2010.01 YIDONG ELEC

Company Name: Ningbo Yidong Electronic Company Limited
Stock Code: 8249
Year end: December 31, 2009

Basis for Disclaimer of Opinion

Bills payables

Included in trade and bills payables as at 31 December 2009 was bills payables of approximately RMB270,000. Due to the lack of adequate documentary evidence for certain bills transactions, we were unable to carry out relevant procedures necessary to satisfy ourselves as to the accuracy of the disclosure in respect of the bills transactions. In addition, we were unable to carry out relevant procedures necessary to satisfy ourselves that the corresponding disclosure in Note 32 to the consolidated financial statements is complete. As a consequence, we were also unable to carry out necessary procedures to satisfy ourselves as to whether the cash flows in connection with bills transactions as presented in the Group’s consolidated cash flow statement were fairly stated.

Material fundamental uncertainty relating to the going concern basis

As explained in Note 2 to the consolidated financial statements, which indicates that the Group incurred a consolidated loss attributable to owners of the Company of approximately RMB70,525,000 for the year ended 31 December 2009 and had a consolidated net current liabilities of approximately RMB468,111,000 as at 31 December 2009, The consolidated financial statements have been prepared on a going concern basis, the validity of which is dependent on the positive cash flows expected to be generated from the Group’s future operations, successful obtain new working capital in order for the Group to meet its financial obligation as they fall due and to finance its future working capital and financial requirements.

We consider that appropriate disclosures have been made in such consolidated financial statements concerning the relevant material uncertainty, but the inherent uncertainties surrounding the circumstances, under which the Group might successfully continue to adopt the going concern basis are so extreme, we have disclaimed our opinion on material uncertainty relating to the going concern basis.

The consolidated financial statements of the Group do not include any adjustment that would be necessary if the Group failed to operate as a going concern. Had the going concern basis not been used, adjustments would have to be made to reduce the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively.

 

Disclaimer of Opinion: Disclaimer of view given by Consolidated Financial Statements

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the consolidated financials statements as to whether they give a true and fair view of the state of affairs of the Group at 31 December 2009 and of the loss and cash flows of the Group for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2010.01 CHINA MEDICAL 02

Company Name: China Medical and Bio Science Limited (Provisional Liquidators Appointed)
Stock Code: 8120
Year end: July 31, 2008

LIMITATION OF AUDIT SCOPE

1. Included in China Medical and Bio Science Limited (Provisional Liquidators Appointed) and its subsidiaries’ (collectively the “Group”) other payables and accruals of HK$50,762,000 were recorded payables of HK$12,507,000 of which no replies to our satisfaction on the direct confirmations from the creditors were received as at the date of this report and there was no sufficient evidence. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves on the completeness of these payables stated in the consolidated balance sheet as at 31 July 2008.

2. Included in the Group’s general and administrative expenses of HK$85,951,000 were legal and professional fee, and research and development expenses of HK$5,781,000 and HK$3,529,000 respectively. No sufficient evidence has been obtained by us and we were unable to satisfy ourselves that these recorded expenses were free from material misstatements.

Any adjustments that might have been found to be necessary in respect of the matters set out in points (1) and (2) above may have a consequential and significant effect on the aforementioned items and the Group’s loss for the year ended 31 July 2008 and the related disclosures in the consolidated financial statements.

BASIS FOR DISCLAIMER OF OPINION

MATERIAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosure made in note 2 to the consolidated financial statements which explains that on 28 July 2009, an exclusivity agreement was entered into among an investor, the Company and the Provisional Liquidators to grant the investor exclusivity for the preparation of a resumption proposal and negotiation in good faith of legally binding agreements for the implementation of the Company’s restructuring proposal and resumption proposal.

