil products are sold in different packaging and sizes and are supplied to customers,who are mainly distributors and retailers, in more than 20 provinces in the PRC.

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The following flow-chart shows our peanut oil production process:-

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Raw Peanuts

Removal of dirt, metallic substances and crushed

stones

Grading

Extraction

Crushed into pieces

Distillation

Rolling

Boiling

Packaging

Customers

Bottled


We obtain the raw peanuts for our production of peanut oil from our contract farms and the openmarket in the province of Shandong. Dirt, metal and crushed stones are first removed beforebeing loaded on a conveyor belt for the next stage of production.

Our staff pick out any moulding or germinated peanuts in order to ensure that the quality andhygiene conditions of our peanut oil products. The peanuts are then segregated into differentgrades by a filter sieve according to size. The peanuts are sent into a seed scorcher, which is alarge pan fitted with a stirrer and drum roasters, on a conveyor belt and are roasted until they giveout a fragrant smell. Each peanut is then crushed into four to six pieces and the crushed peanutsare conveyed into a rolling machine where they are mixed with the peanuts that have beensteamed. The mixed peanuts are then crushed into small pieces of approximately 0.3 to 0.5 mmeach. The crushed peanuts are then sent to a boiler where they are boiled at a temperature ofbetween 110oc and 125oc, to remove the moisture in them.

At the next stage of production, the peanuts are sent to the expellers. We adopt the mechanical(expeller) extraction method in our peanut oil production. Expellers use a horizontally-rotatingscrew of diameter 200 mm, that feeds the peanuts into a barrel-shaped outer casing withperforated walls. During mechanical extraction, the peanuts are continuously fed to the expellerwhich grinds, crushes and presses out the oil as the crushed material passes through themachine. The expellers are maintained at a temperature of 130°c to ensure that the peanut oilextract contains low moisture content and are fragrant. The extracted oil are then cooled andchanneled to huge storage tanks for distillation. Thereafter, the distilled peanut oil are packed incontainers in accordance with the requirements of our customers and the containers are thenpacked into boxes for delivery to our customers. Please refer to the section entitled “QualityAssurance” for details of our quality assurance process.

The residue, or oil cake, from the production of peanut oil, contains approximately 6% oil contentsand is further processed and sold as peanut dregs to animal feed companies and pig and chickenfarms as animal feeds.

We derived approximately 25.4% of our revenue in FY2003 from the production of peanut oil.

(c) Production of beverages

We produce and supply beverages such as juice concentrate, fruit juices and purified water. Ourbeverage production activities are undertaken by our subsidiary, Health Drinks and our beveragesare produced under our own brand name “ ”. We supply our beverages to customerslocated in the PRC who are mainly distributors, wholesalers and retailers. We produce ourbeverages in accordance with the standards of ISO9002 and HACCP to meet the hygienerequirements set by the relevant authorities in the PRC.

(i) Fruit Juice

We produce and supply fruit juices such as apple juice, pear juice and peach juice. Weobtain various fruits for our fruit juice production from our leased farms, contract farms andthe open market in the province of Shandong. Our fruit juices are mainly supplied anddistributed to the major cities in the PRC such as Beijing, Shanghai, Dalian and Wuhan. Weare able to produce approximately 30,000 tons of fruit juices annually. The fruit juices weproduced are mainly supplied and distributed to the PRC domestic market which includesthe supply of pure concentrated pear and apple juices to local beverage factories for theirfurther processing.

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The following flow-chart shows our typical fruit juice and juice concentrate production process:-

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(Plantation)

(Factory)

Harvested fruits

Heat Disinfection

Cleansing

Pulp and Seeds Sold as animal

feedsExtraction

Processing activities

Sterilisation of bottles/cans

Storage at 90oc Bottled/canned

Cooling

Labelling

Packaging

Customers

Removing spoilt fruits or fruits that do not meet our quality standards

Distillation and storage


We carry out the fruit juices production activities in our factory located in Laiyang in theShandong province, PRC. We use fruits such as apples and Laiyang pears for theproduction of fruit juices. Yantai is the largest apple producing region in the PRC and Yantaiapple is well-liked in the PRC. Laiyang pear is a local product of Laiyang, where ourproduction facilities are located, and is known in the PRC for its taste and high sugarcontent.

Freshly picked fruits from our leased and contract farms are transported to our factory by avariety of containers. At our factory, spoilt fruits or fruits that do not meet our qualitystandards are removed. Please refer to the section entitled “Quality Assurance” for details ofour quality assurance process. The fruits are then washed thoroughly in warm water toremove dirt and other contaminants. The cleansed fruits are then sent into a pressingmachine to extract fruit juice via the pressure method. The leftover pulp and seeds are soldas animal feeds. The extracted fruit juice is then filtered and stored temporarily in tanksbefore being bottled/canned.

The extracted fruit juice is then pasteurised at 135oc for three seconds prior tobottling/canning to kill any germs or bacteria. The juice is filtered and then heated to 90ocbefore bottling/canning. The bottles/ cans are then filled with the hot juice, which in turnsterilises the bottle/can and the cap. The heating of the juice and “hot-bottling” allow us toproduce quality juices with no preservatives which have an estimated shelf life of 18 months.

At the last stage of the production process, the bottles/cans are cooled with water spray in acooling tunnel. Once cooled, the bottles/cans are labelled (including date coded with expirydate which is usually 12 months from the date of production). The bottles/cans are packedinto cartons and are delivered to our customers in major cities in the PRC.

We derived approximately 16.0% of our revenue for FY2003 from the production ofbeverages.

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(ii) Purified Water

We produce and supply purified water in bottles and for office dispensers. The purifiedwater we produce are supplied to customers located in the PRC such as stores andsupermarkets. All the purified water we produced were supplied to the PRC domesticmarket.

The following flow-chart shows our purified water production process:-

We use fresh underground water in our production of purified water. The underground wateris transported to our factory through pipes. We conduct laboratory tests on our undergroundwater in accordance with the national requirements twice a year to ensure that it is safe forconsumption. At our factory, suspended solids, impurities and organic substances are firstremoved from the underground water. It is then channeled to a softening tank to removecalcium and magnesium ions through chemical reactions. Before being channeled into areverse osmosis station where the inorganic salt, soluble organic substances, colloid andgerms in the water are filtered, active carbon is added to the water to absorb the residualorganic matters and chlorine. At the last stage of production, the filtered water is channeledto a steriliser which is rich in oxygen to kill the bacteria.

We fill our purified water in bottles or barrels, which have been cleansed and sterilised, inaccordance with the requirements of our customers.

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Water from underground

Removal of suspended solids,

impurities and organic substances

Softening

Further filter with active carbon

Customers

Canning / Bottling

Killing bacteria in rich oxygen

Reverse osmosis


(d) Production of freeze-dried food products

We commenced the commercial production of freeze-dried food products in May 2004.

We produce many types of freeze-dried food products such as freeze-dried vegetables, freeze-dried fruits and freeze-dried meat. We obtain our supply of raw materials for our freeze-dried foodproducts from our leased farms, contract farms and through open market purchases. Our freeze-drying activities are undertaken by our subsidiary, Green Food.

Our factory at Green Food employs the “freeze-dry” production technology to dry and preservefood products. Freeze-drying is the process of removing water content from frozen food, throughthe process of sublimation where water is transformed directly from solid state to gaseous stateunder low temperature and low pressure without going through its liquid state. The freeze-driedproducts retain nutrients, color, flavour, shape, size and texture and are often indistinguishablefrom the appearance of the original products. The freeze-dried products return to their originalform when water is added.

The following flow-chart shows our freeze-drying process:-

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Raw materials

Freezing

Primarydrying/heating

Customers

Packaging

Sterilisation

Selecting andCleansing

Sizing


We select and thoroughly cleanse the raw materials such as vegetables, fruits and meat.Thereafter, the raw materials are cut into different shapes and sizes according to the customers’requirements. The raw materials are then sterilised by hot water at 98°c to kill any germs andbacteria. The sterilised raw materials are then frozen at -40°c to preserve the original taste andcolour of the raw materials. The frozen raw materials are then placed in a vacuum freeze-dryerwhich consists of a drying chamber with temperature controlled shelves, a condenser to trap waterremoved from the product, a cooling system to supply refrigerant to the shelves and condenser,and a vacuum system to reduce the pressure in the chamber and condenser to facilitate the dryingprocess. Please refer to the section entitled “Quality Assurance” in the Prospectus for furtherdetails of our quality assurance process.

At the vacuum freeze-dryer, frozen water content in the product vapourises through the process ofsublimation. Heat is then applied to the frozen product to accelerate sublimation. Low-temperature condenser plates are used to remove the vapourise water from the vacuum chamberby converting it back to water. This completes the separation process.

Freeze-dried food lasts longer than other preserved food and is very light due to its low watercontent. Both these characteristics allow freeze-dried products to be easily transported at acheaper rate. As freeze-dried products can be preserved for a longer period of time, we are ableto ship our freeze-dried products to our targeted overseas markets in the Middle East, the US,Japan, France and Denmark. Depending on the product and packaging environment, freeze-driedfoods have an estimated shelf life at room temperature of more than five years. In addition, thenutrients, original colour and taste of the raw materials are retained in the freeze-dried products.

Freeze-drying, which is an advanced form of food processing, is an industry that is encouraged bythe PRC government. Our Directors are of the view that there is a potential demand for freeze-dried food products and our freeze-drying business will contribute significantly to our operatingresults in the future.

QUALITY ASSURANCE

We place great emphasis on the importance of the quality and hygiene of the vegetables, fruits andpeanuts that are supplied to our production facilities for processing. We obtain our raw materials fromour leased farms, contract farms and open market purchases. Please refer to the section entitled“Properties and Fixed Assets” and “Major Suppliers” for further details on our leased farms and contractfarms.

We ensure the quality of the vegetables and fruits supplied to our production facilities by controlling thequality of seeds, pesticides and fertilizers at our leased farms where the growing of the agricultural cropsare carried out under the supervision of our product development and management team. With regardsto the supply of raw materials from the contract farms and open market purchases, we only accept thoseraw materials that meet our quality requirements.

As a testimony to our efforts in quality control, our preserved and processed food products and peanut oilproducts were awarded the ISO9002 certification in December 1999, which was upgraded toISO9001:2000 in January 2003 for the production and processing of our preserved and processed foodproducts, peanut oil products and beverages by the Quality Assurance Center of China Association forQuality, the government body responsible for ISO certification in the PRC. The ISO certifications meanthat our products meet the international standards of quality assurance established by the InternationalOrganisation of Standardisation.

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Production of Preserved and Processed Food Products

Several of our Japanese customers, such as Aohata F & M Supply Co., Ltd and Toshoku Ltd., secondtheir staff at our premises to convey their requirements and to ensure the quality of the processedproducts. These Japanese customers also assist us in refining our production process and methods tomeet their stringent requirements and high standards. With our high quality food products, we are able tomeet the stringent hygiene requirements of our Japanese customers and this allows us to successfullypenetrate the Japanese market.

In addition, our subsidiary Hong Shun was awarded the HACCP, which is a safety control system in foodproduction process that ensures that the finished products are safe for consumption as well as the qualityof the food production process, by the China Quality Certification Centre in February 2003 for our foodproduction process. Under the HACCP system, we identify the hazard points and critical control points inour production process and take measures to solve or avoid these hazard and/or critical control points.We are currently in the process of preparing for HACCP certification for our preserved and processedfood production process at Xing Hua.

Production of Peanut Oil

We have a stringent quality control system for our production of peanut oil. We carry out inspections andrecord the results of the inspections at every stage of the production process. We have a set of internalquality control guidelines and procedures which our staff complies strictly with at every stage of theproduction process. We dispose products that do not meet our quality control standards. We constantlyimprove and fine-tune our quality control system and procedures to ensure that we produce and supplyquality peanut oil products to our customers.

The quality of peanuts that are used in our production of peanut oil will affect the quality of the peanut oilproduced. Accordingly, we implement strict internal controls to ensure that the quality of peanutsdelivered to us by our suppliers is consistently of high standards. In this regard, we randomly inspectevery batch of peanuts delivered to us to ensure that the particular batch of raw materials meets ourquality requirements. Our staff will conduct physical inspection and laboratory tests on the peanutssamples and those peanuts that do not meet our requirements will be removed and disposed of.

In order to ensure that the final peanut oil products that are supplied to our customers meet therequirements of our customers and the relevant authorities, we have established a laboratory to conducta range of random inspections and/or quality checks on every batch of final peanut oil products beforethey are packaged and delivered to our customers.

Our peanut oil product received the “Popular Brand” product award at the China International AgriculturalFair in 1999 and has received the QS certificate issued by the State General Administration of PRC forQuality Supervision and Inspection and Quarantine. We are among the first food companies in the PRCto receive this certification which is mandatory in the production of daily necessities such as edible oils,rice, flour and soy sauce.

On 19 August 2002, our peanut oil product, Jilong Peanut Fragrant Oil (Grade One), was awarded theCertificate of Product Exemption from Quality Surveillance Inspection, by the State GeneralAdministration of PRC for Quality Supervision and Inspection and Quarantine as a Free Quality-Inspection Product. The Free Quality-Inspection Product is an award given to a product that (1) meetsthe quality inspections conducted by the State Quality Inspection Bureau, (2) is well regarded byconsumers in the PRC and (3) has a stringent quality control system for its production process. Duringthe validity of this award and certificate, our peanut oil products are not subject to periodic qualityinspections by the relevant inspection authorities. In addition, as this award is given by the State GeneralAdministration of PRC for Quality Supervision and Inspection and Quarantine, which is the highestinspection authority in the PRC, it is a testament to the quality of our peanut oil products as well as ourpeanut oil production process and had resulted in a rapid increase in the sales of our peanut products.

We have not experienced any incident relating to our peanut oil products that resulted in consumersseeking compensation from us since we commenced the production and supply of peanut oil.

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Production of Beverages

Every batch of fruits delivered to our factory is inspected by our quality control department. In addition,we also cleanse and sterilise every batch of fruits delivered to our factory. We only use those fruits thatmeet our stringent inspection in the production of beverages.

We implement a system of stringent production process. Our production process has been approved bythe relevant authorities in the PRC and is in compliance with the PRC laws relating to food production.We station our staff, who is trained, at each stage of the production process to ensure that ourproduction process is strictly adhered to.

We conduct random physical inspections and laboratory tests on every batch of our products to ensurethat they meet the quality requirements of our customers. Only products that meet the requirements arepacked and delivered to our customers. In addition, we also send our products regularly for inspectionsby the relevant quality and health authorities in the PRC. We also engage third parties that are approvedby the relevant authorities to assist us to improve the quality of our products and production process aswell as to conduct random tests on our products to certify that our products meet the regulatoryrequirements and are suitable for consumption.

In 2002, we were appointed the official sponsor of beverages for the 2002 ITTF Men’s World Cup tabletennis championships held in the PRC.

We are currently in the process of preparing for HACCP certification for our beverages productionprocess at Health Drinks.

Production of Freeze-Dried Food Products

The quality assurance for our freeze-dried food products is similar to our preserved and processed foodproducts. Hence we are able to apply our methodology and experience relating to quality control in theproduction of preserved and processed food in our production of freeze-dried food products.

We employ technology from the Physical Research Institute of the Chinese Academy of Sciences byacquiring facilities, equipment and methodologies for our production of freeze-dried food products. Webelieve that such facilities, equipment and methodologies are on par with international standards. Wehave also entered into a consulting and licensing technology agreement with Innovative Foods pursuantto which Innovative Foods, with the assistance of Edward Hirschberg, who has extensive knowledge inthe freeze-dried food industry, will provide technical assistance to us to improve our freeze-dried foodproduction methods and process. Under the abovesaid consulting and licensing technology agreementwith Innovative Foods, Green Food shall pay to Innovative Foods, or any of its designated benefactors, aroyalty, which shall be based on the sales to Innovative Foods or any of its designated benefactors withinand outside the PRC for products produced by Green Food and its co-producers, for a period of 20years. In addition, an additional royalty shall be payable by Green Food to Innovative Foods based onproducts produced and processed that utilised Edward Hirschberg's particular patent.

We are currently in the process of preparing for HACCP certification for our freeze-dried food productionprocess and we expect to receive this certification by end of 2005.

PRODUCT DEVELOPMENT

Based on our customers’ and market feedback, our product development team conducts productdevelopment activities to produce new and wider range of products as well as to improve the quality ofour products to meet the tastes and preferences of the consumers. We employ technology from theUnited States in our product development with the assistance of Innovative Foods, through a consultingand licensing technology agreement as described in the section entitled “Quality Assurance – Productionof Freeze-Dried Food Products” in this Prospectus.

In addition, we also conduct tests in our laboratories on the fertilizers and pesticides that we use in ourleased farms and contract farms to ensure that they are not harmful to human beings and that thevegetables and fruits produced at our leased farms and contract farms are suitable for consumption.

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Our product development expenses comprise mainly salaries of our product development team and havenot been significant for the last three financial years.

SALES AND MARKETING

In order to market our products overseas to countries such as Japan and United States, we haveemployed two sales representatives in Japan and two sales representatives in San Francisco in theUnited States as at the Latest Practicable Date. These sales representatives are our full-time employeesand they were former PRC nationals who have obtained citizenships in Japan and the United States.Having been citizens of Japan and the United States for a while, they have a good understanding of thelanguage, culture and tastes of the respective countries. They are tasked to cover and serve ouroverseas customers in the respective geographical markets. Through them, we are able to understandbetter the demands and preferences of our overseas customers. Hence, we are able to establish aneffective marketing and distribution network, which enables us to establish good relationships with ouroverseas customers. Our products are distributed to various cities in Japan and our sales in the UnitedStates is expected to increase significantly in 2004. Besides focussing our sales and marketing effortson customers located in Japan, we also market our products to Japanese companies which haveproduction facilities and/or established distribution network in the PRC.

In the PRC market, we are actively engaged in the marketing and advertising of our products. In order toallow our consumers to be more familiar with our peanut oil products and beverages, we conductadvertisements in the media such as the television, newspapers and magazines. We also promote ourproducts in various trade fairs and sports events. In 2002, we were the official sponsor for the 2002 ITTFMen’s World Cup table tennis championships that was held in the PRC. The sponsorship allowed us toincrease the awareness of our products amongst PRC consumers. As at the Latest Practicable Date,our sales and marketing network in the PRC comprises of 117 full-time sales representatives coveringthe major cities of the PRC such as Beijing, Haerbin, Shenyang, Jinan, Dalian to market and distributeour products. Through our sales and marketing network, we have established good relationships withmore than 100 distributors, 300 supermarkets and chain stores for the distribution of our products in thePRC.

INTELLECTUAL PROPERTY RIGHTS

Intellectual Property Rights

Our Company owns the following registered trademarks in the PRC:-

Mark Class Registration No. Validity Period

32 1376737 21 March 2000 to 20 March 2010

32 1575543 21 May 2001 to 20 May 2011

31 1385082 14 April 2000 to 13 April 2010

31 1439176 28 August 2000 to 27 August 2010

29 1366610 21 February 2000 to 20 February 2010

and 29 1381784 7 April 2000 to 6 April 2010

29 1366612 21 February 2000 to 20 February 2010

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Our subsidiary, Hong Shun, owns the following registered trademarks in the PRC:

Mark Class Registration No. Validity Period

29 1097167 7 September 1997 to 6 September 2007

and 31 1006928 14 May 1997 to 13 May 2007

Notes:-

The PRC trademark classification is in compliance with International Classification of Goods lawpanel which came into effect on 8April 1961.

Class 32: Beer, ale and porter, mineral and aerated waters and other non-alcoholic drinks; syrups and other preparations formaking beverages

Class 31: Agricultural, horticultural and forestry products and grains not included in other classes; living animals, fresh fruits andvegetables; seeds; live plants and flowers; foodstuffs for animals, malt.

Class 29: Meat, fish, poultry and game; meat extracts; preserved, dried and cooked fruits and vegetables; jellies, jams; eggs, milkand other dairy products; edible oils and fats; preserves, pickles.

We will continue to file further trademark applications from time to time where appropriate or necessary.

Save for the consulting and licensing technology agreement with Innovative Foods mentioned in thesection entitled “Product Development” in this Prospectus, we have not entered into any licence,technology transfer agreement, franchise or similar arrangement with third parties.

As at the date of this Prospectus, our business or profitability is not materially dependent on any patent,of licence or new manufacturing process.

As at the date of this Prospectus, we have not faced any claims for our infringement of other registeredtrademarks held by third parties.

As at the date of this Prospectus, save as disclosed under the section entitled “Major Customers”, wehave not entered into any arrangement or agreement with any third parties (including Shandong Jilongand Shi Ye) in relation to our trademarks or the “Jilong” name. As Shandong Jilong was the previousholding company of our subsidiaries and was incorporated earlier than our Company, we have no right,under PRC law, to prevent Shandong Jilong and/or its subsidiaries from using “Jilong” or compel them tochange their names. Shandong Jilong had provided an undertaking to our Company that it or itssubsidiaries will not compete, directly or indirectly, with the existing business of our Group. CurrentlyShandong Jilong does not have any subsidiary. In view of the above, our Directors are of the view thatthere will not be any confusion between Shandong Jilong and our Group.

In addition, our Directors are of the view that there will not be any misperception between third partyentities using "Jilong" as part of their name (such as Laiyang Jilong Packaging Co., Ltd) and our use of"Jilong" trademarks as these third party entities are engaged in businesses and industries that aresignificantly different from those engaged by our Group. Our Company is the registered owner of thesetrademarks and these third party entities do not have the right to use these trademarks by virtue of thefact that their names contain "Jilong". Our Company may institute legal proceedings against these thirdparties if any of them uses our Company's trademarks without any formal arrangement or agreementwith our Company. As at the date of this Prospectus, to the best of our knowledge, we are not aware ofany third party using our trademarks.

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INSURANCE

Our Group has in place the following insurance policies:-

(i) social insurance in respect of which the insurance premium is borne by our Group and theemployees in a specific proportion governed by the relevant PRC regulations;

(ii) product liability insurance in respect of products sold by our Group in the PRC and overseas; and

(iii) insurance policies relating to our operations such as certain fixed assets, buildings, machinery andequipment, vehicles, raw materials, work-in-progress and finished goods.

Our insurance premiums form an insignificant percentage of our total costs and expenses incurred forFY2003. To date, no claims were made under any of the above insurance policies taken up by ourGroup.

MAJOR SUPPLIERS

We obtain the raw materials for the production of our products from our leased farms, contract farms andopen market purchases.

We enter into supply contracts with our contract farms, which are run by individual farmers, to supply usa fixed quantity of agricultural crops such as vegetables, fruits and peanuts every year, for our productionactivities. Pursuant to the supply contracts, we only accept raw materials that meet our requirements, inorder to ensure the quality of raw materials used in our production process. We provide assistance andguidance to the contract farmers in areas such as the use of fertilizers and pesticides, which the contractfarmers may obtain from their own sources. In order to ensure that the vegetables supplied to us meetour requirements, some contract farmers grow vegetables in their farms using vegetables seeds from ourleased farms.

In our leased farms, unlike contract farms, we are able to conduct development activities to improve thequality of our vegetables and fruits to meet the demand of consumers. We lease three farms with anaggregate land area of 313,420 sq m, on which we conduct developmental activities. We growvegetables and fruits on the leased farms to supply to our production facilities when we are notconducting any developmental activities on these farms. In the leased farms arrangement, the localfarmers, with our guidance and supervision, continue to work in the leased farms and supply us withvegetables and fruits. We purchase the vegetables and fruits from the local farmers in our leased farmsat market price and pay the local farmers the amount net of the costs of fertilizers, seeds and pesticideswhich we supply to them. By supplying the leased farms fertilizers, seeds and pesticides, we are able toensure the quality of the vegetables produced and supplied to us from these farms. We have notexperienced any significant shortage in the supply of agricultural raw materials since we commenced ouroperations.

We also import from South Korea, sugars used for processing of our products for the Japanesecustomers. None of our suppliers, including our contract farms and leased farms, accounted for five percent. or more of our purchases for the last three financial years.

Save as disclosed above, none of our Directors or Substantial Shareholders has any interest, direct orindirect, in any of the above suppliers.

As at the date of this Prospectus, our business or profitability is not materially dependent on any contractwith a supplier.

As at the date of this Prospectus, we are not dependent on a single or group of suppliers for any singletype of raw material.

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MAJOR CUSTOMERS

Customers who accounted for five per cent. or more of our total revenue for the last three financial yearswere as follows:

As a percentage of total revenue (%)FY2001 FY2002 FY2003

Preserved and Processed Food Products

Aohata F&M Supply Co., Ltd 9.7 8.4 5.8

Toshoku Ltd 12.9 6.5 5.2

Endo Trading Co., Ltd 18.2 10.5 nm

Unipac Japan Co., Ltd 5.5 1.8 0.2

Peanut Oil and Beverages

Laiyang Jilong Sales Development Co., Ltd 11.7 0.2 0.5

Note:-

nm means not material as the percentage is less than 0.1%

Preserved and Processed Food Products

In FY2001, FY2002 and FY2003, 79.9%, 51.0% and 25.5% respectively of our sales in this segmentwere exported to Japan. Our major customers in this business segment comprise mainly Japanesetrading companies, food distributors and restaurant chain operators.

Sales to Aohata F&M Supply Co., Ltd (“Aohata”) in absolute amount increased by about 19.3% fromRMB17.6 million in FY2001 to RMB21.0 million in FY2002 as we offered quality products that meet theirstringent requirements. In FY2003, our sales to Aohata remained relatively constant in absolute amount.However, the sales to Aohata expressed as a percentage of total sales decreased from 9.7% to 8.4% inFY2002 and decreased further to 5.8% in FY2003 as the increase was proportionately lesser than theoverall increase in sales of the Group in FY2002 and FY2003.

Our sales to Toshoku Ltd (“Toshoku”) decreased in FY2002 despite an increase in sales volume. Thiswas due to the reduction in average unit selling price as a result of a change in the ingredients of ourproducts. In FY2002, Toshoku specified to exclude chicken meat from the products purchased from usdue to the outbreak of the bird flu virus in certain provinces of the PRC. In FY2003, our sales to Toshokuincreased in absolute amount by approximately 18.1%. However, as a percentage of our total sales, oursales to Toshoku decreased from 6.5% to 5.2% in FY2003 as the increase was proportionately lowerthan the overall increase in our total sales.

Our sales to Endo Trading Co., Ltd (“Endo”) decreased in FY2002 after it changed its sourcing agent inthe PRC in the last quarter of FY2002. Our Group's sales to Endo was transacted via a sourcing agentwho acts as an intermediary contact person of our Group with Endo. After the change of sourcing agenttook place, our Group ceased its business contact with Endo. This resulted in a decrease in sales toEndo in FY2002. The change of sourcing agent was an internal matter of Endo and we were notinformed of the reason for the change. There were no substantial sales to Endo in FY2003.

Our sales to Unipac Japan Co., Ltd (“Unipac”) decreased in FY2002 as the demand of our frozen currymixed vegetables, which contained chicken meat, decreased during the outbreak of bird flu virus incertain provinces of the PRC. The sales to Unipac, which is a chain restaurant operator, continued todecrease in FY2003 as it was facing intense competition from other restaurant chains in Japan.

Peanut Oil and Beverages

Our peanut oil and beverages products are sold mainly in the PRC market. Our customers includedistributors, wholesalers, food manufacturers and retailers. In FY2001, we engaged Laiyang Jilong SalesDevelopment Co., Ltd (“Jilong Sales”), a third party, as our sole marketing agent for our peanut oil andbeverage products. As it is our sole marketing agent and sold mainly only our products, we allowedJilong Sales to use “Jilong” in its company name in order to facilitate the marketing of our products. We

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have not entered into any distributorship agreement with Jilong Sales nor do we receive any additionalpayment from Jilong Sales, save for the sales of our products to Jilong Sales, for engaging Jilong Salesto market and distribute our products. In FY2002, our sales to Jilong Sales dipped as we decided toestablish our own sales and distribution network to better monitor and enhance our relationship with ourcustomers.

Save as disclosed above, there were no other major customers, which accounted for five per cent. ormore of our revenue for the last three financial years.

None of our Directors or substantial Shareholders has any interest, direct or indirect, in any of theabovenamed major customers.

As at the date of this Prospectus, our business or profitability is not materially dependent on any contractwith a customer.

COMPETITION

The food industry in the PRC is made up of a very wide range of products and services. Our Company isnot a single product or single business entity; rather, we are engaged in the production of a range ofproducts, and competes with different groups of companies in different market segments.

(i) Production of Preserved and Processed Food Products

The preserved and processed food production industry in the PRC is fragmented with many smallto medium-sized competitors as the entry barriers are low. This is mainly due to the fact that theindustry is labour-intensive and the raw materials such as vegetables and fruits can be obtained ata low price. As such, the initial capital investment is not substantial and as a result, many small tomedium-sized preserved and processed food production companies are established in the PRC.However, our Directors believe that most overseas customers prefer to obtain the supply ofpreserved and processed food products from the larger and more established food companies inthe PRC as the small to medium sized companies are limited in terms of technical expertise,management resources and quality control.

Price competition is intense in the preserved and processed food production industry in the PRCdue to constantly changing tastes of consumers and the wide variety of products available.Competition for market share in the preserved and processed food products segment of the foodindustry depends primarily on time-to-market execution, competitive pricing, continuous innovationin product development to suit customers’ changing tastes, wide range of products to cater to thegeneral and niche markets, customer base and logistics facilities.

(ii) Production of Peanut Oil

There are different methods of production for peanut oil in the PRC. Most of the small to mediumsized companies employ the traditional and out-dated methods of production, resulting in lessefficient production of low quality peanut oil. These companies are able to survive in the industryby selling their products at low prices.

Since 1 January 2002, PRC government implemented the Quality and Safety (“QS”) system. Thesystem has strict requirements for the production methods and hygiene of peanut oil. Thoseproduction facilities that do not meet the requirements will not be awarded food manufacturingcertificates to commence production, processing as well as distribution of peanut oil. Please referto the section entitled “Licences, Permits and Approvals” in this Prospectus for details of our foodmanufacturing certificate. With the implementation of the QS system, our Directors believe thatmany of these small companies engaged in the production of peanut oil are unable to continue toengage in the production of peanut oil as they do not meet the regulatory requirements. In 2002,we were among the first to meet the requirements of the QS system and were allowed to affix theQS logo on our products.

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As the demand for peanut oil products in the PRC is high and with the withdrawal of smallcompanies from the industry due to failure to meet the QS requirements, our Directors are of theopinion that we will be able to compete favourably in the industry due to our established trackrecord and brand name.

(iii) Production of Beverages

The beverage business, particularly in the production of fruit juices and purified water, in the PRCis highly competitive, as there is an abundance supply of fruits at competitive prices and few andlow barriers to entry. Price wars by small producers could also adversely impact on the margins ofthe established producers like us. As such, we see a proliferation of local producers or competitorsin the PRC.

Currently, as there are many producers of beverages of similar products and quality in the PRC,competition for market share depends on pricing (as beverages are price sensitive products),advertising and promotion efforts to establish our brand in the industry. Other factors that wouldconfer additional advantages to existing producers over new competitors include established localand international procurement and distribution networks and extensive logistics capabilities.

(iv) Production of Freeze-dried Products

We believe that the entry barriers for the production of freeze-dried products are high due tofactors such as high initial investment in machinery and equipment, special technical expertise andknow-how, established track record, clients’ stringent acceptance criteria and stringent hygiene andsafety standards imposed by the authorities in the PRC. We believe that we have very fewcompetitors in the production and supply of freeze-dried food products in the PRC. However asthe main export markets for our freeze-dried products are countries located in Asia, North Americaand Europe, we face competition from international suppliers of freeze-dried products who have alonger history, more advanced technology and better quality products than us. However, due tolower costs of production in the PRC, our Directors believe that the price of our freeze-driedproducts are competitive in the international markets.

Our Group’s major competitors for our production of preserved and processed food products, productionof beverages, production of peanut oil and production of freeze-dried products are as follows:-

List of our Major Competitors

Product Competitor

Preserved and Processed Food Products Longda Foodstuff Group Co., Ltd

Beverages Beijing Huiyuan Drink & Foodstuffs Group Company LimitedHangzhou Wahaha Group Co., Ltd

Peanut Oil China International Oil Processing Company LimitedChina National Cereals, Oils & Foodstuffs Imp. & Exp. Corp.Kerry Oils & Grains (China) LimitedLaiyang Luhua Fragrant Peanut Oil Company Limited

Freeze-dried Products PRC

Qingdao Dayang Foodstuffs Group Co., Ltd

International

Commercial Freeze Dry Ltd (based in United Kingdom)Danish Freeze Dry ApS (based in Denmark)Oregon Freeze Dry, Inc (based in the United States)

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COMPETITIVE STRENGTHS

The Directors believe that the Group’s competitive strengths are as follows:-

(i) We have an established reputation and good track record

Our Directors believe that we have an established name in the food and beverages industry in thePRC, having an operating track record of more than 10 years. We have built up a reputation as areliable provider of good quality food products and beverages.

We have received numerous awards for the quality of our products. Please refer to the sectionentitled “History” in this Prospectus for further information on the major awards received by ourGroup.

With our experience and proven track record in the discipline of branding achieved over the years,we believe that we will be able to enhance the value of our existing brands.

(ii) We apply modern technologies in our production process and have stringent quality controlsystems for our production facilities

We apply modern technologies to all aspects of our production process, from growing andharvesting to processing and packaging. The Group has invested approximately RMB37.6 millionin capital expenditure in production equipment and facilities in the last three financial years ended31 December 2003 and will continue to invest in new technologies to develop our brand andproducts ahead of our competitors. Current initiatives include new packaging technology andfurther investments in the production process to generate further unit cost efficiency.

We also place great importance on implementing and enforcing stringent quality control checks atall our production facilities to ensure that our products are of high quality and are suitable forconsumption. We also comply with all the relevant health and hygiene standards of the respectiveauthorities in the PRC. Our production processes are subject to various in-process qualityassurance checks by our quality control personnel to ensure consistency in the quality of ourproducts. Our quality control department is directly under supervision of our management. Pleaserefer to the section entitled “Quality Assurance” in this Prospectus for details of the quality controlsystems implemented at our production facilities.

As a testimony to our efforts in quality control, our preserved and processed food products andpeanut oil products were awarded the ISO9002 certification in December 1999 by QualityAssurance Center of China Association for Quality, a third party quality certificate bureauauthorised by the Supervision Committee in China National Accreditation of Registrars. In January2003, our ISO9002 certification was upgraded to ISO9001:2000 certification for the production andprocessing of our preserved and processed food products, peanut oil products and beverages bythe same authority. The certifications were further testimonies that our products meet theinternational standards of quality assurance established by the International Organisation ofStandardisation.

In February 2003, our subsidiary, Hong Shun, was awarded the HACCP certification by the ChinaQuality Certification Centre for Import and Export Commodities. HACCP is a safety control systemin food production process that ensures that the finished products are safe for consumption as wellas the quality of the food production process. With the PRC’s entry into the World TradeOrganisation, the domestic PRC enterprises engaging in the production of food products will faceintensive competition from international food supply companies for consumers in the PRC. TheHACCP certification received by Hong Shun is an evidence of our quality food products andhygiene food production process and it allows us to compete effectively with international foodsupply companies in the PRC. We intend to adopt the same HACCP standards for all our otherproduction facilities with a view of obtaining HACCP certification for all facilities eventually. We arein the process of preparing for HACCP certification for our Health Drinks and Xing Hua productionfacilities. We have taken steps to commence the adoption of the HACCP standards for all ourother production facilities such as the production facility of Edible Oil.

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(iii) We are strategically located in the PRC

Our production facilities are located in Shandong Province which is conducive for agriculturalactivities. We obtain the raw materials mainly vegetables, fruits and peanuts for our productionactivities from our leased farms, contract farms and open market purchases in the Shandongprovince. We also obtain the peanuts that we used for the production of peanut oil from supplierslocated in the Shandong province. The location of our production facilities are within 100kilometres from Qingdao and Yantai, which allows easy shipment by sea for the export of ourproducts to Japan. The proximity of our production facilities from our leased and contract farmsand other suppliers as well as Qingdao and Yantai shipping ports, reduces the costs of transport ofraw material to our production facilities and the delivery of our products to the ports for export.

(iv) We have in-depth understanding of our primary markets and are dedicated to providinggood customer service and innovative products

Our qualified and experienced senior management team is supported by our middle managementwho has an in-depth understanding of the domestic markets in the PRC and Japan where we havebeen supplying our products to for the last 10 years. With our in-depth knowledge of the marketswhere we sell our products to, we are able to develop a variety of new products that caters to therequirements of these markets. For instance, we have successfully introduced frozen curry mixedvegetables to meet the tastes and preferences of customers in Japan. By introducing productsthat cater to the taste of the consumers, we are able to maintain our competitiveness in thebusinesses.

Our Group’s business philosophy has always been to focus on and strive for total customersatisfaction. This customer-oriented approach is evidenced by the Group’s provision of customerservice, emphasis on customer interaction and dedicated responsiveness to their needs. Weprovide daily delivery services (including weekends and public holidays) to our customers. We alsoconduct surveys regularly to obtain feedback from our customers relating to product and servicequality.

(v) We have extensive sales support network and good relationships with our customers

In order to market our products overseas to countries such as Japan and United States, we haveemployed two sales representative in Japan and two sales representative in San Francisco in theUnited States. These sales representatives are our full-time employees and are former PRCnationals who have obtained citizenships in Japan and the United States. Having been citizens ofJapan and the United States for a while, they have a good understanding of the language, cultureand tastes of the respective countries. Through our sales representatives, we are better able tounderstand the demands and preferences of the local customers. Through them, we are able toestablish an effective marketing and distribution network, which enable us to establish goodrelationships with our overseas customers.

As at the Latest Practicable Date, we have also approximately 117 full-time sales representativesin the major cities of the PRC such as Beijing, Haerbin, Shenyang, Dalian to market and distributeour products. Through our sales and marketing network, we have established good relationshipswith more than 100 distributors, 300 supermarkets and chain stores for the distribution of ourproducts in the PRC. Our distribution strengths provide us with a strong platform for furtherconsolidation and development of our products in the PRC. Our extensive and efficient distributionnetwork in the PRC allows us to compete effectively with other national brands and regionalcompetitors.

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(vi) We are able to meet the large orders from our customers on a timely basis

We believe we are one of the top 10 food producers in the Shandong province. With ourproduction capacity, we believe our ability to fill large orders for customers on a timely basisprovides us with an advantage over other smaller companies engaged in food production. Pleaserefer to the section entitled “Production Facilities and Utilisation” in this Prospectus for furtherdetails of our production capacity. In addition, we believe that due to economies of scale in ourproduction process, we are able to keep our production costs low. We believe that our lowerproduction costs have enabled us to maintain operating profitability and enhance our long-termcompetitive position.

(vii) We are engaged in the production of freeze-dried food products

We believe that we are one of the pioneer companies in the PRC that utilises freeze-drytechnology in the production of food products. Freeze-drying, which is an advanced form of foodprocessing, is an industry that is promoted by the PRC government. The entry barriers into thefreeze-dry food production business is high as large capital investments are required for theadvanced machinery that are used in the production process. By engaging in the production offreeze-dried food products, we are able to expand our customer base to countries located in NorthAmerica, Europe and Middle East due to the fact that freeze-dried products can be preserved for alonger period of time and easily transported at a cheaper rate. We believe that we are able toleverage on our position as one of pioneer companies in the PRC to engage in the production offreeze-dried food products and tap on the demand for freeze-dried food products in the PRC andthe international markets. Please refer to the section entitled “Our Business - Production of freeze-dried food products” in this Prospectus for further details on the freeze-dry technology and ourfreeze-dried food products.

PROPERTIES AND FIXED ASSETS

The following properties are leased by our Group:-

Gross Build Location Lessor Up Area Tenure Rental Usage

(sq m)

No. 26 Heshan Road Shandong Jilong 13,242 10 years from RMB492,988 Factory, Office Laiyang 1 January 2003 per annum and Dormitory Shandong Province – Hong ShunPRC

South First Class Avenue, Shandong Jilong 2,773 10 years from RMB386,900 Factory, OfficeLianghao Po, 1 January 2003 per annum and DormitoryLongwang Village – Xing HuaShandong ProvincePRC

South Yan Qin First Shandong Jilong 10,779 10 years from RMB308,756 Factory, OfficeClass Avenue, 1 January 2003 per annum and DormitoryEast Laiyang Toll Gate – Edible OilShandong ProvincePRC

No. 26 Heshan Road Shandong Jilong 7,414 10 years from RMB129,952 Factory, Office Laiyang 1 January 2003 per annum and DormitoryShandong Province – Health DrinksPRC

South Heshan Road Shandong Jilong 21,575 10 years from RMB1,190,872 Factory, OfficeFood Industry Garden 1 April 2004 per annum and Dormitory Laiyang – Green FoodShandong ProvincePRC

No. 19 Fishery Port Road Thye Seng Trading 15 3 years from S$6,000 per OfficeSingapore 619736 Company Pte Ltd 1 May 2004 annum

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We lease the following farms:-

Gross Land Location Lessor Area Tenure Rental Usage

(sq m)

Southeast Feng Jiatuan Villagers’ 133,200 15 years from RMB100,000 FarmResidential Area Committee of 10 December per annumShandong Province Feng Jiatuan 2002PRC

North of the Office of Villagers’ 37,030 15 years from RMB26,688 FarmLong Wangzhuang Committee of 5 October 2001 per annumShandong Province Long WangzhuangPRC

North of the Office of Villagers’ 143,190 14 years from RMB98,560 FarmLong Wangzhuang Committee of 5 October 2002 per annumShandong Province Long WangzhuangPRC

We lease three farms of an aggregate land area of 313,420 sq m, on which we conduct developmentalactivities to improve the quality of our vegetables and fruits. We grow vegetables and fruits on the leasedfarms to supply to our production facilities when we are not conducting any developmental activities atthe farms.

In the leased farms arrangement, the local farmers, with our guidance and supervision, continue to workin the leased farms and supply us with vegetables and fruits. We purchase the vegetables and fruitsfrom the local farmers at market price and pay the local farmers the amount net of the costs of fertilizers,seeds and pesticides which we supply to them. By supplying the leased farms fertilizers, seeds andpesticides, we are able to ensure the quality of the vegetables and fruits produced and supplied to usfrom these farms.

We plan to increase our peanut oil production capacity by setting up a new production facility and theacquisition of machinery within the next two years. The estimated expenses for the setting up of theproduction facility and the acquisition of machinery is RMB20 million and RMB40 million respectively,which will be funded from the proceeds of the Invitation. The above mentioned plan will commence bythe end of FY2004 and is expected to be completed by the end of FY2005. With the completion of theproduction facility, our annual peanut oil production capacity will increase from the current 13,000 tonnesto 100,000 tonnes.

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PRODUCTION FACILITIES AND UTILISATION

Details of our production facilities are as follows:-

ProductionLocation Company Products Floor Area

(sq m)

No. 26 Heshan Road Hong Shun Preserved and processed 11,595Laiyang food productsShandong ProvincePRC

South First Class Avenue, Lianghao Po, Xing Hua Preserved and processed 2,596Longwang Village food productsShandong ProvincePRC

South Yan Qin First Class Avenue, Edible Oil Peanut oil products 8,723East Laiyang Toll GateShandong ProvincePRC

No. 26 Heshan Road Health Drinks Fruit juice, juice concentrate 7,314Laiyang and purified waterShandong ProvincePRC

South Heshan Road Green Food Freeze-dried food products 11,823Food Industry GardenLaiyangShandong ProvincePRC

Our production capacity is dependent on the production floor area, number of machines and manpower.The production capacity(1) and utilisation rate of our production facilities in the PRC for the past threefinancial years is as follows:-

FY2001 FY2002 FY2003Gross Gross Gross

Production Utilisation Production Utilisation Production Utilisation Capacity Rate Capacity Rate Capacity Rate(tonnes) (tonnes) (tonnes)

Hong Shun 30,000 34% 30,000 59% 30,000 69%

Xing Hua 15,000 38% 15,000 52% 15,000 68%

Edible Oil 13,000 29% 13,000 59% 13,000 57%

Health Drinks 30,000 26% 30,000 21% 30,000 29%

Note:-

(1) The production capacity for our production facilities at Hong Shun and Xing Hua is computed based on 16 hours per dayover seven working days each week. The production capacity for our production facilities at Edible Oil and Health Drinks iscomputed based on 12 hours per day over seven working days each week.

Our production facility at Green Food only commenced commercial production in May 2004.

There are no regulatory requirements that may materially affect the Group’s utilisation of its tangible fixedassets.

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MATERIAL CAPITAL EXPENDITURE AND DIVESTMENT

The material capital expenditure and divestment of capital investment made by our Proforma Group inthe past three financial years and for the period up to the Latest Practicable Date as follows:

1 January 2004to the Latest

RMB’000 FY2001 FY2002 FY2003 Practicable Date

Acquisition(1)

Plant and equipment 7,738 8,269 21,583 1,495

Divestment(2)

Plant and equipment 278 2,494 1,985 –

Notes :-

(1) This relates to the cost of plant and equipment acquired during the respective financial years.(2) This relates to the net book value of fixed assets disposed during the respective financial years.

GOVERNMENT REGULATIONS

PRC

Food Hygiene Law

On 30th October, 1995, the Standing Committee of the National People’s Congress of the PRC (the“NPC”) issued the Food Hygiene Law of the PRC (the “Food Hygiene Law”) ,pursuant to which all institutions and individuals in the PRC engaged in food production and trade shouldcomply with the Food Hygiene Law, which stipulates the hygienic requirements and standards for food,the additives, containers, wrappers of food as well as the sites, facilities and environmental conditions forfood production and trade.

The Ministry of Health (the “MOH”) is responsible for the overall supervision and control of public hygienein the PRC. Local bureaus of health in the PRC are responsible for implementation of the MOH’sinstructions, including but not limited to, examination of entities engaged in food production and trade andissue of the relevant licences and certificates.

All entities should conduct food production and trade in the PRC in compliance with the hygienicrequirements and standards stipulated under the Food Hygiene Law. The sale and production of foodwhich fail to reach such hygienic standards and requirements will be prohibited in the PRC. All foodproducers in the PRC are required to obtain a hygiene licence from the local bureaus ofhealth before they register with the relevant administrative authorities for industry and commerce.

Rules concerning the issue of such hygiene licence may be enacted by the local governments. On 19thJanuary, 1996, the Department of Health of Shandong province issued the Rule Relating to the Issue ofHygiene Licence in Shandong Province (the “Rules”) . Pursuant tothe Rules, each entity engaged in food production and trade in Shandong province is required to obtainfrom the hygiene administrative authorities of the governments at the county level and above a sanitationcertificate which only has a limited period of validity, and to apply for the re-issue of a new sanitationcertificate, failing which the entity will be prohibited from producing and selling food. Penalties for thebreach of the Food Hygiene Law include imposition of a fine, confiscation of illegal gains and terminationof production.

Food Production

On 18th July 2003, General Administration of Quality Supervision, Inspection and Quarantine (“GAQSIQ”)issued the Measure for Quality Supervision and Administration of the Food

Production and Processing Enterprises (the “Measure”) . TheMeasure established the rules on the market access of the food industry. According to the Measure, thefood production enterprises shall pass an examination before mass production, and all the finishedproduct shall pass an inspection before entering into the market. All finished products which have passedthe inspection shall attach a “Quality Safety” label.

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GAQSIQ has required five categories of food, being rice, wheat flour, oil, soy source and vinegar, to be incompliance with the rules on market access since May 2002. After 1 January 2004, all the enterprisesproducing the above said five categories of food shall have obtained the Food Production Certificate (the“Certificate”). Any food in the above said five categories produced by an enterprise without the Certificatewill be prohibited from entering into the market.

From the third quarter of 2003, GAQSIQ has started to require ten more categories of food, being meat,dairy products, soft drinks, condiments, refrigerant drinks , instant noodles, biscuits, canned

food, deep freezed food, swelling food , to be in compliance with the rules on the marketaccess. However, the deadline for the above said ten categories of food to obtain the Certificate has notbeen determined.

Export Food Hygiene

On 19th April, 2002, GAQSIQ issued the Regulations for Administration of Hygiene Registration of Enterprises Engaged in Export Food Production (the “Hygiene Regulations”)

, which has abolished the Rules on Hygiene Registration ofFactories and Warehouses for Export Food issued by the StateAdministration for Inspection of Import and Export Commodities . According tothe Hygiene Regulations, all enterprises engaged in export food production or storage should obtain asanitation registration certificate for export . The Certification and AccreditationAdministration of PRC (“CAA”) is in charge of the hygiene registration ofenterprises engaged in export food, under the direction and supervision of GAQSIQ. The local Entry-ExitInspection and Quarantine Bureaus (the “EEIQB”) administers the issuance ofsanitation registration certificates, under the direction and supervision of CAA, to enterprises engaged inthe export food production in their respective areas of jurisdiction in China. The validity period of thesanitation registration certificate for export is three years. Application for renewal of suchsanitation registration certificates for export should be made to the local EEIQB.

Trademark Law

Under the PRC Trademark Law and its Implementation Rules, the registrant of a trademark may mark itsproducts and its packaging with the words “registered mark” or a mark of registration. The registrant ofthe trademark shall enjoy the exclusive right to use its registered trademark. The following acts shall bedeemed as infringement of the holder's trademark rights:

(1) using a trademark which is identical with or similar to the registered trademark on the same kind ofcommodities or similar commodities without a license from the holder of that trademark;

(2) selling commodities that infringe upon the right to the exclusive use of a registered trademark;

(3) forging, manufacturing without authorization the marks of a registered trademark of others, orselling the marks of a registered trademark forged or manufactured without authorization;

(4) changing a registered trademark and selling the commodities with the changed mark in the marketwithout the consent of the registrant of that trademark; and

(5) causing other damages to the right to the exclusive use of a registered trademark of anotherperson.

A trademark registration in the PRC is valid for 10 years and is renewable.

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LICENCES, PERMITS AND APPROVALS

We have the following licences, permits and approvals from the relevant government authorities whichare required for the conduct of our business:-

Date of Award / Company Licences, permits and approvals Authority Validity period(1)

Hong Shun Environmental Certificate certifying Environmental Bureau 12 March 2003that the production meets the of Laiyangstandards of environmental protection

Environmental Certificate certifying Environmental Bureau 2 April 2004that Hong Shun is in compliance with of Laiyangthe environmental regulations

Environmental Impact Appraisal Environmental Bureau 10 March 1993Report of Laiyang

Foreign Exchange Certificate State Administration of 7 April 2002(s/no: 37031700023) Foreign Exchange

Laiyang Branch

Sanitation Certificate Sanitation Bureau of Valid from 22 March Laiyang 2004 to 22 March 2007

Sanitation Registration Certificate Certification and Valid from 19 for export (s/no: 3700/08212) Accreditation November 2002 to

Administration of PRC 18 November 2005

Customs Certificate Yantai Customs Office 6 August 1997

State Tax Certificate Yantai State Tax 1 September 1999Bureau Foreign Affair Tax Branch

Local Tax Certificate Local Tax Bureau of 20 October 2003Laiyang

Code Certificate for Enterprise State Supervision Valid from 2 MarchLegal Entity (s/no: 981191429) Bureau of Quality and 2004 to 2 March 2008

Technique

Social Insurance Registration Laiyang Administration 5 January 2004Certificate of Labour and Social

Security

Xing Hua Environmental Certificate certifying Environmental Bureau 12 March 2003that the production meets the of Laiyangstandards of environmental protection

Environmental Certificate certifying Environmental Bureau 2 April 2004 that Xing Hua is in compliance with of Laiyangthe environmental regulations

Environmental Impact Appraisal Environmental Bureau 18 May 2000Report of Laiyang

Foreign Exchange Certificate State Administration of 30 April 2002(s/no: 37231700183) Foreign Exchange

Laiyang Branch

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Sanitation Certificate Sanitation Bureau of Valid from 8 August Laiyang 2003 to 8 August 2006

Sanitation Registration Certificate Certification and Valid from 16 August for export (s/no: 3700/08324) Accreditation 2001 to 15 August 2004

Administration of PRC

Customs Certificate Yantai Customs Office 10 July 2000

State Tax Certificate State Tax Bureau 12 June 2000of Laiyang

Local Tax Certificate Local Tax Bureau of 24 July 2002Laiyang

Code Certificate for Enterprise State Supervision Valid from 2 March 2004Legal Entity (s/no: 982538319) Bureau of Quality and to 2 March 2008

Technique


Security

Edible Oil Environmental Certificate certifying Environmental Bureau 12 March 2003 that the production meets the of Laiyangstandards of environmental protection

Environmental Certificate certifying Environmental Bureau 2 April 2004that Edible Oil is in compliance with of Laiyangthe environmental regulations

Environmental Impact Appraisal Environmental Bureau 1 March 1998Report of Laiyang

Foreign Exchange Certificate State Administration of 5 November 2003(s/no: 370682030029) Foreign Exchange

Laiyang Branch


Sanitation Registration Certificate Certification and Valid from 27 October for export (s/no: 3700/16048) Accreditation 2003 to 26 October

Administration of PRC 2006

State Tax Certificate State Tax Bureau of 6 August 1999Laiyang

Local Tax Certificate Local Tax Bureau of 6 June 2003 Laiyang

Code Certificate for Enterprise State Supervision Valid from 29 October Legal Entity (s/no: 20031926345) Bureau of Quality and 2003 to 29 October

Technique 2007


Security

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Food Production Certificate General Administration Valid from 9 January of Quality Supervision, 2003 to 8 January 2006Inspection and Quarantine

Health Drinks Environmental Certificate certifying Environmental Bureau 12 March 2003that the production meets the of Laiyangstandards of environmental protection

Environmental Certificate certifying Environmental Bureau 2 April 2004that Health Drinks is in compliance of Laiyangwith the environmental regulations

Environmental Impact Appraisal Environmental Bureau 18 January 1999 Report of Laiyang

Foreign Exchange Certificate State Administration of 5 November 2003 (s/no: 370682030031) Foreign Exchange

Laiyang Branch

Sanitation Certificate Sanitation Bureau of Valid from 23 May 2002Laiyang to 23 May 2005

Certificate for Water Mining Water Resources Valid from 1 January Administrative 2004 to 1 January 2006Committee of Laiyang

State Tax Certificate Laiyang State Tax 3 September 1999Bureau

Local Tax Certificate Local Tax Bureau of 1 July 2002Laiyang


Technique 2007


Security

Green Food Environmental Certificate certifying Environmental Bureau 2 April 2004that Green Food is in compliance of Laiyangwith the environmental regulations

Environmental Impact Appraisal Environmental Bureau 24 August 2003Report of Laiyang

Foreign Exchange Certificate State Administration of 5 November 2003(s/no: 370682030030) Foreign Exchange

Laiyang Branch


State Tax Certificate Yantai State Tax 3 November 2003Bureau Foreign Affair Tax Branch

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Local Tax Certificate Local Tax Bureau of 20 October 2003Laiyang


Technique 2007


Security

Note:-

(1) We do not need to renew the licences and permits save for those that we have indicated their validity period.

Different approving authorities in the PRC have their own compliance requirements for the issue andrenewal of licenses, permits and approvals.

In general, the PRC company shall apply to the relevant authority to renew its licence, permit or approvalprior to the expiry of the licence, permit or approval. The authority may conduct an inspection to decidewhether to renew the licence, permit or approval. However, most regulations do not set out the specificrequirements and procedures of such inspections. In practice, the licence, permit or approval is renewedso long as the PRC company is in compliance with the conditions for the issue of the licence, permits orapprovals.

The relevant PRC authority may also conduct annual inspections within the validity period of the licence,permit or approval to ensure that the PRC company complies with the conditions for the issue of thelicence, permit or approval.

Our Directors are not aware of any incident of suspension or revocation of any of our licences in the lastthree financial years or any fact or circumstance which will cause our licences, approvals and permits tobe suspended or revoked.

As at the date of this Prospectus, we have not been subject to penalties and fines, suspension of ourproduction activities or revocation of our production licences by the relevant regulatory authorities.

