Annual Report for year ended Dec 2010

03 May 2011

Origo Partners plc

("Origo" or the "Group")

Annual Report for year ended December 31st 2010

Highlights of the year:

- Net asset value: rose by 49 per cent to US$196.6million (2009:US$132.0 million)

- Net asset value per share: rose by 8.2 per cent to US$0.66 (2009: US$0.61)

- Gains in the fair value of investments and from disposals of investments of US$39.7 million

- Cash position of US$33.4 million as at 31st December 2010

- Total investments of US$35.2 million during 2010 in tennew portfolio companies and five follow-on investments

- Total gross proceeds from divestments of US$20.5 million during 2010, including US$11 million in cash raised from IPO of HaloSource, Origo's first exit via a stock exchange listing

- Total comprehensive income after tax of US$36.1 million (2009: US$45.7 million)

- Launch of first RMB denominated fund in partnership with Xinxiang Municipal Government

Chairman's Statement

2010 was once again a year of significant progress for Origo, delivered against a backdrop of another strong performance by the Chinese economy, which grew by 10.3 per cent in the year.

Although much of the developed world struggled to recover from the dislocations caused by the financial crisis, China's economy continued to grow strongly. Whilst there are clouds emerging on the horizon with respect to the Chinese economy, particularly in relation to possible investment bubbles and growing inflation in China, I am confident that the Chinese Government has both the tools and the determination to manage these downside risks.

In an increasingly favourable market environment, the successful execution of the strategy announced last year enabled us to continue to substantially grow our business. The value of our portfolio rose to record levels whilst the value of investments completed during the course of the year, US$35.2 million, was also a record. Most encouragingly, we demonstrated our ability to successfully exit from investments through the partial divestments of selected portfolio companies. Further, we have significantly strengthened our team in order to capitalise on the increasing range of opportunities we see, both in the domestic Chinese market, as well as in markets in the vicinity of China, in particular Mongolia, which are well positioned to serve Chinese demand for natural resources. We are delighted to have recruited a number of experienced Chinese private equity professionals and internationally recognised geologists to our team. Their expertise will, I believe, prove invaluable as we continue to build the business in 2011 and beyond.

Our growing success has been underpinned by the increasing confidence of our investors who, in June 2010, subscribed to a US$30 million placing and - after the year end - supported our first ever convertible offering enabling us to raise a further US$60 million in gross proceeds. We are now in a stronger position to capture investment opportunities as they arise.

I would like to take this opportunity to thank Dipankar Basu who retired in February 2011 due to ill health. Dipankar played a valuable role in the development of Origo in the five years he served as a non-executive director and he will be missed. We will seek to appoint a number of new non-executive directors over the course of 2011 to ensure that our corporate governance standards remain in line with best practice.

Finally, I would like to show my recognition to the entire Origo team, without whose dedication and hard work we would not have experienced such success.

Chief Executive's Statement

I am pleased to report that we have begun to deliver upon the objectives we set out during the merger of Origo Sino India Plc and Origo Resource Partners Ltd to form Origo Partners Plc at the end of 2009. We have successfully refocused the business on our core market of China, completed ten new investments, built a market leading position in the Mongolian natural resources and Chinese cleantech sectors, and begun to realise the value of our maturing portfolio. Further, following a placing in the middle of the year and a successful convertible issuance in early 2011, we have now expanded our robust balance sheet and are in a stronger position than ever to continue to execute on our strategy in 2011 and beyond.

Investments

During the first half of 2010 we worked closely with our portfolio companies and completed the integration of Origo Sino India and Origo Resource Partners' portfolios. In the second half of the year, following a US$30 million placing in June, we accelerated the pace of investments, with a total of US$35.2 million invested in the year, up approximately 20 per cent on 2009.

In 2010, we invested heavily in the metal and mining sector via several attractive projects in Mongolia, a country which has the potential to become a significant supplier of raw materials to China over the coming years. The scale of the opportunity in Mongolia is clear given the estimated US$1.3 trillion value of total mineral reserves in the country and expected investments in the sector over coming years totalling US$13 billion.During 2010 we have successfully built a market leading position in this rapidly developing and high profile market.