The consolidated financial statements have been prepared on a going concern basis on the assumption that the proposed restructuring will be successfully implemented and that, following the restructuring proposal, the Group will continue to meet in full its financial obligations as they fall due in the foreseeable future. The consolidated financial statements do not include any adjustments that would result from a failure to implement the restructuring proposal. We consider that the disclosures are adequate. However, in view of the extent of the material uncertainty relating to the completion of the implementation of the restructuring proposal, we disclaim our opinion in respect of the material uncertainty relating to the going concern basis.

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY CONSOLIDATED FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs regarding the material uncertainty relating to the going concern basis as described above, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view of the state of affairs of the Group as at 31 July 2008 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in our opinion, the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2010.01 CHINA MEDICAL 01

Company Name: China Medical and Bio Science Limited (Provisional Liquidators Appointed)
Stock Code: 8120
Year end: July 31, 2009

LIMITATION OF AUDIT SCOPE

1. The accounting books and records of China Medical and Bio Science Limited (Provisional Liquidators Appointed)’s (the “Company”) wholly-owned subsidiaries, Yang Yang BioProducts (S) (PTE.) LTD. and Japan Yang Yang Bio Products Company Limited (collectively, the “Deconsolidated Subsidiaries”), deconsolidated from the Company’s consolidated financial statements during the year have not been made available to us for our audit.

As a result of the lack of accounting books and records of the Deconsolidated Subsidiaries for our inspection, we were unable to ascertain whether there is any misstatement in the gain on deconsolidation of subsidiaries of HK$9,497,000 included in the consolidated income statement. Similarly, we are unable to satisfy ourselves that the disclosures which have incorporated amounts in relation to the Deconsolidated Subsidiaries as included in the consolidated cash flow statement and notes to the financial statements are fairly stated.

2. Included in the Group’s other payables and accruals of HK$46,091,000 were recorded payables of HK$15,572,000 of which no replies to our satisfaction on the direct confirmations from the creditors were received as at the date of this report and there was no sufficient evidence. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves on the completeness of these payables stated in the consolidated balance sheet as at 31 July 2009.

Any adjustments that might have been found to be necessary in respect of the matters set out in points (1) and (2) above may have a consequential and significant effect on the aforementioned items and the Group’s loss for the year ended 31 July 2009 and the related disclosures in the consolidated financial statements.

MATERIAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosure made in note 2 to the consolidated financial statements which explains that on 28 July 2009, an exclusivity agreement was entered into among an investor, the Company and the Provisional Liquidators to grant the investor exclusivity for the preparation of a resumption proposal and negotiation in good faith of legally binding agreements for the implementation of the Company’s restructuring proposal and resumption proposal.

The consolidated financial statements have been prepared on a going concern basis on the assumption that the proposed restructuring will be successfully implemented and that, following the restructuring proposal, the Group will continue to meet in full its financial obligations as they fall due in the foreseeable future. The consolidated financial statements do not include any adjustments that would result from a failure to implement the restructuring proposal. We consider that the disclosures are adequate. However, in view of the extent of the material uncertainty relating to the completion of the implementation of the restructuring proposal, we disclaim our opinion in respect of the material uncertainty relating to the going concern basis.

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY CONSOLIDATED FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs regarding the material uncertainty relating to the going concern basis as described above, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view of the state of affairs of the Group as at 31 July 2009 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in our opinion, the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2010.01 INFO COMM HOLD

Company Name: Info Communication Holdings Limited
Stock Code: 8082
Year end: March 31, 2009

Basis for disclaimer of opinion

Scope limitation – Existence and valuation of a deposit for acquisition of mining interests and related borrowings