As at the date of this Prospectus, we are not aware of any infringement of any environmental laws andregulations by our Group.

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The following selected consolidated financial information set forth below relates to the financial yearsended 31 December. You should read the selected consolidated financial information in conjunction withthe sections entitled “Management’s Discussion and Analysis of Results of Operations” and the“Independent Auditors’ Report on the Unaudited Proforma Financial Information of Zhongguo JilongLimited” in this Prospectus.

PROFORMA OPERATING RESULTS OF OUR GROUP

Proforma(RMB’000) FY2001 FY2002 FY2003

Revenue 182,304 248,270 361,154

Cost of sales (145,343) (198,136) (281,992)

Gross profit 36,961 50,134 79,162

Other operating income 404 523 448

Distribution costs (4,432) (9,326) (8,435)

Administrative expenses (7,154) (8,149) (5,690)

Other credits / (charges) (1,111) (2,936) (1,276)

Profit from operations 24,668 30,246 64,209

Finance costs (1,447) (1,178) (1,437)


Income tax expense (3,332) (5,377) (4,781)


EPS (RMB cents) (1) 4.96 5.90 14.45

Notes:-

(1) For comparative purposes, EPS for the period under review have been computed based on the net profit attributable toShareholders and the pre-Invitation share capital of 401,300,000 Shares.

(2) Had the Service Agreement, as described in the section entitled “Directors, Management and Staff – Service Agreements” inthis Prospectus, been in place with effect from 1 January 2003, the profit before income tax of the Group for FY2003 wouldhave been approximately RMB60.8 million, the net profit attributable to Shareholders would have been approximately RMB56.1 million and the EPS would have been RMB13.98 cents instead of RMB14.45 cents.

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PROFORMA FINANCIAL POSITION OF OUR GROUP

ProformaAs at

(RMB’000) 31 December 2003

ASSETS

Current assetsCash and cash equivalents 16,420Trade receivables 5,467Other receivables and prepayments 11,569Inventories 76,005

Total current assets 109,461

Non-current assetsPlant and equipment 48,338

Total assets 157,799

LIABILITIES AND EQUITY

Current liabilitiesShort term borrowings 11,500Trade payables and accrued liabilities 33,356Other payables 6,285Income tax payable 13,200

Total current liabilities 64,341


Total liabilities and equity 157,799

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The financial information presented in SGD set out below has been translated for the sole purpose ofinvestor convenience and has not been audited. These translations are made with reference to theexchange rates as stated in the section entitled “Exchange Rates” in this Prospectus and should not beconstrued as representations that the RMB amounts actually represent such SGD amount or could beconverted into SGD at the rate indicated or at any other rate.

PROFORMA OPERATING RESULTS OF OUR GROUP (Translated into SGD)

Proforma(S$’000) FY2001 FY2002 FY2003

Revenue 39,256 53,925 75,873

Cost of sales (31,297) (43,036) (59,242)

Gross profit 7,959 10,889 16,631


Distribution costs (954) (2,026) (1,772)


Other credits / (charges) (239) (638) (268)


Finance costs (312) (256) (302)


Income tax expense (717) (1,168) (1,004)


EPS (cents)(1) 1.07 1.28 3.04

Notes:-

(1) For comparative purposes, EPS for the period under review have been computed based on the net profit attributable toShareholders and the pre-Invitation share capital of 401,300,000 Shares.

(2) Had the Service Agreement, as described in the section entitled “Directors, Management and Staff – Service Agreements” inthis Prospectus, been in place with effect from 1 January 2003, the profit before income tax of the Group for FY2003 wouldhave been approximately $12.8 million, the net profit attributable to Shareholders would have been approximately $11.8million and the EPS would have been 2.94 Singapore cents instead of 3.04 Singapore cents.

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PROFORMA FINANCIAL POSITION OF OUR GROUP (translated into Singapore dollars)

ProformaAs at

(S$’000) 31 December 2003

ASSETS

Current assetsCash and cash equivalents 3,366Trade receivables 1,121Other receivables and prepayments 2,372Inventories 15,581


Non-current assetsPlant and equipment 9,909

Total Assets 32,349


Current LiabilitiesShort term borrowings 2,358Trade payables and accrued liabilities 6,838Other payables 1,288Income tax payable 2,706




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The following discussion and analysis of our results of operations has been prepared by our Company’smanagement and should be read in conjunction with the Independent Auditors’ Report on the UnauditedProforma Financial Information of Zhongguo Jilong Limited set out in this Prospectus.

OVERVIEW

Revenue

For the past three financial years, we derived our revenue mainly from the production of (i) preservedand processed food products, (ii) peanut oil and (iii) beverages. In FY2004, we commenced operations ofour fourth business segment, namely, freeze-dried food products. Our main geographical markets areclassified as PRC and outside PRC. In the past three financial years, we exported mainly to Japan. Wehave also employed 2 sale representatives in San Francisco to reach out to customers in the UnitedStates and Europe.

Production of preserved and processed food products

Revenue from this segment accounted for 70.8%, 63.8% and 58.6% of our total revenue for FY2001,FY2002 and FY2003 respectively.

We derived 79.9%, 51.0% and 25.5% of our revenue in this segment from export of our products toJapan in FY2001, FY2002 and FY2003 respectively. To-date, we have a network of over 30 Japanesecustomers in Japan, which comprise mainly distributors, wholesalers, food processing companies andchain restaurant operators. Our sales to Japan are in US$. Our export sales are mostly under free-on-board shipment terms, where cost or risk of loss of or damages to the goods are borne by our customersat the designated shipping ports.

Over the years, through our experience gained in the Japanese market, we have introduced productsthat were developed for the Japanese market to our customers in the PRC. Most of these products suchas frozen strawberries and canned fruits like apples, cherries, pears and peaches are also well receivedand accepted by our PRC customers. In PRC, our customers comprise mainly Japanese companies withproduction facilities in the PRC, wholesalers and trading companies.

Most of the fruits such as strawberries, apples, cherries and peaches have only one harvest season ayear. We usually receive indicative orders from our customers for their annual requirements for such fruitproducts before their harvest seasons. We deliver the goods ordered based on scheduled delivery planswhich may spread over six to twelve months.

Production of Peanut Oil

Revenue from this segment accounted for 15.6%, 26.3% and 25.4% of our total revenue for FY2001,FY2002 and FY2003 respectively. Our revenue from this segment is derived from sales of peanut oil andsales of peanut dregs. Sales of peanut oil accounted for approximately 90.0% of our revenue in thissegment for the past three financial years. The sales of peanut dregs accounted for the balance of ourrevenue in this segment.

Our peanut oil can be broadly categorised into aroma peanut oil , fragrant peanut oil ,pure peanut oil and peanut salad oil . Aroma peanut oil, which is nutritious, is of thebest grade amongst our various types of peanut oil. They are sold in different packages and sizes. All ourproducts are sold in the PRC market. Our customers are mainly distributors and retailers. Our peanutdregs are mostly sold in the PRC primarily to dairy farms as food supplements for livestock and to animalfeed manufacturers in their feed processing.

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Production of beverages

Revenue from this segment accounted for 13.6%, 9.9% and 16.0% of our total revenue for FY2001,FY2002 and FY2003 respectively. In FY2001 and FY2002, our revenue from this segment was derivedmainly from sales of a series of beverages under our own brand name “ ”. In late FY2002, westarted to sell pure concentrated pear and apple juices to local beverage factories for further processing.Sales of pure concentrated juices constituted 48.0% and 83.1% of our beverage sales in FY2002 andFY2003 respectively.

Production of freeze-dried food products

We commenced production of freeze-dried food products in May 2004. Our products include mainlyfreeze-dried vegetables and freeze-dried fruits and are targeted at markets in PRC and outside PRCsuch as the Middle East, the United States, Japan, France and Denmark. Our target customers are foodproduct distributors, chain restaurants and food product manufacturers. We presently have appointed adistributor in the United States and are in the process of negotiating with several other distributors inUnited States and Japan. As at the Latest Practicable Date, we have a team of five sales and marketingpersonnel in this segment. We start to derive revenue from this segment with effect from May 2004.

The main factors affecting our revenue are as follows:-

(a) Our ability to remain competitive. With the admission of PRC into the World Trade Organisation,there may be high influx of foreign investments and imported products into the PRC market. Wehave to continually develop new tastes and products to be ahead of our competitors in meetingconsumers’ demands. In the event that we are not able to introduce comparable products atcompetitive prices, consumer preference may be shifted away from our products and hence thedemand of our products will be adversely affected.

(b) We operate in a highly competitive environment, especially our beverage business segment. Ourcompetitors may choose to increase their market share by undercutting prices. To the extent thatwe are required to lower our prices to protect our market share, this will have an adverse impacton turnover and profit margin. Increased advertising or promotional activities by our competitorsmay also influence consumers to switch to competing brands and this will also adversely affect ourrevenue.

(c) Our ability to increase our market penetration through expansion in our sales and distributionnetwork. Entry of new competitors will erode our market share. To the extent we cannot maintainour customer base and source for new customers, our revenue will be adversely affected.

(d) Unfavourable natural forces affecting harvests of agricultural raw materials. Our products aresubstantially sourced within the Shandong and neighbouring provinces. Shandong is known forfruits such as Laiyang pears, Yantai apples and Shandong peanuts, which we use for theproduction of some of our products, such as our beverages, canned fruits and peanut oil. Anyunfavourable natural forces affecting the harvests of agricultural raw materials will have an adverseimpact on the supply of our products as there will be few or no alternative supplies for theseagricultural raw materials.

(e) Our ability to source and purchase sufficient quantity of agricultural raw material that meet ourcustomers’ specifications such as size and weight. With over 10 years of experience in thisbusiness, we have established good working relations with the farmers within the Shandongprovince and a network which facilitates procurement of good quality raw material. In the eventwhere there is shortage of supply of agricultural raw materials specified by our customers, oursales may be adversely affected if the customers refuse to use alternative raw materials.

(f) Any adverse changes in the economic conditions in the PRC and Japan, which are our principalmarkets, may affect the purchasing power of the consumers. This may have an adverse impact onthe demand of our products and therefore our revenue.

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(g) Our ability to manage our foreign exchange exposure. With the expected increase in our exportsales and henceforth the amount of sales denominated in foreign currency in the future, anyunfavorable fluctuations in the foreign exchange rates will have an adverse impact on our revenue.Though we do not have any policies to hedge our foreign currency risk, the RMB is pegged to theUSD of which our export sales are denominated in. As such, we practise a policy of constantmonitoring of the government’s economic regulations and will enter into forward contracts wherenecessary. Please refer to the section entitled “Foreign Exchange Management” in this Prospectusfor more details.

Please refer to the section entitled “Risk Factors” in this Prospectus.

Cost of sales

The main component of cost of sales is agricultural raw material costs, which accounted forapproximately 80.5%, 84.5% and 90.4% of our total cost of sales for FY2001, FY2002 and FY2003respectively. Our raw materials such as various fruits, vegetables and peanuts are sourced mainly fromcontract farms, leased farms and open markets in the Shandong province. All our purchases are made inthe PRC except for sugars used in the processing of our export products which we used superior qualitysugar imported from South Korea.

Our raw materials are subject to price fluctuations caused by the availability of supply sources, weatherconditions and natural disasters, which may affect the volume and quality of the agricultural produceharvested in the year.

Other components of our cost of sales comprise direct and indirect labour, and factory overheads, whichin aggregate constituted 19.5%, 15.5% and 9.6% of our total cost of sales in FY2001, FY2002 andFY2003 respectively. Direct labour expenses include wages, bonus and other related payroll cost paid toour employees who are directly involved in the production process. Indirect labour expenses relate topayroll related cost incurred in support of production acitivities, which include quality control, productionand equipment management and warehousing departments. During our production peak seasons whichtypically occur in the second and fourth quarters of each year, we will require our existing staff involved inthe production to work overtime and/or employ temporary workers. Hence, our direct labour costs inabsolute amount will increase during these production peak periods. Our labour costs are also affectedby PRC legislations such as the minimum wage, trade union costs and retirement fund contributions.Factory overheads include machinery depreciation, utility charges, consumables, repairs andmaintenance of machinery and other indirect factory overheads. Direct and indirect labour costs andfactory overheads are allocated to the unit cost of production based on the actual units produced in eachmonth. Except for the purchases of sugar from South Korea which is in USD, our cost of sales aremainly denominated in RMB.

The main factors that affect our material costs are:-

(a) Prices of agricultural raw materials such as fruits, vegetables and peanuts are dependent on thesupply and demand factors in the PRC and worldwide. In the event that there are insufficientsupplies to meet the demands, the prices of these raw materials will be driven up. In the eventthat we are unable to pass on the price increases to our customers, our cost of sales wouldincrease and accordingly our gross profit margins would be adversely affected.

(b) New food processing technology is constantly being developed to enhance product quality and/orto meet customers’ specifications. As the consumers’ taste and needs change with time, we mayneed to acquire new processing technology to enhance our product quality and/or to meet theexpectation of our customers. The cost of acquiring such new technology may be substantial andwill increase our cost of sales.

Please refer to the section entitled “Risk Factors” in the Prospectus.

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Other operating income

Our other operating income relates mainly to rental income, subsidies received from the government andinterest income. We ceased receiving rental income in FY2002. The government subsidies relate tosubsidies to encourage export sales.

Operating expenses

Our operating expenses comprise mainly distribution expenses, administrative expenses and othercredits/(charges).

Distribution costs include transportation, travelling, depreciation of fixed assets (mainly motor vehicles)and promotion costs. These accounted for 34.9%, 45.7%, 54.7% of our total operating costs for FY2001,FY2002 and FY2003 respectively.

Administrative expenses consist mainly salary-related expenses (including remuneration of directors andadministrative staff), premises-related expenses (such as rental, office maintenance and utilities),depreciation charges of fixed assets and other miscellaneous costs. These accounted for 56.3%, 39.9%,36.9% of our total operating costs for FY2001, FY2002 and FY2003 respectively.

Other credits/(charges) comprise mainly foreign exchange gain or loss, gain or loss on disposal of fixedassets, provision for doubtful debts, inventories written down and preliminary expenses written off.

Finance costs

Our finance costs comprise mainly interest expense paid for short-term bank loans secured by the letterof credit from our export customers.

Taxation

Two of our subsidiary companies, Hong Shun and Xing Hua, were foreign investment companies prior toFY2001. Under the Enterprise Income Tax Law of the PRC, foreign investment companies are exemptedfrom paying income tax for the first two profitable years of operations and granted a 50% relief fromincome tax for the following three years. Once the grantee of the abovesaid five-year tax incentiveachieves its first profitable year, the incentive will end after the fifth year regardless of whether all thesubsequent four years are profitable. Foreign investment companies are also exempted from the localprovince tax rate of 3%.

Hong Shun has fully utilised its five-year tax relief before FY2001. Under the Enterprise Income Tax Lawof PRC, Hong Shun, which is established in Yantai and within the Economic and TechnologicalDevelopment Zone, qualifies for a concessionary corporate tax rate of 24%. In addition, Hong Shun wascertified as an export-oriented foreign investment enterprise during the period under review and wasentitled to a further 50% reduction in the concessionary corporate tax rate. The abovesaid certificationfor export status is renewable on an annual basis. Upon the expiry of the further 50% reduction in theconcessionary corporate tax rate, an export-oriented foreign investment enterprise may, under the PRClaws, apply for the renewal of such concession, subject to the condition that the revenue from its exportproducts is at least 70% of its aggregate revenue. The concession is usually granted if the abovecondition is met.

Xing Hua’s 5-year tax relief commenced from FY2001, being its first profitable year. Xing Hua is locatedin a region where a preferential tax rate applies and currently qualifies for a reduced rate of taxation of24%. Hence, for the three years commencing from FY2003, the corporate tax rate of Xing Hua is 12%after the 50% relief under the 5-year tax relief scheme.

Edible Oil, Health Drinks and Green Food were converted into foreign investment companies in October2003. Hence, these subsidiary companies are entitled to enjoy the 5-year tax relief from its firstprofitable year after converting into foreign investment companies. In FY2001 and FY2002, both EdibleOil and Health Drinks were subjected to a corporate income tax of 33% under the Enterprise Income TaxLaw of PRC for local PRC companies. In FY2003, being the first profitable year after converting intoforeign investment companies, the income from both Edible Oil and Health Drinks were exempted fromcorporate income tax.

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Green Food is newly incorporated in FY2003 and commenced its business in FY2004. The 5-year taxrelief will commence from its first profitable year.

In addition, some of our Subsidiaries also enjoy full or partial value-added tax (“VAT”) refund for ourexported goods. The full VAT refund applies only to certain categories of food products. Green Foodcurrently enjoys full VAT refund as its exported products fall within such categories while Hong Shun andXing Hua currently enjoy partial VAT refund. As Health Drinks and Edible Oil do not presently exporttheir products, they do not enjoy any VAT refund. Such VAT refund constituted less than 3%, 2% and 1%respectively of the revenue of the Group in FY2001, FY2002 and FY2003.

Inflation

Inflation did not have a material effect on our revenue or operating results for the financial years underreview.

Seasonality

The sales of our products are generally higher prior to major festivals such as the Lunar New Year, theNew Year and PRC National Day (ie. the golden week in the PRC) in October.

Our purchases, which comprise mainly agricultural raw materials, are generally higher during April, May,September, October and December of each year. These periods coincide with the harvest periods formost vegetables and certain fruits (such as strawberries, grapes and apples) used in the processing ofour products. To ensure the freshness of these raw materials, we have to bulk purchase these rawmaterials during their respective harvest periods for immediate processing. The finished products orsemi-finished products are frozen after processing for storage.

We do not experience any other seasonality in the course of our business.

Breakdown of Past Performance by Business Activities

Revenue

FY2001 FY2002 FY2003RMB’000 % RMB’000 % RMB’000 %

Preserved and processed 129,040 70.8 158,289 63.8 211,802 58.6food products

Peanut oil 28,417 15.6 65,430 26.3 91,590 25.4Beverages 24,847 13.6 24,551 9.9 57,762 16.0

Total 182,304 100.0 248,270 100.0 361,154 100.0

Gross profit


Preserved & processed food products 30,931 83.7 35,108 70.0 50,196 63.4

Peanut oil 2,405 6.5 8,528 17.0 17,691 22.4 Beverages 3,625 9.8 6,498 13.0 11,275 14.2

Total 36,961 100.0 50,134 100.0 79,162 100.0

Gross profit margins

FY2001 FY2002 FY2003% % %

Preserved & processed food products 24.0 22.2 23.7

Peanut oil 8.5 13.0 19.3Beverages 14.6 26.5 19.5

Overall Group 20.3 20.2 21.9

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Profit before income tax


Preserved and processed 20,115 86.6 22,808 78.5 42,449 67.6food products

Peanut oil 1,776 7.6 4,700 16.2 14,157 22.6Beverages 2,777 12.0 2,738 9.4 7,603 12.1

24,668 30,246 64,209

Unallocated expense:Finance charges (1,447) (6.2) (1,178) (4.1) (1,437) (2.3)

Total 23,221 100.0 29,068 100.0 62,772 100.0

Profit before income tax margins

FY2001 FY2002 FY2003% % %

Preserved and processed 15.6 14.4 20.0food products

Peanut oil 6.2 7.2 15.5Beverages 11.2 11.2 13.2Overall Group 12.7 11.7 17.4

Breakdown of Past Performance by Geographical Region

Revenue


PRC 79,153 43.4 167,538 67.5 307,088 85.0Outside PRC (1) 103,151 56.6 80,732 32.5 54,066 15.0

Total 182,304 100.0 248,270 100.0 361,154 100.0



PRC 10,218 44.0 21,319 73.3 50,048 79.7Outside PRC(1) 14,450 62.2 8,927 30.7 14,161 22.6

24,668 30,246 64,209

Less: Unallocated expensesFinance charges (1,447) (6.2) (1,178) (4.0) (1,437) (2.3)

Total 23,221 100.0 29,068 100.0 62,772 100.0

Profit before income tax margins

FY2001 FY2002 FY2003% % %

PRC 12.9 12.7 16.3Outside PRC(1) 14.0 11.1 26.2

Total 12.7 11.7 17.4

Note :

(1) Outside PRC comprises mainly Japan

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REVIEW OF OPERATING RESULTS

FY2002 vs FY2001

Revenue

Our revenue increased by 36.2% or RMB 66.0 million, from RMB182.3 million in FY2001 to RMB248.3million in FY2002. The increase in revenue was mainly from the PRC market, contributed by thepreserved and processed food products segment and peanut oil segment. The increase was offset by aslight decrease in the beverages segment. In FY2002, we established our sales and marketing networkby increasing the headcount in the sales and marketing division from 25 as at end of FY2001 to 120 asat end of FY2002. We also intensified our advertising and promotional activities in PRC by participatingin trade fairs and advertised on television and newspapers to promote our brand name and createmarket awareness of our products. Revenue from export sales to Japan decreased by 21.8% orRMB22.5 million from RMB103.2 million in FY2001 to RMB80.7 million in FY2002. The decrease wasdue mainly to a significant dip in the demand of one of our major products, frozen curry mixedvegetables, which contained chicken meat, during the outbreak of bird flu virus in certain provinces of thePRC in FY2002. In addition, sales to one of our major customers in Japan, Endo Trading Co., Ltdreduced by approximately RMB7.1 million in FY2002 when it ceased to purchase from us after itchanged its sourcing agent in the PRC in the last quarter of FY2002.

Revenue from preserved and processed food products segment increased by RMB29.2 million as wefocused our sales and marketing efforts on Japanese companies with production facilities and/orestablished distribution network in the PRC. With our high quality food processing standards that meetthe stringent hygiene requirements of Japanese customers, we were able to successfully penetrate thiscustomer group.

Revenue from peanut oil segment increased by RMB37.0 million as we embarked on aggressive salesexpansion plan by employing 46 full-time sales representatives in 30 cities in the PRC in FY2002. In linewith the rapid economic development in the PRC, consumers’ purchasing power increased andconsumers’ preference shifted from animal oil to peanut oil, which is a healthier choice as it is low incholesterol and high in protein.

Revenue from the beverages segment decreased slightly by RMB0.3 million due to stiff competition inthe industry. There are many local and international beverage products in the market. As our brandname was relatively new in the market, we were not able to increase our sales despite increasedmarketing efforts.

Gross profit and gross profit margin

Our gross profit increased by RMB13.1 million, from RMB37.0 million in FY2001 to RMB50.1 million inFY2002, attributed to the increased sales. Our overall gross profit margin remained relatively constant ataround 20% for both years. The gross profit margin for the preserved and processed food productssegment decreased from 24.0% in FY2001 to 22.2% in FY2002 while the gross profit margins for bothpeanut oil and beverages segments improved from 8.5% to 13.0% and 14.6% to 26.5% respectively.

The gross profit margin of preserved and processed food products segment decreased due mainly to achange in sales mix. The sales of our relatively higher margin products, in particular, frozen curry mixedvegetables dipped suddenly and significantly in FY2002 during the outbreak of the bird flu virus in thatyear as our frozen curry mixed vegetables contained chicken meat. The decrease in sales of frozen currymixed vegetables in FY2002 was offset by a larger increase in sales of our other processed fruits andvegetables products which had a lower average gross margin.

The improvement in gross profit margin of peanut oil segment was due to economy of scale as ourproduction volume increased. We were able to produce more output without a corresponding increase infactory overheads such as depreciation and factory premise expenses which are relatively fixed innature.

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The improvement in gross profit margin of beverages segment was due to the introduction of newproducts, concentrated fruit juices, in FY2002, which has a higher gross profit margin than the otherhealth drink products.


Our other operating income increased by approximately RMB119,000, from RMB404,000 in FY2001 toRMB523,000 in FY2002. This was due mainly to an increase in export cash subsidies for our exportsales. The subsidiaries are required to have foreign income from the export of goods in order to beentitled to receive the export cash subsidies, which are usually granted to companies that export theirproducts outside the PRC. The amount and payment of the subsidy is at the discretion of the relevantauthority. This subsidy is a separate and distinct incentive from the VAT refund that is disclosed underthe section entitled “Management’s Discussion and Analysis of Results of Operations – Overview -Taxation”.

Operating expenses

Our operating expenses increased by RMB5.9 million, from RMB11.6 million in FY2001 to RMB17.5million in FY2002. Distribution expenses increased by RMB4.9 million from RMB4.4 million to RMB9.3million in FY2002 as we expanded our sales and marketing team and intensified our marketing efforts.Increase in expenses such as advertising and promotions, commissions, rental, payroll costs andtravelling expenses contributed to the increase in distribution costs. The administrative expensesincreased by approximately RMB1.0 million due mainly to (i) compensation of approximately RMB0.7million paid to certain farmers for vacating the land which we leased for the building of productionfacilities for our subsidiary, Xing Hua; (ii) professional fees and expenses incurred for the ISO certificationfor Health Drinks of approximately RMB0.1 million; and (iii) an increase in other administrative expensessuch as office expenses and upkeep of motor vehicles.

Other credits / (charges)

Other charges, after offsetting other credits, increased by RMB1.8 million, from RMB1.1 million inFY2001 to RMB2.9 million in FY2002. The increase was mainly due to increase in provision for inventorywritten down of RMB2.7 million, offset by a decrease in bad debts written off of RMB0.4 million andreversal of staff welfare expenses over accrued in previous year of RMB0.5 million. The provision forinventory written down was to adjust the value of our inventory items to reflect their net realisable value.Please refer to the section entitled “Inventory Management” in this Prospectus.

Finance costs

Finance costs decreased by RMB269,000, from RMB1.4 million in FY2001 to RMB1.2 million in FY2002.This was due mainly to a reduction in prevailing bank’s interest rates, which resulted in lower interestexpenses for our bank loans, of which interest rates were ranging from 6.8% to 7.6% in FY2001 to 5.0%to 7.6% in FY2002.


Profit before income tax increased by RMB5.9 million or 25.4% from RMB23.2 million in FY2001 toRMB29.1 million in FY2002 due mainly to higher sales and gross profits. The increase in operatingexpenses of 50.8% outpaced the increase in gross profit of 35.6% in FY2002. As a result, our profitbefore income tax margin decreased from 12.7% in FY2001 to 11.7% in FY2002.

Income tax expense

The effective enterprise income tax rates were 14.3% and 18.5% for FY2001 and FY2002 respectively.The effective corporate tax rate in FY2002 was higher as the proportion of pre-tax profits from the peanutoil and beverages segments (which were subjected to 33% corporate tax rate) increased from 18.5% inFY2001 to 24.6% in FY2002. Please refer to Note 19 of the Independent Auditors’ Report on theUnaudited Proforma Financial Information of Zhongguo Jilong Limited for further details.

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FY2003 vs FY2002

Revenue

Our revenue increased by 45.5% or RMB112.9 million, from RMB248.3 million in FY2002 to RMB361.2million in FY2003. Although our business operations were temporarily disrupted during the SARSoutbreak in the month of April and May 2003, our revenue from the PRC market continued to increase inFY2003 as we continued to focus our sales and marketing efforts in the PRC. Our advertising andpromotion activities in FY2002 have also helped to increase the awareness of our brand name in thePRC market. Export sales to Japan decreased by RMB26.6 million from RMB80.7 million in FY2002 toRMB54.1 million. This was due mainly to the loss of our major customer, Endo Trading Co., Ltd, whenthey ceased to purchase from us in late FY2002 after it changed its sourcing agent in the PRC.

Revenue from preserved and processed food products segment increased by RMB53.5 million inFY2003 despite the decrease in sales to Japan. The increase was attributed mainly to the introduction ofnew canned products, such as apricots, pears and peaches, during the year which were very wellaccepted by our customers in the PRC.

Revenue from peanut oil segment increased by RMB26.2 million or 40.0%. The increase was due mainlyto the increase in market price of raw peanuts as a result of insufficient supply. The harvest of peanuts inthe Shandong province was poor due to heavy rainfalls in the region which affected the quality andquantity of the harvest. The average selling price of our products increased by approximately 32.2% fromRMB7.33 per kg in FY2002 to RMB9.69 per kg in FY2003.

Revenue from the beverages segment increased by RMB33.2 million or 135.3% in FY2003 due to anincrease in sales of our pure concentrated juices. We expanded our sales and marketing team in thisdivision from 42 as at end of FY2002 to 52 as at end of FY2003 to extend our reach to more locations inthe PRC.

Gross profit and gross profit margin

Our gross profit increased by RMB29.1 million, from RMB50.1 million in FY2002 to RMB79.2 million inFY2003 due mainly to higher revenue. Our overall gross profit margin increased from 20.2% in FY2002to 21.9% in FY2003. The gross profit margin for the preserved and processed food products segmentincreased from 22.2% in FY2002 to 23.7% in FY2003. The gross profit margin for the peanut oil segmentimproved from 13.0% to 19.3% while the gross profit margin for the beverages segment decreased from26.5% to 19.5% in F2003.

The gross profit margin of preserved and processed food products segment increased due mainly toimprovement in production efficiency and economy of scale. We were able to improve our productionefficiency as we requested our suppliers to carry out certain cleaning and cutting processes before theydeliver the raw materials to our premises.

Due to the shortage of raw peanuts in the Shandong province in FY2003, we were able to increase theselling prices of our range of peanut oil at a higher rate than the increase in raw material prices. Hence,our gross profit margin for the peanut oil segment increased.

The decrease in gross profit margin of beverages segment was due to the quality of the agricultural rawmaterials (ie. apples and pears) harvested in FY2003 which were less juicier than previous years.Hence, our material cost increased as we have to use more raw materials to produce our concentratedfruit juices.


Our other operating income decreased by approximately RMB75,000, from RMB523,000 in FY2002 toRMB448,000 in FY2003. This was due mainly to lower export subsidy received and the absence ofrental and utility charges. The lower export subsidy was in tandem with the lower export sales in FY2003.This subsidy is a separate and distinct incentive from the VAT refund that is disclosed under the sectionentitled “Management’s Discussion and Analysis of Results of Operations – Overview - Taxation”. Theabsence of rental and utility charges was caused by the cessation of rental lease with various parties.

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Operating expenses

Our operating expenses decreased by RMB3.4 million, from RMB17.5 million in FY2002 to RMB14.1million in FY2003. Distribution expenses decreased by RMB0.9 million and administrative expensesdecreased by RMB2.5 million. Distribution expenses decreased as the management cut down on non-essential travelling, entertainment and advertising and promotion expenses. Administrative expensesdecreased as the management focused on productivity and efficiency improvement. The managementre-organised its human resources and trimmed non-essential expenses. Consequently, administrativeexpenses such as telephone expenses, office expenses, entertainment, payroll and staff relatedexpenses, travelling, upkeep of motor vehicles expenses reduced by approximately RMB1.2 million. Dueto the reduction in export sales, bank charges reduced by approximately RMB0.2 million. The absenceof the once-off compensation made to farmers for vacating of land and ISO certification expenses of anaggregate of RMB783,000 incurred in FY2002 also contributed to the decrease in administrativeexpenses in FY2003.

Other credits / (charges)

Other charges after offsetting other credits decreased by RMB1.6 million, from RMB2.9 million in FY2002to RMB1.3 million in FY2003. The decrease was mainly due to lower provisions of inventory written offand slow moving items of RMB0.6 million compared to RMB3.2 million in FY2002 and a credit of RMB0.2million due to trade payable written off as the creditor was wound up. The decrease was offset by anincrease in provision of doubtful debts of RMB0.3 million related to trade debts which were outstandingfor more than 12 months, a loss on disposal of fixed assets of RMB0.4 million, and the absence of thereversal of over accrual of staff welfare expenses of RMB0.5 million in FY2002.

Finance costs

Finance costs increased by RMB259,000, from RMB1.2 million in FY2002 to RMB1.4 million in FY2003.This was due mainly to the increase in the short term bank loans during the purchasing seasons fromApril to September. Our outstanding bank loans was subsequently reduced from RMB25.6 million as at31 August 2003 to RMB11.5 million as at 31 December 2003.


Profit before income tax increased by RMB33.7 million or 115.8% from RMB29.1 million in FY2002 toRMB62.8 million in FY2003 due mainly to increase in revenue by 45.5% and increase in gross profit by57.9%. Our operating expenses and other charges decreased by 24.5% from RMB20.4 million in FY2002to RMB15.4 million in FY2003. Consequently, our profit before income tax margin increased from 11.7%in FY2002 to 17.4% in FY2003.

Income tax expense

The effective enterprise income tax rates decreased from 18.5% in FY2002 to 7.6% in FY2003. Theeffective enterprise tax rate in FY2003 was lower as the pre-tax profits from the peanut oil and beveragessegments were fully exempted from the PRC enterprise income tax after they were converted from PRCdomestic enterprises to foreign investment enterprises during the year. Please refer to Note 19 of theIndependent Auditors’ Report on the Unaudited Proforma Financial Information of Zhongguo JilongLimited for further details.

LIQUIDITY AND CAPITAL RESOURCES

Our business growth and expansion have been financed through a combination of cash generated fromour operating activities, capital contributions by shareholders, borrowings from banks, credit granted byour suppliers and advances from our related parties.

Our sources of cash are used to finance our operations. The principal use of these cash are for paymentof our agricultural raw materials purchased, our operating expenses and acquisition of plant andequipment.

We have maintained positive cash balances of RMB16.4 million as at 31 December 2003. As at theLatest Practicable Date, our cash and cash equivalents amounted to RMB47.3 million.

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We set out below a summary of our Proforma Group net cash flow summary for the period under review:

RMB’000 FY2003

Net cash inflow from operating activities 68,515

Net cash outflow from investing activities (20,000)

Net cash outflow from financing activities (38,911)

Net increase in cash and cash equivalents 9,604

Cash and cash equivalents at beginning of financial year 6,816

Cash and cash equivalents at end of financial year 16,420

Net cash inflow from operating activities

We recorded a net inflow from operating activities of RMB68.5 million. This comprised cash generatedfrom operating activities before changes in working capital of RMB68.8 million, a net working capitalinflow of RMB0.9 million and a net payment of interest and tax of RMB1.2 million. The working capitaloutflows were the result of:-

(a) an increase in inventories of RMB32.1 million as our business volume increased; and

(b) a decrease in other payables of RMB19.1 million as we repaid non-trade advances from relatedparties.

The above working capital outflows were partially offset by cash inflows from:-

(a) a decrease in trade receivables of RMB4.7 million as our export sales decreased. Our local PRCsales were transacted mainly in cash terms;

(b) a decrease in other receivables and prepayments of RMB45.9 million due mainly to the settlementof the amount owing from related parties; and

(c) an increase in trade payables of RMB1.5 million in line with the increase in business volume.

Net cash outflow in investing activities

Net cash used in investing activities of RMB20.0 million was due mainly to the purchase of new plant andequipment for the set-up of our new freeze-dried production facilities.

Net cash outflow in financing activities

In FY2003, net cash used in financing activities was RMB38.9 million. This was due mainly to thepayment of dividends in September 2003 of RMB32.0 million and repayment of short term bankborrowings of RMB6.9 million.

As a result of the above, our cash and cash equivalents increased by RMB9.6 million to RMB16.4 millionas at 31 December 2003.

Please refer to the section entitled “Capitalisation and Indebtedness” in this Prospectus for details on ourbanking facilities and capital commitments.

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CREDIT MANAGEMENT

Our normal sales term with local PRC customers is cash on delivery. For overseas customers, we acceptletters of credit. For new local PRC customers, we may require advance payments upon confirmation oforders. We may grant credit terms of 30 to 60 days to certain of our customers depending on their creditworthiness and payment track records. We minimise our credit risk through on going credit assessment,taking into consideration our customers’ payment history, size of business, market reputation and theduration of the business relationships with us.

Our trade receivables’ turnover are approximately 14 days, 9 days and 6 days for FY2001, FY2002 andFY2003 respectively. The trade receivables’ days reduced as the management exercised stringentcontrols over the granting of credit terms to our customers.

The provision for doubtful debts and bad debts written off in the last three financial years were asfollows:-

FY2001 FY2002 FY2003RMB’000 RMB’000 RMB’000

Provision for doubtful debts – – 313Bad debts written off 421 – 44

The provision for doubtful debts in FY2003 related to amounts due from trade debtors which wereoutstanding for more than 12 months. The bad debts written off in FY2001 was due to dispute by YantaiTaihong over the outstanding amount owing to us. Further details of this interested person transaction isdisclosed under the heading “Transactions with Yantai Taihong Foodstuff Co., Ltd” in the section entitled“Interested Person Transactions” in this Prospectus.

We purchase mainly on cash term for our agricultural raw materials as our suppliers are mainly farmers.We usually request for credit terms of between 30 to 60 days for purchases of packaging materials andother consumables. For overseas purchases, we issue letters of credit to our suppliers prior to delivery ofgoods.

INVENTORY MANAGEMENT

Our inventory comprises raw materials, work-in-progress and finished products. Most fruits andvegetables are harvested during specific periods of the year. To ensure sufficient supply for the year, weusually purchase these agricultural products in bulk during or immediately after the harvest season. Toretain the freshness of the fresh fruits and vegetables, these are delivered within 12 hours upon harvestto our factories. The work-in-progress and processed foods are stored in cold rooms with temperature ofminus 20oc. Depending on the types of fruits and vegetables, the processed food products can be storedbetween 12 to 24 months. Peanuts are stored under normal temperature.

Typically, about one month before the harvest period of the vegetables and fruits, our marketing divisionwill obtain indicative orders from our customers. Personnel from our marketing, purchasing, productionplanning and warehousing divisions meet on a regular basis to discuss and share information on theexisting inventory held, market demands, supplies and price trends before our purchasing departmentproceed with the purchases.

We do not make general provisions for inventory. However, specific provisions are made in the event ofany slow moving items and spoilage. The management meets at least once a month to determinewhether any provision/write-off of inventory is required. Inventories are stated in our accounts at thelower of cost and net realisable value. Cost is determined based on first-in first-out basis. Cost of work-in-progress and finished goods comprise cost of materials, direct labour and an appropriate apportion ofproduction overheads as determined by the management. Net realisable value is estimated based onnormal selling price less estimated costs necessary to make the sale.

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Provision for inventory obsolescence and inventory written down/off to net realisable value in the lastthree years were as follows:

FY2001 FY2002 FY2003(RMB’000) (RMB’000) (RMB’000)

Inventory write-down/off 526 3,173 409Provision for slow moving inventories – – 170

In the last three years, we adjusted the inventory value of our products to reflect their net realisablevalue. These products were sold below cost as the quality of these inventories was not able to meet ourinternal stringent quality requirements.

The provision for slow moving inventories related to our inventories of processed mixed vegetables whichcontained chicken meat. The sale of this product was slow due to the outbreak of the bird flu virustowards the end of FY2003.

Our inventory turnover days are as follows:-

FY2001 FY2002 FY2003

Inventory turnover (days) 119 84 78

Our inventory turnover has improved from 119 days in FY2001 to 84 days and 78 days in FY2002 andFY2003 respectively. In FY2001, the inventory level was high due to the high level of consignmentstocks held by our sole marketing agent then for the peanut oil and beverages segments. The inventoryturnover days improved in FY2002 and FY2003 due to the lower inventory held for peanuts as there wasa shortage in supply of peanuts towards the end of FY2003.

Our Directors are of the view that the current inventory management policy of our Group is adequate forour operations.

Our Directors are of the opinion that the current provisions set out in the Prospectus are adequate for ouroperations.

FOREIGN EXCHANGE MANAGEMENT

Our reporting currency is in RMB. Our Group transacts mainly in RMB and USD. The percentages of ourrevenue, purchases and expenses denominated in different currencies for the past three financial yearsunder review are as follows:

FY2001 FY2002 FY2003

As percentage of Group’s revenueRMB 48.8 67.5 85.0USD 51.2 32.5 15.0

As percentage of Group’s purchases and expensesRMB 96.9 98.2 98.9USD 3.1 1.8 1.1S$ – – –*

* Less than 0.1%

Foreign exchange risks arise mainly from timing differences between invoicing and collection/paymentand the mismatch between the currency of our sales and the currency of our purchases and expenses.Any significant appreciation in the exchange rate of the US$ against the RMB could result in us incurringnet foreign exchange gains/losses and will have a positive/negative impact on our profitability.

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Our net foreign exchange losses for the past three financial years were as follows:

FY2001 FY2002 FY2003

Foreign exchange losses (RMB’000) 202 102 39As a percentage of profit before income tax (%) 0.9 0.4 0.1

Currently, the RMB is pegged against the USD. However, should the RMB be revalued in the future, ourforeign exchange transactions would be more susceptible to foreign exchange fluctuations. At thepresent, we do not have a formal hedging policy with respect to our foreign exchange exposure. We havenot used any financial hedging instruments to manage our foreign exchange risk. We will continue tomonitor our foreign exchange exposure and may employ hedging instruments to manage our foreignexchange exposure should the need arise.

DIVIDEND POLICY

Our Company has not distributed any dividend on our Shares since incorporation.

Prior to the Restructuring Exercise, our subsidiary companies distributed the following cash dividends inFY2003:-

Dividend per RMB1.00 Capital Total Dividends

RMB RMB’000

Hong Shun 3.94 14,481Xing Hua 2.53 10,222Edible Oil 0.76 3,822Health Drinks 0.69 3,436

31,961

We currently do not have any dividend policy. The declaration and payment of future dividends will bedetermined at the sole discretion of the board of Directors subject to Shareholders’ approval, and willdepend upon our Group’s operating results, financial condition, other cash requirements includingworking capital, capital expenditures, the terms of borrowing arrangements (if any), and other factorsdeemed relevant by our Directors.

In making their recommendation, our Directors will consider, among other things, our future earnings,operations, capital requirements, cash flow and financial condition, as well as general businessconditions and other factors which our Directors may consider appropriate.

There can be no assurance that dividends will be paid in the future or of the amount or timing of anydividends that will be paid in the future.

Information relating to taxes payable on dividends are set out in Appendix 3 “Singapore Taxation” in thisProspectus.

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PROSPECTS

Our Directors believe that the demand for food products, in particular, preserved and processed foodproducts, peanut oil, beverages and freeze-dried food products will increase rapidly with the increase inliving standards and purchasing power of consumers in the PRC. In addition, with a population of morethan 1 billion, there is a huge ready market for food products in the PRC.

Preserved and Processed Food

Currently our major market for our preserved and processed food products is Japan. Japan is a majorexport destination for PRC agricultural products, in particular, preserved and processed vegetablesproducts.

In recent years, our Directors observed that the preserved and processed food industry in the PRC haddeveloped and grown rapidly. In addition, the demand for preserved and processed food products inJapan had increased and the import of such products into Japan, in particular from the PRC, to meet thedemand had also increased. Our Directors believe that the trend of import of PRC food products intoJapan will continue in future, as PRC food products are priced competitively in the international marketsdue to lower costs of production and that the hygiene conditions and technology used in the foodproduction process in the PRC have improved significantly and are currently comparable withinternational standards.

Peanut Oil

Our Directors believe that the domestic edible oil consumption in the PRC will increase rapidly for thenext five to ten years, due to economic development, the increase in the population, increased healthconsciousness and living standards of the consumers in the PRC and this will translate into an increasein demand for our peanut oil products.

Beverages

In recent years, the demand and consumption of beverages, in particular fruit juices and fruitsconcentrate, in the PRC had increased rapidly. Despite the recent increase in consumption of beveragesin the PRC, our Directors believe that there is a huge potential for growth in the beverages industry in thePRC as the average consumption of fruit juices per person in the PRC still lags behind developedcountries such as the United States, Germany and Japan. In addition, our Directors believe that theincrease in purchasing power and health consciousness of consumers in the PRC will also result in thegrowth in demand and consumption of healthy beverages such as fruit juices and juice concentrate in thePRC.

Freeze-dried Food

Freeze-dried food production is one of the fast developing segment in the food production industry in thePRC which the PRC government is promoting. Our Directors believe that there is a potential for increasein demand for freeze-dried food products in the international markets. Countries such as the Middle East,the United States, Japan, France and Denmark import a substantial amount of freeze-dried food productsevery year. Our Directors believe that although the freeze-dried food production business in the PRC isstill at the infant stage, there has been a huge demand from overseas market for freeze-dried foodproducts from the PRC due to the fact that the current global demand of such products exceeds thesupply. In view of the above reason and the lower costs of production in the PRC, there is a potential forgrowth of the freeze-dried food products in the PRC.

In recent years, the PRC consumers had increasingly been aware and accepted the consumption offreeze-dried food products. This had resulted in the demand for freeze-dried food products in the PRC(both produced domestically and imported) to increase rapidly in the recent years. Currently ourDirectors believe that the supply of freeze-dried food products in the PRC is unable to meet the demandand accordingly are of the opinion that the freeze-dried food industry in the PRC will develop and growrapidly in the next few years.

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TRENDS

Our revenue in FY2003 increased by 45.5% or RMB112.9 million from RMB248.3 million in FY2002 toRMB361.2 million in FY2003. Our revenue in the first five months of FY2004 was approximatelyRMB185.5 million, representing an increase of approximately 34% over the revenue recorded for thesame period in FY 2003. As at the Latest Practicable Date, our aggregate outstanding order book (lessrevenue recognised) was approximately RMB65.6 million comprising approximately RMB49.8 million forpreserved and processed food products, approximately RMB7.4 million for peanut oil products andapproximately RMB8.4 million for freeze-dried food products. Our order book consists of contractsentered into with our customers for orders to be delivered over 12 months. These do not include ordersreceived from our customers where delivery of the goods is made within the next few days. Barringunforeseen circumstances, our Directors expect to enjoy continued growth in our sales in FY2004.

Our components of our cost of sales comprise direct and indirect labour, and factory overheads, whichhave been relatively stable for the first five months of 2004. Barring unforeseen circumstances, ourDirectors are not aware of any events or trends to date that may cause material fluctuations in our sellingand cost prices.

Our inventory levels are expected to increase in tandem with the increase in sales volume. In 2004, weset up our freeze-dried production facility with a gross production capacity of 2,000 tonnes per annumand commenced commercial production in May 2004.

Saved as disclosed above and in the section entitled “Risk Factors” in this Prospectus, and barring anyunforeseen circumstances, our Directors are not aware of any other known recent trends, uncertainties,demands, commitments or events that are reasonably likely to have a material and adverse effect on ourrevenue, profitability, liquidity or capital resources, or that would cause financial information disclosed inthis Prospectus to be not necessarily indicative of our future operating results or financial condition.

FUTURE PLANS

Our future plans are summarised as follows:-

(i) We intend to increase our peanut oil production capacity

We believe that the domestic oil consumption in the PRC will increase yearly for the next 10 to 20years, due to economic development and the increase in the population of the PRC. Accordingly,we plan to increase our peanut oil production capacity by setting up a new production facility andacquiring machinery within the next two years. The estimated expenses for the setting up of theproduction facility and the acquisition of machinery is RMB20 million and RMB40 millionrespectively, which will be funded from the proceeds of the Invitation. The abovementioned planwill commence by the end of FY2004 and is expected to be completed by the end of FY2005.With the completion of the production facility, our annual peanut oil production capacity willincrease from the current 13,000 tonnes to 100,000 tonnes which our Directors believe will makeus one of the largest peanut oil producing enterprises in the PRC.

(ii) We intend to focus on freeze-dried food products segment

To-date we have invested RMB21 million for our production facility and machinery relating to ourfreeze-dried food production activity. Our freeze-dried food production business commencedcommercial production in May 2004.

We intend to focus on the production of freeze-dried food products as they yield high margins. Inthis respect, we intend to focus on supplying freeze-dried food products to markets in PRC andoutside PRC, such as the Middle East, the US, Japan, France and Denmark. We have enteredinto a service and market development agreement with Young Regent Inc. (“Young Regent”) tosupply Young Regent with our freeze-dried products for distribution in the United States. We intendto leverage on Young Regent’s extensive knowledge of the freeze-dried food industry in the United

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States and its sales network, to develop our client base in the United States. In addition, we haveentered into an agreement with Innovative Foods, whereby Innovative Foods will provide oursubsidiary, Green Food, with technical and business advisory assistance. Through InnovativeFoods, we are currently working with a few distributors in the United States to develop newproducts for the American market.

In addition, we intend to increase our sales and marketing activities and increase our staff for ourfreeze-dried food production business in the future. We also intend to participate in internationalfood fairs to secure new overseas customers.

(iii) We intend to strengthen our sales and marketing capabilities and increase our productdevelopment activities to improve our operations

We intend to increase our sales to customers located in the Japanese and American markets. Inthis aspect, we intend to increase our sales and marketing activities in these countries by enteringinto collaboration arrangements with local Japanese and American companies to appoint morewholesalers in these countries. For the PRC market, we intend to hire more sales representativesto market our products to more cities in the PRC. Please refer to the section entitled “Sales andMarketing” in this Prospectus for our sales and marketing activities. In addition, we will participatein international food fairs for opportunities to enter into other international markets.

Product development is an important part of our operations and will lead to improvements in ourproduction techniques, yields and profitability. In order to strengthen our position in the food andbeverages products industry, we plan to increase our product development activities. In this aspect,we intend to obtain greater involvement from our Japanese and US customers in developing newproducts that meet the tastes and preferences of the end-consumers in their markets. Please referto the section entitled “Product Development” in this Prospectus for further details of our productdevelopment activities.

(iv) We intend to expand our business through acquisitions, joint ventures or strategic alliances

We plan to expand our business through acquisitions, joint ventures or strategic alliances withparties who can strengthen our market position, add value to our existing business, as well asenable us to expand into new businesses which are food related. To date, we have not identifiedany potential party to acquire its business or to form joint ventures or strategic alliances with.Should the opportunity arise, we will seek approval, where necessary, from our Shareholders andthe relevant authorities as required by the relevant laws and regulations.

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MANAGEMENT REPORTING STRUCTURE

The management reporting structure of our Group is set out below:-

DIRECTORS

Our Board of Directors is entrusted with the responsibility for the overall management of our Group. Theparticulars of our Directors are as follows:-

Name Age Address Principal Occupation

Dr Lim Seck Yeow 66 34 West Coast Park Group Managing Director, Singapore 127711 China Food Industries Limited

Song Zhixing 46 3, Mei Hua Jie, #03-03, Managing Director Laiyang, Shandong Province, PRC

Tang Xiaoyan 33 He Shan Xiao Qu, #07-232. Executive Director Laiyang, Shandong, PRC (Administration)

Damien Seah Yang Hwee 31 Blk 142 Serangoon North Avenue 1, Manager – Group Finance and #01-323 Administration, China Food Singapore 550142 Industries Limited

Fang Swee Peng 65 235 Tembeling Road Senior Partner - Design & Katong Gardens #03-06 Management Services Singapore 423720 (Consulting Engineers)

Chua Beng Huat 39 43 Sixth Avenue Ville Independent Director –#04-12 Zhongguo Jilong Limited andSingapore 276484 Medtecs International Corp Ltd

Dr Chow Yuen Ho 30 560 Yishun Ave 6 #10-25 Director, Department of Medical Singapore 768966 Informatics in Singapore

General Hospital

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Board of Directors

Song Zhixing

Managing Director

Tang Xiaoyan

ExecutiveDirector

(Administration)

Di Xue Ning

General Manager

Koh Chee Wei

Finance Manager

Tang Jierong

ProductionManager

Shao Hua

Production Manager


Tang Jierong is the brother-in-law of our Managing Director, Song Zhixing.

Save as disclosed above, none of our Directors has any family relationship with other Directors or withany of our Executive Officers or Substantial Shareholders of our Company.

Information on the business and working experience of our Directors is set out below:-

Dr Lim Seck Yeow is our non-executive Chairman and was appointed as our Director on 25 September2003. He is currently the Group Managing Director of China Food Industries Limited, a company listedon SGX-SESDAQ. Dr Lim Seck Yeow has more than 40 years of experience in food-related business.He started his career with Cold Storage Singapore Ltd, a supermarket group in Singapore, as anAssistant Stock Keeper in 1954. He was promoted to a Sales Manager in 1965 and eventually to theposition of Asia Regional Sales Manager in 1969 in the same company. He is a Director and founder ofThye Seng Trading Company Private Limited (“Thye Seng”), a company engaged in the business of fooddistribution. Prior to establishing Thye Seng, Dr Lim Seck Yeow joined Chop Thye Seng, a soleproprietorship in food distribution business started by his father Lim Seng Giap, as a General Manager in1972. Dr Lim Seck Yeow holds an honorary Doctorate of Philosophy in Entrepreneurship from WisconsinInternational University in the United States.

Song Zhixing is our Managing Director and was appointed as our Director on 29 October 2003. He isresponsible for the day-to-day overall management of our Group. Song Zhixing was a General Managerwith Laiyang Jilong Group Shiye Co., Ltd, a company engaged in the business of food processing andpackaging, from March 1993 to August 1993. From September 1993 to August 1999, he was theGeneral Manager of Shandong Jilong Group Company. He was the General Manager of ShandongJilong Shiye Co., Ltd from September 1999 to April 2002. From May 2002 to April 2004, he was theGeneral Manager of Shandong Jilong Group Co., Ltd. Song Zhixing graduated from Yantai University(major in Business Management) in the PRC.

Tang Xiaoyan is our Executive Director (Administration) and was appointed as our Director on 18 March2004. She is responsible for administrative function of our Group. Tang Xiaoyan joined our Group in May2002 as a Finance Supervisor. Prior to joining our Group, she was a Finance Supervisor with ShandongJilong Shiye Co., Ltd from September 1999 to April 2002. From September 1993 to August 1999, shewas an Accountant with Shandong Jilong Group Company. She was an Accountant with Laiyang JilongGroup Shiye Co., Ltd from March 1993 to August 1993. She was employed as an Accountant withLaiyang Steel Window Factory, a company engaged in the business of production of steel windows forthe PRC market, from August 1990 to February 1993. Tang Xiaoyan graduated from a secondary schoolin the PRC.

Damien Seah Yang Hwee is our non-Executive Director and was appointed our Director on 30 April2004. He is currently the Manager – Group Finance and Administration of China Food Industries Limited(“CFI”), a company listed on SGX-SESDAQ. Prior to joining CFI, he was an Audit Supervisor withDeloitte & Touche, an international auditing firm, from 1998 to 2003. From 1994 to 1998, he was anAccounts Supervisor with Compact Administrative Services Pte Ltd, a company that provides corporatesecretarial and book keeping services. He was an Accounts Assistant with Deloitte & Touche from 1993to 1994. Damien Seah holds a professional qualification from the Association of Chartered CertifiedAccountants in UK and is a Member of the Institute of Certified Public Accountants of Singapore and aFellow of the Association of Chartered Certified Accountants.

Fang Swee Peng is our Independent Director and was appointed our Director on 13 July 2004. He iscurrently a Senior Partner of Design & Management Services (Consulting Engineers) (“DMS”), apartnership that provides buildings consultancy services. Prior to establishing DMS, Fang Swee Pengwas a Manager with G.E.C Singapore Pte Ltd, a company engaged in the import and distribution of air-conditioning equipment from the United States and Japan, from 1970 to 1974. From 1964 to 1969, hewas first an Engineer, and then an Air-Conditioning Engineer with G.E.C. Malaysia Sdn Bhd, a companyincorporated in Malaysia engaged in the import and distribution of air-conditioning equipment from theUnited States and Japan. Fang Swee Peng holds a Diploma in Electrical Engineering from the Institutionof Electrical Engineers in the United Kingdom. He is a Chartered Engineer with the Council ofEngineering Institutions in the United Kingdom, a Fellow of the Institution of Electrical Engineers in theUnited Kingdom and a Fellow of the Institution of Engineers in Singapore.

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Chua Beng Huat is our Independent Director and was appointed our Director on 13 July 2004. He wasa Senior Executive of Kim Eng Securities Pte Ltd, a securities house in Singapore from 2001 to August2004. From 1997 to 2003, he was an Executive Director of Yuanta Investment Consulting Pte. Ltd., aninvestment consultancy firm providing investment advisory services, and Yuanta Investment Holdings Pte.Ltd., the holding company of Yuanta Core Pacific Securities, a stock brokerage firm listed in the stockexchange of Taiwan. He was a Stockbroker with G.K. Goh Stockbrokers Pte Ltd, a stock broking housein Singapore, from 1994 to 1997. From 1992 to 1994, he was an Investment Banker with ANZ MerchantBank, the merchant banking department of Australia and New Zealand Banking Group in Singapore. Hewas a Corporate Banker with the Singapore branch of Bank of Tokyo Mitsubishi, from 1991 to 1992.Chua Beng Huat holds a Bachelor of Science (Economics) from the National University of Singapore.