Our strategy in Mongolia has followed the principles which have proved successful in our China based operations. Our on the ground team, comprising seasoned transaction personnel coupled with experienced local and expatriate geologists, has given us a significant competitive advantage in sourcing and completing high quality transactions in that territory. The first example of the success of this strategy was our US$2.9 million acquisition of a 25 per cent stake in Kincora Group Ltd, completed in September 2010. Our equity investment was bundled with an option to invest a further US$12 million to increase our ownership to 75 per cent in that company. During the second half of last year, we worked closely with Kincora to fast track the development of their highly prospective Bronze Fox copper-gold deposit and finance our option and further exploration work. After the end of the period we announced the plans to achieve these two objectives through a combination with a Toronto Venture Exchange listed entity, a transaction which we expect to close by end of June of 2011.

In August 2010, we formed ResCap, a Mongolian focused corporate finance advisory services boutique, targeting companies active in or seeking to enter the Mongolian natural resources sector. Established as a joint-venture with a local partner, we believe ResCap will enable us to further consolidate our growing position in Mongolia. Through ResCap's team of experienced corporate finance professionals we are now positioned to benefit from the increasing flow of investment capital into the country. Furthermore, working with ResCap will broaden our deal-flow of investment opportunities and provide improved corporate finance expertise and support to our growing portfolio of Mongolian investee companies.

In 2010, we notably stepped up our investments into the cleantech sector. The Chinese government is committed to supporting the development of a strong, domestic cleantech sector both to cope with the increasing environmental pressures from rapid industrialisation and also to build competiveness in an emerging industry. We have continued to build competence in this sector and completed a number of investments as well as launched our first RMB fund in conjunction with the Xinxiang Municipal Government which will focus on cleantech opportunities.

In June and December 2010, we invested US$4.7 million in Achieve Stars Development Ltd (Niutech Energy Ltd), a provider and operator of recycling systems for waste plastic and scrap-tyres for a fully diluted equity interest of 15.4 per cent. Niutech has developed proprietary, patented technologies for recycling scrap tyres and plastics into fuel oils and other value-added by-products. The proceeds of our investment financed the deployment on several sites in the Asia-Pacific region and Europe.  

In September 2010, we acquired a 16.5 per cent stake in Unipower Battery Ltd for US$4.3 million in order to capitalise on the explosive demand in China for batteries for electric vehicles. Under the terms of the transaction, Huanyu Group, one of China's leading battery producers from which Unipower was spun out and transferred its lithium-ion business and related assets to Unipower. Unipower has performed above expectations since our investment and - after the year-end we announced a follow-on investment of up to US$15 million to enable the company to further expand production to meet soaring demand for its products.

Divestments

We successfully completed a number of divestments during the year, reflecting the growing maturity of our portfolio, raising in total US$20.5 million in gross proceeds.

The successful initial public offering on the AIM market of HaloSource on the London Stock Exchange in October 2010 was a major event for the Group, representing the first capital market introduction for one of our portfolio companies. HaloSource was valued in the IPO at US$160 million (approximately £100 million) post new money, raised gross proceeds of US$50 million. As a result of strong demand from investors seeking to participate in the placing and IPO, Origo sold approximately 60 per cent of its stake to raise US$11 million in cash, resulting in the reduction of Origo's stake in HaloSource to 4.3 per cent. Based upon the placing price of HaloSource's shares, the IPO delivered a 79 per cent uplift on Origo's original investment. At the end of the year, Origo's remaining stake in HaloSource was valued at US$7.3 million, on the basis of the closing price at 31 December 2010 less a 10 per cent liquidity discount to account for a lock-up period which expires in October 2011.

We also announced our intention to sell down part of our beneficial interest in Rising InfoTech to a local Chinese investment company. At the end of the year, we had collected US$2.5 million as a down payment (in consideration for the equivalent of a 0.4 per cent beneficial interest in that particular company). Post the end of the year, and following a number of IPOs by Chinese tech companies in the US, most notably the tremendously successful listing on the NYSE of Qihoo 360 Technology, a Chinese provider of internet security products and of Rising's domestic competitors, we have decided to retain the balance of our interest in that company. As a result, we continue to maintain exposure to a market leader in an attractive market with the opportunity for a capital market event in the mid-term.

A number of smaller divestments were also made during the year, such as the disposal of our 7.1 per cent stake in E-Bill, a Chinese electronic payment services provider. The stake was sold back to E-Bill's founding shareholder for US$2.8 million in cash, generating a 1.4x cash to cash return on the cost of our original investment. Following a review of the evolving Mongolian portfolio of exploration projects, we divested two smaller holdings in Bumbat Consolidated Ltd and Altan Takhi Company for US$1.2 million and US$3 million respectively allowing a greater focus on Origo's two flag-ship Mongolian assets, Gobi Coal & Energy Ltd and Kincora Group Ltd as well as new opportunities presently being evaluated in that market.

