HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS AT JUNE 30, 2009 AND DECEMBER 31, 2008, AND

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME, AND CASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	Note		June 30,		December 31,
			2009		2008
			US$		US$
Assets
Current assets:
Cash and cash equivalents				6,003,535		1,029,710
Accounts receivable				6,127		68,972
Amount due from director		6		13,153		19,904
Prepayments and other current assets				234,370		1,385,225
Income tax recoverable				-		16,449
Inventories		5		3,163,149		12,975,877
Total current assets				9,420,334		15,496,137
Property, plant and equipment, net				4,800,375		4,968,798
Land use right, net				660,811		667,000
Total assets				14,881,520		21,131,935
Liabilities and shareholders’ equity
Current liabilities:
Short term borrowings		7		1,417,134		-
Accounts payable				4,243,898		12,157,940
Dividend payable to Original Shareholders				2,000,293		757,456
Other payables and accrued expenses		8		480,487		373,831
Income tax payable				807,478		-
Total current liabilities				8,949,290		13,289,227
Shareholders’ equity:
Paid-in capital (Common stock, HK$1 at par value; 10,000 shares authorized and issued)		9		1,287		1,287
Additional paid-in capital		10		1,238,636		1,238,636
PRC statutory reserves		11		803,530		802,428
Retained earnings				3,207,754		5,127,736
Accumulated comprehensive income				681,023		672,621
Total shareholders’ equity				5,932,230		7,842,708
Total liabilities and shareholders’ equity				14,881,520		21,131,935

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

			For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Note		2009			2008			2009			2008
			US$			US$			US$			US$
Revenue		3		7,819,356			6,511,973			30,447,450			12,220,592
Cost of revenue				(4,025,245	)		(4,714,035	)		(24,717,529	)		(8,894,457	)
Gross profit				3,794,111			1,797,938			5,729,921			3,326,135
Selling and administrative expenses				(490,014	)		(268,916	)		(720,057	)		(446,744	)
Operating income				3,304,097			1,529,022			5,009,864			2,879,391
Interest income				700			2,802			1,714			3,465
Interest expenses				(21,527	)		(26,889	)		(35,788	)		(47,203	)
Exchange gains, net				-			98,098			-			273,428
Income before income taxes				3,283,270			1,603,033			4,975,790			3,109,081
Income taxes		4		(819,941	)		(410,315	)		(1,243,071	)		(790,551	)
Net income				2,463,329			1,192,718			3,732,719			2,318,530
Comprehensive Income:
Net income				2,463,329			1,192,718			3,732,719			2,318,530
Other comprehensive income:
Foreign currency translation adjustment				113			124,844			8,401			299,126
Comprehensive income				2,463,442			1,317,562			3,741,120			2,617,656

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months
	Ended June 30,
	2009			2008
	US$			US$
Cash flows from operating activities:
Net income		3,732,719			2,318,530
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		196,746			192,145
Amortization of land use right		7,108			6,913
Loss on disposal of property, plant and equipment		2,692			-
Changes in operating assets and liabilities:
Accounts receivable		62,962			125,021
Amount due from director		6,779			66,936
Prepayments and other current assets		1,153,148			72,373
Inventories		9,833,881			(58,490	)
Accounts payable		(7,933,428	)		(628,838	)
Other payables and accrued expenses		106,179			(49,475	)
Income tax payable		824,229			81,292
Net cash provided by operating activities		7,993,015			2,126,407
Cash flows from investing activities:
Purchase of property, plant and equipment		(24,132	)		(39,573	)
Dividend paid to shareholders		(4,409,934	)		-
Net cash used in investing activities		(4,434,066	)		(39,573	)
Cash flows from financing activities:
Advance/(Repayment) of bank borrowings		1,417,615			(42,641	)
Net cash provided/(used in) by financing activities		1,417,615			(42,641	)
Effect of exchange rate changes		(2,739	)		143,399
Net increase in cash and cash equivalents		4,973,825			2,187,592
Cash and cash equivalents, beginning of year		1,029,710			1,471,358
Cash and cash equivalents, end of period		6,003,535			3,658,950
Supplementary information	US$			US$
Interest received		1,714			3,465
Interest paid		35,788			47,203
Tax paid		418,842			707,527
Non-cash transaction - Issuance of share capital		1,287			1,287

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1  Organizationand principal activities

Hongkong Chenxin International Development Limited (“Chenxin” or the “Company”) was incorporated in Hong Kong on September 29, 2008. Chenxin is a wholly-owned subsidiary of Fresh Generation Overseas Limited (“Fresh Generation”), a company incorporated in the British Virgin Islands (“BVI”). Fresh Generation’s sole shareholder is a Canadian resident, who holds Fresh Generation’s shares by a trust on behalf of the Original Shareholders.

Fuqing Guanwei Plastics Industry Company Limited (“Guanwei”) was incorporated in Fuzhou city, Fujian Province, the People’s Republic of China (“PRC”) on April 9, 2005 as a wholly domestic-owned enterprise with an operating period up to April 8, 2055.  Guanwei was owned by a group of PRC family members (the “Original Shareholders”) on incorporation.