Dr Chow Yuen Ho is our Independent Director and was appointed as our Director on 13 July 2004. Heis currently the Director, Department of Medical Informatics of Singapore General Hospital, a positionwhich he has held since August 2002. Prior to his current appointment, he was the Manager, MedicalInformatics in SingHealth, from November 2001 to July 2002. He was a Medical Officer with the Centrefor Transfusion Medicine from November 2000 to October 2001. From November 1999 to October 2000,he was a House Officer with the Ministry of Health of Singapore. Dr Chow graduated from the NationalUniversity of Singapore with a Bachelor of Medicine, Bachelor of Surgery. He is also the President of theAssociation of Medical and Bioinformatics of Singapore.

The list of present and past directorships of each of our Directors for the last five years (excluding thoseheld in our Company) is set out below:-

Name Present Directorships Past Directorships

Dr Lim Seck Yeow Group Companies Group Companies

Nil Nil

Other Companies Other Companies

China Food Industries Limited Alpha China Enterprises LimitedChina Steel Pte Ltd Capital Joint LimitedChina Cement Pte Ltd Lowe Walker Singapore Pte LtdDelight Success Limited (dissolved-members’ voluntaryGreat China Holdings Pte. Ltd. winding up)Hoggeston Limited Rasacinta Food Systems Pte LtdJadefield Group Limited Taman Holdings Pte LtdRichmond (New Zealand) Singapore Windsor Marine Pte LtdPte Ltd

Smettwick Resources LimitedThye Seng Trading Company Private Limited

Zhongguo PowerPlus Limited

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Song Zhixing Group Companies Group Companies

Laiyang Hongshun Foodstuffs Co., Ltd NilLaiyang Xinghua Foodstuffs Co., LtdLaiyang Jilong Health Drinks Co., LtdLaiyang Jilong Edible Oil Co., LtdLaiyang Green Food Co., Ltd

Other companies Other Companies

Shandong Jilong Group Co., Ltd Laiyang Jilong Machinery Manufacturing Company Limited

Laiyang Jilong Microscopic Organism Project Research Development Company Limited

Laiyang Jilong Packaging Co., LtdShandong Jilong Shiye Co., LtdYantai Taihong Foodstuff Co., Ltd

Tang Xiaoyan Group Companies Group Companies

Laiyang Hongshun Foodstuffs Co., Ltd NilLaiyang Xinghua Foodstuffs Co., LtdLaiyang Jilong Health Drinks Co., LtdLaiyang Jilong Edible Oil Co., LtdLaiyang Green Food Co., Ltd


Nil Nil

Damien Seah Yang Hwee Group Companies Group Companies

Nil Nil


Nil Hua Kok International Ltd

Fang Swee Peng Group Companies Group Companies

Nil Nil


Grand Central China Pte Ltd Design and Management ServicesHotel Grand Central Limited Pte Ltd (struck off)Kuan Fong Holdings Pte Ltd How Mah Pacific (S) Pte Ltd

Yong Teck Pawnshop Pte Ltd

Chua Beng Huat Group Companies Group Companies

Nil Nil


IaSolution Singapore Pte Ltd Beans Fusion Pte. Ltd.Medtecs International Corp Ltd Yuanta Investment Holdings Pte. Ltd.

(dissolved-members’ voluntarywinding up)

Yuanta Investment Consulting Pte. Ltd.(dissolved-members’ voluntary winding up)

Dr Chow Yuen Ho Group Companies Group Companies

Nil Nil


Healthcare Associates Pte Ltd W3eavers Technologies Pte LtdLife Incorporated Pte Ltd

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MANAGEMENT

The day-to-day operations of our Group is entrusted to our Executive Officers whose particulars are asfollows:-

Name Age Address Current Occupation

Di Xue Ning 41 12, Xiao Yao Yi Road, #02-401, General Manager Qingdao, Shandong, PRC

Koh Chee Wei 28 Blk 756 Woodlands Avenue 4 #02-271 Finance Manager Singapore 730756

Tang Jierong 43 153, Qing Shui Bei Road, Production Manager Laiyang, Shandong, PRC

Shao Hua 50 26, He Shan Road, Production Manager Laiyang, Shandong, PRC

Tang Jierong is the brother-in-law of our Managing Director, Song Zhixing.

Save as disclosed above, none of our Executive Officers has any family relationship with any of ourDirectors, Substantial Shareholders or other Executive Officers of our Company.

Information on the business and working experience of our Executive Officers is set out below:-

Di Xue Ning is our General Manager. He is responsible for overseeing the day-to-day general affairs ofour Group. Di Xue Ning joined our Group in May 2002. Prior to joining us, he was the General Managerand Manager of Development and Planning Department of Shandong Jilong Shiye Co., Ltd from October1999 to April 2002. From November 1992 to September 1999, he was the Assistant Manager ofShandong Medical Health Care Product Import and Export Co., Ltd, a company engaged in the businessof trading of medical health care products. Di Xue Ning graduated from the Shandong Foreign TradeVocational College (Major in Foreign Trade) in the PRC.

Koh Chee Wei is our Finance Manager. He is responsible for finance, accounting, budgeting andtaxation matters of our Group and reports directly to our Managing Director. Koh Chee Wei is also theCompany Secretary of our Company. He joined our Group in April 2004. Prior to joining us, he was theGroup Accountant of China Food Industries Limited from October 2003 to March 2004. He was a SeniorAudit Associate with PricewaterhouseCoopers, Singapore, an international auditing firm from July 2002to September 2003. From July 2000 to June 2002, he was an Audit Associate withPricewaterhouseCoopers. Koh Chee Wei holds a Bachelor of Accountancy (2nd Upper Honours) degreefrom the Nanyang Technological University and is a Member of the Institute of Certified PublicAccountants of Singapore.

Tang Jierong is our Production Manager. He is responsible for the day-to-day management andproduction activities of our subsidiary, Xing Hua. Tang Jierong joined Xing Hua in January 2003. Prior tojoining Xing Hua, he was a Manager with Health Drinks from February 2001 to December 2002. FromJune 1994 to January 2001, he was an Assistant Manager with Hong Shun. Tang Jierong graduated fromZhongyang Agriculture Broadcasting School (Major in Agriculture) in the PRC.

Shao Hua is our Production Manager. He is responsible for the day-to-day management and productionactivities of our subsidiary, Hong Shun. Shao Hua has been with our Group since October 1993. Priorto joining our Group, he was a Manager of Laiyang North Sea Foodstuffs Limited Company, a companyengaged in the production of frozen vegetables, from December 1991 to September 1993. Shao Huagraduated from Yantai University (Major in Business Management) in the PRC.

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The list of present and past directorships of each of our Executive Officers for the last five years is setout below:-

Name Present Directorships Past Directorships

Di Xue Ning Group Companies Group Companies

Nil Nil


Nil Nil

Koh Chee Wei Group Companies Group Companies

Nil Nil


Nil Nil

Tang Jierong Group Companies Group Companies

Nil Nil


Nil Shandong Jilong Shiye Co., Ltd

Shao Hua Group Companies Group Companies

Nil Nil


Nil Yantai Taihong Foodstuff Co., Ltd

STAFF

As at 31 December 2003, our Group had a total of 1,935 full-time employees and 567 temporaryemployees.

Our full-time employees as at the end of the last three financial years ended 31 December 2003 and asat the Latest Practicable Date are as follows:-

As at As at 31 December the Latest

Practicable2001 2002 2003 Date

By FunctionsManagement 16 16 5 6Sales and Marketing 25 120 96 121Administrative 28 28 60 132Operations and Logistics 2,223 1,546 1,774 1,611

Total 2,292 1,710 1,935 1,870

By Geographical AreasPRC 2,290 1,706 1,931 1,864Japan 2 2 2 2United States – 2 2 2Singapore – – – 2

Total 2,292 1,710 1,935 1,870

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The decrease in our staff strength between 31 December 2003 and the Latest Practicable Date was dueto the outsourcing of some of our labour intensive production work to our suppliers. The increase inadministrative staff between 31 December 2003 and the Latest Practicable Date was due to moreadministrative staff being hired for the commencement of the commercial operations of Green Food inMay 2004.

Our employees at our subsidiaries are unionised under Shandong Jilong Labour Union. The relationshipbetween management and employees is good and there has been no industrial disputes with ouremployees since we commenced operations.

We employ temporary staff during the harvest seasons or to meet seasonal production demand. Weemployed 10, 314 and 567 temporary staff as at 31 December 2001, 31 December 2002 and 31December 2003 respectively. As at the Latest Practicable Date, we employed 60 temporary staff.

STAFF TRAINING

We believe that the quality of our staff is an important element to the growth of our Group. Accordinglywe place great emphasis on staff training in order to equip our production staff with the requisitetechnical expertise and to increase their productivity. Through staff training, our staff is also able to keepabreast of the latest technological development in our industry. We usually train our new staff when theyjoin our Group and regularly re-train them in accordance with our production requirements.

In addition, we periodically send our staff for ISO9000 and HACCP training so that they are equippedwith the requisite knowledge and skills to implement these quality standards in our production processes.For example, we sent 20 staff from our subsidiary, Green Food, to the Physical Research Institute of theChinese Academy of Sciences for a month’s training to acquire the skills and technical expertisenecessary for the operations of our Green Food factory. We have also sent our staff to Q.P. Corporation,one of our customers, for training in food processing, quality assurance and product development. Wealso send our management and sales staff for training in the latest management and sales methods toallow us to adapt to the changing business environment and requirements.

In addition, one of our Japanese customers, Aohata F&M Supply Co., Ltd, regularly sendsrepresentatives to our premises to train our staff so that our production methods and products meet theirrequirements.

Our staff training expenses for the last three financial years have not been significant, as most of ourstaff training are organised in-house and/or conducted by our customers.

DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION

The remuneration(1) of our Directors and top five key executives for services rendered to us and oursubsidiaries on an aggregate basis and in remuneration bands(4) for each of the two most recentcompleted financial years and an estimated amount of remuneration paid and to be paid for the currentfinancial year are as follows:-

FY2002 FY2003 FY2004(4)

DirectorsDr Lim Seck Yeow – (2) – (2) ASong Zhixing A A ATang Xiaoyan A A ADamien Seah Yang Hwee – (3) – (3) AFang Swee Peng – (3) – (3) AChua Beng Huat – (3) – (3) ADr Chow Yuen Ho – (3) – (3) A

Key ExecutivesDi Xue Ning A A AKoh Chee Wei – (3) – (3) ATang Jierong A A AShao Hua A A A

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Notes:-

1. Remuneration includes salary, bonus, CPF, directors’ fee and benefits-in-kind. For the purpose of this estimation, the bonusthat our Executive Directors are entitled to as Performance Bonus has not been taken into account. Details of thePerformance Bonus are set out under the section entitled “Service Agreements – Performance Bonus” in this Prospectus.

2. Our non-executive Chairman, Dr Lim Seck Yeow, was appointed as our Director on 25 September 2003. He did not receiveany remuneration including salary, CPF, directors’ fee and benefits-in-kind, from us for FY2002 and FY2003.

3. Not under our employment/appointment as at the relevant period.

4. Remuneration band:-

“A” refers to remuneration up to $250,000

Pension

Save for a basic contribution plan participated by our Subsidiaries in the PRC, we have not set aside oraccrued any amounts to provide for pension, retirement or similar benefits for any of our employees. Thebasic contribution plan is organised by the relevant local government authorities in the PRC and itcomprises, amongst others, the retirement insurance, medical insurance, unemployment insurance andhousing accumulation fund whereby our Subsidiaries are required to make and has been makingmonthly contributions to these plans at a certain percentage of our employees’ basic salary. The rate ofcontribution is approximately 29.5% in aggregate of our employees’ basic salary. As at the LatestPracticable Date, 301 of our employees have joined the basic insurance plan.

Our Subsidiaries have no obligation for the payments of retirement and other post-retirement benefits ofemployees other than the monthly contributions described above.

We also comply with and contribute to CPF in respect of our staff who are based in Singapore.

CORPORATE GOVERNANCE

Nominating Committee

Our Nominating Committee comprises Fang Swee Peng, Chua Beng Huat and Dr Lim Seck Yeow. TheChairman of the Nominating Committee is Fang Swee Peng. Our Nominating Committee will beresponsible for (i) re-nomination of our Directors having regard to the Director’s contribution andperformance, (ii) determining annually whether or not a Director is independent and (iii) deciding whetheror not a Director is able to and has been adequately carrying out his duties as a director. The NominatingCommittee will decide on how the board’s performance is to be evaluated and propose objectiveperformance criteria, subject to the approval of the board, which address how the board has enhancedlong-term shareholders’ value. The board will also implement a process to be carried out by theNominating Committee for assessing the effectiveness of the board as a whole and for assessing thecontribution by each individual Director to the effectiveness of the board. Each member of the NominatingCommittee shall abstain from voting on any resolutions and making any recommendations and/orparticipating in any deliberations of the Nominating Committee in respect of the assessment of hisperformance or re-nomination as director.

Remuneration Committee

Our Remuneration Committee comprises Fang Swee Peng, Dr Chow Yuen Ho and Dr Lim Seck Yeow.The Chairman of the Remuneration Committee is Fang Swee Peng. Our Remuneration Committee willbe responsible for recommending to our board a framework of remuneration for the Directors and keyexecutives, and determine specific remuneration packages for each Executive Director and the ManagingDirector. The recommendations of our Remuneration Committee will be submitted for endorsement bythe entire board. All aspects of remuneration, including but not limited to directors’ fees, salaries,allowances, bonuses, options and benefits in kind shall be covered by our Remuneration Committee.Each member of the Remuneration Committee shall abstain from voting on any resolutions and makingrecommendations and/or participating in any deliberations of the Remuneration Committee in respect ofhis remuneration package.

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Audit Committee

Our Executive Directors will continue to manage the operations of our Company and our subsidiaries,and our Audit Committee will provide the necessary checks and balances as set out below. Our AuditCommittee comprises Chua Beng Huat, Fang Swee Peng and Dr Chow Yuen Ho. The chairman of theAudit Committee is Chua Beng Huat.

Our Audit Committee will assist our Board in discharging their responsibility to safeguard our assets,maintain adequate accounting records, and develop and maintain effective systems of internal control,with the overall objective of ensuring that our management creates and maintains an effective controlenvironment in our Group.

Our Audit Committee will provide a channel of communication between our Board, our management andour external auditors on matters relating to audit.

In particular, our Audit Committee will:

(a) review with the external auditors the audit plan, their evaluation of the system of internalaccounting controls, their letter to management and the management’s response;

(b) review the quarterly and annual financial statements and balance sheet and profit and lossaccounts before submission to our Board for approval, focusing in particular on changes inaccounting policies and practices, major risk areas, significant adjustments resulting from theaudit, compliance with accounting standards and compliance with the Listing Manual and anyother relevant statutory or regulatory requirements;

(c) review the internal control procedures and ensure co-ordination between the external auditors andour management, and review the assistance given by our management to the auditors, anddiscuss problems and concerns, if any, arising from the interim and final audits, and any matterswhich the auditors may wish to discuss (in the absence of our management, where necessary);

(d) review and discuss with the external auditors any suspected fraud or irregularity, or suspectedinfringement of any relevant laws, rules or regulations, which has or is likely to have a materialimpact on our Group’s operating results or financial position, and our management’s response;

(e) consider the appointment or re-appointment of the external auditors and matters relating to theresignation or dismissal of the auditors;

(f) review interested person transactions (if any) falling within the scope of Chapter 9 of the SGX-STListing Manual;

(g) review potential conflicts of interest, if any;

(h) undertake such other reviews and projects as may be requested by our Board, and will report toour Board its findings from time to time on matters arising and requiring the attention of our AuditCommittee; and

(i) generally undertake such other functions and duties as may be required by the legislation,regulations or the Listing Manual, or by such amendments as may be made thereto from time totime.

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Board Practices

Every Director shall retire from office once every three years and for this purpose, at each annual generalmeeting. One-third of the Directors for the time being (or, if their number is not a multiple of three, thenumber nearest to but not less than one-third) shall retire from office by rotation provided that no Directorholding office as Managing Director or a person holding an equivalent position shall be subject toretirement by rotation or be taken into account in determining the number of Directors to retire. A retiringDirectors shall be eligible for re-election.

SERVICE AGREEMENTS

We have entered into separate service agreements (“Service Agreements”) with our Executive Directors,namely, Song Zhixing and Tang Xiaoyan (individually known as an “Executive Director”) for an initialperiod of three (3) years from the date of commencement, being the date of admission of our Companyto the Official List of the SGX-ST, of the Service Agreement (the “Initial Term”) and shall automaticallyexpire at the end of the Initial Term unless renewed by our Company for such period as our Companymay so decide. The appointment of the Executive Director may be terminated at any time in accordancewith the provisions of the Service Agreement or by either party giving to the other three (3) months’notice in writing of such intended termination, or in lieu of the said three (3) months’ notice, an amountequivalent to three (3) months’ salary based on the Executive Director’s last drawn salary, save that theExecutive Director shall not terminate his employment with the Company during the Initial Term. None ofthe Executive Directors will be entitled to any benefits upon termination of his Service Agreement.

The Service Agreement may be terminated at any time without any notice or payment in lieu of notice if(i) the Executive Director becomes prohibited by law from being or ceases to be a director of theCompany for any reason whatsoever; (ii) the Executive Director is or may be suffering from a mentaldisorder; or (iii) the Executive Director is convicted of any criminal offence (save for an offence underroad traffic legislation for which he is not sentenced to any term of immediate or suspendedimprisonment) and sentenced to any term of immediate or suspended imprisonment.

The Service Agreement may be terminated by the Company in the event that the Executive Directorcommits certain events of default (comprising gross misconduct, breach of a material provision of theService Agreement, breach of trust or dishonesty or if he becomes bankrupt or makes any arrangementor composition with his creditors) as described in his Service Agreement and upon such termination, theExecutive Director shall not be entitled to claim any compensation or damages.

Under the Service Agreements, Song Zhixing and Tang Xiaoyan will each receive a monthly salary ofS$10,000 and S$4,000 respectively. Our Company will reimburse the Executive Directors all travelling,hotel, entertainment and other expenses reasonably incurred by them in the performance of their duties,during the term of each of their respective Service Agreements.

Our Executive Directors will be entitled to directors’ fees subject to the review and recommendation of theRemuneration Committee and the approval of Shareholders at the annual general meeting of ourCompany.

Performance Bonus

Our Managing Director, Song Zhixing, will be paid a performance bonus (“Performance Bonus”), basedon our Group’s audited profit before performance bonus, taxation, gains on non-recurring exceptionalitems and extraordinary items (“Profits”) as follows:-

(a) Song Zhixing is entitled to 2.0% of the first RMB60,000,000 of Profits earned; and

(b) additionally, where the Profits are more than RMB60,000,000, Song Zhixing is entitled to 3.0% ofthe difference between the Profits and RMB60,000,000.

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Please refer to the sections entitled “Directors” in this Prospectus for details of the responsibilities ofSong Zhixing in our Group. Under his leadership, the operations of our Group have developed andexpanded rapidly. We consider his leadership, expertise and continuing contribution to our Group to beinvaluable and vital to the future growth of the Group and awarding him with Performance Bonus willserve as a reward as well as to motivate him to continue to contribute to the growth of our Group.

Had the Service Agreements been in place for FY2003, the aggregate remuneration payable to ourExecutive Directors (including annual bonus, Director’s fee, performance bonus and benefits-in-kind)would have been approximately RMB2.1 million instead of RMB58,000 and the profit before income taxand extraordinary items of our Group for FY2003 would have been about RMB60.8 million instead ofRMB62.8 million.

Save as disclosed above, there are no existing or proposed service agreements between our Companyand any of our Executive Directors.

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Save as disclosed below and under the section “Restructuring Exercise, Loan Capitalisation and BondConversion” in this Prospectus, none of our Directors, controlling Shareholders or Executive Officers ortheir respective associates (as defined in the SGX-ST Listing Manual) of our Company has any interestin any material transactions undertaken by our Group in the past three financial years and up to theLatest Practicable Date.

PAST INTERESTED PERSON TRANSACTIONS

1. Transaction with Shi Ye

Shi Ye is an investment holding company which was incorporated in PRC and owns a wide rangeof businesses including woodwork processing, biological research and development andmechanical engineering. It was the holding company of some of our subsidiaries, namely, HongShun, Xing Hua and Edible Oil until July 2003. Song Naihong, the director of Shi Ye and hisdaughter, Song Zhiying each holds 55.2% and 38.7% (collectively 93.9%) respectively of theequity interests in Shi Ye. Song Naihong is the father of our Managing Director, Song Zhixing andSong Zhiying is the sister of Song Zhixing. Tang Jierong, Sun Guosheng and Liu Zhihe are thebrothers-in-law of Song Zhixing and in aggregate, they hold another 3.9% equity interest in Shi Ye.The remaining shareholders of Shi Ye are not related to the Directors and substantial shareholdersof the Company. Sun Guosheng is also a director of Shi Ye. Tang Jierong, our ProductionManager, was a director of Shi Ye.

On 1 May 2004, Shi Ye provided an undertaking to us that it and its subsidiaries will not compete,directly or indirectly, with the existing business of our Group.

Trade Transactions

The value of transactions between our Group and Shi Ye for the last three financial years and thetrade balances as at the end of each of the last three financial years were as follows :-

RMB’000 FY2001 FY2002 FY2003

Sales of beverages – 1,179 –

Disposal of plant & equipment 331 4,430 –

Acquisition of plant & equipment 1,987 4,064 –

Management fees paid to Shi Ye – 783 –

Trade balances due from Shi Ye – 250 –

(a) Sales of Beverages

We sold beverages to a sales office of Shi Ye in Shenyang for sales to their customers in FY2002. We ceased to sell beverages to Shi Ye when the employees of the said sales officewere transferred to our subsidiary, Health Drinks, in the second half of FY2002. Our Grouphas ceased selling beverages to Shi Ye in FY2003.

(b) Sales and Purchases of Plant & Equipment

These transactions related to the sales and purchases of plant, used motor vehicles andequipment between our Group and Shi Ye. In FY2001 and FY2002 when Shi Ye was theholding company of some of our subsidiaries, each of our subsidiaries acquired used plantand equipment from Shi Ye when they required them for their operations and disposed themto Shi Ye when they no longer required them. The consideration was based on the net bookvalue of these assets. Our Group has ceased the above arrangement with Shi Ye inFY2003.

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(c) Management fees paid to Shi Ye

In FY2002, Shi Ye charged management fees to our Group for expenses incurred on ourbehalf. These expenses comprised (i) the compensation paid to certain farmers for vacatingthe land which we leased for the building of production facilities for our subsidiary, Xing Hua,and (ii) professional fees and expenses incurred to obtain the ISO 9001 certification forHealth Drinks. The farmers were former legal occupants of the land, prior to thecommencement of our lease. The compensation to these farmers was made out of goodwillby our management to facilitate the relocation of the farmers. These were one-offtransactions and have not recurred since FY2002. We do not expect such transactions torecur in the future.

Our Directors are of the opinion that the above transactions with Shi Ye were carried out on anarm’s length basis based on normal commercial terms.

Non-trade transactions

In August 2002, Shi Ye entered into a contract on our behalf with a supplier for the purchase ofequipment used for the setting up of our freeze-dry facilities. The contract sum is RMB191,000. Asat end of FY2003, we have paid to the supplier a sum of RMB152,000. The balance amount ofRMB39,000 is outstanding as at the Latest Practicable Date and will be paid directly by us to thesupplier upon delivery of the equipment. As the abovesaid contract was entered into prior to thecompletion of the acquisition of the Subsidiaries by our Group and prior to the establishment ofGreen Food, which was incorporated on 21 August 2003, the contract was therefore considered asentered into on our behalf as it relates to the purchase of equipment used for the setting up of ourfreeze-dry facilities and for our benefit. We have entered into an assignment agreement with Shi Yeon 26 May 2004 whereby the abovementioned contract was assigned to us.

During the last three financial years, we had also received interest-free loans from Shi Ye for thepurpose of providing additional working capital. In FY2002, we also provided interest-free loans toShi Ye. These amounts due to and from Shi Ye were unsecured and had no fixed repaymentterms. The amounts due to and from Shi Ye as at the last three financial years and as at the LatestPracticable Date were as follows:-

As at Latest

Practicable RMB’000 FY2001 FY2002 FY2003 Date

Non-trade balances due from/(to) Shi Ye (67,298) 1,935 (521) (1)

During the last three financial years, the largest outstanding amount due to Shi Ye was RMB67.7million in FY2002. We do not intend to obtain any further advances from Shi Ye.

2. Transactions with Jilong Fuel Tanks Co., Ltd (“JFT”)

JFT was incorporated in PRC and was engaged in the manufacturing of fuel tanks used inautomotive industry. Shi Ye held 66.7% of the registered capital of JFT. The remainingshareholders of JFT were not related to our Directors or substantial shareholders. JFT was de-registered on 25 July 2003.

The value of transactions between our Group and JFT for the last three financial years and thetrade balances as at the end of each of the last three financial years were as follows:-

RMB’000 FY2001 FY2002 FY2003

Sales of beverages 5 5 –

Other Income – Utility Charges 61 – –

Trade balances due from JFT 4 – –

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We sold beverages to JFT in FY2001 and FY2002 for their own consumption. In FY2001, wecharged JFT for their share of the utility charges when they were occupying our premises.

In FY2001 and FY2002, our Group provided interest-free loans to JFT for their working capital.The amounts outstanding as at end of FY2001 and FY2002 were approximately RMB173,000 andRMB51,000 respectively. The loans were unsecured and had no fixed repayment terms. The loanshave been fully repaid as at the end of FY2003.

Our Directors are of the opinion that the above trade transactions with JFT were carried out on anarm’s length basis based on normal commercial terms.

3. Transactions with Laiyang Shenglong Property Development Co., Ltd (“Shenglong”)

Shenglong was incorporated in PRC and is engaged in the development of properties in the PRC.Song Zhibo, who is the brother of our Managing Director, Song Zhixing, holds a shareholding of52% equity interest of Shenglong. The remaining shareholders of Shenglong are not related to ourDirectors or substantial shareholders.

During the last three financial years, we had received interest-free loans from Shenglong for thepurpose of providing additional working capital. The loans were unsecured and had no fixedrepayment terms. The amounts due to Shenglong in FY2001 and FY2002 were approximatelyRMB2.7 million and RMB902,000 respectively. The advances were fully settled in FY2003.

During the last three financial years, the largest non-trade amount due to Shenglong was RMB2.9million in FY2002. Our Group does not intend to obtain such loans and advances from Shenglongin the future.

4. Transactions with Laiyang Jilong Machinery Manufacturing Co., Ltd (“Jilong Machinery”)

Jilong Machinery was incorporated in PRC and is engaged in manufacturing of industrial tools. ShiYe and Liu Zhihe each holds 96% and 4% respectively of the registered capital of JilongMachinery. Liu Zhihe is the brother in-law of our Managing Director, Song Zhixing. Song Naihong,the father of Song Zhixing, is a majority shareholder and and a director of Shi Ye and JilongMachinery.

The value of transactions between our Group and Jilong Machinery for the last three financialyears and for the period from 1 January 2004 to the Latest Practicable Date, and the trade andnon-trade balances as at the end of each of the relevant periods, were as follows:-

1 January 2004 to Latest


Sales of beverages 5 10 2 2

Purchase of consumable tools – 44 – –

Acquisition of equipment – – 2,748 –

Trade balances due from Jilong Machinery 5 8 – –

Non-trade balances due from/(to) Jilong Machinery 109 – (17) (17)

We sold beverages to Jilong Machinery for its own consumption. In FY2002, we purchasedconsumable tools from Jilong Machinery for use in our production processes. In FY2003, weacquired equipment for the setting up of our freeze-dried facilities. In February 2004, we enteredinto a contract with Jilong Machinery for the upgrading of certain production facilities amounted toRMB180,000. The RMB180,000 was paid in advance as at 31 March 2004. The upgrading wascompleted in April 2004.

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In FY2001, we provided interest-free advance to Jilong Machinery for the purpose of providingadditional working capital. The advance was unsecured and had no fixed repayment terms. Theamount due from Jilong Machinery as at the end of FY2001 was approximately RMB109,000. Theloan was fully repaid in FY2002. As at 31 December 2003, we have an amount due to JilongMachinery of RMB17,000 in respect of the acquisition of equipment from them. The largestoutstanding amount due from Jilong Machinery was RMB2.7 million in FY2003. Our Group doesnot intend to extend any advance to Jilong Machinery in the future.

Our Directors are of the opinion that the above transactions with Jilong Machinery were carried outon an arm’s length basis based on normal commercial terms.

5. Transactions with Laiyang Jilong Packaging Co., Ltd (“Jilong Packaging”)

Jilong Packaging was incorporated in PRC and is engaged in the manufacturing of packagingmaterials such as corrugated cardboard boxes and plastic bottles. Shandong Jilong and SongNaihong had previously held 99.6% and 0.4% respectively of the registered capital of JilongPackaging. Song Naihong is the father of our Managing Director, Song Zhixing who was a directorof Jilong Packaging. In April 2004, Shandong Jilong and Song Naihong divested all their equityinterests in Jilong Packaging to an unrelated third party. Accordingly Jilong Packaging is no longeran interested party as defined under the Listing Manual.

Trade transactions

During the last three financial years, our Group sold beverages and frozen foodstuffs to JilongPackaging for their own consumption. We also purchased packaging materials from JilongPackaging for packaging of our products. The total sales and purchases between our Group andJilong Packaging during the last three financial years and for the period from 1 January 2004 tothe Latest Practicable Date, and the trade balances as at the end of each of the relevant periods,were as follows:

1 January2004 toLatest

Practicable (RMB‘000) FY2001 FY2002 FY2003 Date

Sales of finished products – 12 24 49

Purchases from Jilong Packaging 5,562 4,882 3,512 1,141

Trade balances due to Jilong Packaging 1,427 1,053 1,672 1,812

All above transactions between our Group and Jilong Packaging were conducted on an arm’slength basis based on normal commercial terms. The credit terms granted by Jilong Packaging tous is 60 days. We intend to continue transacting with Jilong Packaging as long as it is beneficial toour Group.

6. Transactions with Yantai Taihong Foodstuff Co., Ltd (“Yantai Taihong”)

Yantai Taihong was incorporated in PRC and is engaged in the food processing business. Itsproducts include Japanese gyozas, vegetable rolls and other steamed foods. Shi Ye had previouslyheld 48% of the registered capital and the balance 52% is held by a non-related Japanesecompany. In April 2004, Shi Ye divested all its equity interests in Yantai Taihong to an unrelatedthird party. Accordingly, Yantai Taihong is no longer an interested party as defined under the ListingManual of the SGX-ST. In addition, on 1 May 2004, Shi Ye provided an undertaking to ourCompany that it will not compete, directly or in directly, with the existing business of our Group.Song Zhixing, our Managing Director and Shao Hua, our Production Manager, were directors ofYantai Taihong and have resigned from their directorships in Yantai Taihong.

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Trade Transactions

The value of transactions between our Group and Yantai Taihong for the past three financial yearsand for the period from 1 January 2004 to the Latest Practicable Date, and the trade balances asat the end of each of the relevant periods, were as follows:-

1 January2004 to

the Latest Practicable

(RMB’000) FY2001 FY2002 FY2003 Date

Sales of finished products 9,792 55 240 80

Other Income - Rental and utilities charges 108 12 – –

Trade balances due from Yantai Taihong 2,218 1,056 781 281

(a) Sales of finished products to Yantai Taihong

In FY2001, our Group exported certain of our products to a Japanese customer, UnipacJapan Co., Ltd in Japan through Yantai Taihong. During those periods where there were birdflu outbreaks in certain parts of the PRC, Japan allowed only certain PRC companies toexport products (food with chicken meat) into Japan. During those periods, Yantai Taihongwas one of the approved companies from PRC to export such products into Japan, whileour Group was not included in the approved list of the companies. Hence, we exportedthese products through Yantai Taihong. The transactions with Yantai Taihong were on aback-to-back basis and there was no mark-up by Yantai Taihong on these transactions.During the year, we have written off an outstanding amount of RMB0.4 million due todiscrepancies over the outstanding balances recorded.

This was an one-off arrangement. We do not expect such arrangement to recur in thefuture.

In FY2002 and FY2003, we sold peanut oil and beverages to Yantai Taihong. We intend tocontinue transacting with Yantai Taihong as long as it is beneficial to our Group.

(b) Rental and Utilities charges to Yantai Taihong

During the period from January 2001 to February 2002, we rented to Yantai Taihong awarehousing area for a monthly rental of RMB6,000. In FY2001, we also charged YantaiTaihong for their usage of utilities which amounted to RMB36,407. The lease was terminatedin March 2002. We do not expect such transaction to recur in the future.

Our Directors are of the opinion that the above transactions with Yantai Taihong were carried outon an arm’s length basis based on normal commercial terms.

7. Advances from Song Naihong

Song Naihong is the father of our Managing Director, Song Zhixing. He has a 55.2% and 60.0%equity interests in Shi Ye and Shandong Jilong respectively. In FY2003, we obtained non-tradeloans for working capital purposes from Song Naihong amounted to RMB430,000 as at end ofFY2003. The loans were unsecured and had no fixed repayment terms. As at the LatestPracticable Date, the loans due to Song Naihong had been fully repaid.

The largest outstanding amount due to Song Naihong was RMB450,000 in FY2003. Our Groupdoes not intend to obtain such loans and advances from Song Naihong in the future.

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8. Advances from our non-executive Chairman and Controlling Shareholder

Between September 2003 and February 2004, our non-executive Chairman, Dr Lim Seck Yeow,and our Controlling Shareholder, Tan Geok Bee, advanced loans amounting to an aggregate valueof S$9,941,225 to our Company to finance the acquisition of the Subsidiaries by our Company. Theloans are interest-free, unsecured and have no fixed term of repayment.

On 19 March 2004, we capitalised S$9,719,998 of the loan amount owing to Dr Lim Seck Yeowand Tan Geok Bee by issuing 9,719,998 fully-paid new ordinary shares of S$1.00 each at par. Asagreed between the parties, an aggregate of 4,860,000 ordinary shares of $1.00 each, out of the9,719,998 ordinary shares of $1.00 each, were allotted to Capital Joint and Ventures Point asinvestments in our Company. Capital Joint and Ventures Point completed the acquisition of theseinterests with loans extended to them by Delight Success. Capital Joint and Ventures Point, havecharged in favour of Delight Success their entire respective shareholdings in our Company assecurity for the payment and the discharge of the abovementioned loans advanced by DelightSuccess to Capital Joint and Ventures Point. The parties have agreed that the charge shall bereleased upon admission of the Company to the Official List of the SGX-ST and that the loansshall be fully repaid by March 2005. Please refer to the sections “Restructuring Exercise, LoanCapitalisation and Bond Conversion” and “Shareholders” in this Prospectus for further details. InApril 2004, we obtained additional advances of S$50,000 each from Dr Lim Seck Yeow and TanGeok Bee for working capital purposes. The remaining amounts of S$163,157 and S$156,183 dueto Dr Lim Seck Yeow and Tan Geok Bee respectively after the Loan Capitalisation, will be repaid tothem at our discretion and subject to the review of our Audit Committee. Our Group does notintend to obtain any loans from Dr Lim Seck Yeow and/or Tan Geok Bee in the future.

PRESENT AND ON-GOING TRANSACTIONS

1. Transactions with Shandong Jilong

Shandong Jilong is an investment holding company which was incorporated in the PRC in May2002. It was the holding company of all our Subsidiary companies immediately prior to theacquisition by our Company pursuant to the Restructuring Exercise. Our Managing Director, SongZhixing and his father, Song Naihong, are the directors and shareholders of Shandong Jilong.Song Zhixing and Song Naihong hold 40% and 60% respectively in the capital of Shandong Jilong.Shandong Jilong had provided an undertaking to our Company that it or its subsidiaries will notcompete, directly or indirectly, with the existing business of our Group. Currently Shandong Jilongdoes not have any subsidiary.

The value of transactions between our Group and Shandong Jilong for the last three financialyears and for the period from 1 January 2004 to the Latest Practicable Date, and the non-tradebalances as at the end of each of the relevant periods were as follows:

1 January 2004 to Latest


Sales of beverages and peanut oil – – – 240

Rental expenses – – 1,318 957

Disposal of properties and land use-rights – – 37,954 –pursuant to the Restructuring Exercise

Disposal of motor vehicles and equipment – – 1,248 –

Acquisition of used motor vehicles – – 103 –

Non-trade balances due to/(from) Shandong – 4,864 (10,124) 154Jilong

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There was no outstanding trade balance due to/from Shandong Jilong.

We sold beverages and peanut oil to Shandong Jilong for their own consumption.

In FY2003, prior to the Restructuring Exercise, our subsidiaries, namely Hong Shun, Xing Hua,Health Drinks and Edible Oil, sold their immovable properties and land use rights at an aggregateconsideration of RMB38.0 million to Shandong Jilong based on the net book value of these fixedassets as at 31 December 2002. Subsequent to the sale of the immovable properties, each of oursubsidiary companies mentioned above entered into a 10-year lease agreement with ShandongJilong to rent the factory and office premises with effect from 1 January 2003. The total rental paidby our Group to Shandong Jilong in FY2003 was RMB1.3 million. As there is no ready establishedrental market or statistics to determine the rental of the properties, the rental amounts aredetermined by dividing the value of these properties over the estimated useful lives. Please referto the section entitled “Properties and Fixed Assets” in this Prospectus for further details.

In addition to the above, we entered into a lease agreement with Shandong Jilong for rental of thefactory premises at South Heshan Road, Food Industry Garden, Laiyang, Shandong Province,PRC for our freeze-dry production facilities in FY2004. The annual rental is RMB1.2 million. Thelease is for a period of 10 years commencing from 1 April 2004. The built-in area is approximately21,575 sq m. The rental amount is determined by dividing the purchase cost of Shandong Jilongfor the land and building over the estimated useful life of the building.

In FY2003, our Group disposed certain of our motor vehicles and equipment to Shandong Jilongbased on net book value of RMB1.2 million. In the same year, we also acquired used motorvehicles from Shandong Jilong based on their book value of approximately RMB103,000.

In FY2002, we received interest-free loans from Shandong Jilong for the purpose of providingadditional working capital. The net amounts due to Shandong Jilong was RMB4.9 million as atend of FY2002. In FY2003, we paid on behalf of Shandong Jilong for certain construction costsrelated to the construction of the freeze-dry production facility. The amount owing from ShandongJilong to us as at end of FY2003 was RMB10.1 million, which was fully repaid by Shandong Jilongto us as at 31 March 2004. The loans to/from Shandong Jilong were unsecured and had no fixedrepayment terms. During the last three financial years, the largest outstanding amount due toShandong Jilong was RMB42.3 million in FY2002. We do not intend to obtain any furtheradvances from Shandong Jilong.

In FY2003, Shandong Jilong entered into contracts on our behalf with three suppliers for thepurchase of equipment used for the setting up of our freeze-dry production facilities. The totalcontract sum is RMB11.9 million. As at end of FY2003, we have paid to the suppliers a sum ofRMB10.8 million. The balance amount of approximately RMB1.1 million will be paid directly by usto the suppliers when due. As at the Latest Practicable Date, the amount outstanding under thesecontracts is RMB1.1 million. As the abovesaid contracts were entered into prior to the completionof the acquisition of the Subsidiaries by our Group and prior to the establishment of Green Food,which was incorporated on 21 August 2003, the contracts were therefore considered as enteredinto on our behalf as it relates to the purchase of equipment used for the setting up of our freeze-dry production facilities and for our benefit. We have entered into an assignment agreement withShandong Jilong on 26 May 2004 whereby the abovementioned contract was assigned to us.

In FY2003, we also entered into a contract with Jilong Machinery on behalf of Shandong Jilong forgeneral renovation works at our freeze-dry production facilities for a contract sum of RMB2.4million. Prior to the Restructuring Exercise, our Group and Shandong Jilong agreed that theGroup will not take over the building and land of the freeze-dry production facilities that GreenFood is currently occupying. However, as Green Food would be the user of the facilities and hasthe relevant expertise to convey the specifications of the renovation works to Jilong Machinery, itwas therefore agreed that Green Food shall enter into the agreement with Jilong Machinery.Further, Shandong Jilong and the Group agreed that the expenses for the general renovationworks at the freeze-dry production facilities should be borne by Shandong Jilong as the buildingbelongs to them, and accordingly, it was agreed that the said contract for the general renovationworks at the freeze-dry production facilities should be considered as entered into on ShandongJilong's behalf. As at 31 December 2003, Shandong Jilong has made a prepayment of RMB0.3million to Jilong Machinery. The balance amount of RMB2.1 million will be paid directly byShandong Jilong to Jilong Machinery when due. We have entered into an assignment agreementwith Shandong Jilong on 26 May 2004 whereby the abovementioned contract was assigned toShandong Jilong.

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In October 2003 and January 2004, our Group obtained short-term loans from Bank of China(Laiyang City Branch) of RMB6.5 million (“Term Loan 1”) and RMB3.6 million (“Term Loan 2”)respectively for our working capital purpose. These loans were secured against a fixed chargeover land and buildings owned by Shandong Jilong. Please refer to the section entitled“Capitalisation and Indebtedness” in this Prospectus for further details of the short-term loans. Asat the Latest Practicable Date, the Term Loan 1 of RMB6.5 million was outstanding and we intendto repay the loan which is due in October 2004 from the proceeds from this Invitation. The TermLoan 2 was fully repaid in April 2004. Subsequent to the Invitation, our Directors are confident thatwith our listing status and our strengthened financial position from the proceeds from thisInvitation, we should be able to secure banking facilities on terms similar to those of our existingbanking facilities without having to rely on securities provided by Shandong Jilong.

We intend to continue our business relationship with Shandong Jilong and continue the sales ofbeverages and peanut oil, the rental of factories and office premises, and sales and disposal ofproperties, plant and equipment for as long as it is beneficial to our Group. In the past, the tradetransactions with Shandong Jilong were entered into on an arm’s length basis based on terms andprices that were not less favorable than if they were transacted with an unrelated third party. Afterthe admission of our Company to the Official List of the SGX-ST, transactions with ShandongJilong will be entered into in accordance with guidelines prescribed under the section entitled“Review Procedures for Future Interested Person Transactions” in this Prospectus, the prevailinglegislation and the Listing Manual.

2. Transactions with Thye Seng Trading Company Pte Ltd (“Thye Seng”)

Thye Seng is principally engaged in the trading of frozen food in Singapore. It is a 100% ownedsubsidiary company of China Food Industries Limited (“CFI”), a company listed on the SGX-SESDAQ. Our non-executive Chairman, Dr Lim Seck Yeow, is the Group Managing Director and aControlling Shareholder of CFI.

From 1 January 2004 to the Latest Practicable Date, our Group sold frozen food products totallingUS$17,575 to Thye Seng for its trading purposes. The transactions were conducted on an arm’slength basis based on normal commercial terms. We intend to continue transacting with ThyeSeng as long as we derive commercial benefit from such transactions. After the admission of ourCompany to the Official List of the SGX-ST, all such transactions will be entered into inaccordance with guidelines prescribed under the section entitled “Guidelines and ReviewProcedures for Interested Person Transactions” in this Prospectus, the prevailing legislation andthe Listing Manual.

In April 2004, we entered into a rental agreement with Thye Seng for the rental of office premises,furniture and equipment for S$500 per month. The rental arrangement is conducted on an arm’slength basis based on normal commercial terms and takes effect from 1 May 2004 for a period ofthree years.

REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS

Our Audit Committee will review and approve all interested person transactions as defined by the SGX-ST Listing Manual (“Interested Person Transactions”) to ensure that they are on normal commercial termsand arms’ length basis, that is, the transactions are transacted on terms and prices not more favourableto the interested persons than if they were transacted with a third party and are not prejudicial to theinterests of our shareholders in any way.

During its periodic review or such other review deemed necessary by them, our Audit Committee willcarry out review of records of all Interested Person Transactions to ensure that they are carried out inaccordance with the following internal control procedures:

(i) All Interested Persons Transactions above $100,000 are to be approved by a Director who shallnot be an Interested Person in respect of the particular transaction. Interested Person Transactionsbelow $100,000 do not require such approval. In addition, our Audit Committee will ensure that theterms (including, inter alias, credit terms granted) of the Interested Person Transactions areconsistent with our Group’s usual business practices and the procedures as follows:-

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(a) When selling items or supplying services to an interested person, the price or fee and termsof at least two other successful sales of a similar nature to non-interested persons will beused for comparison. The sale price or fee shall not be lower than the lowest sale price orfee of the other transactions with non-interested persons;

(b) When purchasing items from or engaging the services of an interested person, at least twoother quotations from non-interested persons will be obtained for comparison. The purchaseprice or fee shall not be higher than the most competitive price or fee of the othertransactions with non-interested persons. In determining the most competitive price or fee,non-price factors such as quality, delivery time, and track record will be taken into account;and

(c) When renting properties from or to an interested person, our Directors shall take appropriatesteps to ensure that such rent commensurate with the prevailing market rates, includingadopting measures such as making relevant enquiries with landlords of similar propertiesand obtaining necessary reports or reviews published by property agents (including anindependent valuation report by a property valuer, where considered appropriate). The rentpayable shall be based on the most competitive market rental rate of similar property interms of size and location, based on the results of the relevant enquiries. When it is notpossible to obtain or establish the prevailing market rates through the methods describedabove, the Audit Committee will determine whether the rental fees to be paid or received arefair and reasonable and consistent with the Group’s usual business practices.

For (a) and (b) above, in the event that it is not possible for such quotations to be obtained, ourAudit Committee will determine whether the fees offered by the interested persons are fair andreasonable and the terms of supply from the interested persons are in accordance with industrynorms.

(ii) In addition, we shall monitor all Interested Person Transactions entered into by us and categorisethese transactions as follows:

(a) a Category 1 Interested Person Transaction is one where the value thereof is in excess of5% of the NTA of our Group; and

(b) a Category 2 Interested Person Transaction is one where the value thereof is below or equalto 5% of the NTA of our Group.

All Category 1 Interested Person Transactions must be approved by our Audit Committee prior toentry whereas Category 2 Interested Person Transactions need not be approved by our AuditCommittee prior to entry but shall be reviewed on a quarterly basis by our Audit Committee.

We will prepare relevant information to assist our Audit Committee in its review. If during the periodicreviews, our Audit Committee is of the view that the established guidelines and procedures are notsufficient to ensure that the Interested Person Transactions will be conducted at arm’s length and onnormal commercial terms and may be prejudicial to the interests of our minority Shareholders, we willadopt new guidelines and procedures.

Before any agreement or arrangement that is not in the ordinary course of business of our Group istransacted, prior approval must be obtained from our Audit Committee. In the event that a member of ourAudit Committee is interested in any of the Interested Person Transactions, he will abstain from reviewingthat particular transaction. Any decision to proceed with such an agreement or arrangement would berecorded for review by our Audit Committee.

Our Audit Committee will also review all Interested Person Transactions to ensure that the prevailing rulesand regulations of the SGX-ST (in particular, Chapter 9 of the Listing Manual) are complied with.

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We will also comply with the provisions in Chapter 9 of the Listing Manual in respect of all futureInterested Person Transactions, and if required under the Listing Manual or the Act, we will seek ourshareholders’ approval (where necessary) for such transactions. We will also endeavour to comply withthe principles of and best practices set out in the Best Practices Guide of the Listing Manual.

All our Independent Directors, who are members of our Audit Committee, are of the view that the reviewprocedures and systematic monitoring mechanism of all Interested Parties Transactions as mentionedabove, are adequate in ensuring that such transactions will be on normal commercial terms and will notbe prejudicial to the interests of our Shareholders in any way.

POTENTIAL CONFLICTS OF INTERESTS

Past Conflict of Interests

Yantai Taihong was incorporated in PRC and is engaged in the food processing business. Its productsinclude Japanese gyozas, vegetable rolls and other steamed foods. Shi Ye had previously held 48% ofthe registered capital in Yantai Taihong and the balance 52% was held by a non-related Japanesecompany.

Shi Ye was the previous holding company of some of our subsidiaries, namely, Hongshun, Xinghua andEdible Oil. Song Naihong, the director of Shi Ye and his daughter, Song Zhiying each holds 55.2% and38.7% (collectively 93.9%) respectively of the equity interests in Shi Ye. Song Naihong and Song Zhiyingare the father and sister of our Managing Director Song Zhixing respectively.

In April 2004, to avoid any potential conflict of interest following the listing of our Company on the OfficialList of SGX-ST, Shi Ye divested all its equity interests in Yantai Taihong to an unrelated third party. Inaddition, on 1 May 2004, Shi Ye provided an undertaking to the Company that it and its subsidiaries willnot compete, directly or indirectly, with the existing business of our Group. Song Zhixing, our ManagingDirector and Shao Hua, our Production Manager, were directors of Yantai Taihong and both haveresigned as directors of Yantai Taihong in April 2004. As such, our Directors are of the opinion that thereis no conflict of interest between our business and Shi Ye’s business.

In addition, Shandong Jilong had provided an undertaking to our Company that it or its subsidiaries willnot compete, directly or indirectly, with the existing business of our Group. Currently Shandong Jilongdoes not have any subsidiary. Save as disclosed in this section and under the section entitled “InterestedPerson Transactions” in this Prospectus:-

(a) none of our Directors, Executive Officers or Substantial Shareholders or their Associates has hadany interest, direct or indirect, in any material transactions to which we were or are to be a party;

(b) none of our Directors, Executive Officers or Substantial Shareholders or their Associates has anyinterest, direct or indirect, in any company carrying on the same business or carrying on a similartrade as us; and

(c) none of our Directors, Executive Officers or Substantial Shareholders or their Associates has anyinterest, direct or indirect, in any enterprise or company that is our customer or supplier of goodsor services.

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CLEARANCE AND SETTLEMENT

Upon listing and quotation on the SGX-ST, our Shares will be traded under the book-entry settlementsystem of the CDP, and all dealings in and transactions of our Shares through the SGX-ST will beeffected in accordance with the terms and conditions for the operation of securities accounts with theCDP, as amended from time to time.

Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf ofpersons who maintain, either directly or through depository agents, securities accounts with CDP.Persons named as direct securities account holders and depository agents in the depository registermaintained by the CDP, rather than CDP itself, will be treated, under our Articles of Association and theAct, as members of our Company in respect of the number of Shares credited to their respectivesecurities accounts.

Persons holding our Shares in securities account with CDP may withdraw the number of our Shares theyown from the book-entry settlement system in the form of physical share certificates. Such sharecertificates will, however, not be valid for delivery pursuant to trades transacted on the SGX-ST, althoughthey will be prima facie evidence of title and may be transferred in accordance with our Articles ofAssociation. A fee of $10.00 for each withdrawal of 1,000 Shares or less and a fee of $25.00 for eachwithdrawal of more than 1,000 Shares is payable upon withdrawing our Shares from the book-entrysettlement system and obtaining physical share certificates. In addition, a fee of $2.00 or such otheramount as our Directors may decide, is payable to the share registrar for each share certificate issuedand a stamp duty of $10.00 is also payable where our Shares are withdrawn in the name of the personwithdrawing our Shares or $0.20 per $100.00 or part thereof of the last transacted price where it iswithdrawn in the name of a third party. Persons holding physical share certificates who wish to trade onthe SGX-ST must deposit with CDP their share certificates together with the duly executed and stampedinstruments of transfer in favour of CDP, and have their respective securities accounts credited with thenumber of Shares deposited before they can effect the desired trades. A fee of S$20.00 is payable uponthe deposit of each instrument or transfer with CDP.

Transactions in our Shares under the book-entry settlement system will be reflected by the seller’ssecurities account being debited with the number of Shares sold and the buyer’s securities account beingcredited with the number of Shares acquired. No transfer of stamp duty is currently payable for theShares that are settled on a book-entry basis.

A Singapore clearing fee for trades in shares on SGX-ST is payable at the rate of 0.05% of thetransaction value subject to a maximum of $200 per transaction. The clearing fee, instrument of transferdeposit fee and share withdrawal fee may be subject to Singapore Goods and Services Tax of 5%.

Dealings of our Shares will be carried out in Singapore dollars and will be effected for settlement on CDPon a scripless basis. Settlement of trades on a normal “ready” basis on SGX-ST generally takes place onthe third business day following the transaction date, and payment for the securities in generally settledon the following business day. CDP holds securities on behalf of investors in securities accounts. Aninvestor may open a direct account with CDP or a sub-account with a CDP depository agent. The CDPdepository agent may be a member company of the SGX-ST, bank, merchant bank or trust company.

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INDEPENDENT AUDITORS’ REPORT ON THE UNAUDITED PROFORMAFINANCIAL INFORMATION OF ZHONGGUO JILONG LIMITED

ZHONGGUO JILONG LIMITEDUNAUDITED PROFORMA FINANCIAL INFORMATION OF THE GROUP

20 September 2004

The Board of DirectorsZhongguo Jilong LimitedNo. 19 Fishery Port RoadSingapore 619736

Dear Sirs

We report on the proforma financial information of Zhongguo Jilong Limited (the “Company”) set out onpages 124 to 150 in the Prospectus which have been prepared for illustrative purposes only and basedon certain assumptions after making certain adjustments to show what:

(a) the financial results of the Company and its subsidiaries (collectively the “Group” or the “ProformaGroup”) for the financial years ended 31 December 2001, 2002 and 2003 would have been if theGroup structure as of the date of lodgment of the Prospectus had been in place since 1 January2001;

(b) the financial position of the Proforma Group as of the date of the balance sheet as at 31December 2003 would have been if the Group structure as of the date of lodgment of theProspectus had been in place on that date; and

(c) the cash flow and changes in equity of the Proforma Group for the financial year ended 31December 2003 would have been if the Group structure as of the date of lodgment of theProspectus had been in place since 1 January 2003.

The proforma financial information, because of their nature, may not give a true picture of the ProformaGroup’s actual financial position, results, cash flow and changes in equity.

The proforma financial information are the responsibility of the Directors of the Company. Ourresponsibility is to express an opinion on the pro forma financial information based on our work.

We carried out our procedures in accordance with Singapore Statement of Auditing Practice: SAP 24 :“Auditors and Public Offering Documents”. Our work, which involved no independent examination of theunderlying financial statements, consisted primarily of comparing the pro forma financial information tothe financial statements of each entity in the Proforma Group, considering the evidence supporting theadjustments and discussing the proforma financial information with the Directors of the Company.

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(a) In our opinion, the proforma financial information for the financial years ended 31 December 2001,2002 and 2003 have been properly prepared:

(i) in a manner consistent with the format of the financial statements and the accountingpolicies of the Group which are in accordance with Singapore Financial ReportingStandards; and

(ii) on the bases set out in pages 129 to 130 of the Prospectus.

(b) each material adjustment made to the information used in the preparation of the proforma financialinformation is appropriate for the purpose of preparing such financial information.

Yours faithfully,

Chio Lim & AssociatesCertified Public Accountants, Singapore(Member of Horwath International)

Ng Thiam SoonPartner-in-charge

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PROFROMA BALANCE SHEET OF THE GROUP

As atNotes 31 December 2003

RMB’000

ASSETSCurrent assets:Cash and cash equivalents 4 16,420Trade receivables 5 5,467Other receivables and prepayments 6 11,569Inventories 7 76,005


Non-current assetsPlant and equipment 8 48,338

Total non-current assets 48,338


LIABILITIES AND EQUITYCurrent liabilities:Short-term borrowings 9 11,500Trade payables and accrued liabilities 10 33,356Other payables 11 6,285Income tax payable 13,200




See accompanying notes to financial statements.