Included in the consolidated balance sheet as at 31 March 2009 are a deposit for acquisition of mining interests of US$20,000,000 (equivalent to approximately HK$156,000,000) in respect of the proposed acquisition of the entire equity interest in Triumph Fund A Limited (the “Deposit”) and related borrowings of US$20,000,000 (equivalent to approximately HK$156,000,000) (the “Borrowings”) as explained in Notes 26 and 29 to the consolidated financial statements, respectively. We were advised by the management that the Borrowings were taken out by the Group to finance payment of the Deposit. However, we were unable to obtain certain independent audit confirmations and sufficient audit evidence as to the existence and valuation of the Deposit and the Borrowings as at 31 March 2009. We were therefore unable to obtain other satisfactory audit evidence to satisfy ourselves as to the existence and valuation of the Deposit and the Borrowings as at 31 March 2009. Moreover, subsequent to the balance sheet date, as explained in Note 37 to the consolidated financial statements, we were advised by the management that the Group had been fully released and discharged from all the obligations and guarantees in relation to the Borrowings by way of deeds of release and discharge executed under seal in favour of the Group. However, we were unable to obtain certain independent audit confirmations and sufficient audit evidence as to the validity of the mode of settlement of the Deposit and the Borrowings subsequent to the balance sheet date.

Had we been able to satisfy ourselves in respect of the above mentioned matters, adjustments might have been found to be necessary which would have had a consequential effect on the net assets of the Group as at 31 March 2009 and its net loss for the year ended 31 March 2009 and the related disclosures thereof.

Disclaimer of opinion: disclaimer on view given by financial statements

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view of the state of affairs of the Group and of the Company as at 31 March 2009 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in our opinion the consolidated financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as further set out in the basis of opinion section of this report, namely the existence and valuation of a deposit for acquisition of mining interests and related borrowings, we have not obtained all the information and explanations that we consider necessary for the purpose of our audit.

Without further qualifying our opinion, we draw attention to Notes 3, 29 and 37 in the consolidated financial statements which indicate that the Group had borrowings of approximately HK$156,000,000 under current liabilities and the Group also incurred a net loss of approximately HK$36,164,000 for the year ended 31 March 2009. These conditions, along with other matters as set forth in Notes 3, 29 and 37, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.

2010.01 SRGL

Company Name: Sino Resources Group Limited
Stock Code: 223
Year end: March 31, 2009

BASIS FOR DISCLAIMER OF OPINION

(a) 黑龍江北方企業集團有限責任公司 (transliterated as “Heilongjiang Northern Enterprises Group Co., Ltd”) (the “Mine Seller”) and Wealth Gain Global Investment Limited, a wholly owned subsidiary of the Group (the “Subsidiary”) (collectively referred to as the “Parties”) entered into an agreement dated 30 October 2007 (as supplemented by a supplemental agreement dated 31 December 2007) (the “Mine Acquisition Agreement”) in respect of the transfer of Shuangyashan Northern Sheng Ping Mining Limited (the “Coal Mine Company”) from the Mine Seller to the Subsidiary (the “Transfer”). The Parties also entered into an agreement dated 31 October 2008 (the “Mine Acquisition Extension Agreement”), pursuant to which the Parties agreed to extend the time of payment of the consideration for the Transfer to 16 April 2009, with an option to extend such time for a further three months to 16 July 2009. However, during the financial year ended 31 March 2009 and subsequently, the Mine Seller alleged that the Mine Acquisition Agreement did not comply with the relevant laws and regulations of the People’s Republic of China (the “PRC”) and was therefore invalid. The Mine Seller also alleged that the Mine Acquisition Extension Agreement was filed and registered with the relevant PRC authorities without the knowledge of the Mine Seller, and the Mine Seller proceeded to apply for the cancellation of the registration of the Mine Acquisition Extension Agreement.

On the other hand, the Mine Seller claimed that the only valid agreement in respect of the Transfer was an agreement dated 25 March 2008 which was allegedly entered into between the Parties and which was filed and registered with the relevant PRC authorities.

On 17 January 2009, the Mine Seller filed a statement of claim against the Subsidiary (the “Statement of Claim”) with the High Court of the Heilongjiang Province of the PRC (the “Court”) seeking, among other things, (1) a rescission of the relevant agreements in respect of the Transfer; (2) the return of the entire equity interest in the Coal Mine Company to the Mine Seller; and (3) costs and other relief. On 20 April 2009, the Company received a summons from the Court (attaching the Statement of Claim) as official notice of proceedings against the Subsidiary (the “Litigation”). Court hearings were held on 22 July 2009 and 13 November 2009 and up to the date of this report, no judgment has been made by the Court.