Portfolio

At the end of the year, Origo's portfolio of investments (the "portfolio") comprised 25 holdings, up from 19 in the previous period. The carrying value of the portfolio amounted to US$163.0 million, compared to the acquisition cost of US$124.5 million.

The top 10 investments represented 96 per cent of the fair value of the portfolio; the top 5 investments accounted for 81 per cent, reflecting that investments consummated during 2010 were significantly larger than investments completed in earlier periods.

As a result of our significant investment activity in Mongolia during the year, the metals and mining sector represented around half of our total portfolio (2009: 45 per cent). Cleantech investments, as a proportion of the total portfolio, remained stable in 2010 compared to 2009 at 13 per cent, as new capital deployed for this strategy was offset by the partial divestment of our stake in HaloSource and the growth in the size of the portfolio as a whole. Agriculture, 27 per cent of the portfolio, was slightly up from 2009 (2009: 23 per cent), reflecting the increase in the value of our main investment in the sector, R.M. Williams Agricultural Holdings Pty Ltd ("RMWAH"), which raised additional funding at a premium and benefited from a strengthening Australian dollar during the course of the year. In comparative terms, the percentage of the portfolio invested in TMT fell significantly from 19 per cent to 9 per cent in line with the realisation of selected investments in this sector.

 The growing maturity of the portfolio is evident when it is broken down in terms of holding period: 17 per cent of Origo's invested capital was committed during the last 12 months; 33 per cent of the portfolio has been held for 12 to 24 months; and 50 per cent of the portfolio has been on the books for more than 24 months. The weighted average holding period of the portfolio equalled 1.9 years.

Our investment strategy is predicated on value creation through active ownership accompanied by a holding period of three to five years. Accordingly, last year we entered a phase of divestments of the earlier vintages of the portfolio, a trend which we expect to accelerate in 2011 and beyond as the portfolio continues to mature.

Assets under Management

Our asset management business was temporarily put on hold in 2009 due to the global financial crisis and the merger of Origo Sino India and Origo Resource Partners. Nonetheless, assets under management, defined as the Group's own assets and third party funds, increased year on year thanks to the inflow of funds in the 2010 placing and appreciation in the value of our portfolio from US$132 million in 2009 to US$196.6 million in 2010. Subsequent to the end of the year, Origo's balance sheet was further strengthened following the successful completion of the convertible offering, which raised US$60 million in gross proceeds. With the launch of our first RMB fund, and further value uplifts achievable in the portfolio, we anticipate significant growth in this metric during the course of 2011.

Profit and Loss

Revenues for 2010 were US$2.8 million, down by 24 per cent from US$3.7 million in 2009. The decline in the top line is primarily due to the loss of consulting fees following the merger with Origo Resource Partners last year. Administration costs remained stable, coming in at US$6.2 million compared to US$6.1 million in 2009, while cost of sales fell due to the realisation of synergies following the merger.

We posted a gain in the fair value of investments and from disposals of investments of US$39.7 million, including a doubling in the value of our stake in Gobi Coal & Energy (US$26.3 million) and a material increase in the fair value of our position in HaloSource (US$7.9 million).

Our operating loss increased slightly to US$4.7 million (2009: loss of US$4.5 million). However, deducting non-cash based items, the operating loss equalled US$4.1 million, equivalent to just about 2 per cent of our assets, which should serve as a long-term goal for the Group, as it represents the market norm for the cost of managing similar assets.

Post net gains from foreign exchange movements and finance income, Origo posted total comprehensive income after tax of US$36.1million (2009: US$45.7 million).

Balance Sheet

The Directors' valuation of the portfolio at 31 December 2010 was US$163.0 million (2009: US$105.7 million). The increase, after disposals, was contributed to by investments made totalling US$35.2 million and the increase in the fair value of our stakes of the portfolio companies totalling US$37.1 million.

Total cash and cash equivalents at the end of the year were US$33.4 million, representing 17 per cent of our net assets compared to US$25 million or 19 per cent in 2009. This increase in our cash position is primarily due to the US$30 million placing, before expenses, in June 2010 as well as being contributed to by approximately US$20 million of cash generated from realisations of portfolio holdings.