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PROFORMA INCOME STATEMENTS OF THE GROUP

Year ended 31 DecemberNotes 2001 2002 2003

RMB’000 RMB’000 RMB’000

Revenue 12 182,304 248,270 361,154

Cost of sales (145,343) (198,136) (281,992)

Gross profit 36,961 50,134 79,162

Other operating income 13 404 523 448

Distribution costs (4,432) (9,326) (8,435)


Other credits / (charges) 14 (1,111) (2,936) (1,276)


Finance cost 15 (1,447) (1,178) (1,437)

Profit before income tax 16 23,221 29,068 62,772

Income tax expense 19 (3,332) (5,377) (4,781)


Earnings per share (RMB cents) 20 4.96 5.90 14.45


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PROFORMA STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2003

RMB’000

Balance at 1 January 2003 67,428Net profit for the year 57,991Dividends paid to previous shareholders (Note 21) (31,961)

Balance at 31 December 2003 93,458

The above shareholders’ equity includes statutory reserves, staff welfare reserve and capital reserve ofRMB10,998,000, RMB445,000 and RMB929,000, respectively which are not available for distribution ascash dividends.

(i) The statutory reserve is made at a rate of 10% of net profit after tax. Contribution to this reserveis no longer mandatory when the reserve reaches 50% of the registered share capital. Thereserve is to be used in accordance to the circumstances as stipulated in the relevant regulationsin the People’s Republic of China.

(ii) The staff welfare reserve made at a rate of 5% of net profit after tax. The reserve is for theconstruction of infrastructure for the general welfare of the staff in the People’s Republic of China.

(iii) The capital reserve represents the excess of the value of assets contribution over required capitalcontributions in prior years.


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PROFORMA STATEMENT OF CASH FLOW OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2003

RMB’000

Cash flows from operating activities:Profit before income tax 62,772Adjustments for :

Depreciation expense 4,415Loss on disposal of plant and equipment 402Interest income (231)Interest expense 1,437

Operating profit before working capital changes 68,795Trade receivables 4,740Other receivables and prepayments 45,910Inventories (32,154)Trade payables and accrued liabilities 1,544Other payables (19,106)

Cash generated from operations 69,729Interest paid (1,437)Interest received 231Income tax paid (8)

Net cash from operating activities 68,515

Cash flows from investing activities:Disposal of plant and equipment 1,583Purchase of plant and equipment (21,583)

Net cash used in investing activities (20,000)

Cash flows from financing activities:Decrease in borrowings (6,950)Dividends paid to previous shareholders (31,961)

Net cash used in financing activities (38,911)

Net increase in cash 9,604Cash at beginning of year 6,816

Cash at end of year 16,420


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NOTES TO THE UNAUDITED PROFORMA FINANCIAL INFORMATION OF THE GROUP

1. GENERAL

The Company

The Company is incorporated in Singapore on 11 October 2002 and was previously known asHappy Valley Retirement Resort Pte. Ltd. The financial statements are expressed in Renminbi andare drawn up in accordance with the Singapore Financial Reporting Standards.

The Company is an investment holding company. The principal activities of the subsidiaries arestated below.

The registered office address of the Company is No. 19 Fishery Port Road, Singapore 619736.The Company domiciled in Singapore.

Restructuring exercise

The pro forma financial statements of the Group were prepared based on a Restructuring Exercise(the “Restructuring Exercise”) as set out on page 42 of the Prospectus.

Upon the completion of the Restructuring Exercise, the Company has the following subsidiaries:

% ofDate and Country Registered equity

Name of Company of Incorporation Principal Activities capital held

Laiyang Hongshun 13 August 1993, PRC Processing and sales of US$445,000 100 Foodstuffs Co., Ltd foodstuffs

Laiyang Xinghua 30 May 2000, PRC Processing and sale of US$500,000 100 Foodstuffs Co., Ltd frozen foodstuffs

Laiyang Jilong Health 17 May 1999, PRC Processing and distribution US$604,100 100 Drinks Co., Ltd of canned food, fruit juices

and other health drinks and peanut products

Laiyang Jilong Edible 14 September 1998, Processing and sale of US$604,100 100 Oil Co., Ltd PRC edible oil

Laiyang Green Food 21 August 2003, PRC Processing and sale of US$604,100 100 Co., Ltd freeze-dried foodstuffs

All subsidiaries are incorporated in and conduct their business in the People’s Republic of China(“PRC”).

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1. GENERAL (Cont’d)

Bases for the preparation and presentation of the pro forma financial information

The pro forma financial information for the financial years ended 31 December 2001, 2002 and2003 set out on pages 124 to 150 of the Prospectus have been prepared for illustrative purposesonly and are based on certain assumptions after making certain adjustments to show what:

(a) the financial results of the Company and its subsidiaries (collectively the “Group” or the“Proforma Group”) for the financial years ended 31 December 2001, 2002 and 2003 wouldhave been if the Group structure as of the date of lodgment of the Prospectus had been inplace since 1 January 2001;

(b) the financial position of the Proforma Group as of the date of the balance sheet as at 31December 2003 would have been if the Group structure as of the date of lodgment of theProspectus had been in place on that date; and

(c) the cash flow and changes in equity of the Proforma Group for the financial year ended 31December 2003 would have been if the Group structure as of the date of lodgment of theProspectus had been in place since 1 January 2003.

The pro forma financial information is not necessarily indicative of the operations or cash flows orthe related effects of the financial position that would have been attained in the event of theProforma Group actually existed earlier. Accordingly, because of this nature, the pro formafinancial information may not give a true picture of the Proforma Group’s actual financial position orresults or cash flows.

The pro forma financial information have been prepared in accordance with Singapore FinancialReporting Standards and the accounting policies of the Group set out in Note 2 of this report andshows:

(i) the pro forma income statements of the Group for the three financial years ended 31December 2001, 2002 and 2003.

(ii) the pro forma balance sheet of the Group as at 31 December 2003.

(iii) the pro forma statement of changes in shareholders’ equity of the Group for the financialyear ended 31 December 2003.

(iv) the pro forma cash flow statement of the Group for the financial year ended 31 December2003.

The pro forma financial information was prepared from the following:

(i) audited financial statements of the Company for the financial year ended 31 December 2003prepared in accordance with Singapore Financial Reporting Standards and audited by ChioLim & Associates, Singapore, a member of the Institute of Certified Public Accountants ofSingapore. The auditors’ report on these financial statements were unqualified. This is thefirst set of financial statements of the Company since incorporation.

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1. GENERAL (Cont’d)

(ii) audited financial statements for the financial years ended 31 December 2001 and 2002prepared in accordance with Accounting Standards for Business Enterprises of the People’sRepublic of China (“PRC”) and the Accounting Regulations of the PRC and audited by ChouCheng Gui He Certified Public Accounts Ltd , a member ofthe Chinese Institute of Certified Public Accountants, of the following subsidiaries:-

Laiyang Hongshun Foodstuffs Co., LtdLaiyang Xinghua Foodstuffs Co., LtdLaiyang Jilong Health Drinks Co., LtdLaiying Jilong Edible Oil Co., Ltd.

The auditors’ report on these financial statements were unqualified. These financialstatements are re-stated and re-presented in accordance with the Singapore FinancialReporting Standards.

(iii) audited financial statements for the financial years ended 31 December 2003 prepared inaccordance with the Singapore Financial Reporting Standards and audited by Chio Lim &Associates, Singapore, a member of the Institute of Certified Public Accountants ofSingapore, of the following subsidiaries:

Laiyang Hongshun Foodstuffs Co., LtdLaiyang Xinghua Foodstuffs Co., LtdLaiyang Jilong Health Drinks Co., LtdLaiyang Jilong Edible Oil Co., LtdLaiyang Green Food Co., Ltd

The auditors’ reports on these financial statements were unqualified.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies, which have been consistently applied in the preparation of thepro forma financial information set out in this Prospectus are as follows:-

ACCOUNTING CONVENTION – The proforma financial information are prepared in accordancewith the historical cost convention.

BASIS OF PRESENTATION – The Proforma Group financial information include the financialstatements of the company and its subsidiaries made up to 31 December each year. All significantintercompany balances and transactions have been eliminated on consolidation. The results of thesubsidiaries are included in the Proforma Group financial information on the basis that theProforma Group had been in existence throughout the period covered by this report. The resultsof the investees acquired during the financial year are consolidated from the respective dates ofacquisition or up to dates or disposal. On disposal the attributable amount of unamortised goodwillis included in the determination of the gain or loss on disposal.

( )

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

GOODWILL – Goodwill or negative goodwill arising on acquisition is based on the purchasemethod. Goodwill arising on consolidation represents the excess of the cost of acquisition over theacquirer’s interest in the fair value of the identifiable assets and liabilities of the subsidiary,acquired as at the date of acquisition. Goodwill is carried at cost less any accumulatedamortisation and any accumulated impairment losses. It is amortised on the straight-line methodover its useful life to reflect the best estimate of the period during which future economic benefitsare expected to flow to the acquirer.

Negative goodwill is released to income based on an analysis of the circumstances from which thebalance resulted. To the extent that the negative goodwill is attributable to losses or expensesanticipated at the date of acquisition, it is released to income in the period in which those losses orexpenses arise. The remaining negative goodwill is recognised as income on a straight -line basisover the remaining average useful life of the identifiable acquired depreciable assets. To the extentthat such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately. However, negative goodwill arising fromtransactions among enterprises under common control are treated as capital reserve in the year ofacquisition.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated asassets and liabilities of the foreign entity and translated at the closing rate.

REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant risks andrewards of ownership are transferred to the buyer and the amount of revenue and the costs of thetransaction (including future costs) can be measured reliably. Revenue from rendering of servicesthat are of short duration is recognised when the services are completed. Interest revenue isrecognised on a time-proportion basis using the effective interest rate. Rental revenue isrecognised on a time-proportion basis. Dividend revenue is recognised when the shareholder’sright to receive the dividend is legally established.

SUBSIDIARIES – In the company’s own financial statements, the investments in subsidiaries arecarried at cost less any provision for impairment in value which is other than temporary.

NON-CURRENT ASSETS – Non-current assets, such as plant and equipment and investmentsare reviewed for impairment whenever events or changes in circumstances indicate that the netbook value of these assets may not be recoverable. Impairment losses are determined based onthe difference between fair value, which would generally approximate estimated future cash flowsdiscounted at the Group’s cost of capital or where appropriate the sale value, and net book value.

PLANT AND EQUIPMENT – Plant and equipment are carried at cost less any accumulateddepreciation and any accumulated impairment losses. Depreciation is provided on gross carryingamounts in equal annual instalments over the estimated useful lives of the assets. The annualrates of depreciation are as follows:-

Plant and equipment 14% – 33%

Fully depreciated assets are retained in the financial statements until they are no longer in use.

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The useful life of an item of plant and equipment is reviewed periodically and, if expectations aresignificantly different from previous estimates, the depreciation charge for the current and futureperiods are adjusted.

FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Renminbi as it reflectsthe economic substance of the underlying events and circumstances of the group. Transactions inforeign currencies are recorded in Renminbi at the rates ruling at the dates of the transactions. Ateach balance sheet date, recorded monetary balances and balances carried at fair value that aredenominated in foreign currencies are reported at the rates ruling at the balance sheet date. Allrealised and unrealised exchange adjustment gains and losses are dealt with in the incomestatement.

FOREIGN CURRENCY FINANCIAL STATEMENTS – Assets and liabilities of entities denominatedin currencies other than Renminbi are translated at the year end rates of exchange and the resultsof their operations are translated at average rates of exchange for the year. The resultingtranslation adjustments are accumulated in a separate component of shareholders’ equity until thedisposal of the entity.

INVENTORIES – Inventories held for resale are stated at the lower of cost (weighted averagemethod) and net realisable value.

INCOME TAX – The income taxes are accounted using the asset and liability method whichrequires the recognition of taxes payable or refundable for the current year and deferred taxliabilities and assets for the future tax consequence of events that have been recognised in thefinancial statement or tax returns. The measurements of current and deferred tax liabilities andassets are based on provisions of the enacted tax laws; the effects of future changes in tax laws orrates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by theamount of any tax benefits that, based on available evidence, are not expected to be realised.

BORROWING COSTS – All borrowing costs are recognised as an expense in the period in whichthey are incurred.

RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plansare recorded as an expense as they fall due. Contributions made to government managedretirement benefit plan such as the Central Provident Fund in Singapore which specifies theemployer’s obligations are dealt with as defined contribution retirement benefit plans.

GOVERNMENT GRANTS – Government grants in subsidy for export sales is recognised asincome in the income statement on receipt basis.

LIABILITIES AND PROVISIONS – A liability and provision is recognised when there is a presentobligation (legal or constructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation. It is measured at the amount payable.

132





ACCOUNTING ESTIMATES – The preparation of financial statements in conformity with generallyaccepted accounting principles requires the directors to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

CASH – Cash for the cash flow statement includes cash and cash equivalents less bankoverdrafts.

FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable,other current assets, short-term borrowings, accounts payable and other current liabilitiesapproximate their fair market values due to the short-term maturity of these instruments. Thosefinancial assets that have a fixed maturity are measured at amortised cost using the effectiveinterest rate method. Those that do not have a fixed maturity are measured at cost. All financialassets are subject to review for impairment.

RISK MANAGEMENT POLICIES FOR FINANCIAL INSTRUMENTS

CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject toconcentrations of credit risk consist principally of cash, cash equivalents and trade and otheraccounts receivable. The directors believe that the financial risks associated with these financialinstruments are minimal. The group places its cash and cash equivalents with high credit qualityinstitutions. The group performs ongoing credit evaluation of its debtors’ financial condition andmaintains a provision for doubtful accounts receivable based upon the expected collectibility of allaccounts receivable. There is no significant concentration of credit risk, as the exposure is spreadover a large number of counterparties and customers.

OTHER RISKS ON FINANCIAL INSTRUMENTS – The group monitors its interest, foreignexchange risks, and changes in fair values from time to time and any gains and losses areincluded in the income statement. The group is exposed to interest rate price risk for financialinstruments with a fixed interest rate and to interest rate cash flow risk for financial instrumentswith a floating interest rate that is reset as market rates change. The group is also exposed tochanges in foreign exchange rates and liquidity of business. The group does not utilise forwardcontracts or other arrangements for trading or speculative purposes. At 31 December 2003 therewere no such arrangements, interest rate swap contracts or other derivative instrumentsoutstanding

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3. RELATED PARTY TRANSACTIONS

Related parties are entities with common direct or indirect shareholders and or directors ormanagement. Parties are considered to be related if one party has the ability to control the otherparty or exercise significant influence over the other party in making financial and operatingdecisions.

Some of the Company’s transactions and arrangements are with related parties and the effect ofthese on the basis determined between the parties are reflected in these financial statements.The balances are without fixed repayment terms and interest unless stated otherwise.

Significant related party transactions:

In addition to the transactions and balances disclosed elsewhere in the notes to the financialstatements, this item includes the following:

2001 2002 2003RMB’000 RMB’000 RMB’000

Revenue and other service income 9,972 1,273 1,673Purchases of goods and services 6,880 7,027 4,992Sales of plant and equipment 331 4,430 1,248Purchase of plant and equipment 1,987 4,064 2,851

4. CASH AND CASH EQUIVALENTS

2003RMB’000

Not restricted in use 14,920Restricted(a) 1,500

16,420

Analysis of above amount by foreign currency:Singapore dollar 272United States dollar 474

(a) This for bank deposits held by bankers to secure the short term borrowing (Note 9).

The rate of interest for the cash on interest earning accounts is between 0.075% and 0.72%. Theeffective interest rate is 0.72%.

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5. TRADE RECEIVABLES

2003RMB’000

Outside parties 4,549Less provision for doubtful debts (313)Related parties (Note 3) 1,231

5,467

Movements in above position:Charge to income statement 313

Balance at end of year 313

Analysis of above amount by foreign currency:United States dollars 1,037

The normal sales term with customers is cash on delivery, however general credit terms may begranted ranging from 30 days to 60 days for customers with creditworthiness. A provision is madefor estimated irrecoverable amounts from the customers. This provision is determined by referenceto past default experience. The directors consider that the carrying amount of trade receivablesapproximates to their fair value. Short-duration receivables with no stated interest rate arenormally measured at original invoice amount unless the effect of imputing interest would besignificant.

6. OTHER RECEIVABLES AND PREPAYMENTS

2003RMB’000

Related parties (Note 3) 10,160Prepayments 1156Other receivables 253

11,569

135




7. INVENTORIES

2003RMB’000

Finished goods at cost 10,319Work in progress at cost 46,970Raw materials and consumables at cost 17,352Inventories carried at net realisable value after the provision shown below 1,364

76,005

Movements in above provision:Charge to income statement 170

Balance at end of year 170

8. PLANT AND EQUIPMENT

Plant and Construction equipment in progress TotalRMB’000 RMB’000 RMB’000

Cost:At 1 January 2003 45,862 1,662 47,524Additions 877 20,706 21,583Transfer from completed construction 404 (404) – Disposals (1,755) (1,595) (3,350)

At 31 December 2003 45,388 20,369 65,757

Accumulated depreciation:At 1 January 2003 14,369 – 14,369Charge for the year 4,415 – 4,415Disposals (1,365) – (1,365)

At 31 December 2003 17,419 – 17,419

Net book value:At 31 December 2003 27,969 20,369 48,338

136




9. SHORT-TERM BORROWINGS

2003RMB’000

Bank loans – partially secured 5,000– unsecured 6,500

Total short-term borrowings 11,500

The interest rates for the bank loans ranged from 3.9% to 6.6% per year. Bank loans ofRMB5,000,000 is partially secured on bank deposits of RMB1,500,000 (Note 4). Bank loan ofRMB6,500,000 is secured by a legal charge on a related party’s property.

10. TRADE PAYABLES AND ACCRUED LIABILITIES

2003RMB’000

Outside parties and accrued liabilities 29,617Provision for employee benefit cost 2,068Related parties (Note 3) 1,671

33,356

Analysis of above amount by foreign currency :Singapore dollar 195

The Group purchases agricultural raw materials mainly on cash term, however general creditterms obtained from other suppliers of the Group ranged from 30 to 60 days.

11. OTHER PAYABLES

2003RMB’000

Outside parties 2,830Directors (Note 3) 1,315Related parties (Note 3) 988Advance payments from customers 848Purchase of plant and equipment 304

6,285

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12. REVENUE

2001 2002 2003RMB’000 RMB’000 RMB’000

Sales of goods 182,304 248,270 361,154

13. OTHER OPERATING INCOME

2001 2002 2003RMB’000 RMB’000 RMB’000

Interest income from non-related parties 191 23 231Government grants 43 258 217Utility charges to related parties 98 16 – Interest income from related parties – 211 – Miscellaneous – 3 – Rental income from related parties 72 12 –

404 523 448

14. OTHER CREDITS/(CHARGES)

2001 2002 2003RMB’000 RMB’000 RMB’000

Payables written back 207 557 172Bad debts written off (421) – (44)Foreign exchange adjustment loss (202) (102) (39)Inventories written down (527) (3,173) (408)Loss on disposal of plant and equipment – (24) (402)Preliminary expenses written-off (110) – (168)Provision for doubtful debts – – (313)Provision for inventories – – (170)Miscellaneous (58) (194) 96

(1,111) (2,936) (1,276)

15. FINANCE COST

2001 2002 2003RMB’000 RMB’000 RMB’000

Interest expense to non-related companies 1,447 1,178 1,437

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16. PROFIT BEFORE INCOME TAX

In addition to the charges and credits disclosed elsewhere in the notes to the financial statements,this item includes the following (credits) / charges:-

2001 2002 2003RMB’000 RMB’000 RMB’000

Director’s remuneration 58 58 58Depreciation 3,092 4,316 4,415Change in inventories of finished goods and work in progress (6,817) 5,558 (17,473)Raw materials and consumables used 123,781 161,833 272,346

17. STAFF COSTS

2001 2002 2003RMB’000 RMB’000 RMB’000

Staff costs including directors 15,678 19,411 16,108Contributions to defined contribution plan 2,501 23 468

18,179 19,434 16,576

18. NUMBER OF EMPLOYEES

2001 2002 2003

Number of employees at end of year including directors 2,302 2,024 2,502

19. INCOME TAX

2001 2002 2003RMB’000 RMB’000 RMB’000

Current 3,332 5,377 4,781

Total income tax expense 3,332 5,377 4,781

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19. INCOME TAX (Cont’d)

The income tax expense varied from the amount of income tax expense determined by applyingthe Singapore statutory income tax rate of 24.5% in 2001 and 22% in 2002 and 2003 to profitbefore income tax as a result of the following differences:-

2001 2002 2003RMB’000 RMB’000 RMB’000

Income tax expense at the statutory rate 5,689 6,395 13,850Non-allowable items 541 1,193 344Effect of different tax rates of different subsidiaries 323 1,217 1,307Tax exemption on profits of certain subsidiaries (3,045) (3,824) (10,661)Other items less than 3% (176) 396 (59)

Total income tax expense 3,332 5,377 4,781

All subsidiaries of the Proforma Group are located in the People’s Republic of China (“PRC”) andsubject to PRC tax. Pursuant to the Income Tax Law of the PRC concerning Foreign InvestmentEnterprises and Foreign Enterprises and various local income tax laws, foreign investmententerprises are subject to the statutory income tax rate of 33% (30% state income tax plus 3%local income tax) unless the enterprises are located in specially designated regions or cities inwhich more favourable tax rates will apply. Certain subsidiaries are located in a region where apreferential tax rate applies and currently qualifies for a reduced rate of taxation of 24%. Certainsubsidiaries are entitled to income tax exemption for the two years commencing from the firstprofitable year (after deducting losses carried forward) and a 50% reduction for the succeedingthree years. Certain subsidiaries, being production-oriented and export-oriented foreigninvestment enterprises established in Yantai and within the Economic and TechnologicalDevelopment Zone, enjoy a concessionary income tax rate of 12%.

Temporary differences arising in connection with investment in subsidiaries for which deferred taxliabilities have not been recognised are insignificant

There are no income tax consequences of dividends to shareholders of the Company.

20. EARNINGS PER SHARE

Earnings per share for the financial years ended 31 December 2001, 2002 and 2003 have beencalculated based on the net profit attributable to shareholders for the year and on the basis that atthe end of each financial year, the issued share capital of the Company comprised 401,300,000ordinary shares of S$0.025 each which represents the pre-invitation share capital of the Company.

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21. DIVIDENDS

In 2003, the Group of companies paid the following dividends net of income tax to their previousshareholders:

Dividend per RMB1.00 capital TotalRMB RMB’000

Laiyang Hongshun Foodstuffs Co., Ltd 3.94 14,481Laiyang Xinghua Foodstuffs Co., Ltd 2.53 10,222Laiyang Jilong Edible Oil Co., Ltd 0.76 3,822Laiyang Jilong Health Drinks Co., Ltd 0.69 3,436

31,961

22. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Company and Group are committed to making the followingpayments in respect of operating leases with a term of more than one year :

Group2003

RMB’000

Within 1 year 1,544Within 2 – 5 years 6,175After 5 years 7,145

Rental expenses 1,479

Operating lease payments represent rentals payable to a related party by the pro forma Group forcertain of its factory and office premises. The leases are for terms ranging from 10 to 15 years.The lease rentals are fixed at the commencement of the lease terms and are subject to re-negotiations upon the renewal of these leases.

23. CAPITAL EXPENDITURE COMMITMENTS

Group2003

RMB’000

Authorised but not yet contracted for 1,098Estimated amounts committed for future capital expenditure but not provided for in the financial statements 1,453

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24. STATEMENT OF OPERATIONS BY SEGMENT

Segment reporting policy

A segment is a distinguishable component of the Proforma Group within a particular economicenvironment (geographical segment) and to a particular industry (business segment) which issubject to risks and rewards that are different from those of other segments.

The primary format, business segments, is based on the Proforma Group’s management andinternal reporting structure. In presenting information on the basis of business segments, segmentrevenue and segment assets are based on the nature of the products or services provided by theProforma Group. Information for geographical segments is based on the geographical location ofthe principle places of business.

Inter-segment pricing is determined on an arm’s length basis. Segment results, assets andliabilities include items directly attributable to a segment as well as those that can be allocated ona reasonable basis. Unallocated items mainly comprise corporate assets and liabilities or incomestatements items that are not directly attributable to a segment or those that cannot be allocatedon a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assetsthat are expected to be used for more than one period.

For management purposes, the Proforma Group’s operating businesses are organised accordingto their nature of activities. These are grouped in the following market segments and form the basison which the Proforma Group’s reports its primary segments:-

(a) Preserved and processed food products.

(b) Peanut oil.

(c) Beverages.

Primary segments analysis:

Financial year ended 31 December 2001

Preserved and processed Peanut

food products oil Beverages TotalRMB’000 RMB’000 RMB’000 RMB’000

Revenue 129,040 28,417 24,847 182,304

Segment result 20,115 1,776 2,777 24,668Finance cost (1,447)

Profit before income tax 23,221Income tax expense (3,332)

Profit after income tax 19,889

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24. STATEMENT OF OPERATIONS BY SEGMENT (Cont’d)




Revenue 158,289 65,430 24,551 248,270







Revenue 211,802 91,590 57,762 361,154




ASSETSSegment assets 123,947 9,318 23,181 156,446Unallocated corporate assets 1,353


LIABILITIESSegment liabilities 36,009 5,003 8,618 49,630Unallocated corporate liabilities 14,711

Total liabilities 64,341

Capital expenditure 21,453 89 41 21,583Depreciation and amortisation 2,827 665 923 4,415

143





Geographical segments analysis:

(i) The following table provides an analysis of the Group revenue by geographical market whichis analysed based on the billing address of each individual customer:

Revenue2001 2002 2003

RMB’000 RMB’000 RMB’000

Within PRC 79,153 167,538 307,088Outside PRC 103,151 80,732 54,066

182,304 248,270 361,154

(ii) The segment assets and capital expenditure for 2003, analysed by the geographical area inwhich assets are located:

Carrying amount of Capital

segment assets expenditureRMB’000 RMB’000

Within PRC 156,660 21,853Outside PRC 1,139 –

157,799 21,853

Outside PRC mainly refers to Japan.

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25. STATEMENT OF ADJUSTMENTS

The material adjustments made to the information used in the preparation of the pro formafinancial information of the Group are as follows:

Income statement of the Proforma Group

Year ended 31 December 2001Aggregated

income Proforma Proforma statements adjustments Group of individual (see note income

entities below) statementRMB’000 RMB’000 RMB’000

Revenue 182,571 (267) (a) 182,304Cost of sales (145,971) (1,319) (b) (145,343)

1,722 (c)225 (a)

Gross profit 36,600 36,961Other operating income 404 404Distribution costs (4,432) (4,432)Administrative expenses (7,053) (670) (d) (7,154)

527 (c)42 (a)

Other credits/(charges) (1,111) (1,111)

Profit from operations 24,408 24,668Finance cost (1,447) (1,447)

Profit before income tax 22,961 23,221Income tax expense (3,254) (78) (e) (3,332)

Net profit attributable to shareholders 19,707 19,889

145




25. STATEMENT OF ADJUSTMENTS (Cont’d)




Revenue 251,032 (2,762) (a) 248,270Cost of sales (201,474) (1,319) (b) (198,136)

1,895 (c)2,762 (a)

Gross profit 49,558 50,134Other operating income 523 523Distribution costs (9,326) (9,326)Administrative expenses (7,997) (670) (d) (8,149)

518 (c)Other credits/(charges) (2,936) (2,936)


Profit before income tax 28,644 29,068Income tax expense (5,321) (56) (e) (5,377)





Revenue 366,545 (5,391) (a) 361,154Cost of sales (287,383) 5,391 (a) (281,992)

Gross profit 79,162 79,162Other operating income 448 448Distribution costs (8,435) (8,435)Administrative expenses (5,020) (670) (d) (5,690)Other credits/(charges) (1,276) (1,276)


Profit before income tax 63,442 62,772Income tax expense (4,928) 147 (e) (4,781)


146





Notes:(a) These adjustments represent elimination of intra-Group transactions on consolidation of accounts.

(b) These adjustments represent imputed rental charge for the year to the Proforma Group for the use of properties andland use rights not owned by the Group.

(c) These adjustments represent reversal of property related expenses for the year including depreciation of propertiesand amortisation of land use rights for properties and land use rights which were not taken over by the ProformaGroup.

(d) These adjustments represent imputed payroll costs for management, finance and administrative services rendered bya related party for the year which the costs were absorbed by the related party in previous years.

(e) These adjustments represent the net income tax effect resulting from the above adjustments.

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Balance sheet of the Proforma Group

As at 31 December 2003Aggregated Proforma Proforma

balance sheets adjustments Group of individual (see note balance

entities below) sheetRMB’000 RMB’000 RMB’000

ASSETSCurrent assets:Cash and cash equivalents 16,420 16,420Trade receivables 5,467 5,467Other receivables and prepayments 37,362 (25,808) (a) 11,569

(670) (d)685 (e)

Inventories 76,005 76,005

Total current assets 135,254 109,461

Non-current assets:Investment in subsidiaries 47,448 (47,448) (b) – Plant and equipment 48,338 48,338

Total non-current assets 95,786 48,338

Total assets 231,040 157,799

LIABILITIES AND EQUITYCurrent liabilities:Short-term borrowings 11,500 11,500Trade payables and accrued liabilities 33,356 33,356Other payables 79,541 (25,808) (a) 6,285

(47,448) (c)Income tax payable 13,212 (12) (f) 13,200

Total current liabilities 137,609 64,341

Shareholders’ equity 93,431 (47,448) (b) 93,45847,448 (c)

27 (g)

Total liabilities and equity 231,040 157,799

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Notes:

(a) These adjustments represent elimination of intra-Group balances on consolidation of accounts.

(b) These adjustments represent elimination of cost of investment in subsidiaries on consolidation of accounts.

(c) These adjustments represent the capitalisation of loans to share capital in the Proforma Group.

(d) These adjustments represent imputed payroll costs for management, finance and administration support servicesrendered by a related party for the year which the costs were absorbed by the related party in previous years.

(e) These adjustments represent the net cumulative effect of imputed rental charges to the pro forma Group and theproperty related expenses recharged to a related party for the year. Under the restructuring exercise, the ProformaGroup did not take over the properties and land use rights of the entities within the Proforma Group. As a result, allproperty related expenses were reversed from the income statement and re-charged to the related party and animputed rental is charged to the Proforma Group for the use of their properties and land use rights.

(f) These adjustments represent the income tax effect resulting from the adjustments of (d) and (e) mentioned above.

(g) These adjustments represent cumulative effect of adjustments of (d), (e), and (f) on the shareholders’ equity.

26. CONTINGENT LIABILITIES

As at the balance sheet date, the Group has commitments amounting to RMB2,114,000 related tocontracts entered into on behalf of a related party for the construction of a factory. The actualconstruction costs would be borne by the related party directly.

27. AUDITED FINANCIAL INFORMATION

No audited financial information of any entity within the Proforma Group have been prepared forany period subsequent to 31 December 2003.

149




28. SUBSEQUENT EVENTS

(I) On 19 March 2004, the Company issued 9,719,998 ordinary shares of $1.00 each pursuantto the Loan Capitalisation as described under the section entitled “Restructuring Exercise,Loan Capitalisation and Bond Conversion” in this Prospectus.

(II) At the Extraordinary General Meeting held on 13 July 2004, the Shareholders approved,inter alia, the following:-

(a) an increase in the authorised share capital of the Company from $20,000,000 dividedinto 20,000,000 ordinary shares of $1.00 each to $50,000,000 divided into 50,000,000ordinary shares of $1.00 each;

(b) the sub-division of each ordinary share of $1.00 each in the authorised and issuedand paid-up share capital of the Company into 40 ordinary shares of $0.025 eachrespectively;

(c) the issue of 12,500,000 new ordinary shares of $0.025 each pursuant to the BondConversion as described under the section entitled “Restructuring Exercise” in thisProspectus;

(d) the conversion of the Company into a public limited company and the change of itsname to Zhongguo Jilong Limited;

(e) the adoption of the new Articles of Association of the Company;

(f) the issue of 134,700,000 New Shares pursuant to the Invitation. The New Shares,when issued and fully paid, will rank pari passu in all respects with the existing issuedand fully paid up Shares;

(g) the authorisation to the Directors, pursuant to section 161 of the Companies Act andthe Articles of Association, to allot and issue shares and/or convertible securities inthe Company (whether by way of rights, bonus or otherwise) at any time and fromtime to time thereafter to such persons and on such terms and conditions for andsuch purposes as the Directors may in their absolute discretion deem fit providedalways that the aggregate number of shares and/or convertible securities to beissued shall not exceed 50 per cent. of the issued share capital of the Company, orwhich the aggregate number of shares and/or convertible securities to be issued otherthan a pro-rata basis to existing shareholders of the Company shall not exceed 20 percent. of the issued share capital of the Company (the percentage of the post-Invitation issued share capital of the Company after adjusting for new shares arisingfrom the conversion or exercise of any convertible securities, new shares arising fromexercising share options or vesting of share awards outstanding or subsisting at thetime of the passing of the resolution approving the mandate, provided the options orawards were granted in compliance with the Listing Manual and any subsequentconsolidation or subdivision of shares), and unless revoked or varied by the Companyin general meeting and that such authority shall continue in force until the conclusionof the next Annual General Meeting or the expiration of the period within which thenext Annual General Meeting of the Company is required by law to be held, whicheveris the earlier.

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Information On Directors And Executive Officers

1. The names, ages, addresses and current occupations of each of our Directors and ExecutiveOfficers are set out in the section “Directors, Management and Staff” in this Prospectus.

2. The present and past directorships (held in the five years preceding the date of this Prospectus) ofeach of our Directors, other than those held in our Company are set out in the section entitled“Directors, Management and Staff” in this Prospectus.

3. The present and past directorships (held in the five years preceding the date of this Prospectus) ofeach of our Executive Officers are set out in the section entitled “Directors, Management and Staff”in this Prospectus.

4. Save as disclosed in the section entitled “Directors, Management and Staff” in this Prospectus,none of our Directors has any family relationship with other Directors or with any of our ExecutiveOfficers or Substantial Shareholders of our Company.

5. Save as disclosed in the section entitled “Directors, Management and Staff” in this Prospectus,none of our Executive Officers has any family relationship with other Executive Officers or with anyof our Directors or Substantial Shareholders of our Company.

6. None of our Directors or Executive Officers,

(a) has at any time during the last 10 years, had a petition under any bankruptcy laws of anyjurisdiction filed against him or against a partnership of which he was a partner;

(b) has at any time during the last 10 years, had a petition under any law of any jurisdiction filedagainst a corporation of which he was a director or key executive for the winding up of thatcorporation on the ground of insolvency;

(c) has any unsatisfied judgement against him;

(d) has ever been convicted of any offence, in Singapore or elsewhere, involving fraud ordishonesty which is punishable with imprisonment for three months or more, or has been thesubject of any criminal proceedings (including any pending criminal proceedings which he isaware of) for such purpose;

(e) has ever been convicted of any offence, in Singapore or elsewhere, involving a breach ofany law or regulatory requirement that relates to the securities or futures industry inSingapore or elsewhere, or been the subject of any criminal proceedings (including anypending criminal proceedings which he is aware of) for such breach;

(f) has at any time during the last 10 years, had judgement entered against him in any civilproceeding in Singapore or elsewhere involving a breach of any law or regulatoryrequirement that relates to the securities or futures industry in Singapore or elsewhere, or afinding of fraud, misrepresentation or dishonesty on his part, or has been the subject of anycivil proceedings (including any pending civil proceedings which he is aware of) involving anallegation of fraud, misrepresentation or dishonesty on his part;

(g) has ever been convicted in Singapore or elsewhere of any offence in connection with theformation or management of any corporation;

(h) has ever been disqualified from acting as a director of any corporation, or from taking partdirectly or indirectly in the management of any corporation;

(i) has ever been subject to any order, judgement or ruling of any court, tribunal orgovernmental body, permanently or temporarily enjoining him from engaging in any type ofbusiness practice or activity; and

151

GENERAL AND STATUTORY INFORMATION


(j) has ever, to his knowledge been concerned in Singapore or elsewhere with themanagement or conduct of affairs of (i) any corporation which has been investigated for abreach of any law or regulatory requirement governing corporations in Singapore orelsewhere; or (ii) any corporation or partnership which has been investigated for a breach ofany law or regulatory requirement that relates to the securities or futures industry inSingapore or elsewhere, in connection with any matter occurring or arising during the periodwhen he was so concerned with the corporation or partnership.

7. Save as disclosed in the section entitled “Service Agreements” in this Prospectus, there are noexisting or proposed service contracts between the Directors and our Company or its subsidiarieswhich provide for benefits upon termination.

8. No option to subscribe for shares in, or debentures of, our Company or any of its subsidiaries hasbeen granted to, or was exercised by, any Director or Executive Officer of our Company or any ofits subsidiaries during the last financial year.

9. Save as disclosed in the section entitled “Interested Person Transactions” and “RestructuringExercise, Loan Capitalisation and Bond Conversion” in this Prospectus, none of the Directors isinterested, directly or indirectly, in the promotion of, or in, any assets which have been acquired ordisposed of by, or leased to, our Company or any of its subsidiaries within the two years precedingthe date of this Prospectus, or are proposed to be acquired or disposed of by, or leased to, ourGroup.

10. There is no shareholding qualification for Directors in the Articles of Association.

11. None of the Directors has any interest, direct or indirect, in any company carrying on a similarbusiness or dealing in similar products as our Company or any of its subsidiaries.

12. The interests of the Directors and Substantial Shareholders in our Shares as at the date of thisProspectus are as follows:-

Direct Interests Indirect InterestsName Number of Shares % Number of Shares %

Directors

Dr Lim Seck Yeow – – 194,400,000 (1) 48.4

Song Zhixing – – 174,960,000 (2) 43.6

Tang Xiaoyan – – – –

Damien Seah Yang Hwee – – – –

Fang Swee Peng – – – –

Chua Beng Huat – – – –

Dr Chow Yuen Ho – – – –

Holders of 5% or more

Delight Success Limited(1) 194,400,000 48.4

Capital Joint Limited(2) 174,960,000 43.6 – –

Tan Geok Bee – – 194,400,000 (1) 48.4

Notes:-

(1) Delight Success Limited (“Delight Success”) is a company incorporated in the British Virgin Islands and its principalactivity is investment holding. Dr Lim Seck Yeow and Tan Geok Bee each own 50.0% of the issued and paid upshare capital of Delight Success. Tan Geok Bee is an investor who is not related to any of our Directors orSubstantial Shareholders. Dr Lim Seck Yeow and Tan Geok Bee are each deemed to have a 48.4% interest in thepre-Invitation issued share capital of our Company pursuant to section 4(5) of the Securities and Futures Act.

(2) Capital Joint Limited (“Capital Joint”) is a company incorporated in the British Virgin Islands and its principal activityis investment holding. Song Zhixing owns the entire issued and paid up share capital of Capital Joint. Song Zhixingis deemed to have a 43.6% interest in the pre-Invitation issued share capital of our Company pursuant to section 4(5)of the Securities and Futures Act.

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13. No sum, cash, shares, benefit or otherwise has been paid or agreed to be paid to any Director, orto any firm in which a Director is a partner or corporation in which such Director holds shares ordebentures, in cash or in shares or otherwise, by any person to induce him to become, or toqualify him as, a Director, or otherwise for services rendered by him or by any such firm orcorporation in connection with the promotion or formation of our Company.

14. Save as disclosed in the section entitled “Interested Persons Transactions” in this Prospectus, noDirector has any material interest in any existing contract or arrangement which is significant inrelation to the business of our Group taken as a whole.

15. Save as disclosed in the section entitled “Directors, Management and Staff” in this Prospectus,none of the Directors, Executive Officers and Substantial Shareholders of our Company are relatedto one another.

16. There is no arrangement or understanding with a Substantial Shareholder, customer or supplier ofour Company or other person, pursuant to which any person was selected as a Director orExecutive Officer of our Company.

17. Save as disclosed in paragraph 30 below and in the reasonable opinion of the Directors, we do nothave any material relationship with the Manager, Underwriter and the Placement Agent.

Share Capital

18. As at the date of this Prospectus, there is only one class of shares in the capital of our Company.The rights and privileges attached to the Shares are stated in the Articles of Association. Thereare no founder, management or deferred shares. The New Shares shall have the same interestand voting rights as our Shares that were issued prior to the Invitation and there are no restrictionsto the free transferability of our Shares.

19. Save as disclosed herein, there were no changes in the issued and paid-up share capital of ourCompany or its subsidiaries within the three years preceding the date of lodgment of thisProspectus.

Name of Company / Number of ResultantDate of Issue Shares Issued Par Value Purpose of Issue Paid-up Capital

The Company1 November 2002 2 $1.00 Incorporation $2.00

19 March 2004 9,719,998 $1.00 Capitalisation of loan $9,720,000

13 July 2004 12,500,000 $0.025 Conversion of $10,032,500Convertible Bonds

Name of Company/ Date of contribution of Resultant registered capital Purpose of Contribution Amount Registered Capital

Xing Hua3 March 2004 Initial registered capital US$500,000 US$500,000

Edible Oil11 June 2002 Initial registered capital US$604,100 US$604,100

Health Drinks13 May 1999 Initial registered capital RMB600,000 RMB600,000

11 June 2002 Increase in registered RMB4,400,000 RMB5,000,000capital (approximately

US$604,100)

Green Food21 August 2003 Initial registered capital US$604,100 US$604,100

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20. Save as disclosed above and in the section entitled “Restructuring Exercise, Loan Capitalisationand Bond Conversion” in this Prospectus, no shares in, or debentures of, our Company or any ofits subsidiaries have been issued or are proposed to be issued, as fully paid or partly paid-up, forcash or for a consideration other than cash, within the three years preceding the date of thisProspectus.

21. No shares in, or debentures of, our Company or any of its subsidiaries are under option or agreedconditionally, or unconditionally to be put under option. No person has been, or is entitled to be,given an option to subscribe for any shares in, or debentures of, our Company or any of itssubsidiaries.

22. There has been no public take-over offers by any third party in respect of our Shares or by ourCompany in respect of shares of another corporation, which has occurred during the last andcurrent financial year.

Articles of Association

23. The following provisions in the Articles of Association of our Company relate to inter alia thetransfer of shares, voting rights of shareholders and Directors’ shareholding qualification,remuneration, borrowing powers and voting rights on proposals, arrangements or contracts inwhich they are interested:-

(1) The following provisions of the Articles of Association of our Company relate to theremuneration, restrictions on voting rights and borrowing powers of the Directors.

(a) Directors’ Remuneration

Article 101(3)

An alternate Director shall be entitled to contract and be interested in and benefit fromcontracts, arrangements or transactions to the same extent mutatis mutandis as if hewere a Director but he shall not be entitled to receive from our Company anyremuneration in respect of his appointment as alternate Director except only such part(if any) of the remuneration otherwise payable to his appointor in which event any feepaid by our Company to an alternate Director shall be deducted from the fees of theDirector appointing the alternate.

Article 102(1)

The Directors shall be entitled to receive by way of fees for their services as Directorsin each year such sum as shall from time to time, subject to Section 169 of the Act,be determined by our Company by resolution passed at a General Meeting, the noticeof which shall specify the proposals concerning the same. Such remuneration shall bedivided amongst the Directors as they shall determine or failing agreement equally.

Article 102(2)

The fees payable to the Directors shall not be increased except pursuant to aresolution passed at a General Meeting, where notice of the proposed increase hasbeen given in the notice convening the Meeting.

Article 102(3)

The remuneration of a non-Executive Director shall be by a fixed sum and not by acommission on or percentage of profits or turnover. The remuneration of an executiveDirector may not include a commission on or a percentage of turnover.

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Article 102(4)

The provisions of this Article are without prejudice to the power of the Directors toappoint any of their number to be employee or agent of our Company at suchremuneration and upon such terms as they think fit without the approval of theMembers in General Meeting provided that such remuneration may include acommission on or percentage of profits but not a commission on or percentage ofturnover.

Article 102(5)

Subject to the provisions of the Statutes, the Directors shall have power to pay andagree to pay pensions or other retirement, superannuation, death or disability benefitsto (or to any person in respect of) any Director for the time being holding anyexecutive office and for the purpose of providing any such pensions or other benefitsto contribute to any scheme of fund to pay premiums.

Article 103

If any Director, being willing and having been called upon to do so, shall hold anexecutive office in our Company, shall render or perform extra or special services ofany kind, including services on any committee established by the Directors, or shalltravel or reside abroad for any business or purposes of our Company, he shall beentitled to receive such sum as the Directors may think fit for expenses, and also suchremuneration as the Directors may think fit, either as a fixed sum or as provided inArticle 102(3) (but not by way of commission on or percentage of turnover) and suchremuneration may, as the Directors shall determine, be either in addition to or insubstitution for any other remuneration he may be entitled to receive, and the sameshall be charged as part of the ordinary working expenses of our Company.

Article 105(3)

A Director may hold any other office or place of profit under our Company (other thanthe office of Auditor) in conjunction with his office of Director for such period and onsuch terms (as to remuneration and otherwise) as the Directors may determine. NoDirector or intending Director shall be disqualified by his office from contracting withour Company either with regard to his tenure of any such other office or place of profitor as a vendor, purchaser or otherwise. Subject to this Article 105, no such contractand no contract or arrangement entered into by or on behalf of our Company in whichany Director is in any way interested shall be liable to be avoided nor shall anyDirector so contracting or being so interested be liable to account to our Company forany profit realised by any such contract or arrangement by reason of such Directorholding that office or of the fiduciary relationship thereby established.

Article 114

The Directors shall (subject to the provisions of any contract between the ManagingDirector and our Company) from time to time fix the remuneration of the ManagingDirector which may be by way of fixed salary, commission or participation in profits(but not turnover) of our Company or by any or all of these modes.

(b) Restrictions on Voting Rights of Directors

Article 105(1)

A Director who is in any way whether directly or indirectly interested in a contract orproposed contract with our Company shall declare the nature of his interest at ameeting of the Directors in accordance with Section 156 of the Companies Act.

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Article 105(2)

A Director shall not vote in respect of any contract or proposed contract orarrangement in which he has directly or indirectly a personal material interest and ifhe shall do so his vote shall not be counted nor save as provided by Article 106 shallhe be counted in the quorum present at the meeting.

Article 105(3)

A Director may hold any other office or place of profit under our Company (other thanthe office of Auditor) in conjunction with his office of Director for such period and onsuch terms (as to remuneration and otherwise) as the Directors may determine. NoDirector or intending Director shall be disqualified by his office from contracting withour Company either with regard to his tenure of any such other office or place of profitor as a vendor, purchaser or otherwise. Subject to this Article 105, no such contractand no contract or arrangement entered into by or on behalf of our Company in whichany Director is in any way interested shall be liable to be avoided nor shall anyDirector so contracting or being so interested be liable to account to our Company forany profit realised by any such contract or arrangement by reason of such Directorholding that office or of the fiduciary relationship thereby established.

Article 106

Subject to Article 105(2) above, a Director notwithstanding his interest may becounted in the quorum present at any meeting whereat he or any other Director isappointed to hold any such office or place of profit under our Company or whereat theterms of any such appointment are arranged.

(c) Borrowing Powers of Directors

Article 62

The Directors may, from time to time, exercise all the powers of our Company to raiseor borrow or secure the payment of any sum or sums of moneys for the purposes ofour Company.

Article 63

The Directors may raise or secure the repayment of such sum or sums in suchmanner and upon such terms and conditions in all respects as they think fit, and, inparticular, by the issue of debentures or debenture stock of our Company, perpetualor otherwise, charged upon or by mortgage charge or lien of and on the undertakingof the whole or any part of the property of our Company (both present and future),including its uncalled capital for the time being, or by making, accepting, endorsing orexecuting any cheque, promissory note or bill of exchange.

(2) The following provisions of the Articles of Association of our Company relate to thevariation of members’ rights, the transfer of shares and voting rights of members:-

(a) Variation of Members’ Rights

Article 9

Subject to the provisions of the Statutes, all or any of the special rights or privilegesfor the time being attached to any preference share for the time being issued mayfrom time to time (whether or not our Company is being wound up) be modified,affected, altered or abrogated and preference capital other than redeemablepreference shares may be repaid if authorised by a Special Resolution passed byholders of such preference shares at a special meeting called for the purpose. To anysuch special meeting, all provisions of these Articles as to General Meetings of our

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Company shall mutatis mutandis apply but so that the necessary quorum shall be twopersons at least holding or representing by proxy not less than one third of the issuedpreference shares concerned and that every holder of the preference sharesconcerned shall be entitled on a poll to one vote for every such share held by him andthat any holder of the preference shares concerned present either in person or byproxy may demand a poll Provided Always that where the necessary majority for sucha Special Resolution is not obtained at the meeting, consent in writing if obtainedfrom holders of three-fourths of the preference shares concerned within two months ofthe meeting shall be as valid and effectual as a Special Resolution carried at themeeting.

Article 61

Subject to the Statutes and save as provided by these Articles, all or any of thespecial rights or privileges attached to any class of shares in the capital of ourCompany for the time being issued may, at any time, as well before as duringliquidation, be modified, affected, altered or abrogated, either with the consent inwriting of the holders of not less than three-fourths of the issued shares of the classor with the sanction of a Special Resolution passed at a separate General Meeting,but so that the quorum thereof shall be not less than two persons personally presentand holding or representing by proxy one-third of issued shares of the class, and thatany holder of shares of the class, present in person or by proxy, shall on a poll beentitled to one vote for each share of the class held or represented by him, and if atany adjourned meeting of such holders such quorum as aforesaid is not present, anytwo holders of shares of the class who are personally present shall be a quorum. TheDirectors shall comply with the provisions of Section 186 of the Companies Act as toforwarding a copy of any such consent or Resolution to the Registrar of Companies.

(b) Transfer of Shares

Article 40

Save as provided by these Articles, there shall be no restriction on the transfer of fullypaid shares (except where required by law or by the rules, bye-laws or listing rules ofthe Exchange). All transfers of shares may be effected by way of book-entry in theDepository Register Provided Always that the legal title in the shares may betransferred by the registered holders thereof by an instrument of transfer in the formapproved by the Directors and the Exchange. The instrument of transfer shall be leftat the Office accompanied by the certificate of the shares to be transferred and suchother evidence (if any) as the Directors may reasonably require to show the right ofthe transferor to make the transfer. The transferor shall be deemed to remain theregistered holder of the shares until the name of the transferee is entered in theRegister in respect thereof.

Article 41

The instrument of transfer shall be signed both by the transferor and by thetransferee, and it shall be witnessed Provided Always that an instrument of transfer inrespect of which the transferee is the Depository shall be effective although notsigned or witnessed by or on behalf of the Depository.

Article 42

Shares of different classes shall not be comprised in the same instrument of transfer.

Article 43

No share shall in any circumstances be transferred to any infant, bankrupt or personof unsound mind.

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Article 44(1)

All instruments of transfer which are registered shall be retained by our Company, butany instrument of transfer which the Directors may refuse to register shall (except inany case of fraud) be returned to the party presenting the same.

Article 44(2)

Our Company shall be entitled to destroy:-

(a) all instruments of transfer which have been registered at any time after theexpiration of six years from the date of registration thereof;

(b) all dividend mandates and notifications of change of address at any time afterthe expiration of six years from the date of recording thereof; and

(c) all share certificates which have been cancelled at any time after the expirationof six years from the date of the cancellation thereof.

Article 44(3)

It shall be conclusively presumed in favour of our Company that every entry in theRegister purporting to have been made on the basis of an instrument of transfer orother document so destroyed was duly and properly made and that:

(a) every instrument of transfer so destroyed was a valid and effective instrumentduly and properly registered;

(b) every share certificate so destroyed was a valid and effective certificate dulyand properly cancelled; and

(c) every other document hereinbefore mentioned so destroyed was a valid andeffective document;

in accordance with the recorded particulars thereof in the books or records of ourCompany.

Article 44(4)

Articles 44(2) and 44(3) shall apply only to the destruction of a document in good faithand without notice of any claim (regardless of the parties thereto) to which thedocument might be relevant.

Article 44(5)

Nothing contained in this Article 44 shall be construed as imposing upon ourCompany any liability in respect of the destruction of any such document earlier thanas aforesaid or in any other circumstance which would not attach to our Company inthe absence of this Article 44, and references in this Article 44 to the destruction ofany document include references to the disposal thereof in any manner.

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Article 45

The Directors may decline to accept any instrument of transfer unless:-

(a) all or any part of the stamp duty (if any) payable on each share transfer andsuch fee not exceeding two Singapore Dollars for each transfer or such othersum as may from time to time be prescribed by the Exchange is paid to ourCompany; and

(b) such fee not exceeding two Singapore Dollars as the Directors may from timeto time determine is paid to our Company in respect of the registration of anyinstrument of transfer, probate, letters of administration, certificate of marriageor death, power of attorney or any document relating to or affecting the title tothe shares.

Article 46

The Directors may refuse to register the transfer of shares or allow the entry of oragainst a person’s name in the Depository Register in respect of shares transferred orto be transferred to such person:-

(a) which are not fully paid up; or

(b) on which our Company has a lien.

Article 47

If the Directors refuse to register any transfer of any share they shall, where requiredby the Statutes, serve on the transferor and transferee, within one month beginningwith the day on which the transfer was lodged with our Company, a notice in writinginforming each of them of such refusal and of the facts which are considered to justifythe refusal.

Article 48

The Register may be closed at such times and for such periods as the Directors mayfrom time to time determine Provided Always that the Register shall not be closed formore than thirty days in any year Provided Always that our Company shall give priornotice of such closure as may be required to the Exchange stating the period andpurpose or purposes for which such closure is to be made.

(c) Alteration of Capital

Article 57

The Company in General Meeting may from time to time by Ordinary Resolution,whether all the shares for the time being authorised shall have been issued or all theshares for the time being issued have been fully paid up or not, increase its capital bythe creation and issue of new shares, such aggregate increase to be of such amountand to be divided into shares of such respective amounts as the Company by theresolution authorising such increase shall direct.

Article 58(1)

Unless otherwise determined by the Company in General Meeting or except aspermitted under the Exchange’s listing rules, all new shares shall, before issue, beoffered to such persons who as at the date of the offer are entitled to receive noticesfrom the Company of General Meetings, in proportion, as nearly as the circumstancesadmit, to the amount of the existing shares to which they are entitled.

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Article 58(2)

The offer shall be made by notice specifying the number of shares offered and limitinga time within which the offer, if not accepted, will be deemed to be declined, and, afterthe expiration of that time, or on the receipt of an intimation from the person to whomthe offer is made that he declines to accept the shares offered, the Directors maydispose of those shares in such manner as they think most beneficial to theCompany. The Directors may likewise so dispose of any new shares which (byreason of the ratio which the new shares bear to shares held by persons entitled to anoffer of new shares) cannot, in the opinion of the Directors, be conveniently offered inthe manner hereinbefore provided.

Article 59

Subject to any directions that may be given in accordance with the powers containedin the Memorandum of Association or these Articles, any capital raised by creation ofnew shares shall be considered as part of the original capital and all new shares shallbe subject to the same provisions with reference to the payment of calls, transfer,transmission, forfeiture, lien and otherwise as if it had been part of the original capital.

Article 60(1)

The Company may by Ordinary Resolution:-

(a) consolidate and divide its capital into shares of larger amount than its existingshares; or

(b) cancel any shares which at the date of the passing of the resolution have notbeen taken or agreed to be taken by any person and diminish the amount of itsshare capital by the amount of the shares so cancelled; or

(c) by subdivision of its existing shares or any of them divide its capital or any partthereof into shares of smaller amount than is fixed by the Memorandum ofAssociation. The resolution by which the subdivision is effected may determinethat, as between the holders of the resulting shares, one or more of suchshares may have any such preferred, deferred or other special rights or besubject to any restriction as the Company has power to attach to unissued ornew shares; or

(d) subject to the Statutes, convert any class of shares into any other class ofshares.