On November 22, 2008, the Company entered into an agreement of Plan of Reorganization (“the Plan”) with the Original Shareholders of Guanwei, pursuant to which the Company had issued 10,000 authorized shares of common stock of the Company to the Original Shareholders in exchange of 100% of the registered and fully paid up capital of Guanwei. The closing date of this exchange transaction was December 23, 2008. Guanwei was changed to a foreign-owned enterprise on December 23, 2008 after the change in shareholding. The ultimate controlling party remains as the Original Shareholders both before and after the Plan, and considered that their controls are not transitory, then the Plan involving entities or businesses under common control existed, merger accounting is considered as an appropriate accounting policy for common control combination.

The principal activity of the Company and Fresh Generation is investment holding. The principal activity of Guanwei is engaged in manufacturing and distribution of Low Density Polyethylene (“LDPE”) and the sales of scrap materials, including plastic.

2 Summary of significant accounting policies

(a) Basis of Presentation

The unaudited condensed consolidated financial statements of the Company as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles of interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. However, the information included in these interim financial statements reflect all adjustments (consisting solely of normal recurring adjustment) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operation. Results shown for interim periods are not necessarily indicative of the results to be obtained for the full year. The condensed consolidated balance sheet information as of December 31, 2008 was derived from the audited consolidated financial statements included in this Form 8-K.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(b)          Foreign Currency Translations and Transactions

Chenxin maintains its books and accounting records in United States Dollar (“US$”). The primary currency of the economic environment in which the operations of Chenxin are conducted is Renminbi (“RMB”). RMB is therefore considered as Chenxin’s “functional currency”.

Chenxin’s wholly-owned subsidiary, Guanwei maintains its books and accounting records in RMB, being the functional currency. RMB, the national currency of the PRC, is the primary currency of the economic environment in which the operation of Guanwei is conducted currently or to be conducted in the future. RMB is therefore considered as the “functional currency” of Guanwei.

Guanwei uses the “Current rate method” to translate its financial statements from RMB into US$, as required under the Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation” issued by the Financial Accounting Standard Board (“FASB”). The assets and liabilities of Guanwei are translated into US$ using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of Guanwei from RMB into US$ are recorded in shareholders’ equity as part of accumulated comprehensive income. The statement of income and comprehensive income is translated at average rates during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net income for the reporting periods. The statement of cash flows is translated at average rates during the reporting period, with the exception of issue of share and payment of dividends which are translated at historical rates. Due to the use of different rates for translation, the figures in the statement of changes in cash flows may not agree with the differences between the year end balances as shown in the balance sheets.

 (c)         Revenue Recognition

Revenue from sales of manufactured LDPE is recognized when persuasive evidence of an arrangement exists, delivery of the goods has occurred, customer acceptance has been obtained, which means the significant risks and ownership have been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured.

Sales of scrap materials are recognized on the same basis as sales of LDPE.

Interest income is recognized on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(d)          Related Parties

Entities are considered to be related to the Group if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Group.  Related parties also include principal owners of the Group, its management, members of the immediate families of principal owners of the Group and its management and other parties with which the Group may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.  A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(e)          Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165).  SFAS No. 165 provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is applicable for interim or annual periods after June 15, 2009. The application of SFAS No. 165 is not expected to have a material effect on the Group’s financial statements.

3            Revenue

	Three months ended June 30,				Six months ended  June 30,
	2009		2008		2009		2008
	US$		US$		US$		US$
Sales of manufactured LDPE		7,657,122		6,266,973		22,649,780		11,715,071
Sales of scrapped materials, including plastic		162,234		245,000		7,797,670		505,521
		7,819,356		6,511,973		30,447,450		12,220,592

4            Income taxes

No provision for Hong Kong profits tax has been made as the Company has no assessable profits for tax purposes during the year.

Guanwei provides for PRC Enterprise Income Tax (“PRC – EIT”) at a rate of 25% (for the six months ended June 30, 2008: 25%), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC- EIT.

Income before income taxes:

	Three months ended June 30,				Six months ended  June 30,
	2009		2008		2009		2008
	US$		US$		US$		US$
PRC – EIT		3,283,270		1,603,033		4,975,790		3,109,081

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4             Income taxes (Continued)

The provision for income taxes consists of:

	Three months ended June 30,				Six months ended  June 30,
	2009		2008		2009		2008
	US$		US$		US$		US$
Current tax expenses:
PRC - EIT		819,941		410,315		1,243,071		790,551

The principal reconciling items from income tax computed at the statutory rate and at the effective income tax rate are stated as follows:

	Three months ended  June 30,					Six months ended June 30,
	2009			2008		2009			2008
	US$			US$		US$			US$
Computed tax at the PRC statutory rate (25%)		820,818			400,758		1,243,948			775,022
Non-taxable items		(877	)		-		(877	)		-
Non-deductible items		-			9,557		-			15,529
Total provision for income tax at effective tax rate		819,941			410,315		1,243,071			790,551

No provision for deferred taxation has been made in the consolidated financial statements as there were no significant temporary differences arising during each of the periods or at the balance sheet dates.