At 31 December 2010, net assets were US$196.6million, compared to US$132.0 million at 31 December 2009. Net asset per share was US$0.66 per share compared to US$0.61 per share as at 31 December 2009. 

Since the end of the year, Origo's balance sheet has been further strengthened following the successful completion of the convertible offering to raise US$60 million.

Outlook

Origo goes into 2011 in a stronger position than at any point in our history. The Chinese economy continues to grow strongly, presenting significant opportunities for those able to successfully navigate the Chinese environment.

We have successfully built strong market positions in our two focus areas, namely the Mongolian natural resource and cleantech sectors, and we increasingly have the financial and human resources to fully capitalise on opportunities as they arise.

Furthermore, we continue to develop our asset management business, comprising both USD and RMB denominated private equity funds. We expect first closing of the fund we launched with the Government of Xinxiang later in the year and are encouraged by the potential to launch similar funds with other Chinese municipal governments in the future.

Finally, in 2010 we began to prove the quality of our portfolio through Origo's first series of exits. We are confident that during 2011 there will be a number of exit opportunities and revaluation events flowing from our portfolio which will enable us to build upon our nascent track record of delivering value from our investments.

Investment Policy Statement

Origo invests predominantly in privately held companies across various sectors of China's economy, and in companies and assets with connections to the Chinese market, with objective being to provide shareholders with above market returns, primarily through capital appreciation.

In terms of stage, Origo generally pursues three kinds of opportunities:

·; investments in pre-IPO opportunities, where the Group can add value through providing assistance in relation to restructuring, international expansion and the listing on a domestic or foreign stock exchange;

·; profitable, expansion stage companies requiring financing to meet working capital requirements, expansion capital and/or as capital to finance merger and acquisition opportunities; and

·; selected earlier-stage companies, which demonstrate compelling prospects for fast-growth and paths to profitability.

At its present level of capitalisation, Origo is unlikely to commit in excess of $20 million to any single investee company at the time of investment. For early-stage opportunities, initial commitments may be less than $1 million. While Origo does not have any set of gearing policy investee companies, directly or indirectly, may themselves have outstanding borrowings.

In addition to investing predominantly in privately held companies, Origo may, in its absolute discretion, hold or invest in publicly traded shares, quasi-equity and/or debt instruments, including convertible or non-convertible debt securities coupled with warrants and/or options, which may or may not represent shareholding or management control. Origo plans to allocate no more than 20 per cent of available cash resources to investment in publicly traded equities.

Origo seeks to be an active investor. To the extent possible, minority investments are structured so as to ensure adequate minority protection rights, including but not limited to board participation (via a board director/observer), membership of supervisory, audit and oversight committees, as well as specific veto rights over key corporate decisions. In addition, Origo generally dedicates at least one other nominee who, together with the board director/observer, is responsible for assisting the investee company on matters such as building and augmenting the management team, implementing relevant corporate governance and financial control procedures, defining and executing a growth and financing strategy, introducing suitable partners and business opportunities and matters related to future fund-raisings, acquisitions or exit considerations.

The holding period for investments is expected to vary depending on the type of investment, the particular circumstances of the relevant investee company, and the intended exit route. The holding period for pre-IPO and expansion stage investments is targeted at between 9 and 24 months and for earlier stage investments at between 24 and 48 months.

Sustainability

We see no conflict between achieving our financial goals and our commitment to social and environmental responsibility. Indeed we believe the two can go hand in hand and our increasing activity in the renewable and cleantech sectors reflects this position.

The rapid economic development of China has played a significant role in lifting a large number of China's population of 1.2 billion out of poverty. As an investor, Origo believes it has made a small but positive contribution to this process.

It is vital that Origo retains its reputation as a responsible investor, both with potential investee companies and government authorities to ensure continued access to investment opportunities and the generation of consistently good returns over the long-term. Therefore, in everything we do, we seek to further our reputation as a good corporate citizen that behaves responsibly and complies with all legal and regulatory requirements.

Our growing partnerships with local authorities in China, such as the Xinxiang Municipal Government, reflect both our commitment to and success in achieving these high standards of corporate citizenship.

Whilst commercial considerations remain paramount, before making any investment decision, Origo considers the social and environmental impacts of the business in which we are investing. We have a substantial exposure to green and sustainable companies, and a number of our portfolio companies such as Niutech Energy, Unipower Battery, Staur Aqua AS (Aqualyng), HaloSource, and IRCA provide commercial solutions to environmental and social problems.