On 21 January 2009, the board of directors of the Company (the “Board”) formed a special committee (comprising all independent non-executive directors of the Company and a director of the Company) to review the Transfer (the “Special Committee”). Based on the Special Committee’s report dated 9 December 2009, the Special Committee formed a preliminary conclusion that the Mine Acquisition Agreement was legally binding. Accordingly the Board considered that it was appropriate to consolidate the financial information of the Coal Mine Company into the Group’s consolidated financial statements for the year ended 31 March 2009 in accordance with the terms of the Mine Acquisition Agreement and the Mine Acquisition Extension Agreement.

On 15 December 2009, the Company issued proceedings against Mr. Hung Chen Richael (“Mr. Hung”), a former executive director of the Company and a substantial shareholders of the Company, at the High Court of Hong Kong with regards to a breach of contract by Mr. Hung in connection with a sale and purchase agreement dated 25 September 2007 made between the Company and Mr. Hung in relation to the sale and purchase and subscription of shares in the Subsidiary.

(b) Notwithstanding the preliminary conclusion reached by the Special Committee in its report dated 9 December 2009 that the Mine Acquisition Agreement was legally binding and therefore considered it was appropriate to consolidate the financial statements of the Coal Mine Company into the Group’s consolidated financial statements for the year ended 31 March 2009 as explained in (a) above, we consider that the circumstances surrounding the Litigation indicate that there are uncertainties as to the validity of the Mine Acquisition Agreement and the Mine Acquisition Extension Agreement which may cast significant doubt as to the appropriateness of the accounting treatment adopted by the Group in accounting for the Transfer and the related disclosures thereof. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009, the profit and cash flows of the Group for the year then ended and the related disclosures thereof. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

(c) As explained in (a) above, the Mine Seller has initiated legal proceedings against the Subsidiary in the PRC. The directors of the Company are of the opinion, after obtaining legal advice from the Company’s legal advisors, that the Litigation can be defended and may not result in a loss of control of the Coal Mine Company. However, there is uncertainty as to whether the Litigation can be successfully defended. In the event that the outcome of the Litigation was unfavorable to the Group, this might result in a possible loss of control of the Coal Mine Company from the effective date of the rescission of the relevant agreements in respect of the Transfer, and the consolidated financial statements for the year ended 31 March 2009 could be affected. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

(d) Due to the Litigation as explained in (a) above, we were denied full access to the accounting records and management of the Coal Mine Company. Consequently, we were unable to carry out auditing procedures that we consider necessary to satisfy ourselves as to the nature, completeness, accuracy, existence, valuation, classification and disclosures in respect of all the transactions undertaken by the Coal Mine Company during the year ended 31 March 2009 and the related balances as at 31 March 2009. The financial information of the Coal Mine Company which has been included in the consolidated financial statements of the Group for the year ended 31 March 2009 is summarised below:

Income and expenses of the Coal Mine Company as included in the consolidated income statement of the Group for the year ended 31 March 2009

HK$’000

Turnover 395,793

Cost of sales 147,885

Other income 212

Selling expenses 1,727

Other operating expenses 86,656

Finance cost 7,563

Taxation 45,369

Profit for the year 106,805

Assets and liabilities of the Coal Mine Company as included in the consolidated balance sheet of the Group as at 31 March 2009

HK$’000

Property, plant and equipment 146,242

Intangible assets 741,357

Inventories 25,185

Deposits, prepayments and other receivables 28,625

Trade receivables 33,616

Cash and bank balances 13,395

Trade payables 23,097

Tax payable 40,436

Deposits received in advance 473

Deferred income 2,719

Accrued liabilities and other payables 83,627

Other borrowings 15,681

Other long term liabilities 76,713

We were unable to determine whether any adjustments to the financial information of the Coal Mine Company as set out above were necessary. We were also unable to carry out auditing procedures that we consider necessary to satisfy ourselves as to the completeness and existence of any significant contingent liabilities, commitments and post balance sheet events relating to the Coal Mine Company. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009 and the profit and cash flows of the Group for the year ended 31 March 2009 and may have resulted in additional information being disclosed in the financial statements as to the nature of the transactions and any significant nonadjusting post balance sheet events relating to the Coal Mine Company.