Article 60(2)

The Company may by Special Resolution reduce its share capital, any capitalredemption reserve fund or any share premium account in any manner and with andsubject to any requirement authorised and consent required by law.

(d) Voting Rights of Members

Article 10

Preference shareholders shall have the same rights as ordinary Members as regardsthe receiving of notices, reports and balance sheets and the attending of GeneralMeetings of our Company. Preference shareholders shall also have the right to voteat any meeting convened for the purpose of reducing the capital of our Company orwinding up or sanctioning the sale of the undertaking of our Company or where theproposal to be submitted to the meeting directly affects their rights and privileges orwhen the dividend on the preference shares is more than six months in arrears.

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Article 13(3)

The joint holder first named in the Register or the Depository Register, as the casemay be, shall as regards voting, proxy, service of notices and delivery of certificatesand dividend warrants, be deemed to be the sole owner of such share.

Article 80

At every General Meeting a resolution put to the vote of the meeting shall be decidedon a show of hands by the Members present in person and entitled to vote, unlessbefore or upon the declaration of the result of the show of hands a poll be demandedby:-

(a) the Chairman of the meeting; or

(b) not less than two Members present in person or by proxy and entitled to vote;or

(c) a Member or Members present in person or by proxy, holding or representing,as the case may be:-

(i) not less than one-tenth of the total voting rights of all Members entitled tovote at the meeting; or

(ii) shares in our Company conferring a right to vote at the meeting beingshares on which an aggregate sum has been paid up equal to not lessthan one-tenth of the total sum paid up on all the shares conferring thatright.

Article 81(1)

If a poll is duly demanded it shall be taken in such manner as the Chairman directs,and the results of the poll shall be deemed to be the resolution of the meeting atwhich the poll was demanded.

Article 81(2)

No poll shall be demanded on the election of a Chairman of a meeting or on aquestion of adjournment. A poll demanded on any other question shall be taken atsuch time as the Chairman of the meeting directs.

Article 82

Unless a poll be so demanded, a declaration by the Chairman of the meeting that aresolution has been carried, or has been carried by a particular majority, or lost, or notcarried by a particular majority shall be conclusive, and an entry to that effect in theminute book of our Company shall be conclusive evidence thereof, without proof ofthe number or proportion of the votes recorded in favour of or against such resolution.

Article 83(1)

No objection shall be raised as to the admissibility of any vote except at the meetingor adjourned meeting, as the case may be, at which the vote objected to is or may begiven, tendered or cast, and every vote not disallowed at such meeting shall be validfor all purposes. Any such objection shall be referred to the Chairman of the meetingwhose decision shall be final and conclusive.

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Article 83(2)

If any votes shall be counted which ought not to have been counted, or might havebeen rejected, the error shall not vitiate the result of the voting unless it be pointedout at the same meeting, or at any adjournment thereof, and unless in the opinion ofthe Chairman at the meeting or at any adjournment thereof as the case may be, itshall be of sufficient importance to vitiate the result of the voting.

Article 84

In case of an equality of votes, whether on a show of hands or on a poll, theChairman of the meeting at which the show of hands takes place or at which the pollis demanded, as the case may be, shall have a second or casting vote.

Article 85(1)

Subject to and without prejudice to any special privileges or restriction as to voting forthe time being attached to any special class of shares for the time being forming partof the capital of our Company:-

(a) every Member who is present in person or by proxy shall have one vote on ashow of hands, the Chairman to decide which proxy shall be entitled to votewhere a Member is represented by two proxies; and

(b) every Member who is present in person or by proxy, in case of a poll, shall haveone vote for every share which he holds or represents and upon which all callsor other sums due thereon to our Company have been paid.

Article 85(2)

For the purpose of determining the number of votes which a Member, being aDepositor, or his proxy may cast at any General Meeting upon a poll being called, thenumber of shares held or represented shall, in relation to the shares of that Depositor,be the number of shares entered against his name in the Depository Register as atthe Cut-Off Time as certified by the Depository to our Company.

Article 86

In the case of joint holders the vote of the senior who tenders a vote whether inperson or by proxy, shall be accepted to the exclusion of the votes of the other jointholders; and for this purpose seniority shall be determined by the order in which thenames stand in the Register or the Depository Register, as the case may be.

Article 87

Unless the Directors otherwise determine, no person other than a Member who shallhave paid everything for the time being due from him and payable to our Company inrespect of his shares, shall be entitled to be present or to vote on any question eitherpersonally or by proxy at any General Meeting.

Article 88

A Member of unsound mind, or in respect of whom an order has been made by anyCourt having jurisdiction in lunacy, may vote, whether on a show of hands or on a pollby the committee, curator bonis, or other person in the nature of committee or curatorbonis appointed by that Court, and any such committee, curator bonis, or otherperson may, on a poll, vote by proxy.

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Article 89

On a poll, votes may be given either personally or by proxy and a person entitled tomore than one vote need not use all his votes or cast all the votes he uses in thesame way.

Article 90(1)

A proxy need not be a Member.

Article 90(2)

A Member shall not be entitled to appoint more than two proxies to attend and vote atthe same General Meeting Provided Always that where the Member is a Depositor,our Company shall be entitled and bound:-

(a) to reject any instrument of proxy lodged if the Depositor is not shown to haveany shares entered against his name in the Depository Register as at the Cut-Off Time as certified by the Depository to our Company;

(b) to accept as the maximum number of votes which in aggregate the proxy orproxies appointed by the Depositor is or are able to cast on a poll a numberwhich is the number of shares entered against the name of that Depositor inthe Depository Register as at the Cut-Off Time as certified by the Depository toour Company, whether that number be greater or smaller than the numberspecified in any instrument of proxy executed by or on behalf of that Depositor;and

(c) in determining rights to vote and other matters in respect of a completedinstrument of proxy submitted to it, to have regard to the instructions (if any)given by and the notes (if any) set out in the instrument of proxy.

Article 90(3)

In any case where a form of proxy appoints more than one proxy, the proportion ofthe shareholding concerned to be represented by each proxy shall be specified in theform of proxy. If no proportion is specified, our Company shall be entitled to treat thefirst named proxy as representing the entire number of shares entered against hisname in the Depository Register and any second named proxy as an alternate to thefirst named or at our Company’s option to treat the instrument of proxy as invalid.

Article 91

Any corporation which is a Member may, by resolution of its directors or othergoverning body, authorise any person to act as its representative at any meetings ofour Company or any class of Members of our Company, and such representative shallbe entitled to exercise the same powers on behalf of the corporation which herepresents as if he had been an individual shareholder.

Article 92

An instrument appointing a proxy shall be in writing in any usual or common form(including the form approved from time to time by the Depository) or in any other formwhich the Directors may approve and:-

(1) in the case of an individual shall be signed by the appointor or his attorney;

(2) in the case of a corporation shall be either given under its common seal orsigned on its behalf by an attorney or a duly authorised officer of thecorporation.

Article 93

Where an instrument appointing a proxy is signed on behalf of the appointor by anattorney, the letter or the power of attorney or other authority, if any, or a duly certifiedcopy thereof shall (failing previous registration with our Company) if required by law,be duly stamped and be deposited at the Office, not less than forty-eight hours beforethe time for holding the meeting or adjourned meeting at which the person named inthe instrument proposes to vote and in default the instrument of proxy shall not betreated as valid.

Article 94

The signature on an instrument of proxy need not be witnessed.

Article 95

A vote given in accordance with the terms of an instrument of proxy shall be validnotwithstanding the previous death of the principal or revocation of the proxy ortransfer of the share in respect of which the vote is given Provided Always that nonotice in writing of the death or revocation or transfer shall have been received at theOffice one hour at least before the time fixed for holding the meeting.

Article 96

An instrument appointing a proxy shall be deemed to confer authority to demand orjoin in demanding a poll and to speak at the meeting.

Article 97

Where the capital of our Company consists of shares of different monetarydenominations, voting rights shall be prescribed in such manner that a unit of capitalin each class, when reduced to a common denominator, shall carry the same votingpower when such right is exercisable.

(3) The following provisions of the Articles of Association of our Company relate to theDividend Rights

Article 135

The profits of the Company, subject to any special rights relating thereto created orauthorised to be created by these Articles and subject to the provisions of these Articles asto the reserve fund shall be divisible among the Members in proportion to the amount ofcapital paid up on the shares held by them respectively.

Article 136

The Company in General Meeting may by Ordinary Resolution declare a dividend on or inrespect of any share to the Members according to their rights and interest in the profits andmay fix the time for payment. No larger dividend shall be declared than is recommended bythe Directors but the Company in General Meeting may declare a smaller dividend.

Article 137

No dividend shall be payable except out of the profits of the Company. No dividend shallcarry interest.

Article 138

The declaration of the Directors as to the net profits of the Company shall be conclusive.

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Article 139

The Directors may from time to time pay to the Members such interim dividends as in theirjudgement the position of the Company justifies provided no such dividends shall bedeclared more than once in six months.

Article 140

The Directors may retain any dividends on which the Company has a lien and may apply thesame in or towards satisfaction of the debts, liabilities, or engagements in respect of whichthe lien exists.

Article 141

A transfer of shares shall not pass the right to any dividend declared thereon before theregistration of the transfer or the entry of the shares against the Depositor’s name in theDepository Register, as the case may be.

Article 142

Any General Meeting declaring a dividend may direct payment of such dividend wholly or inpart by the distribution of specific assets, and in particular of wholly or partly paid-up shares,debentures, or debenture stock of the Company, or wholly or partly paid-up shares,debentures, or debenture stock of any other company, or in any one or more of such ways,and the Directors shall give effect to such resolution; and where any difficulty arises inregard to the distribution, they may settle the same as they think expedient, and in particularmay issue fractional certificates, and may fix the value for distribution of such specificassets, or any part thereof and may determine that cash payments shall be made to anyMember upon the footing of the value so fixed, in order to adjust the rights of all parties, andmay vest any such specific assets in trustees upon such trusts for the persons entitled to thedividends as may seem expedient to the Directors. Where requisite, a proper contract shallbe filed in accordance with Section 63 of the Companies Act, and the Directors may appointany person to sign such contract on behalf of the persons entitled to the dividend, and suchappointment shall be effective.

Article 143

The Directors may retain the dividends payable upon shares in respect of which any personis under the provisions as to the transmissions of shares hereinbefore contained entitled tobecome a Member, or which any person under those provisions is entitled to transfer untilsuch person shall become a Member in respect of such shares or shall duly transfer thesame.

Article 144

In case several persons are registered in the Register or entered in the Depository Register,as the case may be, as the holders of any share, any resolution of the Directors or theCompany in General Meeting declaring a dividend on shares of any class may specify thatthe dividend shall be payable to such persons at the close of business on a particular dateand thereupon the dividend shall be payable in accordance with their respective holdings soregistered. Any person registered in the Register or in the Depository Register, as the casemay be, as the holder or joint holder of any share or is entitled jointly to a share inconsequence of the death or bankruptcy of the holder may give effectual receipts fordividends, bonuses, other moneys payable or properties distributable and payment onaccount of dividends on or in respect of such shares.

Article 145

Notice of declaration of any dividend, whether interim or otherwise, may be given byadvertisement.

Article 146

Unless otherwise directed, any dividend may be paid by cheque, dividend warrant or PostOffice Order, sent through the post to the registered address appearing in the Register orthe Depository Register, as the case may be, of the Member or person entitled, or wheretwo or more persons are registered in the Register or entered in the Depository Register, asthe case may be, as joint holders or are entitled to the dividend as a result of the death orbankruptcy of the holder, to that one whose name shall stand first on the Register or theDepository Register, as the case may be, in respect thereof and every cheque, dividendwarrant or Post Office Order so sent shall be made payable to the order of the person towhom it is sent or to any person and address as such Member(s) or persons(s) may directin writing. The Company shall not be responsible for the loss of any cheque, dividendwarrant or Post Office Order, which shall be sent by post duly addressed to and at the solerisk of the Member or person for whom it is intended. Payment of the cheque, dividendwarrant or Post Office Order by the bank upon which they are respectively drawn shall be afull and valid discharge to the Company. Notwithstanding the provisions of these Articles,payment by the Company to the Depository of any dividend payable to a Depositor shallalso be a full and valid discharge of the Company from liability to the Depositor in respect ofthat payment to the extent of the payment made to the Depository.

Article 147

The Depository will hold all dividend unclaimed for six years after having been declared andpaid before release to the Directors, and the Directors may invest or otherwise make use ofthe unclaimed dividends for the benefit of the Company until claimed.

(4) The following provisions of the Articles of Association of our Company relate to theappointment, retirement and removal of Directors.

(a) Appointment, Retirement and Removal of Directors

Article 98

Until otherwise determined by a Special Resolution at a General Meeting, the numberof Directors shall not be less than two or more than twenty. All the Directors of ourCompany shall be natural persons.

Article 100

A Director shall not be required to hold any share in our Company.

Article 101(1)

Any Director may at any time and from time to time appoint any other personapproved by a majority of the Directors for the time being to be his alternate. Analternate Director shall be entitled (subject to his giving to our Company an addresswithin the Republic of Singapore at which notices may be served on him) to receivenotice of meetings of the Directors and to attend and vote as a Director at any suchmeeting at which the Director appointing him is not present, and generally at suchmeeting to exercise all the powers, rights, duties and authorities of the Directorappointing him. Every person acting as an alternate Director shall be an officer of ourCompany and shall alone be responsible to our Company for his own acts anddefaults and he shall not be deemed to be the agent of or for the Director appointinghim. All the appointments and removals of alternate Directors made by any Director inpursuance of this Article, shall be in writing under the hand of the Director making thesame and shall be sent to or left at the Office. A Director may not act as an alternatefor another Director. A person may not act as an alternate Director for more than oneDirector of our Company.

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Article 101(2)

An alternate Director may be removed by his appointor and the appointor (subject tothe approval of the Directors) may appoint another in his place. An alternate Directormay be removed from office by a resolution of the Directors, but he shall be entitled tovote on such resolution and he shall, ipso facto, cease to be an alternate Director ifhis appointor ceases for any reason to be a Director. The appointment of an alternateDirector shall also determine on the happening of any event which, if he were aDirector, would cause him to vacate such office.

Article 104(1)

The office of a Director shall be vacant if the Director:-

(a) ceases to be a Director by virtue of the Statutes; or

(b) becomes bankrupt or makes any arrangement or composition with his creditorsgenerally; or

(c) is or becomes prohibited from being a Director by reason of any order madeunder the Statutes; or

(d) becomes of unsound mind or a person whose person or estate is liable to bedealt with in any way under any law relating to mental disorder; or

(e) resigns his office by notice in writing to our Company; or

(f) for more than six months is absent without permission of the Directors frommeetings of the Directors held during that period and his alternate Director (ifany) shall not during such period have attended in his stead; or

(g) is directly or indirectly interested in any contract or proposed contract with ourCompany and fails to declare the nature of his interest in manner required bythe Statutes; or

(h) if he is removed from office pursuant to the Statutes.

Article 104(2)

The appointment of any Director to the office of Chairman or Deputy Chairman orManaging or Joint Managing or Deputy or Assistant Director shall automaticallyterminate if he ceases to be a Director but without prejudice to any claim for anydamage or breach of any contract of service between him and our Company.

Article 104(3)

The appointment of any Director to any other executive office shall automaticallyterminate if he ceases from any cause to be a Director only if the contract orresolution under which he holds office expressly so provides, in which case suchtermination shall be without prejudice to any claim for damages or breach of anycontract of service between him and our Company.

Article 107

At the Annual General Meeting in every year one-third of the Directors for the timebeing (other than the Managing Director), or, if their number is not three or a multipleof three, then the number nearest to but not less than one-third, shall retire from officeprovided always that all Directors (except the Managing Director) shall retire fromoffice at least once every three years.

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Article 108

The Directors to retire in every year shall be those who have been longest in officesince their last election, but as between persons who became Directors on the sameday those to retire shall (unless they otherwise agree among themselves) bedetermined by lot.

Article 109

Subject to the Statutes, a retiring Director shall be eligible for re-election at themeeting at which he retires.

(b) Nomination of Directors

Article 110

A person who is not a retiring Director shall be eligible for election to office of Directorat any General Meeting if some Member intending to propose him has, at least elevenclear days before the meeting, left at the Office of the company a notice in writing dulysigned by the nominee, giving his consent to the nomination and signifying hiscandidature for the office, or the intention of such Member to propose him, ProvidedThat in the case of a person recommended by the Directors for election, nine cleardays’ notice only shall be necessary, and notice of each and every candidature forelection to the Board of Directors shall be served on the registered holders of sharesat least seven days prior to the meeting at which the election is to take place.

Article 111

Our Company by Special Resolution in General Meeting may, from time to time,increase or reduce the number of Directors, and may alter their qualification, if any.

Article 112

The Directors may from time to time appoint one or more of their body to the office ofManaging Director or a person holding an equivalent position for such period (notexceeding five years) and on such terms as they think fit, and subject to the terms ofany agreement entered into in any particular case, may revoke such appointment. AManaging Director or a person holding an equivalent position shall be subject to thecontrol of the Directors. A Director so appointed shall not, while holding that office besubject to retirement but his appointment shall be automatically determined if heceases from any cause to be a Director.

Article 117

The Directors shall have power at any time and from time to time to appoint any otherqualified person as a Director either to fill a casual vacancy or as an addition to theBoard. But any Director so appointed shall hold office only until the next AnnualGeneral Meeting of our Company, and shall be eligible for re-election.

Article 118

Our Company may from time to time by Ordinary Resolution remove any Directorbefore the expiration of his period of office, and may by an Ordinary Resolutionappoint another person in his stead. The person so appointed shall continue to holdoffice until the next Annual General Meeting.

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Article 125

The continuing Directors may act notwithstanding any vacancy in their body, but if andso long as their number is reduced below the minimum number fixed by or pursuantto these Articles, the continuing Directors may, except in an emergency, act for thepurpose of increasing the number of Directors to such minimum number, or ofsummoning a General Meeting of our Company, notwithstanding that there shall notbe a quorum, but for no other purpose.

(5) Limitations on Rights to Hold or Vote Ordinary Shares

There are no limitations imposed by Singapore law or by our Articles of Association on therights of non-resident Shareholders to hold or vote on our ordinary shares.

(6) Delaying, deferring or preventing change in control of the Company

There is no provision in our Articles of Association which could have an effect of delaying,deferring or preventing a change in control of the Company and which could operate onlywith respect to a merger, acquisition or corporate restructuring involving the Company.

Bank Borrowings And Working Capital

24. Save as disclosed in the section entitled “Capitalisation and Indebtedness” in this Prospectus, ourGroup had, as at 31 May 2004, no other borrowings and/or indebtedness in the nature ofborrowings including bank overdrafts and liabilities under acceptances (other than normal tradingbills) or acceptance credits, mortgages, charges, hire purchase commitments, guarantees or othermaterial contingent liabilities.

25. In the opinion of our Directors, there is no minimum amount which must be raised by the issue ofthe New Shares in order to provide the following items:-

(a) the purchase price of any property purchased or to be purchased which is to be defrayed inwhole or in part out of the proceeds of the issue of the New Shares;

(b) estimated expenses (including placement and underwriting commission and brokerage) forthis Invitation payable by our Company;

(c) the repayment of any money borrowed by our Company in respect of any of the foregoingmatters; and

(d) working capital.

26. Although no minimum amount must be raised by the Invitation in order to provide for the items setout in paragraph 25 above, the amount to be provided for those items is proposed to be providedout of proceeds of the Invitation and/or out of the other sources of funding including bankingfacilities and the issuance of securities.

27. Our Directors are of the opinion that, after taking into account amounts available under existingcash balances and banking facilities, our Group will have adequate funds to meet its workingcapital and other commitments.

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Material Contracts

28. The following contracts, not being contracts entered into in the ordinary course of business of ourCompany and our subsidiaries have been entered into by our Company and our subsidiaries withinthe two years preceding the date of lodgment of this Prospectus and are or may be material:-

(a) Sale and Purchase Agreement and Letter Agreement dated 18 February 2003 between ourCompany and Shandong Jilong pursuant to which we acquired all the equity interests in theSubsidiaries with effect from 1 January 2003 for an aggregate consideration ofapproximately S$9.73 million. Please refer to the section entitled “Restructuring Exercise,Loan Capitalisation and Bond Conversion” in this Prospectus for further information.

(b) Consulting and Licensing Technology Agreement dated 9 February 2004 between GreenFood and Innovative Foods, pursuant to which Innovative Foods shall provide an exclusivetransfer of technology in the PRC to Green Food relating to freeze-dry food productionbusiness for a period of 20 years. In return, Green Food shall pay royalty fees to InnovativeFoods. Please refer to the section entitled “Quality Assurance” and “Product Development”in this Prospectus for further details.

(c) Investment Agreement dated 10 May 2004 between our Company and the Investors,pursuant to which our Company issued and the Investors subscribed for Convertible Bondswith an aggregate value of $2.5 million convertible into ordinary shares in the capital of ourCompany.

(d) Depository Services Agreement dated 15 September 2004 between our Company and CDPpursuant to which CDP agreed to act as central depository for our Company’s securities fortrades in the securities of the Company through the SGX-ST.

(e) Management and Underwriting Agreement dated 20 September 2004 referred to inparagraph 30 below.

(f) Placement Agreement dated 20 September 2004 referred to in paragraph 30 below.

Litigation

29. There are no legal or arbitration proceedings, including those which are pending or known to becontemplated, which may have or have had, in the last 12 months before the date of lodgment ofthis Prospectus with the Authority, a material effect on our Group’s financial position or profitability.

Management And Underwriting And Placement Arrangements

30. (a) Pursuant to the management and underwriting agreement (the “Management andUnderwriting Agreement’’) dated 20 September 2004 our Company appointed HL Bank tomanage the Invitation and underwrite the Offer Shares. HL Bank will receive a managementfee from our Company for its services rendered in connection with the Invitation.

(b) Pursuant to the Management and Underwriting Agreement, HL Bank agreed to underwritethe Offer Shares for a commission of 2.25% of the Issue Price for each Offer Share payableby our Company pursuant to the Invitation.

(c) Pursuant to the placement agreement (the “Placement Agreement’’) dated 20 September2004, HL Bank agreed to subscribe or procure subscriptions for the Placement Shares for aplacement commission of 2.5% of the Issue Price for each Placement Share to be paid byour Company.

(d) Subscribers of Placement Shares (excluding Reserved Shares) may be required to pay aplacement commission of up to 1% of the Issue Price to the Placement Agent.

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(e) Brokerage will be paid by our Company to members of the SGX-ST, merchant banks andmembers of the Association of Banks in Singapore in respect of accepted applications madeon Application Forms bearing their respective stamps, or to Participating Banks in respect ofsuccessful applications made through Electronic Applications at the ATMs of the relevantParticipating Banks, at the rate of 0.25% of the Issue Price for each New Share.

(f) Save as aforesaid, no commission, discount or brokerage, has been paid or other specialterms granted within the two years preceding the date of this Prospectus or is payable toany Director, promoter, expert, proposed Director or any other person for subscribing oragreeing to subscribe or procuring or agreeing to procure subscriptions for any shares in ordebentures of our Company or any of our subsidiaries.

(g) The Management and Underwriting Agreement may be terminated by HL Bank at any timeon or before the closing of the Application List upon the occurrence of certain eventsincluding, inter alia,

(i) any introduction or any change in any legislation, regulation, order by any court,government body, regulatory authority or other competent authority;

(ii) any change or any development involving a prospective change in or any crisis innational or international financial markets, political, industrial, economic, legal ormonetary conditions, taxation or exchange controls (including without limitationconditions in the stock markets, foreign exchange markets and conditions with respectto interest rates, in Singapore or overseas); or

(iii) any occurrence of hostilities, insurrection or armed conflict; or

(iv) the issue of a stop order by the Authority in accordance with Section 242 of theSecurities and Futures Act;

which event or events shall in the opinion of HL Bank, (1) result or be likely to result in amaterial adverse fluctuation or adverse conditions in the stock markets in Singapore and/ oroverseas; or (2) be likely to prejudice the success of the subscription or offer of the NewShares; or (3) make it impracticable, inadvisable, inexpedient or uncommercial to proceedwith the Invitation; or (4) be likely to have a material adverse effect of the business, tradingposition, operations or prospects of our Company or of our Group as a whole; or (5) be suchthat no reasonable underwriter would have entered into the Management and UnderwritingAgreement; or (6) make it uncommercial or otherwise contrary to or outside the usualcommercial practices of underwriters in Singapore for HL Bank to observe or perform or beobliged to observe or perform the terms of the Management and Underwriting Agreement.

(h) In the event the Management and Underwriting Agreement is terminated, our Companyreserves the right, at the absolute discretion of our Directors, to cancel the Invitation.

(i) The Placement Agreement is conditional, inter alia, on the Management and UnderwritingAgreement not having been terminated or rescinded pursuant to the provisions of theManagement and Underwriting Agreement.

31. Save as disclosed under paragraph 30 above, we do not have any material relationship with theUnderwriter.

Miscellaneous

32. The nature of the business of our Company is stated on in the section entitled “Business” in thisProspectus. At the date of this Prospectus, all the corporations listed below are, by virtue ofSection 6 of the Companies Act (Chapter 50), deemed to be related to our Company:-

Laiyang Jilong Edible Oil Co., Ltd

Laiyang Green Food Co., Ltd

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Laiyang Jilong Health Drinks Co., Ltd

Laiyang Hongshun Foodstuffs Co., Ltd

Laiyang Xinghua Foodstuffs Co., Ltd

33. The time of opening of the Application List is set out in the section “Indicative Timetable for Listing”in this Prospectus.

34. The amount payable on application is S$0.225 for each New Share. There has been no previousissue of Shares by our Company or offer for sale of our Shares to the public within the two yearspreceding the date of this Prospectus.

35. Application monies received by our Company in respect of successful applications (includingsuccessful balloted applications which are subsequently rejected) will be placed in a separate non-interest bearing account with HL Bank (the “Receiving Bank”). In the ordinary course of business,the Receiving Bank will deploy these monies in the interbank money market. All profit derivedfrom the deployment of such monies in the in the interbank money market will accrue to theReceiving Bank. Any refund of all or part of the application monies to unsuccessful or partiallysuccessful applicants will be made without any interest or any share of such revenue or any otherbenefits.

36. Save as disclosed in the section entitled “Future Plans” in this Prospectus, no property has beenpurchased or acquired or proposed to be purchased or acquired by our Company or itssubsidiaries which is to be paid for wholly or partly out of the proceeds of the Invitation or thepurchase or acquisition of which has not been completed at the date of the issue of thisProspectus other than property the contract for the purchase or acquisition whereof was enteredinto in the ordinary course of business of our Company or its subsidiaries, the contract not beingmade in contemplation of the Invitation nor the Invitation in consequence of the contract.

37. The estimated amount of the expenses of this issue and of the application for listing, includingunderwriting and placement commission, brokerage, management fee and all other incidentalexpenses in relation to this Invitation is approximately S$2,800,000, which will be borne by ourCompany. A breakdown of these estimated expenses is as follows:-

S$’000

Listing fees 25Professional fees 1,450Underwriting commission, placement commission and brokerage 800Miscellaneous expenses 525

Total 2,800

38. No amount of cash or securities or benefit has been paid or given to any promoter within the twoyears preceding the date of this Prospectus or is proposed or intended to be paid or given to anypromoter at any time.

39. Save as disclosed in sections entitled “Risk Factors” and “Management’s Discussion and Analysisof Results of Operations” in this Prospectus, our Directors are not aware of any relevant materialinformation including trading factors or risks not mentioned elsewhere in the Prospectus which isunlikely to be known or anticipated by the general public and which could materially affect theprofits of our Company and its subsidiaries.

40. Save as disclosed in the sections entitled “Risk Factors”, “Management’s Discussion and Analysisof Operations”, “Capitalisation and Indebtedness” and “Prospects and Future Plans” in thisProspectus, the financial condition and operations of our Group are not likely to be affected by anyof the following:-

(a) known trends or known demands, commitments, events or uncertainties that will result in orare reasonably likely to result in our Group’s liquidity increasing or decreasing in anymaterial way;

(b) material commitments for capital expenditures;

(c) unusual or infrequent events or transactions or any significant economic changes that maymaterially affect the amount of reported income from operations; and

(d) known trends or uncertainties that have had or that our Group reasonably expects to have amaterial favourable or unfavourable impact on revenues or operating income.

41. We currently have no intention of changing our Group’s present auditors or appointing jointauditors after the listing of our Company.

42. Details including the names, addresses and professional qualifications (including membership in aprofessional body) of our auditors since our incorporation are as follows:-

Name, Membership Partner-in-charge/ Financial year and Address Professional Body Professional Qualification

FY2003 to current Chio Lim & Associates Institute of Certified Partner-in-charge: Ng Thiam Certified Public Accountants, Public Accountants Soon, CPA Singapore Singapore18 Cross Street #08-01Marsh & McLennan CentreSingapore 048423

FY2002 Lee S F & Co Institute of Certified Partner-in-charge: Lee Sang Certified Public Accountants, Public Accountants Fun, CPASingapore Singapore257 Selegie Road#15-279/281 Selegie ComplexSingapore 188350

43. This Prospectus is dated 20 September 2004. No shares will be allotted and issued on the basis ofthis Prospectus later than six months after the date of this Prospectus.

44. There are no limitations on the right to own Shares, including limitations on the right of non-resident or foreign shareholders to hold or exercise voting rights on the Shares imposed by theArticles of Association of our Company.

45. Save as disclosed in the section entitled “Subsequent Events” in the Independent Auditors’ Reporton the Unaudited Proforma Financial Information of Zhongguo Jilong Limited in this Prospectus,the Directors are not aware of any event which has occurred since the Latest Practicable Datewhich may have a material effect on the financial information provided in the Independent Auditors’Report on the Unaudited Proforma Financial Information of Zhongguo Jilong Limited.

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Directors’ Responsibility Statement

46. This Prospectus has been seen and approved by our Directors and they individually andcollectively accept full responsibility for the accuracy of the information given herein and confirm,having made all reasonable enquiries, that to the best of their knowledge and belief, the factsstated and the opinions expressed in the Prospectus are fair and accurate in all material aspectsas at the date of this Prospectus and there are no material facts the omission of which wouldmake any statement in this Prospectus misleading and that this Prospectus constitutes full andtrue disclosure of all material facts about the Invitation and our Group.

Consent

47. The Independent Auditors have given and have not withdrawn their written consent to the issue ofthis Prospectus with the inclusion herein of the Independent Auditors’ Report on the UnauditedProforma Financial Information of Zhongguo Jilong Limited, Report of the Auditors and AuditedFinancial Statements of Zhongguo Jilong Pte. Ltd. and Subsidiaries for the year ended 31December 2003 and Report of the Auditors and the Financial Statements re-stated in accordancewith the Singapore Financial Reporting Standards on Laiyang Hongshun Foodstuffs Co., Ltd,Laiyang Xinghua Foodstuffs Co., Ltd, Laiyang Jilong Edible Oil Co., Ltd and Laiyang Jilong HealthDrinks Co., Ltd for the years ended 31 December 2001 and 2002 in the form and context in whichthey appear in this Prospectus and references to their names in the form and context in which theyappear in this Prospectus and to act in such capacity in relation to this Prospectus.

Documents Available For Inspection

48. Copies of the following documents may be inspected at 50 Raffles Place #29-00 Singapore LandTower Singapore 048623 during normal business hours for a period of six months from the date ofthis Prospectus:-

(a) the Memorandum and Articles of Association of our Company;

(b) the Independent Auditors’ Report on the Unaudited Proforma Financial Information ofZhongguo Jilong Limited set out in this Prospectus;

(c) Report of the Auditors and Audited Financial Statements of Zhongguo Jilong Pte. Ltd. andSubsidiaries for the year ended 31 December 2003;

(d) the Report of the Auditors and the Financial Statements re-stated in accordance with theSingapore Financial Reporting Standards on Laiyang HongShun Foodstuffs Co., Ltd,Laiyang Xinghua Foodstuffs Co., Ltd, Laiyang Jilong Edible Oil Co., Ltd and Laiyang JilongHealth Drinks Co., Ltd for the years ended 31 December 2001 and 2002;

(e) the material contracts referred to in paragraph 28 above;

(f) the letter of consent referred to in paragraphs 47 above; and

(g) the Service Agreements set out in the section entitled “Service Agreements” in thisProspectus.

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APPENDIX 1 : TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE

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You are invited to apply and subscribe for the New Shares at the Issue Price for each Offer Share andeach Placement Share subject to the following terms and conditions:-

1. YOUR APPLICATION MUST BE MADE IN LOTS OF 1,000 NEW SHARES AND INTEGRALMULTIPLES THEREOF. YOUR APPLICATION FOR ANY OTHER NUMBER OF NEW SHARESWILL BE REJECTED.

2. Your application for Offer Shares may be made by way of printed Offer Shares Application Formsor by way of Electronic Applications through ATMs of the Participating Banks (“ATM ElectronicApplications”) or through Internet Banking (“IB”) web-sites of the relevant Participating Banks(“Internet Electronic Applications” which, together with ATM Electronic Applications, shall bereferred to as “Electronic Applications”). Your application for the Placement Shares may only bemade by way of Placement Shares Application Forms. Your application for the Reserved Sharesmay only be made by way of Reserved Shares Application Forms. YOU MAY NOT USE CPFFUNDS TO APPLY FOR THE NEW SHARES.

3. You are allowed to submit only one application in your own name for the Offer Shares orthe Placement Shares (other than Reserved Shares). If you submit an application for OfferShares by way of an Application Form, you MAY NOT submit another application for OfferShares by way of an Electronic Application and vice versa. Such separate applications shallbe deemed to be multiple applications and shall be rejected. If you submit an application forOffer Shares by way of Internet Electronic Application, you MAY NOT submit anotherapplication for Offer Shares by way of ATM Electronic Application and vice versa. Suchseparate applications shall be deemed to be multiple applications and shall be rejected.

If you (not being an approved nominee company) have submitted an application for OfferShares in your own name, you should not submit any other application for Offer Shares,whether by way of an Application Form or by way of an Electronic Application, for any otherperson. Such separate applications shall be deemed to be multiple applications and shallbe rejected.

If you have made an application for Placement Shares (other than Reserved Shares), youshould not make any application for Offer Shares either by way of an Application Form orby way of an Electronic Application and vice versa. Such separate applications shall bedeemed to be multiple applications and shall be rejected. Conversely, if you have made anapplication for Offer Shares either by way of an Electronic Application or by way of anApplication Form, you may not make any application for Placement Shares. Such separateapplications shall be deemed to be multiple applications and shall be rejected.

If you have made an application for Reserved Shares using the Reserved SharesApplication Form, you may submit one separate application for the Offer Shares in yourown name either by way of an Application Form or by way of an Electronic Application orsubmit one separate application for Placement Shares (other than Reserved Shares)provided that you adhere to the terms and conditions of this Prospectus. Such separateapplications shall not be treated as multiple applications.

Joint applications shall be rejected. Multiple applications for New Shares shall be rejected.If you submit or procure submissions of multiple share applications for Offer Shares,Placement Shares or both Offer Shares and Placement Shares, you may be deemed to havecommitted an offence under the Penal Code, Chapter 224 of Singapore and the Securitiesand Futures Act, Chapter 289 of Singapore and your applications may be referred to therelevant authorities for investigation. Multiple applications or those appearing to be orsuspected of being multiple applications will be liable to be rejected at our discretion.


4. We will not accept applications from any person under the age of 21 years, undischargedbankrupts, sole-proprietorships, partnerships, chops or non-corporate bodies, joint SecuritiesAccount holders of CDP and from applicants whose addresses (furnished in their ApplicationForms or, in the case of Electronic Applications, contained in the records of the relevantParticipating Banks) bear post office box numbers.

5. We will not recognise the existence of a trust. Any application by a trustee or trustees must bemade in his/their own name(s) and without qualification or, where the application is made by wayof an Application Form, in the name(s) of an approved nominee company or approved nomineecompanies after complying with paragraph 6 below.

6. WE WILL NOT ACCEPT APPLICATIONS FROM NOMINEES EXCEPT THOSE MADE BYAPPROVED NOMINEE COMPANIES ONLY. Approved nominee companies are defined as banks,merchant banks, finance companies, insurance companies, licensed securities dealers inSingapore and nominee companies controlled by them. Applications made by persons acting asnominees other than approved nominee companies shall be rejected.

7. IF YOU ARE NOT A NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNTWITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have anexisting Securities Account with CDP in your own name at the time of your application, yourapplication will be rejected (if you apply by way of an Application Form), or you will not be able tocomplete your Electronic Application (if you apply by way of an Electronic Application). If you havean existing Securities Account but fail to provide your Securities Account number or provide anincorrect Securities Account number in Section B of the Application Form or in your ElectronicApplication, as the case may be, your application is liable to be rejected. Subject to paragraph 8below, your application shall be rejected if your particulars, such as name, NRIC/passport number,nationality and permanent residence status provided in your Application Form or in the records ofthe relevant Participating Bank at the time of your Electronic Application, as the case may be, differfrom those particulars in your Securities Account as maintained with CDP. If you possess morethan one individual direct Securities Account with CDP, your application shall be rejected.

8. If your address as stated in the Application Form or, in the case of an ElectronicApplication, in the records of the relevant Participating Bank, as the case may be, isdifferent from the address registered with CDP, you must inform CDP of your updatedaddress promptly, failing which the notification letter on successful allotment will be sent toyour address last registered with CDP.

9. We reserve the right to reject any application which does not conform strictly to theinstructions set out in the Application Form and in this Prospectus or which does notcomply with the instructions for Electronic Applications or with the terms and conditions ofthis Prospectus or, in the case of an application by way of an Application Form, which isillegible, incomplete, incorrectly completed or which is accompanied by an improperlydrawn remittance. We further reserve the right to treat as valid any applications notcompleted or submitted or effected in all respects in accordance with the terms andconditions of this Prospectus and also to present for payment or other processes allremittances at any time after receipt and to have full access to all information relating to, orderiving from, such remittances or the processing thereof.

10. We reserve the right to reject or to accept, in whole or in part, or to scale down or to ballot anyapplication, without assigning any reason therefore, and we will not entertain any enquiry and/orcorrespondence on our decision. This right applies to applications made by way of ApplicationForms and by way of Electronic Applications. In deciding the basis of allotment, we will give dueconsideration to the desirability of allotting the New Shares to a reasonable number of applicantswith a view to establishing an adequate market for the Shares.

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11. Share certificates will be registered in the name of CDP and will be forwarded only to CDP. It isexpected that CDP will send to you, at your own risk, within 15 Market Days after the close of theApplication List, a statement of account stating that your Securities Account has been credited withthe number of New Shares allotted to you. This will be the only acknowledgement of applicationmoneys received and is not an acknowledgement by us. You irrevocably authorise CDP tocomplete and sign on your behalf as transferee or renouncee any instrument of transfer and/orother documents required for the issue or transfer of the New Shares allotted to you. Thisauthorisation applies to applications made by way of Application Forms and by way of ElectronicApplications.

12. In the event that our Company lodges a supplementary or replacement prospectus pursuant to theSecurities and Futures Act or any applicable legislation in force from time to time prior to the closeof the Invitation, and the New Shares have not been issued, we will (as required by law) at oursole and absolute discretion either:-

(a) within 7 days of the lodgment of the supplementary or replacement prospectus, give you acopy of the supplementary or replacement prospectus, as the case may be, and provide youwith an option to withdraw your application; or

(b) deem your application as withdrawn and cancelled and refund your application moneys(without interest or any share of revenue or other benefit arising therefrom) to you within 7days from the lodgment of the supplementary or replacement prospectus.

In the event that at any time of the lodgment, the New Shares have already been issued buttrading has not commenced, we will (as required by alw) at our sole and absolute discretioneither:-

(a) within 7 days of the lodgment of the supplementary or replacement prospectus, give you acopy of the supplementary or replacement prospectus, as the case may be, and provide youwith an option to return the New Shares; or

(b) deem the issue of the New Shares as void and refund your payment for the New Shares(without interest or any share of revenue or other benefit arising therefrom) to you within 7days from the lodgment of the supplementary or replacement prospectus.

Additional terms and instructions applicable upon the lodgment of the supplementary orreplacement instructions, including instructions on how you can exercise the option to withdrawyour application or return the New Shares allotted to you, may be found in such supplementary orreplacement prospectus.

Where an applicant has notified us within 14 days from the date of lodgment of the supplementaryor replacement prospectus of his wish to exercise his option under the Securities and Futures Actto withdraw his application or return the New Shares allotted to him, we shall pay to him allmoneys paid by him on account of his application for the New Shares without interest or any shareof revenue or other benefit arising therefrom and at his own risk, within 7 days from the receipt ofsuch notification.

13. In the event of an under-subscription for Offer Shares as at the close of the Application List, we willmake available that number of Offer Shares under-subscribed to satisfy applications for PlacementShares to the extent that there is an over-subscription for Placement Shares as at the close of theApplication List.

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In the event of an under-subscription for Placement Shares (including the Reserved Shares) as atthe close of the Application List, we will make available that number of Placement Shares under-subscribed to satisfy applications for Offer Shares to the extent that there is an over-subscriptionfor Offer Shares as at the close of the Application List. Any Reserved Shares not taken up will bemade available first to satisfy excess applications for the Placement Shares to the extent that thereis an over-subscription for the Placement Shares and then to satisfy excess applications for OfferShares to the extent that there is an over-subscription for Offer Shares.

In the event of an over-subscription for Offer Shares as at the close of the Application List andPlacement Shares (including the Reserved Shares) are fully subscribed or over-subscribed as atthe close of the Application List, the successful applications for Offer Shares will be determined byballot or otherwise as determined by our Directors in consultation with the Manager and approvedby the SGX-ST.

In the event of an under-subscription for the Offer Shares and/or Placement Shares as at the closeof the Application List, the number of Offer Shares and/or Placement Shares under-subscribedshall be subscribed by the Underwriter and/or Placement Agent respectively.

14. You irrevocably authorise CDP to disclose the outcome of your application, including the number ofNew Shares allotted to you pursuant to your application, to authorised operators.

15. Any reference to “you” or the “applicant” in this section shall include an individual, a corporation, anapproved nominee and trustee applying for the Offer Shares by way of an Offer Shares ApplicationForm or by way of an Electronic Application, or applying for the Placement Shares by way of aPlacement Shares Application Form, or applying for the Reserved Shares by way of a ReservedShares Application Form.

16. By completing and delivering an Application Form or by making and completing an ElectronicApplication by (in the case of an ATM Electronic Application) pressing the “Enter” or “OK” or“Confirm” or “Yes” key on the ATM (as the case may be) or by (in the case of an Internet ElectronicApplication) clicking “Submit” or “Continue” or “Yes” or “Confirm” or any other relevant key on the IBwebsite screen (as the case may be) in accordance with the provisions of this Prospectus, you:-

(a) irrevocably offer to subscribe for the number of New Shares specified in your application (orsuch smaller number for which the application is accepted) at the Issue Price and agree thatyou will accept such New Shares as may be allotted to you, in each case on the terms ofthis Prospectus and on the terms of the conditions set out in this Prospectus and theMemorandum and Articles of Association of our Company;

(b) agree that in the event of any inconsistency between the terms and conditions forapplication set out in this Prospectus and those in the IB websites of or ATMs of theParticipating Banks, the terms and conditions set out in this Prospectus shall prevail;

(c) agree that the aggregate Issue Price for the New Shares applied for is due and payable tothe Company forthwith; and

(d) warrant the truth and accuracy of the information provided in your application.

17. Our acceptance of applications will be conditional upon, inter alia, we being satisfied that:-

(a) permission has been granted by the SGX-ST to deal in and for quotation for all our existingShares and the New Shares on a “when issued” basis on the SGX-ST;

(b) no stop order has been issued by the Authority under the Securities and Futures Act; and

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(c) the Management and Underwriting Agreement and the Placement Agreement referred to onpage 169 of this Prospectus have become unconditional and have not been terminated orcancelled prior to such date as our Company may determine.

18. We will not hold any applications in reserve.

19. We will not allot Shares on the basis of this Prospectus later than six months after the date of thisProspectus.

20. Additional terms and conditions for applications by way of Application Forms are set out on pages179 to 182 of this Prospectus.

21. Additional terms and conditions for applications by way of Electronic Applications are set out onpages 182 to 189 of this Prospectus.

ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING APPLICATION FORMS

Applications by way of Application Forms shall be made on, and subject to, the terms and conditions ofthis Prospectus including but not limited to the terms and conditions appearing below and including thoseset out under the section entitled “TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION” inthis Prospectus, as well as our Memorandum and Articles of Association.

1. Applications for the Offer Shares must be made using the WHITE Application Forms and officialenvelopes “A” and “B”, accompanying and forming part of this Prospectus. Application for thePlacement Shares (other than Reserved Shares) must be made using the BLUE ApplicationForms for the Placement Shares (other than Reserved Shares) and application for the ReservedShares must be made using the PINK Application Forms for the Reserved Shares accompanyingand forming part of this Prospectus.

Attention is drawn to the detailed instructions contained in the Application Forms and thisProspectus for the completion of the Application Forms which must be carefully followed. Wereserve the right to reject applications which do not conform strictly to the instructions set out inthe Application Forms and this Prospectus or to the terms and conditions of this Prospectus orwhich are illegible, incomplete, incorrectly completed or which are accompanied by improperlydrawn remittances.

2. The Application Forms must be completed in English. Please type or write clearly in ink usingBLOCK LETTERS. All spaces in the Application Forms except those under the heading “FOROFFICIAL USE ONLY” must be completed and the words “NOT APPLICABLE” or “N.A.” should bewritten in any space not applicable.

3. Individuals, corporations, approved nominee companies and trustees must give their names in full.Applications must be made, in the case of individuals, in their full names appearing in their identitycards (if applicants have such identification documents) or in their passports and, in the case ofcorporations, in their full names as registered with a competent authority. An applicant, other thanan individual, completing the Application Form under the hand of an official must state the nameand capacity in which that official signs. A corporation completing the Application Form is requiredto affix its Common Seal (if any) in accordance with its Memorandum and Articles of Associationor the equivalent constitutive documents of the corporation. If an application by a corporateapplicant is successful, a copy of its Memorandum and Articles of Association or the equivalentconstitutive document of the corporation must be lodged with our Share Registrar and ShareTransfer Office. We reserve the right to require any applicant to produce documentary proof ofidentification for verification purposes.

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4. Individual and corporate applicants, whether incorporated or unincorporated and whereverincorporated or constituted, will be required to declare whether they are citizens or permanentresidents of Singapore or corporations in which citizens or permanent residents of Singapore orany body corporate constituted by any statute of Singapore have an interest in the aggregate ofmore than 50% of the issued share capital of or interests in such corporations. Approved nomineecompanies are required to declare whether the beneficial owner of the Shares is a citizen orpermanent resident of Singapore or a corporation whether incorporated or unincorporated andwherever incorporated or constituted, in which citizens or permanent residents of Singapore or anybody corporate whether incorporated or unincorporated and wherever incorporated or constitutedby any statute of Singapore have an interest in the aggregate of more than 50% of the issuedshare capital of or interests in such corporation.

5. (a) All applicants must complete Sections A and B and sign on page 1 of the Application Forms.

(b) All applicants are required to delete either paragraph 7(a) or 7(b) on page 1 of theApplication Forms. Where paragraph 7(a) is deleted, the applicants must also completeSection C of the Application Forms with particulars of the beneficial owner(s).

(c) Applicants who fail to make the required declaration in paragraph 7(a) or 7(b) as the casemay be, on page 1 of the Application Forms are liable to have their applications rejected.

6. Each application must be accompanied by a remittance in Singapore currency for the full amountpayable, in respect of the number of New Shares applied for, in the form of a BANKER’S DRAFTor CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “ZHONGGUOJILONG SHARE ISSUE ACCOUNT”, crossed “A/C PAYEE ONLY”, with the name and address ofthe applicant written clearly on the reverse side. APPLICATIONS NOT ACCOMPANIED BY ANYPAYMENT OR ACCOMPANIED BY ANY OTHER FORM OF PAYMENT WILL NOT BEACCEPTED. Remittances bearing “NOT TRANSFERABLE” or “NON TRANSFERABLE’” crossingswill be rejected. No acknowledgement of receipt will be issued by us or the Manager forapplications or application moneys received.

7. It is expected that unsuccessful applications will be returned to the applicants (without interest orany share of revenue earned or other benefit arising therefrom) by ordinary post at the risk of theapplicants within 24 hours after balloting. Where an application is rejected or accepted in part only,the full amount or the balance of the application moneys will be refunded to the applicant (withoutinterest or any share of revenue earned or other benefit arising therefrom) by ordinary post at hisown risk, within 14 days after the close of the Application List.

8. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear themeanings assigned to them in this Prospectus.

9. In consideration of us having distributed the Application Form to the applicant and agreeing toclose the Application List at 12:00 noon on 28 September 2004 or such later time or date as wemay, in consultation with the Manager, decide and by completing and delivering the ApplicationForm, each applicant agrees that:-

(a) his application is irrevocable;

(b) his remittance will be honoured on first presentation and that any application moneysreturnable may be held pending clearance of his payment and he will not be entitled to anyinterest or any share of revenue or other benefit arising therefrom;

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(c) in respect of the New Shares for which his application has been received and not rejected,acceptance of his application shall be constituted by written notification by or on our behalfand not otherwise, notwithstanding any remittance being presented for payment by or on ourbehalf;

(d) he will not be entitled to exercise any remedy of rescission for misrepresentation at any timeafter acceptance of his application;

(e) all applications, acceptances and contracts resulting therefrom under the Invitation shall begoverned by and construed in accordance with the laws of Singapore and that heirrevocably submits to the non-exclusive jurisdiction of the Singapore courts; and

(f) reliance is placed solely on the information contained in this Prospectus and none of theCompany, the Manager, the Underwriter, the Placement Agent or any other person involvedin the Invitation shall have any liability for any information not so contained.

Applications For Offer Shares

1. Your applications for Offer Shares MUST be made using the WHITE Offer Shares ApplicationForms and WHITE official envelopes “A” and “B”. ONLY ONE APPLICATION should be enclosedin each envelope.

2. You must:-

(a) enclose the WHITE Offer Shares Application Form, duly completed and signed, togetherwith your remittance in accordance with the terms and conditions of this Prospectus in theWHITE envelope “A” provided;

(b) in the appropriate spaces on WHITE envelope “A”:-

(i) write your name and address;

(ii) state the number of Offer Shares applied for;

(iii) tick the relevant box to indicate the form of payment; and

(iv) affix adequate Singapore postage;

(c) SEAL WHITE ENVELOPE “A”;

(d) write, in the special box provided on the larger WHITE envelope “B” addressed to LIMASSOCIATES (PTE) LTD, 10 COLLYER QUAY #19-08, OCEAN BUILDING, SINGAPORE049315, the number of Offer Shares you have applied for; and insert WHITE envelope “A”into WHITE envelope “B”, seal WHITE envelope “B” and affix adequate Singapore postageand thereafter DESPATCH BY ORDINARY POST OR DELIVER BY HAND at your own riskto LIM ASSOCIATES (PTE) LTD, 10 COLLYER QUAY #19-08, OCEAN BUILDING,SINGAPORE 049315, to arrive by 12.00 noon on 28 September 2004 or such other timeas we may, in consultation with the Manager, decide. Local Urgent Mail or RegisteredPost must NOT be used. No acknowledgement of receipt will be issued for any applicationor remittance received.

3. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperlydrawn remittances are liable to be rejected.

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Applications for Placement Shares (other than Reserved Shares)

1. Applications for Placement Shares (other than Reserved Shares) must be made using the BLUEPlacement Shares Application Forms.

2. The completed BLUE Placement Shares Application Form and the applicant’s remittance with thename and address of the applicant written clearly on the reverse side, must be enclosed andsealed in an envelope to be provided by the applicant. The sealed envelope must beDESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at the applicant’s own risk toLIM ASSOCIATES (PTE) LTD, 10 COLLYER QUAY #19-08, OCEAN BUILDING, SINGAPORE049315, to arrive by 12:00 noon on 28 September 2004 or such later date and time as we may,in consultation with the Manager, decide. Local Urgent Mail or Registered Post must NOT beused. ONLY ONE APPLICATION should be enclosed in each envelope. No receipt oracknowledgement will be issued for any application or remittance received.

Applications for Reserved Shares

1. Applications for Reserved Shares must be made using the PINK Reserved Shares ApplicationForms.

2. The completed PINK Reserved Shares Application Form and your remittance with your name andaddress written clearly on the reverse side, must be enclosed and sealed in an envelope to beprovided by you. The sealed envelope must be DESPATCHED BY ORDINARY POST ORDELIVERED BY HAND at your own risk to LIM ASSOCIATES (PTE) LTD, 10 COLLYER QUAY#19-08, OCEAN BUILDING, SINGAPORE 049315, to arrive by 12:00 noon on 28 September2004 or such later date and time as we may, in consultation with the Manager, decide. LocalUrgent Mail or Registered Post must NOT be used. No acknowledgement of receipt will beissued for any application or remittance received. ONLY ONE APPLICATION should be enclosedin each envelope. No receipt or acknowledgement will be issued for any application or remittancereceived.

3. Applications that are illegible or incorrectly completed or accompanied by improperly drawnremittance are liable to be rejected.

ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS

The procedures for Electronic Applications are set out on the ATM screens (in the case on ATMElectronic Applications) and the IB website screens (in the case of Internet Electronic Applications) of therelevant Participating Banks. Currently, DBS Bank and the UOB Group are the only Participating Banksthrough which Internet Electronic Applications can be made. For illustration purposes, the procedures forElectronic Applications through ATMs of DBS Bank and the IB website of DBS Bank are set outrespectively in the “Steps for Electronic Applications through ATMs of DBS Bank” and the “Steps forElectronic Application through the IB website of DBS Bank” (collectively the “Steps”) appearing on pages182 and 188 of this Prospectus. The Steps set out the actions that you must take at an ATM of DBSBank or the IB website of DBS Bank to complete an Electronic Application. Please read carefully theterms of this Prospectus, the Steps and the terms and conditions for Electronic Applications set outbelow before making an Electronic Application. Any reference to “you” in the additional terms andconditions for Electronic Applications and the Steps shall refer to you making an application for OfferShares through an ATM or the IB website of a relevant Participating Bank.

You must have an existing bank account with and be an ATM cardholder of one of the ParticipatingBanks before you can make an Electronic Application at the ATMs. An ATM card issued by oneParticipating Bank cannot be used to apply for Offer Shares at an ATM belonging to other ParticipatingBanks. For an Internet Electronic Application, you must have an existing bank account with and an IBUser Identification (“User ID”) and a Personal Identification Number/Password given by a relevantParticipating Bank. The actions that you must take at ATMs or the IB websites of other ParticipatingBanks are set out on the ATM screens or the IB website screens of the relevant Participating Banks.

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Upon the completion of your Electronic Application transaction, you will receive an ATM transaction slip(“Transaction Record”), confirming the details of your Electronic Application. Upon completion of yourInternet Electronic Application, there will be an on-screen confirmation (“Confirmation Screen”) of theapplication which you can print out for your record. The Transaction Record or your printed record of theConfirmation Screen is for your retention and should not be submitted with any Application Form.

You must ensure that you enter your own Securities Account number when using the ATM cardissued to you in your own name. If you operate a joint bank account with any of the ParticipatingBanks, you must ensure that you enter your own Securities Account number when using the ATMcard issued to you in your own name. Using your own Securities Account number with an ATMcard which is not issued to you in your own name will render your Electronic Application liable tobe rejected.

You must ensure, when making an Internet Electronic Application, that your mailing address is inSingapore and the application is being made in Singapore and you will be asked to declare accordingly.Otherwise, your application is liable to be rejected. You shall make an Electronic Application on the termsand subject to the conditions of this Prospectus including but not limited to the terms and conditionsappearing below and those set out under the section entitled “TERMS, CONDITIONS ANDPROCEDURES FOR APPLICATION” in this Prospectus as well as the Memorandum and Articles ofAssociation of our Company.