For further information about Origo please visit www.origoplc.com or contact:

Consolidated statement of comprehensive income

For the year ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

Consolidated statement of financial position

At 31 December 2010

The financial statements were approved by the Board of Directors and authorised for issue. They were signed on its behalf by:

The accompanying notes form an integral part of these financial statements.

Company statement of financial position 

At 31 December 2010

The financial statements were approved by the Board of Directors and authorised for issue. They were signed on its behalf by:

The accompanying notes form an integral part of these financial statements.

Consolidated statement of changes in equity

For the year ended 31 December 2010

The following describes the nature and purpose of each reserve within parent's equity:

The accompanying notes form an integral part of these financial statements.

Company statement of changes in equity

For the year ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

Company statement of cash flows

For the year ended 31 December 2010

The accompanying notes form an integral part of these financial statements.

Notes to the financial statements

1 Accounting policies

1.1 Corporate information

The consolidated and company financial statements of Origo Partners Plc ("the Company") and its subsidiaries (together "the Group") for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 3 May 2011. The Company is a limited liability company incorporated and domiciled in the Isle of Man whose shares are publicly traded on the AIM market of the London Stock Exchange. The registered office is located at 1 Circular Road Douglas, Isle of Man IM99 3NZ. The principal activities of the Group are described in Note 6.

1.2 Basis of preparation

Both Group and Company financial statements are prepared in accordance with International Financial Reporting Standards issued by the Accounting Standards Board and also to comply with relevant Isle of Man law.

The principal accounting policies applied in the preparation of the consolidated and company financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(a) With effect from 14 December 2009, the Company changed its functional currency from GBP to USD upon the completion of the merger of the Company and Origo Resources Partners Ltd ("ORP") as a significant part of the business of the Company will be based in USD and thus the Directors have deemed that the most appropriate functional currency is USD which most faithfully represents the economic effects of the underlying transactions, events and conditions. 

(b) The financial information set out below, is based on the financial statements of the Company and its subsidiaries and associates for the year ended 31 December 2010.

(c) The consolidated and company financial information has been prepared under the historical cost convention except for certain financial instruments, which have been measured at fair value, and in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee's interpretations ("IFRIC") (collectively , "IFRSs") issued by the International Accounting Standards Board (the "IASB").

(d) Non-controlling interests represent the portion of profit or loss and net assets that is not held by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders' equity.

1.3 Significant accounting judgements, estimates and assumptions

The preparation of consolidated financial information in conformity with IFRSs requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial information and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based upon management's best knowledge of current events and actions, actual results may differ from those estimates.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.3 Significant accounting judgements, estimates and assumptions (Continued)

The following is a list of accounting policies which cover areas that the directors consider requiring estimates and judgements which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year:

(a) Share-based payments, equity-settled transactions and cash-settled transactions

The Group has applied the requirements of IFRS 2 share-based payment in these financial statements.

The Group has issued equity-settled share-based payments to certain directors and employees, and to its advisors for services provided in respect of the admission of the Company to trading on the AIM market of the London Stock Exchange. Equity-settled share-based payments to directors and employees are measured at the fair value of equity instruments awarded at the date of grant. Equity-settled share-based payments to non-employees are measured at the fair value of goods or services rendered at the date when the goods or services are received. Where equity investments are granted subject to vesting conditions, share-based payments are expensed to the profit or loss on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. Fair value is measured by use of the Black-Scholes model.

The Group has granted cash-settled share-based payments to certain directors, executives and key employees under the Company's joint share ownership scheme ("JSOS"). The cost of cash-settled share-based payments is measured initially at fair value at the grant date using Black-Scholes option pricing model. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised in employee expense.

When estimating the value of the options and the upper share rights ("USR"), significant assumptions such as the expected life of the option and the USR, and expected volatility of the share have been applied based on management's best estimates.

(b) Fair value of unquoted equity instruments

The Group has estimated the value of each of its unquoted equity instruments by using judgement to select the most appropriate valuation methodology for each investment based on the recommendations of the International Private Equity and Venture Capital Guidelines (the "Guidelines"). Valuation methodologies mainly include the price of recent investments, earnings multiples, industry valuation benchmarks, available market prices and so on, which may apply individually or in combination. Key assumptions and judgements of each methodology concerning the future and other key sources of estimation uncertainty will have a significant risk of causing a material adjustment to the fair value of the instruments within the next financial year.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies

The following principal accounting policies have been applied consistently throughout the year in dealing with items which are considered material in relation to the financial information.