(e) Included in “goodwill” as shown on the consolidated balance sheet of the Group as at 31 March 2009 was goodwill with carrying amount of approximately HK$341,062,000 arising from the acquisition of the Coal Mine Company. As stated in note 20 to the financial statements, the directors of the Company have carried out an impairment testing on goodwill as at 31 March 2009. However, for reasons as explained in (d) above, we were unable to perform auditing procedures that we consider necessary to satisfy ourselves that the recoverable amount of the goodwill exceeded its carrying amount as at 31 March 2009 and whether any impairment loss should be recognised in accordance with Hong Kong Accounting Standard 36 “Impairment of Assets”. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the net assets of the Group as at 31 March 2009 and the profit of the Group for the year ended 31 March 2009.

(f) Included in “Interests in subsidiaries” as shown on the Company’s balance sheet as at 31 March 2009 was the Company’s investment in the Subsidiary with a carrying amount of approximately HK$689,928,000. As explained in (a) and (c) above, there is uncertainty as to whether the Litigation can be successfully defended. In the event that the outcome of the Litigation was unfavorable to the Group, this might result in a possible loss of control of the Coal Mine Company from the effective date of the rescission of the relevant agreements in respect of the Transfer, and the Company’s financial statements for the year ended 31 March 2009 could be affected. In view of the extent and potential impact of the significant uncertainties described above, we disclaim our opinion in these respects.

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the financial statements as to whether they give a true and fair view of the state affairs of the Group and the Company as at 31 March 2009 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work as described in the basis for disclaimer of opinion paragraph above:

• we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and

• we were unable to determine whether proper books of account had been kept.

2009.12 C G SOURCE ENGY

Company Name: China Ground Source Energy Limited
Stock Code: 8128
Year end: September 30, 2009

BASIS FOR DISCLAIMER OF OPINION

(a) Included in “prepayments, deposits and other receivables” on the consolidated balance sheet of the Group as at 30 September 2009 was an amount due from 湖南衡興環保科技開發有 限公司 (“衡興環保”) of approximately HK$4,065,000 (the “Balance”) which was recorded by a wholly owned subsidiary of the Company, namely, 深圳市利賽實業發展有限公司 (“利 賽”). During the year ended 30 September 2009, the Group also advanced amounts totaling approximately HK$5,066,000 to and received amounts totaling approximately HK$5,553,000 from 衡興環保. In addition, included in “goodwill” on the consolidated balance sheet of the Group as at 30 September 2009 was goodwill arising from the acquisition of 利賽 of approximately HK$56,658,000. Management of the Group has not classified 衡興環保 as a “related party” as defined in Hong Kong Accounting Standard 24 “Related Party Disclosures” (“HKAS 24”) in the Group’s consolidated financial statements. However, during the course of our audit of the Group’s consolidated financial statements for the year ended 30 September 2009, new evidence has come to light which suggested that 衡興環保 might meet the definition of a “related party” as defined in HKAS 24. As described in note 4(a)(i) to the financial statements, we understand that the board of directors of Company (the “Board”) has resolved to conduct a special investigation for the purpose of, among other things, ascertaining the relationship between the Group and 衡興環保 (the “衡興環保 Investigation”). Up to the date of this report, the 衡興環保 Investigation has not been completed and the outcome of the 衡興環保 Investigation was uncertain. Accordingly, the consolidated financial statements did not include any adjustments or disclosures that would have been necessary if 衡興環保 had been found to be a related party of the Group. The existence of uncertainties surrounding the outcome of the 衡興環保 Investigation may cast significant doubt as to the appropriateness of the accounting treatment adopted by the Group in accounting for 利賽 and 衡興環保 and the related disclosures thereof. Any adjustments or disclosures that might have been found to be necessary in respect of the above would have a consequential significant effect on the accounting treatment adopted by the Group in accounting for 利賽 and 衡興環保 and the related disclosures thereof in the Group’s financial statements and may have resulted in additional information being disclosed in the financial statements as to the nature of the relationship and transactions between the Group and 衡興環保.