1. In connection with your Electronic Application for Offer Shares, you are required to confirmstatements to the following effect in the course of activating your Electronic Application:-

(a) that you have received a copy of this Prospectus and have read, understood andagreed to all the terms and conditions of application for Offer Shares and thisProspectus prior to effecting the Electronic Application and agree to be bound by thesame;

(b) that you consent to the disclosure of your name, NRIC/passport number, address,nationality, permanent resident status, CDP Securities Account number, CPFInvestment account number (if applicable) and share application amount (the“Relevant Particulars”) from your account with that Participating Bank to the ShareRegistrar, SGX-ST, CDP, CPF, SCCS, the Company and the Manager (the “RelevantParties”); and

(c) that this is your only application and it is made in your own name and at your ownrisk.

Your application will not be successfully completed and cannot be recorded as a completedtransaction unless you press the “Enter” or “OK” or “Confirm” or “Yes” or any other relevant key inthe ATM or click “OK” or “submit” or “Continue” or “Yes” or any other relevant key on the Internetscreen. By doing so, you shall be treated as signifying your confirmation of each of the above threestatements. In respect of statement 1(b) above, your confirmation, by pressing the “Enter” or “OK”or “Confirm” or “Yes” in the ATM or click “OK” or “submit” or “Continue” or “Yes” or any otherrelevant key on the Internet screen, shall signify and shall be treated as your written permission,given in accordance with the relevant laws of Singapore including Section 47(4) of the Banking Act(Chapter 19) of Singapore to the disclosure by that Participating Bank of the Relevant Particularsto the Relevant Parties.

BY MAKING AN ELECTRONIC APPLICATION, YOU CONFIRM THAT YOU ARE NOT APPLYINGFOR OFFER SHARES AS NOMINEE OF ANY OTHER PERSON AND THAT ANY ELECTRONICAPPLICATION THAT YOU MAKE IS THE ONLY APPLICATION MADE BY YOU AS BENEFICIALOWNER.

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YOU SHOULD MAKE ONLY ONE ELECTRONIC APPLICATION FOR OFFER SHARES ANDSHOULD NOT MAKE ANY OTHER APPLICATION FOR OFFER SHARES, WHETHER AT THEATM OR THE IB WEBSITES OF ANY PARTICIPATING BANK OR ON THE APPLICATIONFORMS. IF YOU HAVE MADE AN APPLICATION FOR OFFER SHARES OR PLACEMENTSHARES ON AN APPLICATION FORM, YOU SHALL NOT MAKE AN ELECTRONICAPPLICATION FOR OFFER SHARES AND VICE VERSA.

2. You must have sufficient funds in your bank account with your Participating Bank at the time youmake your Electronic Application, failing which your Electronic Application will not be completed.Any Electronic Application which does not conform strictly to the instructions set out onthe screens of the ATM or IB website through which your Electronic Application is beingmade shall be rejected.

3. You irrevocably agree and undertake to subscribe for and to accept the number of Offer Sharesapplied for as stated on the Transaction Record or any lesser number of Offer Shares that may beallotted to you in respect of your Electronic Application. In the event that we decide to allot anylesser number of such Offer Shares or not to allot any Offer Shares to you, you agree to acceptsuch decision as final. If your Electronic Application is successful, your confirmation (by your actionof pressing the “Enter” or “OK” or “Confirm” or “Yes” or any other relevant key on the ATM orclicking “Confirm” or “OK” or any other relevant key on the IB website screen) of the number ofOffer Shares applied for shall signify and shall be treated as your acceptance of the number ofOffer Shares that may be allotted to you and your agreement to be bound by the Memorandumand Articles of Association of our Company.

4. We will not keep any applications in reserve. Where your Electronic Application isunsuccessful, the full amount of the application moneys will be refunded in Singapore currency(without interest or any share of revenue or other benefit arising therefrom) to you by beingautomatically credited to your account with your Participating Bank within 24 hours after balloting.Trading on a “WHEN ISSUED” basis, if applicable, is expected to commence after suchrefund has been made.

Where your Electronic Application is rejected or accepted in part only, the full amount or thebalance of the application moneys, as the case may be, will be refunded in Singapore currency(without interest or any share of revenue or other benefit arising therefrom) to you by beingautomatically credited to your account with your Participating Bank within 14 days after the closeof the Application List.

Responsibility for timely refund of application moneys arising from unsuccessful orpartially successful Electronic Applications lies solely with the respective ParticipatingBanks. Therefore, you are strongly advised to consult your Participating Bank as to thestatus of your Electronic Application and/or the refund of any moneys to you fromunsuccessful or partially successful Electronic Application, to determine the exact numberof Offer Shares allotted to you before trading the Offer Shares on the SGX-ST. Neither theSGX-ST, the CDP, the SCCS, the Participating Banks, ourselves or the Manager assume anyresponsibility for any loss that may be incurred as a result of you having to cover any netsell positions or from buy-in procedures activated by the SGX-ST.

5. If your Electronic Application is made through the ATMs of the Participating Banks and isunsuccessful, no notification will be sent by such Participating Bank.

If your Internet Electronic Application made through the IB website of DBS Bank or the UOBGroup is unsuccessful, no notification will be sent by such Participating Bank.

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If you make Electronic Applications through the ATMs of the following banks or IB websites whereapplicable, you may check the results of your Electronic Applications as follows:-

Available at Service Bank Telephone ATM/Internet Operating Hours expected from

DBS Bank 1800 339 6666 Internet Banking 24 hours a day Evening of the(for POSB Account balloting day Holders)

1800 111 1111 www.dbs.com(2)

(for DBS Bank Account Holders)

UOB Group 1800 222 2121 ATM (Other Transactions ATM / Phone Banking Evening of the – “IPO Enquiry”) – 24 hours a day balloting day

www.uobgroup.com(1)(2) Internet Banking– 24 hours a day

OCBC 1800 363 3333 ATM ATM / Phone Banking Evening of the– 24 hours a day balloting day

Notes:-

(1) If you have made your Electronic Application through the ATM or IB website of UOB Group, you may check theresults of your application through UOB Personal Internet Banking, UOB Group ATMs or UOB PhoneBankingservices.

(2) If you have made your Internet Electronic Application through the IB websites of DBS Bank or UOB Group, you maycheck the results through the same channels listed in the table above in relation to ATM Electronic Applications madeat ATMs of DBS Bank or UOB Group.

6. Electronic Applications shall close at 12.00 noon on 28 September 2004 or such other time aswe may, in consultation with the Manager, decide. Subject to paragraph 8 below, an InternetElectronic Application is deemed to be received only upon its completion, that is, when there is anon-screen confirmation of the application.

7. You are deemed to have requested and authorised us to:-

(a) register the Offer Shares allotted to you in the name of CDP for deposit into your SecuritiesAccount;

(b) send the relevant Share certificate(s) to CDP;

(c) return or refund (without interest or any share of revenue earned or other benefit arisingtherefrom) the application moneys in Singapore currency, should your Electronic Applicationbe rejected, by automatically crediting your bank account with your Participating Bank withthe relevant amount within 24 hours after balloting; and

(d) return or refund (without interest or any share of revenue or other benefit arising therefrom)the balance of the application moneys in Singapore currency, should your ElectronicApplication be accepted in part only, by automatically crediting your bank account with yourParticipating Bank with the relevant amount within 14 days after the close of the ApplicationList.

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8. You irrevocably agree and acknowledge that your Electronic Application is subject to risks ofelectrical, electronic, technical and computer-related faults and breakdowns, fires, acts of God andother events beyond the control of the Participating Banks and if, in any such event, we, theManager and/or the relevant Participating Bank do not receive your Electronic Application, or datarelating to your Electronic Application is lost, corrupted or not otherwise accessible, whether whollyor partially for whatever reason, you shall be deemed not to have made an Electronic Applicationand you shall have no claim whatsoever against us, the Manager and/or the relevant ParticipatingBank for Offer Shares applied for or for any compensation, loss or damage.

9. We do not recognise the existence of a trust. Any Electronic Application by a trustee must bemade in your own name and without qualification. We will reject any application by any personacting as nominee.

10. All your particulars in the records of your Participating Bank at the time you make your ElectronicApplication shall be deemed to be true and correct and your Participating Bank and the RelevantParties shall be entitled to rely on the accuracy thereof. If there has been any change in yourparticulars after making your Electronic Application, you shall promptly notify your ParticipatingBank.

11. You should ensure that your personal particulars as recorded by both CDP and the relevantParticipating Bank are correct and identical, otherwise, your Electronic Application is liableto be rejected. You should promptly inform CDP of any change in address, failing which thenotification letter on successful allotment will be sent to your address last registered with CDP.

12. In consideration of our Company making available the Electronic Application facility through theATMs of the Participating Banks and agreeing to close the Application List at 12.00 noon on 28September 2004 or such other time or date as our Directors may in consultation with theManager, decide, and by making and completing an Electronic Application, you are deemed tohave agreed that:-

(a) your Electronic Application is irrevocable;

(b) your Electronic Application, our acceptance and the contract resulting therefrom under theInvitation shall be governed by and construed in accordance with the laws of Singapore andyou irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;

(c) none of us, the Manager or the Participating Banks shall be liable for any delays, failures orinaccuracies in the recording, storage or in the transmission or delivery of data relating toyour Electronic Application to us or CDP due to breakdowns or failure of transmission,delivery or communication facilities or any risks referred to in paragraph 8 above or to anycause beyond their respective controls;

(d) in respect of Offer Shares for which your Electronic Application has been successfullycompleted and not rejected, acceptance of your Electronic Application shall be constitutedby written notification by or on our behalf and not otherwise, notwithstanding any paymentreceived by or on our behalf;

(e) you will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of your application; and

(f) reliance is placed solely on the information contained in this Prospectus and none of theCompany, the Manager, the Underwriter, the Placement Agent or any other person involvedin the Invitation shall have any liability for any information not so contained.

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Steps for Electronic Applications through ATMs of DBS Bank

Instructions for ATM Electronic Applications will appear on the ATM screens of the Participating Bank. Forillustration purposes, the steps for making an ATM Electronic Application through a DBS Bank or POSBATM are shown below. Certain words appearing on the screen are in abbreviated form (“A/c”, “amt”,“appln”, “&”, “I/C”, “No.” and “Max” refer to “Account”, “amount”, “application”, “and”, “NRIC”, “Number” and“Maximum”, respectively). Instructions for ATM Electronic Applications on the ATM screens ofParticipating Banks (other than DBS Bank (including its POSB)) may differ slightly from thoserepresented below.

Step 1 : Insert your personal DBS Bank or POSB ATM Card

2 : Enter your Personal Identification Number

3 : Select “CASHCARD & MORE SERVICES”

4 : Select “ESA-IPO SHARE/INVESTMENTS”

5 : Select “ELECTRONIC SECURITY APPLN (IPOS/BONDS/ST-NOTES)” to “JILONG”

6 : Read and understand the following statements which will appear on the screen:-

l THE OFFER OF SECURITIES (OR UNITS OF SECURITIES) WILL BE MADE IN, ORACCOMPANIED BY, A COPY OF THE PROSPECTUS/DOCUMENT OR PROFILESTATEMENT (AND IF APPLICABLE, A COPY OF THE REPLACEMENT ORSUPPLEMENTARY PROSPECTUS/DOCUMENT OR PROFILE STATEMENT) WHICHCAN BE OBTAINED FROM ANY DBS/POSB BRANCH IN SINGAPORE AND, WHEREAPPLICABLE, THE VARIOUS PARTICIPATING BANKS DURING BANKING HOURS,SUBJECT TO AVAILABILITY.

� ANYONE WISHING TO ACQUIRE THESE SECURITIES (OR UNITS OFSECURITIES) SHOULD READ THE PROSPECTUS/DOCUMENT OR PROFILESTATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE) BEFORESUBMITTING HIS APPLICATION WHICH WILL NEED TO BE MADE IN THEMANNER SET OUT IN THE PROSPECTUS/DOCUMENT OR PROFILESTATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE). A COPYOF THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT AND IFAPPLICABLE, A COPY OF THE REPLACEMENT OR SUPPLEMENTARYPROSPECTUS/DOCUMENT OR PROFILE STATEMENT HAS BEEN LODGEDWITH AND REGISTERED BY THE MONETARY AUTHORITY OF SINGAPOREWHO ASSUMES NO RESPONSIBILITY FOR ITS OR THEIR CONTENTS.

� Press the “ENTER” key to confirm that you have read and understood.

7 : Press the “ENTER” key to acknowledge:-

� You have read, understood and agreed to all terms of the application andProspectus/Document or Profile Statement, and if applicable, theReplacement or Supplementary Prospectus/Document or Profile Statement.

� You consent to disclose your name, NRIC/Passport No., address, nationality,CDP Securities A/c No., CPF Investment A/c No., and securities applicationamount from your Bank A/c(s) to share registrars, SGX-ST securityapplication, SCCS, CDP, CPF and the issuer/vendor(s).

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� For FIXED and MAX price security application, this is your only applicationand it is made in your own name and at your own risk.

� The maximum price for each share is payable in full on application andsubject to refund if the final price is lower.

� For TENDER security applications, this is your only application at theselected tender price and it is made in your own name and at your own risk.

� You are not a US Person as referred to in the Prospectus/Document or ProfileStatement and if applicable, the Replacement or SupplementaryProspectus/Document or Profile Statement.

8 : Select your nationality.

9 : Select the DBS Bank account (Autosave/Current/Savings/Savings Plus) or the POSBaccount (current/savings) from which to debit your application moneys.

10 : Enter the number of securities you wish to apply for using cash.

11 : Enter your own 12-digit CDP Securities Account number. (Note: This step will be omittedautomatically if your CDP Securities Account number has already been stored in DBSBank’s records).

12 : Check the details of your securities application, your NRIC or passport number and CDPSecurities Account number and number of securities on the screen and press the“ENTER” key to confirm application.

13 : Remove the Transaction Record for your reference and retention only.

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Steps for Electronic Applications through the IB website of DBS Bank

For illustrative purposes, the steps for making an Internet Electronic Application through the DBS BankIB website are shown below. Certain words appearing on the screen are in abbreviated form (“A/c”,“amt”, “&”, “I/C” and “No.” refer to “Account”, “Amount”, “and”, “NRIC” and “Number” respectively).

Step 1 : Click on to DBS Bank website (www.dbs.com).

2 : Login to Internet Banking.

3 : Enter your User ID and PIN.

4 : Select “Electronic Security Application (ESA)”.

5 : Click “Yes” to proceed and to warrant that you have observed and complied with allapplicable laws and regulations.

6 : Select your country of residence.

7 : Click on “JILONG” and click the “Submit” key.

8 : Click “Confirm” to confirm:-

(a) You have read, understood & agreed to all terms of application and theProspectus/Document or Profile Statement and if applicable, the Supplementary orReplacement Prospectus/Document or Profile Statement;

(b) You consent to disclose your name, I/C or Passport No., address, nationality, CDPSecurities A/C No., CPF Investment A/C No. (if applicable) and securitiesapplication amount from your DBS/POSB Account(s) to registrars of securities,SGX-ST, SCCS, CDP, CPF Board and issuer/vendor(s);

(c) You are not a US Person (as such term is defined in Regulation S under the UnitedStates Securities Act of 1933, as amended);

(d) This application is made in your name and at your own risk; and

(e) For FIXED/MAX price securities application, this is your only application. ForTENDER price securities application, this is your only application at the selectedtender price.

9 : Fill in details for share application and click “Submit”.

10 : Check the details of your securities application, your NRIC or passport number and click“OK” to confirm your application.

11 : Print Confirmation Screen (optional) for your reference & retention only.

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APPENDIX 2 : DESCRIPTION OF SINGAPORE COMPANY LAW RELATING TO SHARES

The following statements are brief summaries of our capital structure and of the more important rightsand privileges of our ordinary shareholders as conferred by the laws of Singapore and our Articles ofAssociation (the “Articles”). These statements summarise the material provisions of our Articles but arequalified in their entirety.

Ordinary Shares

There are no founder, management, deferred or unissued shares reserved for issue for any purpose. Therights and privileges of these shares are stated in our Articles.

Our authorised capital is $50,000,000, consisting of 2,000,000,000 ordinary shares of par value $0.025each. We have only one class of shares, namely, our ordinary shares. Our Articles provide that we mayissue shares of a different class with preferential, deferred, qualified or special rights, privileges orconditions as our Board of Directors may think fit and may issue preferential shares which are, or at ouroption are, redeemable, subject to certain limitations. Our Board of Directors may issue shares at apremium. If shares are issued at a premium, a sum equal to the aggregate amount or value of thepremium will, subject to certain exceptions, be transferred to a share premium account.

As at the date of this Prospectus, ordinary shares have been issued and fully paid. All of the ordinaryshares are in registered form. We may, subject to the provisions of the Act and the rules of the SGX-ST,purchase our own ordinary shares. However, we may not, except in circumstances permitted by theCompanies Act, grant any financial assistance for the acquisition or proposed acquisition of our ownordinary shares.

New Ordinary Shares

New ordinary shares may only be issued with the prior approval of our shareholders in a generalmeeting. The aggregate number of shares to be issued pursuant to such approval may not exceed 50 percent. (or such other limit as may be prescribed by the SGX-ST from time to time) of our issued sharecapital for the time being, of which the aggregate number of shares to be issued other that on a proratabasis to our shareholders may not exceed 20 per cent. (or such other limit as may be prescribed by theSGX-ST from time to time) of our issued share capital for the time being. The approval, if granted, willlapse at the conclusion of our annual general meeting following the date on which the approval wasgranted. Subject to the foregoing, the provisions of the Companies Act and any special rights attached toany class of shares currently issued, all new ordinary shares are under the control of our Board ofDirectors who may allot and issue the same with such rights and restrictions as they may think fit.

Shareholders

Only persons who are registered on our register of shareholders and, in cases in which the person soregistered is CDP, the persons named as the Depositors in the Depository Register maintained by theCDP for the ordinary shares, are recognised as our shareholders. We will not, except as required by law,recognise any equitable, contingent, future or partial interests in any ordinary share or other rights forany ordinary share or of the person whose name is entered in the Depository Register for that ordinaryshare. We may close our register of shareholders for any time or times if we provide the Accounting andCorporate Regulatory Authority with at least 14 days’ notice and the SGX-ST at least 10 clear MarketDays’ notice. However, the register may not be closed for more than 30 days in aggregate in anycalendar year. We typically close the register to determine our Shareholders’ entitlement to receivedividend and other distributions.

Transfer of Ordinary Shares

There is no restriction on the transfer of fully paid issued shares except where required by law of thelisting rules or bye-laws of SGX-ST. Our Board of Directors may decline to accept to register any transferor ordinary shares which are not fully paid shares or ordinary shares on which we have a lien. Ordinaryshares may be transferred by a duly signed instrument of transfer in a form approved by any stockexchange on which our Company is listed. Our Board of Directors may also exercise their discretion to

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decline to register any instrument of transfer unless, among other things, it has been duly stamped and ispresented for registration together with the share certificate and such other evidence of title as they mayrequire. We will replace lost or destroyed certificates of ordinary shares if we are properly notified and theapplicant pays a fee which will not exceed $2 and furnishes any evidence and indemnity that our Boardof Directors may require.

General Meetings of Shareholders

We are required to hold an annual general meeting every year. Our Board of Directors may convene anextraordinary general meeting whenever it thinks fit and must do so if our Shareholders representing notless than 10.0 per cent. of the total voting rights of all our Shareholders request in writing that such ameeting be held. In addition, two or more of our Shareholders holding not less than 10.0 per cent. of ourissued share capital may call for an extraordinary general meeting. Unless otherwise required by law orby our Articles, voting at general meetings is by ordinary resolution, requiring an affirmative vote for asimple majority of the votes cast at that meeting. An ordinary resolution suffices, for example, for theappointment of the directors. A special resolution, requiring the affirmative vote of at least 75.0 per cent.of the votes cast at that meeting, is necessary for certain matters under Singapore law, includingvoluntary winding up, amendments to our Memorandum of Association and our Articles, a change of ourcorporate name and a reduction in our share capital, share premium account or capital redemptionreserve fund. We must give at least 21 days’ notice in writing for every general meeting convened for thepurpose of passing a special resolution. Ordinary resolutions generally require 14 days’ notice in writing.The notice must be given to each of our Shareholders who have supplied us with an address inSingapore for the giving of notices and must set forth the place, the day and the hour of the meeting and,in the case of special business, the general nature of that business.

Voting rights

A holder of our ordinary shares is entitled to attend, speak and vote at any general meeting, in person orby proxy. Proxies need not be a Shareholder. A person who holds ordinary shares through the SGX-STbook-entry settlement system will only be entitled to vote at a general meeting as a shareholder if hisname appears on the Depository Register maintained by the CDP 48 hours before the general meeting.Except as otherwise provided in our Articles, two or more Shareholders must be present in person or byproxy to constitute a quorum at any general meeting. Under our Articles, on a show of hands, everyShareholder present in person and by proxy shall have one vote (provided that in the case of aShareholder who is represented by two proxies, only one of the two proxies as determined by thatShareholder or, failing such determination, by the Chairman of the meeting in his sole discretion shall beentitled to vote on a show of hands), and on a poll, every Shareholder present in person or by proxy shallhave one vote for each ordinary share which he holds or represents. A poll may be demanded in certaincircumstances including by the Chairman of the meeting or by any Shareholder present in person or byproxy and presenting not less than 10.0 per cent. of the total voting rights of all Shareholders having theright to attend and vote at the meeting or by any two Shareholders present in person or by proxy andentitled to vote. In the case of a tie vote, whether on a show of hands or a poll, the Chairman of themeeting shall be entitled to a casting vote.

Dividend

We may, by ordinary resolution of our Shareholders, declare dividends at a general meeting, but we maynot pay dividends in excess of the amount recommended by our Board of Directors. We must pay alldividends out of our profits; however, we may capitalise our share premium account and apply it to paydividends, if such dividends are satisfied by the issue of shares to our Shareholders. See “Bonus andRights Issue” below. All dividends are paid prorata amongst our Shareholders in proportion to the amountpaid-up on each Shareholder’s ordinary shares, unless the rights attaching to an issue of any ordinaryshare provide otherwise. Unless otherwise directed, dividends are paid by cheque or warrant sentthrough the post to each Shareholder at his registered address. Notwithstanding the foregoing, thepayment by us to CDP of any dividend payable to a Shareholder whose name is entered in theDepository Register shall, to the extent of payment made to CDP, discharge us from any liability to thatShareholder in respect of that payment.

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Bonus and Rights Issue

Our Board of Directors may, with the approval of our Shareholders at a general meeting, capitalise anyreserves or profits (including profits or monies carried and standing to any reserve or to the sharepremium account) and distribute the same as bonus shares credited as paid-up to our Shareholders inthe proportion to their shareholdings. Our Board of Directors may also issue rights to take up additionalordinary shares to other Shareholders in proportion to their shareholdings. Such rights are subject to anyconditions attached to such issue and the regulations of any stock exchange on which we are listed.

Takeovers

The Securities and Futures Act and the Singapore Code on Take-overs and Mergers (“SingaporeTakeover Code”) regulate the acquisition of ordinary shares of public companies and contain certainprovisions that may delay, deter or prevent a future takeover or change in control of our Company. Anyperson acquiring an interest, either on his own or together with parties acting in concert with him, in 30.0per cent. or more of our voting shares must extend a takeover offer for the remaining voting shares inaccordance with the provisions of the Singapore Take-over Code. “Parties acting in concert” includes andis not limited to a company and its directors (including their relatives), a company and its pension funds,a person and any investment company, unit trust or other client in respect of shares held by the financialadvisor on a discretionary basis. An offer for consideration other than cash must be accompanied by acash alternative at not less than the highest price paid by the offeror or the parties acting in concert withthe offeror within the preceding 6 months. A mandatory takeover offer is also required to be made if aperson holding, either on his own or together with parties acting in concert with him, between 30.0 percent. and 50.0 per cent. of the voting shares acquires additional voting shares representing more than1.0 per cent. of the voting shares in any 6-month period.

Liquidation or Other Return of Capital

If we liquidate or in the event of any other return of capital, holders of our ordinary shares will be entitledto participate in any surplus assets in proportion to their shareholdings, subject to any special rightsattaching to any other class of shares.

Indemnity

As permitted by Singapore law, our Articles provide that, subject to the Companies Act, our Board ofDirectors and officers shall be entitled to be indemnified by us against any liability incurred in defendingany proceedings, whether civil or criminal, which relate to anything done or omitted to have been done asan officer, director or employee and in which judgement is given in their favour or in which they areacquitted or in connection with any application under any statute for relief from liability in respect thereofin which relief is granted by the court. We may not indemnify our Directors and officers against anyliability which by law would otherwise attach to them in respect of any negligence, default, breach of dutyor breach of trust of which they may be guilty in relation to us.

Limitations on Rights to Hold or Vote Shares

Except as described in “Voting Rights” and “Takeovers” above, there are no limitations imposed bySingapore law or by our Articles on the rights of non-resident Shareholders to hold or vote ordinaryshares.

Minority Rights

The rights of minority shareholders of Singapore incorporated companies are protected under Section216 of the Companies Act, which gives the Singapore courts a general power to make any order, uponapplication by any of our Shareholders, as they think fit to remedy any of the following situations:-

� our affairs are being conducted or the powers of our Board of Directors are being exercised in amanner oppressive to, or in disregard of the interests of, one or more of the Shareholders; or

� we take an action, or threaten to take an action, or our Shareholders pass a resolution, or proposeto pass a resolution, which unfairly discriminates against, or is otherwise prejudicial to one or moreof our Shareholders, including the applicant.

Singapore courts have a wide discretion as to the reliefs they may grant and those reliefs are in no waylimited to those listed in the Act itself. Without prejudice to the foregoing, Singapore courts may:-

� direct, or prohibit any act or cancel or vary any transaction or resolution; regulate the conduct ofour affairs in future;

� authorise civil proceedings to be brought in our name, or on our behalf, by a person or personsand on such terms as the court may direct;

� provide for the purchase of a minority Shareholder’s shares by our other Shareholders or by usand, in the case of a purchase of shares by us, a corresponding reduction of our share capital;

� in the case of a purchase of shares by the company, provide for a reduction accordingly of thecompany’s capital; or

� provide that we be wound up.

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APPENDIX 3 : SINGAPORE TAXATION

The discussion below is not intended to constitute a complete analysis of all tax consequences relatingto ownership of our Shares. Prospective investors should consult their tax advisors concerning the taxconsequences of their particular situations. This description is based on laws, regulations andinterpretations now in effect and available as at the Latest Practicable Date. The laws, regulations andinterpretations, however, may change at any time, and any change could be retroactive to the date ofissuance of our Shares. These laws and regulations are also subject to various interpretations and therelevant tax authorities or the courts could later disagree with the explanations or conclusions set outbelow. It is emphasised that neither our Company, our Directors nor any other persons involved in thisInvitation accepts responsibility for any tax effects or liabilities resulting from the subscription for,purchase, holding or disposal of our Shares.

INCOME TAX

General

Singapore resident taxpayers are subject to Singapore income tax on income accruing in or derived fromSingapore and, subject to certain exceptions, on foreign income received or deemed received inSingapore.

In 2003, the Minister of Finance introduced the foreign-sourced income exemption regime, by which taxexemption will be granted to all foreign income in the form of dividends, branch profits and servicesincome received or deemed received in Singapore on or after 1 June 2003. In the case of dividends, theexemption only applies if the following conditions are met:-

� the dividend is subject to tax of a similar character to income tax under the law of the jurisdictionfrom which the dividend is received;

� at the time the income is received in Singapore by the person resident in Singapore, the highestrate of tax in the jurisdiction from which the income is received is not less than 15.0%; and

� The Comptroller of Income Tax is satisfied that the exemption would be beneficial to the personresident in Singapore.

However, it is uncertain whether the above-mentioned conditions will continue to apply in the wake of the2004 Budget Statement announced on 27 February 2004, which proposed that with effect from the yearof assessment 2005 (that is, financial year ending in 2004):-

� all foreign-sourced income received in Singapore by individuals (other than income receivedthrough a partnership in Singapore) will be exempted from tax; and

� all Singapore-sourced investment income derived directly by individuals from financial instrumentsother than standard deposits (and provided such income is not derived through a partnership inSingapore and not considered as gains or profits from any trade, business or profession) will beexempted from tax.

A company is regarded as resident for Singapore tax purposes if the control and management of itsbusiness is exercised in Singapore (for example, if the board of directors meets and conducts thecompany’s business in Singapore). An individual is regarded as resident in Singapore for tax purposes ina year of assessment if, in the preceding year, he was physically present in Singapore or exercised anemployment in Singapore (other than as a director of a company) for 183 days or more in a calendaryear, or if he resides in Singapore.

Non-resident corporate taxpayers are subject to Singapore income tax on income accruing in or derivedfrom Singapore, and on foreign income received or deemed received in Singapore, subject to certainexceptions. Non-resident individuals, subject to certain exceptions, are subject to Singapore income taxonly on the income accruing in or derived from Singapore.

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The corporate tax rate in Singapore is 22.0% for the year of assessment 2004 (that is, financial yearending in 2003). In addition, 75.0% of up to the first $10,000 of a company’s chargeable income and50.0% of up to the next $90,000 of a company’s chargeable income is exempt from corporate tax. Theremaining chargeable income (after the partial tax exemption) is taxed at 22.0%. The partial taxexemption is not applicable to Singapore dividends received by companies. In the 2004 BudgetStatement announced on 27 February 2004, the Minister of Finance proposed to reduce the corporatetax rate to 20% with effect from the year of assessment 2005 (that is, financial year ending in 2004).

For resident individuals, the applicable rate of tax varies according to the individual’s circumstances but issubject to a current maximum rate of 22.0%. In the 2004 Budget Statement announced on 27 February2004, the Minister of Finance reaffirmed the Government’s intention to reduce the individual tax rate to20.0% but indicated that the proposed reduction will be deferred until such time as economic conditionspermit.

Subject to any applicable tax treaty, non-resident taxpayers are subject to withholding tax at theSingapore corporate tax rate on certain types of income deemed derived from Singapore. In the case ofinterest, royalties and rentals of moveable equipment, this is generally 15.0%.

Dividend Distributions

Prior to 1 January 2003, Singapore adopted the full imputation corporate taxation system. Under thissystem, the tax paid by a company at the prevailing corporate tax rate is in effect imputed to, anddeemed to be paid on behalf of its shareholders. Shareholders will receive dividends net of such tax(also known as ‘franked dividends’) and they will be taxed on the gross amount of dividends (that is thecash amount plus a tax credit which represents corporate tax previously paid by the company). The taxpaid by the company is available to its shareholders as a tax credit to offset their Singapore income taxliability on the gross amount of dividends received from the company and against their other Singaporetax liabilities. Any excess tax credit over the tax liability will be refundable.

With effect from 1 January 2003, Singapore introduced the one-tier corporate taxation system. Under thissystem, the tax assessed on a company on its normal chargeable income is a final tax and dividendspaid by a Singapore resident company are tax-exempt in the hands of the shareholders. There will be notax credits attached to such dividends (known as exempt (1-tier) dividends).

To enable resident companies with unutilised franking credits as at 31 December 2002 to utilise suchcredits to pay franked dividends to their shareholders, a 5-year transition period expiring on 31 December2007 was introduced. During this transitional period, companies with unutilised Section 44 creditbalances (comprising corporate tax previously paid which had not been used to frank dividends) mayremain under the imputation system for the purpose of paying franked dividends. Shareholders whoreceive such franked dividends continue to be taxed on the gross dividends and continue to be eligible toclaim a tax credit against tax liability.

Companies, however, have the irrevocable option to move on to the one-tier system at an earlier datebefore their Section 44 credit balances are exhausted. On 1 January 2008, all resident companies willautomatically come under the ambit of the one-tier system.

There is no withholding tax on dividends paid to non-Singapore resident shareholders. Foreignshareholders are however advised to consult their own tax advisors to take into account the tax laws oftheir respective countries of residence and the existence of any double taxation agreement which theircountry of residence may have with Singapore.

CAPITAL GAINS TAX

Singapore currently does not impose tax on capital gains. However, there are no specific laws orregulations which deal with the characterization of capital gains, hence, gains may be construed to be ofan income nature and subject to tax especially if they arise from activities which the Inland RevenueAuthority of Singapore (“IRAS”) regards as the carrying on of a trade in Singapore.


Any profits from the disposal of shares if regarded as capital gains are not taxable in Singapore unlessthe taxpayer is regarded by IRAS as having derived these gains from the carrying on of a trade, in whichcase, the gains from disposal of shares would be regarded to be of an income nature and thus subject toSingapore income tax.

STAMP DUTY

There is no stamp duty on the allotment or holding of shares. Where existing shares registered inSingapore are transferred however, stamp duty is payable on the instrument of transfer at the rate of$2.00 for every $1,000 or every part thereof of the market value of the shares or the consideration paid,whichever is higher. The purchaser is liable for stamp duty unless otherwise agreed. No stamp duty ispayable if no instrument of transfer is executed or the instrument of transfer is executed outsideSingapore. However, stamp duty may be payable if the instrument of transfer which is executed outsideSingapore is received in Singapore. Stamp duty is, however, not applicable to electronic transfers ofshares through the CDP.

ESTATE DUTY

Singapore estate duty is imposed on the value of immovable property situated in Singapore owned byindividuals who are not domiciled in Singapore. Movable assets of non-domiciles are exempted fromestate duty. Singapore estate duty is imposed on the value of immovable property situated in Singapore(subject to specific exemption limits) and on certain movable property, wherever it may be, owned byindividuals who are domiciled in Singapore.

Our Shares are considered to be movable property situated in Singapore as our Company isincorporated in Singapore and our share register is maintained in Singapore. Accordingly, our Sharesheld by an individual domiciled in Singapore are subject to Singapore estate duty upon such anindividual’s death.

Singapore estate duty is payable to the extent that the value of the shares aggregated with any otherassets subject to Singapore estate duty, exceeds $600,000. Any excess beyond $600,000 will be taxed at5.0% on the first $12,000,000 of the individual’s Singapore dutiable assets and thereafter at 10.0%.Certain assets although dutiable, are not included in this aggregation. For example, dwelling houses areassessed separately and subject to a different exemption limit.

Individuals should consult their tax advisors regarding the estate duty consequences of their ownershipof our Shares.

GOODS AND SERVICES TAX (“GST”)

The sale of shares by an investor belonging in Singapore (regardless of whether it is registered for GSTpurposes), whether through an SGX-ST member or to another person belonging in Singapore is anexempt sale not subject to GST. Any GST that is directly or indirectly incurred by the investor in respectof this exempt sale will not be refundable and will become an additional cost to the investor.

Where a GST-registered investor sells share through an overseas exchange or to a person belongingoutside Singapore, the sale is generally a taxable sale subject to GST at 0%. Any GST incurred by aGST-registered investor in the making of this taxable supply, which is zero-rated, in the course orfurtherance of a business is claimable as a refund from the Comptroller of GST.

Services such as brokerage, handling and clearing services rendered by a GST-registered person to aSingapore investor belonging in Singapore in connection with the investor’s purchase, sale or holding ofthe shares will be subject to GST at the rate of 5.0% with effect from 1 January 2004. Similar servicesrendered to an investor belonging outside Singapore would generally be subject to GST at 0%. This isbased on the assumption that the investor is physically outside Singapore at the time the services areperformed.

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1. PRC legal system

The PRC legal system is based on the PRC Constitution and is made up of written laws,regulations and directives. Decided court cases do not constitute binding precedents.

The National People’s Congress of the PRC (“NPC”) and the Standing Committee of the NPC areempowered by the PRC Constitution to exercise the legislative power of the state. The NPC hasthe power to amend the PRC Constitution and to enact and amend primary laws governing thestate organs, civil and criminal matters. The Standing Committee of the NPC is empowered tointerpret, enact and amend laws other than those required to be enacted by the NPC.

The State Council of the PRC is the highest organ of state administration and has the power toenact administrative rules and regulations. Ministries and commissions under the State Council ofthe PRC are also vested with the power to issue orders, directives and regulations within thejurisdiction of their respective departments. Administrative rules, regulations, directives and orderspromulgated by the State Council and its ministries and commissions must not be in conflict withthe PRC Constitution or the national laws and, in the event that any conflict arises, the StandingCommittee of the NPC has the power to annul such administrative rules, regulations, directivesand orders.

At the regional level, the people’s congresses of provinces, autonomous regions, andmunicipalities and their standing committees may enact local rules and regulations and thepeople’s government may promulgate administrative rules and directives applicable to their ownadministrative area. These local laws and regulations may not be in conflict with the PRCConstitution, any national laws or any administrative rules and regulations promulgated by theState Council.

Rules, regulations or directives may be enacted or issued at the provincial or municipal level or bythe State Council of the PRC or its ministries and commissions in the first instance forexperimental purposes. After sufficient experience has been gained, the State Council may submitlegislative proposals to be considered by the NPC or the Standing Committee of the NPC forenactment at the national level.

The power to interpret laws is vested by the PRC Constitution in the Standing Committee of theNPC. According to the Decision of the Standing Committee of the NPC Regarding theStrengthening of Interpretation of Laws ( )passed on 10th June, 1981, the Supreme People’s Court has the power to give generalinterpretation on application of laws in judicial proceedings apart from its power to issue specificinterpretation in specific cases. The State Council and its ministries and commissions are alsovested with the power to give interpretation of the rules and regulations which they promulgated.At the regional level, the power to give interpretation of regional laws is vested in the regionallegislative and administration organs which promulgate such laws. All such interpretations carrylegal effect.

2. Judicial system

The People’s Courts are the judicial organs of the PRC. Under the PRC Constitution( ) and the Law of Organisation of the People’s Courts of the People’s Republicof China ( ), the People’s Courts comprise the Supreme People’sCourt, the local people’s courts, military courts and other special people’s courts. The localpeople’s courts are divided into three levels, namely, the basic people’s courts, intermediatepeople’s courts and higher people’s courts. The basic people’s courts are divided into civil,criminal, administrative and economic divisions. The intermediate people’s courts have divisionssimilar to those of the basic people’s courts and, where the circumstances so warrant, may haveother special divisions (such as intellectual property divisions). The judicial functions of people’scourts at lower levels are subject to supervision of people’s courts at higher levels. The people’sprocuratorates also have the right to exercise legal supervision over the proceedings of people’scourts of the same and lower levels. The Supreme People’s Court is the highest judicial organ ofthe PRC. It supervises the administration of justice by the people’s courts of all levels.

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APPENDIX 4 : SUMMARY OF RELEVANT PRC LAWS AND REGULATIONS


The people’s courts adopt a two-tier final appeal system. A party may before the taking effect of ajudgment or order appeal against the judgment or order of the first instance of a local people’scourt to the people’s court at the next higher level. Judgments or orders of the second instance ofthe same level and at the next higher level are final and binding. Judgments or orders of the firstinstance of the Supreme People’s Court are also final and binding. If, however, the SupremePeople’s Court or a people’s court at a higher level finds an error in a final and binding judgmentwhich has taken effect in any people’s court at a lower level, or the presiding judge of a people’scourt finds an error in a final and binding judgment which has taken effect in the court over whichhe presides, a retrial of the case may be conducted according to the judicial supervisionprocedures.

The PRC civil procedures are governed by the Civil Procedure Law of the People’s Republic ofChina ( ) (the “Civil Procedure Law”) adopted on 9th April, 1991. TheCivil Procedure Law contains regulations on the institution of a civil action, the jurisdiction of thepeople’s courts, the procedures in conducting a civil action, trial procedures and procedures for theenforcement of a civil judgment or order. All parties to a civil action conducted within the territoryof the PRC must comply with the Civil Procedure Law. A civil case is generally heard by a courtlocated in the defendant’s place of domicile. The jurisdiction may also be selected by expressagreement by the parties to a contract provided that the jurisdiction of the people’s court selectedhas some actual connection with the dispute, that is to say, the plaintiff or the defendant is locatedor domiciled, or the contract was executed or implemented in the jurisdiction selected, or thesubject-matter of the proceedings is located in the jurisdiction selected. A foreign national orforeign enterprise is accorded the same litigation rights and obligations as a citizen or legal personof the PRC. If any party to a civil action refuses to comply with a judgment or order made by apeople’s court or an award made by an arbitration body in the PRC, the aggrieved party may applyto the people’s court to enforce the judgment, order or award. There are time limits on the right toapply for such enforcement. Where at least one of the parties to the dispute is an individual, thetime limit is one year. If both parties to the dispute are legal persons or other entities, the time limitis six months.

A party seeking to enforce a judgment or order of a people’s court against a party who or whoseproperty is not within the PRC may apply to a foreign court with jurisdiction over the case forrecognition and enforcement of such judgment or order. A foreign judgment or ruling may also berecognised and enforced according to PRC enforcement procedures by the people’s courts inaccordance with the principle of reciprocity or if there exists an international or bilateral treaty withor acceded to by the foreign country that provides for such recognition and enforcement, unlessthe people’s court considers that the recognition or enforcement of the judgment or ruling willviolate fundamental legal principles of the PRC or its sovereignty, security or social or publicinterest.

3. Arbitration and enforcement of arbitral awards

The Arbitration Law of the PRC ( )(the “Arbitration Law”) was promulgated bythe Standing Committee of the NPC on 31st August, 1994 and came into effect on 1st September,1995. It is applicable to, among other matters, trade disputes involving foreign parties where theparties have entered into a written agreement to refer the matter to arbitration before an arbitrationcommittee constituted in accordance with the Arbitration Law. Under the Arbitration Law, anarbitration committee may, before the promulgation by the PRC Arbitration Association ofarbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Lawand the PRC Civil Procedure Law. Where the parties have by an agreement provided arbitrationas a method for dispute resolution, the parties are not permitted to institute legal proceedings in apeople’s court.

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Under the Arbitration Law, an arbitral award is final and binding on the parties and if a party fails tocomply with an award, the other party to the award may apply to the people’s court forenforcement. A people’s court may refuse to enforce an arbitral award made by an arbitrationcommittee if there were mistakes, an absence of material evidence or irregularities over thearbitration proceedings, or the jurisdiction or constitution of the arbitration committee.

A party seeking to enforce an arbitral award of a foreign affairs arbitration body of the PRC againsta party who or whose property is not within the PRC may apply to a foreign court with jurisdictionover the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body maybe recognised and enforced by the PRC courts in accordance with the principles of reciprocity orany international treaty concluded or acceded to by the PRC.

In respect of contractual and non-contractual commercial-law-related disputes which arerecognised as such for the purposes of PRC law, the PRC has acceded to the Convention on theRecognition and Enforcement of Foreign Arbitral Award (“New York Convention”) adopted on 10thJune, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on 2ndDecember, 1986. The New York Convention provides that all arbitral awards made by a statewhich is a party to the New York Convention shall be recognised and enforced by other parties tothe New York Convention subject to their right to refuse enforcement under certain circumstancesincluding where the enforcement of the arbitral award is against the public policy of the state towhich the application for enforcement is made. It was declared by the Standing Committee of theNPC at the time of the accession of the PRC that (1) the PRC would only recognise and enforceforeign arbitral awards on the principle of reciprocity and (2) the PRC would only apply the NewYork Convention in disputes considered under PRC laws to be arising from contractual and non-contractual mercantile legal relations.

4. Foreign exchange control

Major reforms have been introduced on the foreign exchange control system of the PRC since1993.

The People’s Bank of China, with the authorisation of the State Council, issued on 28th December,1993 the Notice on the Further Reform of the Foreign Exchange Control System( ) and on26th March, 1994 the Provisional Regulations on the Settlement, Sale and Payment of ForeignExchange ( ) which came into effect on 1st April, 1994 respectively.On 29th January, 1996, the State Council promulgated the PRC Foreign Exchange AdministrationRegulations ( ) which took effect on 1st April, 1996. On 20th June,1996, the PBOC issued the Administration Regulations on the Settlement, Sale and Payment ofForeign Exchange ( ), which took effect on 1st July, 1996. On 25thOctober, 1998, the People’s Bank of China and the State Administration for Foreign Exchangeissued a Joint Announcement on Abolishment of Foreign Exchange Swap Business which statedthat from 1st December, 1998, all foreign exchange transactions for FIEs may only be conductedthrough authorised banks.

These regulations contain detailed provisions regulating the holding, sale and purchase of foreignexchange by individuals, enterprises, economic bodies and social organisations in the PRC.

Under the new regulations, the previous dual exchange rate system for Renminbi was abolishedand a unified floating exchange rate system based largely on supply and demand was introduced.The People’s Bank of China, having regard to the trading prices between Renminbi and majorforeign currencies on the inter-bank foreign exchange market, publishes on each bank businessday the Renminbi exchange rates against major foreign currencies.

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In general, all organisations and individuals within the PRC, including foreign investmententerprises, are required to remit their foreign exchange earnings to the PRC. In relation to PRCenterprises, their recurrent foreign exchange earnings are generally required to be sold todesignated banks unless specifically approved otherwise. Foreign investment enterprises(including sino-foreign equity joint ventures, sino-foreign co-operative joint ventures and whollyforeign owned enterprises), on the other hand, are permitted to retain certain percentage of theirrecurrent foreign exchange earnings and the sums retained may be deposited into foreignexchange bank accounts maintained with designated banks. Capital foreign exchange earningsmust be deposited into foreign exchange bank accounts maintained with designated banks andcan generally be retained in such accounts.

At present, control on the purchase of foreign exchange is being relaxed. Enterprises whichrequire foreign exchange for their current activities such as trading activities and payment of staffremuneration may purchase foreign exchange from designated banks, subject to the production ofrelevant supporting documents without the need for any prior approvals of the State Administrationof Foreign Exchange.

In addition, where an enterprise requires any foreign exchange for the payment of dividends thatare payable in foreign currencies under applicable regulations, such as the distribution of profits bya foreign investment enterprise to its foreign investment party, then, subject to the due payment oftax on such dividends the amount required may be withdrawn from funds in foreign exchangeaccounts maintained with designated banks, and where the amount of the funds in foreignexchange is insufficient, the enterprise may purchase additional foreign exchange from designatedbanks upon the presentation of the resolutions of the board of directors on the profit distributionplan of that enterprise.

Despite the relaxation of foreign exchange control over current account transaction, the approval ofthe foreign exchange administration authority is still required before a PRC enterprise may borrowa loan in foreign currency or provide any foreign exchange guarantee or make any investmentoutside of the PRC or to enter into any other capital account transaction involving the purchase offoreign exchange.

When conducting actual foreign exchange transactions, the designated banks may, based on theexchange rate published by the People’s Bank of China and subject to certain limits, freelydetermine the applicable exchange rate.

The China Foreign Exchange Trading Centre (“CFETC”) was formally established and came intooperation on 1st January, 1994. CFETC has set up a computerised network with sub-centres inseveral major cities, thereby forming an interbank market in which designated PRC banks cantrade in foreign exchange and settle their foreign currency obligations. Prior to 1st December,1998, enterprises with foreign investment may at their own choice enter into exchange transactionsthrough Swap Centre or through designated PRC banks. From 1st December, 1998 onwards,exchange transactions will have to be conducted through designated banks. Swap Centresbecame restricted to conducting foreign exchange transactions between authorised banks andinter-bank lending between PRC banks.

5. Taxation

The applicable income tax laws, regulations, notices and decisions (collectively referred to as“Applicable Foreign Enterprises Tax Law”) related to foreign investment enterprises and theirinvestors include the follows:

(1) Income Tax Law of the PRC on Foreign Investment Enterprises and Foreign Enterprises( ) adopted by the NPC on 9th April, 1991

(2) Implementing Rules of the Income Tax Law of the PRC on Foreign Investment Enterprisesand Foreign Enterprises ( )promulgated by the State Council, which came into effect on 1st July, 1991

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(3) Notice Relating to taxes Applicable to Foreign Investment Enterprises / Foreign Enterprisesand Foreign Nationals in Relation to Dividends and Gains obtained from Holding andTransferring of Shares (

) promulgated by State Tax Bureau on 21 July 1993

(4) Amendments to the Income Tax Law Applicable to Individuals of the PRC( ) promulgated by Standing Committee of NPC on31 October 1993

(5) Notice on Relevant Policies Concerning Individual Income Tax( ) issued by Ministry of Finance and the State TaxBureau on 13 May 1994

(a) Income tax on foreign investment enterprises

According to the Applicable Foreign Enterprises Tax Law, foreign investmententerprises (including sino-foreign equity joint ventures, sino-foreign co-operative jointventures and wholly foreign owned enterprises established in the territory of the PRC)is required to pay a national income tax at a rate of 30% of their taxable income and alocal income tax at a rate of three per cent. of their taxable income.

A foreign investment enterprise engaged in production having a period of operation ofnot less than ten years shall be exempted from income tax for the first two profit-making years and a 50% reduction in the income tax payable for the next three years.The income tax concession for foreign investment enterprises engaged in theexploitation of resources such as petroleum, natural gas, rare metals and preciousmetals are regulated separately by the State Council.

Foreign investment enterprises established in special economic zones, foreignenterprises having an establishment in special economic zones engaged inproduction or business operations and foreign investment enterprises engaged inproduction in economic and technological zones may pay income tax at a reducedrate of 15%. Foreign investment enterprises engaged in production established incoastal economic open zones or in the old urban districts of cities where the specialeconomic zones or the economic and technological development zones are locatedmay pay income taxes at a reduced rate of 24%. A reduced income tax rate of 15 percent. may apply to an enterprise located in such regions which is engaged in energy,communication, harbour, wharf or other projects encouraged by the State.

Losses incurred in a tax year may be carried forward for not more than five years.

The people’s governments of provinces, autonomous regions and municipalitiesdirectly under the central government may grant exemptions from or reduced localincome tax for a foreign investment enterprise engaged in an industry or a projectencouraged by the State.

(b) Value added tax

The Provisional Regulations of the People’s Republic of China Concerning ValueAdded Tax ( ) promulgated by the State Council cameinto effect on 1st January, 1994. Under these regulations and the Implementing Rulesof the Provisional Regulations of the People’s Republic of China Concerning ValueAdded Tax ( ), value added tax is imposed ongoods sold in or imported into the PRC and on processing, repair and replacementservices provided within the PRC.

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Value added tax payable in the PRC is charged on an aggregated basis at a rate of13 or 17% (depending on the type of goods involved) on the full price collected for thegoods sold or, in the case of taxable services provided, at a rate of 17% on thecharges for the taxable services provided but excluding, in respect of both goods andservices, any amount paid in respect of value added tax included in the price orcharges, and less any deductible value added tax already paid by the taxpayer onpurchases of goods and services in the same financial year.

(c) Business tax

With effect from 1st January, 1994, business that provide services (exceptentertainment business), assign intangible assets or sell immovable property becameliable to business tax at a rate ranging from three to five per cent. of the charges ofthe services provided, intangible assets assigned or immovable property sold, as thecase may be.

(d) Tax on dividends from PRC enterprise with foreign investment

According to the Applicable Foreign Enterprises Tax Law, income such as dividendsand profits distribution from the PRC derived from a foreign enterprise which has noestablishment in the PRC is subject to a 20% withholding tax, subject to reduction asprovided by any applicable double taxation treaty, unless the relevant income isspecifically exempted from tax under the Applicable Foreign Enterprises Tax Law. Theprofit derived by a foreign investor from a PRC enterprise with foreign investment isexempted from PRC tax according to the Applicable Foreign Enterprises Tax Law.

6. Wholly foreign-owned enterprise

Wholly foreign-owned enterprises are governed by the Law of the people’s Republic of ChinaConcerning Enterprises with Sole Foreign Investments ( ), which waspromulgated on 12 April 1986 and was subsequently amended on 31 October 2000, and itsImplementation Regulations promulgated on 12 December 1990 and was subsequently amendedon 12 April 2001 (together the “Foreign Enterprises Law”).

(a) Procedures for establishment of a wholly foreign-owned enterprise

The establishment of a wholly foreign-owned enterprise will have to be approved by Ministryof Commerce (or its delegated authorities) (hereinafter referred to as “MOFCOM”). If two ormore foreign investors jointly apply for the establishment of a wholly foreign-ownedenterprise, a copy of the contract between the parties must also be submitted to MOFCOM(or its delegated authorities) for its record. A wholly foreign-owned enterprise must alsoobtain a business licence from SAIC before it can commence business.

(b) Nature

A wholly foreign-owned enterprise is a limited liability company under the Foreign EnterpriseLaw. It is a legal person which may independently assume civil obligations, enjoy civil rightsand has the right to own, use and dispose of property. It is required to have a registeredcapital contributed by the foreign investor(s). The liability of the foreign investor(s) is limitedto the amount of registered capital contributed. A foreign investor may make itscontributions by instalments and the registered capital must be contributed within the periodas approved by MOFCOM (or its delegated authorities) in accordance with relevantregulations.

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(c) Profit distribution

The Foreign Enterprise Law provides that after payment of taxes, a wholly foreign-ownedenterprise must make contributions to a reserve fund and an employee bonus and welfarefund. The allocation ratio for the employee bonus and welfare fund may be determined bythe enterprise. However, at least 10 per cent of the after tax profits must be allocated to thereserve fund. If the cumulative total of allocated reserve funds reaches 50% of anenterprise’s registered capital, the enterprise will not be required to make any additionalcontribution. The enterprise is prohibited from distributing dividends unless the losses (ifany) of previous years have been made up.

7. Environmental Protection Regulations

In accordance with the Environmental Protection Law of the PRC adopted by the StandingCommittee of the NPC on 26th December, 1989, the Administration Supervisory Department ofEnvironmental Protection of the State Council sets the national guidelines for the discharge ofpollutants. The provincial and municipal governments of provinces, autonomous regions andmunicipalities may also set their own guidelines for the discharge of pollutants within their ownprovinces or districts in the event that the national guidelines are inadequate.

A company or enterprise which causes environmental pollution and discharges other pollutingmaterials which endanger the public should implement environmental protection methods andprocedures into their business operations. This may be achieved by setting up a system ofaccountability within the company’s business structure for environmental protection; adoptingeffective procedures to prevent environmental hazards such as waste gases, water and residues,dust powder, radioactive materials and noise arising from production, construction and otheractivities from polluting and endangering the environment. The environmental protection systemand procedures should be implemented simultaneously with the commencement of and during theoperation of construction, production and other activities undertaken by the company. Anycompany or enterprise which discharges environmental pollutants should report and register suchdischarge with the Administration Supervisory Department of Environmental Protection and payany fines imposed for the discharge. A fee may also be imposed on the company for the cost ofany work required to restore the environment to its original state. Companies which have causesevere pollution to the environment are required to restore the environment or remedy the effectsof the pollution within a prescribed time limit.

If a company fails to report and/or register the environmental pollution caused by it, it will receive awarning or be penalised. Companies which fail to restore the environment or remedy the effects ofthe pollution within the prescribed time will be penalised or have their business licencesterminated. Companies or enterprises which have polluted and endangered the environment mustbear the responsibility for remedying the danger and effects of the pollution, as well as tocompensate the any losses or damages suffered as a result of such environmental pollution.

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APPENDIX 5 : REPORT OF THE AUDITORS AND AUDITED FINANCIALSTATEMENTS OF ZHONGGUO JILONG PTE. LTD. AND SUBSIDIARIES

FOR THE YEAR ENDED 31 DECEMBER 2003

204

ZHONGGUO JILONG PTE. LTD. AND SUBSIDIARIES

REPORT OF THE DIRECTORS

The directors of the company are pleased to present their report together with the audited financialstatements of the company and of the group for the financial year ended 31 December 2003. Thefinancial year covers the period since incorporation on 11 October 2002 to 31 December 2003. Thecompany was formerly known as Happy Valley Retirement Resort Pte Ltd and changed its name toZhongguo Jilong Pte. Ltd. on 25 July 2003.

1. DIRECTORS AT DATE OF REPORT

The directors of the company in office at the date of this report are:

Tan Geok Bee (Appointed on 2 December 2002)Lim Seck Yeow (Appointed on 25 September 2003)Tang Cuilan (Appointed on 29 October 2003)Song Zhixing (Appointed on 29 October 2003)

2. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THEACQUISITION OF SHARES AND DEBENTURES

Neither at the end of the financial year nor at any time during the financial year did there subsistany arrangement whose object is to enable the directors of the company to acquire benefits bymeans of the acquisition of shares or debentures in the company or any other body corporate.

3. DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

The directors of the company holding office at the end of the financial year had no interests in theshare capital and debentures of the company and related corporations as recorded in the registerof directors’ shareholdings kept by the company under section 164 of the Companies Act, Cap 50except as follows:

Name of directors and companies At date of in which Interests are held incorporation At end of year

Ordinary shares of S$1 each

Tan Geok Bee – 1Lim Seck Yeow – 1

By virtue of section 7 of the Companies Act, Cap 50, the above directors with their shareholdingsin the company are deemed to have an interest in the share capital of all subsidiaries at therelevant dates.

4. CONTRACTUAL BENEFITS OF DIRECTORS

Since the beginning of the financial year, no director of the company has received or becomeentitled to receive a benefit which is required to be disclosed under section 201(8) of theCompanies Act, Cap 50, by reason of a contract made by the company or a related corporationwith the director or with a firm of which he is a member, or with a company in which he has asubstantial financial interest except as disclosed in the financial statements. Certain directors ofthe company received remuneration from related corporations in their capacity as directors and orexecutives of those related corporations.


5. OPTIONS TO TAKE UP UNISSUED SHARES

During the financial year, no option to take up unissued shares of the company or any corporationin the group was granted.

6. OPTIONS EXERCISED

During the financial year, there were no shares of the company or any corporation in the groupissued by virtue of the exercise of an option to take up unissued shares.

7. UNISSUED SHARES UNDER OPTION

At the end of the financial year, there were no unissued shares of the company or any corporationin the group under option.

8. AUDITORS

The auditors, Chio Lim & Associates, have expressed their willingness to accept re-appointment.

ON BEHALF OF THE DIRECTORS

..........................................................Tan Geok Bee

..........................................................Lim Seck Yeow

17 March 2004

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STATEMENT OF DIRECTORS

In the opinion of the directors, the accompanying financial statements are drawn up so as to give a trueand fair view of the state of affairs of the company and of the group as at 31 December 2003, and of theresults of the business and changes in equity of the company and of the group and cash flows of thegroup for the financial year then ended and at the date of this statement there are reasonable grounds tobelieve that the company will be able to pay its debts as and when they fall due.


..........................................................Tan Geok Bee

..........................................................Lim Seck Yeow

17 March 2004

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AUDITORS’ REPORT TO THE MEMBERS OF

ZHONGGUO JILONG PTE. LTD.

We have audited the accompanying financial statements of Zhongguo Jilong Pte. Ltd. (formerly known asHappy Valley Retirement Resort Pte Ltd) for the year ended 31 December 2003. These financialstatements are the responsibility of the company’s directors. Our responsibility is to express an opinionon these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by the directors, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

In our opinion,

(a) the consolidated financial statements of the group and the balance sheet and statement ofchanges in equity of the company are properly drawn up in accordance with the provisions of theCompanies Act, Cap. 50 (the “Act”) and the Singapore Financial Reporting Standards so as to givea true and fair view of the state of affairs of the group and of the company as at 31 December2003 and the results, changes in equity and cash flows of the group and the changes in equity ofthe company for the year ended on that date; and

(b) the accounting and other records (excluding registers) required by the Act to be kept by thecompany have been properly kept in accordance with the provisions of the Act.

We have considered the financial statements and auditors’ reports of the subsidiaries which are includedin the consolidated financial statements. The names of these subsidiaries are indicated in Note 9 to thefinancial statements.

We are satisfied that the financial statements of the subsidiaries that are consolidated with the financialstatements of the company are in form and content appropriate and proper for the purposes of thepreparation of the consolidated financial statements, and we have received satisfactory information andexplanations as required by us for those purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification.

Chio Lim & AssociatesCertified Public Accountants

Singapore

17 March 2004

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BALANCE SHEETSAs at 31 December 2003

Group CompanyNotes 2003 2003

RMB’000 RMB’000

ASSETSCurrent assets:Cash and cash equivalents 5 16,420 330Trade receivables 6 5,467 – Other receivables and prepayments 7 11,554 1,023Inventories 8 76,005 –


Non-current assetsInvestment in subsidiaries 9 – 47,448Plant and equipment 10 48,338 –


Total assets 157,784 48,801

LIABILITIES AND EQUITYCurrent liabilities:Short-term borrowings 11 11,500 – Trade payables and accrued liabilities 12 33,355 195Other payables 13 53,733 48,763Income tax payable 13,212 –


Capital and reserves:Issued capital 14 * *Reserves 15 45,984 (157)

Shareholders’ equity 45,984 (157)


* Amount is less than RMB1,000


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INCOME STATEMENTYear ended 31 December 2003

GroupNotes 2003

RMB’000

Revenue 16 132,928

Cost of sales (108,030)

Gross profit 24,898

Other operating income 17 263

Distribution costs (2,731)

Administrative expenses (743)

Other credits/(charges) 18 (682)

Profit from operations 21,005

Finance cost 19 (507)

Profit before income tax 20 20,498

Income tax expense 23 (1,218)

Net profit for the year 19,280


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STATEMENTS OF CHANGES IN EQUITYYear ended 31 December 2003

ForeignCurrency

Issued Capital Translation Statutory AccumulatedGroup Capital Reserve Reserve Reserve Profit Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At date of incorporation – * – – – – –

Excess of net asset value of subsidiaries acquired over cost of acquisition not recognised in income statement – 26,708 – – – 26,708

Foreign currency translation differences not recognised in the income statement – – (4) – – (4)

Net profit for the year – – – – 19,280 19,280

Appropriation for the year – – – 2,073 (2,073) –

Balance at 31 December 2003 – 26,708 (4) 2,073 17,207 45,984

(a) (a)

ForeignCurrency

Issued Translation AccumulatedCompany Capital Reserve losses Total

RMB’000 RMB’000 RMB’000 RMB’000

At date of incorporation – * – – – *

Foreign currency translation differences not recognised in the income statement – (4) – (4)

Net loss for the year – – (153) (153)

Balance at 31 December 2003 – (4) (153) (157)

(a) Not distributable as cash dividends.

* Amounts less than 1,000.


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CONSOLIDATED CASH FLOW STATEMENTYear ended 31 December 2003

2003RMB’000

Cash flows from operating activities :Profit before income tax 20,498Adjustments for :

Depreciation expense 555Loss on disposal of plant and equipment 382Interest income (107)Interest expense 507

Operating profit before working capital changes 21,835

Trade receivables 1,682Other receivables and prepayments 72,350Inventories (37,185)Trade payables and accrued liabilities 8,430Other payables 61,684

Cash generated from operations 128,796

Interest paid (507)Interest received 107Income tax paid (13,125)

Net cash from operating activities 115,271

Cash flows from investing activities :Disposal of plant and equipment 216Purchase of plant and equipment (15,605)Acquisition of subsidiaries net of cash acquired (Note 24) (37,389)

Net cash used in investing activities (52,778)

Cash flows from financing activities :Dividends paid (31,961)Decrease in borrowings (14,108)

Net cash used in financing activities (46,069)

Net effect of exchange rate changes in consolidating foreign currency financial statements (4)

Net increase in cash 16,420

Cash at end of year 16,420


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NOTES TO FINANCIAL STATEMENTS31 December 2003

1. GENERAL

The company is incorporated in Singapore. The company was previously known as Happy ValleyRetirement Resort Pte. Ltd. The financial statements are expressed in Renminbi. They are drawnup in accordance with the provisions of the Companies Act, Cap. 50 and are in compliance withthe Singapore Financial Reporting Standards. The financial statements were approved andauthorised for issue by the board of directors on 17 March 2004.

The company is an investment holding company. The principal activities of the subsidiaries are aslisted in Note 9 to the financial statements.

The registered office address of the company is No. 7500A Beach Road, #11-310, The Plaza,Singapore 199591. The company domiciled in Singapore.


ACCOUNTING CONVENTION – The financial statements are prepared in accordance with thehistorical cost convention.

BASIS OF PRESENTATION – The consolidation accounting method is used for the consolidatedfinancial statements which include the financial statements made up to 31 December 2003 eachyear of the company and of those companies in which it holds, directly or indirectly throughsubsidiaries, over 50 percent of the shares and voting rights. All significant intercompany balancesand transactions have been eliminated on consolidation. The results of the investees acquired ordisposed of during the financial year are consolidated from the respective dates of acquisition orup to the dates of disposal. On disposal the attributable amount of unamortised goodwill isincluded in the determination of the gain or loss on disposal.

REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant risks andrewards of ownership are transferred to the buyer and the amount of revenue and the costs of thetransaction (including future costs) can be measured reliably. Revenue from rendering of servicesthat are of short duration is recognised when the services are completed. Interest revenue isrecognised on a time-proportion basis using the effective interest rate. Rental revenue isrecognised on a time-proportion basis. Dividend revenue is recognised when the shareholder’sright to receive the dividend is legally established.

GOODWILL – Goodwill or negative goodwill arising on acquisition is based on the purchasemethod. Goodwill arising on consolidation represents the excess of the cost of acquisition over theacquirer’s interest in the fair value of the identifiable assets and liabilities of the subsidiaryassociate or jointly controlled entity acquired as at the date of acquisition. Goodwill is carried atcost less any accumulated amortisation and any accumulated impairment losses. It is amortisedon the straight-line method over its useful life to reflect the best estimate of the period during whichfuture economic benefits are expected to flow to the acquirer.



Negative goodwill arising on consolidation represents the excess of the acquirer’s interest in thefair value of the identifiable assets and liabilities over the cost of acquisition of the subsidiary,acquired as at the date of acquisition. Negative goodwill is released to income based on ananalysis of the circumstances from which the balance resulted. To the extent that the negativegoodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released toincome in the period in which those losses or exposure arise. The remaining negative goodwill isrecognised as income on a straight -line basis over the remaining average useful life of theidentifiable acquired depreciable assets. To the extent that such negative goodwill exceeds theaggregate fair value of the acquired identifiable non-monetary assets, it is recognised in incomeimmediately. However, negative goodwill arising from transactions among enterprises undercommon control are treated as capital reserve in the year of acquisition.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated asassets and liabilities of the foreign entity and translated at the closing rate.

SUBSIDIARIES – In the company’s own financial statements, the investments in subsidiaries arecarried at cost less any provision for impairment in value which is other than temporary.

NON-CURRENT ASSETS – Non-current assets, such as plant and equipment and investmentsare reviewed for impairment whenever events or changes in circumstances indicate that the netbook value of these assets may not be recoverable. Impairment losses are determined based onthe difference between fair value, which would generally approximate estimated future cash flowsdiscounted at the group’s cost of capital or where appropriate the sale value, and net book value.

PLANT AND EQUIPMENT – Plant and equipment are carried at cost less any accumulateddepreciation and any accumulated impairment losses. Depreciation is provided on gross carryingamounts in equal annual instalments over the estimated useful lives of the assets. The annualrates of depreciation are as follows:-

Plant and equipment 9% – 18%

Fully depreciated assets are retained in the financial statements until they are no longer in use.

The useful life of an item of property, plant and equipment is reviewed periodically and, ifexpectations are significantly different from previous estimates, the depreciation charge for thecurrent and future periods are adjusted.

FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Renminbi as it reflectsthe economic substance of the underlying events and circumstances of the group. Transactions inforeign currencies are recorded in Renminbi dollars at the rates ruling at the dates of thetransactions. At each balance sheet date, recorded monetary balances and balances carried atfair value that are denominated in foreign currencies are reported at the rates ruling at the balancesheet date. All realised and unrealised exchange adjustment gains and losses are dealt with in theincome statement.

FOREIGN CURRENCY FINANCIAL STATEMENTS – Assets and liabilities of entities denominatedin currencies other than Renminbi dollars are translated at the year end rates of exchange and theresults of their operations are translated at average rates of exchange for the year. The resultingtranslation adjustments are accumulated in a separate component of shareholders’ equity until thedisposal of the entity.

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214



INVENTORIES – Inventories held for resale are stated at the lower of cost (first-in first-out method)and net realisable value.


RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plansare recorded as an expense as they fall due. Contributions made to government managedretirement benefit plan which specifies the employer’s obligations are dealt with as definedcontribution retirement benefit plans.

LIABILITIES AND PROVISIONS – A liability and provision is recognised when there is a presentobligation (legal or constructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation.


CASH – Cash for the cash flow statement includes cash and cash equivalents less bankoverdrafts.

BORROWING COSTS – All borrowing costs are recognised as an expense in the period in whichthey are incurred except for borrowing costs that are directly attributable to the acquisition,construction or production of a qualifying asset are capitalised as part of the cost of that asset untilsubstantially all the activities necessary to prepare the qualifying asset for its intended use or saleare complete.

FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable,other current assets, short-term borrowings, accounts payable and other current liabilitiesapproximate their fair market values due to the short-term maturity of these instruments. Thosefinancial assets that have a fixed maturity are measured at amortised cost using the effectiveinterest rate method. Those that do not have a fixed maturity are measured at cost. All financialassets are subject to review for impairment.

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CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject toconcentrations of credit risk consist principally of cash, cash equivalents and trade and otheraccounts receivable. The directors believe that the financial risks associated with these financialinstruments are minimal. The group places its cash and cash equivalents with high credit qualityinstitutions. The group performs ongoing credit evaluation of its debtors’ financial condition andmaintains a provision for doubtful accounts receivable based upon the expected collectibility of allaccounts receivable. There is no significant concentration of credit risk, as the exposure is spreadover a large number of counterparties and customers.

OTHER RISKS ON FINANCIAL INSTRUMENTS – The group monitors its interest, foreignexchange risks, and changes in fair values from time to time and any gains and losses areincluded in the income statement. The group is exposed to interest rate price risk for financialinstruments with a fixed interest rate and to interest rate cash flow risk for financial instrumentswith a floating interest rate that is reset as market rates change. The group is also exposed tochanges in foreign exchange rates and liquidity of business. The group does not utilise forwardcontracts or other arrangements for trading or speculative purposes. At 31 December 2003 therewere no such arrangements, interest rate swap contracts or other derivative instrumentsoutstanding

3. RELATED COMPANY TRANSACTIONS

Related companies in these financial statements refer to members of the company’s group ofcompanies.

Some of the company’s transactions and arrangements are between members of the group andthe effects of these on the basis determined between the parties are reflected in these financialstatements. The intercompany balances are without fixed repayment terms and interest unlessstated otherwise.


Related parties are entities with common direct or indirect shareholders and or directors ormanagement. Parties are considered to be related if one party has the ability to control the otherparty or exercise significant influence over the other party in making financial and operatingdecisions.

Some of the company’s transactions and arrangements are with related parties and the effect ofthese on the basis determined between the parties are reflected in these financial statements.The balances are without fixed repayment terms and interest unless stated otherwise.


In addition to the transactions and balances disclosed elsewhere in the notes to the financialstatements, this item includes the following:

Group Company2003 2003

RMB’000 RMB’000

Rental expense 439 –



216




RMB’000 RMB’000

Not restricted in use 14,920 330Restricted (a) 1,500 –

16,420 330

Analysis of above amount by foreign currency:Singapore dollar 272 272United States dollar 474 58

(a) This for bank balances held by bankers to secure the short term borrowing (Note 11)

The rate of interest for the cash on interest earning accounts is between 0.075% and 0.72%. Theeffective interest rate is 0.72%.



RMB’000 RMB’000

Outside parties 4,549 –Related parties (Note 4) 1,231 – Less provision for doubtful debts (313) –

5,467 –

Movements in above position:From acquisition of subsidiaries 313 –

Balance at end of year 313 –

Analysis of above amount by foreign currency:Singapore dollar 1,037 –

The average credit period taken by customers of the group ranged from 2 to 6 days. A provision ismade for estimated irrecoverable amounts from the customers. This provision is determined byreference to past default experience. The directors consider that the carrying amount of tradereceivables approximates to their fair value. Short-duration receivables with no stated interest rateare normally measured at original invoice amount unless the effect of imputing interest would besignificant.

217






RMB’000 RMB’000

Other receivables 252 – Related party (Note 4) 10,145 – Prepayments 1,157 1,023Staff advances – –

11,554 1,023

8. INVENTORIES


RMB’000 RMB’000

Finished goods at cost 10,319 – Work in progress at cost 46,970 – Raw materials and consumables at cost 17,352 – Inventories carried at net realisable value after the provision shown below 1,364 –

76,005 –

Movements in above provision:From acquisition of subsidiaries 350 –

Balance at end of year 350 –

9. INVESTMENTS IN SUBSIDIARIES

Company2003

RMB’000

Unlisted equity interest, at cost 47,448

Net book value of subsidiaries 93,618




9. INVESTMENTS IN SUBSIDIARIES (Cont’d)

The book values of the subsidiaries are not necessarily indicative of the amounts that would berealised in a current market exchange. Details of subsidiaries are as follows:

Percentage Cost ofName of subsidiary Principal activities of equity held investment

% RMB’000

Laiyang Hongshun Processing and sales of foodstuffs 100 29,361 Foodstuffs Co., Ltd (US$3,342,628)

Laiyang Xinghua Processing and sale of frozen-keeping 100 2,590 Foodstuffs Co., Ltd foodstuffs (US$303,922)

Laiyang Jilong Health Processing and sale of canned food, 100 6,585 Drinks Co., Ltd fruit juices and other health drinks (US$771,400)

and peanut products

Laiyang Jilong Edible Processing and sale of edible oil 100 3,756 Oil Co., Ltd (US$439,900)

Laiyang Green Food Processing and sale of foodstuffs 100 5,156 Co., Ltd (US$604,100)

47,448

All subsidiaries are incorporated in and conduct their business in the People’s Republic of China(“PRC”). They are audited by Chio Lim & Associates.

10. PLANT AND EQUIPMENT

Plant and Constructionequipment in progress TotalRMB’000 RMB’000 RMB’000

Group

Cost:From acquisition of subsidiaries 46,117 4,945 51,062Additions – 15,605 15,605Transfer of completed construction 404 (404) – Disposal (910) – (910)

At 31 December 2003 45,611 20,146 65,757

Accumulated depreciation:From acquisition of subsidiaries 17,176 – 17,176Charge for the year 555 – 555Disposal (312) – (312)

At 31 December 2003 17,419 – 17,419

Net book value:At 31 December 2003 28,192 20,146 48,338

218

219






RMB’000 RMB’000

Bank loan – secured 5,000 –– unsecured 6,500 –

Total short-term borrowings 11,500 –

The interest rates for the bank loans ranged from 1.4% to 6.6% per year. Bank loan ofRMB5,000,000 is partially secured on bank deposits of RMB1,500,000 (Note 5). Bank loans ofRMB6,500,000 is secured by a legal charge on a related party’s property.



RMB’000 RMB’000

Outside parties and accrued liabilities 29,616 – Provision for employee benefit cost 2,068 195Related parties (Note 2) 1,671 –

33,355 195

Analysis of above amount denominated in foreign currency :Singapore dollar 195 195

The average credit period taken by the group to settle payables ranged from 19 to 77 days.

13. OTHER PAYABLES


RMB’000 RMB’000

Outside parties 3,134 – Related parties (Note 4) 24,072 23,585Directors (Note 4) 25,178 25,178Dividends payable 501 – Advance payments from customers 848 –

53,733 48,763

Analysis of above amount denominated in foreign currency:-Singapore dollar 48,763 48,763



220


14. ISSUED CAPITAL

Group andCompany

2003S$’000

Authorised:20,000,000 ordinary shares of $1 each 20,000

Issued and fully paid:2 ordinary shares of $1 each S$2

RMB10

15. RESERVES


RMB’000 RMB’000

Accumulated profits 17,207 (153)Foreign exchange translation reserve (4) (4)Statutory reserve 2,073 – Capital reserve 26,708 –

45,984 (157)

The statutory reserve is set up as required under the PRC regulations which represents a non-distributable reserve made at a rate of 10% of the net profit after tax of the subsidiaries.Contribution to this reserve is no longer required when the reserve reaches 50% of the registeredcapital. The reserve is to be used in accordance to the circumstances as stipulated in the relevantregulations.

The capital reserve represents the difference between the purchase consideration ofRMB47,448,306 (or S$9,727,000) of the investment in subsidiaries and the aggregate value of thenet tangible assets value acquired from these subsidiaries of RMB74,155,941. The difference hasnot been recognized as negative goodwill in accordance with Singapore Financial ReportingStandard 22 “Business Combinations” (the “Standard”) as the directors have taken the view thatthe acquisition are transactions among enterprises under common control and therefore notgoverned by the provisions of the Standard.

16. REVENUE

Group2003

RMB’000

Sales of goods 132,928

221





Group2003

RMB’000

Government grant 156Interest income from non-related companies 107

263

18. OTHER CREDITS/(CHARGES)

Group2003

RMB’000

Bad debts written off (44)Foreign exchange adjustment gain 5Loss on disposal of plant and equipment (382)Preliminary expenses written-off (321)Others 60

(682)

19. FINANCE COST

Group2003

RMB’000

Interest expense to non-related companies 507


In addition to the charges and credits disclosed elsewhere in the notes to the financial statements,this item includes the following (credits) / charges:-

Group2003

RMB’000

Auditor’s remuneration 57 Director’s remuneration 15Depreciation 555Change in inventories of finished goods and work in progress (6,897)Raw materials and consumables used 117,161



222


21. STAFF COSTS

Group2003

RMB’000

Staff costs 6,077Contributions to defined contribution plan 370

6,447


Group2003

Number of employees at end of year including directors 2,502

23. INCOME TAX

Group2003

RMB’000

Current 1,218

The income tax expense varied from the amount of income tax expense determined by applyingthe Singapore income tax rate of 22% to profit before income tax as a result of the followingdifferences:-

Group2003

RMB’000

Income tax expense at the statutory rate 4,510Non-allowable items 395Tax exemptions (3,718)Other items less than 3% (175)Effect of different tax rates of different subsidiaries in PRC 206

Total income tax expense 1,218

All subsidiaries of the group are located in the People’s Republic of China (“PRC”) and subject toPRC tax. Pursuant to the Income Tax Law of the PRC concerning Foreign Investment Enterprisesand Foreign Enterprises and various local income tax laws, foreign investment enterprises aresubject to the statutory income tax rate of 33% (30% state income tax plus 3% local income tax)unless the enterprises are located in specially designated regions or cities in which morefavourable tax rates will apply. Certain subsidiaries are located in a region where a preferential taxrate applies and currently qualifies for a reduced rate of taxation of 24%. Three subsidiaries areentitled to income tax exemption for the two years commencing from the first profitable year (afterdeducting losses carried forward) and a 50% reduction for the succeeding three years. Onesubsidiary, being a production-oriented and export-oriented foreign investment enterpriseestablished in Yantai and within the Economic and Technological Development Zone, enjoys aconcessionary income tax rate of 12%.

223




23. INCOME TAX (Cont’d)

At the balance sheet date, no deferred tax liability has been recognised on certain amount oftemporary differences associated with investments in subsidiaries because the group is in aposition to control the timing of the reversal of the temporary differences and it is probable thatsuch differences will not reverse in the foreseeable future.

There is no income tax consequence of dividends to shareholders of the company.

24. ACQUISITION OF SUBSIDIARIES

The group acquired 100% of the equity of the following companies on 31 August 2003:

Laiyang Hongshun Foodstuffs Co., LtdLaiyang Xinghua Foodstuffs Co., LtdLaiyang Jilong Health Drinks Co., LtdLaiyang Jilong Edible Oil Co., LtdLaiyang Green Food Co., Ltd

The transaction was accounted for by the purchase method of account.

The fair values of net assets acquired are as follows:-

Group2003

RMB’000

Cash 10,059Trade receivables 7,149Other receivables and prepaid expenses 83,904Inventories 38,820Plant and equipment 33,886Short-term borrowings (25,608)Trade and other payables (16,974)Income tax payable (25,119)Dividends payable (31,961)Capital reserve (Note 15) (26,708)

Consideration 47,448Less cash taken over (10,059)

Net cash outflow on acquisition 37,389



224


25. OPERATING LEASE COMMITMENTS

At the balance sheet date, the company and group are committed to making the followingpayments in respect of operating leases with a term of more than one year :


RMB’000 RMB’000

Within 1 year 1,544 –Within 2 – 5 years 6,175 –After 5 years 7,145 –

Rental expenses 439 –

Operating lease payments represent rentals payable for certain of its factory premises, officepremises and farm lands. The lease is for an average term of 10 to 15 years.

26. CAPITAL EXPENDITURE COMMITMENTS


RMB’000 RMB’000

Authorised but not yet contracted for 1,098 – Estimated amounts committed for future capital expenditure but not provided for in the financial statements 1,453 –

27. CONTINGENT LIABILITIES

As at the balance sheet date, the group has committed amounting to RMB2,1114,000 related tocontracts entered into on behalf of a related party for the construction of a factory. The actualconstruction costs would be borne by the related party directly.

28. STATEMENT OF OPERATIONS BY SEGMENT

Segment reporting policy

A segment is a distinguishable component of the group within a particular economic environment(geographical segment) and to a particular industry (business segment) which is subject to risksand rewards that are different from those of other segments.

The primary format, business segments, is based on the group’s management and internalreporting structure. In presenting information on the basis of business segments, segment revenueand segment assets are based on the nature of the products or services provided by the group.Information for geographical segments is based on the geographical location of the principleplaces of business.

Inter-segment pricing is determined on an arm’s length basis. Segment results, assets andliabilities include items directly attributable to a segment as well as those that can be allocated ona reasonable basis. Unallocated items mainly comprise corporate assets and liabilities or incomestatements items that are not directly attributable to a segment or those that cannot be allocatedon a reasonable basis.

225





Segment capital expenditure is the total cost incurred during the period to acquire segment assetsthat are expected to be used for more than one period.

For management purposes, the group’s operating businesses are organised according to theirnature of activities. There are grouped in the following market segments and form the basis onwhich the group’s reports its primary segments:-

(a) Preserved and processed food products.

(b) Peanut oil.

(c) Beverages.

Primary segments analysis:

Preservedand

processedfood

products Peanut oil Beverages TotalRMB’000 RMB’000 RMB’000 RMB’000

Revenue 72,963 34,716 25,249 132,928

Segment results 10,842 6,447 3,716 21,005Finance cost (507)



Other information:-Depreciation and amortisation 355 84 116 555Capital expenditure 15,607 – – 15,607

ASSETSSegment assets 123,445 9,495 23,491 156,431Unallocated corporate assets 1,353


LIABILITIESSegment liabilities 44,740 7,478 10,624 62,842Unallocated corporate liabilities 48,958

Total liabilities 111,800





Geographical segments analysis:

The following table provides an analysis of the group revenue, assets and capital expenditure bygeographical market which is analysed based on the billing address of each individual customer:-

Segment CapitalRevenue assets expenditureRMB’000 RMB’000 RMB’000

People’s Republic of China 112,989 156,747 15,607Japan 19,939 1,037 –

132,928 157,784 15,607

29. COMPARATIVE FIGURES

The financial statements cover the financial year since incorporation on 11 October 2002 to 31December 2003. This being the first set of financial statements, there are no comparative figures.

226

LAIYANG HONGSHUN FOODSTUFFS CO., LTD.


In the opinion of the directors, the accompanying re-stated financial statements of the Company, havebeen prepared in accordance with the Singapore Financial Reporting Standards and present fairly, in allmaterial respects, the state of affairs of the Company as at 31 December 2001 and 2002 and of theresults, changes in equity and cash flows of the Company for the financial years ended 31 December2001 and 2002 and at the date of this statement there are reasonable grounds to believe that thecompany will be able to pay its debts as and when they fall due.


............................................................ ............................................................Song Zhixing Tang XiaoyanDirector Director

25 January 2004

227

APPENDIX 6 : REPORT OF THE AUDITORS AND THE FINANCIALSTATEMENTS RE-STATED IN ACCORDANCE WITH THE SINGAPORE FINANCIAL

REPORTING STANDARDS ON LAIYANG HONGSHUN FOODSTUFFS CO., LTD.FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002



AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF


We report on the Re-stated Financial Statements set out in pages 229 to 247.

We have read the audited financial statements of Laiyang Hongshun Foodstuffs Co., Ltd. (the“Company”) in respect of the financial years ended 31 December 2001 and 2002. These financialstatements were prepared in accordance with Accounting Standards for Business Enterprises of thePeople’s Republic of China (“PRC”) and the Accounting Regulations of the PRC (collectively known as“PRC GAAP”) and were audited by Chou Cheng Gui He Certified Public Accountants Ltd( ). We have not carried out any subsequent or additional audit procedureson those financial statements.

The audit reports of Chou Cheng Gui He Certified Public Accountants Ltd for the PRC GAAP auditedfinancial statements for the financial years ended 31 December 2001 and 2002 were reported on withoutqualification.

Based on the PRC GAAP audited financial statements, the Company has made certain adjustments (seeNote 24) to re-state the financial statements and to re-present with expanded disclosure of financialinformation in order to comply with the Singapore Financial Reporting Standards.

Management is responsible for the Re-stated Financial Statements. Our responsibility in relation to theRe-stated Financial Statements is to issue a report on whether anything has come to our attention tocause us to believe that the Re-stated Financial Statements have not been properly re-stated in allmaterial respects in accordance with the Singapore Financial Reporting Standards.

We conducted our procedures in accordance with Statement of Auditing Practice 24, “Auditors and PublicOffering Documents”. This Statement requires that we discuss with management to obtain anunderstanding of the business and the financial position and performance of the Company for thefinancial years under review, and of the procedures applied and decisions made by management inidentifying, quantifying and making the re-statement adjustments in arriving at the Re-stated FinancialStatements. Our procedures in this regard did not involve any audit or review procedures on the financialstatements of the Company. Accordingly, we do not express any opinion on the Re-stated FinancialStatements.

Based on our procedures, nothing came to our attention to cause us to believe that the Re-statedFinancial Statements have not been properly re-stated, in all material respects, in accordance with theSingapore Financial Reporting Standards.

Chio Lim & AssociatesCertified Public AccountantsSingapore


25 January 2004

228

LAIYANG HONGSHUN FOODSTUFFS CO., LTD.UNAUDITED RE-STATED FINANCIAL STATEMENTS

BALANCE SHEETS

As at 31 December

Notes 2002 2001RMB’000 RMB’000

ASSETSCurrent assetsCash and cash equivalents 5 4,090 15,710Trade receivables 6 5,306 9,371Other receivables and prepayments 7 13,522 3,579Inventories 8 21,852 16,523


Non-current assetProperty, plant and equipment 9 22,135 19,802

Total non-current asset 22,135 19,802


LIABILITIES AND EQUITYCurrent liabilitiesShort-term borrowings 10 11,850 13,200Trade payables and accrued liabilities 11 14,779 13,938Other payables 12 5,062 19,007Income tax payable 3,811 1,516


Capital and reservesIssued capital 13 3,680 3,680 Reserves 14 27,723 13,644

Total equity 31,403 17,324



229






INCOME STATEMENTS

Year ended 31 December

Notes 2002 2001RMB’000 RMB’000

Revenue 15 111,812 86,557

Cost of sales (87,448) (63,406)

Gross profit 24,364 23,151


Distribution costs (3,625) (3,550)

Administrative expenses (3,061) (3,865)

Other (charges) / credits 17 (622) (350)

Profit from operations 17,440 15,551

Finance cost 18 (878) (950)

Profit before income tax 19 16,562 14,601

Income tax expense 22 (2,483) (1,590)

Net profit for the year 14,079 13,011


230


STATEMENTS OF CHANGES IN EQUITYFor the year ended 31 December 2001 and 2002

RetainedIssued Statutory Earnings /Capital Reserve (Loss) Total

RMB’000 RMB’000 RMB’000 RMB’000

Balance at 31 December 2000 3,680 – 633 4,313

Net profit for the year – – 13,011 13,011

Appropriation for the year – 1,166 (1,166) –

Balance at 31 December 2001 3,680 1,166 12,478 17,324

Net profit for the year – – 14,079 14,079

Appropriation for the year – 1,923 (1,923) –

Balance at 31 December 2002 3,680 3,089 24,634 31,403

(a)

(a) Not available for distribution as cash dividends


231






CASH FLOW STATEMENTSFor the year ended 31 December 2001 and 2002

Year ended 31 December

2002 2001RMB’000 RMB’000

Cash flows from operating activities:Profit before income tax 16,562 14,601 Adjustments for:

Depreciation expense 2,425 1,567 Interest expense 878 950Interest income (211) –Loss on disposal of plant and equipment 24 –

Operating profit before working capital changes 19,678 17,118Trade receivables 4,065 (5,848)Other receivables and prepayments (5,974) (387)Inventories (5,329) (3,627)Trade payables 841 2,884 Other payables (17,825) 1,217

Cash (used in) generated from operations (4,544) 11,357Income tax paid (188) (180)Interest paid (878) (950)Interest received 211 –

Net cash (used in) generated from operating activities (5,399) 10,227

Cash flows from investing activities:Disposal of property, plant and equipment 88 108 Purchase of property, plant and equipment (4,959) (3,076)

Net cash used in investing activities (4,871) (2,968)

Cash flows from financing activities:(Decrease) increase in borrowings (1,350) 5,900

Net cash (used in) generated from financing activities (1,350) 5,900

Net (decrease) increase in cash (11,620) 13,159Cash at beginning of year 15,710 2,551

Cash at end of year 4,090 15,710


232

233




NOTES TO UNAUDITED RE-STATED FINANCIAL STATEMENTS31 December 2001 and 2002

1. GENERAL

The company is incorporated in the People’s Republic of China (“PRC”). The audited financialstatements of the Company, prepared in accordance with Accounting Standards for BusinessEnterprises of the PRC and the Accounting Regulations of the PRC (collectively known as “PRCGAAP”) and audited by Chou Cheng Gui He Certified Public Accountants Ltd( ), are used for the purpose of the re-statement.

To comply with the Singapore Financial Reporting Standards, the PRC GAAP audited financialstatements have been re-stated and re-presented with expanded disclosures of the financialinformation, to form the Re-stated Financial Statements.

The Re-stated Financial Statements are expressed in Renminbi. They are drawn up in accordancewith the Singapore Financial Reporting Standards. The Re-stated Financial Statements wereapproved and authorised for issue to the shareholders by the board of directors on 25 January2004.

The principal activities of the company are those of processing and sale of frozen foodstuffs.

The address of the principal place of business is: 26 Heshan Road, Laiyang, Shandong, 265200PRC. The company is domiciled in the PRC.


ACCOUNTING CONVENTION – The Re-stated Financial Statements are prepared in accordancewith the historical cost convention.

REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant risks andrewards of ownership are transferred to the buyer and the amount of revenue and the costs of thetransaction (including future costs) can be measured reliably.

GOVERNMENT GRANTS – Government grants in subsidy for export sales are recognised asincome in the income statement on receipt basis.

INVENTORIES – Inventories are measured at the lower of cost (weighted average method) andnet realisable value.

DEPRECIATION – Depreciation is provided on gross carrying amounts, after deducting 10%residual value, in equal annual instalments over the estimated useful lives of the assets. Theannual rates of depreciation are as follows:

Leasehold properties and improvements – 4.5%Plant and equipment – 9% to 18%

Fully depreciated assets still in use are retained in the financial statements.



234



NON-CURRENT ASSETS – Non-current assets, such as property, plant and equipment, arereviewed for impairment whenever events or changes in circumstances indicate that the net bookvalue of these assets may not be recoverable. Impairment losses are determined based on thedifference between fair value, which would generally approximate estimated future cash flowsdiscounted at the company’s cost of capital or where appropriate the sale value, and net bookvalue.

FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Renminbi as it reflectsthe economic substance of the underlying events and circumstances of the company. Transactionsin foreign currencies are recorded in Renminbi at the rates ruling at the dates of the transactions.At each balance sheet date, recorded monetary balances and balances carried at fair value thatare denominated in foreign currencies are reported at the rates ruling at the balance sheet date.All realised and unrealised exchange adjustment gains and losses are dealt with in the incomestatement.


RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plansare recorded as an expense as they fall due. Contributions made to state managed retirementbenefit plans are dealt with as defined contribution retirement benefit plans.


LIABILITIES AND PROVISIONS – A liability and provision is recognised when there is a presentobligation (legal or constructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation.

CASH – Cash for the cash flow statement includes cash and cash equivalents.


CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject toconcentrations of credit risk consist principally of cash, cash equivalents and trade and otheraccounts receivable. The directors believe that the financial risks associated with these financialinstruments are minimal. The company places its cash and cash equivalents with high creditquality institutions. The company performs ongoing credit evaluation of its debtors’ financialcondition and maintains a provision for doubtful accounts receivable based upon the expectedcollectibility of all accounts receivable.

235





FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable,other current assets, short-term borrowings, accounts payable and other current liabilitiesapproximate their fair values due to the short-term maturity of these instruments.

OTHER RISKS ON FINANCIAL INSTRUMENTS – The company monitors its interest, foreignexchange risks, and changes in fair values from time to time and any gains and losses areincluded in the income statement. The company is exposed to interest rate price risk for financialinstruments with a fixed interest rate and to interest rate or cash flow risk for financial instrumentswith a floating interest rate that is reset as market rates change. The company is also exposed tochanges in foreign exchange rates and liquidity of businesses. The company does not utiliseforward contracts or other arrangements to minimise these risks. At the respective year ends, therewere no such arrangements, interest rate swap contracts or other derivative instrumentsoutstanding.

3. HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS

The company is a subsidiary of Shandong Jilong Shiye Co., Ltd, incorporated in the PRC which isalso the company’s ultimate holding company. Related companies in these financial statementsrefer to members of the holding company’s group of companies.

Some of the company’s transactions and arrangements are between members of the group andthe effects of these on the basis determined between the parties are reflected in these financialstatements. The intercompany balances are without fixed repayment terms and interest unlessstated otherwise.

Significant inter-company transactions:

In addition to the transactions and balances disclosed elsewhere in the notes to the financialstatements, this item includes the following (and it includes transactions within the group): -

2002 2001RMB’000 RMB’000

Revenue – (9,995)Sale of property, plant and equipment (a) 3,968 –Purchase of property, plant and equipment (a) 3,880 –

(a) Both the sale and purchase transactions of property, plant and equipment with the holdingcompany were at net book values.



236



Related parties are entities with common direct or indirect shareholders and or directors ormanagement. Parties are considered to be related if one party has the ability to control the otherparty or exercise significant influence over the other party in making financial and operatingdecision.

Some of the company’s transactions and arrangements are with related parties and the effect ofthese on the basis determined between the parties are reflected in these financial statements.The balances are without fixed repayment terms and interest unless stated otherwise.


In addition to the transactions and balances disclosed elsewhere in the notes to the financialstatements, this item includes the following:-

2002 2001RMB’000 RMB’000

Purchases of goods 3,539 2,731


2002 2001RMB’000 RMB’000

Not restricted in use 4,090 15,710

Analysis of above amount by currency:United States dollars – 1,678Renminbi 4,090 14,032

4,090 15,710

237





2002 2001RMB’000 RMB’000

Outside parties 4,273 7,185Related company (Note 3) 1,033 2,186

5,306 9,371

Analysis of above amount by currency:United States dollars 4,273 7,185Renminbi 1,033 2,186

5,306 9,371

Concentration of customers:Top 1 customer 1,032 2,186Top 2 customers 1,834 3,467Top 3 customers 1,969 4,366

The average credit period taken by customers is about 17 days in 2002 and 40 days in 2001. Thedirectors consider that the carrying amount of trade receivables approximates to their fair value.


2002 2001RMB’000 RMB’000

Holding company (Note 3) 1,249 997Related companies (Note 3) – 336Related parties (Note 4) 11,014 –Other receivables 296 520Prepayments 963 1,726

13,522 3,579

8. INVENTORIES

2002 2001RMB’000 RMB’000

Finished goods, at cost 8,263 8,272Work in progress, at cost 9,247 6,261Raw material and consumables, at cost 1,150 1,990Inventories carried at net realisable value 3,192 –

21,852 16,523



238


9. PROPERTY, PLANT AND EQUIPMENT

Leaseholdproperties and Plant and Constructionimprovements equipment in progress Total

RMB’000 RMB’000 RMB’000 RMB’000

Cost:At 1 January 2001 5,053 13,618 4,908 23,579Additions 111 1,833 1,132 3,076Transfer of completed construction 4,346 1,101 (5,447) –Disposals – – (108) (108)

At 31 December 2001 9,510 16,552 485 26,547Additions 297 2,508 2,154 4,959Transfer from holding company 2,446 3,352 – 5,798Transfer of completed construction 975 1,300 (2,275) –Transfer to holding company (2,458) (3,901) – (6,359)Disposals – – (113) (113)

At 31 December 2002 10,770 19,811 251 30,832

Accumulated depreciation:At 1 January 2001 854 4,324 – 5,178Charge for the year 236 1,331 – 1,567

At 31 December 2001 1090 5,655 – 6,745Charge for the year 542 1,883 – 2,425Transfer from holding company 441 1,477 – 1,918Transfer to holding company (544) (1,847) – (2,391)

At 31 December 2002 1,529 7,168 – 8,697

Net book value:At 31 December 2001 8,420 10,897 485 19,802

At 31 December 2002 9,241 12,643 251 22,135


2002 2001RMB’000 RMB’000

Bank loans (secured) 11,850 13,200

The bank loans are secured by letters of credit from overseas customers. The bank loans are atinterest rates varying from 5% to 6.5% in 2002 and 6.8% to 7.6% in 2001.

239





2002 2001RMB’000 RMB’000

Outside parties and accrued liabilities 12,563 12,536Related company (Note 3) 13 13Related party (Note 4) 738 807Provision for employee benefit costs 1,465 582

14,779 13,938

The average credit period taken to settle payables is about 57 days in 2002 and 79 days in 2001.

12. OTHER PAYABLES

2002 2001RMB’000 RMB’000

Holding company (Note 3) – 13,742Related companies (Note 3) 1,376 1,023Related party (Note 4) – 1,000Prepayment by customers 692 100Dividends payable 1,086 1,086Expenses payable on behalf of customers – 430For purchase of non-current assets 1,078 1,043Other payables 830 583

5,062 19,007

13. ISSUED CAPITAL

2002 2001RMB’000 RMB’000

Registered and fully paid capital 3,680 3,680

14. RESERVE

2002 2001RMB’000 RMB’000

Statutory reserve 3,089 1,166Retained earnings 24,634 12,478

27,723 13,644

The statutory reserve is set up as required under the local regulations and represents a non-distributable reserve made at a rate of 10% of net profit after tax. Contribution to this reserve is nolonger mandatory when the reserve reaches 50% of the registered share capital. The reserve is tobe used in accordance to the circumstances as stipulated in the regulations.




15. REVENUE

2002 2001RMB’000 RMB’000

Sale of goods 111,812 86,557


2002 2001RMB’000 RMB’000

Government grant 174 165Interest income from holding company 211 –

384 165

17. OTHER (CHARGES) / CREDITS

2002 2001RMB’000 RMB’000

Bad debts written off – (421)Income from penalty and fines imposed on employees – 19Payables written off 486 207Inventories written off – (13)Inventories written down (830) –Foreign exchange adjustment loss (78) (142)Compensation of goods (176) –Loss on disposal of property, plant and equipment (24) –

(622) (350)

18. FINANCE COST

2002 2001RMB’000 RMB’000

Interest expense to others 878 950


In addition to the charges and credits disclosed elsewhere in the notes to the re-stated financialstatements, this item includes the following charges (credits):

2002 2001RMB’000 RMB’000

Directors’ remuneration – 22Changes in inventories of finished goods and work-in-progress (6,169) (3,002)Depreciation expense 2,425 1,567Raw materials and consumable used 71,559 47,044

240

241




20. STAFF COSTS

2002 2001RMB’000 RMB’000

Staff costs including directors 12,121 10,787Contributions to defined contribution plans – 1,609

Total staff costs 12,121 12,396

There were no directors’ remuneration paid for the financial years ended 2001 and 2002.


2002 2001RMB’000 RMB’000

Number of employees at end of year (including directors) 1,115 1,598

22. INCOME TAX

2002 2001RMB’000 RMB’000

Current 2,483 1,590

The income tax expense varied from the amount of income tax expense determined by applyingthe income tax rate of 24% (2001: 24%) to profit before income tax as a result of the followingdifferences:

2002 2001RMB’000 RMB’000

Income tax expense at the statutory rate 3,974 3,504Tax exemption * (1,987) (1,752)Non-allowable items 100 13Others 396 (175)

Total income tax expense 2,483 1,590

* The company, a production-oriented and export-oriented foreign investment enterprise established in Yantai and withinthe Economic and Technological Development Zone, enjoys a concessionary income tax rate of 12%. Theconcessionary income tax status needs to be renewed every year.

23. CAPITAL COMMITMENTS

2002 2001RMB’000 RMB’000

Estimated amounts committed for future capital expenditure but not provided for in the financial statements – 2,392




24. RE-STATEMENT ADJUSTMENTS

Year ended 31 December 2001

PRC GAAP Re-statementaudited adjustments Re-stated

balance sheet (see note below) balance sheetRMB’000 RMB’000 RMB’000

ASSETSCurrent assetsCash and cash equivalents 7,807 7,903 B 15,710Trade receivables 8,661 5,154 A 9,371

(4,444) BOther receivables and prepayments 3,432 147 B 3,579Inventories 18,300 (3,611) A 16,523

1,834 B


Non-current assetsProperty, plant and equipment 23,627 (425) A 19,802

(747) C485 B

(3,586) F448 G

Construction work in progress 354 (354) B –



LIABILITIES AND EQUITYCurrent liabilitiesShort-term borrowings 7,000 6,200 B 13,200Trade payables and accrued liabilities 12,207 (370) A 13,938

1,519 B582 D

Other payables 19,704 (697) B 19,007Income tax payable 2,967 (1,451) B 1,516


Capital and reservesIssued capital 3,680 3,680Reserves 16,623 1,936 E 13,644

(3,586) F(747) C(582) D



242

243




24. RE-STATEMENT ADJUSTMENTS (Cont’d)

Note:

A : These adjustments represent transactions to be included in the re-stated balance sheet to adjust for certain cut-offerrors in 2001.

B : These adjustments represent reclassification of balances to conform with the presentation of 2003 financialstatements to enhance comparability.

C : This refers to adjustment for understatement of depreciation on property, plant and equipment in prior years.

D : This represents adjustment to recognise staff welfare benefits as an expense item in accordance with theSingapore Financial Reporting Standards.

E : This adjustment represents the net income statement effect on the 2001 financial statements arising from re-statement adjustments in 2001.

F : These adjustments are to re-state the property, plant and equipment to cost basis.

G : This represents adjustment on depreciation charge arising from the re-statement of property, plant and equipmentto cost basis.






PRC GAAP Re-statement Re-statedaudited income adjustments income

statement (see note below) statementRMB’000 RMB’000 RMB’000

Revenue 81,074 5,154 A 86,557 329 B

Cost of sales (59,067) (3,666) A (63,406)(1,121) B

448 C

Gross Profit 22,007 23,151 Other operating income 987 (822) B 165 Distribution costs (3,659) 109 B (3,550)Administrative expenses (4,976) 1,693 B (3,865)

(582) DOther credits/(charges) 248 (598) B (350)

Profit from operations 14,607 15,551 Finance expense (1,360) 410 B (950)

Profit before tax 13,247 14,601 Income tax (1,590) (1,590)

Profit after tax 11,657 13,011

Note:

A : These adjustments represent transactions to be included in the re-stated income statement to adjust for certainerrors on revenue and expenses recognition in 2001.


C : This represents adjustment on depreciation charge arising from the re-statement of property, plant and equipmentto cost basis.

D : This represents adjustment to recognise staff welfare benefits as an expense item in accordance with theSingapore Financial Reporting Standards.

244

245




24. RE-STATEMENT ADJUSTMENTS


PRC GAAP Re-statementaudited adjustments Re-stated

balance sheet (see note below) balance sheetRMB’000 RMB’000 RMB’000

ASSETSCurrent assetsCash and cash equivalents 3,855 235 B 4,090Trade receivables 7,142 (1,836) B 5,306

5,154 F(5,154) D

Other receivables and prepayments 13,322 200 B 13,522Inventories 22,682 (830) C 21,852

(3,611) F3,611 D


Non-current assetsProperty, plant and equipment 26,170 (425) A 22,135

(425) F(747) H

(3,138) K448 L252 B

Construction work in progress 252 (252) B –



LIABILITIES AND EQUITYCurrent liabilitiesShort-term borrowings 11,850 11,850Trade payables and accrued liabilities 12,383 890 A 14,779

1,005 B212 F

(520) J809 G

Other payables 5,631 (569) B 5,062Income tax payable 5,648 (1,837) B 3,811


Capital and reservesIssued capital 3,680 3,680Reserves 34,231 (3,325) I 27,723

906 F(747) H

(3,138) K85 E

520 J(809) G







Note:

A : These adjustments represent transactions to be included in the re-stated balance sheet to adjust for certain errorson expenses recognition in 2002.


C : This adjustment represents the write down of inventories to lower of cost and market value to conform with therequirement of the Singapore Financial Reporting Standards.

D : These adjustments represent the reversal of revenue and expenses which were previously taken up as a result ofcut-off errors in 2001.

E : This adjustment represents the under-accruals of expenses in respect of prior year taken to income statementwhich the amount was treated as reserve movement under the PRC GAAP.

F : These adjustments represent the effect of 2001 re-statement adjustments.

G : This represents adjustment to recognise staff welfare benefits for 2002 as an expense item in accordance with theSingapore Financial Reporting Standards.

H : This adjustment is to correct the understatement of depreciation on property, plant and equipment in prior years.

I : This adjustment represents the net income statement effect of 2002 re-statement adjustments.

J : This adjustment represents reversal of under-accrual of expense taken to reserve under PRC GAAP. The under-accrual had been adjusted in the re-stated financial statement of 2001.

K : These adjustments are to re-state the property, plant and equipment to cost basis.

L : This represents adjustment on depreciation charge arising from the re-statement of property, plant and equipmentto cost basis.

246




PRC GAAP Re-statement Re-statedaudited income adjustments income

statement (see note below) statementRMB’000 RMB’000 RMB’000

Revenue 116,899 (5,154) D 111,812 67 B

Cost of sales (89,446) 3,611 D (87,448)(85) E

(661) B(1,315) A

448 F

Gross Profit 27,453 24,364 Other operating income 1,255 (871) B 384 Distribution costs (3,734) 109 B (3,625)Administrative expenses (3,790) 1,538 B (3,061)

(809) GOther credits/(charges) 316 (830) C (622)

(108) B

Profit from operations 21,501 17,440 Finance expense (804) (74) B (878)

Profit before tax 20,697 16,562 Income tax (2,483) (2,483)


Note:

A : These adjustments represent transactions to be included in the re-stated income statement to adjust for certainerrors on expenses recognition in 2001.


C : This adjustment represents the write down of inventories to lower of cost and market value to conform with therequirement of the Singapore Financial Reporting Standards.

D : These adjustments represent the reversal of revenue and expenses which were previously taken up as a result ofcut-off errors in 2001.

E : This adjustment represents the under-accrual of expenses in respect of prior year taken to income statement whichthe amount was treated as a reserve movement under the PRC GAAP.

F : This represents adjustment on depreciation charge arising from the re-statement of property, plant and equipmentto cost basis.

G : This represents adjustment to recognise staff welfare benefits for 2002 as an expense item in accordance with theSingapore Financial Reporting Standards.

247




REPORTING STANDARDS ON LAIYANG XINGHUA FOODSTUFFS CO., LTDFOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002

248

LAIYANG XINGHUA FOODSTUFFS CO., LTD


In the opinion of the directors, the accompanying re stated financial statements of the Company, have been prepared in accordance with the Singapore Financial Reporting Standards and present fairly, in all material respects, the state of affairs of the Company as at 31 December 2001 and 2002 and of the results, changes in equity and cash flows of the Company for the financial years ended 31 December 2001 and 2002 and at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due. ON BEHALF OF THE DIRECTORS .......................... .......................... Song Zhixing Director

Tang Xiaoyan Director

25 January 2004



249




We have read the audited financial statements of Laiyang Xinghua Foodstuffs Co., Ltd. (the “Company”) in respect of the financial years ended 31 December 2001 and 2002. These financial statements were prepared in accordance with Accounting Standards for Business Enterprises of the People’s Republic of China (“PRC”) and the Accounting Regulations of the PRC (collectively known

as “PRC GAAP”) and were audited by Chou Cheng Gui He Certified Public Accountants Ltd (

). We have not carried out any subsequent or additional audit procedures on

those financial statements.

The audit reports of Chou Cheng Gui He Certified Public Accountants Ltd for the PRC GAAP audited financial statements for the financial years ended 31 December 2001 and 2002 were reported on without qualification.

Based on the PRC GAAP audited financial statements, the Company has made certain adjustments (see Note 23) to re-state the financial statements and to re-present with expanded disclosure of financial information in order to comply with the Singapore Financial Reporting Standards.

Management is responsible for the Re-stated Financial Statements. Our responsibility in relation to the Re-stated Financial Statements is to issue a report on whether anything has come to our attention to cause us to believe that the Re-stated Financial Statements have not been properly re-stated in all material respects in accordance with the Singapore Financial Reporting Standards.

We conducted our procedures in accordance with Statement of Auditing Practice 24, “Auditors and Public Offering Documents”. This Statement requires that we discuss with management to obtain an understanding of the business and the financial position and performance of the Company for the financial years under review, and of the procedures applied and decisions made by management in identifying, quantifying and making the re-statement adjustments in arriving at the Re-stated Financial Statements. Our procedures in this regard did not involve any audit or review procedures on the financial statements of the Company. Accordingly, we do not express any opinion on the Re-stated Financial Statements.

Based on our procedures, nothing came to our attention to cause us to believe that the Re-stated Financial Statements have not been properly re-stated, in all material respects, in accordance with the Singapore Financial Reporting Standards.

Chio Lim & Associates Certified Public Accountants Singapore

Ng Thiam Soon Partner-in-charge

25 January 2004

250



LAIYANG XINGHUA FOODSTUFFS CO., LTD UNAUDITED RE-STATED FINANCIAL STATEMENTS

BALANCE SHEETS

As at 31 December

Notes 2002 2001 RMB’ 000 RMB’ 000

ASSETS

Current assets

Cash and cash equivalents 5 1,540 5,940

Trade receivables 6 1,938 2,906

Other receivables and prepayments 7 1,454 1,628

Inventories 8 11,282 15,133 10

Total current assets 16,214 25,607 11

Non-current asset

Property, plant and equipment 9 22,975 24,564

Total non-current asset 22,975 24,564



Current liabilities

Short-term borrowings 10 6,600 5,300

Trade payables and accrued liabilities 11 7,871 9,285

Other payables 12 11,598 26,986


Capital and reserves

Issued capital 13 4,044 4,044

Reserves 14 9,076 4,556 28


30





251


INCOME STATEMENTS 3

1,000 3

3

Year ended 31 December 36.

Notes 2002 2001 3

RMB’ 000 RMB’ 000 3

3

Revenue 15 46,605 42,707 4

Cost of sales (36,423) (35,316) 4

Gross profit 10,182 7,391 4

Other operating income 16 115 213 4

Distribution costs (813) (663) 4

Administrative expenses (2,325) (2,001) 4

Other credits / (charges) 17 (2,339) (756) 4

Profit from operations 4,820 4,184 4

Finance cost 18 (300) (494) 4

Profit before income tax 19 4,520 3,690 4

Income tax expense 22 – – 5

Net profit for the year 4,520 3,690 5


252




STATEMENTS OF CHANGES IN EQUITY 1

For the year ended 31 December 2001 and 2002 2

3

4

Issued Capital Statutory Retained 5

Capital Reserve Reserve Earnings 6 Total

RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000 7 RMB’ 000

8

Balance at 31 December 2000 4,044 929 – (63) 9 4,910

Net profit for the year – – – 3,690 1 3,690

Appropriation for the year – – 490 (490) 1 –

Balance at 31 December 2001 4,044 929 490 3,137 1 8,600

Net profit for the year – – – 4,520 1 4,520

Appropriation for the year – – 636 (636) 1 –

Balance at 31 December 2002 4,044 929 1,126 7,021 1 13,120

(a) (a)

(a) Not available for distribution as cash dividends. See accompanying notes to financial statements.