(a) Basis of consolidation

Basis of consolidation from 1 January 2010

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2010.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

·; Derecognises the assets (including goodwill) and liabilities of the subsidiary

·; Derecognises the carrying amount of any non-controlling interest

·; Derecognises the cumulative translation differences, recorded in equity

·; Recognises the fair value of the consideration received

·; Recognises the fair value of any investment retained

·; Recognises any surplus or deficit in profit or loss

·; Reclassifies the parent's share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

Basis of consolidation prior to 1 January 2010

Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:

·; Acquisitions of non-controlling interests, prior to 1 January 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognised in goodwill.

·; Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at 1 January 2010 have not been restated.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(a) Basis of consolidation (continued)

Business combinations from 1 January 2010

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Business combinations prior to 1 January 2010

In comparison to the above-mentioned requirements, the following differences applied:

Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree's identifiable net assets.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(a) Basis of consolidation (continued)

Business combinations prior to 1 January 2010 (continued)

Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognised goodwill.

When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree were not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the contract.

Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.

(b) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights except where the entity has been classified as held for trading and measured at fair value through profit or loss according to IAS 39. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investments in associates include goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group's share of its associates' post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interests in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Foreign currencies

·; Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in United States dollar, which is the Group's presentation currency.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(c) Foreign currencies (continued)

·; Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

Changes in the fair value of monetary securities denominated in foreign currencies classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences are recognised in profit or loss, and other changes in the carrying amount are recognised in other reserve.

Non-monetary financial assets and liabilities that are carried at historic cost are translated using the exchange rate as at the dates of initial transactions and not re-measured. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in the fair value reserve in equity.

·; Group companies

The results and financial position of all Group entities, none of which has the currency of a hyperinflationary economy that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(I) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

(II) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(III) all resulting exchange differences are recognised as a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(d) Financial assets

The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

·; Investments at fair value through profit or loss

These financial assets are designated by the Board of Directors at fair value through profit or loss at inception, which include debt and equity securities, and related derivatives.

Recognition / Derecognition:

Regular acquisitions and disposals of investments are recognised on the date on which the Group received acquisitions of investments or delivered disposals of investments. A fair value through profit or loss asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when rights are realised, expire or are surrendered and the rights to receive cash flows from the investment have expired or the Group has transferred substantially all risks and rewards of ownership. Realised gains and losses on fair value through profit or loss assets sold are calculated as the difference between the sales proceeds and cost. Fair value through profit or loss assets that are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Group commits to sell the assets.

Measurement:

Financial assets held at fair value through profit or loss is initially recognised at fair value. Transaction costs are expensed in the profit or loss. Subsequent to initial recognition, all financial assets and financial liabilities are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets held at fair value through profit or loss are presented in the profit or loss in the period in which they arise.

Interest income from financial assets at fair value through profit or loss is recognised in the profit or loss within other income using the effective interest method. Dividend income from investments at fair value through profit or loss is recognised in the profit or loss within other income when the Group's right to receive payments is established.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(d) Financial assets (Continued)

·; Investment at fair value through profit or loss (Continued)

Fair value estimation:

The fair value of financial instruments traded in active markets (such as publicly traded securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Company is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, PLUS listed securities and unlisted private companies) is determined by using valuation techniques in accordance with the International Private Equity and Venture Capital Valuation Guidelines (the "Guidelines"). Pursuant to the Guidelines, the Group believes the following techniques applied individually, or in combination, are the most suitable ones for the Group's current portfolios:

(I) Price of recent investments: When valuing investments on the basis of the price of recent investments, the cost of the investment itself or the price at which a significant amount of new investment into the relevant investee company was made to estimate the fair value of the investment, but only for a limited period following the date of the relevant transaction. During the limited period following the date of the relevant transactions, changes or events subsequent to the relevant transaction which would imply a change in the investment's fair value have been assessed.