5             Inventories

	June 30,  2009		December 31, 2008
	US$		US$
Raw materials		2,395,177		12,878,051
Work in progress		33,712		35,657
Finished goods		734,260		62,169
		3,163,149		12,975,877

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6             Amount due from director

		June 30,  2009		December 31, 2008
	Notes	US$		US$
Cash held by Chen Min, Guanwei’s director	(a)		11,863		18,614
Share proceeds due from Yu Banks Po Fung, a director and shareholder of Chenxin	(b)		1,290		1,290
			13,153		19,904

(a) The balance represents cash held by a director on behalf of the Group for the Group’s daily operation, which is unsecured, interest-free and repayable on demand. The amount was repaid in September 2009.

(b) The balance represents cash contribution made by the shareholder, who is also the director of Chenxin for the incorporation of the Company in Hong Kong. The amount is unsecured, interest-free and repayable on demand.

7             Short term borrowings

The secured bank loan bears interest at a fixed rate of 5.94% per annum in 2009.The maturity date is January 18, 2010.

8             Other payables and accrued expenses

Other payables and accrued expenses mainly represent VAT payable, deposits received from customers and accruals for operating expenses.

9             Paid-in capital

Paid-in capital represents the issued share capital of Chenxin at incorporation on September 29, 2008 which was a receivable from the Company’s director.

10           Additional paid-in capital

Date	Paid up to Guanwei by Original Shareholders in form of:	June 30, 2009 US$		December 31, 2008 US$
April 6, 2005	Cash		619,318		619,318
January 10, 2006	Injection of property, plant and equipment and land use right		619,318		619,318
			1,238,636		1,238,636

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11           PRC statutory reserves

Under the relevant PRC laws and regulations, Guanwei is required to appropriate certain percentage of its net income to statutory fund i.e. the statutory reserve fund.

Statutory reserve fund

Pursuant to applicable PRC laws and regulations, Guanwei is required to allocate at least 10% of its net income to the statutory reserve fund until such funds reaches 50% of Guanwei’s registered capital. The statutory reserve fund can be utilized upon the approval by the relevant authorities, to offset accumulated losses or to increase registered capital, provided that such fund be maintained at a minimum of 25% of the registered capital.

12           Pension plan

As stipulated by the rules and regulations in the PRC, Guanwei contributes to the national retirement plans for its employees in the PRC.  Guanwei contributes approximately 20% of the basic salaries of its employees, and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions.  The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

During the six months ended June 30, 2009 and 2008, the aggregate contributions of the Group to the aforementioned pension plan were approximately US$56,000 and US$48,000 respectively.

13           Risks, Uncertainties, and concentrations

(i)            Nature of Operations

All of the Group’s operations are conducted in the PRC and are subject to various political, economic, and other risks and uncertainties inherent in this country.  Among other risks, the Group’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

(ii) Concentration of Credit Risk

Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash.

As of June 30, 2009, the Group had cash deposits of US$6 million placed with several banks in the PRC, where there is currently no rule or regulation in place for obligatory insurance of bank accounts. The Group has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

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HONGKONG CHENXIN INTERNATIONAL DEVELOPMENT LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13           Risks, Uncertainties, and concentrations (Continued)

(iii)  Concentration of Suppliers and Restriction of Import Quota

For the six months ended June 30, 2009 and 2008, 68%and 93% of raw materials was purchased from three major suppliers, respectively.

In the PRC, import of regenerative plastic materials is controlled by import quota. The grant of import quota to the Group is subject to review and approval by the Ministry of Environmental Protection of the PRC annually.  For the six months ended June 30, 2009 and 2008, the Group obtained an import quota of 24,000 tons of regenerative plastic materials for each respective year (note 14).

(iv)         Foreign Exchange Risk

The Group operates in the PRC and purchases raw materials from overseas suppliers, and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to purchases in, US$ and Euro (“EUR”).  Foreign exchange risk arises from committed and unmatched future commercial transactions, such as confirmed import purchase orders, recognized assets and liabilities in the PRC operations.

The Company has not entered into any hedging transactions in an effort to reduce exposure to foreign exchange risk.

(v)          Dependence of Import Quota from a related company

During the years ended December 31, 2007 and 2008, import of regenerative plastic materials were heavily dependent on the import quota granted by a related company, Fuqing Huan Li Plastics Company Limited or “Huan Li” (note 14).  Although the Group has not experienced difficulties obtaining the import quota from Huan Li in the past, the Group can not guarantee the grant of import quota will be obtained from Huan Li in the future. If the Group fail to obtain the import quota from Huan Li, the Group may have to use domestically supplied plastics wastes for manufacturing.  Domestic plastic wastes are typically poorly sorted, so utilizing the domestic raw materials would increase production costs.

14           Related party transaction

During the six months ended June 30, 2009 and 2008, the Group imported regenerative plastic materials at a level much more than its granted import quota level by utilizing the quota of Huan Li at nil consideration in each of the respective year. Huan Li is considered to be a related party since Chen Min, a director and shareholder of Guanwei is also the legal representative of Huan Li.

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