253


CASH FLOW STATEMENTS 1.

2.


2002 2001 4.

RMB' 000 RMB' 000 5.

Cash flows from operating activities: 6.

Profit before income tax 4,520 3,690 7.

Adjustments for: 8.

Depreciation expense 1,969 1,965 9.

Operating profit before working capital changes 6,489 5,655 10.

Trade receivables 938 (1,812) 11.

Other receivables and prepaid expenses 204 3,074 12.

Inventories 3,851 (1,842) 13.

Trade payables (1,414) 2,476 14.

Other payables (15,227) (697) 15.

Cash (used in) generated from operations (5,159) 6,854 16.

17. Cash flows from investing activities: 18.

Purchase of property, plant and equipment (541) (1,291) 19.

Net cash used in investing activities (541) (1,291) 20.

21. Cash flows from financing activities: 22.

Increase in borrowings 1,300 220 23.

Net cash from financing activities 1,300 220 24.

25.

26.

Net (decrease) increase in cash (4,400) 5,783 27.

Cash at beginning of year 5,940 157 28.

Cash at end of year 1,540 5,940

29.

30.

See accompanying notes to financial statements. 31.

254




NOTES TO UNAUDITED RE-STATED FINANCIAL STATEMENTS 31 December 2001 and 2002

1 GENERAL The company is incorporated in the People’s Republic of China (“PRC”). The audited financial

statements of the Company, were prepared in accordance with Accounting Standards for Business Enterprises of the PRC and the Accounting Regulations of the PRC (collectively known as “PRC GAAP”) and audited by Chou Cheng Gui He Certified Public Accountants Ltd

( ), are used for the purpose of the re-statement.

To comply with the Singapore Financial Reporting Standards, the PRC GAAP audited

financial statements have been re-stated and re-presented with expanded disclosures of the financial information, to form the Re-stated Financial Statements.

The Re-stated Financial Statements are expressed in Renminbi. They are drawn up in accordance with the Singapore Financial Reporting Standards. The Re-stated Financial Statements were approved and authorised for issue to the shareholders by the board of directors on 25 January 2004.

The principal activities of the company are those of processing and sale of frozen foodstuffs. The address of the principal place of business is: Foodstuff Industrial Park, Laiyang, Shandong,

265209, PRC. The company is domiciled in the PRC. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CONVENTION – The Re-stated Financial Statements are prepared in

accordance with the historical cost convention. REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant

risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction (including future costs) can be measured reliably. Revenue from rendering of services that are of short duration is recognised when the services are completed.

GOVERNMENT GRANTS – Government grants in subsidy for export sales are recognised as

income in the income statement on receipt basis. INVENTORIES – Inventories are measured at the lower of cost (weighted average method) and

net realisation value.

INCOME TAX – The income taxes are accounted using the asset and liability method which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised in the financial statement or tax returns. The measurements of current and deferred tax liabilities and assets are based on provisions of the enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised.



255


2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

DEPRECIATION – Depreciation is provided on gross carrying amounts, after deducting 10% residual value, in equal annual instalments over the estimated useful lives of the assets. The annual rates of depreciation are as follows:

Leasehold properties and improvements - 4.5% Plant and equipment - 9% to 18% Land use rights are depreciated on gross carrying amount in equal annual installments over the

leasehold period which the annual rate of depreciation is 6.7%. Fully depreciated assets still in use are retained in the financial statements.

NON-CURRENT ASSETS – Non-current assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of these assets may not be recoverable. Impairment losses are determined based on the difference between fair value, which would generally approximate estimated future cash flows discounted at the company's cost of capital or where appropriate the sale value, and net book value. FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Renminbi as it reflects the economic substance of the underlying events and circumstances of the company. Transactions in foreign currencies are recorded in Renminbi at the rates ruling at the dates of the transactions. At each balance sheet date, recorded monetary balances and balances carried at fair value that are denominated in foreign currencies are reported at the rates ruling at the balance sheet date. All realised and unrealised exchange adjustment gains and losses are dealt with in the income statement.

RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit

plans are recorded as an expense as they fall due. Contributions made to state managed retirement benefit plan are dealt with as defined contribution retirement benefit plans.

ACCOUNTING ESTIMATES – The preparation of financial statements in conformity with generally accepted accounting principles requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

LIABILITIES AND PROVISIONS – A liability and provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.



CREDIT RISK ON FINANCIAL ASSETS – Financial assets that are potentially subject to concentrations of credit risk consist principally of cash, cash equivalents and trade and other accounts receivable. The directors believe that the financial risks associated with these financial instruments are minimal. The company places its cash and cash equivalents with high credit quality institutions. The company performs ongoing credit evaluation of its debtors’ financial condition and maintains a provision for doubtful accounts receivable based upon the expected collectibility of all accounts receivable.

256





OTHER RISKS ON FINANCIAL INSTRUMENTS – The company monitors its interest, foreign exchange risks, and changes in fair values from time to time and any gains and losses are included in the income statement. The company is exposed to interest rate price risk for financial instruments with a fixed interest rate and to interest rate or cash flow risk for financial instrments with a floating interest rate that is reset as market rates change. The company is also exposed to changes in foreign exchange rates and liquidity of businesses. The company does not utilise forward contracts or other arrangements to minimise these risks and it does not utilise forward contracts or other arrangements for trading or speculative purposes. At 31 December 2001 and 2002 there were no such arrangements, interest rate swap contracts or other derivative instruments outstanding. FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable, other current assets, short-term borrowings, accounts payable and other current liabilities approximate their fair values due to the short-term maturity of these instruments.

3 HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS

The company is a subsidiary of Shandong Jilong Shiye Co., Ltd, incorporated in the PRC which is also the company’s ultimate holding company. Related companies in these financial statements refer to members of the company's group of companies.

Some of the company's transactions and arrangements are between members of the group and

the effects of these on the basis determined between the parties are reflected in these financial statements. The intercompany balances are without fixed repayment terms and interest unless stated otherwise.

Significant intercompany transactions: In addition to the transactions and balances disclosed elsewhere in the notes to the financial

statements, this item includes the following (and it includes transactions within the group): -

2002 RMB’ 000

2001 RMB’ 000

Revenue (70) –

Purchases of goods 76 224 Rental income – (61) Management fees 672 – Transfer of plant and equipment (to) / from

holding company (161) 136



257


4 RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and or directors or

management. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decision.

Some of the company’s transactions and arrangements and terms thereof are with related

parties and the effect of these on the basis determined between the parties are reflected in these financial statements. The balances are without fixed repayment terms and interest unless stated otherwise. 2002

RMB’ 000 2001

RMB’ 000 Purchases of goods 841 2,360 Rental income (12) (108)

5 CASH AND CASH EQUIVALENTS

2002 RMB’000

2001 RMB’000

Not restricted in use 40 5,940 Restricted (a) 1,500 –

1,540 5,940

Analysis of above amount by currency:-

2002 RMB’000

2001 RMB’000

Renminbi 1,532 5,871 United States dollar 8 69

(a) This is for bank balance held by banker to secure the short term borrowing (Note 10).

6 TRADE RECEIVABLES

2002 RMB’ 000

2001 RMB’ 000

Outside parties 1,938 2,876 Related party (Note 4) – 30

1,938 2,906

In 2002, a sum of VAT receivable amounting to RMB2,500,000 was used to secure a short-

term borrowing of RMB1,600,000 (Note 10).

The average credit period taken by customers is 15 days in 2002 and 25 days in 2001. The directors consider that the carrying amount of trade receivables approximates to their fair value.

Concentration of customers: Top 1 customer 222 200 Top 2 customers 312 –

258




7 OTHER RECEIVABLES AND PREPAYMENTS

2002 RMB’ 000

2001 RMB’ 000

Related companies (Note 3) 1,298 1,143 Related party (Note 4) 8 – Staff advances – 54 Other receivables 148 162 Advance payment for purchases – 217 Advance payment on purchase of plant and equipment

from a related company (note 3)

–

52

1,454 1,628

8 INVENTORIES

2002 RMB’ 000

2001 RMB’ 000

Finished goods and goods for resale, at cost 9,401 14,915 Raw materials and consumables, at cost 90 120 Inventories carried at net realisable value 1,791 98

11,282 15,133

9 PROPERTY, PLANT AND EQUIPMENT

1. 1. 2. Land

use right

3. Leasehold properties and improvements

Plant and equipment

2. Construction in progress

4.

Total RMB’000 5. RMB’000 RMB’000 3. RMB’000 6. RMB’000 Cost: 7. 4. 8. At 1 January 2001 1,737 9. 20,063 8,685 5. 147 10 30,632 Additions 2 11 4 1,242 6. 43 12 1,291 Transfer from holding company

–

13 –

192

7. –

14 192

At 31 December 2001

1,739 15 20,067 10,119 8. 190 16 32,115

Additions 100 17 2 209 9. 230 18 541 Reclassification – 19 158 262 10 (420) 20 – Transfer (to) holding company

–

21 –

(220)

11 –

22 (220)

At 31 December 2002 1,839 23 20,227 10,370 12

– 24 32,436



259


9 PROPERTY, PLANT AND EQUIPMENT (Cont’d)

Land use right

25 Leasehold properties and improvements

Plant and equipment

13 Construction in progress

26

Total RMB’000 27 RMB’000 RMB’000 14 RMB’000 28 RMB’000 Accumulated depreciation:

29 15 30

At 1 January 2001 60 31 3,896 1,574 16 – 32 5,530 Charge for the year 120 33 1,032 813 17 – 34 1,965 Transfer from holding company

–

35 –

56

18 –

36 56

At 31 December 2001

180 37 4,928 2,443 19 – 38 7,551

Charge for the year 120

39 903

946

20 –

40 1,969

Transfer (to) holding company

–

41 –

(59)

21 –

42 (59)

At 31 December 2002 300 43 5,831 3,330 22 – 44 9,461

45 23 46 Net book value: 47 24 48 At 31 December 2001 1,559 49 15,139 7,676 25 190 50 24,564

At 31 December 2002 1,539 51 14,396 7,040 26 – 52 22,975

10 SHORT-TERM BORROWINGS

2002 RMB’ 000

2001 RMB’ 000

Bank loans 6,600 5,300

The bank loans are at interest rates at rates varying from 5.31% to 7.605% in 2002 and 7.254%

to 7.605% in 2001. The loans relating to the year 2001 are secured by way of customer’s letters of credit. In the year 2002, a sum of Renminbi 1,600,000 loan is secured using the company’s VAT receivables (Note 6). Another sum of Renminbi 5,000,000 loan is partially secured on the bank deposit (Note 5).

11 TRADE PAYABLES AND ACCRUED LIABILITIES

2002 RMB’ 000

2001 RMB’ 000

Outside parties and accrued liabilities 6,844 8,594 Related party (Note 4) 464 446 Provision for staff benefit costs 563 245

7,871 9,285

The average credit period taken by the company to settle payables is about 79 days in 2002 and 96 days in 2001.

260




12 OTHER PAYABLES

2002 RMB’ 000

2001 RMB’ 000

Holding company (Note 3) – 24,535 Related companies (Note 3) – 225 Related parties (Note 4) 9,829 – Other payables 1,769 2,226

11,598 26,986

13 ISSUED CAPITAL

2002 RMB’ 000

2001 RMB’ 000

Registered capital 4,135 4,135

Fully paid capital 4,044 4,044

14 RESERVES

2002 RMB’ 000

2001 RMB’ 000

Statutory reserve 1,126 490 Capital reserve 929 929 Retained earnings 7,021 3,137

9,076 4,556

The statutory reserve is set up as required under the local regulations and represents a non

distributable reserve made at a rate of 10% of net profit after tax. Contribution to this reserve is no longer mandatory when the reserve reaches 50% of the registered share capital. The reserve is to be used in accordance to the circumstances as stipulated in the regulations.

The capital reserve represents the excess of the value of assets contribution over required capital contribution.

15 REVENUE

2002 RMB’ 000

2001 RMB’ 000

Sale of goods 46,605 42,707



261


16 OTHER OPERATING INCOME

2002 RMB’ 000

2001 RMB’ 000

Rental Income 30 170 Government grant 85 43

115 213

17 OTHER CREDITS (CHARGES )

2002 RMB’ 000

2001 RMB’ 000

Preliminary expenses written off – (111) Inventories write-down (2,343) (513) Foreign exchange adjustment loss (23) (59) Others 27 (73)

(2,339) (756)

18 FINANCE COST

2002 RMB’ 000

2001 RMB’ 000

Interest expense to others 300 494

19 PROFIT BEFORE INCOME TAX In addition to the charges and credits disclosed elsewhere in the notes to the re-stated financial

statements, this item includes the following charges (credits): 2002

RMB’ 000 2001

RMB’ 000 Changes in inventories of finished goods 3,822 (2,289)

Depreciation expense 1,969 1,965

Raw materials and consumable used 22,405 27,401

20 STAFF COSTS

2002 RMB’ 000

2001 RMB’ 000

Staff costs including directors 3,568 2,966 Contributions to defined contribution plan – 636

Total staff cost 3,568 3,602


262




21 NUMBER OF EMPLOYEES

2002 2001 Number of employees at end of year (including directors)

334

521

22 INCOME TAX The income tax expense varied from the amount of income tax expense determined by applying

the concessionary income tax rate of 24% for both 2002 and 2001 to profit before income tax as a result of the following differences: 2002

RMB’ 000 2001

RMB’ 000 Income tax expense at the statutory rate 1,085 886 Non-allowable items 752 407 Tax exemption (1,836) (1,293)

Total income tax expense – –

In accordance with the relevant tax laws in the PRC, the company is subject to corporate income tax of 24% on its taxable income. Under the relevant tax laws in the PRC, the company is entitled to exemption on corporate income tax and local income tax for the first two profit making years (after deducting losses incurred in previous years) commencing from the first profitable year, and is entitled to 50% tax reduction for the succeeding three years. No provision for corporate income tax has been made for as the company was in the second profit-making year ended 31 December 2002.



263


23 RE-STATEMENT ADJUSTMENTS


PRC GAAP Re-statement audited adjustments Re-stated balance sheet (see note below) balance sheet RMB'000 RMB'000 RMB'000

ASSETS

Current assets Cash and cash equivalents 4,424 1,516 B 5,940 Trade receivables 3,705 (209) A 2,906 (590) B Other receivables and

prepayments 1,723 (95) B 1,628

Inventories 15,128 518 A 15,133 (513) C


Non-current assets Property, plant and equipment 22,815 1,749 B 24,564 Construction work in progress 190 (190) B - Intangible asset 1,670 (1,559) B - (111) D


Total assets 49,655 - 50,171

LIABILITIES AND EQUITY Current liabilities Short-term borrowings 4,100 1,200 B 5,300 Trade payables and accrued 8,498 653 A 9,285 liabilities 245 E (111) B Other payables 26,624 427 B 26,986 (65) B Income tax payable 620 (620) B -


Capital and reserves Issued capital 4,044 - 4,044 Reserves 5,769 (968) F 4,556 (245) E



264




23 RE-STATEMENT ADJUSTMENTS (Cont’d)

Note: A: These adjustments represent transactions to be included in the re-stated balance sheet

to adjust for certain cut-off errors in 2001. B: These adjustments represent reclassification of balances to conform with the

presentation of 2003 financial statements to enhance comparability. C: This adjustment represents the write down of inventories to lower of cost and market

value to conform with the requirement of the Singapore Financial Reporting Standards. D: This adjustment represents the write-off of preliminary expenses incurred in financial

year 2001. E: This represents adjustment to recognize staff welfare benefits as an expense item in

accordance with the Singapore Financial Reporting Standards. F: This adjustment represents the net income statement effect on the 2001 financial

statements arising from re-statements adjustment in 2001.



265


23 RE-STATEMENT ADJUSTMENTS (Cont’d) Year ended 31 December 2001

PRC GAAP audited income

statement

Re-statement adjustments

(see note below)

Re-stated income

statement

RMB '000

RMB '000

Revenue 42,928 (267) A 42,707

46 B

Cost of sales (35,263) 56 A (35,316)

(109) B

Gross Profit 7,665 7,391

Other operating income 215 (2) B 213

Distribution costs (584) (79) B (663)

Administrative expenses (1,511) (112) B (2,001)

(245) E

(133) A

Other credits/(charges) 44 (176) B (756)

(513) C

(111) D


Finance expense (926) 432 B (494)

Profit before tax 4,903 3,690

Income tax expense - -


Note:

A: These adjustments represent transactions to be excluded from the re-stated income statement to adjust for certain errors on revenue and expenses recognition in 2001.

B: These adjustments represent reclassification of balances to conform with the presentation of 2003 financial statements to enhance comparability.

C: This adjustment represents the write down of inventories to lower of cost and market value to conform with the requirement of the Singapore Financial Reporting Standards.

D: This adjustment represents the write-off of preliminary expenses incurred in financial year 2001.

E: This represents adjustment to recognize staff welfare benefits as an expense item in

accordance with the Singapore Financial Reporting Standards.

266




23 RE-STATEMENT ADJUSTMENTS (Cont’d) Year ended 31 December 2002 PRC GAAP Re-statement audited Adjustments Re-stated

balance sheet (see note below) balance sheet RMB'000 RMB'000 RMB'000 ASSETS Current assets Cash and cash equivalents 40 1,500 B 1,540 Trade receivables 3,420 (1,482) B 1,938 249 F (249) I Other receivables and

prepayments 2,725 (1,271) B 1,454

Inventories 14,138 (2,343) C 11,282 (166) F (347) I


Non-current assets Property, plant and equipment 21,436 1,539 B 22,975 Intangible asset 1,627 (1,539) B - (111) I 23 D


Total assets 43,386 - 39,189

LIABILTIES AND EQUITY Current liabilities Short-term borrowings 6,600 6,600 Trade payables and accrued

liabilities 7,278 32 B 7,871 (135) A (128) F 318 H 506 I Other payables 11,090 197 B 11,598 311 J Income tax payable 1,482 (1,482) B -


Capital and reserves Issued capital 4,044 - 4,044 Reserves 12,892 (50) G 9,076 (1,521) K (1,213) I (403) E (311) J (318) H





267



Note: A: This adjustment represents transactions to be excluded from the re-stated balance

sheet to adjust for certain errors on expenses recognition in 2002. B: These adjustments represent reclassification of balances to conform with the

presentation of 2003 financial statements to enhance comparability.

C: This adjustment represents the write down of inventories to lower of cost and market

value to conform with the requirement of the Singapore Financial Reporting Standards. D: This adjustment represents the reversal of amortisation of pre-incorporation expenses

incurred prior to 2001 which have been written off against opening retained earnings in the re-stated financial statements of 2001.

E: This adjustment represents reversal of over accrual of payroll costs to income statement

which the amount was treated as a reserve movement under the PRC GAAP. F: These adjustments represent the reversal of revenue and expenses which were

previously taken up as a result of cut-off errors in 2001. G: This adjustment represents the write back of payables to income statement which the

amount was treated as a reserve movement under the PRC GAAP. H: This represents adjustment to recognize staff welfare benefits in 2002 as an expense

item in accordance with the Singapore Financial Reporting Standards. I: These adjustments represent the effect of 2001 re-statement adjustments. J: This adjustment is to correct the error on reversing accrued pension expense that was

treated as a reserve movement in the audited PRC GAAP Financial Statements. K: This adjustment represents the net income statement effect of 2002 re-statement

adjustments.

268







statement


(see note below)

Re-stated income

statement

RMB '000 RMB '000

Revenue 46,295 267 F 46,605

43 B

Cost of sales (36,731) (56) F (36,423)

403 E

(39) B


Other operating income 71 44 B 115

Distribution costs (857) (91) B (813)

135 A

Administrative expenses (1,990) (40) B (2,325)

- 23 D

(318) H

Other credits/ (charges) 9 (55) B (2,339)

50 G

(2,343) C


Finance expense (438) 138 B (300)

Profit before tax 6,359 4,520

Income tax expense - -




269



Note:

A: This adjustment represents transactions to be included in the re-stated income statement to adjust for certain errors on expenses recognition in 2002.

B: These adjustments represent reclassification of balances to conform with thepresentation of 2003 financial statements to enhance comparability.

C: This adjustment represents the write down of inventories to lower of cost and market value to conform with the requirement of the Singapore Financial Reporting Standards.

D: This adjustment represents the reversal of amortisation of pre-incorporation expenses incurred prior to 2001 which have been written off against opening retained earnings in the re-stated financial statements of 2001.

E: This adjustment represents the reversal of over accrual of payroll costs to income statement which the amount was treated as a reserve movement under the PRC GAAP.

F: These adjustments represent the reversal of revenue and expenses which were previously taken up as a result of cut-off errors in 2001.

G: This adjustment represents the write back of payables to income statement which the amount was treated as a reserve movement under the PRC GAAP.

H: This represents adjustment to recognize staff welfare benefits in 2002 as an expense item in accordance with the Singapore Financial Reporting Standards.


REPORTING STANDARDS ON LAIYANG JILONG EDIBLE OIL CO., LTD.FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002

270

LAIYANG JILONG EDIBLE OIL CO., LTD.


In the opinion of the directors, the accompanying re stated financial statements of the Company, have been prepared in accordance with the Singapore Financial Reporting Standards and present fairly, in all material respects, the state of affairs of the Company as at 31 December 2001 and 2002 and of the results, changes in equity and cash flows of the Company for the financial years ended 31 December 2001 and 2002 and at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.

ON BEHALF OF THE DIRECTORS .......................... .......................... Song Zhixing Tang Xiaoyan Director Director 25 January 2004



271




We have read the audited financial statements of Laiyang Jilong Edible Oil Co., Ltd. (the “Company”) in respect of the financial years ended 31 December 2001 and 2002. These financial statements were prepared in accordance with Accounting Standards for Business Enterprises of the People’s Republic of China (“PRC”) and the Accounting Regulations of the PRC (collectively known as “PRC GAAP”) and

were audited by Chou Cheng Gui He Certified Public Accountants Ltd ( ).

We have not carried out any subsequent or additional audit procedures on those financial statements.


Based on the PRC GAAP audited financial statements, the Company has made certain adjustments (see Note 20) to re-state the financial statements and re-presented with expanded disclosure of financial information in order to comply with the Singapore Financial Reporting Standards.





Ng Thiam Soon Partner-in-charge

25 January 2004

272



LAIYANG JILONG EDIBLE OIL CO., LTD. UNAUDITED RE-STATED FINANCIAL STATEMENTS

BALANCE SHEETS 1.

2.

As at 31 December 3.

Notes 2002 2001 4.

RMB’000 RMB’000 5.

ASSETS 6.

Current assets 7.

Cash and cash equivalents 650 3,633 8.

Trade receivables 5 2,195 2,171 9.

Other receivables and prepayments 6 953 8,982 10.

Inventories 7 6,682 13,307 11.

Total current assets 10,480 28,093 12.

13.

Non-current asset 14.

Property, plant and equipment 8 11,831 12,628 15.

Total non-current asset 11,831 12,628 16.

17.

Total assets 22,311 40,721 18.

19.

20.

LIABILITIES AND EQUITY 21.

Current liabilities 22.

Trade payables and accrued liabilities 9 4,280 1,622 23.

Other payables 10 6,588 32,383 24.

Income tax payable 2,474 691 25.

Total current liabilities 13,342 34,696 26.

27.

Capital and reserves 28.

Issued capital 11 5,000 5,000

Reserves 12 3,969 1,025 29.

Total equity 8,969 6,025 30.

31.

Total liabilities and equity 22,311 40,721 32.




273


INCOME STATEMENTS 1.

2.


Notes 2002 2001 4.

RMB’000 RMB’000 5.

6.

Revenue 13 66,349 28,417 7.

Cost of sales (57,857) (26,047) 8.

Gross profit 8,492 2,370 9.

Other operating income 14 22 26 10.

Distribution costs (2,508) (33) 11.

Administrative expenses (1,295) (605) 12.

Other credits / (charges) 15 26 (5) 13.

Profit before income tax 16 4,737 1,753 14.

Income tax expense 19 (1,793) (702) 15.

Net profit for the year 2,944 1,051 16.

17.

STATEMENTS OF CHANGES IN EQUITY

For the year ended 31 December 2001 and 2002

Issued Statutory Retained 3.

Capital Reserves Earnings Total 4.

RMB’000 RMB’000 RMB’000 RMB’000 5.

6.

Balance at 31 December 2000 5,000 – (26) 4,974 7.

Net profit for the year – – 1,051 1,051 8.

Appropriation for the year – 208 (208) – 9.

Balance at 31 December 2001 5,000 208 817 6,025 10.



Balance at 31 December 2002 5,000 724 3,245 8,969 13.

(a) 14.

(a) Not available for distribution as cash dividends. See accompanying notes to financial statements.

274




CASH FLOW STATEMENTS 15

16


17

2002 2001 18

RMB'000 RMB'000 19

Cash flows from operating activities: 20

Profit before income tax 4,737 1,753 21

Adjustments for: 22

Depreciation expense 1,115 928 23

Interest income (22) (26)

Operating profit before working capital changes 5,830 2,655 24

Trade receivables (54) (98) 25

Other receivables and prepaid expenses 8,059 (1,460) 26

Inventories 6,625 204 27

Trade payables 2,658 514 28

Other payables (25,795) 2,068 29

Cash (used in) generated from operations (2,677) 3,883 30

Income tax paid (10) (299) 31

Interest received 22 26 32

Net cash (used in) from operating activities (2,665) 3,610 33

34

Cash flows from investing activities: 35

Disposal of property, plant and equipment 99 235 36

Purchase of property, plant and equipment (417) (1,371) 37

Net cash used in investing activities (318) (1,136) 38

39

Net (decrease) increase in cash (2,983) 2,474 40

Cash at beginning of year 3,633 1,159 41

Cash at end of year 650 3,633 42

43

44

45

See accompanying notes to financial statements. 46



275



1 GENERAL The company is incorporated in the People’s Republic of China (“PRC”). The audited

financial statements of the Company, prepared in accordance with Accounting Standards for Business Enterprises of the PRC and the Accounting Regulations of the PRC (collectively known as “PRC GAAP”) and audited by Chou Cheng Gui He Certified Public Accountants Ltd


To comply with the Singapore Financial Reporting Standards, the PRC GAAP audited financial statements have been re-stated and re-presented with expanded disclosures of the financial information, to form the Re-stated Financial Statements.

The Re-stated Financial Statements are expressed in Renminbi. They are drawn up in

accordance with the Singapore Financial Reporting Standards. The Re-stated Financial Statements were approved and authorised for issue to the shareholders by the board of directors on 25 January 2004.

The principal activities of the company are those relating to the processing and sale of edible

oil. The address of the principal place of business is: 26 Heshan Road, Laiyang, Shandong,

265200, PRC. The company is domiciled in the PRC. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CONVENTION – The Re-stated Financial Statements are prepared in

accordance with the historical cost convention. REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant

risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction (including future costs) can be measured reliably.

INVENTORIES – Inventories are measured at the lower of cost (weighted average method)

and net realisation value.


276




2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) DEPRECIATION – Depreciation is provided on gross carrying amounts, after deducting 10%

residual value, in equal annual instalments over the estimated useful lives of the assets. The annual rates of depreciation are as follows:

Leasehold properties - 4.5% Plant and equipment - 9% to 18% Land use rights are depreciated on gross carrying amount in equal annual instalments over

the leasehold period which the annual rate of depreciation is 2%


NON-CURRENT ASSETS – Non-current assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of these assets may not be recoverable. Impairment losses are determined based on the difference between fair value, which would generally approximate estimated future cash flows discounted at the company's cost of capital or where appropriate the sale value, and net book value.

RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. Contributions made to state managed retirement benefit plan are dealt with as defined contribution retirement benefit plans.








277



OTHER RISKS ON FINANCIAL INSTRUMENTS – The company monitors its interest, foreign exchange risks, and changes in fair values from time to time and any gains and losses are included in the income statement. The company is not exposed to interest rate price risk for financial instruments with a fixed interest rate and to interest rate or cash flow risk for financial instruments with a floating interest rate that is reset as market rates change. The company is also not exposed to changes in foreign exchange rates. At 31 December 2001 and 2002 there were no forward contracts or other arrangements for trading or speculative purposes, interest rate swap contracts or other derivative instruments outstanding. FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values due to the short-term maturity of these instruments.


The company is a subsidiary of Laiyang Jilong Shiye Co., Ltd, incorporated in the PRC which is also the company's ultimate holding company. Related companies in these financial statements refer to members of the ultimate holding company's group of companies.

Some of the company's transactions and arrangements are between members of the group and the effects of these on the basis determined between the parties are reflected in these financial statements. The intercompany balances are without fixed repayment terms and interest unless stated otherwise.

Significant intercompany transactions: In addition to the transactions and balances disclosed elsewhere in the notes to the financial

statements, this item includes the following (and it includes transactions within the group): -

2002 RMB’000

2001 RMB’000

Purchases of goods – 10

Sale of plant and equipment 121 235

Purchase of plant and equipment 184 1,173

278




4 RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and or directors or

management. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decision.

Some of the company's transactions and arrangements are with related parties and the effect of these on the basis determined between the parties are reflected in these financial statements. The balances are without fixed repayment terms and interest unless stated otherwise.

Significant related party transactions: In addition to the transactions and balances disclosed elsewhere in the notes to the financial

statements, this item includes the following:- 2002

RMB’000 2001

RMB’000 Revenue 1,759 –

Purchases of goods 1,300 202

5 TRADE RECEIVABLES

2002 RMB’000

2001 RMB’000

Outside parties 1,520 2,140 Related parties (Note 4) 675 31

2,195 2,171

The average credit period taken by customers is 12 days in 2002 and 27 days in 2001. The

directors consider that the carrying amount of trade receivables approximates to their fair value.

Concentration of customers: Top 1 customer 529 2,117 Top 2 customers 1,041 – Top 3 customers 1,425 –


2002 RMB’000

2001 RMB’000

Holding company (Note 3 ) 214 8,350 Related companies (Note 3) – 383 Related parties (Note 4 ) 40 – Other receivables 658 225 Prepayments 41 24

953 8,982



279


7 INVENTORIES

2002 RMB’000

2001 RMB’000

At cost - Finished goods 3,813 7,700 Work in progress 1,449 5,423 Raw material and consumables 1,420 184

6,682 13,307


Land use

right

Leasehold properties

Plant and equipment

Construction in progress

Total

1

Cost:

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

2

At 1 January 2001 1,217 7,367 5,608 – 14,192 3Additions – 43 1,328 – 1,371 4Disposal – – (388) – (388) 5

At 31 December 2001 1,217 7,410 6,548 – 15,175 6Additions – – 405 12 417 7Disposals – – (121) – (121) 8

At 31 December 2002 1,217 7,410 6,832 12 15,471 9

10Accumulated depreciation:

11

At 1 January 2001 25 1,025 722 – 1,772 12Charge for the year 24 344 560 – 928 13Disposal – – (153) – (153) 14

At 31 December 2001 49 1,369 1,129 – 2,547 15Charge for the year 24 345 746 – 1,115 16Disposal – – (22) – (22) 17

At 31 December 2002 73 1,714 1,853 – 3,640 18

19Net book value: 20At 31 December 2001 1,168 6,041 5,419 – 12,628 21

At 31 December 2002 1,144 5,696 4,979 12 11,831 22


2002 RMB’000

2001 RMB’000

Outside parties 3,716 1,422 Related parties (Note 4) – 38 Accrued liabilities 564 162

4,280 1,622

The average credit period taken by the company to settle payables is about 27 days in 2002 and 23 days in 2001.

280




10 OTHER PAYABLES 2002

RMB’000 2001

RMB’000 Holding company (Note 3) – 23,000 Related company (Note 3) – 12 Related party (Note 4) 6,416 1,200 Other payables 172 8,171

6,588 32,383

11 ISSUED CAPITAL

2002 RMB’000

2001 RMB’000

Registered and fully paid capital 5,000 5,000

12 RESERVES

2002 RMB’000

2001 RMB’000

Statutory reserves 724 208 Retained earnings 3,245 817

3,969 1,025

The statutory reserves are set up as required under the local regulations as follows: (i) a non-distributable reserve made at a rate of 10% of net profit after tax.

Contribution to this reserve is no longer mandatory when the reserve reaches 50% of the registered share capital. The reserve is to be used in accordance to the circumstances as stipulated in the regulations. The balances of the reserve as at 31 December 2002 and 31 December 2001 were RMB483,339 and RMB139,040 respectively.

(ii) a staff welfare reserve made at a rate of 5% of net profit after tax. The reserve is to

be for the general welfare of the staff. The balances of the reserve as at 31 December 2002 and 31 December 2001 were RMB241,669 and RMB69,520 respectively.

13 REVENUE

2002 RMB’000

2001 RMB’000


14 OTHER OPERATING INCOME

2002 RMB’000

2001 RMB’000

Interest income from non-related companies 22 26



281


15 OTHER CREDITS/ (CHARGES) 2002

RMB’000 2001

RMB’000 Others 26 (5)

16 PROFIT BEFORE INCOME TAX In addition to the charges and credits disclosed elsewhere in the notes to the re-stated

financial statements, this item includes the following charges (credits): 2002

RMB’000 2001

RMB’000 Changes in inventories of finished goods and work in

progress 7,861 (2,282) Depreciation expense 1,115 928


17 STAFF COSTS

2002 RMB’000

2001 RMB’000

Contributions to defined contribution plan 23 92 Staff costs including directors 1,348 578

Total staff cost 1,371 670

There were no directors’ remuneration paid for the financial years ended 2001 and 2002. 18 NUMBER OF EMPLOYEES

2002 2001 Number of employees at end of year (including directors) 423 60

19 INCOME TAX

2002 RMB’000

2001 RMB’000

Current 1,793 702

The income tax expense varied from the amount of income tax expense determined by

applying the statutory income tax rate of 33% for both 2002 and 2001 to profit before income tax as a result of the following differences: 2002

RMB’000 2001

RMB’000 Income tax expense at the statutory rate 1,563 578 Non-allowable items 133 121 Under provision in prior years 97 3

Total income tax expense 1,793 702

282





Year Ended 31 December 2001

PRC GAAP

audited Re-statement Re-stated

balance adjustments balance

sheet (See note below) sheet

RMB'000 RMB'000 RMB'000

ASSETS

Current assets

Cash and cash equivalents 3,633 3,633

Trade receivables 2,033 138 A 2,171

Other receivables and prepayments 9,012 (30) A 8,982

Inventories 13,632 (325) B 13,307


Non-current asset

Property, plant and equipment 11,714 1,169 A 12,628

(255) F

Intangible assets 1,182 (1,169) A -

(13) C




Current liabilities Trade payables and accrued liabilities 899 723 A 1,622

Other payables 32,383 32,383

Income tax payable 1,306 (615) A 691



Issued capital 5,000 5,000

Reserve 1,618 (340) D 1,025

28 E

(255) F

(13) C

(13) G





283



Note:

A: These adjustments represent reclassification of balances to conform with the presentation of 2003 financial statements to enhance comparability.

B: This adjustment represents the correction of costing error on inventory.

C: This adjustment represents the write-off of pre-incorporation expenses incurred prior to 2001.

D: These adjustments represent the net income statement effect of 2001 re-statement adjustments.

E: This adjustment represents the reversal of over-accrual of expenses in prior year to income statement which the amount was treated as a reserve movement under the PRC GAAP.

F: This adjustment is to re-state the property, plant and equipment to cost basis.

G: This adjustment represents the reversal of amortisation of pre-incorporation expenses incurred prior to 2001.

284







statement


(See note below)

Re-stated income

statement

RMB '000 RMB '000 RMB '000

Revenue 28,368 49 A 28,417

Cost of sales (25,872) 150 A (26,047)

(325) B


Other operating income 49 (23) A 26

Distribution costs (33) (33)

Administrative expenses (456) (138) A (605)

(11) C

Other credits/ (charges) (5) (5)


Finance expense 25 (25) A -

Profit before income tax 2,076 1,753

Income tax expense (685) (17) C (702)


Note:



C: This adjustment represents the reversal of over-accrual of expenses in prior year to income statement which the amount was treated as a reserve movement under the PRC GAAP.



285




PRC GAAP

audited Re-statement Re-stated

balance adjustments balance

sheet (See note below) sheet

RMB'000 RMB'000 RMB'000

ASSETS

Current assets

Cash and cash equivalents 414 236 A 650

Trade receivables 2,618 (423) A 2,195

Other receivables and prepayments 7,975 (7,022) A 953

Inventories 6,618 (579) B 6,682

643 A


Non-current asset Property, plant and equipment 10,942 1,144 A 11,831

(255) E

Intangible assets 1,144 (1,144) A -

Total non-current assets 12,086 - 11,831

Total assets 29,711 - 22,311


Current liabilities Trade payables and accrued

liabilities 2,285 1,995 A 4,280

Other payables 13,873 (7,285) A 6,588

Income tax payable 3,750 (1,276) A 2,474




Reserves 4,803 (403) B 3,969

162 C

(338) D

(255) E



286





Note:


B: This adjustment represents the net income statement effect of 2002 re-statement adjustments.

C: This adjustment represents the reversal of over-accrual of expenses in prior year to income statement which the amount was treated as a reserve movement under the PRC GAAP.

D: This adjustment represents the effect of 2001 re-statement adjustments.

E: This adjustment is to re-state the property, plant and equipment to cost basis.



287





statement


(See note below)

Re-stated income

statement

RMB '000 RMB '000 RMB '000

Revenue 66,173 176 A 66,349

Cost of sales (57,419) (92) A (57,857)

(579) B

325 C

(92) D


Other operating income 182 (160) A 22

Distribution costs (2,508) - (2,508)

Administrative expenses (1,330) 92 A (1,295)

(70) D

13 C Other credits/ (charges) 21 5 A 26


Finance expense 21 (21) A -


Income tax expense (1,793) (1,793)


Note:



C: This adjustment represents the effect of 2001 re-statement adjustments.

D: This adjustment represents reversal of over-accrual of expenses in prior year to income statement which the amount was treated as a reserve movement under the PRC GAAP.


REPORTING STANDARDS ON LAIYANG JILONG HEALTH DRINKS CO., LTD.FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2002

288

LAIYANG JILONG HEALTH DRINKS CO., LTD.


In the opinion of the directors, the accompanying re stated financial statements of the Company, have been prepared in accordance with the Singapore Financial Reporting Standards and present fairly, in all material respects, the state of affairs of the Company as at 31 December 2001 and 2002 and of the results, changes in equity and cash flows of the Company for the financial years ended 31 December 2001 and 2002 and at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due. ON BEHALF OF THE DIRECTORS .......................... .......................... Song Zhixing Director

Tang Xiaoyan Director

25 January 2004



289




We have read the audited financial statements of Laiyang Jilong Health Drinks Co., Ltd. (the “Company”) in respect of the financial years ended 31 December 2001 and 2002. These financial statements were prepared in accordance with Accounting Standards for Business Enterprises of the People’s Republic of China (“PRC”) and the Accounting Regulations of the PRC (collectively known as “PRC GAAP”) and were audited by Chou Cheng Gui He Certified Public Accountants Ltd

( ). We have not carried out any subsequent or additional audit

procedures on those financial statements.


Based on the PRC GAAP audited financial statements, the Company has made certain adjustments (see Note 21) to re-state the financial statements and to re-present with expanded disclosure of financial information in order to comply with the Singapore Financial Reporting Standards.






25 January 2004

290



LAIYANG JILONG HEALTH DRINKS CO., LTD. UNAUDITED RE-STATED FINANCIAL STATEMENTS

BALANCE SHEETS 1.

As at 31 December 2.

Notes 2002 2001 3.

RMB’000 RMB’000 4.

ASSETS 5.

Current assets 6.

Cash and cash equivalents 537 8,234 7.

Trade receivables 5 1,311 316 8.

Other receivables and prepayments 6 1,893 5,004 9.

Inventories 7 4,037 3,500 10.

Total current assets 7,778 17,054 11.

12.

Non-current asset 13.

Property, plant and equipment 8 11,869 8,856 14.

Total non-current asset 11,869 8,856 15.

16.

Total assets 19,647 25,910 17.

18.

19.

LIABILITIES AND EQUITY 20.

Current liabilities 21.

Trade payables and accrued liabilities 9 5,494 3,865 22.

Other payables 10 3,755 18,873 23.

Income tax payable 2,007 963 24.

Total current liabilities 11,256 23,701 25.

26.

Capital and reserves 27.

Issued capital 11 5,000 600 28.

Reserves 12 3,391 1,609 29.

Total equity 8,391 2,209 30.

31.

Total liabilities and equity 19,647 25,910 32.




291


INCOME STATEMENTS 33

34


Notes 2002 2001 36

RMB’000 RMB’000 37

38

Revenue 13 26,271 24,889 39

Cost of sales (19,747) (21,201) 40

Gross profit 6,524 3,688 41

Distribution costs (2,382) (185) 42

Administrative expenses (1,316) (583) 43

Profit from operations 2,826 2,920 44

Finance cost 14 – (2) 45

Profit before income tax 15 2,826 2,918 46

Income tax expense 18 (1,044) (963) 47

Net profit for the year 1,782 1,955 48

STATEMENTS OF CHANGES IN EQUITY 1.

For the year ended 31 December 2001 and 2002 2.

3.

4.

Issued Statutory Retained

Capital Reserves Earnings Total 5.

RMB'000 RMB'000 RMB'000 RMB'000 6.

7.

Balance at 31 December 2000 600 – (346) 254 8.


Appropriation for the year – 293 (293) - 10.

Balance at 31 December 2001 600 293 1,316 2,209 11.



Issue of share capital (Note 11) 4,400 – – 4,400 14.

Balance at 31 December 2002 5,000 611 2,780 8,391 15.

(a)

(a) Not available for distribution as cash dividends.


292




CASH FLOW STATEMENTS 1.

2.


2002 2001 4.

RMB’000 RMB’000 5.

Cash flows from operating activities: 6.

Profit before income tax 2,826 2,918 7.

Adjustments for: 8.

Depreciation expense 847 578 9.

Interest expense – 2 10.

Operating profit before working capital changes 3,673 3,498 11.

Trade receivables (995) (256) 12.

Other receivables and prepaid expenses 3,111 (3,986) 13.

Inventories (537) 2,405 14.

Trade payables 1,629 3,077 15.

Other payables (15,118) 7,261 16.

Cash (used in) generated from operations (8,237) 11,999 17.

Interest paid – (2) 18.

Net cash (used in) from operating activities (8,237) 11,997 19.

Cash flows from investing activities:

20.

Disposal of property, plant and equipment 844 43 21.

Purchase of property, plant and equipment (4,704) (3,834) 22.

Net cash used in investing activities (3,860) (3,791) 23.

Cash flows from financing activities:

24.

Proceeds from issuing shares 4,400 – 25.

Net cash from financing activities 4,400 – 26.

Net (decrease) increase in cash (7,697)

8,206

27.

Cash at beginning of year 8,234 28 28.

Cash at end of year 537 8,234 29.

30.

31.

32.

See accompanying notes to financial statements. 33.



293



1 GENERAL

The company is incorporated in the People’s Republic of China (“PRC”). The audited financial statements of the Company, prepared in accordance with Accounting Standards for Business Enterprises of the PRC and the Accounting Regulations of the PRC (collectively known as “PRC GAAP”) and audited by Chou Cheng Gui He Certified Public Accountants Ltd


To comply with the Singapore Financial Reporting Standards, the PRC GAAP audited financial

statements have been re-stated and re-presented with expanded disclosures of the financial information, to form the Re-stated Financial Statements. The Re-stated Financial Statements are expressed in Renminbi. They are drawn up in accordance with the Singapore Financial Reporting Standards. The financial statements were approved and authorised for issue to the shareholders by the board of directors on 25 January 2004. The principal activities of the company are to process and distribute canned food, fruit juices and other health care drinks and peanut related products.

The address of the principal place of business is: 26 Heshan Road, Laiyang, Shandong, 265200, PRC. The company is domiciled in the PRC.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING CONVENTION – The Re-stated Financial Statements are prepared in accordance with the historical cost convention.

REVENUE RECOGNITION – Revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction (including future costs) can be measured reliably.

INVENTORIES – Inventories are measured at the lower of cost (weighted average method) and net realisation value.


294





DEPRECIATION – Depreciation is provided on gross carrying amounts, after deducting 5% residual value, in equal annual instalments over the estimated useful lives of the assets. The annual rates of depreciation are as follows:

Leasehold properties and improvements - 4.75% Plant and equipment - 9.5% to 19%


NON-CURRENT ASSETS – Non-current assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of these assets may not be recoverable. Impairment losses are determined based on the difference between fair value, which would generally approximate estimated future cash flows discounted at the company's cost of capital or where appropriate the sale value, and net book value.

RETIREMENT BENEFITS COSTS – Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. Contributions made to state managed retirement benefit plan are dealt with as defined contribution retirement benefit plans.






OTHER RISKS ON FINANCIAL INSTRUMENTS – The company monitors its interest, foreign exchange risks, and changes in fair values from time to time and any gains and losses are included in the income statement. The company is not exposed to interest rate price risk for financial instruments with a fixed interest rate and to interest rate or cash flow risk for financial instruments with a floating interest rate that is reset as market rates change. The company is also not exposed to changes in foreign exchange rates. At 31 December 2001 and 2002 there were no forward contracts or other arrangements for trading or speculative purposes, interest rate swap contracts or other derivative instruments outstanding. FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of cash, accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values due to the short-term maturity of these instruments.



295



In 2001, the company was a subsidiary of Shandong Jilong Shiye Co., Ltd, incorporated in the People’s Republic of China which is also the company's ultimate holding company. In 2002, the company became the subsidiary of Shandong Jilong Jituan Co., Ltd, incorporated in the People’s Republic of China which is also the company’s ultimate holding company. Related companies in these financial statements refer to members of the ultimate holding company's group of companies in their respective years.

Some of the company's transactions and arrangements are between members of the group and the effects of these on the basis determined between the parties are reflected in these financial statements. The intercompany balances are without fixed repayment terms and interest unless stated otherwise.

Significant intercompany transactions:

In addition to the transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following (and it includes transactions within the group): -

2002

RMB’000 2001

RMB’000 Revenue (39) (56)

Purchases of goods 121 268

Sale of property, plant and equipment (a) – 43

Purchase of property, plant and equipment (a) – 624

(a) Both the sale and purchase transactions of motor vehicles with the holding company

were at net book values. 4 OTHER RELATED PARTY TRANSACTIONS

Related parties are entities with common direct or indirect shareholders and or directors or management. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decision.

Some of the company's transactions and arrangements are with related parties and the effect of these on the basis determined between the parties are reflected in these financial statements. The balances are without fixed repayment terms and interest unless stated otherwise. Significant related party transactions: In addition to the transactions and balances disclosed eslewhere in the notes to the financial statements, this item includes the following: - 2002

RMB’000 2001

RMB’000 Revenue (2,165) (21)

Purchases of goods 1,720 –

Management fees 111 –

Sale of property, plant and equipment 179 –

296




5 TRADE RECEIVABLES 2002

RMB’000 2001

RMB’000 Outside parties 1,040 281 Related companies (Note 3) – 33 Related parties (Note 4) 271 2

1,311 316

The average credit period taken by customers is about 18 days in 2002 and about 5 days in 2001. The directors consider that the carrying amount of trade receivables approximates to their fair value.

Concentration of customers: Top 1 customer 556 249


2002 RMB’000

1 2001 RMB’000

2 Advance payment on purchase of plant and equipment – 3 2,643 Related party 32 4 – Other receivables 255 5 819 Prepayment to suppliers 1,606 6 1,542

1,893 5,004

7 INVENTORIES

2002 RMB’000

2001 RMB’000

At cost - Finished goods 2,762 806 Raw material and consumables 1,275 2,694

4,037 3,500



297



Leasehold properties andimprovements

Plant and equipment

Construction in progress

Total

1

Cost:

RMB’000 RMB’000 RMB’000 RMB’000

2

At 1 January 2001 2,274 3,790 – 6,064 3Additions 4 3,199 631 3,834 4Disposal – (126) – (126) 5

At 31 December 2001 2,278 6,863 631 9,772 6Additions – 3,272 1,432 4,704 7Disposals – (322) (664) (986) 8

At 31 December 2002 2,278 9,813 1,399 13,490 9 10Accumulated depreciation: 11At 1 January 2001 81 340 – 421 12Charge for the year 109 469 – 578 13Disposal – (83) – (83) 14

At 31 December 2001 190 726 – 916 15Charge for the year 104 743 – 847 16Disposal – (142) – (142) 17

At 31 December 2002 294 1,327 – 1,621 18

19Net book value: 20At 31 December 2001 2,088 6,137 631 8,856 21

At 31 December 2002 1,984 8,486 1,399 11,869 22


2002 RMB’000

2001 RMB’000

Outside parties and accrued liabilities 4,925 3,699 Related companies (Note 3) – 166 Related parties (Note 4) 569 –

5,494 3,865

The average credit period taken by the company to settle payables is about 102 days in 2002

and 67 days in 2001. 10 OTHER PAYABLES

2002 RMB’000

2001 RMB’000

Holding company (Note 3) 305 14,805 Related company (Note 3) – 533 Related parties (Note 4) 238 – Other – for advances 2,076 31 Other payables 1,136 3,504

3,755 18,873

298




11 ISSUED CAPITAL 2002

RMB’000 2001

RMB’000 Registered and fully paid capital 5,000 600

During the financial year 2002, the company increased the registered and fully paid capital to RMB 5,000,000 by increasing its registered and fully paid share capital by RMB 4,400,000 for cash.

12 RESERVES

2002 RMB’000

2001 RMB’000

Statutory reserves 611 293 Retained earnings 2,780 1,316

3,391 1,609

The statutory reserves are set up as required under the local regulations as follows:

(i) a non-distributable reserve made at a rate of 10% of net profit after tax. Contribution

to this reserve is no longer mandatory when the reserve reaches 50% of the registered share capital. The reserve is to be used in accordance to the circumstances as stipulated in the regulations. The balances of the reserve as at 31 December 2002 and 31 December 2001 were RMB407,460 and RMB195,475 respectively.

(ii) a staff welfare reserve made at a rate of 5% of net profit after tax. The reserve is for

the construction of infrastructure for the general welfare of the staff. The balances of the reserve as at 31 December 2002 and 31 December 2001 were RMB203,730 and RMB97,738 respectively.

13 REVENUE

2002 RMB’000

2001 RMB’000


14 FINANCE COST

2002 RMB’000

2001 RMB’000

Interest expense to non-related companies – 2



299


15 PROFIT BEFORE INCOME TAX

In addition to the charges and credits disclosed elsewhere in the notes to the financial statements, this item includes the following charges (credits): 2002

RMB’000 2001

RMB’000

Changes in inventories of finished goods 1,956 (4,635)

Depreciation expense 847 578


16 STAFF COSTS 2002

RMB’000 2001

RMB’000 Contributions to defined contribution plan – 164 Staff costs including directors 1,704 677

Total staff cost 1,704 841


17 NUMBER OF EMPLOYEES

2002 2001 Number of employees at end of year (including directors)

146

127

18 INCOME TAX

2002 RMB’000

2001 RMB’000

Current 1,044 963

The income tax expense varied from the amount of income tax expense determined by applying the income tax rate of 33% for both 2002 and 2001 to profit before income tax as a result of the following differences: 2002

RMB’000 2001

RMB’000 Income tax expense at statutory rate 933 963 Non-allowable items 111 –

Total income tax expense 1,044 963

300




19 OPERATING LEASE COMMITMENTS

At the balance sheet date the commitments in respect of operating leases with a term of more than one year were as follows: 2002

RMB’000 2001

RMB’000 Within one year 36 –

Rental expense for the year 118 –

Operating lease payments represent rentals payable by the company for certain of its office

premises. The lease rental terms are negotiated for an average term of one year and rentals may be subject to adjustments based on market conditions upon renewal.

20 CAPITAL EXPENDITURE COMMITMENTS

2002 RMB’000

2001 RMB’000

Estimated amounts commitments for future capital expenditure but not provided for in the financial statements 915

375



301



Year Ended 31 December 2001 PRC GAAP

audited Re-statement adjustments

Re-stated

balance sheet (see note below) balance sheet

RMB '000 RMB '000 RMB '000 ASSETS

Current assets

Cash and cash equivalents 8,234 8,234

Trade receivables 285 31 A 316

Other receivables and prepayments 5,261 1,745 A 5,004

(2,002) C

Inventories 3,172 328 A 3,500


Non-current assets

Property, plant and equipment 5,961 631 A 8,856

2,264 C

Construction in progress 631 (631) A -

Intangible asset 318 (318) B -



-



liabilities 1,662 2,203 A 3,865

Other payables 17,291 1,320 A 18,873

262 C

Income tax payable 2,382 (1,419) A 963



Issued capital 600 600

Reserves 1,927 (318) B 1,609



302





Note: A: These adjustments represent reclassification of balances to conform with the presentation of

2003 financial statements to enhance comparability.

B: This adjustment represents the writeoff of pre-incorporation expenses incurred prior to 2001.

C: This adjustment represents the capitalisation of plant and equipment received and in use in year 2001.



303



Year Ended 31 December 2001 PRC GAAP

audited income

statement


(see note below)

Re-stated income statement

RMB'000 RMB'000 RMB'000

Revenue 24,850 39 A 24,889

Cost of sales (21,026) (175) A (21,201)


Other operating income 39 (39) A -

Distribution costs (160) (25) A (185)

Administrative expenses (780) 197 A (583)

Other credits/(charges) (3) 3 A -


Finance expense (2) (2)

Profit before income tax 2,918 - 2,918

Tax exp - company (963) (963)

Net profit for the year 1,955 - 1,955

Note:


304






PRC GAAP Re-statement audited adjustments Re-stated

balance sheet (see note below) balance sheet

RMB '000 RMB '000 RMB '000

ASSETS

Current assets

Cash and cash equivalents 523 14 A 537

Trade receivables (284) 1,595 A 1,311

Other receivables and prepayments 2,445 (30) A 1,893

(522) B

Inventories 3,015 1,022 A 4,037


Non-current assets

Property, plant and equipment 9,970 998 A 11,869

694 B

(192) E

Construction in progress 399 998 A -

(998) A

Intangible asset 227 (318) D -

91 D



-



liabilities 1,429 3,829 A 5,494

236 F

Other payables 1,321 2,262 A 3,755

172 B

Income tax payable 4,499 (2,492) A 2,007




Reserves 4,046 (428) C 3,391

(227) D





305



Note:


B: This adjustment represents the capitalisation of plant and equipment received and in use in 2002.

C: These adjustments represent the income statement effect of transactions for 2002 to be included in the re-stated financial statements.

D: This adjustment represents the reversal of amortisation of pre-incorporation expenses incurred prior to 2001 which have been written off against opening retained earnings of 2001 of the re-stated financial statements.

E: These adjustments represent additional depreciation for assets received and in use in 2002.

F: This adjustment represents the underaccrual of salary expense for 2002.

306



LAIYANG JILONG HEALTH DRINKS CO., LTD. RE-STATED FINANCIAL STATEMENTS




statement


(see note below) Re-stated income

statement RMB'000 RMB'000 RMB'000

Revenue 25,928 343 A 26,271

Cost of sales (19,511) (192) B (19,747)

(44) A


Other operating income 343 (343) A -

Distribution costs (2,241) (141) A (2,382)

Administrative expenses (1,362) 191 A (1,316)

(236) C

91 D

Other credits/(charges) 6 (6) A -


Finance expense - - -


Tax exp - company (1,044) (1,044)


Note:


B: This adjustment represents additional depreciation for assets received and in use in 2002.

C: This adjustment represents the underaccrual of salary expense for 2002.

D: This adjustment represents the reversal of amortisation of pre-incorporation expenses incurred prior to 2001 which have been written off against opening retained earnings of 2001 of the re-stated financial statements.