(II) Earnings multiples: When valuing investments on a multiple basis, the Company has abided by the following principles:

i. apply a multiple that is appropriate and reasonable (giving the risk profile and earnings growth prospects of the underlying company) to the maintainable earnings of the Company;

ii. adjust the amount derived in (i) above for surplus assets or excess liabilities and other relevant factors to derive the enterprise value for the Company;

iii. deduct from the enterprise value all amounts relating to financial instruments ranking ahead of the highest ranking instrument of the Company in a liquidation and taking into account the effect of any instrument that may dilute the Company's investments in order to derive the gross attributable enterprise value;

iv. apply an appropriate marketability discount to the gross attributable enterprise value derived in (iii) above in order to derive the net attributable enterprise value. The marketability discount relates to an investment rather than to the underlying business. Marketability discounts will vary from situation to situation and is a question of judgement. When a discount is applied, relevant factors in determining the appropriate marketability discount in each particular situation will be considered. A discount in the range of 10% to 30% (in steps of 5%) is generally used in practice, depending upon the particular circumstances; and

v. apportion the net attributable enterprise value appropriately between the relevant financial instruments.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(d) Financial assets (Continued)

Fair value estimation (Continued) :

(III) Industry valuation benchmarks: The use of industry benchmarks is only likely to be reliable and therefore appropriate as the main basis of estimating fair value in limited situations, and is more likely to be useful as a sense of check of values produced using other methodologies. The Company has primarily relied on such metrics to validate the outcome produced by other valuation techniques.

(IV) Available market prices: Instruments quoted on an active stock market are valued at their bid prices on the reporting date.

As recommended by the Guidelines, the Group generally does not adopt net asset value or discounted cash-flow methodologies for assessing the fair value of its investments, unless such methodologies result in a more accurate estimate of fair value.

·; Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Income from loans and receivables is recognised as it accrues by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash flows through the expected life of the financial asset to the asset's carrying value. The losses arising from impairment are recognised in the statement of comprehensive income in finance costs.

·; Available-for-sale investments

Non-derivative financial assets not included in the above categories are classified as available-for-sale investments and comprise the Group's strategic investments in entities not qualifying as subsidiaries or associates. Investments that do not have a quoted market price and whose fair value cannot be reliably measured are held at cost. Where investments are carried at fair value, any changes are recognised directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the other comprehensive income.

(e) Financial liabilities

Financial liabilities are initially recognised at fair value and subsequently carried at amortised cost.

(f) Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits, time deposit and short-term, highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity, generally less than three months, less bank overdrafts which are repayable on demand and form an integral part of the Group's cash management. For the purpose of the statement of financial positions, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

 Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

 (g) Share-based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions"). Certain Directors, Executives and key employees of the Group are granted share appreciation rights, which can only be settled in cash ("cash-settled transactions"). Advisors receive equity-settled options in relation to the Company's admission to trading on the AIM market of the London Stock Exchange.

The cost of these options with employees are measured by reference to the fair value of the equity instruments awarded at the date of grant, whereas those with non-employees are measured at the fair value of goods or services received at the date when the goods or services have been received. The fair value is determined by using Black-Scholes model, further details of which are given in note 25.

Equity-settled transactions

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the "vesting date"). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge of credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee expense (see Note 4).

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Cash-settled transactions

The cost of cash-settled transactions is measured initially at fair value at the grant date using Black-Scholes option pricing model, further details of which are given in Note 25. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised in employee expense (see Note 4).

 Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(h) Leased assets

Where a significant portion of the risks and rewards incidental to ownership is retained by the lessor (an "operating lease"), the total rentals payable under the lease are charged to the profit or loss on a straight-line basis over the lease term.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

 (i) Taxes

Current Income Tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred Tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

(I) where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

(II) in respect of taxable temporary differences associated with investments in subsidiaries and associates where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

(I) where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

(II) in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

 Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(i) Taxes (Continued)

Deferred Tax (continued)

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Income taxes are recognised in the profit or loss except when a tax exemption has been granted.

(j) Performance incentive payable

Performance incentive payable is only accrued on those investments (classified as investments at fair value through profit or loss) in which the investment's performance conditions, measured at the balance sheet date, would be achieved if those investments were realised at fair value. Fair value is determined using the Group's valuation methodology and is measured at the balance sheet date. An accrual is made equal to the Group's share of profits in excess of the performance conditions subject to the discretion of the Board of directors.

(k) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown, net of sales taxes, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

·; Sales of goods - wholesale

Sales of goods are recognised when a Group entity has delivered products to the customer; the customer has accepted the products and ability to collect the related receivables is reasonably assured.