(b) Included in prepayments, deposits and other receivables on the consolidated financial statements of the Group as at 30 September 2009 is compensation receivable of approximately HK$160,000,000 arising from the profit guarantee entered into between the Company and the vendor of holding companies of 利賽 in connection with the Group’s acquisition of 利賽 (the “Compensation”). We were unable to obtain sufficient appropriate explanations and evidence as to whether the Compensation is recoverable. There were no other alternative audit procedures that we could perform to satisfy ourselves as to whether the Compensation is recoverable.

(c) 吳江市胜信光電科技有限公司 (“胜信”) was an indirect, non-wholly owned subsidiary of the Company and was disposed of during the year ended 30 September 2009 through the disposal of the Company’s equity interest in Future Frontier Limited (“FFL”), an indirect, wholly owned subsidiary of the Company. Prior to the aforesaid disposal, 胜信 was accounted for as a 51% owned subsidiary since the date of acquisition and up to the date of disposal. However, during the course of our audit of the Group’s consolidated financial statements for the year ended 30 September 2009, new evidence has come to light which suggested that an increase in the registered capital of 胜信 (the “Capital Injection”) which purportedly took place in December 2005 might have diluted the Group’s then equity interest in 胜信 from 51% to 32.74%, thereby casting doubt as to the appropriateness of the accounting treatment previously adopted by the Group in accounting for 胜信. As described in note 4(a)(ii) to the financial statements, the Board has resolved to conduct a special investigation for the purpose of, among other things, ascertaining the extent of the Group’s ownership interests in 胜信 at the material times (the “胜信 Investigation”). Up to the date of this report, the 胜信 Investigation has not been completed and the outcome of the 胜信 Investigation was uncertain. Accordingly, the consolidated financial statements did not include any adjustments or disclosures that would have been necessary if the accounting treatment previously adopted by the Group in accounting for 胜信 had not been appropriate. The existence of uncertainties surrounding the outcome of the 胜信 Investigation may cast significant doubt as to the appropriateness of the accounting treatment previously adopted by the Group in accounting for 胜信 and the related disclosures thereof. Any adjustments that might have been found to be necessary in respect of the above would have a consequential significant effect on the profit and cash flows of the Group for the year ended 30 September 2009 and the related disclosures thereof in the Group’s financial statements.

(d) The Group recorded a gain on disposal of FFL and 胜信 (the “FFL Group”) amounted to approximately HK$2,122,000 based on its unaudited consolidated balance sheet of FFL Group as at 8 September 2009 and unaudited consolidated income of FFL Group for the period from 1 October 2008 to 8 September 2009. The loss of FFL Group prior to disposal included in the Group’s consolidated financial statements amounted to HK$3,766,000. For the period from 1 October 2008 to 8 September 2009, 胜信 reported sales to certain customers and the outstanding receivable balances relating to these sales amounted to HK$15,266,000. We have been unable to obtain sufficient audit evidence on the sales as to the delivery of goods to customers. There is no other sufficient audit evidence available to us to ascertain the validity of these recorded sales transactions In addition, 胜信 recorded on its balance sheet at 8 September 2009 inventory balances amounted to approximately HK$1,463,000. We have unable to obtain sufficient audit evidence as to the accuracy of this inventory balance. Therefore we are unable to satisfy ourselves as to whether the sales of the Group for the year ended 30 September 2009 and the gain on disposal of FFL Group have been accurately recorded.