·; Sales of goods - retail

Sales of goods are recognised when a Group entity sells a product to the customer. Retail sales are usually in the form of cash or through a credit card transaction. The recorded revenue includes credit card fees payable for the transaction. Such fees are included in distribution costs. It is the Group's policy to sell its products to the end customer with a right of return. Accumulated experience is used to estimate and provide for such returns at the time of sale.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(k) Revenue recognition (continued)

·; Sales of services

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

·; Interest income

Interest income is recognised on a time proportion basis using the effective interest method and includes bank interests and interests from debt securities.

(l) Provisions and contingent liabilities

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

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

(m) New and revised international financial reporting standards that are effective or early adopted in 2010 and relevant to the Group

The IASB has issued the following new and revised IFRSs (including International Accounting Standards ("IASs")) and IFRIC interpretations that are effective or early adopted in 2010 and relevant to the Group's operation.

The principal effects of adopting these new and revised IFRSs and IFRIC interpretations are as follows:

IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions has been amended to clarify the accounting for group cash-settled share-based payment transactions. This amendment also supersedes IFRIC 8 and IFRIC 11. The adoption of this amendment did not have any impact on the financial position or performance of the Group.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(m) New and revised international financial reporting standards that are effective or early adopted in 2010 and relevant to the Group (Continued)

IFRS 3 Business Combination (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. The Group applies the revised standards from 1 January 2010.

IAS 27 Consolidated Separate Financial Statements (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to gains or losses. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The change in accounting policy was applied prospectively and had no material impact on the financial position or performance of the Group.

The amendment of IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment had no effect on the financial position nor performance of the Group.

IFRIC 17 Distribution of Non-cash Assets to Owners provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation had no effect on the financial position or performance of the Group.

The Group has not early adopted any other standard, interpretation or amendment that was issued but is not yet effective.

Notes to the financial statements (Continued)

1 Accounting policies (Continued)

1.4 Summary of significant accounting policies (Continued)

(n) Impact of improvements to International Financial Reporting Standards (issued 2010)

The Group has not applied the following improvements to International Financial Reporting Standards (issued 2010) whose effective date is beginning on or after 1 January 2011, unless stated otherwise, in these financial statements.

(o) Company statement of comprehensive income

In accordance with S3(3)(b)(ii) of the Companies Act 1982, the Company is exempt from the requirements to present its own statement of comprehensive income. Of the profit before tax, US$5,016,000 (2009: loss of US$6,122,000) has been retained by the Company.

(o) Changes in significant accounting estimates

In the current period, the Company used Black-Scholes option pricing model to calculate the fair value of the upper share rights in which the volatility assumption was estimated based on source data from Bloomberg. To be consistent with the volatility assumption being used, the Company adopted the same source data to estimate the volatility assumption used in calculating the fair value of the equity-settled share option scheme as at 31 December 2010, which had used volatility assumptions estimated based on source data from Yahoo Finance prior to 2010. This change in accounting estimate results in an increase in net profit for the period and a corresponding decrease in the share-based payment reserve of US$ 1,279,000 but has no impact to the net assets of the Group. Please refer to note 25 for further details.

Notes to the financial statements (Continued)

2 Revenue and cost of sales

3 Administrative expenses

* The performance fee for 2010 of US$462,000 was approved by the board of directors of the Company (other than Chris Andre Rynning and Karl Niklas Ponnert) at the board meeting held on 3 May 2011.

Notes to the financial statements (Continued)

4 Information regarding directors and employees

* Management includes Mr. Chris A Rynning, the Chief Executive Officer and Mr. Niklas Ponnert, the Chief Financial Officer.

5 Directors' remuneration

Directors' remuneration for the year 2010 and the number of options held were as follows:

Notes to the financial statements (Continued)

5 Directors' remuneration (Continued)

Directors' remuneration for the year 2009 and the number of options held were as follows:

* Short term employee benefits

** Share-based payment refers to expenses arising from the Company's share option scheme (note 25).

6 Operating segment information

The Group's primary reporting format for reporting segment information is by operating segment based on the nature of its business which was private equity investments, fund consulting, consulting services and furniture trading in 2010 and 2009.

The Group mainly had five geographical segments based on the location of assets. The segments are defined as Isle of Man, Guernsey, Malaysia, China and others.

For the year ended 31 December 2010

Notes to the financial statements (Continued)

6 Operating segment information (Continued)

For the year ended 31 December 2010

For the year ended 31 December 2009

For the year ended 31 December 2009

Notes to the financial statements (Continued)

7 Investment income/(loss)