DISCLAIMER OF OPINION: DISCLAIMER ON VIEW GIVEN BY consolidated FINANCIAL STATEMENTS

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view of the state of the affairs the Group and the Company as at 30 September 2009 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and as to whether the financial statements are properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work as described in the basis for the disclaimer of opinion above, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.

2009.12 SMI PUBLISHING

Company Name: SMI Publishing Group Limited
Stock Code: 8010
Year end: March 31, 2009

Basis for disclaimer of opinion

(1) Scope limitation – borrowings under dispute

Included in the borrowings of the Group and of the Company as at 31 March 2009 are borrowings of approximately HK$77,998,000 and HK$39,082,000 respectively due to several parties. During the year, the Group and the Company accrued an interest expense of approximately HK$2,346,000 and HK$1,182,000 respectively based on the amounts due and the applicable interest rates. However, as detailed in Note 24(b) to the financial statements, the Group is in dispute with these parties over these balances. We were unable either to obtain direct confirmations from these parties or other supporting evidence to satisfy ourselves as to whether the borrowings, accrued interests and interest expenses are free from material misstatement. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to whether the borrowings, accrued interests and interest expenses were fairly stated, which would have a consequential significant effects on net liabilities of the Group and the Company as at 31 March 2009, their losses for the year then ended and the related disclosures in the financial statements.

(2) Scope limitation – Prior year audit scope limitation affecting opening balances

The financial statements of the Group for the year ended 31 March 2008 were audited by another firm of independent auditors whose report dated 5 February 2009 was qualified in respect of scope limitation of insufficient appropriate evidences for verifying the correctness and fairness of certain legal and professional fees of approximately HK$952,000 and transportation charges of HK$1,159,000 recognised for the year ended 31 March 2008.

During the audit, we were not able to obtain sufficient reliable evidence to enable us to assess the correctness and fairness of the above expenditures made for the year ended 31 March 2008. Therefore the comparative amounts may not be comparable and any adjustment to these amounts may have a consequential effect on the opening balance of accumulated losses of the Group at 1 April 2008, its loss for the year ended 31 March 2008 and related disclosures in the financial statements.

(3) Material uncertainties relating to going concern basis

As explained in Note 2 to the financial statements, the directors planned to adopt certain proposed measures (the “Measures”) with the view to improve the Group’s financial and cash flow position and to maintain the Group as a going concern. The directors are of the opinion that the Measures will be successfully implemented.

The Group had net current liabilities of HK$128,317,000 and net liabilities of HK$365,705,000 as at 31 March 2009, which indicate the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern. The Company had net current liabilities of HK$92,250,000 and net liabilities of HK$290,323,000 as at 31 March 2009, which indicate the existence of a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern. These financial statements have been prepared on a going concern basis, the validity of which is dependent on the successful implementation of the Measures.

In the opinion of the directors, if the Measures are not successfully implemented, the Group and the Company would not be a going concern as at the balance sheet date. If that is the case, adjustments might have to be made to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities respectively. We consider that appropriate disclosures have been made. However, the uncertainties surrounding the outcome of the Measures raise significant doubt about the ability of the Group and the Company to continue as a going concern, we have disclaimed our opinion.

Disclaimer of opinion: Disclaimer on view given by financial statements

Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we do not express an opinion on the financial statements as to whether they give a true and fair view of the state of affairs of the Group and of the Company as at 31 March 2009 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards, and as to whether these financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2009.11 UDL HOLDINGS

Company Name: UDL Holdings Limited
Stock Code: 620
Year end: July 31, 2009

Basis for qualified opinion arising from limitation of scope

As at 31 July 2009, the Group has intangible assets with a total carrying value of approximately HK$30,912,000 which represents two licences on the approved list of the port work for the Hong Kong Government and one licence for structural steel engineering work in Mainland China (“Licences”), which were acquired through the acquisition of 100% equity interests in each of Lead Ocean Assets Management Limited and Net Excel Management Limited as referred to in note 35 to the financial statements. The management has estimated the value-in-use for these Licences as cash-generating-units based on the discounted cash flow projections taking into account of certain key assumptions as further detailed in note 18 to the financial statements. Up to the date of approval of these financial statements, the Group is still in the stage of tendering for certain work for which the contracts are not yet awarded. No impairment is considered necessary by the directors of the Company at 31 July 2009. However, we have been unable to ascertain the reasonableness of the key assumptions adopted and data used by the management in the discounted cash flow projections. In consequence, we are unable to determine whether these Licences are fairly stated at 31 July 2009. Any adjustment to the carrying value of the Licences may have a significant impact on the net assets of the Group as at 31 July 2009 and the results of the Group for the year then ended.

 

2009.11 QUAM

Company Name: Quam Limited
Stock Code: 952
Year end: September 30, 2009

Basis for qualified conclusion

Included in the available-for-sale financial assets in the condensed consolidated balance sheet as at 30 September 2009 is the Group’s investment in Seamico Securities Public Company Limited (‘‘Seamico’’) of HK$45,160,000 which represents the fair value of the Group’s Seamico shares at that date, based on the last bid price. Under paragraph 61 of Hong Kong Accounting Standard 39 ‘‘Financial Instruments: Recognition and Measurement’’ (‘‘HKAS 39’’), a significant or prolonged decline in fair value of an investment in an equity instrument below its cost is objective evidence of impairment, the amount of which should be reflected as a charge to the profit or loss. The Seamico shares have been trading below their carrying cost for over 16 months, and in our opinion have been impaired as they satisfy the condition of a prolonged decline. Had the Group made the impairment provision required under HKAS 39, the Group’s profit for the year would have been reduced by HK$17,358,000 with a corresponding increase in the available-for-sale financial assets revaluation reserve of the same amount, with no impact to the total comprehensive income attributable to the equity holders of the Company.

Qualified conclusion

Except for the effect of the matter described in the preceding paragraph, based on our review, nothing has come to our attention that causes us to believe that the interim financial report is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34.

2009.10 BENEFUN INT’L

Company Name: Benefun International Holdings Limited
Stock Code: 1130
Year end: June 30, 2009

Basis for qualified opinion

In last year, we were unable to obtain any evidence to substantiate certain alleged purchase transactions of approximately HK$30.63 million and had qualified our opinion accordingly. Details of the qualification were more fully explained in 2008 audit report. Any adjustments found to be necessary in respect of these transactions would have a consequential effect on the Group’s retained earnings at the beginning of the year, results of the current year and net assets at 30 June 2009.

Included in the consolidated income statement for the year ended 30 June 2009, turnover of approximately HK$43.12 million and cost of sales of approximately HK$30.85 million in relation to the sale and purchase of organic fertilisers (the “Transactions”), were recorded in the last three months of the year. At 30 June 2009, the trade receivables and other receivables of approximately HK$17.36 million and HK$1.27 million respectively were in related to the Transactions. The production processes and operation of this new business were mainly handled by an external sub-contractor, who performed the production process and also collected sales proceeds directly from ultimate customers on the Group’s behalf. However, there was no system of internal control maintained by either the sub-contractor or the Group over the Transactions that we could rely for the purpose of our audit. We have been unable either to obtain adequate reliable information, or to carry out alternative audit procedures to satisfy ourselves that the Transactions, the related taxes, trade receivables and other receivables were properly recorded. Any adjustments found to be necessary in relation to the Transactions would have a consequential effect on the Group’s results and cash flows for the year and net assets at 30 June 2009.

 

Qualified opinion arising from limitation of audit scope

In our opinion, except for the possible effects of matters described in the basis for qualified opinion paragraph, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 30 June 2009, and of the Group’s profit and cash flows for the year then ended in accordance Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of Hong Kong Companies Ordinance.